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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549



FORM 10-K

Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the Fiscal Year Ended March 31, 2010

Commission File Number: 000-23697

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

Colorado(State of Incorporation)

84-1084061(I.R.S. Employer I.D. Number)


7007 Winchester Circle, Suite 200, Boulder, CO 80301(Address of principal executive offices and Zip Code)

(303) 444-0900(Registrant's telephone number, including area code)

Securities
registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock par value $.0001

The Nasdaq Stock Market, LLCRights to Purchase Series A Junior
Participating Preferred Stock


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

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. o YES    ý NO

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. o YES    ý NO

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. ý YES    o NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files). o YES    o 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. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-Accelerated filer ý (Do not check if a
smaller reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

The aggregate market value of the Registrant's common stock held by non-affiliates of the Registrant as of September 30, 2009 was approximately $40,676,000, based
on the closing price of the common stock as reported on the NASDAQ Global Select Market on such date.

The
Registrant had 19,432,317 shares of its common stock outstanding on June 4, 2010.

Documents Incorporated by Reference

The information required in response to Part III of Form 10-K is hereby incorporated by reference from the Registrant's Definitive Proxy Statement to be filed with
the Securities and Exchange Commission within 120 days of March 31, 2010 with respect to the Registrant's Annual Meeting of Shareholders expected to be held on or about August 23, 2010.



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NEW FRONTIER MEDIA INC. AND SUBSIDIARIES  FORM 10-K  FOR THE FISCAL YEAR ENDED MARCH 31, 2010

TABLE OF CONTENTS



PagePART I.Item 1.

Business


1Executive Officers of the Registrant


9Item 1A.

Risk Factors


10Item 1B.

Unresolved Staff Comments


17Item 2.

Properties


17Item 3.

Legal Proceedings


18Item 4.

Submission of Matters to a Vote of Security Holders


18PART II.Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


18Item 6.

Selected Financial Data


21Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations


21Item 7A.

Quantitative and Qualitative Disclosures About Market Risk


51Item 8.

Financial Statements and Supplementary Data


51Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


51Item 9A.

Controls and Procedures


51Item 9B.

Other Information


52PART III.Item 10.

Directors, Executive Officers and Corporate Governance


52Item 11.

Executive Compensation


53Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


53Item 13.

Certain Relationships and Related Transactions and Director Independence


53Item 14.

Principal Accounting Fees and Services


53PART IV.Item 15.

Exhibits and Financial Statement Schedules


53Signatures


58Table of Contents to Financial Statements


F-1


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PART I.

Forward-Looking Statements and Other Information

This Annual Report on Form 10-K of New Frontier Media, Inc. and its consolidated subsidiaries, or the Company
or the Registrant, and the information incorporated by reference includes forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements regarding trend analysis and the Company's expected financial position and operating
results, its business strategy, its financing plans and the outcome of contingencies are forward-looking statements. Forward-looking statements are also identified by the words "believe," "project,"
"expect," "anticipate," "estimate," "intend," "strategy," "plan," "may," "should," "could," "will," "would," and similar expressions. 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 1A, Risk Factors and elsewhere in this Form 10-K.

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 publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Registered
trademarks identified herein that are not expressly stated to be the property of the Company are the property of the respective owners of such marks.

ITEM 1.    BUSINESS.

GENERAL

We are a leader in transactional television and the distribution of general motion picture entertainment. Our key customers include
large cable and satellite operators, premium movie channel providers and major Hollywood studios. We distribute content world-wide. Our three principal businesses are reflected in the
Transactional TV, Film Production and Direct-to-Consumer operating segments. Our Transactional TV segment distributes adult content to cable and satellite operators who then
distribute the content to retail customers via pay-per-view ("PPV") and video-on-demand ("VOD") technology. We earn revenue through contractual
percentage splits of the retail price. The Transactional TV segment has historically been our most profitable segment. The Film Production segment generates revenue through the distribution of
mainstream content to large cable and satellite operators, premium movie channel providers and other international content distributors. This segment also periodically provides contract film
production services to major Hollywood studios ("producer-for-hire" arrangements). The Film Production segment incurred operating losses in fiscal years 2010 and 2009 primarily
due to large non-cash impairment charges. Our Direct-to-Consumer segment primarily generates revenue from membership fees earned through the distribution of adult
content to consumer websites. The Direct-to-Consumer segment has historically incurred operating losses and is expected to continue to incur operating losses for the
foreseeable future; however, we have been focused on returning the segment to profitability through efforts described below. Our Corporate
Administration segment includes all costs associated with the operation of the public holding company, New Frontier Media, Inc.

The
Film Production segment continues to experience challenging market conditions, and these market conditions are expected to continue for the foreseeable future. As a result and in
connection with our annual goodwill impairment testing, we recorded a goodwill impairment charge within the segment in the fourth quarter of fiscal year 2010 of approximately $4.9 million. See
additional information on the goodwill impairment charge within the Film Production segment discussions below.

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Also
in the fourth quarter of fiscal year 2010, we discontinued the operations of an Internet Protocol Television ("IPTV") set-top box business within the
Direct-to-Consumer segment. See Note 19Discontinued Operations within the Notes to Consolidated Financial Statements for further discussion on our
discontinuation of the IPTV set-top box business.

The
business models of each of our segments are discussed in further detail below.

OPERATING SEGMENTS

Transactional TV Segment

The Transactional TV segment generated the majority of its revenue in fiscal year 2010 through the distribution of adult entertainment
content on domestic VOD platforms. VOD distribution primarily occurs through cable multiple system operators, or MSOs, and telephone company operators that also provide television services. VOD
presents viewers with layered menus, similar to what is traditionally found in hotel room television offerings. These menus allow users to interactively select a movie or event and then view it
immediately or at a later time once the transaction has been executed. VOD tends to have a more accretive impact on our Transactional TV segment's business relative to our PPV offering because of the
variety of content available through VOD platforms and because of the flexibility VOD provides in viewing times.

Our
Transactional TV segment also distributes adult entertainment programming to cable and satellite television companies through nine 24/7 PPV channels. PPV offers consumers access to a
timed block of programmingfor example, a movie or an eventfor a set fee payable to the cable or satellite providers. Our PPV programming is offered on channels that are
available to viewers through the same electronic program guides that display basic cable channels. A PPV transaction allows access to the purchased content for a given period of time and is executed
either by telephone, internet or instantly through the use of the viewers' remote control. Some of our distributors also offer our Transactional TV segment's channels on a monthly subscription basis.
However, the large majority of the PPV revenue we generate is based on individual title purchases, and subscription revenue represents a small portion of the segment's total PPV revenue.

We
earn a percentage of the revenue, or "split", from our content for each VOD or PPV transaction that is purchased on our customers' platform. Our Transactional TV segment's products
typically retail for a price between $10.99 and $14.99 for a single movie or event as determined by our customers with input from us.

We
believe our VOD and PPV programming provides an attractive form of entertainment because it is offered conveniently in the comfort of users' homes and can be viewed on a large, high
quality television. During our fiscal years ended March 31, 2010, 2009 and 2008, 74%, 81%, and 73%, respectively, of our consolidated net revenue was attributed to our Transactional TV segment.
Our Transactional TV segment distributes content to nearly every television provider in the United States including:



For
most of its history, the Transactional TV segment has been focused on growing its distribution in the U.S. During fiscal year 2009, we began expanding our services into international
markets in North America, Europe and Latin America. We believe that our business model, which we believe has been successful in the U.S., can also be successful in international markets. International
expansion also provides us with an opportunity to leverage our existing content libraries and technology infrastructure. Thus far, we have had success in expanding our distribution to international
markets and generated approximately $3.6 million of Transactional TV segment VOD and PPV international revenue during

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fiscal
year 2010. We plan to continue to expand our footprint to new international locations and customers, and gain additional market share and shelf space in international markets where we currently
distribute content. The VOD infrastructure in many international markets is relatively undeveloped, and we expect that the development of the VOD infrastructure will continue to offer opportunities to
improve our international revenue. Additionally, the revenue splits we receive internationally are typically higher than the splits we receive domestically because the international cable MSO and DBS
industry has more market participants and is more fragmented, which provides us with better negotiating leverage. We have not historically operated internationally or dealt with international
regulators, competitors or cultures and as a result, we may experience difficulties in increasing revenue from such operations while gaining experience with our international growth initiatives.

Programming Strategy

The Transactional TV segment's programming is designed to provide a wide variety of content to consumers while at the same time
utilizing available titles from our content library. Because we do not duplicate titles across our channels or between PPV and VOD, we are able to give our consumers access to more unique titles, a
wider variety of talent, and a greater variety of studio representation. We focus on prime time viewing blocks and program specific types of content in those blocks to create an appointment-viewing
calendar designed to drive viewers to traditionally less popular nights of the week for viewing adult content.

Our
programming department spends a significant amount of time and resources researching consumer choices and preferences. We periodically perform primary consumer research to understand
buying habits and to obtain information on how we can best provide our consumers with an exceptional viewing experience. This research has enhanced our Transactional TV segment's performance and has
assisted us in providing customer satisfaction. Additionally, we use this research to recommend changes to our customers' platforms in order to improve the overall performance of the adult content
category.

Content Delivery System

Our Transactional TV segment delivers its PPV video programming to cable and satellite operators via satellite from our Digital
Broadcast Center, or DBC, in Boulder, Colorado. The program signal is encrypted so that the signal is unintelligible unless it is passed through the properly authorized decoding devices. The signal is
transmitted (uplinked) by a third party earth station to a designated transponder on a third party commercial communications satellite. The transponder receives the program signal that has been
uplinked by the earth station, amplifies the program signal and then broadcasts (downlinks) the signal to commercial satellite dishes located within the satellite's area of signal coverage. The
programming is downlinked by MSOs and DBS providers at their head-ends and uplink centers. This programming is received in the form of a scrambled signal. We provide these operators with
decoder equipment which allows them to decode the signal and then re-distribute it via their own systems.

Our
Transactional TV segment maintains a satellite transponder lease agreement for one full-time digital transponder with a total bandwidth of approximately 36 MHz on the
Galaxy 23 satellite and approximately 9 MHz on the NSS 806 satellite. These transponders provide the satellite transmission necessary to broadcast our Transactional TV segment's networks. The signal
of the satellites that we use covers the continental U.S., Alaska, Hawaii, Latin America and portions of the Caribbean Islands and Canada.

Our
Transactional TV segment delivers its VOD service to cable MSOs via transport providers such as TVN Entertainment Corporation. In addition, our Transactional TV segment has
agreements

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with
iN DEMAND L.L.C., and Global Digital Media Xchange to deliver VOD content to other cable MSOs.

Digital Broadcast Center

The 12,000 square foot DBC allows us to ingest, encode, edit, play out, store and digitally deliver our PPV and VOD services. The DBC
is also home to one of the largest digital libraries of its kind. The DBC is a scalable, state of the art infrastructure, which includes playlist automation for all channels; encoding and playout to
air; a storage area network for near-line content movement and storage; archiving capability in a digital format; and complete integration of our proprietary media asset management
database for playlist automation and program scheduling.

Program and Content Acquisitions

We acquire our broadcast programming for each network by licensing rights from producers and producing content. The licenses generally
cover a five-year term. We generally acquire and produce new premiere titles and scenes each month. In addition, we may license entire content libraries on an as-needed basis
or in order to facilitate a larger transaction. Once we license a title, it undergoes rigorous quality control processes prior to broadcast in order to ensure compliance with strict internal and
external broadcasting standards. We obtain age verification documentation for each title we license in accordance with federal statutes. This documentation is maintained on site for the duration of
the license term in accordance with 18 U.S.C. § 2257 and 28 C.F.R. 75 et seq.

We
maintain an office in California that (a) ensures all legal documentation is obtained for each title and scene licensed, (b) ensures acquired content is technically
compliant, and (c) once the title is deemed acceptable, ships the title, related documentation and promotional content to our Boulder, Colorado location. Our Transactional TV segment's
in-house programming and editing departments in Boulder conduct preliminary screening of potentially licensable content, license acceptable content, conform content into appropriate
editing standards and program the monthly schedules for all networks and VOD services.

Competition

Our primary competitor in this segment has historically been Playboy Enterprises, Inc. ("Playboy") which, through its Playboy
TV® service and its Spice Digital Networks®, has a long operating history in the adult entertainment space. Over the past several years, we have been successful in competing
with Playboy, and we have experienced growth in our Transactional TV segment as a result of our ability to gain market share through the displacement of Playboy services. Other competitors, such as
Hustler TV®, have also entered the market and are increasing competition.

Our
content has typically outperformed our competitors' content on the majority of DBS and MSO platforms as measured by revenue per server hour. As a result, we have been able to
increase our shelf space on these platforms through incremental platform hours and the replacement of our competitors' hours. We believe that some competitors have been willing to execute contracts
with distributors that contain lower revenue splits and/or provide revenue guarantees in order to obtain or retain channels and VOD platform hours. While we believe that our content continues to
outperform the competition, we cannot predict whether that performance advantage will insulate us from further pressure on revenue splits. If our competitors continue to provide the DBS and MSO
platforms lower revenue splits
and if we are unable to maintain a performance advantage or cause the DBS and MSO providers to recognize the value from this performance advantage, then our customers could put additional pressure on
us to lower our revenue splits. A reduction in our revenue splits would have a material adverse impact on our results of operations and financial condition.

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We
also face competition in the adult entertainment market from other providers of adult programming including producers of adult content, adult internet sites, adult video/DVD rentals
and sales, premium movie channels that broadcast adult-themed content, telephone adult chat lines, books and magazines aimed at adult consumers, and adult-oriented wireless services. Our Transactional
TV segment also faces general competition from other forms of non-adult entertainment, including sporting and cultural events, other television networks, feature films, and other
programming.

Film Production Segment

Our Film Production segment is a multi-faceted film production and distribution company. The Film Production segment expands our
portfolio to the higher margin market for mainstream and erotic content and provides us with established relationships in international markets. Additionally, we have leveraged our existing
Transactional TV segment customer relationships and deliver the Film Production segment's library of erotic and mainstream content to many of the same Transactional TV segment MSO and DBS customers.

Our
Film Production segment derives revenue from two principal businesses: (1) the production and distribution of original motion pictures such as erotic thrillers, horror movies,
and erotic, event styled content ("owned content"); and (2) the distribution of third party films where we act as a sales agent for the product ("repped content"). This segment also
periodically provides contract film production services to major Hollywood studios ("producer-for-hire" arrangements).

During
fiscal year 2009, the film markets were significantly impacted by the economic downturn. As a result, the Film Production segment's customers reduced their content acquisition
budgets. We believe this occurred because our customers were relying upon their existing libraries to reduce spending and costs. These changes significantly impacted the Film Production segment
operating results during the third quarter of fiscal year 2009 and as a result, we made material revisions to the segment's internal forecasts and engaged a third party valuation firm to assist us in
performing a goodwill and intangible asset impairment analysis. Based on the analysis, we determined that the goodwill associated with the Film Production segment was impaired and recorded a
$10.0 million goodwill impairment charge during
the quarter ended December 31, 2008. We also recorded a film cost impairment charge of approximately $1.1 million during the quarter ended December 31, 2008 primarily as a result
of the economic downturn.

Excluding
goodwill and other impairment charges, the Film Production segment results in fiscal year 2010 were consistent with our internal budgets. However, industry conditions continue
to be unfavorable in the film markets where we distribute content, and we believe these challenging conditions will continue for the foreseeable future. As a result, the five year internal forecast
for the Film Production segment was revised downward in connection with our year end goodwill impairment testing. We engaged a third party valuation firm to assist us in performing the annual goodwill
impairment analysis. Based on the analysis, we determined that the goodwill associated with the Film Production segment was impaired and recorded a $4.9 million goodwill impairment charge
during the fourth quarter of fiscal year 2010. We also recorded a film cost impairment charge of approximately $1.2 million and a recoupable costs and producer advances impairment charge of
approximately $0.8 million during the fourth quarter of fiscal year 2010 associated with the unfavorable film market conditions. It is reasonably possible that future unfavorable economic
conditions could cause the operating results of this segment to remain depressed or decline.

Owned Content Revenue

The Film Production segment produces and distributes its owned content for three primary customer groups. The first customer group
consists of cable MSO and DBS service providers. Since our acquisition of the Film Production segment, we have leveraged our existing Transactional TV segment

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relationships
and established new customer opportunities for our Film Production segment's owned content. The owned content that is distributed through PPV appears on unbranded linear channels within
the mainstream or adult PPV movie location of the platform's electronic programming guide. Content that is distributed through VOD appears within menu categories such as "uncensored." Our movies and
events are sold to end users at retail prices typically ranging from $7.99 to $9.99. We receive a percentage share of the revenue derived from sales on these platforms. Revenue splits are typically
higher than those earned by our Transactional TV segment due to the mainstream nature of the content. Owned content is distributed to cable MSO and DBS service providers using the DBC and transport
providers as described above in the Transactional TV segment discussion.

The
second customer group for our owned content distribution consists of premium movie service providers such as Cinemax and Showtime. The premium movie service providers license and
distribute the content as part of their late-night programming and within their subscription VOD product. The owned content is typically sold to these customers for a flat license fee.

The
third customer group consists of various international distributors including international premium movie service providers. These international distributors typically
re-distribute the content to end-users. We also typically charge these customers a flat license fee for the owned content.

The
Film Production segment does not employ a production staff. Third-party production staff is used to produce owned content, and our employees provide in-house oversight
over the critical areas of production such as scripting, casting, shoot location, and post production.

Sales Agency (Repped Content) Service Revenue

Our Film Production segment has established relationships with independent mainstream film producers. We act as a sales agent for the
film producers and license both domestic and international rights to their movies under Lightning Entertainment Group. We also license titles under our Mainline Releasing Group. We earn a commission
for licensing film rights on behalf of these producers. The commission we earn from domestic distribution is typically more favorable than the commission we earn from international distribution. We
also earn a marketing fee for many titles that we represent. Each contract typically allows for the recoupment of any producer advances and costs incurred in preparing the title for market, including
advertising costs, screening costs, costs to prepare the trailer, box art, screening material, and similar costs necessary to ensure the movie is market ready.

We
generate revenue from our repped content through arrangements with mainstream distributors world-wide. Distributors deliver the repped content through various channels
including theatrical, pay-television, free television and other similar distribution channels. We also recently began distribution of repped content on VOD platforms through U.S. cable
MSOs. We continue to leverage the relationships we have established through the Transactional TV segment with U.S. cable and DBS providers and have successfully launched the Film Production segment's
repped content in over 35 million network homes. Additionally, our repped content is distributed in large retail DVD markets through a distribution arrangement we executed with a leading
independent home video/DVD entertainment partner.

Producer-for-Hire and Other Revenue

Producer-for-hire and other revenue relates to amounts earned through producer-for-hire
arrangements, music royalty fees and the delivery of other miscellaneous film materials to customers. Through our producer-for-hire arrangements, we provide services and incur
costs associated with the film production, and we earn a fee for our services once the film has been delivered to the customer. Although we maintain no ownership rights for the produced content, we
are responsible for the management and oversight of the project and incur significant economic risk until the project is completed. The gross margins we generate from
producer-for-hire arrangements are less than the

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returns
we generate from our owned content and have historically been between 10% and 20% of net revenue; however, we cannot reasonably predict whether the gross margins we receive will continue to be
similar to those generated historically. We generated approximately $3.9 million of producer-for-hire services revenue during the fourth quarter of fiscal year 2010. We
also expect to generate an additional $4.0 million to $4.1 million in producer-for-hire services revenue during fiscal year 2011.

Competition

For our owned content, we compete primarily with one small, privately-owned company and other branded content such as Girls Gone
Wild® and Jerry Springer® Uncensored. With respect to our sales agency business, we compete with approximately 30 privately-owned companies. We compete with these companies
based on licensing fees charged, content quality, ability to deliver our products on-time, relationships with decision makers in the industry, and the professionalism of our sales team.
For our producer-for-hire services, we compete against a wide variety of independent movie producers.

Direct-to-Consumer Segment

Our Direct-to-Consumer segment derives revenue primarily through subscriptions to its consumer websites.
Content for the websites is primarily
obtained through licensing agreements executed by our Transactional TV segment for broadcast rights. Traffic to our consumer websites is primarily derived through either a targeted network of
affiliates that earn a referral fee from us when diverted traffic converts into paying members, or "type-in" traffic in which users navigate directly to the sites by typing the addresses
into their web browsers.

This
segment also launched a test initiative related to the development of a set-top box and IPTV business model. During January 2008, we acquired certain intellectual
property rights to an internet protocol set-top box. Through the set-top box, consumers could access content through the internet and view the content on their television.
Based on lower than expected subscriber additions for the IPTV business model and other factors considered during the second half of fiscal year 2009, we reduced the resources allocated to the related
new product offering operations. During fiscal year 2010, the IPTV business model's performance continued to be lower than expected. In the fourth quarter of fiscal year 2010, we discontinued the
operations of the IPTV business model as a result of the underperformance in fiscal year 2010. See Note 19Discontinued Operations within the Notes to Consolidated Financial
Statements for further discussion on our discontinuation of the IPTV set-top box business.

Competition

The adult internet industry is highly competitive and highly fragmented given the relatively low barriers to entry. Recently, the
introduction of a large number of free content sites that allow users to access large libraries of content has created an even more challenging environment.

OTHER INFORMATION

Customer Concentration

We derived 52% of our total revenue for the fiscal year ended March 31, 2010 from Comcast Corporation ("Comcast"), DIRECTV Group
("DirecTV"), DISH Network ("DISH"), and Time Warner Cable Inc. ("Time Warner"). We generate revenue from these customers through our Transactional TV and Film Production segments. The loss of
any of these major customers
would have a material adverse effect on these segments and our Company as a whole. Specific financial information about the total revenue and outstanding accounts receivable from each of our major
customers is incorporated by reference herein to Note 13Major Customers within the Notes to Consolidated Financial Statements included herein.

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Employees

As of March 31, 2010, we had approximately 180 employees located only in the United States. Our employees are not members of a
union, and we have never suffered a work stoppage.

Financial Information about Segments and Geographic Areas

Our revenue is primarily derived from customers located in the United States. Financial information about segments and geographic areas
is incorporated herein by reference to Note 12Segment and Geographic Information within the Notes to Consolidated Financial Statements included herein.

Seasonality

Although we do not consider our business to be highly seasonal, our Film Production segment sales team attends a large proportion of
film trade shows just prior to and during the third fiscal quarter. In the 2008 and 2007 fiscal years, we executed contracts at those tradeshows and subsequently delivered the related content in the
third fiscal quarter resulting in higher revenue relative to other quarters. During the third quarters of the fiscal years ended March 31, 2009 and 2010, the Film Production segment's revenue
has not exhibited a similar level of seasonality due to the deterioration in film markets. We believe that it is reasonably possible that the film markets will continue to experience unfavorable
economic conditions which could cause the Film Production segment's revenue in the third fiscal quarter to remain depressed or decline.

Intellectual Property

During fiscal year 2008, we acquired certain intellectual property rights associated with set-top box equipment that
provides customers with IPTV and other new product development. We will seek to protect our intellectual property rights. Despite our efforts, unauthorized parties may attempt to copy aspects of our
products or obtain and use information that we regard as proprietary. Policing unauthorized use of our rights is difficult. Additionally, third parties might independently develop technologies that
are substantially equivalent or superior to our technologies.

Government Regulation

Our Company is regulated by governmental authorities. We have historically operated only in the United States and so we were only
regulated by domestic authorities. However, because we have expanded to international markets, we must comply with diverse and evolving regulations both domestically and internationally. Regulation
relates to, among other things, licensing, access to satellite transponders, foreign investment, use of confidential customer information and content, including standards of decency and obscenity.
Changes in the regulation of our operations or changes in interpretations of existing regulations by courts or regulators or our inability to comply with current or future regulations could have a
material adverse impact on our financial position and results of operations.

Available Information

We file annual, quarterly and current reports, and amendments thereto, with the Securities and Exchange Commission ("SEC") under
Section 13(a) of the Securities Exchange Act of 1934. We make these reports available free of charge on or through our internet website, www.noof.com, as soon as reasonably practicable after we
electronically file such material with, or furnish such material to, the SEC. Information on
our website should not be considered to be a part of this report or any other

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SEC
filing unless explicitly incorporated by reference herein. You may request a copy of these filings at no cost. Please direct your requests to:



You
can also read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington DC 20549. You can obtain information on the
operations of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site
(www.sec.gov) that contains our reports, proxy and information statements and other information that we file electronically with the SEC.

EXECUTIVE OFFICERS OF THE REGISTRANT.

Our executive officers are as follows:

Name

Age

PositionMichael Weiner


68

Chairman of the Board, Chief Executive Officer and SecretaryKen Boenish


43

PresidentMarc Callipari


42

General CounselScott Piper


47

Chief Technology and Information OfficerGrant Williams


34

Chief Financial Officer


Michael Weiner.Mr. Weiner was appointed President of New Frontier Media in February 2003 and was then appointed to the
position of Chief
Executive Officer in January 2004. Prior to being appointed President, he held the title of Executive Vice President and co-founded the Company. As Executive Vice President,
Mr. Weiner oversaw content acquisitions, network programming, and all contract negotiations related to the business affairs of the Company. In addition, he was instrumental in securing over
$20 million to finance the infrastructure build-out and key library acquisitions necessary to launch the Company's television networks. Mr. Weiner's experience in
entertainment and educational software began with the formation of Inroads Interactive, Inc. in May 1995. Inroads Interactive, based in Boulder, Colorado, was a reference software publishing
company dedicated to aggregating still picture, video, and text to create interactive, educational-based software. Among Inroads Interactive's award winning releases were titles such as Multimedia
Dogs, Multimedia Photography, and Exotic Pets. These titles sold over 1 million copies throughout the world through its affiliate label status with Broderbund Software and have been translated
into ten different languages. Mr. Weiner was instrumental in negotiating the sale of Inroads Interactive to Quarto Holdings PLC, a UK-based book publishing concern. Prior to
Inroads Interactive, Mr. Weiner was in the real estate business for 20 years, specializing in shopping center development and redevelopment in the Southeast and Northwest United States.
He was involved as an owner, developer, manager, and syndicator of real estate in excess of $250 million.

Ken Boenish.Mr. Boenish is a 20-year veteran of the cable television industry. In October 2000, he was named President of
the
Transactional TV segment and in June 2005 he was named President of New Frontier Media. Mr. Boenish joined New Frontier Media as the Senior Vice President of Affiliate Sales in February 1999.
Prior to joining the Company, Mr. Boenish was employed by Jones Intercable ("Jones") from 1994 to 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 then 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 to 1994 he sold cable television advertising on systems owned by Time Warner, TCI, COX, Jones, Comcast and other cable systems. Mr. Boenish holds a bachelors degree from
St. Cloud State University.

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Marc Callipari.Mr. Callipari joined New Frontier Media in August 2006 as the Vice President of Legal Affairs and shortly
thereafter was
promoted to General Counsel. He is responsible for New Frontier Media's legal and human resources functions. Mr. Callipari started his legal career over 14 years ago in Washington, D.C.
where he practiced commercial litigation from 1994 to 1999 with a large, international law firm and a boutique litigation firm. More recently, he served as captive outside and then
in-house counsel to Level 3 Communications, an unaffiliated international communications company, from 1999 to 2006, where he was responsible for a wide range of
world-wide litigation and transactional matters, including the negotiation of several multi-million dollar telecommunication infrastructure asset purchases and sales. He graduated from the
University of San Diego School of Law in 1994, is a member of the Colorado, Virginia and District of Columbia Bars and has been admitted to practice before numerous federal courts throughout the
United States.

Scott Piper.Mr. Piper joined New Frontier Media in February 2007 as Chief Technology and Information Officer.
Mr. Piper has been an
information technology professional for approximately 20 years and has held senior leadership roles for the past 12 years. He has extensive experience in infrastructure design and
delivery for large scale enterprises, including the implementation of over fifteen customer contact centers, some with as many as 1,500 seats. He was responsible for one of the first successful large
voice over internet protocol ("VoIP") contact centers in the U.S. Prior to joining New Frontier Media, Mr. Piper was employed from 1994 to 2006 by EchoStar Satellite L.L.C. While employed in a
variety of
roles during his tenure at EchoStar, he most recently held the title of Vice President of IPTV. Mr. Piper was responsible for the launch of DISH Network's web based entertainment portal prior
to his departure. Mr. Piper holds a Bachelor of Science in Marketing and Finance from the University of Colorado and a Masters in Science in Telecommunications from the University of Denver.

Grant Williams.Mr. Williams has served as Chief Financial Officer since April 2008. Mr. Williams served as the
Corporate Controller of
New Frontier Media from October 2006 until April 2008. From February 2004 until October 2006, Mr. Williams was employed by eFunds Corporation and served in various senior manager roles,
including management of Securities and Exchange Commission filings and correspondence; financial contract management for significant transactions including business acquisitions, business
dispositions, and debt financing; and financial management and analysis of the company's corporate costs. Prior to February 2004, Mr. Williams was employed by Ernst and Young, LLP as a
manager within the assurance and advisory services group. Mr. Williams holds a Bachelor of Accountancy from the University of Oklahoma and is a Certified Public Accountant in Colorado and
Arizona.

ITEM 1A.    RISK FACTORS.

The loss of any of our current major customers, or our inability to maintain or negotiate at renewal or otherwise favorable contractual terms with these customers, could
have a material adverse effect on our financial position and results of operations.

We have agreements with the ten largest U.S. cable MSOs and two largest U.S. DBS providers. For our fiscal year ended March 31,
2010, the aggregate revenue we received from our major customers (customers that account for 10% or more of our consolidated revenue, namely Comcast, DISH, DirecTV and Time Warner) was approximately
52% of our total company-wide revenue. Our agreements with these operators may be terminated without penalty and with little advance notice, and as a result are sometimes subject to
renegotiation during their stated term. If one or more of these cable MSO or DBS operators terminates or does not renew our agreements, or negotiates mid-term or agrees only to renew the
agreements on terms less favorable than those of our current agreements (including removing or replacing with a competitive offering or otherwise one or more of our PPV channels or VOD offerings from
their platforms), our financial position and results of operations could be materially adversely effected.

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For
example, the largest DBS provider in the U.S., which increased our distribution from two channels to three channels during the third quarter of fiscal year 2008, reduced its carriage
of our PPV channels back to two channels in November 2009. Consistent with the terms of the original agreement, the customer has the right to discontinue carriage of any of the remaining two channels
without penalty and with little advance notice. The removal of the channel in November 2009 resulted in an estimated decline in our PPV revenue of approximately $0.6 million during fiscal year
2010.

We rely on third party service providers to deliver our content to our customers via satellite uplink and transport services. If these services were disrupted, it could
cause us to lose subscriber revenue and adversely affect our financial position and results of operations.

Our satellite uplink and transport provider services are critical to us. If our satellite uplink or transport provider fails to provide
the contracted services, our programming operations would in all likelihood be suspended, resulting in a loss of substantial revenue. 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 customers and the related revenue.

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
cable and DBS customers. Limitations to satellite transponder capacity could materially adversely affect our financial position and results of operations. Access to transponders may be restricted or
denied if:



Our
ability to convince cable operators and DBS providers to carry our programming is critical to us. We can give no assurance that we will be able to continue to obtain carriage with
cable operators and DBS providers in the future.

If we are unable to compete effectively with other forms of adult and non-adult entertainment, we will not be able to sustain or increase revenue.

Our ability to increase or sustain revenue is impacted by 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/DVD rentals and sales, books and magazines aimed at
adult consumers, adult oriented telephone chat lines, adult oriented internet services, including free website content services, premium movie channels that broadcast adult-themed content and adult
oriented wireless 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 and entertainment options.

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Our
ability to compete depends on a variety of factors, many of which are outside of our control. These factors include the quality and appeal of our competitors' content relative to our
offerings; the strength of our competitors' brands; the technology utilized by our competitors; the effectiveness of our competitors' sales, marketing efforts and the attractiveness of their product
offerings; general consumer behaviors; and preferences on how consumers choose to spend their discretionary income.

Our
existing competitors, as well as potential new competitors, may have significantly greater financial, technical and marketing resources, as well as better name recognition 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 content. Additionally, increased competition could result in license fee reductions, lower margins and a negative impact on our
financial position and results of operations.

The
popularity and notoriety of adult entertainment through low cost and free websites has resulted in additional pressure on our business. The quality and quantity of content available
on these free and low cost websites has improved. The content we sell through the Transactional TV segment typically has a retail price between $10.99 and $14.99 and is typically less explicit than
the content offered on internet websites. As a result of the recent deterioration in economic conditions, customers may view internet delivered content as a replacement to our content based on the
difference in cost, edit standard and availability of certain niche content that we do not distribute. A migration of customers to internet delivered content could result in a decline in our buy rates
and have a negative impact on our financial position and results of operations.

The continued addition of new competitors to our business could have a material adverse affect on our operating performance.

We face competition from established adult video producers, as well as independent companies that distribute adult entertainment, some
of which is provided for free through internet websites. These competitors may include producers such as Hustler, Wicked Pictures and Vivid Entertainment. In the event that cable and/or satellite
companies seek to purchase adult video content for their PPV or VOD service directly from adult video producers or other independent distributors of such content, our PPV and VOD business is likely to
suffer. For example, an independent producer of adult content, which has historically distributed content only through the internet, replaced one of our PPV channels on the largest DBS platform in the
U.S. during the third quarter of fiscal year 2010 resulting in a decrease in our revenue of approximately $0.6 million during fiscal year 2010. In addition, increased competition in the adult
category could lead to downward pressure on the license fees that our customers are willing to pay for our content.

We may incur costs to defend ourselves against legal claims initiated in connection with our distribution of adult-themed content.

Because of the adult-oriented content that we distribute, we may be subject to obscenity or other legal claims by third parties. Our
financial position and results of operations could be harmed if we were found liable for this content or if costs to defend such claims proved significant. Implementing measures to reduce our exposure
to this liability may require us to take steps that would substantially limit the attractiveness of our content and/or its availability in various geographic areas, which would negatively impact our
ability to generate revenue. Furthermore, our insurance may not adequately protect us against all of these types of claims.

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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, or the new application of existing laws could prevent us from making our content available in various
jurisdictions or otherwise have a material adverse affect on our business, financial position 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 of internet related laws governing issues such as
intellectual property ownership and infringement, pornography, obscenity, libel, employment, and personal privacy is still developing.

Cable
and DBS 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 and DBS operators to broadcast our programming, our financial position and results of operations could be adversely affected.

Changes in our effective tax rate or assessments arising from tax audits may have an adverse impact on our results.

We are subject to taxation in various jurisdictions, both domestically and internationally, in which we conduct business. Significant
judgment is required in the determination of our provision for income taxes and this determination requires the interpretation and application of complex and sometimes uncertain tax laws and
regulations. Our effective tax rate may be adversely
impacted by changes in the mix of earnings between jurisdictions with different statutory tax rates, in the valuation of our deferred tax assets, and by changes in tax rules and regulations. For
instance, the availability and timing of lapses in the United States research and development tax credit, the accounting of uncertain tax positions and the amount of our estimated tax deduction for
domestic production activities may add more variability to our future effective tax rates.

We
recently filed amended and current tax returns that reflect a tax benefit associated with research and development tax credits. We are subject to examination of these amended and
current tax returns and our determination of the research and development tax credits. If the Internal Revenue Service audits these returns and disallows some or all of the research and development
tax credits, our financial position and results of operations could be materially adversely affected.

If the Film Production segment produces, acquires or represents film content that is not well-received by our customers, we may not be able to
re-coup the investments made in the film.

We have a history of impairing titles in our content library and recoupable costs associated with our repped content when the future
expected economic benefits to be derived by a particular film or event are not estimated to be sufficient to recover its related carrying value. The Film Production segment's ability to continue to
create or acquire film content and obtain rights to represent content that is well-received by our customers is critical to the segment's future success. If a film produced, acquired or
represented by the Film Production segment does not sell as well as anticipated, we may not be able to recover our investment in the film, including, but not limited to, the cost of producing or
acquiring the film, the costs associated with promoting the film, costs associated with post-production work on the film, or advances and other recoupable costs associated with
representing a film. No assurance can be given that the Film Production segment's past success in generating profits from its investment in its films will continue.

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Antitakeover provisions in our Amended and Restated Articles of Incorporation, as amended, and our Rights Agreement may discourage or prevent a change of control.

Our charter documents may inhibit a takeover or change in control that our shareholders may consider beneficial. Provisions in our
Amended and Restated Articles of Incorporation may have the effect of delaying or preventing a merger or acquisition of us, or making a merger or acquisition less desirable to a potential acquirer,
even when the shareholders may consider the acquisition or merger favorable. For example, our Board of Directors, without further shareholder approval, may issue preferred stock that could delay or
prevent a change of control as well as reduce
the voting power of the holders of common stock, even with the effect of losing control to others. In addition, our Board of Directors has adopted a Rights Agreement, commonly known as a "poison
pill," that may delay or prevent a change of control and may also make a merger or acquisition of us less desirable. If a change of control transaction perceived by the shareholders to be in their
best interest were delayed or blocked by our protective measures, the value of an investment in our securities may be negatively impacted.

If we are not able to retain our key executives it will be more difficult for us to manage our operations and our financial position and result of operations could be
adversely affected.

With only approximately 180 employees, our success depends greatly upon the contributions of our executive officers and our other key
personnel. The loss of the services of any of our executive officers or other key personnel could have a material adverse effect on our financial position and results of operations. No assurance can
be given that we will be successful in attracting and retaining these personnel.

Our inability to identify, fund the investment in, and commercially exploit new technology could have an adverse impact on our financial position and results of operations.

We are engaged in a business that has experienced tremendous technological change over the past several years and will likely continue
to experience further changes. 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 becomes obsolete, our inability to identify in a timely manner emerging technologies that may impact our business, or technology advancement may make our offerings obsolete. In any such
event, we may be required to invest significant amounts of capital 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 position and results of operations. 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. We may also experience impairments related to existing investments that we have made in new
technology.

Negative publicity, lawsuits or boycotts by opponents of adult content could adversely affect our financial position and results of operations 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 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. As a
leading provider of adult entertainment, we cannot assure you that we may not become a target in the future.

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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 banking entities, investors, investment banking entities, market makers, lenders and other service providers 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 adversely impact the value of our
stock, and our ability to attract market support or obtain financing.

We may be unable to protect our intellectual property rights or others may claim that we are infringing on their intellectual property.

During fiscal year 2008, we acquired certain intellectual property rights. Third parties could assert infringement claims against our
business in the future. Claims for infringement of all types of intellectual property rights are a common source of litigation. Infringement claims can require us to modify our products, services and
technologies or require us to obtain a license to permit our continued use of those rights. We may not be able to perform either of these actions in a timely manner or upon reasonable terms and
conditions. Failure to do so could harm our financial position and results of operations. In addition, future litigation relating to infringement claims could result in substantial costs to us and a
diversion of management resources. Adverse determinations in any litigation or proceeding could also subject us to significant liabilities and could prevent us from selling some of our products,
services or technologies.

Despite
our efforts to protect our intellectual property rights, third parties may infringe or misappropriate them or otherwise independently develop substantially equivalent products
and services. The loss of intellectual property protection or the inability to secure or enforce intellectual property protection could harm our business.

If we experienced system failures, the services we provide to our customers could be delayed or interrupted, which could harm our business reputation and result in a loss of
customers.

Our ability to provide reliable service largely depends on the efficient and uninterrupted operations of our Digital Broadcast Center
and related systems. Any significant interruptions could severely harm our business and reputation and result in a loss of revenue and customers. Our systems and operations could be exposed to damage
or interruption from fire, natural disaster, unlawful acts, power loss, telecommunications failure, unauthorized entry, computer viruses, or similar events. Although we have taken steps to prevent
system failures, we cannot be certain that our measures will be successful and that we will not experience service interruptions. Further, our property and business interruption insurance may not be
adequate to compensate us for all losses or failures that may occur.

Our goodwill, intangible assets and other long-lived assets may have further impairment losses.

We conducted our annual goodwill and intangible assets impairment tests as of March 31, 2010, 2009 and 2008. We also performed
goodwill and intangible assets impairment tests as of December 31, 2008 due to events and circumstances within our Film Production segment that caused us to believe that it was more likely than
not that the segment's goodwill was impaired. We also perform quarterly analyses on the valuation of long-lived assets including our content and distribution rights, film library,

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recoupable
costs and producer advances, and other long-lived assets. We recognized the following continuing operations impairment charges in our statements of operations (in thousands):

Year Ended March 31,2010

2009

2008Goodwill

$
4,856

$
10,009

$
Film costs


1,207


1,062


684Intangible assets


291





Other long-lived assets


831


236


466Total impairment loss

$
7,185

$
11,307

$
1,150


If
our goodwill, intangible assets or other long-lived assets' future benefit does not exceed its carrying value, we may be required to further write down the related assets.
Declines in the future benefits from these assets could cause us to incur additional impairment losses, which could materially affect our financial position and results of operations. The ongoing
uncertainty in general economic and market conditions could increase the likelihood of additional asset impairment losses being recorded in future periods. In addition, the determination of the fair
value of goodwill, intangible assets and long-lived assets is subject to a high degree of judgment and complexity and changes in the estimates used in the determination of the fair value
of these assets could materially affect our financial position and results of operations.

We may pursue acquisitions, joint ventures, new services and other strategic transactions and activities to complement or expand our business and add shareholder value which
may not be successful.

Our future success may depend on opportunities to acquire or form strategic partnerships with other businesses or technologies or
establish new services that could complement, enhance or expand our current business or products or that might otherwise offer us growth opportunities. We may not be able to complete such transactions
or activities and such transactions or activities, if executed, could pose significant risks and could have a negative effect on our financial position and results of operations. Any transactions or
activities that we are able to identify and complete may involve a number of risks, including:



In
addition, we may not be able to successfully or profitably integrate, operate, maintain and manage our newly acquired operations, employees or activities. We may not be able to
maintain uniform standards, controls, procedures and policies, and this may lead to operational inefficiencies.

New
acquisitions, joint ventures, new services and other transactions may require the commitment of significant capital that would otherwise be directed to investments in our existing
businesses or be distributed to shareholders. Commitment of this capital may cause us to defer or suspend any common stock dividends or share repurchases that we otherwise may have made.

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Current market volatility and difficult economic conditions may materially and adversely impact our business and results of operations.

The global capital and credit markets continue to remain depressed, resulting in the reluctance of financial institutions to lend
money, an increase in commercial and consumer delinquencies, a lack of consumer confidence, and a widespread reduction generally of business activity. If these conditions continue, which may be likely
for the foreseeable future, or worsen, our ability to borrow funds or obtain other financing on terms acceptable to us could be materially adversely affected. These conditions could also, among other
things, negatively impact our customers' ability to pay us, the number of subscribers and purchasers of our products and services, and require us to increase our reserves for bad debt, the occurrence
of any or all of which could materially and negatively impact our business, our financial condition and our results of operations.

We
believe the downturn in the economy has had a negative impact on our financial results for the past two years and will also impact our fiscal year 2011 results. Our Transactional TV
segment revenue decreased in fiscal year 2010 by approximately 12% despite generating incremental international revenue of $3.6 million. We experienced a downturn in our Film Production segment
results during the third quarter of fiscal year 2009 and recorded goodwill and other impairment charges in connection with that segment's deterioration in performance related to the downturn in the
economy in both fiscal year 2010 and 2009. Additionally, the adverse economic conditions contributed to restructuring and intangible asset impairment charges during the fourth quarter of fiscal year
2009 in connection with unfavorable results connected to an IPTV set-top box business and other initiatives within the Direct-to-Consumer segment, and we
discontinued the IPTV set-top box business in the fourth quarter of fiscal year 2010. If the difficult economic conditions persist or worsen, our financial condition and results of
operations would also be materially adversely impacted.

We may be unsuccessful with our initiative to expand our Transactional TV segment distribution into international markets due to our inexperience with international adult
content delivery and foreign government regulations.

During fiscal year 2009, we began expanding our Transactional TV segment services into new international markets. We have not
historically operated internationally or transacted with international government regulators, competitors, cultures or consumers. As a result of our inexperience, we may be unsuccessful in executing
our international growth initiatives.

ITEM 1B.    UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.    PROPERTIES.

We use the following principal facilities in our operations. All facilities are 100% utilized.

Colorado:We lease space in two office buildings in Boulder, Colorado. The north Boulder facility is approximately 12,000 square feet
and houses our
Transactional TV segment's Digital Broadcast Center, encoding and technical operations groups, content screening, and quality control functions. Our Winchester Circle facility is approximately 18,000
square feet and is used as our corporate headquarters, as well as by our Direct-to-Consumer segment's web production department and by our Transactional TV segment's marketing,
sales, branding, promotions and conforming departments.

California:We lease approximately 4,600 square feet in Santa Monica, California. This facility houses our Film Production segment's
production and
licensing business.

We
believe that our facilities are adequate to maintain our existing business activities.

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ITEM 3.    LEGAL PROCEEDINGS.

For a discussion of legal proceedings, see Note 14Commitments and Contingencies in the Notes to Consolidated
Financial Statements included herein and incorporated herein by reference.

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

No matters were submitted for a 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, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is traded on the NASDAQ Global Select Market under the symbol "NOOF".

The
following table sets forth the range of high and low sales prices for our common stock for each quarterly period indicated, as reported on the NASDAQ Global Select Market:

Quarter Ended

High

Low

Quarter Ended

High

LowJune 30, 2009

$
2.95

$
1.52

June 30, 2008

$
5.29

$
3.31September 30, 2009


2.50


1.87

September 30, 2008


4.28


2.05December 31, 2009


2.18


1.75

December 31, 2008


2.56


1.27March 31, 2010


2.40


1.76

March 31, 2009


2.20


1.05


The
high and low sales prices per share as reported on the NASDAQ Global Select Market on June 4, 2010, were $1.85 and $1.81, respectively. As of June 4, 2010, there were
approximately 3,443 beneficial owners and 176 holders of record of New Frontier Media's Common Stock.

During
each of the quarters in fiscal year 2008, the Company's Board of Directors declared a quarterly cash dividend of $0.125 per share of common stock. The Company paid approximately
$9.0 million in cash dividends through March 31, 2008. Additionally, as of March 31, 2008, the Company had a dividend payable of $3.0 million that was subsequently paid in
April 2008. The Board of Directors did not declare a quarterly dividend during fiscal year 2009 or 2010, and the payment of future quarterly dividends is at the discretion of the Board of Directors.

ISSUER PURCHASES OF EQUITY SECURITIES

From time to time, the Company has executed stock repurchase programs and stock purchase agreements based on current market conditions
and the capital and financial position of the Company. This activity is conducted in a manner intended to comply with the safe harbor provisions of Rule 10b-18 promulgated under the
Securities Exchange Act of 1934, as amended, and to minimize the impact of any purchases upon the market for its securities. Repurchased shares are returned to authorized but unissued shares of common
stock in accordance with Colorado law.

In
June 2008, the Company's Board of Directors extended a share repurchase plan allowing for the repurchase of approximately 1.1 million shares of common stock through June 2010.
During the six month period ended September 30, 2008, the Company substantially completed the share repurchase plan and repurchased approximately 1.1 million shares for a total purchase
price of approximately $4.3 million.

On
November 14, 2008, the Company entered into a Stock Purchase Agreement pursuant to which a shareholder agreed to sell and the Company agreed to purchase approximately
2.6 million shares of the Company's common stock for a cash purchase price of $1.55 per share or an aggregate purchase

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price
for all of the shares of approximately $4.1 million. The Company funded the acquisition of the shares with available cash.

On
March 11, 2009, the Company purchased through one broker in an unsolicited single block trade approximately 0.5 million shares of its common stock for a cash purchase
price of $1.30 per share, or an aggregate purchase price for all of the shares of approximately $0.7 million. The acquisition was funded with available cash.

On
August 28, 2009, the Company announced that its Board of Directors adopted a new stock repurchase program. Under the program, the Company may purchase with available cash and
cash from operations up to 1.0 million shares of the Company's outstanding common stock, from time to time through open market or privately negotiated transactions, as market and business
conditions permit. The program will expire in March 2012. Common stock purchases by the Company during the fourth quarter of fiscal year 2010 under this program were as follows (in thousands, except
per share amounts):

Period

Total Number
of Shares
Purchased

Average Price
Paid Per Share

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs

Maximum Number of
Shares that May
Yet Be Purchased
Under the Plans
or ProgramsJanuary 1 - 31, 2010




$






971February 1 - 28, 2010


20


1.94


20


951March 1 - 31, 2010


13


2.22


13


938Total


33

$
2.05


33


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STOCK PERFORMANCE GRAPH

The following graph compares the cumulative 5-year total return provided to shareholders of New Frontier
Media, Inc.'s common stock relative to the cumulative total returns of the S&P SmallCap 600 index, and a customized peer group of two companies that includes: Playboy Enterprises Inc.
and Private Media Group Inc. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in the Company's common stock, in the peer group, and the index on 3/31/2005
and its relative performance is tracked through 3/31/2010.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among New Frontier Media, Inc., The S&P SmallCap 600 Index  And a Peer Group

GRAPHIC

---

Copyright©
2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

The
stock price performance included in this graph is not necessarily indicative of future stock price performance.

In
accordance with the rules and regulations of the SEC, the above performance graph shall not be deemed to be "soliciting material" or deemed to be "filed" with the SEC or subject to
Regulations 14A or 14C of the Securities Exchange Act of 1934, as amended, or to the liabilities of Section 18 of the Securities and Exchange Act of 1934, as amended, and shall not be
deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities and Exchange Act of 1934, as amended, notwithstanding any general incorporation
by reference of this report into any other filed document.

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ITEM 6.    SELECTED FINANCIAL DATA.

FIVE YEAR SELECTED CONSOLIDATED FINANCIAL DATA  (in thousands, except per share amounts)

Year Ended March 31,2010(4)

2009(3)

2008

2007(2)

2006(1)Net revenue

$
50,428

$
52,595

$
55,911

$
63,271

$
46,851Income (loss) from continuing operations

$
(1,113
)
$
(2,970
)
$
8,836

$
12,309

$
11,283Income (loss) from continuing operations per basic common share

$
(0.06
)
$
(0.13
)
$
0.37

$
0.51

$
0.49Income (loss) from continuing operations per diluted share

$
(0.06
)
$
(0.13
)
$
0.37

$
0.51

$
0.48Weighted average diluted shares outstanding


19,481


22,039


24,148


24,355


23,338Total assets

$
61,813

$
68,539

$
83,661

$
88,216

$
86,765Long-term liabilities

$
837

$
1,863

$
2,013

$
3,684

$
7,035Cash dividends declared per share of common stock

$


$


$
0.50

$
0.60

$



(1)In
February 2006, the Company acquired MRG Entertainment, Inc., its subsidiaries and a related company, Lifestyles Entertainment, Inc.
("MRG").(2)Beginning
in the first quarter of fiscal year 2007, the Company adopted new standards that changed the accounting for employee equity incentive plans
requiring the recognition of share-based compensation. See Note 3Employee Equity Incentive Plans within the Notes to Consolidated Financial Statements for additional information.(3)During
the third quarter of fiscal year 2009, the Company incurred goodwill impairment charges of $10.0 million and film cost impairment charges of
$1.1 million associated with the Film Production segment. See Note 6Goodwill and Other Intangible Assets and Note 9Film Costs within the Notes to
Consolidated Financial Statements for additional information.(4)During
the fourth quarter of fiscal year 2010, the Company incurred goodwill impairment charges of $4.9 million, film cost impairment charges of
$1.2 million, and recoupable costs and producer advances impairment charges of $0.8 million associated with the Film Production segment. See the Recoupable Costs and Producer Advances
discussion in Note 1Organization and Summary of Significant Accounting Policies as well as Note 6Goodwill and Other Intangible Assets and
Note 9Film Costs within the Notes to Consolidated Financial Statements for additional information.


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

INTRODUCTION

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide the readers of
our accompanying consolidated financial statements with a narrative discussion about our business. The MD&A is provided as a supplement to the consolidated financial statements and accompanying notes
and should be read in conjunction with those financial statements and accompanying notes. Our MD&A is organized as follows:



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FORWARD-LOOKING STATEMENTS

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," "project," "expect," "anticipate," "estimate," "intend," "strategy," "plan," "may," "should," "could,"
"will," "would," "will be," "will continue," "will likely result," "are optimistic that," 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 publicly update or revise any forward-looking statements, whether
as a result of new information, future events, or otherwise.

Factors
that could cause actual results to differ materially from the forward-looking statements include, but are not limited to, our ability to: 1) retain our four major
customers that accounted for approximately 52% of our total revenue during the fiscal year ended March 31, 2010; 2) maintain the license fee structures currently in place with our
customers; 3) maintain our pay-per-view ("PPV") channel and video-on-demand ("VOD") shelf space with existing customers; 4) compete
effectively with our current competitors and potential future competitors that distribute adult content to U.S. and international cable multiple system operators ("MSOs") and direct broadcast
satellite ("DBS") providers; 5) retain our key executives; 6) produce film content that is well received by our Film Production segment's customers; 7) comply with current and
future regulatory developments both domestically and internationally; and 8) successfully compete against other forms of adult and non-adult entertainment such as pay and free adult
oriented internet sites and adult oriented premium channel content. The foregoing list of factors is not exhaustive. For a more complete list of factors that may cause results to differ materially
from projections, please refer to the Risk Factors section of this Form 10-K.

EXECUTIVE OVERVIEW

Overview

We are a leader in transactional television and the distribution of general motion picture entertainment. Our key customers include
large cable and satellite operators, premium movie channel providers and major Hollywood studios. We distribute content world-wide. Our three principal businesses are reflected in the
Transactional TV, Film Production and Direct-to-Consumer operating segments. Our Transactional TV segment distributes adult content to cable and satellite operators who then
distribute the content to retail customers via PPV and VOD technology. We earn revenue through contractual percentage splits of the retail price. The Transactional TV segment has historically been our
most profitable segment. The Film Production segment primarily generates revenue through the distribution of mainstream content to large cable and satellite operators, premium movie channel providers
and other international content distributors. This segment also periodically provides contract

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film
production services to major Hollywood studios ("producer-for-hire" arrangements). The Film Production segment incurred operating losses in fiscal years 2010 and 2009
primarily due to large non-cash impairment charges. Our Direct-to-Consumer segment primarily generates revenue from membership fees earned through the distribution
of adult content to consumer websites. The Direct-to-Consumer segment has historically incurred operating losses and is expected to continue to incur operating losses for the
foreseeable future; however, we have focused our efforts on returning the segment to profitability through efforts described below. Our Corporate Administration segment includes all costs associated
with the operation of the public holding company, New Frontier Media, Inc.

The
business models of each of our segments are summarized below.

Transactional TV Segment

Our Transactional TV segment is focused on the distribution of its PPV and VOD service to MSOs and DBS providers worldwide. We earn a
percentage of revenue, or "split", from our content for each VOD, PPV or subscription that is purchased on our customers' platform. Revenue growth can occur when we launch our services to new cable
MSOs or DBS providers, experience growth in the number of digital subscribers for systems where our services are currently distributed, when we launch additional services or replace our competitors'
services on existing customer cable and DBS platforms, and when our proportional buy rates improve relative to our competitors. Alternatively, our revenue could decline if we were to experience lower
consumer buy rates as has been the case with the recent general economic downturn, if customers migrate to other
forms of entertainment such as pay and free adult oriented internet sites, if the revenue splits we receive from our customers decline, if additional competitive channels are added to our customers'
platforms or if our existing customers remove or replace our services on their platform.

Prior
to fiscal year 2009, the Transactional TV segment focused on growing its distribution of content in the U.S. market. During fiscal year 2009, we began expanding our services into
new international markets in North America, Europe and Latin America, and we generated approximately $1.0 million of revenue from this international distribution in fiscal year 2009. We
continued to focus on growing our international distribution in fiscal year 2010 and improved international revenue to $3.6 million. Approximately 83% of our fiscal year 2010 international
revenue was from VOD services, and the remaining proportion was from PPV services. We leverage our existing technology infrastructure to distribute content internationally. Our international VOD
distribution resulted in minimal transport and sales staff costs, and our PPV channel distribution also resulted in minimal incremental costs because our existing transponder footprint reaches from
north-central Canada to southern Mexico. As we continue to expand our international VOD services distribution footprint, we expect to incur minimal costs for this distribution including transport and
sales staff costs. We expect the expansion of our international PPV channel services will require us to lease additional transponder space in order to obtain a broader international footprint for our
channels. We believe the cost of leasing additional transponder space will increase our cost of sales; however, the cost will be relatively fixed in nature and will not vary relative to increases or
decreases in the related revenue.

Transactional
TV segment revenue during fiscal year 2010 as compared to the prior fiscal year experienced the following trends:



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It
is reasonably possible that difficult economic conditions will persist or worsen, which could cause our Transactional TV segment results to be materially adversely impacted. Our
Transactional TV segment is reliant on discretionary consumer purchases of our content. When consumers spend less of their discretionary income on non-essential expenses such as our
content, it adversely impacts our business. Additionally, the price point of our content is significantly higher than both mainstream content and adult content that is distributed through other less
expensive and free media such as the internet. As a result, consumers that would otherwise purchase our content may opt to purchase less expensive mainstream content or obtain their adult
entertainment through less expensive media such as pay and free internet. Although we believe that the deterioration in the economy has negatively impacted the Transactional TV segment's results, it
is not possible for us to quantify or reasonably estimate the financial impact. We have remained focused on maintaining our competitive market position by offering a wide range of
high-quality content that we believe is superior to other product offerings in the industry. We are currently in discussions with many of our largest customers to seek ways to encourage
increased viewing of our content and to implement value-added offers in order for our content to be more competitive with alternative media.

When
considering the future operating results of the Transactional TV segment, we believe the following challenges and risks could adversely impact the segment's future operating
results:



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In
addition to the above noted risks, our agreements typically allow our customers to make significant changes to our distribution (such as reduce the number of hours on the platform or
remove one or more channels from the platform) and may be terminated on relatively short notice without penalty. If one or more of our cable MSO or DBS operators changes our distribution terms,
terminates or does not renew our agreements, or does not renew the agreements on terms as favorable as those of our current agreements, our financial position and results of operations could be
materially adversely affected.

All
the above mentioned challenges and risks, and others that we may not have identified, could have a material adverse impact on our business. Nevertheless, we believe that we are well
positioned to mitigate the impact of these risks and challenges. However, not all the risks and challenges can be managed by us because the ultimate outcome will be decided by other parties such as
our customers.

During
fiscal year 2011 and future periods, we believe that the Transactional TV segment will experience revenue growth if we can successfully manage and are not materially adversely
impacted by the challenges and risks previously mentioned. We currently expect future growth in the segment to occur if we are successful with the following objectives:



Film Production Segment

The Film Production segment has historically derived the majority of its revenue from two principal businesses: (1) the
production and distribution of original motion pictures such as erotic thrillers, horror movies, and erotic, event styled content ("owned content"); and (2) the licensing of third party films
in international and domestic markets where we act as a sales agent for the product ("repped content"). This segment also periodically provides contract film production services to certain major
Hollywood studios ("producer-for-hire" arrangements).

We
generate revenue by licensing our owned content for a one-time fee to free TV, premium TV and other domestic and international distributors. Additionally, we leveraged our
existing customer relationships with our Transactional TV segment customers and license the Film Production segment's owned content to domestic and international cable MSO and DBS providers through
revenue split arrangements that are structured in a similar manner to our Transactional TV segment agreements. The revenue splits we receive from cable MSO and DBS providers for the Film Production
segment content are higher than the revenue splits we receive for our Transactional TV segment content

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primarily
due to the mainstream nature of the content. However, the retail price for our mainstream content is lower than our Transactional TV segment content, and our per-buy revenue per
transaction is often the same as the Transactional TV segment.

We
also generate repped revenue through sales agency arrangements whereby we earn a sales commission and marketing fees by selling mainstream titles on behalf of film producers. The Film
Production segment has established relationships with independent mainstream filmmakers and represents these filmmakers' movies through its Lightning Entertainment Group. Beginning in late fiscal year
2009, we leveraged our existing Transactional TV segment customer relationships and began distributing repped content on VOD platforms through several domestic cable MSOs. We are also distributing
repped content titles to domestic retail DVD markets through a distribution partner. Our distribution of repped content to VOD and retail DVD markets generated incremental sales agency commission
revenue of approximately $0.4 million in fiscal year 2010, and we expect this revenue will improve in fiscal year 2011.

Our
Film Production segment periodically acts as a contract film producer for major Hollywood studios. Through these producer-for-hire arrangements, we provide
services and incur costs associated with the film production. Once the film has been delivered to the customer, we earn a fee for our services. Although we maintain no ownership rights for the
produced content, we are responsible for the management and oversight of the production. We do not produce these movies unless we have an executed agreement with a customer. These services have
historically generated between $2.0 million and $3.0 million of revenue with a gross margin of between 10% and 20%. However, our historical performance may not be representative of
producer-for-hire performance in the future.

Film
Production segment revenue during fiscal year 2010 as compared to the prior fiscal year experienced the following trends:



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When considering the future operating results of the Film Production segment, we believe the following challenges and risks could adversely impact this segment's
operating results:



The
impact of these challenges and risks, and others that we may not have identified, could have a material adverse impact on our business. Nevertheless, we believe that we are well
positioned to mitigate the impact of these risks and challenges. However, not all the risks and challenges can be managed by us because the ultimate outcome will be decided by other parties such as
our customers.

During
fiscal year 2011 and in future periods, we will focus on improving the revenue we generate from this segment through the following strategic
initiatives:



During
fiscal year 2009, the film markets were significantly impacted by the economic downturn. As a result, the Film Production segment's customers reduced their content acquisition
budgets. We believe this occurred because our customers were relying upon their existing libraries to reduce spending and costs. These changes significantly impacted the Film Production segment
operating results during the third quarter of fiscal year 2009 and as a result, we made material revisions to the segment's internal forecasts resulting in a $10.0 million goodwill impairment
charge. We also recorded a film cost impairment charge of approximately $1.1 million during the third quarter of fiscal year 2009 as a result of the economic downturn. During fiscal year 2010,
the Film Production segment results were consistent with our internal budgets excluding the impact of the goodwill and other impairment charges. However, industry conditions continue to be unfavorable
in the film markets where we distribute content, and we believe these challenging conditions will continue for the foreseeable future. As a result, the five year internal forecast for the Film
Production segment was revised downward in connection with our year end goodwill impairment testing resulting in a goodwill impairment charge of $4.9 million. We also recorded a film cost
impairment charge of approximately $1.2 million and a

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recoupable
costs and producer advances impairment charge of approximately $0.8 million during fiscal year 2010 associated with the unfavorable film market conditions. It is reasonably possible
that future unfavorable economic conditions could cause the operating results of this segment to remain depressed or decline.

Direct-to-Consumer Segment

Our Direct-to-Consumer segment generates revenue primarily by selling memberships to our adult consumer
websites. During fiscal year 2010 and 2009, we experienced a decline in the Direct-to-Consumer segment revenue which we believe is due to a decline in consumer spending as a
result of the unfavorable economic conditions as well as the availability of free and low-cost internet content. We expect this segment will continue to incur operating losses for the
foreseeable future; however, we recently launched additional niche consumer websites during fiscal year 2010 as well as a dating website and are optimistic that these efforts will result in improved
performance during fiscal year 2011.

The
Direct-to-Consumer segment also operated an internet protocol television ("IPTV") set-top box business beginning in late fiscal year 2008.
Customers of the IPTV set-top box product could obtain content directly through the internet and view the content on television. In the fourth quarter of fiscal year 2010, we discontinued
the operations of the IPTV business model as a result of underperformance in fiscal year 2010. See Note 19Discontinued Operations for further discussion on our discontinuation of
the IPTV set-top box business.

Corporate Administration Segment

The Corporate Administration segment reflects all costs associated with the operation of the public holding company, New Frontier
Media, Inc., that are not directly allocable to the Transactional TV, Film Production, or Direct-to-Consumer operating segments. These costs include, but are not limited
to, legal expenses, accounting expenses, human resource department costs, insurance expenses, registration and filing fees with NASDAQ, executive employee costs, and costs associated with our public
company filings and shareholder communications. Our focus for this operating segment is balancing cost containment with the need for administrative support for the growth of the Company.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States. The methods, estimates, and judgments that the Company uses in applying the accounting policies have a significant impact on the results that the Company reports in its financial statements.
Some of the accounting policies require the Company to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. The
Company bases its estimates and judgments on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions. The Company continuously evaluates its methods, estimates and judgments. The Company believes the following critical accounting policies reflect the more significant judgments, estimates
and considerations used in the preparation of its consolidated financial statements:



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Each
of these critical accounting policies is described in detail below.

Revenue Recognition

The Company's revenue consists primarily of fees earned through the distribution of its licensed and owned content through various
media outlets including MSOs, DBS providers, the internet, premium movie channels, and other available media channels. Revenue also consists of fees earned through the licensing of third-party content
whereby the Company acts as a sales agent for the film producer. Revenue is recognized when persuasive evidence of an arrangement exists as is typically evidenced through an executed contract, the
services have been rendered or delivery conditions as described in the related contract for the completed film have been satisfied, the license period related to Film Production segment arrangements
has begun and the customer can begin exploitation of the content, the fee is fixed or determinable and its collection is reasonably assured. The process involved in evaluating the appropriateness of
revenue recognition involves judgment including estimating monthly revenue based on historical data and determining collectability of fees.

Transactional TV Segment VOD and PPV Services

The Transactional TV segment's VOD and PPV revenue are recognized based on buys and monthly subscriber counts reported each month by
cable MSOs and DBS providers. The Company earns revenue through a contractual percentage split of the retail price of the content. The actual monthly sales information is not typically reported to the
Transactional TV segment until approximately 30 - 90 days after the month of service. This practice requires management to make monthly revenue estimates based on the
Transactional TV segment's historical experience with each customer. The revenue may be subsequently adjusted to reflect the actual amount earned upon receipt of the monthly sales reports.

Film Production Segment Owned Content Licensing

Revenue from the licensing of owned content is recognized when persuasive evidence of an arrangement exists as is typically evidenced
through an executed contract, the delivery conditions of the completed film have been satisfied as required in the contract, the license period of the arrangement has begun, the fee is fixed or
determinable and collection of the fees is reasonably assured. For agreements that involve the distribution of content to the home video market, PPV market and VOD market, the Company is unable to
determine or reasonably estimate the revenue split earned from customers in advance of receiving the reported earnings because the performance materially varies by film and from period to period. As a
result, the Company's share of licensing revenue from these arrangements is not recognized until the amounts are reported by the customers.

Film Production Segment Repped Content Licensing

The Company recognizes revenue from represented film licensing activities on a net basis as an agent. The revenue recognized for these
transactions represents only the sales agency fee earned by the Company on the total content licensing fee. The producers' share of the licensing fee is recorded as a liability by the Company until
the balance is remitted to the producer. For agreements that involve the distribution of repped content to the home video market, PPV market and VOD market, the Company

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is
unable to determine or reasonably estimate the revenue split due from customers in advance of receiving the reported earnings because the performance materially varies by film and from period to
period. As a result, the Company's share of licensing revenue from these arrangements is not recognized until the amounts are reported by the customers.

The
agreements entered into with the producers may also provide for a marketing fee that can be earned by the Company. The marketing fee is stated as a fixed amount and is contractually
earned by the Company upon collection of sufficient film licensing fees as defined by the contract, the terms of which vary depending on film quality, distribution markets and other factors. The
Company recognizes marketing fees as revenue when the amounts become determinable and the collection of the fee is reasonably assured, which typically occurs in the period of sufficient collection of
licensing fees as defined by the respective contract.

Direct-to-Consumer Segment Membership Fees

Revenue from membership fees is recognized over the life of the membership. The Company records an allowance for refunds based on
expected membership cancellations, credits and chargebacks.

Income Taxes

The Company makes certain estimates and judgments in determining its income tax provision expense. These estimates and judgments are
used in the determination of tax credits, benefits and deductions, uncertain tax positions, and the calculation of certain tax assets and liabilities which are a result of differences in the timing of
the recognition of revenue and expense for tax and financial statement purposes. The Company also uses estimates and judgments in determining interest and penalties on uncertain tax positions.
Significant changes to these estimates could result in a material change to the Company's tax provision in subsequent periods.

The
Company is required to evaluate the likelihood that it will be able to recover its deferred tax assets. If the Company's evaluation determines that the recovery is unlikely, it would
increase the provision for taxes by recording a valuation allowance against the deferred tax assets equal to the amount that is not expected to be recoverable. The Company currently has a deferred tax
asset valuation allowance of approximately $0.2 million to fully reserve for a deferred tax asset associated with the Company's discontinued set-top box operations in Europe. The
Company has no other deferred tax asset valuation allowances and estimates that, with the exception of the set-top box European deferred tax assets, its deferred tax assets will be
recoverable. If these estimates were to change and the Company's assessment indicated it would be unable to recover the deferred tax assets, the Company would be required to increase its income tax
provision expense in the period of the change in estimate.

The
calculation of the Company's tax liabilities involves dealing with uncertainties in the application of tax regulations. The Company accounts for uncertain tax positions using a
two-step approach to recognizing and measuring uncertain tax position liabilities. The first step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure
the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. This process is based on various factors including, but not limited to, changes in facts
and circumstances, changes in tax law, settlement of issues under audit, and new audit activity. Changes to these factors and the Company's estimates regarding these factors could result in the
recognition of a tax benefit or an additional charge to the tax provision expense.

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Recoupable Costs and Producer Advances

Recoupable costs and producer advances represent amounts paid by the Company that are expected to be subsequently recovered through the
collection of fees associated with the Company's licensing of repped content. In connection with the Film Production segment's repped content operations, the Company enters into sales agency
agreements whereby the Company acts as a sales agent for a producer's film ("Sales Agency Agreements"). These Sales Agency Agreements typically include provisions whereby certain costs that are
incurred for promotion related activities will be paid by the Company on behalf of the producer (such as movie trailer and ad material costs). The Company may also pay the producer an advance for the
related film prior to the distribution of such film. As the Company subsequently licenses the producer's film and license fees are collected, the recoupable costs and producer advances are recovered
by the Company through these license fee collections. License fees typically are not paid to the producer of the related film until such recoupable costs and producer advances have been fully
recovered by the Company.

The
Company evaluates recoupable costs and producer advances for impairment on a quarterly basis based on estimates of future license fee collections. An impairment of these assets could
occur if the Company's estimates indicated that it would be unable to collect fees from the licensing of a film sufficient to recover the related outstanding recoupable costs and producer advances.
During each fiscal year ended March 31, 2010, 2009 and 2008, the Company incurred impairment charges related to recoupable costs and producer advances of approximately $0.8 million,
$0.2 million, and $0.2 million, respectively. The impairment charges are recorded in the charge for restructuring and asset impairments other than goodwill line item within the
consolidated statements of operations.

Film Costs

The Company capitalizes costs incurred for film production including costs to develop, acquire and produce films, which primarily
consist of salaries, equipment and overhead costs, as well as the cost to acquire rights to films. Film costs include amounts for completed films and films still in development. Production overhead, a
component of film costs, includes allocable costs of individuals or departments with exclusive or significant responsibility for the production of the films. Interest expense associated with film
costs is not capitalized because the duration of productions is short-term in nature. Films are typically direct-to-television in nature. Film costs are stated at
the lower of cost, less accumulated amortization, or fair value. Film costs are reviewed for impairment on a title-by-title basis each quarterly reporting period. The Company
records an impairment charge when the fair value of the title is less than the unamortized cost. Examples of events or circumstances that could result in an impairment charge for film costs include
(a) an unexpected less favorable performance of a film title or event on a MSO platform or (b) a downward adjustment in the estimated future performance of a film title or event due to
an adverse change to the general business climate as was experienced during the third quarter of fiscal year 2009. Future
adjustments associated with film cost valuations could have a material impact on the Company's financial position and results of operations in future periods.

Capitalized
film costs are recognized as an expense within cost of sales using the film forecast method. Under this method, capitalized film costs are expensed based on the proportion of
the film's revenue recognized for such period relative to the film's estimated remaining ultimate revenue, not to exceed ten years. Ultimate revenue is the estimated total revenue expected to be
recognized over a film's useful life. Ultimate revenue for new film titles and events is typically estimated using actual historical performance of comparable films that are similar in nature (such as
production cost and genre). Film revenue associated with this method includes amounts from all sources on an individual-film-forecast-computation method. Estimates of ultimate
revenue are reviewed quarterly and adjusted if appropriate, and amortization is also adjusted on a prospective basis for such a change in estimate. Changes in estimated ultimate revenue could be due
to a variety of factors, including the

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proportional
buy rates of the content as compared to competitive content as well as the level of market acceptance of the television product.

Content and Distribution Rights

The Transactional TV segments' content library primarily consists of licensed films. The Company capitalizes the costs associated with
the licenses as well as certain editing and production costs and amortizes these capitalized costs on a straight-line basis over the term of the licensing agreement (generally
5 years). These costs should be amortized using a basis that is consistent with the manner in which the related film revenue is expected to be recognized. The Company amortizes the cost of
content and distribution rights on a straight-line basis because each usage of the film is expected to generate similar revenue and the revenue for the films is expected to be recognized
ratably over the related license term. The Company regularly reviews and evaluates the appropriateness of amortizing film costs on a straight-line basis as opposed to an alternative method
of amortization such as an accelerated basis. Based on these analyses, the Company has determined that the amortization of the film library costs using a straight-line basis most
accurately reflects the manner in which the revenue for the related films will be recognized.

The
Company periodically reviews the content library and assesses whether the unamortized cost approximates the fair market value of the library based on expected forecast results. In
the event that the unamortized costs exceed the fair market value of the film library, the Company will expense the excess of the unamortized costs to reduce the carrying value to the fair market
value.

Goodwill, Intangible and Long-lived Assets

The Company records goodwill when the purchase price of an acquisition exceeds the estimated fair value of the net identified tangible
and intangible assets acquired. Goodwill is tested for impairment at the operating segment level on an annual basis (March 31 for the Company) and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include, but are not limited to, a
significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. Application of the
goodwill impairment test requires judgment in the determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated using considerations of various valuation
methodologies which could include income and market valuation approaches. The income approach involves discounting the reporting unit's projected free cash flow at its weighted average cost of
capital, and the market approach considers comparable publicly traded company valuations and recent merger and acquisition valuations. The analysis requires significant judgments, including estimation
of future cash flows, which is dependent on internal forecasts; estimation of the long-term rate of growth; determination of the weighted average cost of capital; and other similar
estimates. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit. The Company allocates goodwill to each operating segment based on
the operating segment expected to benefit from the related acquisition and/or combination.

As
an overall test of the reasonableness of the estimated fair value of the reporting segments and consolidated Company, a reconciliation of the fair value estimates for the reporting
segments to the Company's market capitalization was performed as of March 31, 2010. The reconciliation considered a reasonable control premium based on merger and acquisition transactions
within the media and entertainment industry and other available information. A control premium is the amount that a buyer is willing to pay over the current market price of a company as indicated by
the traded price per share (i.e. market capitalization), in order to acquire a controlling interest. The premium is justified by the expected synergies, such as the expected increase in cash
flow resulting from cost savings and revenue enhancements.

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Other
identifiable intangible assets subject to amortization primarily include amounts paid to acquire non-compete agreements with certain key executives, contractual and
non-contractual customer relationships, intellectual property rights, patents and websites. These costs are capitalized and amortized on a straight-line basis over their
estimated useful lives which is typically five years. Intangible asset balances are removed from the gross asset and
accumulated amortization amounts in the period in which they become fully amortized or impaired and are no longer in use.

The
Company continually reviews long-lived assets that are held and used and identifiable intangible assets that are subject to amortization for possible impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of such assets, the Company considers whether
the estimated undiscounted future net cash flows of the individual assets is less than the related assets' carrying value and if so, the Company records an impairment loss for the excess recorded
carrying value of the asset as compared to its fair value.

Employee Equity Incentive Plans

The Company has an employee equity incentive plan, which is described more fully in Note 3Employee Equity Incentive
Plans. Employee equity awards are accounted for under the fair value method. Accordingly, the Company measures share-based compensation at the grant date based on the fair value of the award. The
Company uses the straight-line attribution method to recognize the fair value of the award over the related service period.

The
Company uses the Black-Scholes option pricing model to estimate the fair value of options granted. Volatility assumptions are derived using historical volatility data. The expected
term data was stratified between officers and non-officers and determined using the weighted average exercise behavior for these two groups of employees. The dividend yield assumption is
based on dividends declared by the Company's Board of Directors and estimates of dividends to be declared in the future. Share-based compensation expense is based on awards ultimately expected to
vest, reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures
were estimated based on historical experience and are stratified between officers and non-officers.

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RESULTS OF OPERATIONS

Transactional TV Segment

The following table sets forth certain financial information for the Transactional TV segment for each of the three fiscal years
presented (amounts may not sum due to rounding):

(In millions)
Year Ended March 31,

Percent Change2010

2009

2008

'10 vs '09

'09 vs '08Net revenueVOD

$
20.4

$
22.2

$
18.9


(8
)%

17
%PPV


16.1


19.5


20.8


(17
)%

(6
)%Other revenue


0.8


0.8


1.3


0
%

(38
)%Total


37.4


42.6


41.0


(12
)%

4
%Cost of sales


11.9


11.5


11.0


3
%

5
%Gross profit


25.5


31.1


30.0


(18
)%

4
%Gross profit %


68
%

73
%

73
%Operating expenses


10.3


9.5


8.6


8
%

10
%Operating income

$
15.1

$
21.6

$
21.4


(30
)%

1
%


Net Revenue

VOD

The decline in VOD revenue during fiscal year 2010 as compared to fiscal year 2009 was due to a reduction in revenue from several of
the largest cable MSOs in the U.S. We
believe the decline is due to a reduction in discretionary consumer spending in response to the economic downturn. We believe consumers that have historically purchased our content with discretionary
income have reduced or eliminated their acquisition of our content or are viewing adult content through less expensive or free alternatives such as pay and free internet websites in response to the
economic downturn. The decline in revenue was also due to a settlement of paid and unpaid historical amounts with a domestic MSO customer in fiscal year 2009 that resulted in $0.9 million of
additional revenue as further discussed below, and no similar settlement occurred in fiscal year 2010. Partially offsetting the decline in revenue was (a) a $2.1 million increase in
revenue primarily associated with new international VOD distribution, (b) a $0.6 million increase in domestic VOD revenue associated with distribution to a new cable MSO customer in the
eastern U.S., and (c) a $0.4 million increase in revenue from domestic telecommunication companies associated with their growth in subscribers.

Revenue
increased in fiscal year 2009 as compared to fiscal year 2008 due to (a) a $1.2 million increase in revenue from the largest MSO in the U.S. due to our improved
content performance and from a related increase in the quantity of content available on the platform, (b) an increase in revenue from performance improvement on several of the other top ten
largest cable MSOs in the U.S. related to new content packages and recommended changes to our customers' menu positioning, and (c) $0.9 million of incremental international revenue. The
fiscal year 2009 results also included approximately $0.9 million in additional revenue associated with settling paid and unpaid historical amounts with a domestic MSO customer. Based on a
joint research analysis with the MSO customer, we entered into an arrangement and agreed that any historical billings and payments were resolved resulting in the completion of the earning process and
settlement of the $0.9 million in revenue. We also made recommendations to the related MSO regarding process changes to prevent similar future issues, and we believe the issues that gave rise
to the adjustment are isolated to the related MSO. The increases in revenue were partially offset by a $0.7 million decline in revenue from the second largest

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cable
MSO in the U.S. because the operator increased the retail price of content during fiscal year 2009 and since the economic downturn, we believe consumers are less willing to purchase content at
the higher retail price.

PPV

Revenue from our PPV distribution declined during fiscal year 2010 as compared to fiscal year 2009 primarily due to a decrease in
revenue from the two largest DBS providers and other top ten cable MSOs in the U.S., which we believe to be primarily associated with the general economic downturn and related reduction in
discretionary consumer spending. Revenue also declined by approximately $0.6 million due to our loss of a third channel on the largest DBS provider in the U.S., which is discussed in more
detail below. The decline in revenue was partially offset by a $0.6 million increase in revenue associated with our international expansion into markets primarily in Latin America.

In
November 2009, the largest DBS provider in the U.S. decreased their distribution of our channels from three channels to two channels. The customer has the right to discontinue
carriage of any of the remaining two channels without penalty and with little advance notice. The removal of the channel in November 2009 resulted in an estimated decline in our PPV revenue of between
$0.4 million and $0.5 million during the fourth quarter of fiscal year 2010, which was the first full quarter impact of the removal of the third channel. We expect that there will be a
materially comparable decline in our PPV quarterly revenue in each of the first three quarters of fiscal year 2011 as compared to the same quarters in the prior fiscal year as a result of the removal
of the third channel.

The
decline in PPV revenue during fiscal year 2009 as compared to fiscal year 2008 was primarily due to a $1.7 million reduction in revenue from the second largest DBS provider in
the U.S. due to an increase in the number of competitors on the platform and a reduction in consumer spending related to the economic downturn. Also contributing to the decline was lower revenue from
several of the other top ten largest cable MSOs in the U.S. due to the economic downturn. We believe consumers that historically purchased our content with discretionary income reduced or eliminated
their acquisition of our content or are viewing adult content through less expensive or free alternatives such as the internet in response to the economic downturn. Partially offsetting the revenue
decline was an increase in revenue of approximately $0.9 million from the addition of a new channel on the largest DBS platform in the U.S.

Other Revenue

Other revenue primarily includes revenue from advertising on our PPV channels and from content distribution services. Other revenue in
fiscal year 2010 was consistent with fiscal year 2009. The decline in other revenue in fiscal year 2009 as compared to fiscal year 2008 was from lower C-Band revenue because we ceased
offering these services during the third quarter of fiscal year 2008. We did not incur any material costs associated with removing this service offering.

Cost of Sales

Our cost of sales primarily consists of expenses associated with our Digital Broadcast Center, satellite uplinking, satellite
transponder leases, programming acquisitions, VOD transport, amortization of content, depreciation of equipment, and related employee costs.

Cost
of sales increased during fiscal year 2010 as compared to fiscal year 2009 primarily due to (a) a $0.1 million increase in transport costs to support the increase in
VOD distribution, (b) a $0.2 million
increase in transponder and uplink costs to support additional PPV channel offerings, and (c) a $0.2 million increase in content and distribution amortization expense associated with
licensing higher quality content to attract additional consumer purchases.

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Cost of sales increased during fiscal year 2009 as compared to fiscal year 2008 due to (a) a $0.5 million increase in transport costs to support the
increase in U.S. VOD distribution, (b) a $0.4 million increase in transponder costs to support additional PPV channel offerings, and (c) a $0.3 million increase in content
and distribution amortization expense associated with licensing higher quality content to attract additional customer purchases. The increase in cost of sales was partially offset by a
$0.5 million decline in costs related to the termination of the C-Band services and a reduction in employee expenses from cost reduction efforts.

Operating Expenses and Operating Income

Operating expenses increased during fiscal year 2010 as compared to fiscal year 2009 primarily due to (a) a $0.4 million
increase in consulting fees primarily associated with new business development, and (b) a $0.4 million increase in advertising and promotion costs incurred in an effort to improve
domestic revenue. Operating income for fiscal year 2010 was $15.1 million as compared to $21.6 million for fiscal year 2009.

The
increase in operating expenses during fiscal year 2009 as compared to fiscal year 2008 was due to higher advertising and promotion costs of approximately $1.1 million which
were incurred in connection
with efforts to increase domestic revenue. This increase in costs was partially offset by a $0.3 million reduction in expenses associated with equipment and tenant improvement disposition and
impairment charges that were incurred in the prior fiscal year but did not recur in fiscal year 2009. Operating income for the fiscal years 2009 and 2008 was $21.6 million and
$21.4 million, respectively.

Film Production Segment

The following table sets forth certain financial information for the Film Production segment for each of the three fiscal years
presented (amounts in table may not sum due to rounding):

(In millions)
Year Ended March 31,

Percent Change2010(1)

2009(2)

2008(3)

'10 vs '09

'09 vs '08Net revenueOwned content

$
5.5

$
6.7

$
8.1


(18
)%

(17
)%Repped content


2.2


1.3


2.0


69
%

(35
)%Producer-for-hire and other revenue


4.3


0.5


2.9


#


(83
)%Total


12.0


8.6


13.1


40
%

(34
)%Cost of sales


6.6


3.6


5.9


83
%

(39
)%Gross profit


5.4


5.0


7.2


8
%

(31
)%Gross profit %


45
%

58
%

55
%Operating expenses


10.9


15.9


5.0


(31
)%

#Operating income (loss)

$
(5.4
)
$
(10.9
)
$
2.2


50
%

#


(1)The
fiscal year 2010 operating expenses include a $4.9 million goodwill impairment charge, a $1.2 million film cost impairment charge, and a
$0.8 million recoupable costs and producer advances impairment charge. These items are discussed in more detail below.(2)The
fiscal year 2009 operating expenses include a $10.0 million goodwill impairment charge and a $1.1 million film cost impairment charge.
These items are discussed in more detail below.


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(3)The
fiscal year 2008 operating expenses include a $0.7 million film cost impairment charge and a net $0.2 million reversal of
earn-out accrual expenses. These items are discussed in more detail below.#Represents
an increase or decrease in excess of 100%.


Net Revenue

Owned Content

Owned content revenue declined during fiscal year 2010 as compared to fiscal year 2009 primarily due to a $0.9 million decline
in revenue from premium cable channel customers related to the delivery of episodic series. We recognized revenue in fiscal year 2010 from a premium cable channel customer for the remaining partial
delivery of the third installment of an episodic series, whereas in fiscal year 2009, we recognized the full revenue from the delivery of the second installment of an episodic series as well as
revenue from the initial partial delivery of the third installment of an episodic series. We also completed the production of a fourth installment of an episodic series in fiscal year 2010 and expect
to deliver and recognize revenue of between $1.7 million and $1.8 million for this series during the first half of fiscal year 2011, and we expect our total production costs for this
series will be approximately $1.1 million. Also contributing to the decline in revenue in fiscal year 2010 was lower revenue from the second largest DBS provider in the U.S. because fewer owned
content titles were distributed on that platform in fiscal year 2010 as compared to the prior fiscal year.

The
revenue decline in fiscal year 2009 as compared to fiscal year 2008 is due to (a) a $0.7 million decline in revenue from a large PPV aggregator that no longer
distributes our content, (b) a $0.4 million decline in revenue from the largest DBS provider in the U.S. because our content was moved to a more competitive location within that
provider's electronic programming guide, (c) a $0.4 million decline in certain horror film revenue generated through an arrangement with a mainstream film distributor due to less
favorable film performance, and (d) a general decline in revenue believed to be due to unfavorable economic conditions in the film markets during the second half of fiscal year 2009. We believe
the unfavorable economic conditions caused potential customers to reduce or eliminate acquisitions of our content in an effort to reduce spending which resulted in the execution of fewer owned content
deals. The decline in owned content revenue was partially offset by a $0.5 million increase in revenue from new VOD distribution on U.S. cable platforms.

Repped Content

Repped content revenue includes revenue from the licensing of film titles that we represent (but do not own) under domestic and
international sales agency relationships with various film producers.

The
increase in revenue in fiscal year 2010 as compared to fiscal year 2009 was primarily due to (a) a $0.4 million increase in revenue from the new distribution of repped
content on domestic VOD platforms and through retail DVD markets, and (b) a $0.2 million increase in revenue from the distribution of content to home video and VOD platforms through our
arrangements with mainstream film distributors. We also believe that our ability to represent and distribute mainstream film titles with
widely recognized actors and actresses has contributed to the improvement in repped content revenue as compared to the prior fiscal year.

The
decline in repped content revenue during fiscal year 2009 as compared to fiscal year 2008 was believed to be due to the impact of unfavorable economic conditions on the independent
film market consistent with the conditions described above within the owned content revenue discussion.

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Producer-for-hire and Other Revenue

Producer-for-hire and other revenue relates to amounts earned through producer-for-hire
arrangements, music royalty fees and the delivery of other miscellaneous film materials to distributors. Approximately $2.6 million of the increase in revenue during fiscal year 2010 as
compared to fiscal year 2009 is due to our completion of a producer-for-hire arrangement with a major Hollywood studio in fiscal year 2010. We also recognized approximately
$1.3 million of revenue associated with the initial delivery of films from a second producer-for-hire arrangement. We expect to recognize between approximately
$0.7 million and $0.8 million of revenue in the first quarter of fiscal year 2011 associated with the remaining delivery of films from the second
producer-for-hire arrangement.

Producer-for-hire
and other revenue declined in fiscal year 2009 as compared to fiscal year 2008 because we did not generate revenue from a
producer-for-hire arrangement during fiscal year 2009 whereas in fiscal year 2008, we recognized approximately $2.5 million of revenue from a
producer-for-hire arrangement.

Cost of Sales

Our cost of sales is primarily comprised of the amortization of our owned content film costs as well as delivery and distribution costs
related to that content. These expenses also
include the costs we incur to provide producer-for-hire services. There is no significant cost of sales related to the repped content services.

Cost
of sales increased during fiscal year 2010 as compared to fiscal year 2009 due to $3.2 million of producer-for-hire costs associated with the
completion of a producer-for-hire arrangement and the partial delivery of films related to a second producer-for-hire arrangement. The increase in costs
was partially offset by a decline in film cost amortization consistent with the decline in owned content revenue. Film cost amortization as a percentage of the related owned content revenue during
fiscal year 2010 was 47% as compared to 39% during fiscal year 2009. Film cost amortization as a percentage of owned content revenue has increased because the prior year periods included a larger
proportion of revenue from older titles whose film costs had been fully amortized.

The
decline in cost of sales during fiscal year 2009 as compared to the prior fiscal year was primarily due to (a) a $2.1 million decline in costs related to a
producer-for-hire deal that occurred during the prior fiscal year but no similar producer-for-hire deals recurred during fiscal year 2009, and
(b) a decline in film cost amortization related to the decline in owned content revenue. Film cost amortization as a percentage of the related owned content revenue during fiscal years 2009 and
2008 was 39% and 34%, respectively.

Operating Expenses and Operating Income (Loss)

Operating expenses declined during fiscal year 2010 as compared to fiscal year 2009 primarily because the fiscal year 2009 results
included a $10.0 million non-cash goodwill impairment charge and a $1.1 million non-cash film cost impairment charge whereas the fiscal year 2010 results included
a $4.9 million non-cash goodwill impairment charge and a $1.2 million non-cash film cost impairment charge. These impairment charges are discussed in additional
detail below. Operating expenses in fiscal year 2010 also included approximately $0.8 million of recoupable costs and producer advances impairment charges because we do not believe the amounts
can be recovered through future sales of the related repped content. Operating expenses declined in fiscal year 2010 by approximately $0.4 million due to a reduction in tradeshow and travel
costs associated with efforts to further reduce expenses in response to the economic downturn. Operating loss for fiscal year 2010 was $5.4 million as compared to $10.9 million in fiscal
year 2009.

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Operating
expenses increased during fiscal year 2009 as compared to fiscal year 2008 due to (a) a $10.0 million non-cash goodwill impairment charge, and (b) a
$1.1 million non-cash impairment charge for certain owned content film costs. The prior fiscal year 2008 operating expense results included a $0.7 million non-cash film cost impairment
charge which was partially offset by the reversal of $0.2 million in net earn-out accrual expenses that had been previously accrued but were reversed because the former principals
of MRG did not achieve the required performance targets. The Film Production segment's operating loss was $10.9 million for fiscal year 2009 as compared to operating income of
$2.2 million for fiscal year 2008.

Goodwill Impairment Charge

Throughout fiscal year 2010, the Company did not identify any indications of goodwill impairment within the Film Production segment,
and the results of the segment in fiscal year 2010 were consistent with the Company's internal forecast excluding the goodwill and other impairment charges. As part of our year end procedures, we
performed a goodwill impairment analysis as of March 31, 2010. We engaged an independent firm to assist us in performing the impairment test. The income and market valuation approaches were
considered in determining the estimated fair value of the Film Production segment. Using these methods, we determined that the estimated fair value of the Film Production segment was less than its
carrying value as of March 31, 2010. We then performed additional analysis to estimate the implied fair value of goodwill. We determined the implied fair value of the goodwill by first
allocating the estimated fair value of the Film Production segment to the tangible and identifiable intangible assets and liabilities of the operating segment. The excess of the estimated fair value
over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. Based on this analysis, we recorded a goodwill impairment charge in the fourth quarter of fiscal year
2010 of $4.9 million to reduce the Film Production segment's goodwill from $4.9 million to the implied fair value of goodwill of zero. Although the fiscal year 2010 performance of the
Film Production segment was consistent with our internal forecasts (excluding the impact of impairment charges), conditions within the film markets continue to be challenging. Based on our historical
and current experience within the film production markets and in connection with our year end annual goodwill impairment test, we modified our five year forecast for the Film Production segment
downward to reflect our estimate that film market conditions will remain depressed and decline further. As a result of our downward adjustment to the five year forecast, we incurred a goodwill
impairment charge in fiscal year 2010. See additional discussion at the Fiscal Year 2010 Goodwill Impairment Testing section below.

During
the third quarter of fiscal year 2009, we determined that continued adverse changes in the business climate and material revisions to the Film Production segment's internal three
year forecasts based on lower than expected revenue for the third quarter of fiscal year 2009 were events that could indicate that the fair value of the reporting unit was less than its carrying
amount. We therefore engaged an independent firm to assist us in performing an impairment test. The income and market valuation approaches were considered in determining the estimated fair value of
the Film Production segment. Using these methods, we determined that the estimated fair value of the Film Production segment was less than its carrying value at December 31, 2008. We then
performed additional analysis to estimate the implied fair value of goodwill. Based on this analysis, we recorded a goodwill
impairment charge during the third quarter of fiscal year 2009 of $10.0 million to reduce the Film Production segment's goodwill from $14.9 million to the implied fair value of goodwill
of $4.9 million.

Film Cost Impairment Charge

During the fourth quarter of fiscal year 2010, we recorded a non-cash impairment expense of approximately
$1.2 million associated with several Film Production segment owned content films and events. As part of our quarterly film performance analysis and in connection with our annual goodwill
impairment analysis, we estimated that conditions within the film markets would continue to be

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Table of Contents

challenging
and adjusted downward the Film Production segment's forecasts as well as certain estimated future film and event performance. As a result of the downward adjustment to certain estimated
future film and event performance, we recorded an impairment charge of approximately $1.2 million representing the difference in the unamortized film costs and the estimated fair value of the
related films and events. This difference was recorded as an asset impairment charge within the Film Production segment's operating expenses. The fair value of the films and events was estimated by
discounting the film or event's projected cash flow by the weighted average cost of capital.

During
the third quarter of fiscal year 2009, we recorded a non-cash impairment expense of approximately $1.1 million associated with several Film Production segment
owned content films and events. During that quarter and as part of our process to continually assess the expected performance of owned content, we determined that downward adjustments to the estimated
performance of the films and events should be recorded as a result of adverse changes to the business climate as discussed above. As a result, we recorded an impairment charge of approximately
$1.1 million representing the difference in the unamortized film costs and the estimated fair value of the films and events. This difference was recorded as an asset impairment charge within
the Film Production segment's operating expenses. The fair value of the films and events was estimated by discounting the film or event's projected cash flow by the weighted average cost of capital.

During
the third quarter of fiscal year 2008, we recorded a non-cash impairment expense of approximately $0.7 million associated with several Film Production segment
owned content films and events. The films and events were originally valued when we acquired the Film Production segment in 2006. During the quarter ended December 31, 2007, we obtained initial
revenue data that indicated the actual performance of the films and events would not meet the original estimates that were established when we acquired the Film Production segment. As a result, we
lowered our estimate of the expected future benefits to be derived from these films and events and recorded an impairment charge of approximately $0.7 million representing the difference in the
unamortized film costs and the estimated fair value of the films and events. The fair value of the films and events was estimated by discounting the film or event's projected cash flow by the weighted
average cost of capital.

Direct-to-Consumer Segment

The following table sets forth certain financial information for the Direct-to-Consumer segment for each of the
three fiscal years presented (amounts in table may not sum due to rounding):

(In millions)
Year Ended March 31,

Percent Change2010

2009

2008

'10 vs '09

'09 vs '08Net revenueNet membership

$
0.9

$
1.2

$
1.4


(25
)%

(14
)%Other revenue


0.1


0.2


0.4


(50
)%

(50
)%Total


1.0


1.5


1.8


(33
)%

(17
)%Cost of sales


1.4


0.9


0.8


56
%

13
%Gross profit (loss)


(0.3
)

0.5


1.0


#


(50
)%Gross profit %


^


33
%

56
%Operating expenses


0.6


0.9


1.0


(33
)%

(10
)%Operating income (loss)

$
(0.9
)
$
(0.3
)
$
0.1


#


#


#Represents
an increase or decrease in excess of 100%.^Information
is not meaningful.


40

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Net Revenue

Net Membership

We believe the decline in net membership revenue during fiscal year 2010 as compared to fiscal year 2009 was primarily due to the
economic downturn and a related reduction in consumer spending. Net membership revenue during fiscal year 2009 was consistent with fiscal year 2008.

Other Revenue

Other revenue primarily relates to the sale of content to other webmasters and wireless platforms. Other revenue in fiscal year 2010
was generally consistent with fiscal year 2009. We believe other revenue declined during fiscal year 2009 as compared to fiscal year 2008 as a result of the general economic downturn and a related
reduction in spending by our customers.

Cost of Sales

Cost of sales consists of expenses associated with credit card processing, bandwidth, traffic acquisition, content amortization,
depreciation of equipment, and related employee costs.

The
increase in cost of sales during fiscal year 2010 as compared to fiscal year 2009 was primarily due to additional employee costs incurred in an effort to improve our website
membership revenue. Cost of sales in fiscal year 2009 as compared to fiscal year 2008 was relatively flat.

Operating Expenses and Operating Income (Loss)

Operating expenses declined during fiscal year 2010 as compared to fiscal year 2009 primarily as a result of a $0.3 million
reduction in website maintenance fees. Operating expenses were also lower because the fiscal year 2009 results included a $0.2 million settlement expense associated with a vendor and no similar
expenses were incurred in fiscal year 2010. The decline in operating expenses was partially offset by a $0.3 million intangible asset impairment charge discussed in further detail below. The
Direct-to-Consumer segment incurred an operating loss of $0.9 million in fiscal year 2010 as compared to an operating loss of $0.3 million in fiscal year 2009.

Operating
expenses in fiscal year 2009 were relatively flat as compared to fiscal year 2008, and the Direct-to-Consumer segment incurred an operating loss of
$0.3 million in fiscal year 2009 as compared to operating income of $0.1 million in fiscal year 2008.

Intangible Assets Impairment Charge

During the fourth quarter of fiscal year 2010, we determined that certain internally developed websites and related software used to
manage our consumer websites no longer met our quality standards. Additionally, the software did not provide sufficient support or functionality for content management, database interface, consumer
facing websites, or accumulation or reporting of website traffic. As a result, we ceased using the websites and software, and we determined the websites
and software would not provide us with service potential in the future. As a result, we recorded an impairment charge of $0.3 million to reduce the fair value of the websites and related
software to zero.

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Corporate Administration

The following table sets forth certain financial information for the Corporate Administration segment for each of the three fiscal
years presented:

(In millions)
Year Ended March 31,

Percent Change2010

2009

2008

'10 vs '09

'09 vs '08Operating expenses

$
8.8

$
9.9

$
10.4


(11
)%

(5
)%


Expenses
related to the Corporate Administration segment include all costs associated with the operation of the public holding company, New Frontier Media, Inc., that are not
directly allocable to the Transactional TV, Film Production, or Direct-to-Consumer operating segments. These costs include, but are not limited to, legal expenses, accounting
expenses, human resource department costs, insurance expenses, registration and filing fees with NASDAQ, executive employee costs, and costs associated with our public company filings and shareholder
communications. Our focus for this operating segment is balancing cost containment with the need for administrative support for the growth of the Company.

Corporate
administration expenses declined in fiscal year 2010 as compared to fiscal year 2009 primarily due to (a) a $0.7 million decline in audit, accounting and related
third-party advisor fees from ongoing cost reduction efforts, (b) a $0.1 million decline in external legal fees, and (c) a $0.1 million decline in tradeshow and travel
costs. Operating expenses also declined as a result of our efforts to renegotiate our contracts with vendors in order to obtain more favorable fee structures.

Corporate
administration expenses were lower in fiscal year 2009 as compared to fiscal year 2008 primarily due to a $0.5 million decline in employee costs primarily related to a
reduction in executive bonus accruals and from lower legal and human resource costs of $0.2 million related to organizational improvements. The reduction in costs was partially offset by an
increase in third party advisor fees of approximately $0.1 million and higher stock option expenses from grants that occurred during the first quarter of fiscal year 2009.

Fiscal Year 2010 Goodwill Impairment Testing

Goodwill impairment testing requires us to use judgment in determining assumptions for the analysis. We performed annual goodwill
impairment tests for the Transactional TV and Film Production segments at March 31, 2010. The market and income valuation approaches were considered in determining the estimated fair value of
the segments. The market valuation approach requires us to estimate and consider market multiples for companies considered to be comparable to ours. There is a lack of comparable public companies to
consider for the market valuation approach; however, we believe the comparable companies considered are reasonably similar to our operations. The income valuation approach requires us to consider the
projected operating results and cash flows of the segments discounted by a risk adjusted discount rate. The projected results include estimates of revenue, cost of sales, operating expenses, content
acquisitions, capital expenditures and other related cash flows and activities over a five year future period. For the Transactional TV segment, the market valuation approach was more heavily weighted
than the income approach because (a) the overall Company valuation is believed to be primarily based on the performance and results of the Transactional TV segment, and (b) the results
of the Transactional TV segment represent the large majority of the Company's overall activity. For the Film Production segment, the valuation methodologies were weighted equally.

The
Company assumed an average annual growth (decline) rate of 10.6% and (1.7)% for the Transactional TV and Film Production segments, respectively, based on both company-specific and
general economic risk. The Company used a weighted average cost of capital of 28% and 25% for the

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risk
adjusted discount rates for the Transactional TV and Film Production segments, respectively. The weighted average cost of capital was determined by considering comparable companies and their cost
of equity, cost of debt, capital structure and other specific risk factors. The fair value of the Transactional TV segment exceeded the carrying value by approximately 46%, and the fair value of the
Film Production segment was less than the carrying value by approximately 30%. A 1% change in the growth rate would cause the percentage by which the Transactional TV segment's fair value exceeded the
carrying value to change by approximately 300 basis points, and the percentage by which the Film Production segment's fair value was less than the carrying value to change by approximately 200 basis
points. A 1% change in the weighted average cost of capital would cause the percentage by which the Transactional TV segment's fair value exceeded the carrying value to change by approximately 200
basis
points, and the percentage by which the Film Production segment's fair value was less than the carrying value to change by approximately 100 basis points.

Due
to the continued pressure on the Company's stock price during fiscal year 2010, the Company's market capitalization was less than its shareholders' equity balance at March 31,
2010. As an overall test of the reasonableness of the estimated fair value of the reporting segments and consolidated Company, a reconciliation of the fair value estimates for the reporting segments
to the Company's market capitalization was also performed as of March 31, 2010. The reconciliation reflected an implied control premium of 55%, which is reflective of historical merger and
acquisition transactions involving comparable companies as well as other relevant information. Based on the reconciliation, the Company's fair value was in excess of its shareholders' equity balance
by approximately 18% and there was no indicator of additional goodwill impairment. A 1% change in the control premium would cause the percentage by which the fair value exceeded the shareholders'
equity balance to change by approximately 100 basis points.

Other Income (Expense) and Provision for Income Taxes

Other Income (Expense)

The following table sets forth certain financial information for other income (expense) for each of the three fiscal years presented:

(In millions)
Year Ended March 31,

Percent Change2010

2009

2008

'10 vs '09

'09 vs '08Other income (expense)

$
(0.2
)
$
0.4

$
0.7


#


(43
)%


#Represents
an increase or decrease in excess of 100%.


Amounts
included in other income (expense) primarily relate to interest expense on our line of credit borrowings; interest expense on our uncertain tax positions; and interest income
from our cash, cash equivalents and investments.

The
change in other income (expense) in fiscal year 2010 as compared to fiscal year 2009 is primarily because the fiscal year 2009 results included the reversal of approximately
$0.4 million of interest expense associated with the reversal of uncertain tax position liabilities due to the expiration of the statute of limitations. There was no similar reversal of
interest expense during fiscal year 2010. Also contributing to the change was an increase in interest expense in fiscal year 2010 associated with an outstanding line of credit balance throughout the
fiscal year. We had no outstanding line of credit balance until the third quarter of fiscal year 2009.

The
decline in other income (expense) in fiscal year 2009 as compared to fiscal year 2008 was primarily due to a decline in interest income associated with a decline in investments
balances as well as interest rates as compared to fiscal year 2008. The investments were redeemed and used to pay

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dividends
and repurchase stock in fiscal year 2008. Also contributing to the decline was an increase in interest expense associated with an outstanding line of credit balance during the second half of
fiscal year 2009.

Provision for Income Taxes

During fiscal year 2010, we performed a research and development tax credit study. The study considered fiscal years for which amended
or current tax returns could be filed. We concluded that we were eligible for research and development tax credits that would result in a reduction in the provision for income tax expense for the
noted fiscal years as follows (in thousands):

March 31,2009(1)

$
2172008(1)


1692007


1292006


86Total

$
601


(1)Approximately
$25,000 and $3,000 of research and development tax credits during the fiscal years ended March 31, 2009 and 2008, respectively, related
to discontinued operations.


We
filed amended and current tax returns during the third quarter of fiscal year 2010 for each of the fiscal years noted above and included the research and development tax credits
identified in the study. As a result of the filings, we recorded a reduction in the provision for income tax expense of $0.6 million during the third quarter of fiscal year 2010. We also
estimated that we will utilize research and development tax credits during fiscal year 2010 of between $0.1 million and $0.2 million. Approximately $0.1 million of the estimated
fiscal year 2010 tax credit was reflected in the third quarter of fiscal year 2010 and the remaining amount was reflected in the fourth quarter of fiscal year 2010. We also recorded a non-cash
goodwill impairment charge of $4.9 million within our Film Production segment in the fourth quarter of fiscal year 2010, and the impairment charge was a non-deductible
expense for purposes of the fiscal year 2010 tax return. No other discreet items had a material impact on our tax rate during fiscal year 2010.

During
fiscal year 2009, we recorded a non-cash goodwill impairment charge of $10.0 million within our Film Production segment. The impairment charge was a
non-deductible expense for purposes of our fiscal year 2009 tax return. Additionally, the statute of limitations expired on approximately $1.6 million of uncertain tax positions in
fiscal year 2009. This reversal of uncertain tax positions resulted in a $0.4 million reduction in tax expense and a $0.4 million reversal of related interest expense during the third
quarter of fiscal year 2009.

See
Note 10Income Taxes within the Notes to Consolidated Financial Statements for additional information on our tax provision.

Discontinued Operations

The Direct-to-Consumer segment acquired certain intellectual property rights to an IPTV set-top box
and other intangible assets in late fiscal year 2008 in an effort to expand the product lines that are delivered directly to consumers. The intellectual property rights technology allowed us to
manufacture a device through which consumers could obtain content directly through the internet and view the content on television. Based primarily on (a) lower than expected subscriber
additions for the IPTV business model during the second half of fiscal year 2009, (b) the significant downturn in economic

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conditions
and related reduction in consumer spending during the second half of fiscal year 2009, and (c) slower than expected development of new product lines, we restructured the
Direct-to-Consumer segment operations as it relates to these new product lines. Although we continued to operate the IPTV set-top box business and other new
Direct-to-Consumer product lines through the first nine months of fiscal year 2009, we materially changed the nature of those operations and dedicated fewer resources towards
marketing and generating revenue for the products. Based on the change in operations and an analysis of the future expected benefits, we determined that certain intangible assets associated with the
related new product lines were impaired and recorded a $0.9 million non-cash intangible asset impairment charge in the fourth quarter of fiscal year 2009. Additionally, several
contracts were cancelled prior to the end of the related term in connection with the restructuring and as a result, we also incurred an early contract termination fee of approximately
$0.2 million in the fourth quarter of fiscal year 2009 which was paid in April 2009.

During
fiscal year 2010, the Company entered into arrangements with third-party affiliates to distribute the IPTV set-top box in Europe and the U.S. Throughout fiscal year
2010, these affiliates marketed the IPTV set-top box product through a variety of advertising programs including print, billboards and other miscellaneous media. The performance of the
IPTV set-top box business in fiscal year 2010 was lower than expected and as a result, the Company implemented a plan to discontinue the operations of the IPTV set-top box
business in the fourth quarter of fiscal year 2010. As a result, the Company recorded an inventory obsolescence impairment charge of $0.1 million and an equipment impairment charge of
$0.1 million. The Company has classified approximately $0.1 million of certain equipment as held for sale based on, among other things, the Company's intent and ability to sell the
assets. The assets held for sale are reflected in the prepaid and other assets line item in the consolidated balance sheets. We do not expect to incur material expenses or cash flows in the future
associated with the discontinued operations.

LIQUIDITY AND CAPITAL RESOURCES

Our current priorities for the use of our cash and cash equivalents are:



We
anticipate that our existing cash, cash equivalents and cash flows from operations will be sufficient during the next 12 months to satisfy our operating requirements. We also
anticipate that we will be able to fund our estimated outlay for capital expenditures, repayment of outstanding debt and other related purchases that may occur during the next 12 months through
our available cash, cash equivalents and our expected cash flows from operations during that period.

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Operating and Investing Cash Flow Activities of Continuing Operations:

Our operating and investing cash flow activities of continuing operations for each of the three fiscal years presented are as follows
(amounts in table may not sum due to rounding):

(In millions)
Year Ended March 31,2010

2009

2008Net cash provided by operating activities of continuing operations

$
6.5

$
10.7

$
8.4Cash flows from investing activities:Purchases of investments


(1.0
)

(2.0
)

(2.8
)Redemptions of investments


1.1


2.8


11.2Purchases of equipment and furniture


(1.1
)

(2.3
)

(1.9
)Purchases of intangible assets


(0.1
)

(0.3
)

Payment of related party note arising from business acquisition





(0.0
)

(0.6
)Net cash provided by (used in) investing activities of continuing operations

$
(1.1
)
$
(1.8
)
$
5.8


Cash flows from operating activities of continuing operations

Cash provided by operating activities of continuing operations during fiscal year 2010 as compared to fiscal year 2009 was primarily
impacted by the following:



The
changes in cash flows from operating activities of continuing operations during fiscal year 2009 compared to the fiscal year 2008 primarily reflect the
following:



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Cash
flows from operating activities during fiscal years 2010 and 2009 were significantly higher as compared to the operating loss incurred as a result of non-cash goodwill
and other asset impairment charges.

Cash flows from investing activities of continuing operations

Cash from investing activities of continuing operations during fiscal year 2010 included approximately $0.1 million of cash
received from net redemptions of investments, approximately $1.1 million of cash used to purchase equipment and furniture, and approximately $0.1 million of cash disbursements associated
with purchases of intangible assets within our Direct-to-Consumer segment. We expect cash used for capital expenditures will increase in fiscal year 2011 in order to improve
our current infrastructure capacity to support the international distribution growth within the Transactional TV segment.

Cash
used in investing activities of continuing operations during fiscal year 2009 reflected approximately $0.8 million of cash received from net redemptions of investments.
Approximately $2.3 million of cash was used for capital expenditures primarily to acquire additional electronic storage equipment for our Transactional TV segment and to upgrade certain
administrative hardware and software, such as our financial reporting system. We also used approximately $0.3 million to purchase intangible assets associated with our internet website
operations within the Direct-to-Consumer segment.

The
increase in cash provided by investing activities of continuing operations during fiscal year 2008 was primarily related to the net $8.4 million of cash received from the
redemption of investments. Capital expenditures of $1.9 million primarily related to purchases of servers and editing equipment to maintain our Digital Broadcast Center and computers. The
related party note payable disbursement of $0.6 million was paid to the former principals of MRG from whom we acquired the Film Production segment.

Cash Flows from Financing Activities of Continuing Operations:

Our cash flows from financing activities of continuing operations for each of the three fiscal years presented are as follows (amounts
in table may not sum due to rounding):

(In millions)
Year Ended March 31,2010

2009

2008Cash flows from financing activities:Payments on short-term debt

$
(6.0
)
$


$
Proceeds from short-term debt


3.0


4.0


Purchases of common stock


(0.1
)

(9.1
)

(3.9
)Payment of long-term seller financing


(0.1
)




Payment of dividends





(3.0
)

(9.0
)Proceeds from stock option and warrant exercises








0.5Excess tax (shortfall) benefit from option/warrant exercises








(0.1
)Net cash used in financing activities of continuing operations

$
(3.2
)
$
(8.0
)
$
(12.5
)


Our
cash flows from financing activities of continuing operations during fiscal year 2010 were primarily impacted by net payments on short-term debt of $3.0 million.
Also impacting the cash flows from financing activities was $0.1 million used to repurchase approximately 62,000 shares of common

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stock
at an average purchase price of $1.99 per share, and $0.1 million in payments for long-term seller financing related to our purchase of a patent in fiscal year 2008.

Net
cash used in financing activities of continuing operations during fiscal year 2009 included $9.1 million for the purchase of approximately 4.3 million shares of our
common stock and $3.0 million in payments for cash dividends that were declared in the fourth quarter of fiscal year 2008 and paid in the first quarter of fiscal year 2009. We borrowed
$4.0 million from our line of credit to support our working capital needs.

Net
cash used in financing activities of continuing operations during fiscal year 2008 reflected $9.0 million in payments for quarterly cash dividends and $3.9 million for
the purchase of approximately 0.6 million shares of common stock through our stock repurchase plan. This use of cash was slightly offset by $0.5 million in proceeds from the exercise of
stock options. The excess tax (shortfall) benefit related to the tax deductions that we received upon exercise of options by employees or non-employee directors in excess of those
anticipated at the time of the option grants, and amounts were immaterial in fiscal year 2008.

Stock Repurchase and Cash Dividends

Stock Repurchase

In June 2008, our Board of Directors extended a share repurchase plan allowing for the repurchase of approximately 1.1 million
shares of common stock through June 2010. During the six month period ended September 30, 2008, we substantially completed the share repurchase plan and repurchased approximately
1.1 million shares for a total purchase price of approximately $4.3 million. The repurchased shares were returned to authorized but unissued shares of common stock in accordance with
Colorado law.

On
November 14, 2008, we entered into a Stock Purchase Agreement pursuant to which a shareholder agreed to sell and we agreed to purchase approximately 2.6 million shares
of our common stock for a cash purchase price of $1.55 per share or an aggregate purchase price for all of the shares of approximately $4.1 million. We funded the acquisition of the shares with
available cash.

On
March 11, 2009, we purchased through one broker in an unsolicited single block trade approximately 0.5 million shares of our common stock for a cash purchase price of
$1.30 per share, or an aggregate purchase price for all of the shares of approximately $0.7 million. The acquisition was funded with available cash.

On
August 28, 2009, our Board of Directors adopted a new stock repurchase program. Under the program, we may purchase with available cash and cash from operations up to
1.0 million shares of the Company's outstanding common stock, from time to time through open market or privately negotiated transactions, as market and business conditions permit. The program
will expire in March 2012. We have repurchased approximately 0.1 million shares through this repurchase program as of March 31, 2010.

Cash Dividends

During each of the quarters in fiscal year 2008, our Board of Directors declared a quarterly cash dividend of $0.125 per share of
common stock. We paid approximately $9.0 million in cash dividends through March 31, 2008. Additionally, as of March 31, 2008, we had a dividend payable of $3.0 million
that was subsequently paid in April 2008. The Board of Directors did not declare a quarterly dividend during fiscal year 2009 or 2010, and the payment of future quarterly dividends is at the
discretion of the Board of Directors. We currently have no plans to effect any further dividends; however, we will continue to evaluate available methods to enhance shareholder value, whether in the
form of cash dividends or otherwise.

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Borrowing Arrangements

On December 15, 2009, our former line of credit matured and we obtained a new line of credit from a financial institution. The
line of credit is secured by certain trade accounts and accounts receivable, is scheduled to mature on December 15, 2010, and bears interest at the greater of (a) the current prime rate
less 0.125 percentage points per annum or (b) 5.75% per annum. The remainder of the line of credit may be drawn from time to time to support our operations and short-term
working capital needs, if any. A loan origination fee of 0.5% of the available line was paid upon the execution of the line of credit. The line of credit includes a maximum borrowing base equal to the
lesser of 75% of the trade accounts and accounts receivable securing the line of credit or $5.0 million, and the maximum borrowing base at March 31, 2010 was $5.0 million.

The
line of credit contains both conditions precedent that must be satisfied prior to any borrowing and affirmative and negative covenants customary for facilities of this type,
including, without limitation, (a) a requirement to maintain a current asset to current liability ratio of at least 1.5 to 1.0, (b) a requirement to maintain a total liability to
tangible net worth ratio not to exceed 1.0 to 1.0, (c) prohibitions on additional borrowing, lending, investing or fundamental corporate changes without prior consent, (d) a prohibition
on declaring without consent any dividends, other than dividends payable in our stock, and (e) a requirement that there be no material adverse change in our current client base as it relates to
our largest clients. The line of credit provides that an event of default will exist in certain circumstances, including without limitation, our failure to make payment of principal or interest on
borrowed amounts when required, failure to perform certain obligations under the line of credit and related documents, defaults in certain other indebtedness, our insolvency, a change in control, any
material adverse change in our financial condition and certain other events customary for facilities of this type. As of March 31, 2010, our outstanding principal balance under the line of
credit was $1.0 million, and we were in compliance with the related covenants.

Commitments and Contingencies

Contractual Cash Obligations

The following table reflects our contractual cash obligations as of March 31, 2010 for each of the fiscal year time periods
specified (amounts may not sum due to rounding):

Payments Due by Period (In millions):Contractual Obligations

Total

2011

2012 - 2013

2014 - 2015

2016 and thereafterOperating lease obligations

$
3.9

$
1.9

$
1.7

$
0.4

$
Vendor obligations


10.3


2.6


3.2


2.0


2.5Line of credit


1.0


1.0








Employment contract obligations


8.8


4.5


3.9


0.5


Total

$
24.1

$
9.9

$
8.8

$
2.9

$
2.5


For
the purposes of this table, contractual obligations are defined as agreements that are enforceable and legally binding and that specify all significant terms, such as fixed or
minimum services to be purchased and the approximate timing of the transaction. Obligations to acquire specified quantities of movie license rights that are subject to the delivery of the related
movies are included in vendor obligations because we estimate that the movies will be delivered in the specified time periods.

We
maintain non-cancelable leases for office space and equipment under various operating leases. The leases for office space expire through November 2013 and contain annual
Consumer Price Index escalation clauses. Our Transactional TV segment has entered into direct lease agreements that expire through December 2010 with an unrelated party for the use of transponders to
broadcast its channels on satellites. We expect to have continued access to transponders subsequent to the expiration of the

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current
leases. As the lessee of transponders under the transponder agreements, we are subject to arbitrary refusal of service by the service provider if that service provider determines that the
content being transmitted by us is harmful to the service provider's name or business. Any such service disruption would substantially and adversely affect the financial position and results of
operations. We also bear 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. Additionally, cable operators may be reluctant to carry less edited or partially edited adult programming on their systems. If either of the above scenarios occurred, it could adversely
affect our financial position and results of operations. We had no equipment under capital lease at March 31, 2010 or 2009.

From
time to time, we enter into arrangements with movie studios to acquire license rights for a fixed and/or minimum quantity of movies over various purchase periods as defined by the
agreements. Additionally, we are party to certain uplinking, transport and marketing services that contractually obligate us to receive services over specified terms as per these arrangements. We are
also obligated to make future payments associated with our purchase of patent rights. These contractual obligations are reflected in the above table as vendor obligations.

We
have recorded long-term income taxes payable of $0.3 million for uncertain tax positions, reduced by the associated federal deduction for state taxes. We are unable
to reliably estimate the timing of future payments, if any, related to these uncertain tax positions. Therefore, the amounts have been excluded from the above table.

Uncertain Tax Positions

We had total unrecognized tax benefits of approximately $0.3 million at March 31, 2010 that are not expected to be
settled within one year and have been classified within long-term taxes payable. If we were to prevail or the uncertainties were settled in our favor for all uncertain tax positions, the
net effect is estimated to be a benefit to tax expense of approximately $0.3 million. As of March 31, 2010, we had accrued immaterial amounts of interest expense related to uncertain tax
position liabilities. There were no material changes in our unrecognized tax benefits during fiscal year 2010.

During
fiscal year 2009, the statute of limitations expired on approximately $1.6 million of uncertain tax positions resulting in a decline in the uncertain tax position balance
as reflected in the current portion of taxes payable. This reversal of the uncertain tax positions resulted in a $0.4 million reduction in our current period tax expense and a
$0.4 million reversal of related interest expense. Approximately $1.1 million of the reversal of the uncertain tax position liabilities was recorded as an increase to additional
paid-in capital because the amount was originally recorded as a reduction of additional paid-in capital and had no impact on income tax expense.

We
file U.S. federal, state and foreign income tax returns. During fiscal year 2009, we concluded an audit by the Internal Revenue Service ("IRS") for the fiscal year 2007, and
the IRS proposed no changes to the fiscal year 2007 tax return in connection with the audit. There are currently no tax audits in process with taxing authorities. With few exceptions, we are no longer
subject to examination of our federal and state income tax returns for years prior to fiscal year 2006.

RECENT ACCOUNTING PRONOUNCEMENTS

See Recently Issued Accounting Pronouncements in Note 1Organization and Summary of Significant Accounting Policies
within the Company's Financial Statements and Supplementary Data commencing on page F-2 herein.

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market Risk.The Company's exposure to market risk is principally confined to cash in deposit accounts and money market accounts and,
therefore,
minimal and immaterial market risk.

Interest Rate Sensitivity.Changes in interest rates could impact our anticipated interest income on cash, cash equivalents and
investments. An
adverse change in interest rates in effect at March 31, 2010 would not have a material impact on the Company's net loss or cash flows.

Changes
in interest rates could also impact the amount of interest we pay on borrowings under our line of credit. A 10% adverse change in the interest rates on borrowings under our line
of credit would not have a material impact on the Company's interest expense.

Foreign Currency Exchange Risk.The Company does not have material foreign currency transactions.

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-2 of this Report and are incorporated herein by reference.

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

None.

ITEM 9A.    CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Based on management's evaluation (with the participation of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO")),
as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), are effective to provide reasonable assurance that information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to
management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

Management Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

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Management
assessed our internal control over financial reporting as of March 31, 2010, the end of our fiscal year. Management based its assessment on criteria established in Internal
ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Management's assessment included evaluation of elements
such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.

Based
on the assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. We
reviewed the results of management's assessment with the Audit Committee of our Board of Directors.

Inherent Limitations on Effectiveness of Controls

Our management, including the CEO and CFO, does not expect that our disclosure controls or our internal control over financial
reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's
objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further,
because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues
and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of
controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with policies or procedures.

ITEM 9B.    OTHER INFORMATION.

None.

PART III.

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Incorporated by reference to "Information about the Nominees" in the definitive proxy statement to be filed with the SEC relating to
the registrant's Annual Meeting of Shareholders expected to be held on or about August 23, 2010.

Please
see "Executive Officers of the Registrant" in Part I, Item 1 of this form.

All
of our directors, officers and employees are subject to a Code of Business Conduct and Ethics, and our financial management, including our principal executive, financial and
accounting officers, are also subject to an additional Code of Ethics for Financial Management, each of which codes are available for review under the Corporate Governance link in the Investor
Relations portion of the Company's website:www.noof.com. Any amendments to any of the provisions of the codes that are applicable to our principal
executive, financial or accounting officers and are required under applicable laws, rules and regulations to be disclosed publicly will be posted for review in the above identified

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area
of our website, and any waivers of such provisions or similar provisions applicable to our directors will be disclosed on Form 8-K as required by the applicable rules of The
Nasdaq Stock Market, LLC.

ITEM 11.    EXECUTIVE COMPENSATION.

Incorporated by reference to "Compensation Discussion and Analysis," "Compensation Committee Report," "Summary Compensation Table,"
"Fiscal Year 2010 Grants of Plan-Based Awards," "Outstanding Equity Awards at Fiscal Year-End," "Potential Payments Upon Termination" and "Non-Employee Directors
Compensation for Fiscal Year 2010" in the definitive proxy statement to be filed with the SEC relating to the registrant's Annual Meeting of Shareholders expected to be held on or about
August 23, 2010.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Incorporated by reference to "Security Ownership of Certain Beneficial Owners and Management" and "Securities Authorized for Issuance
Under Equity Compensation Plans" in the definitive proxy statement to be filed with the SEC relating to the registrant's Annual Meeting of Shareholders expected to be held on or about
August 23, 2010.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.

Incorporated by reference to "Transactions with Related Persons" and "Director Independence" in the definitive proxy statement to be
filed with the SEC relating to the registrant's Annual Meeting of Shareholders expected to be held on or about August 23, 2010.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES.

Incorporated by reference to "Fees Billed by Independent Registered Public Accounting Firm" in the definitive proxy statement to be
filed with the SEC relating to the registrant's Annual Meeting of Shareholders expected to be held on or about August 23, 2010.

PART IV.

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

The following documents are filed as part of this report:

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

All
schedules have been included in the Consolidated Financial Statements, Notes thereto, or Supplemental Information Schedules.

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Exhibit
No.

Exhibit Description3.01

Amended and Restated Articles of Incorporation of the Company(1)3.02

Amended and Restated Bylaws of the Company(2)4.01

Form of Common Stock Certificate(3)4.02

Amended and Restated Rights Agreement between New Frontier Media, Inc. and Corporate Stock Transfer, Inc., as rights agent(4)4.03

Form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, together with the related Rights Certificate, included as Appendices A and B to the Rights
Agreement incorporated by reference herein as Exhibit 4.0210.01

Lease Agreement for premises at 5435 Airport Boulevard, Boulder CO(5)10.02

Agreement between Colorado Satellite Broadcasting, Inc. and Loral Skynet Concerning Skynet Transponder Service(6)10.03

Agreement between Colorado Satellite Broadcasting, Inc. and Loral Skynet Concerning Skynet Space Segment Service(6)10.04

Amendment Number One to Agreement between Colorado Satellite Broadcasting, Inc. and Loral Skynet Concerning Skynet Space Segment Service(6)10.05

License Agreement between Colorado Satellite Broadcasting, Inc. and Metro Global Media, Inc.(6)10.06

Amendment Number Two to the Agreement between Colorado Satellite Broadcasting, Inc. and Loral Skynet Concerning Skynet Space Segment Service(7)10.07

Amendment Number One to the Agreement between Colorado Satellite Broadcasting, Inc. and Loral Skynet Concerning Skynet Transponder Service(8)10.08

Amendment Number Four to the Agreement between Colorado Satellite Broadcasting, Inc. and Loral Skynet Concerning Skynet Space Segment Service(9)10.09

Office Lease Agreement between New Frontier Media, Inc. and Northview Properties, LLC(9)10.10

Lease Modification Agreement between New Frontier Media, Inc. and LakeCentre Plaza Limited, LLLP(9)10.11

Catalog License Agreement between Pleasure Productions, Inc. and Colorado Satellite Broadcasting, Inc.(9)10.12

Telecommunications Services Agreement between WilTel Communications, LLC and Colorado Satellite Broadcasting, Inc.(10)10.13

Amendment No. 3 to Contract Number T70112100 between Colorado Satellite Broadcasting, Inc. and Intelsat USA Sales Corp.(11)10.14
#
Satellite Capacity Lease between Colorado Satellite Broadcasting, Inc. and Transponder Encryption Services Corporation(12)10.15
*
Summary of Director Compensation Arrangements(22)10.16
*
1998 Incentive Stock Plan(13)


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Exhibit
No.

Exhibit Description10.17
*
1999 Incentive Stock Plan(14)10.18
*
Millennium Incentive Stock Option Plan(15)10.19
*
2001 Incentive Stock Plan(16)10.20
*
2007 Stock Incentive Plan(17)10.21
*
Form of Award Agreements under 2007 Stock Incentive Plan(18)10.22
*
Amended and Restated Independent Contractor Agreement, dated November 7, 2007, between New Frontier Media, Inc. and Matthew Pullam(19)10.23
*
Amended and Restated Employment Agreement between New Frontier Media, Inc. and Michael Weiner(2)10.24
*
Amended and Restated Employment Agreement between New Frontier Media, Inc. and Grant Williams(2)10.25
*
Amended and Restated Employment Agreement between New Frontier Media, Inc. and Ira Bahr(2)10.26
*
Amended and Restated Employment Agreement between New Frontier Media, Inc. and Ken Boenish(2)10.27
*
Amended and Restated Employment Agreement between New Frontier Media, Inc. and Marc Callipari(2)10.28
*
Amended and Restated Employment Agreement between New Frontier Media, Inc. and Scott Piper(2)10.29
#
Amended and Restated Affiliation Agreement for DTH Satellite Exhibition of Cable Network Programming by and between Colorado Satellite Broadcasting, Inc. and DirecTV, Inc.(19)10.30

Stock Purchase Agreement, dated and effective as of November 13, 2008, by and between New Frontier Media, Inc. and Steel Partners II, L.P.(20)10.31
#
Affiliation Agreement, dated January 1, 2000 and as amended to date, between the Company and Time Warner Cable, a division of Time Warner Entertainment Company, L.P.(21)10.32
#
Video On Demand License Agreement, dated March 13, 2000 and as amended to date, between the Company and Time Warner Cable, a division of Time Warner Entertainment Company, L.P.(21)10.33
#
Adult VOD License Agreement, dated October 18, 2002 and as amended to date, between Colorado Satellite Broadcasting, Inc. and Comcast Cable Communications, Inc.(21)10.34
#
Pleasure Service License Agreement, dated November 16, 2000 and as amended to date, between Colorado Satellite Broadcasting, Inc. and Comcast Programming, a division of Comcast Corporation(21)10.35

First Amendment to Satellite Capacity Lease between Colorado Satellite Broadcasting, Inc. and Transponder Encryption Services Corporation(21)10.36
#
Second Amendment to Satellite Capacity Lease between Colorado Satellite Broadcasting, Inc. and Transponder Encryption Services Corporation(21)


55

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Table of Contents

Exhibit
No.

Exhibit Description10.37
#
Third Amendment to Satellite Capacity Lease between Colorado Satellite Broadcasting, Inc. and Transponder Encryption Services Corporation(22)10.38
*
First Amendment to the Amended and Restated Employment Agreement between New Frontier Media, Inc. and Michael Weiner(22)10.39
*
First Amendment to the Amended and Restated Employment Agreement between New Frontier Media, Inc. and Grant Williams(22)10.40
*
First Amendment to the Amended and Restated Employment Agreement between New Frontier Media, Inc. and Ken Boenish(22)10.41
*
First Amendment to the Amended and Restated Employment Agreement between New Frontier Media, Inc. and Scott Piper(22)10.42
*
First Amendment to the Amended and Restated Employment Agreement between New Frontier Media, Inc. and Marc Callipari(22)10.43

Promissory Note, dated December 15, 2009 between New Frontier Media, Inc. and Great Western Bank(23)10.44
#
Business Loan Agreement, dated December 15, 2009 between New Frontier Media, Inc. and Great Western Bank(23)10.45

Commercial Security Agreement, dated December 15, 2009 between New Frontier Media, Inc. and Great Western Bank(23)10.46
##
TVN-CSB Adult VOD Services Agreement dated April 8, 2010 between Colorado Satellite Broadcasting, Inc. and TVN Entertainment Corporation21.01

Subsidiaries of the Company23.01

Consent of Grant Thornton LLP31.01

CEO Certification pursuant to Rule 13a-14(a)/15d-14(a)31.02

CFO Certification pursuant to Rule 13a-14(a)/15d-14(a)32.01

Section 1350 Certification of CEO32.02

Section 1350 Certification of CFO


(1)Incorporated
by reference to the corresponding exhibit included in the Company's Current Report on Form 8-K filed on May 9, 2007
(File No. 000-23697).(2)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended September 30, 2008 (File No. 000-23697).(3)Incorporated
by reference to the corresponding exhibit included in the Company's Registration Statement on Form SB-2 filed on
September 10, 1997 (File No. 333-35337).(4)Incorporated
by reference to the corresponding exhibit included in the Company's Current Report on Form 8-K filed on August 1,
2008 (File No. 000-23697).(5)Incorporated
by reference to the corresponding exhibit included in the Company's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1999 (File No. 000-23697).(6)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002 (File No. 000-23697).


56

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Table of Contents

(7)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002 (File No. 000-23697).(8)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 2002 (File No. 000-23697).(9)Incorporated
by reference to the corresponding exhibit included in the Company's Annual Report filed on Form 10-K for the fiscal year
ended March 31, 2004 (File No. 000-23697).(10)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended September 30, 2004 (File No. 000-23697).(11)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended September 30, 2005 (File No. 000-23697).(12)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended September 30, 2006 (File No. 000-23697).(13)Incorporated
by reference to the Company's definitive proxy statement filed under cover of Schedule 14A on August 7, 1998 (File
No. 000-23697).(14)Incorporated
by reference to the Company's definitive proxy statement filed under cover of Schedule 14A on September 28, 1999 (File
No. 000-23697).(15)Incorporated
by reference to the Company's definitive proxy statement filed under cover of Schedule 14A on August 29, 2000 (File
No. 000-23697).(16)Incorporated
by reference to the Company's definitive proxy statement filed under cover of Schedule 14A on July 23, 2001 (File
No. 000-23697).(17)Incorporated
by reference to Appendix A to the Company's definitive proxy statement filed under cover of Schedule 14A on July 16, 2007
(File No. 000-23697).(18)Incorporated
by reference to the corresponding exhibit included in the Company's Current Report on Form 8-K filed on August 24,
2007 (File No. 000-23697).(19)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended September 30, 2007 (File No. 000-23697).(20)Incorporated
by reference to the corresponding exhibit included in the Company's Current Report on Form 8-K filed on November 14,
2008 (File No. 000-23697).(21)Incorporated
by reference to the corresponding exhibit included in the Company's Annual Report filed on Form 10-K for the fiscal year
ended March 31, 2009 (File No. 000-23697).(22)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended September 30, 2009 (File No. 000-23697).(23)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended December 31, 2009 (File No. 000-23697).*Denotes
management contract or compensatory plan or arrangement.#Confidential
portions of this agreement have been redacted pursuant to a confidential treatment request filed separately with the SEC.##Confidential
treatment has been requested as to portions of this exhibit. Such portions have been redacted and filed separately with the SEC.


57

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Table of Contents

SIGNATURES.

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

NEW FRONTIER MEDIA, INC.By:

/s/ MICHAEL WEINERName:

Michael WeinerTitle:

Chief Executive OfficerDate:

June 11, 2010


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

Name and Capacity

Date/s/ MICHAEL WEINER

June 11, 2010Name:

Michael WeinerTitle:

Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)/s/ GRANT WILLIAMS

June 11, 2010Name:

Grant WilliamsTitle:

Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)/s/ MELISSA HUBBARD

June 11, 2010Name:

Melissa HubbardTitle:

Director/s/ ALAN ISAACMAN

June 11, 2010Name:

Alan IsaacmanTitle:

Director/s/ DAVID NICHOLAS

June 11, 2010Name:

David NicholasTitle:

Director/s/ WALTER TIMOSHENKO

June 11, 2010Name:

Walter TimoshenkoTitle:

Director/s/ HIRAM WOO

June 11, 2010Name:

Hiram WooTitle:

Director


58

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES        TABLE OF CONTENTS



PageReport of Independent Registered Public Accounting Firm


F-2Consolidated Balance Sheets


F-3Consolidated Statements of Operations


F-4Consolidated Statements of Comprehensive Income (Loss)


F-5Consolidated Statements of Shareholders' Equity


F-6Consolidated Statements of Cash Flows


F-7Notes to Consolidated Financial Statements


F-9SUPPLEMENTAL INFORMATION


F-45Valuation and Qualifying
AccountsSchedule II


F-45


F-1

---





Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Shareholders of



We have audited the accompanying consolidated balance sheets of New Frontier Media, Inc. (a Colorado corporation) and
subsidiaries (collectively, the "Company") as of March 31, 2010 and 2009, and the related consolidated statements of operations, comprehensive income (loss), shareholders' equity, and cash
flows for each of the three years in the period ended March 31,
2010. Our audits of the basic financial statements included the financial statement schedule listed in the index appearing under Schedule IIValuation and
Qualifying Accounts. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion
on these financial statements and financial statement schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal
control over financial reporting as of March 31, 2010. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Frontier Media, Inc. and
subsidiaries as of March 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2010, in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/
GRANT THORNTON LLP

Denver,
Colorado
June 11, 2010

F-2

---





Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        (in thousands, except par values)

March 31,2010

2009AssetsCurrent assets:Cash and cash equivalents

$
17,187

$
16,049Restricted cash


112


16Investmentsother





90Accounts receivable, net of allowance for doubtful accounts of $253 and $308, at March 31, 2010 and 2009, respectively


10,112


10,242Deferred producer-for-hire costs


625


60Taxes receivable


944


683Deferred tax assets





358Prepaid and other assets


1,749


1,592Total current assets


30,729


29,090Equipment and furniture, net


4,557


5,573Content and distribution rights, net


11,316


10,933Recoupable costs and producer advances, net


3,421


4,999Film costs, net


5,705


6,672Goodwill


3,743


8,599Other identifiable intangible assets, net


673


1,630Deferred tax assets


349


Other assets


1,320


1,043Total assets

$
61,813

$
68,539Liabilities and shareholders' equityCurrent liabilities:Accounts payable

$
1,103

$
2,144Producers payable


951


950Deferred revenue


685


737Accrued compensation


1,802


1,188Deferred producer liabilities


1,377


1,970Short-term debt


1,000


4,000Deferred tax liabilities


107


Accrued and other liabilities


1,823


2,112Total current liabilities


8,848


13,101Deferred tax liabilities





903Taxes payable


309


242Other long-term liabilities


528


718Total liabilities


9,685


14,964Commitments and contingenciesShareholders' equity:Preferred stock, $.10 par value, 4,999 shares authorized, no shares issued and outstanding





Common stock, $.0001 par value, 50,000 shares authorized, 19,432 and 19,494 shares issued and outstanding, at March 31, 2010 and 2009,
respectively


2


2Additional paid-in capital


54,929


54,702Accumulated deficit


(2,735
)

(997
)Accumulated other comprehensive loss


(68
)

(132
)Total shareholders' equity


52,128


53,575Total liabilities and shareholders' equity

$
61,813

$
68,539


Refer to Notes to Consolidated Financial Statements.

F-3

---





Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except per share amounts)

Year Ended March 31,2010

2009

2008Net revenue

$
50,428

$
52,595

$
55,911Cost of sales


19,858


15,938


17,647Gross margin


30,570


36,657


38,264Operating expenses:Sales and marketing


8,072


8,559


7,239General and administrative


15,406


16,283


16,506Charge for goodwill impairment


4,856


10,009


Charge for restructuring and asset impairments other than goodwill


2,329


1,298


1,150Total operating expenses


30,663


36,149


24,895Operating income (loss)


(93
)

508


13,369Other income (expense):Interest income


49


208


711Interest expense


(243
)

(208
)

(155
)Reversal of interest expense for uncertain tax positions





429


Other income, net


12


2


97Total other income (expense)


(182
)

431


653Income (loss) from continuing operations before provision for income taxes


(275
)

939


14,022Provision for income taxes


(838
)

(3,909
)

(5,186
)Income (loss) from continuing operations


(1,113
)

(2,970
)

8,836Loss from discontinued operations, net of income tax benefit of $391, $1,313 and $107


(625
)

(2,218
)

(176
)Net income (loss)

$
(1,738
)
$
(5,188
)
$
8,660Basic income (loss) per share:Continuing operations

$
(0.06
)
$
(0.13
)
$
0.37Discontinued operations


(0.03
)

(0.10
)

(0.01
)Net basic income (loss) per share(1)

$
(0.09
)
$
(0.24
)
$
0.36Diluted income (loss) per share:Continuing operations

$
(0.06
)
$
(0.13
)
$
0.37Discontinued operations


(0.03
)

(0.10
)

(0.01
)Net diluted income (loss) per share(1)

$
(0.09
)
$
(0.24
)
$
0.36Dividends declared per share

$


$


$
0.50


(1)May
not sum due to rounding.


Refer
to Notes to Consolidated Financial Statements.

F-4

---





Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)        (in thousands)

Year Ended March 31,2010

2009

2008Net income (loss)

$
(1,738
)
$
(5,188
)
$
8,660Other comprehensive income (loss), net of tax:Unrealized gain on investments





10


20Currency translation adjustment


64


(132
)

Total comprehensive income (loss)

$
(1,674
)
$
(5,310
)
$
8,680


Refer
to Notes to Consolidated Financial Statements.

F-5

---





Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY        (in thousands, except per share amounts)

Common Stock
$.0001 Par ValueRetained
Earnings
(Accumulated
Deficit)

Accumulated
Other
Comprehensive
LossAdditional
Paid-In
CapitalShares

Amounts

TotalBalance at March 31, 2007


24,302

$
2

$
64,191

$
7,536

$
(30
)
$
71,699Exercise of stock options/warrants


94





511








511Tax benefit for stock option/warrant exercises








120








120Purchases of common stock


(621
)




(3,874
)







(3,874
)Share-based compensation








906








906Unrealized gain on investments














20


20Net income











8,660





8,660Declared dividend ($0.50 per share)











(12,005
)




(12,005
)Balance at March 31, 2008


23,775


2


61,854


4,191


(10
)

66,037Purchases of common stock


(4,281
)




(9,058
)







(9,058
)Share-based compensation








902








902Reversal of tax benefit for stock option forfeitures/cancellations








(54
)







(54
)Reversal of uncertain tax position for capital transaction








1,058








1,058Unrealized gain on investments














10


10Currency translation adjustment














(132
)

(132
)Net loss











(5,188
)




(5,188
)Balance at March 31, 2009


19,494


2


54,702


(997
)

(132
)

53,575Purchases of common stock


(62
)




(123
)







(123
)Share-based compensation








555








555Reversal of tax benefit for stock option forfeitures/cancellations








(205
)







(205
)Currency translation adjustment














64


64Net loss











(1,738
)




(1,738
)Balance at March 31, 2010


19,432

$
2

$
54,929

$
(2,735
)
$
(68
)
$
52,128


Refer
to Notes to Consolidated Financial Statements.

F-6

---





Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        (in thousands)

Year Ended March 31,2010

2009

2008Cash flows from operating activities:Net income (loss)

$
(1,738
)
$
(5,188
)
$
8,660Add: Loss from discontinued operations


625


2,218


176Income (loss) from continuing operations


(1,113
)

(2,970
)

8,836Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities of continuing operations:Depreciation and amortization


8,835


8,706


8,246Tax benefit from option/warrant exercises








227Share-based compensation


555


907


905Deferred taxes


(925
)

625


(277
)Charge for goodwill impairment


4,856


10,009


Charges for impairments other than goodwill


2,329


1,298


1,150Reversal of uncertain tax positions





(429
)

Reversal of interest expense for uncertain tax positions





(429
)

Changes in operating assets and liabilities:Accounts receivable


(172
)

3,635


(1,625
)Accounts payable


(705
)

(537
)

505Content and distribution rights


(4,060
)

(4,171
)

(4,553
)Film costs


(2,919
)

(2,762
)

(4,093
)Deferred producer-for-hire costs


(566
)

(60
)

Deferred revenue


(60
)

(263
)

95Producers payable


1


(62
)

(37
)Taxes receivable and payable


172


1,082


333Accrued compensation


649


(637
)

(1,507
)Recoupable costs and producer advances


807


(2,751
)

(1,360
)Other assets and liabilities


(1,211
)

(531
)

1,540Net cash provided by operating activities of continuing operations


6,473


10,660


8,385Net cash used in operating activities of discontinued operations


(1,061
)

(2,155
)

(201
)Net cash provided by operating activities


5,412


8,505


8,184Cash flows from investing activities:Purchases of investments


(1,000
)

(2,011
)

(2,828
)Redemptions of investments


1,090


2,846


11,201Purchases of equipment and furniture


(1,064
)

(2,307
)

(1,921
)Purchases of intangible assets


(108
)

(297
)

Payment of related party note arising from business acquisition





(21
)

(626
)Net cash provided by (used in) investing activities of continuing operations


(1,082
)

(1,790
)

5,826Net cash provided by (used in) investing activities of discontinued operations


9


(906
)

(537
)Net cash provided by (used in) investing activities


(1,073
)

(2,696
)

5,289Cash flows from financing activities:Payments on short-term debt


(6,000
)




Proceeds from short-term debt


3,000


4,000


Purchases of common stock


(123
)

(9,058
)

(3,874
)Payment of long-term seller financing


(75
)




Payment of dividends





(2,982
)

(9,023
)Proceeds from stock option and warrant exercises








511Excess tax (shortfall) benefit from option/warrant exercises








(107
)Net cash used in financing activities of continuing operations


(3,198
)

(8,040
)

(12,493
)Net cash provided by (used in) financing activities of discontinued operations








Net cash used in financing activities


(3,198
)

(8,040
)

(12,493
)Net increase (decrease) in cash and cash equivalents


1,141


(2,231
)

980Effect of exchange rate changes on cash and cash equivalents


(3
)

(45
)

Cash and cash equivalents, beginning of year


16,049


18,325


17,345Cash and cash equivalents, end of year

$
17,187

$
16,049

$
18,325


F-7

---



Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in thousands)

Year Ended March 31,2010

2009

2008Supplemental cash flow data:Interest paid

$
246

$
73

$
26Income taxes paid

$
1,379

$
2,452

$
5,533Noncash investing and financing activities:Escrow funds included in restricted cash used to settle liabilities related to business acquisition

$


$


$
1,660Increase in other identifiable intangible assets, net, for the purchase of intellectual property and a patent

$


$


$
661


Refer to Notes to Consolidated Financial Statements.

F-8

---





Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

New Frontier Media, Inc. is a publicly traded holding company for its operating subsidiaries which are reflected in the
Transactional TV, Film Production, Direct-to-Consumer and Corporate Administration segments.

Transactional TV Segment

The Transactional TV segment provides adult programming to cable multiple system operators ("MSOs") and direct broadcast satellite
("DBS") providers. The Transactional TV segment is able to provide a variety of editing styles and programming mixes to a broad range of consumers. The Company earns a percentage of revenue, or
"split", for each video-on-demand ("VOD"), pay-per-view ("PPV") or subscription that is purchased on customer platforms.

Film Production Segment

The Film Production segment derives its revenue from: a) the production and distribution of original motion pictures known as
erotic thrillers, horror movies, and erotic, event styled content (collectively, "owned content") which is provided through MRG Entertainment; b) the licensing of third party films in
international and domestic markets where it acts as a sales agent for the product ("repped content") which is provided through Lightning Entertainment Group; and c) the provision of contract
film production services to major Hollywood studios ("producer-for-hire" arrangements).

Direct-to-Consumer Segment

The Direct-to-Consumer segment generates revenue primarily by selling memberships to the Company's adult
consumer websites. The Direct-to-Consumer segment also historically operated an internet protocol television ("IPTV") set-top box business beginning in late fiscal
year 2008. The Company restructured the IPTV operations in the fourth quarter of fiscal year 2009 and discontinued the IPTV operations in the fourth quarter of fiscal year 2010. See
Note 19Discontinued Operations for additional discussion.

Corporate Administration Segment

Expenses reported as Corporate Administration include all costs associated with the operation of the public holding company, New
Frontier Media, Inc. that are not directly allocable to the Transactional TV, Film Production, or Direct-to-Consumer segments.

Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of New Frontier Media, Inc. and its wholly owned
subsidiaries (collectively herein referred to as "New Frontier Media," the "Company," and other similar pronouns). All intercompany accounts, transactions and profits have been eliminated in
consolidation.

F-9

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Use of Estimates

The Company is required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and
accompanying notes. The accounting estimates that require the Company's most significant, difficult and subjective judgments include:



The
Company bases its estimates and judgments on historical experience and on various other factors that are considered reasonable under the circumstances, the results of which form the
basis for making judgments that are not readily apparent from other sources. Actual results could differ materially from these estimates.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current year presentation of discontinued operations.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash in banks and cash equivalents, which are highly liquid investment instruments with
original maturities of less than 90 days. The Company had approximately $0.1 million of cash held in foreign bank accounts at March 31, 2010.

Restricted Cash

Restricted cash during the periods presented includes amounts that are contractually restricted in connection with agreements between
the Company and certain film producers.

FDIC Limits

The Company maintains cash deposits with major banks, which exceed federally insured limits. As of March 31, 2010, the Company
exceeded the federally insured limits by approximately $16.3 million. The Company periodically assesses the financial condition of the institutions and estimates that the risk of any loss is
low.

F-10

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Value of Financial Instruments

The carrying amounts of financial instruments, including cash, cash equivalents, accounts receivable, accounts payable, accrued
liabilities, short-term debt, and certain other current assets and liabilities approximate fair value because of their generally short maturities. See Note 5Fair Value
Measurementsfor additional detail and discussion.

Accounts Receivable

The majority of the Company's accounts receivable are due from customers in the cable and satellite industries and from the film
distribution industry. Credit is
extended based on an evaluation of a customer's financial condition and collateral is not required. Accounts receivable are stated at amounts due from customers net of an allowance for doubtful
accounts. Customer balances that remain outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance for doubtful accounts on a quarterly basis
by considering a number of factors, including the length of time accounts receivable are past due, the Company's previous loss history, the customer's current ability to pay its obligation to the
Company, and the condition of the general economy and the cable, satellite and film distribution industries as a whole. Bad debt is reflected as a component of operating expenses in the consolidated
statements of operations. When a specific account receivable is determined to be uncollectible, the Company reduces both its accounts receivable and allowances for doubtful accounts accordingly.

Accounts
receivable balances associated with the Film Production segment's repped content include the entire license fee due to the Company from the licensee. Amounts collected for these
receivables are disbursed to the Company and the producers of the licensed films in accordance with the terms of the related producer agreements.

Inventory

Inventory is stated at the lower of cost or market, using the average cost method. Inventory consisted of IPTV set-top box
finished goods within the Direct-to-Consumer segment and were reported within prepaid and other assets in the current asset section on the consolidated balance sheet. As
discussed in Note 19Discontinued Operations, the Company discontinued the IPTV set-top box operations in the fourth quarter of fiscal year 2010. As a result, the
Company fully impaired the value of the related inventory, and there are no net inventory balances at March 31, 2010. The inventory balance at March 31, 2009 was $0.1 million.

Equipment and Furniture

Equipment and furniture are stated at historical cost less accumulated depreciation. The cost of maintenance and repairs to equipment
and furniture is expensed as incurred, and significant additions and improvements are capitalized. The capitalized costs of leasehold and building improvements are depreciated using a
straight-line method over the estimated useful life of the assets or the term of the related leases, whichever is shorter. All other equipment and furniture assets are depreciated using a

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

straight-line
method over the estimated useful life of the assets. At March 31, 2010, the estimated useful lives of equipment and furniture assets were as follows:

Furniture and fixtures

3 to 5 yearsComputers, equipment and servers

3 to 7 yearsLeasehold improvements

2 to 10 years


Content and Distribution Rights

The Transactional TV segment's content library primarily consists of licensed films. The Company capitalizes the costs associated with
the licenses as well as certain editing and production costs and amortizes these capitalized costs on a straight-line basis over the term of the licensing agreement (generally
5 years). These costs are amortized using a basis that is consistent with the manner in which the related film revenue is expected to be recognized. The Company amortizes the cost of content
and distribution rights on a straight-line basis because each usage of the film is expected to generate similar revenue and the revenue for the films is expected to be recognized ratably
over the related license term. The Company regularly reviews and evaluates the appropriateness of amortizing film costs on a straight-line basis as opposed to an alternative method of
amortization such as an accelerated basis. Based on these analyses, the Company has determined that the amortization of the film library costs using a straight-line basis most accurately
reflects the manner in which the revenue for the related films will be recognized.

The
Company periodically reviews the content library and assesses whether the unamortized cost exceeds the fair market value of the library based on expected forecast results when events
or circumstances indicate an assessment is warranted. In the event that the unamortized costs exceed the fair market value of the content library, the Company will expense the excess of the
unamortized costs to reduce the carrying value to the fair market value.

Recoupable Costs and Producer Advances

Recoupable costs and producer advances represent amounts paid by the Company that are expected to be subsequently recovered through the
collection of fees associated with the Company's licensing of repped content. In connection with the Film Production segment's repped content operations, the Company enters into sales agency
agreements whereby the Company acts as a sales agent for a producer's film ("Sales Agency Agreements"). These Sales Agency Agreements typically include provisions whereby certain costs that are
incurred for promotion related activities will be paid by the Company on behalf of the producer (such as movie trailer and ad material costs). The
Company may also pay the producer an advance for the related film prior to the distribution of such film. As the Company subsequently licenses the producer's film and license fees are collected, the
recoupable costs and producer advances are recovered by the Company through these license fee collections. License fees typically are not paid to the producer of the related film until such recoupable
costs and producer advances have been fully recovered by the Company.

The
Company evaluates recoupable costs and producer advances for impairment on a quarterly basis based on estimates of future license fee collections. An impairment of these assets could
occur if the Company's estimates indicated that it would be unable to collect fees from the licensing of a film

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

sufficient
to recover the related outstanding recoupable costs and producer advances. During the fiscal years ended March 31, 2010, 2009 and 2008, the Company incurred impairment charges
related to recoupable costs and producer advances of $0.8 million, $0.2 million, and $0.2 million, respectively. The impairment charges are recorded in the charge for
restructuring and asset impairments other than goodwill line item within the consolidated statements of operations.

Film Costs

The Company capitalizes costs incurred for film production including costs to develop, acquire and produce films, which primarily
consist of salaries, equipment and overhead costs, as well as the cost to acquire rights to films. Film costs include amounts for completed films and films still in development. Production overhead, a
component of film costs, includes allocable costs of individuals or departments with exclusive or significant responsibility for the production of the films. Interest expense associated with film
costs is not capitalized because the duration of productions is short-term in nature. Films are typically direct-to-television in nature. Film costs are stated at
the lower of cost, less accumulated amortization, or fair value.

Film
costs are reviewed for impairment on a title-by-title basis each quarterly reporting period when events or circumstances indicate an assessment is warranted.
The Company records an impairment charge when the fair value of the title is less than the unamortized cost. Examples of events or circumstances that could result in an impairment charge for film
costs include (a) an unexpected less favorable performance of a film title or event on a MSO platform or (b) a downward adjustment in the estimated future performance of a film title or
event due to an adverse change to the general business climate as was experienced during the third quarter of fiscal year 2009. During each fiscal year ended March 31, 2010, 2009 and 2008, the
Company incurred impairment charges related to film costs of $1.2 million, $1.1 million, and $0.7 million, respectively. The impairment charges are recorded in the charge for
restructuring and asset impairments other than goodwill line item within the consolidated statements of operations.

Capitalized
film costs are recognized as an expense within cost of sales using the film forecast method. Under this method, capitalized film costs are expensed based on the proportion of
the film's revenue recognized for such period relative to the film's estimated remaining ultimate revenue, not to exceed ten years. Ultimate revenue is the estimated total revenue expected to be
recognized over a film's useful life. Ultimate revenue for new film titles and events is typically estimated using actual historical performance of comparable films that are similar in nature (such as
production cost and genre). Film revenue associated with this method includes amounts from all sources on an individual-film-forecast-computation method. Estimates of ultimate
revenue are reviewed quarterly and adjusted if appropriate, and amortization is also adjusted on a prospective basis for such a change in estimate. Changes in estimated ultimate revenue could be due
to a variety of factors, including the proportional buy rates of the content as compared to competitive content as well as the level of market acceptance of the television product.

Goodwill and Other Intangible Assets

The Company records goodwill when the purchase price of an acquisition exceeds the estimated fair value of the net identified tangible
and intangible assets acquired. Goodwill is tested for

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

impairment
at the operating segment level on an annual basis (March 31 for the Company) and between annual tests if an event occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include, but are not limited to, a significant change in the business climate, legal factors,
operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. Application of the goodwill impairment test requires judgment in the determination
of the fair value of each reporting unit. The fair value of each reporting unit is estimated using considerations of various valuation methodologies which could include income and market valuation
approaches. The income approach involves discounting the reporting unit's projected free cash flow at its weighted average cost of capital, and the market approach considers comparable publicly traded
company valuations and recent merger and acquisition valuations. The analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts;
estimation of the long-term rate of growth; determination of the weighted average cost of capital; and other similar estimates. Changes in these estimates and assumptions could materially
affect the determination of fair value for each reporting unit. The Company allocates goodwill to each operating segment based on the operating segment expected to benefit from the related acquisition
and/or combination.

Other
identifiable intangible assets subject to amortization primarily include amounts paid to acquire non-compete agreements with certain key executives, contractual and
non-contractual customer relationships, intellectual property rights, patents and websites. These costs are capitalized and amortized on a straight-line basis over their
estimated
useful lives which is typically five years. Intangible asset balances are removed from the gross asset and accumulated amortization amounts in the period in which they become fully amortized or
impaired and are no longer in use. Other identifiable intangible assets are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.

See
Note 6Goodwill and Other Intangible Assets for additional detail and discussion on goodwill and other intangible asset impairments.

Long-Lived Assets

The Company continually reviews long-lived assets that are held and used and identifiable intangible assets that are
subject to amortization for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and
future benefits of such assets, the Company considers whether the estimated undiscounted future net cash flows of the individual assets is less than the related assets' carrying value and if so, the
Company records an impairment loss for the excess recorded carrying value of the asset as compared to its fair value.

Accrued and Other Liabilities

Accrued and other liabilities included approximately $0.5 million and $0.4 million of accrued transport fees as of
March 31, 2010 and 2009, respectively. No other current liability amounts within accrued and other liabilities was in excess of 5% of total current liabilities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Deferred Producer Liabilities

Deferred producer liabilities represent outstanding amounts due to the producer or to be retained by the Company upon the collection of
license fee amounts related to the sale of repped content by the Film Production segment. In accordance with the Sales Agency Agreements entered into by the Company and repped content producers, when
license fees associated with the Company's sale of repped content are collected, the amounts are paid to the producer and/or retained by the Company. Amounts are retained by the Company for its sales
agency commission, recoupment of outstanding film costs and producer advances ("Recoupable Costs") or as market fee revenue. The terms of the Sales Agency Agreements provide that collected license
fees are distributed to the producer and/or retained by the Company based on a specific allocation order as defined by each agreement. The allocation order is dependent on certain criteria including
total license fee collections, outstanding Recoupable Cost balances and certain other criteria as specified by the Sales Agency Agreements. Because these criteria cannot be reasonably determined until
the license fees are collected, the appropriate allocation order of uncollected license fees cannot be established. Accordingly, the uncollected license fee amounts are recorded as deferred producer
liabilities until such time as the amounts are collected and the allocation order can be reasonably determined.

Revenue Recognition

The Company's revenue consists primarily of fees earned through the distribution of its licensed and owned content through various
media outlets including MSOs, DBS providers, the internet, premium movie channels, and other available media channels. Revenue also consists of fees earned through the licensing of third-party content
whereby the Company acts as a sales agent for the film producer. Revenue is recognized when persuasive evidence of an arrangement exists as is typically evidenced through an executed contract, the
services have been rendered or delivery conditions as described in the related contract for the completed film have been satisfied, the license period related to Film Production segment arrangements
has begun and the customer can begin exploitation of the content, the fee is fixed or determinable and its collection is reasonably assured. The process involved in evaluating the appropriateness of
revenue recognition involves judgment including estimating monthly revenue based on historical data and determining collectability of fees.

Transactional TV Segment VOD and PPV Services

The Transactional TV segment's VOD and PPV revenue are recognized based on buys and monthly subscriber counts reported each month by
cable MSOs and DBS providers. The Company earns revenue through a contractual percentage split of the retail price of the content. The actual monthly sales information is not typically reported to the
Transactional TV segment until
approximately 30 - 90 days after the month of service. This practice requires management to make monthly revenue estimates based on the Transactional TV segment's
historical experience with each customer. The revenue may be subsequently adjusted to reflect the actual amount earned upon receipt of the monthly sales reports.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Film Production Segment Owned Content Licensing

Revenue from the licensing of owned content is recognized when persuasive evidence of an arrangement exists as is typically evidenced
through an executed contract, the delivery conditions of the completed film have been satisfied as required in the contract, the license period of the arrangement has begun, the fee is fixed or
determinable and collection of the fees is reasonably assured. For agreements that involve the distribution of content to the home video market, PPV market and VOD market, the Company is unable to
determine or reasonably estimate the revenue split earned from customers in advance of receiving the reported earnings because the performance materially varies by film and from period to period. As a
result, the Company's share of licensing revenue from these arrangements is not recognized until the amounts are reported by the customers.

Film Production Segment Repped Content Licensing

The Company recognizes revenue from represented film licensing activities on a net basis as an agent. The revenue recognized for these
transactions represents only the sales agency fee earned by the Company on the total content licensing fee. The producers' share of the licensing fee is recorded as a liability by the Company until
the balance is remitted to the producer. For agreements that involve the distribution of repped content to the home video market, PPV market and VOD market, the Company is unable to determine or
reasonably estimate the revenue split due from customers in advance of receiving the reported earnings because the performance materially varies by film and from period to period. As a result, the
Company's share of licensing revenue from these arrangements is not recognized until the amounts are reported by the customers.

The
agreements entered into with the producers may also provide for a marketing fee that can be earned by the Company. The marketing fee is stated as a fixed amount and is contractually
earned by the Company upon collection of sufficient film licensing fees as defined by the contract, the terms of
which vary depending on film quality, distribution markets and other factors. The Company recognizes marketing fees as revenue when the amounts become determinable and the collection of the fee is
reasonably assured, which typically occurs in the period of sufficient collection of licensing fees as defined by the respective contract.

Direct-to-Consumer Segment Membership Fees

Revenue from membership fees is recognized over the life of the membership. The Company records an allowance for refunds based on
expected membership cancellations, credits and chargebacks.

Multiple Element Transactions

From time to time, the Company enters into transactions involving multiple elements. These multiple element transactions can involve
the licensing of content (i.e., the licensing of multiple titles in a single arrangement), the sale of content (i.e., the distribution of multiple titles in a single agreement), the sale
of content and contemporaneous purchase of advertising (i.e., receiving a revenue split from a cable MSO or DBS operator and purchasing advertising space on that same operator's platform in a
single agreement), or the licensing of content and contemporaneous purchase of advertising (i.e., licensing multiple titles and purchasing advertising space in a publication in a single
agreement). Multiple-element transactions require the exercise of judgment in determining the selling price or fair

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NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

value
of the different elements. The judgments impact the amount of revenue and expenses recognized over the term of the contract, as well as the period in which they are recognized.

The
Company accounts for multiple element transactions by first obtaining evidence of the selling price or fair value of the elements. In determining the selling price or fair value of
the respective elements, the Company refers to quoted market prices, historical transactions or comparable transactions. If neither vendor specific objective evidence nor third party evidence is
available to determine selling price or fair value, the Company uses its best estimate for individual elements of an arrangement. Based on the determined selling price or fair values of each element
of the transaction, the value of the single agreement is allocated to each deliverable based on each element's proportional fair value.

Producer-for-Hire Arrangements

The Company's Film Production segment periodically acts as a producer-for-hire for customers. Through these
arrangements, the Company provides services and incurs costs associated with the film production, and the Company earns a fee for its services once the film has been delivered to the customer. The
Company maintains no ownership rights for the produced content. Revenue for these arrangements is recognized when persuasive evidence of an arrangement exists as evidenced by an executed contract, the
film has been delivered to the customer in accordance with the contract terms, the fee is fixed and determinable and collection is reasonably assured. The costs incurred for production in these
arrangements are initially recorded as a deferred cost within the current assets section of the balance sheet, and the deferred costs are subsequently recorded as a cost of sales when the Company
recognizes revenue for the related services. During the fiscal year ended March 31, 2010, the Company completed and recognized revenue on a producer-for-hire arrangement
and completed the initial delivery and recognized revenue related to films from a second producer-for-hire arrangement resulting in total producer-for-hire revenue of
$3.9 million in fiscal year 2010. The Company had approximately $0.6 million in deferred costs recorded in connection with the uncompleted portion of the second
producer-for-hire arrangement. The Company had no significant producer-for-hire arrangements and no material deferred costs recorded in connection with
producer-for-hire arrangements during the fiscal year ended March 31, 2009. During the fiscal year ended March 31, 2008, the Company completed and recognized
approximately $2.5 million of revenue on a producer-for-hire arrangement.

Advertising Costs

The Company expenses advertising costs, which includes tradeshow and promotional related expenses, as incurred. Advertising costs for
the fiscal years ended March 31, 2010, 2009 and 2008 were approximately $2.3 million, $2.3 million and $1.3 million, respectively.

Research and Development Costs

Costs related to the research, design and development of products are charged to research and development expense as incurred. The
Company did not incur any material research and development costs during the fiscal years ended March 31, 2010, 2009 and 2008 related to continuing operations. Research and development costs
related to discontinued operations for the fiscal
years ended March 31, 2010 and 2009 were approximately $0.2 million and $0.3 million, respectively. No material research and development costs related to discontinued operations
were incurred during the fiscal year ended March 31, 2008.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Employee Equity Incentive Plans

The Company has an employee equity incentive plan, which is described more fully in Note 3Employee Equity Incentive
Plans. Employee equity awards are accounted for under the fair value method. Accordingly, the Company measures share-based compensation at the grant date based on the fair value of the award. The
Company uses the straight-line attribution method to recognize the fair value of the award over the related service period.

The
Company uses the Black-Scholes option pricing model to estimate the fair value of options granted. Volatility assumptions are derived using historical volatility data. The expected
term data was stratified between officers and non-officers and determined using the weighted average exercise behavior for these two groups of employees. The dividend yield assumption is
based on dividends declared by the Company's Board of Directors and estimates of dividends to be declared in the future. Share-based compensation expense is based on awards ultimately expected to
vest, reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures
were estimated based on historical experience and are stratified between officers and non-officers.

Income Taxes

The Company makes certain estimates and judgments in determining its income tax provision expense. These estimates and judgments are
used in the determination of tax credits, benefits and deductions, uncertain tax positions, and the calculation of certain tax assets and liabilities which are a result of differences in the timing of
the recognition of revenue and expense for tax and financial statement purposes. The Company also uses estimates and judgments in determining interest and penalties on uncertain tax positions.
Significant changes to these estimates could result in a material change to the Company's tax provision expense in subsequent periods.

The
Company is required to evaluate the likelihood that it will be able to recover its deferred tax assets. If the Company's evaluation determines that the recovery is unlikely, it would
increase the tax provision expense by recording a valuation allowance against the deferred tax assets equal to the amount that is not expected to be recoverable. The Company currently has a deferred
tax asset valuation allowance of approximately $0.2 million to fully reserve for a deferred tax asset associated with the Company's discontinued IPTV set-top box operating losses in
Europe. The Company has no other deferred tax asset valuation allowances and estimates that, with the exception of the IPTV set-top box European deferred tax assets, its deferred tax
assets will be recoverable. If these estimates were to change and the Company's assessment indicated it would be unable to recover the deferred tax assets, the Company would be required to increase
its tax provision expense in the period of the change in estimate.

The
calculation of the Company's tax liabilities involves dealing with uncertainties in the application of tax regulations. The Company accounts for uncertain tax positions using a
two-step approach to recognizing and measuring uncertain tax position liabilities. The first step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure
the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. This process is based on various

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

factors
including, but not limited to, changes in facts and circumstances, changes in tax law, settlement of issues under audit, and new audit activity. Changes to these factors and the Company's
estimates regarding these factors could result in the recognition of a tax benefit or an additional charge to the tax provision expense.

Income (Loss) per Share

Basic income (loss) per share is computed on the basis of the weighted average number of common shares outstanding. Diluted income
(loss) per share is computed on the basis of the weighted average number of common shares outstanding plus the potential dilutive effect of outstanding warrants and stock options.

Comprehensive Income (Loss)

The Company's comprehensive income (loss) includes all changes in equity (net assets) during the period from non-owner
sources. During the periods presented, comprehensive income (loss) includes the Company's net income (loss), unrealized gain on investments and the cumulative adjustment from foreign currency
translation.

Foreign Currency Translations

The functional currency for all of the Company's U.S. based subsidiaries is the U.S. dollar. The functional currency for the Company's
foreign subsidiaries is the local currency. Assets and liabilities denominated in foreign currencies are translated using the exchange rates on the balance sheet dates. Revenues and expenses are
translated using the average exchange rates prevailing during the periods presented. Any translation adjustments resulting from this process are shown separately as a component of accumulated other
comprehensive income (loss) within shareholders' equity in the consolidated balance sheets. Foreign currency transaction gains and losses are reported in the operating expense section of the
consolidated statements of operations.

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued that are adopted by the Company as of the specified effective date. Unless
otherwise discussed below, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company's results of operations and
financial position.

Accounting Standards Codification Pronouncement

On July 1, 2009, the Company adopted the provisions of Accounting Standards Update ("ASU") No. 2009-1, Generally Accepted Accounting Principles,which establishes the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("FASB
ASC" or "Codification"). The Codification is the single source of authoritative nongovernmental generally accepted accounting principles ("GAAP"), superseding existing FASB, American Institute of
Certified Public Accountants, Emerging Issues Task Force, and related accounting pronouncements. The Codification reorganizes the GAAP pronouncements into accounting topics and displays them using a
consistent structure. The Codification also organizes the relevant Securities and Exchange Commission ("SEC") guidance using

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NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

the
same topic structure. The impact on the Company's financial statements is limited to disclosures as all future references to authoritative accounting literature will be referenced in accordance
with the Codification.

Fair Value Measurement Pronouncement

On July 1, 2009, the Company adopted certain provisions of FASB ASC Topic 320-10-65 (Staff Position No
FAS 107-1 and APB 28-1,Interim Disclosure about Fair Value of Financial Instruments). This guidance requires
interim disclosures regarding the fair values of financial instruments on an interim basis as well as changes in the methods and significant assumptions from prior periods. The impact on the Company's
financial statements from the adoption of this guidance is limited to disclosures regarding the fair values of financial instruments and did not have any other material impact on the Company's results
of operations and financial position.

Revenue Recognition Pronouncement

In October 2009, the FASB issued ASU No 2009-13,Revenue
RecognitionMultiple-Deliverable Revenue Arrangements(FASB ASC Topic 605), a consensus of the FASB Emerging Issues Task Force. This guidance modifies the fair
value requirements of FASB ASC subtopic 605-25,Revenue Recognition-Multiple Element Arrangements, by allowing the use of the "best estimate
of selling price" in addition to vendor specific objective evidence ("VSOE"), now referred to as third-party evidence ("TPE") for determining the selling price of a deliverable. A vendor is now
required to use its best estimate of the selling price when VSOE or TPE of the selling price cannot be determined. In addition, the residual method of allocating arrangement consideration is no longer
permitted.

This
update requires expanded qualitative and quantitative disclosures and is effective for fiscal years beginning on or after June 15, 2010. However, companies may elect to adopt
as early as interim periods ended September 30, 2009. This update may be applied either prospectively from the beginning of the fiscal year for new or materially modified arrangements or
retrospectively. The Company elected to adopt this guidance early as of October 1, 2009 and the adoption of the guidance did not have a material impact on the Company's results of operations
and financial position.

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NOTE 2INCOME (LOSS) PER SHARE

The components of basic and diluted income (loss) per share from continuing operations are as follows (in thousands, except per share data):

Year Ended March 31,2010

2009

2008Income (loss) from continuing operations

$
(1,113
)
$
(2,970
)
$
8,836Average outstanding shares of common stock


19,481


22,039


24,020Dilutive effect of warrants/stock options








128Common stock and common stock equivalents


19,481


22,039


24,148Basic income (loss) per share from continuing operations

$
(0.06
)
$
(0.13
)
$
0.37Diluted income (loss) per share from continuing operations

$
(0.06
)
$
(0.13
)
$
0.37


The
Company computed basic income (loss) per share from continuing operations using net income (loss) from continuing operations and the weighted average number of common shares
outstanding during the period. The Company computed diluted income (loss) per share from continuing operations
using net income (loss) from continuing operations and the weighted average number of common shares outstanding plus potentially dilutive common shares outstanding during the period. For the years
ended March 31, 2010 and 2009, there was no dilutive effect from options or warrants because the inclusion of options and warrants in the calculation of diluted loss per share would be
antidulitive. Potentially dilutive common shares outstanding were approximately 1.0 million for fiscal year 2008. Inclusion of these options and warrants would be antidilutive

NOTE 3EMPLOYEE EQUITY INCENTIVE PLANS

Equity Plan

The Company adopted the New Frontier Media, Inc. 2007 Stock Incentive Plan (the "2007 Plan") during fiscal year 2008. The 2007
Plan was approved by the Company's shareholders and the purpose of the 2007 Plan was to replace prior plans with one incentive plan. No awards or grants are available to be made under prior plans.
Under the 2007 Plan, employees and directors of the Company may be granted incentive stock options, restricted stock, bonus stock and other awards, or any combination thereof. There were 1,250,000
shares of the Company's common stock originally authorized for issuance under the 2007 Plan and the maximum number of shares of common stock that may be subject to one or more awards granted to a
participant during any calendar year is 350,000 shares. Awards granted under the 2007 Plan that are subsequently forfeited or cancelled may be reissued under the provisions of the 2007 Plan. Options
have been granted to employees and non-employee directors of New Frontier Media with exercise prices equal to, or in excess of, the fair market value of the underlying common stock at the
date of grant. As of March 31, 2010, there are no awards available for issuance under the 2007 Plan. The Company issues new shares of common stock upon the exercise of stock options.

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NOTE 3EMPLOYEE EQUITY INCENTIVE PLANS (Continued)

Stock Options

The Company accounts for employee and non-employee director stock options under the fair value method which requires the
use of an option pricing model for estimating fair value. Accordingly, share-based compensation is measured at grant date based on the estimated fair value of the award. The Company uses
the straight-line attribution method to recognize share-based compensation costs over the requisite service period of the award. Share-based compensation is determined using the
Black-Scholes option pricing model for estimating the fair value of options granted under the Company's equity incentive plan. The Company uses certain assumptions in order to calculate the fair value
of an option using the Black-Scholes option pricing model. The volatility assumptions are derived using historical volatility data. The expected term assumptions are stratified between officers and
non-officers and are determined using the estimated weighted average exercise behavior for these two groups of employees. The dividend yield assumption is based on dividends declared by
the Company's Board of Directors and estimates of dividends to be declared in the future.

The
weighted average estimated fair values of stock option grants and the weighted average assumptions that were used in calculating such values for the three years ended March 31
were as follows:

2010

2009

2008Weighted average estimated fair value per award

$
0.91

$
2.33

$
1.40Expected term from grant date (in years)


5


5


5Risk free interest rate


2.4
%

2.7
%

3.5
%Expected volatility


56
%

52
%

53
%Expected dividend yield



%


%

8
%


Share-based
compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest, which considers estimated forfeitures.
Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company recognizes the effect of adjusting the
estimated forfeiture rate for all expense amortization in the period that the Company changes the forfeiture estimate. The effect of forfeiture adjustments during the fiscal years 2010, 2009, and 2008
was to reduce the related expenses by approximately $0.3 million, $0.2 million and $0.1 million, respectively.

The
following table summarizes the effects of share-based compensation resulting from options granted under the Company's equity incentive plans. This expense is included in cost of
sales, sales and marketing expenses, and general and administrative expenses (in thousands, except per share amounts):

Year Ended March 31,2010

2009

2008Share-based compensation expense before income taxes

$
555

$
907

$
905Income tax benefit


(189
)

(363
)

(335
)Total share-based compensation expense after income taxes

$
366

$
544

$
570Share-based compensation effects on basic earnings (loss) per common share

$
0.02

$
0.02

$
0.02Share-based compensation effects on diluted earnings (loss) per common share

$
0.02

$
0.02

$
0.02


F-22

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3EMPLOYEE EQUITY INCENTIVE PLANS (Continued)

Stock
option transactions during the year ended March 31, 2010 are summarized as follows:

Stock Options

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term (Years)

Aggregate
Intrinsic
Value(1)
(in thousands)Outstanding at March 31, 2009


1,991,902

$
6.08Granted


617,000

$
2.16Forfeited/expired


(380,000
)
$
5.41Outstanding at March 31, 2010


2,228,902

$
5.11


7.2

$
Options exercisable at March 31, 2010


1,144,027

$
6.84


5.4

$
Options vested and expected to vestnon-officers


914,299

$
5.73


6.5

$
Options vested and expected to vestofficers


1,141,719

$
4.92


7.4

$



(1)The
aggregate intrinsic value represents the difference between the exercise price and the value of New Frontier Media, Inc. stock at the time of
exercise or at the end of the period if unexercised.


During
fiscal year 2010, approximately 28,000 warrants expired. There are no remaining outstanding warrants as of March 31, 2010.

As
of March 31, 2010, there was approximately $0.2 million and $0.8 million of total unrecognized compensation costs for non-officers and officers,
respectively, related to stock options granted under the Company's equity incentive plan. The unrecognized compensation cost for non-officers and officers is expected to be recognized over
a weighted average period of two years.

NOTE 4INVESTMENTSOTHER

Certificates of deposit held for investment that are not debt securities are included in investmentsother. The Company had no investmentsother at
March 31, 2010. The Company had $0.1 million of investmentsother at March 31, 2009.

NOTE 5FAIR VALUE MEASUREMENTS

The Company accounts for certain assets and liabilities at fair value. The hierarchy below lists the three levels of fair value based on the extent to which inputs used in measuring fair
value are observable in the market. The Company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value
measurement in its entirety. These levels are:



F-23

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5FAIR VALUE MEASUREMENTS (Continued)



Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company measures certain assets, such as goodwill, film costs and intangible assets, at fair value on a nonrecurring basis when
they are deemed to be impaired. The fair values are determined based on valuation techniques using the best information available and may include quoted market prices, market comparables, and
discounted cash flow projections. An impairment charge is recorded when the cost of the asset exceeds its fair value. The following table presents the Company's assets and liabilities measured at fair
value on a nonrecurring basis as of March 31, 2010 (in thousands):

Level 1

Level 2

Level 3

Net Fair
Value

Impairment
ChargeGoodwill(1)

$


$


$

*
$


$
4,856Film costs(2)








257


257


1,207Intangible assets(3)









*




291Assets held for sale(4)








134


134


64Inventory(5)









*




146Other long-lived assets(6)








301


301


831Total

$


$


$
692

$
692

$
7,395


*Fair
values were measured using Level 3 inputs, and the fair values were zero.(1)Measurement
relates to the Film Production segment goodwill impairment analysis. See Note 6Goodwill and Other Intangible Assets for
additional discussion.(2)Measurement
relates to the Film Production segment film cost impairment analysis. See Note 9Film Costs for additional discussion.(3)Measurement
relates to the Direct-to-Consumer segment website and related software impairment analysis. See
Note 6Goodwill and Other Intangible Assets for additional discussion.(4)Measurement
relates to the discontinued IPTV set-top box equipment impairment analysis. See Note 19Discontinued Operations
for additional discussion.(5)Measurement
relates to the discontinued IPTV set-top box inventory impairment analysis. See Note 19Discontinued Operations
for additional discussion.(6)Measurement
primarily relates to property, equipment, recoupable costs and producer advances, and other long-lived assets.


F-24

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5FAIR VALUE MEASUREMENTS (Continued)




The
following table presents the Company's assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2009 (in thousands):

Level 1

Level 2

Level 3

Net Fair
Value

Impairment
ChargeGoodwill(1)

$


$


$
4,856

$
4,856

$
10,009Film costs(2)








504


504


1,062Intangible assets(3)









*




938Other long-lived assets(4)








82


82


236Total

$


$


$
5,442

$
5,442

$
12,245


*Fair
values were measured using Level 3 inputs, and the fair values were zero.(1)Measurement
relates to the Film Production segment goodwill impairment analysis. See Note 6Goodwill and Other Intangible Assets for
additional discussion.(2)Measurement
relates to the Film Production segment film cost impairment analysis. See Note 9Film Costs for additional discussion.(3)Measurement
relates to the discontinued IPTV set-top box intangible asset impairment analysis. See Note 19Discontinued
Operations and Note 6Goodwill and Other Intangible Assets for additional discussion.(4)Measurement
primarily relates to property, equipment, recoupable costs and producer advances, and other long-lived assets.


NOTE 6GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Goodwill is classified within the segment that employs the goodwill in its operations. Changes in the carrying amount of goodwill for
the years ended March 31, 2010 and 2009, by reportable segment, were as follows (in thousands):

Transactional TV

Film Production

TotalBalance as of March 31, 2008

$
3,743

$
14,865

$
18,608Impairment





(10,009
)

(10,009
)Balance as of March 31, 2009


3,743


4,856


8,599Impairment





(4,856
)

(4,856
)Balance as of March 31, 2010

$
3,743

$


$
3,743


F-25

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

Fiscal Year 2010

The Company performed annual goodwill impairment tests for the Transactional TV and Film Production segments at March 31, 2010
and engaged a third party valuation firm to assist with the tests. The income and market valuation approaches were considered in determining the estimated fair value of the segments. For the
Transactional TV segment, the market valuation approach was more heavily weighted than the income valuation approach because (a) the overall Company valuation is believed to be primarily based
on the performance and results of the Transactional TV segment, and (b) the results of the Transactional TV segment represent the large majority of the Company's overall activity. For the Film
Production segment, the valuation methodologies were weighted equally. The results of the analysis did not indicate any goodwill impairment for the Transactional TV segment. The results of the
analysis did indicate that the estimated fair value of the Film Production segment was less than its carrying value. The Company then performed additional analysis to estimate the implied fair value
of goodwill. The Company determined the implied fair value of the goodwill by first allocating the estimated fair value of the Film Production segment to the tangible and identifiable intangible
assets and liabilities of the operating segment. The excess of the estimated fair value over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. Based on this
analysis, the Company recorded a goodwill impairment charge of $4.9 million to reduce the Film Production segment's goodwill from $4.9 million to the implied fair value of goodwill of
zero. Although the fiscal year 2010 performance of the Film Production segment was consistent with the Company's internal forecasts, conditions within the film markets continued to be challenging.
Based on historical and current experience within the film production markets and in connection with the year end annual goodwill impairment test, the Company modified its five year forecast for the
Film Production segment downward to reflect the expectation that film market conditions would remain depressed and decline further. As a result of the downward adjustment to the five year forecast,
the Company's Film Production segment incurred the goodwill impairment charge.

Due
to the continued pressure on the Company's stock price during fiscal year 2010, the Company's market capitalization was less than its shareholders' equity balance at March 31,
2010. As an overall test of the reasonableness of the estimated fair value of the reporting segments and consolidated Company, a reconciliation of the fair value estimates for the reporting segments
to the Company's market capitalization was also performed as of March 31, 2010. The reconciliation considered a reasonable control premium based on merger and acquisition transactions within
the media and entertainment industry and other relevant information. Based on the reconciliation, the Company's fair value was in excess of its market capitalization and there was no indicator of
additional goodwill impairment. A control premium is the amount that a buyer is willing to pay over the current market price of a company as indicated by the traded price per share (i.e. market
capitalization), in order to acquire a controlling interest. The premium is justified by the expected synergies, such as the expected increase in cash flow resulting from cost savings and revenue
enhancements.

Fiscal Year 2009

During the third quarter of fiscal year 2009, the Company determined that continued adverse changes in the business climate and
material revisions to the Film Production segment's internal three year forecasts based on lower than expected revenue for the third quarter of fiscal year 2009 were events that could indicate that
the fair value of the reporting unit was less than its carrying amount. The Company therefore performed an impairment test as of December 31, 2008 and engaged an

F-26

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

independent
firm to assist in performing the impairment test. The income and market approaches were considered in determining the estimated fair value of the segment. The income approach was more
heavily weighted than the market valuation approaches primarily because (a) the comparable market valuation approach companies were not profitable in certain instances which required the
Company to estimate enterprise value based on revenue multiples and revenue multiples are considered to be a less accurate measure of fair value as compared to alternative measures such as EBITDA,
(b) the difference in the revenue multiples for the comparable companies were material and (c) there was a lack of comparability between the reporting unit and comparable companies.
Based on the impairment testing, the Company determined that the estimated fair value of the Film Production segment was less than its carrying value. The Company then performed additional analysis to
estimate the implied fair value of goodwill. Based on this analysis, the Company recorded a goodwill impairment charge of $10.0 million to reduce the Film Production segment's goodwill from
$14.9 million to the implied fair value of goodwill of $4.9 million. The Company also performed the annual goodwill impairment tests for the Transactional TV and Film Production segments
at March 31, 2009. The valuation methodologies for the Transactional TV and Film Production segments were similar to the methodologies used at March 31, 2010 and December 31,
2008, respectively. The results of the analysis did not indicate any additional goodwill impairment.

Due
to the deterioration in the overall stock market during the second half of fiscal year 2009, the Company's market capitalization was below its shareholders' equity balance at
March 31, 2009. As an overall test of the reasonableness of the estimated fair value of the reporting segments and consolidated Company, a reconciliation of the fair value estimates for the
reporting segments to the Company's market capitalization was also performed as of March 31, 2009. The reconciliation considered a reasonable control premium based on merger and acquisition
transactions within the media and entertainment industry and other relevant information. Based on the reconciliation, the Company's fair value was in excess of its market capitalization and there was
no indicator of additional goodwill impairment.

Other Identifiable Intangible Assets

Intangible assets that are subject to amortization were as follows (in thousands, except useful life):

March 31, 2010

March 31, 2009Useful
Life
(Years)

Gross
Carrying
Amounts

Accumulated
Amortization

Impairment

Net

Gross
Carrying
Amounts

Accumulated
Amortization

Impairment

NetNon-compete agreement

5

$
2,131

$
(1,739
)
$
(47
)
$
345

$
2,131

$
(1,325
)
$
(47
)
$
759Contractual/noncontractual relationship

5


1,375


(1,146
)




229


1,375


(871
)




504Intellectual property

5


540


(126
)

(414
)




540


(126
)

(414
)

Websites

5


156


(65
)

(54
)

37


497


(94
)

(54
)

349Patents

5


460


(107
)

(353
)




460


(107
)

(353
)

Other

2.5 - 15


234


(102
)

(70
)

62


178


(90
)

(70
)

18$
4,896

$
(3,285
)
$
(938
)
$
673

$
5,181

$
(2,613
)
$
(938
)
$
1,630


Amortization expense for intangible assets subject to amortization during each of the fiscal years ended March 31, 2010, 2009 and 2008 was
approximately $0.8 million. Amortization expense for intangible assets subject to amortization for the fiscal year ending March 31, 2011 is estimated to be

F-27

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

approximately
$0.6 million. Amortization expense for intangible assets subject to amortization for the fiscal year ending March 31, 2012 and thereafter is expected to be immaterial.

During
the fourth quarter of fiscal year 2010, the Company determined that certain internally developed websites and related software used to manage its
Direct-to-Consumer segment consumer websites no longer met its quality standards. Additionally, the software did not provide sufficient support or functionality for content
management, database interface, consumer facing websites, or accumulation or reporting of website traffic. As a result, the Company ceased using the websites and software and determined the websites
and software would not provide any service potential in the future. As a result, the Company recorded an impairment charge of $0.3 million to reduce the fair value of the websites and related
software to zero. The Company removed the websites and related software gross carrying amounts and accumulated amortization balances because the assets were fully impaired and no longer in use.

Based
primarily on lower than expected performance and the economic downturn in fiscal year 2009, the Company restructured the Direct-to-Consumer segment's new
product operations including the IPTV set-top box business. In connection with the restructuring, the Company evaluated whether the anticipated undiscounted future net cash flows
associated with the related intangible assets was in excess of the assets' carrying value and recorded an impairment expense of approximately $0.9 million for the excess carrying value as
compared to its fair value in the fourth quarter of fiscal year 2009. The impairment expense is recorded within discontinued operations. See additional discussion at
Note 19Discontinued Operations.

NOTE 7EQUIPMENT AND FURNITURE

The components of equipment and furniture as of March 31 were as follows (in thousands):

2010

2009Furniture and fixtures

$
701

$
594Computers, equipment and servers


7,274


7,368Leasehold improvements


2,816


2,736Equipment and furniture, at cost


10,791


10,698Less accumulated depreciation


(6,234
)

(5,125
)Total equipment and furniture, net

$
4,557

$
5,573


Depreciation
expense was approximately $1.7 million, $1.7 million, and $1.5 million for the fiscal years ended March 31, 2010, 2009, and 2008, respectively.
During the fiscal years ended March 31, 2010 and 2009, the Company retired approximately $0.6 million and $2.2 million, respectively, of fully depreciated equipment and furniture.

NOTE 8CONTENT AND DISTRIBUTION RIGHTS

The Company's Transactional TV and Direct-to-Consumer segments' content and distribution rights consist of content licensing agreements and original productions.
The Company capitalizes the costs associated with the licenses, certain editing costs, and content. These costs are amortized on a

F-28

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 8CONTENT AND DISTRIBUTION RIGHTS (Continued)

straight-line
basis, typically over 5 years. The components of content and distribution rights as of March 31 were as follows (in thousands):

2010

2009In release

$
19,705

$
18,458Acquired, not yet released


1,341


944In production


116


Accumulated amortization


(9,846
)

(8,469
)Total content and distribution rights, net

$
11,316

$
10,933


Amortization
expense for the years ended March 31, 2010, 2009 and 2008 was approximately $3.8 million, $3.6 million and $3.2 million, respectively. During the
years ended March 31, 2010 and 2009, the Company retired approximately $2.4 million and $2.6 million, respectively, of fully amortized content and distribution rights. The Company
had no material write-offs of content and distribution rights during the fiscal years ended March 31, 2010, 2009 or 2008.

During
the fourth quarter of fiscal year 2010, the Company began producing original content for the Transactional TV and Direct-to-Consumer segments.

NOTE 9FILM COSTS

The components of film costs, which are primarily direct-to-television, are as follows (in thousands):

March 31,2010

2009In release

$
18,477

$
17,782Completed, not yet released


82


134In production


1,645


691Accumulated amortization


(14,499
)

(11,935
)Total film costs, net

$
5,705

$
6,672


Amortization
expense for the years ended March 31, 2010, 2009 and 2008 was approximately $2.6 million, $2.7 million and $2.8 million, respectively. The
Company expects to amortize approximately $2.5 million in capitalized film costs during fiscal year 2011. The Company expects to amortize substantially all unamortized film costs for released
films by March 31, 2013.

F-29

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9FILM COSTS (Continued)

During
the fourth quarter of fiscal year 2010, the Company recorded a non-cash impairment expense of approximately $1.2 million associated with several Film Production
segment owned content films and events. As part of the quarterly film performance analysis and in connection with the annual goodwill impairment analysis, the Company estimated that conditions within
the film markets would continue to be challenging and adjusted downward the Film Production segment
forecasts as well as certain estimated future film and event performance. As a result of the downward adjustment to certain estimated future film and event performance, the Company recorded an
impairment charge of approximately $1.2 million representing the difference in the unamortized film costs and the estimated fair value of the related films and events. This expense was recorded
in the charge for restructuring and asset impairments other than goodwill line item in the consolidated statements of operations. The fair value of the films and events was estimated by discounting
the film or event's projected cash flow by the weighted average cost of capital.

During
fiscal year 2009, the Company recorded a non-cash impairment expense of approximately $1.1 million associated with several Film Production segment owned content
films and events. During the third quarter of fiscal year 2009 and as part of the Company's process to continually assess the expected performance of owned content, the Company determined that
downward adjustments to the estimated performance of films and events should be recorded as a result of adverse changes to the business climate. As a result, the Company recorded an impairment charge
of approximately $1.1 million representing the difference in the unamortized film costs and the estimated fair value of the films and events. This expense was recorded in the charge for
restructuring and asset impairments other than goodwill line item in the consolidated statements of operations. The fair value of the films and events was estimated by discounting the film or event's
projected cash flow by the weighted average cost of capital.

During
fiscal year 2008, the Company recorded a non-cash impairment expense of approximately $0.7 million associated with two Film Production segment owned content
events. During the third quarter of fiscal year 2008, the Company obtained initial revenue data that indicated the actual performance of the events would not meet the original estimates. As a result,
the Company lowered its estimate of the expected future benefits to be derived from these events and recorded an impairment charge of approximately $0.7 million representing the difference in
the unamortized film costs and the estimated fair value of the events. This expense was recorded in the charge for restructuring and asset impairments other than goodwill line item in the consolidated
statements of operations. The fair value of the films and events was estimated by discounting the film or event's projected cash flow by the weighted average cost of capital.

F-30

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10INCOME TAXES

The components of the continuing operations income tax provision expense for the three years ended March 31 were as follows (in thousands):

2010

2009

2008CurrentFederal

$
1,469

$
3,460

$
4,505State


186


636


836Total current


1,655


4,096


5,341DeferredFederal


(715
)

(167
)

7State


(102
)

(20
)

(162
)Total deferred


(817
)

(187
)

(155
)Total

$
838

$
3,909

$
5,186


A
reconciliation of the expected income tax computed using the federal statutory income tax rate to the Company's recorded income tax provision expense for continuing operations is as
follows for the three years ended March 31 (in thousands):

2010

2009

2008Income tax computed at federal statutory tax rate of 35%

$
(96
)
$
329

$
4,908State taxes, net of federal benefit


83


338


441Non-deductible goodwill impairment


1,700


3,503


Reversal of uncertain tax positions





(429
)

Federal research and development tax credits


(751
)




Other non-deductible (deductible) differences, net


95


152


(29
)Other temporary differences, net


(193
)

16


(134
)Total

$
838

$
3,909

$
5,186


F-31

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10INCOME TAXES (Continued)

Significant
components of the Company's deferred tax liabilities and assets as of March 31 were as follows (in thousands):

2010

2009Deferred tax liabilities:Depreciation

$
(426
)
$
(481
)Goodwill


(972
)

(795
)Film library


(1,010
)

(2,537
)Tax method changes


(1,499
)

(199
)Identifiable intangibles


(107
)

(222
)Other


(75
)

(44
)Total deferred tax liabilities


(4,089
)

(4,278
)Deferred tax assets:Net operating loss carryforward


945


800Deferred revenue


70


70Asset disposition, impairment and other reserves


1,570


804Allowance for doubtful accounts and reserve for sales returns


97


121Share-based compensation


838


886Amortization


306


297Accruals


126


290Identifiable intangibles


465


361Other


134


104Gross deferred tax assets


4,551


3,733Valuation allowance


(220
)

Total deferred tax assets


4,331


3,733Net deferred tax assets (liabilities)

$
242

$
(545
)


The
Company realized tax benefits from option and warrant exercises of $0.1 million for the fiscal year ended March 31, 2008. These deductions result in an
increase in additional paid-in capital. No tax benefits from option and warrant exercises were realized during the fiscal years ended March 31, 2010 or 2009.

Deferred
income tax assets and liabilities 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 Company establishes valuation allowances when, based on an evaluation of objective evidence, there is a likelihood that some portion or all of the
deferred tax assets will not be realized. As of March 31, 2010, the Company determined that it was more likely than not that deferred tax assets associated with the discontinued operations
international operating losses would not be realized and recorded a valuation allowance for the full operating loss deferred tax asset of $0.2 million. The Company had no other valuation
allowances at March 31, 2010.

The
Company has domestic net operating loss carryforwards of approximately $1.9 million for federal income tax purposes, which expire through 2019. For tax purposes, there is an
annual limitation of approximately $0.2 million for the remaining 9 years on all of the Company's net operating loss under Internal Revenue Code Section 382. Internal Revenue Code
Section 382 also places a limitation

F-32

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10INCOME TAXES (Continued)

on
the utilization of net operating loss carryforwards when an ownership change, as defined in the tax law, occurs. Generally, an ownership change occurs when there is a greater than 50 percent
change in ownership. When a change occurs, the actual utilization of net operating loss carryforwards is limited annually to a percentage of the fair market value of the Company at the time of such
change.

The
Company files U.S. federal, state, and foreign income tax returns. During the third quarter of fiscal year 2009, the Company concluded an audit by the Internal Revenue Service
("IRS") for its fiscal year 2007, and the IRS proposed no changes to the Company's fiscal year 2007 tax return in connection with the audit. With few exceptions, the Company is no longer subject to
examination of its federal and state income tax returns for years prior to fiscal year 2006.

Uncertain Tax Positions

The Company accounts for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position
for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or
litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon effective settlement. There were no material
changes in the Company's uncertain tax position liabilities during fiscal year 2010. As of March 31, 2010 the Company had total unrecognized tax benefits of approximately $0.3 million
that are not expected to be settled within one year and have been classified within long-term taxes payable. If the Company was to prevail or the uncertainties were settled in favor of the
Company on all uncertain tax positions, the net effect is estimated to be a benefit to the Company's tax expense of approximately $0.3 million. As of March 31, 2010, the Company had
accrued immaterial amounts of interest expense related to uncertain tax position liabilities. If the Company was to prevail or the uncertainties were settled in favor of the Company on all uncertain
tax positions, the reversal of the accrued interest would result in a benefit to the Company.

The
aggregate change in the balance of the unrecognized tax benefits during the fiscal year ended March 31, 2010 was as follows (in thousands):

Beginning balance at April 1, 2009

$
242Increases related to prior period tax positions


67Ending balance at March 31, 2010

$
309


During
the third quarter of fiscal year 2009, the statute of limitations expired on approximately $1.6 million of uncertain tax positions resulting in a decline in the uncertain
tax position balance as reflected in the current portion of taxes payable. This reversal of the uncertain tax positions resulted in a $0.4 million reduction in the Company's fiscal year 2009
tax expense and a $0.4 million reversal of related interest expense. Approximately $1.1 million of the reversal of the uncertain tax position liabilities was recorded as an increase to
additional paid-in capital because the amount was originally recorded as a reduction of additional paid-in capital and had no impact on income tax expense.

Research and Development Tax Credits

During fiscal year 2010, the Company performed a research and development tax credit study. The study considered fiscal years for which
amended or current tax returns could be filed. The Company

F-33

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10INCOME TAXES (Continued)

concluded
that it was eligible for research and development tax credits that would result in a reduction in the provision for income tax expense for the noted fiscal years as follows (in thousands):

March 31,2009(1)

$
2172008(1)


1692007


1292006


86Total

$
601


(1)Approximately
$25,000 and $3,000 of the research and development tax credits during the fiscal years ended March 31, 2009 and 2008, respectively,
related to discontinued operations.


The
Company filed amended and current tax returns during the third quarter of fiscal year 2010 for each of the fiscal years noted above and included the research and development tax
credits identified in the study. As a result of the filings, the Company recorded a reduction in the provision for income tax expense of $0.6 million during the third quarter of fiscal year
2010. The Company also estimated that it would utilize research and development tax credits during the fiscal year ended March 31, 2010 of between $0.1 million and $0.2 million.
Approximately $0.1 million of the estimated fiscal year 2010 tax credit was reflected in the third quarter of fiscal year 2010 and the remaining amount was reflected in the fourth quarter of
fiscal year 2010.

NOTE 11STOCK REPURCHASE

In June 2008, the Company's Board of Directors extended a share repurchase plan allowing for the repurchase of approximately 1.1 million shares of common stock through June 2010.
During the six month period ended September 30, 2008, the Company substantially completed the share repurchase plan and repurchased approximately 1.1 million shares for a total purchase
price of approximately $4.3 million.

During
fiscal year 2009, the Company purchased through one broker in an unsolicited single block trade approximately 0.5 million shares of common stock for a total purchase price
of approximately $0.7 million. Additionally, the Company entered into a Stock Purchase Agreement pursuant to which a shareholder agreed to sell and the Company agreed to purchase approximately
2.6 million shares of the Company's common stock for a total purchase price of approximately $4.1 million.

In
August 2009, the Company announced that its Board of Directors adopted a new stock repurchase program. The Board of Directors adopted the program in light of current market conditions
and the capital and financial position of the Company. Under the program, the Company may purchase with available cash and cash from operations up to 1.0 million shares of the Company's
outstanding common stock, from time to time through open market or privately negotiated transactions, as market and business conditions permit. The program will expire in March 2012. Any repurchased
shares will be returned to authorized but unissued shares of common stock in accordance with Colorado law. The Company acquired approximately 0.1 million shares under the program for a total
purchase price of approximately $0.1 million during fiscal year 2010.

F-34

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12SEGMENT AND GEOGRAPHIC INFORMATION

Operating segments are defined as components of an enterprise for which separate financial information is available and regularly reviewed by the Company's chief operating decision
maker. The Company has the following reportable operating segments:



The
accounting policies of the reportable segments are the same as those described in the summary of accounting policies. Segment profit (loss) is based on income (loss) from continuing
operations before provision for income taxes. The reportable segments are distinct business units,

F-35

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12SEGMENT AND GEOGRAPHIC INFORMATION (Continued)

separately
managed with different distribution channels. The selected operating results of the Company's segments during the three years ended March 31 were as follows (in thousands):

2010

2009

2008Net revenueTransactional TV

$
37,380

$
42,559

$
40,998Film Production


12,013


8,584


13,094Direct-to-Consumer


1,035


1,452


1,819Total

$
50,428

$
52,595

$
55,911Segment profit (loss)Transactional TV

$
15,139

$
21,637

$
21,423Film Production


(5,427
)

(10,916
)

2,307Direct-to-Consumer


(943
)

(306
)

118Corporate Administration


(9,044
)

(9,476
)

(9,826
)Total

$
(275
)
$
939

$
14,022Interest incomeTransactional TV

$


$


$
2Film Production


5


5


7Corporate Administration


44


203


702Total

$
49

$
208

$
711Interest expenseCorporate Administration

$
243

$
208

$
155Reversal of interest expense for uncertain tax positionsCorporate Administration

$


$
429

$
Depreciation and amortizationTransactional TV

$
5,222

$
5,015

$
4,404Film Production


3,309


3,452


3,619Direct-to-Consumer


256


209


209Corporate Administration


48


30


14Total

$
8,835

$
8,706

$
8,246


F-36

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12SEGMENT AND GEOGRAPHIC INFORMATION (Continued)

The
Company's total net identifiable asset balance by operating segment at March 31 was as follows (in thousands):

2010

2009

2008Net identifiable assetsTransactional TV

$
26,474

$
27,184

$
27,366Film Production


15,490


22,453


33,194Direct-to-Consumer


775


1,166


1,111Corporate Administration


18,850


17,066


20,657Total continuing operations assets


61,589


67,869


82,328Total discontinued operations assets


224


670


1,333Total assets

$
61,813

$
68,539

$
83,661


As
of March 31, 2010, approximately $0.2 million of the Company's assets were located in Europe. All other assets were located in the U.S.

Net
revenue, classified by geographic billing location of the customer, during the three years ended March 31 was as follows (in thousands):

2010

2009

2008Domestic net revenue

$
43,370

$
48,216

$
51,976International net revenue:Europe, Middle East and Africa


1,643


1,814


1,635Latin America


3,036


944


649Canada


1,896


939


215Asia


161


443


1,207Other


322


239


229Total international net revenue


7,058


4,379


3,935Total net revenue

$
50,428

$
52,595

$
55,911


NOTE 13MAJOR CUSTOMERS

The Company's major customers (revenue in excess of 10% of net revenue) are Comcast Corporation ("Comcast"), DirecTV, Inc. ("DirecTV"), DISH Network Corporation ("DISH"), and Time
Warner, Inc. ("Time Warner"). These customers are included in the Transactional TV and Film Production segments. Net revenue from these customers as a percentage of total net revenue for the
three years ended March 31 was as follows:

2010

2009

2008Comcast


17
%

24
%

18
%DirecTV


12
%

15
%

13
%Time Warner


12
%

13
%

14
%DISH


11
%

13
%

14
%


F-37

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 13MAJOR CUSTOMERS (Continued)

The Company's outstanding accounts receivable balances due from its major customers as of March 31 are as follows (in thousands):

2010

2009DISH

$
1,810

$
940Comcast


1,221


1,735DirecTV


699


1,121Time Warner


448


683


The
loss of any of the Company's major customers would have a material adverse effect on the Company's results of operations and financial condition.

NOTE 14COMMITMENTS AND CONTINGENCIES

The following table reflects the Company's contractual cash obligations as of March 31, 2010 for each of the time periods specified (in thousands):

Year Ending March 31,

Operating
Leases

Vendor
Obligations

Total2011

$
1,888

$
2,568

$
4,4562012


1,049


1,617


2,6662013


620


1,588


2,2082014


349


1,035


1,3842015


1


1,000


1,001Thereafter





2,500


2,500Total minimum payments

$
3,907

$
10,308

$
14,215


For
the purposes of this table, contractual obligations are defined as agreements that are enforceable and legally binding and that specify all significant terms, such as fixed or
minimum services to be purchased and the approximate timing of the transaction. Obligations to acquire specified quantities of movie license rights that are subject to the delivery of the related
movies are included in vendor obligations because the Company estimates that the movies will be delivered in the specified time periods based on historical experience with the movie studios.

The
Company entered into certain non-cancelable contracts subsequent to March 31, 2010 primarily related to transport services. The future obligations under these
agreements for the fiscal year ending March 31, 2011 is $1.1 million, and the future obligations for each of the fiscal years ending March 31, 2012, 2013 and 2014 is
$1.0 million.

The
Company has recorded long-term income taxes payable of approximately $0.3 million for uncertain tax positions, reduced by the associated federal deduction for
state taxes. The Company is unable to reliably estimate the timing of future payments, if any, related to these uncertain tax positions. Therefore, the amounts have been excluded from the above table.

F-38

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14COMMITMENTS AND CONTINGENCIES (Continued)

Operating Lease Obligations

The Company maintains non-cancelable leases for office space and equipment under various operating leases. The leases for
office space expire through November 2013 and contain annual Consumer Price Index escalation clauses. The Company's Transactional TV segment has entered into direct lease agreements that expire
through December 2010 with an unrelated party for the use of transponders to broadcast its channels on satellites. As the lessee of transponders under the transponder agreements, the Company 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. The Company had no equipment under capital lease at March 31, 2010 or 2009.

Rent
expense for the years ended March 31, 2010, 2009 and 2008 was approximately $1.9 million, $1.8 million and $1.7 million, respectively, which includes
transponder expenses.

Vendor Obligations

From time to time, the Company enters into arrangements with movie studios to acquire license rights for a fixed and/or minimum
quantity of movies over various purchase periods as defined by the agreements. Additionally, the Company is party to certain uplinking, transport and marketing services that contractually obligate the
Company to receive services over specified terms as per these arrangements. The Company is also obligated to make future payments associated with its purchase of patent rights. These contractual
obligations are reflected in the above table as vendor obligations.

Employment Contracts

The Company employs executives and certain other key employees under non-cancelable employment contracts in Colorado,
California, Florida and Georgia. These employment contracts expire through August 31, 2013. Commitments under these obligations at March 31, 2010 were as follows (in thousands):

Year Ending March 31,2011

$
4,4782012


2,3092013


1,5812014


467Total obligation under employment contracts

$
8,835


Subsequent
to March 31, 2010, executives and certain other key employees' salaries were increased effective April 1, 2010. The impact of the change in salaries is an
increase in the Company's commitments under the obligations for the years ending March 31, 2011, 2012 and 2013 of $0.2 million, $0.1 million and $35,000, respectively.

Indemnification

The Company has agreements whereby it indemnifies officers and directors for certain events or occurrences while the officer or
director is, or was, serving in such capacity at the Company's request.

F-39

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14COMMITMENTS AND CONTINGENCIES (Continued)

The
term of the indemnification period is for the officer's or director's lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification
agreements is unlimited; however, the Company has a director and officer insurance policy that limits exposure and the Company believes that this policy would enable it to recover a portion, if not
all, of any future indemnification payments. As a result of its insurance policy coverage, the Company believes that its estimated exposure on these indemnification agreements is minimal.

The
Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to
reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with any claim by any third party, including customers, with respect to the Company's products or
services, including, but not limited to, alleged negligence, breach of contract, or infringement of a patent, copyright or other intellectual property right. The term is any time after execution of
the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has never incurred costs to defend
lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes that its estimated exposure on these agreements is minimal.

Legal Proceedings

In the normal course of business, the Company is subject to various lawsuits and claims. 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 15BORROWING ARRANGEMENTS

On December 15, 2009, the Company's former line of credit matured and the Company obtained a new line of credit from a financial institution. The line of credit is secured by
certain trade accounts and accounts receivable, is scheduled to mature on December 15, 2010, and bears interest at the greater of (a) the current prime rate less 0.125 percentage
points per annum or (b) 5.75% per annum. The line of credit may be drawn from time to time to support the Company's operations and short-term working capital needs, if any. A loan
origination fee of 0.5% of the available line was paid by the Company upon the execution of the line of credit and is being amortized over the life of the line of credit. The line of credit includes a
maximum borrowing base equal to the lesser of 75% of the trade accounts and accounts receivable securing the line of credit or $5.0 million, and the maximum borrowing base at March 31,
2010 was $5.0 million.

The
line of credit contains both conditions precedent that must be satisfied prior to any borrowing and affirmative and negative covenants customary for facilities of this type,
including without limitation, (a) a requirement to maintain a current asset to current liability ratio of at least 1.5 to 1.0, (b) a requirement to maintain a total liability to tangible
net worth ratio not to exceed 1.0 to 1.0, (c) prohibitions on additional borrowing, lending, investing or fundamental corporate changes without prior consent, (d) a prohibition on
declaring without consent any dividends, other than dividends payable in our stock, and (e) a requirement that there be no material adverse change in the Company's current client base as it
relates to its largest clients. The line of credit provides that an event of default will exist in certain circumstances, including without limitation, the Company's failure to make payment of
principal or interest on borrowed amounts when required, failure to perform certain obligations

F-40

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 15BORROWING ARRANGEMENTS (Continued)

under
the line of credit and related documents, defaults in certain other indebtedness, the Company's insolvency, a change in control of the Company, any material adverse change in the Company's
financial condition and certain other events customary for facilities of this type. As of March 31, 2010 the Company's outstanding principal balance under the line of credit was
$1.0 million, and the Company was in compliance with the related covenants.

NOTE 16DEFINED CONTRIBUTION PLAN

The Company sponsors a 401(k) retirement plan. The plan covers all eligible employees of the Company. Employee contributions to the plan are elective, and the Company has discretion to
match employee contributions. Contributions by the Company vest ratably over a three-year period during the first three years of employee service, and contributions by the Company vest
immediately after three or more years of employee service. Contributions by the Company during each of the years ended March 31, 2010, 2009, and 2008 were approximately $0.3 million.

NOTE 17STOCKHOLDER RIGHTS PLAN

On November 29, 2001, the Company's Board of Directors adopted a Stockholder Rights Plan in which Rights were distributed at the rate of one Right for each share of the Company's
common stock held by stockholders of record as of the close of business on December 21, 2001. The Rights generally will be exercisable only if a person or group acquires beneficial ownership of
15% or more of the Company's outstanding common stock after November 29, 2001, or commences a tender offer upon consummation of which the person or group would beneficially own 15% or more of
the Company's outstanding common stock. Each Right is initially exercisable at $10.00 and will expire on December 21, 2011. Effective August 1, 2008, pursuant to an Amended and Restated
Rights Agreement between the Company and the rights agent made effective as of such date, the Company eliminated the continuing director or so-called "dead hand" provisions included in the
originally adopted Shareholder Rights Plan.

NOTE 18RELATED PARTY TRANSACTIONS

The Company paid approximately $0.1 million, $0.1 million and $0.2 million to Isaacman, Kaufman & Painter during the fiscal years ended March 31, 2010,
2009 and 2008, respectively, associated with legal services. The Company's board member, Alan Isaacman, is a Senior Member of Isaacman, Kaufman & Painter.

NOTE 19DISCONTINUED OPERATIONS

The Direct-to-Consumer segment acquired certain intangible assets in late fiscal year 2008 in an effort to expand the product lines that are delivered directly to
consumers. The acquired intangible assets primarily related to intellectual property rights technology that allow the Company to manufacture a set-top box through which consumers can
obtain content directly through the internet and view the content on television. The Company tested the market for the related IPTV set-top box product by establishing a test business
model during fiscal year 2009. Based primarily on (a) lower than expected subscriber additions for the IPTV test business model during the second half of fiscal year 2009, (b) the
significant downturn in economic conditions and related reduction in consumer spending during the second half of fiscal year 2009, and (c) slower than expected development of new product

F-41

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 19DISCONTINUED OPERATIONS (Continued)

lines,
the Company restructured the Direct-to-Consumer segment operations as it related to its new product lines. Based on this restructuring, the Company evaluated whether the
anticipated undiscounted future net cash flows associated with the related intangible assets was in excess of the assets' carrying value and recorded an impairment expense of approximately
$0.9 million for the excess carrying value as compared to its estimated fair value. Additionally, the Company incurred approximately $0.2 million of early contract termination fees for
consulting contracts in connection with the restructuring and subsequently paid the related fees in April 2009. The $1.1 million intangible asset impairment and restructuring charges are
reflected in the fiscal year 2009 discontinued operations results.

During
fiscal year 2010, the Company entered into arrangements with third-party affiliates to distribute the IPTV set-top box in Europe and the U.S. Throughout fiscal year
2010, these affiliates marketed the IPTV set-top box product through a variety of advertising programs including print, billboards and other miscellaneous media. The performance of the
IPTV set-top box business in fiscal year 2010 was lower than expected and as a result, the Company implemented a plan to discontinue the operations of the IPTV set-top box
business in the fourth quarter of fiscal year 2010. The Company expects cash flows associated with the
IPTV set-top box business will be eliminated from the ongoing operations of the Company, and the Company will not have any significant continuing involvement in the operations of the IPTV
set-top box business after the disposal transaction. The Company does not expect to incur material expenses or cash flows in the future associated with the discontinued operations, and the
disposal is expected to be completed during fiscal year 2011.

As
a result of the discontinuation of the IPTV set-top box business, the Company recorded an inventory obsolescence impairment charge of $0.1 million and an equipment
impairment charge of $0.1 million during the fourth quarter of fiscal year 2010. Additionally, the Company has classified certain equipment as held for sale based on, among other things, the
Company's intent and ability to sell the assets. The discontinued operations generated net revenue of $0.1 million during each of the fiscal years ended March 31, 2010 and 2009 and no
net revenue during the fiscal year ended March 31, 2008, and the pre-tax loss was $1.0 million, $3.5 million and $0.3 million during the fiscal years ended
March 31, 2010, 2009 and 2008, respectively. The carrying amount of the discontinued operations assets as of March 31, 2010 primarily includes current assets of approximately
$0.1 million related to assets held for sale. There were no material discontinued operations liabilities at March 31, 2010.

F-42

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 20QUARTERLY INFORMATION (UNAUDITED)

The consolidated results of operations on a quarterly basis were as follows (in thousands, except per share amounts):

Fiscal Year 2010First
Quarter

Second
Quarter

Third
Quarter

Fourth
QuarterNet revenue

$
12,487

$
11,375

$
11,479

$
15,087Gross margin


8,071


7,336


7,476


7,687Income (loss) from continuing operations(1)


986


1,139


1,571


(4,809
)Loss from discontinued operations


(159
)

(133
)

(66
)

(267
)Net income (loss)


827


1,006


1,505


(5,076
)Basic income per share:Income (loss) from continuing operations per share


0.05


0.06


0.08


(0.25
)Loss from discontinued operations per share


(0.01
)

(0.01
)

(0.00
)

(0.01
)Net income (loss) per share


0.04


0.05


0.08


(0.26
)Diluted income per share:Income (loss) from continuing operations per share


0.05


0.06


0.08


(0.25
)Loss from discontinued operations per share


(0.01
)

(0.01
)

(0.00
)

(0.01
)Net income (loss) per share


0.04


0.05


0.08


(0.26
)




Fiscal Year 2009First
Quarter

Second
Quarter

Third
Quarter

Fourth
QuarterNet revenue

$
13,058

$
13,365

$
12,604

$
13,568Gross margin


9,331


9,246


8,822


9,258Income (loss) from continuing operations(2)


1,484


1,711


(8,400
)

2,235Loss from discontinued operations


(305
)

(416
)

(453
)

(1,044
)Net income (loss)


1,179


1,295


(8,853
)

1,191Basic income per share(3):Income (loss) from continuing operations per share


0.06


0.07


(0.39
)

0.11Loss from discontinued operations per share


(0.01
)

(0.02
)

(0.02
)

(0.05
)Net income (loss) per share


0.05


0.06


(0.42
)

0.06Diluted income per share(3):Income (loss) from continuing operations per share


0.06


0.07


(0.39
)

0.11Loss from discontinued operations per share


(0.01
)

(0.02
)

(0.02
)

(0.05
)Net income (loss) per share


0.05


0.06


(0.42
)

0.06


---

F-43

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 20QUARTERLY INFORMATION (UNAUDITED) (Continued)



F-44

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Table of Contents

SUPPLEMENTAL INFORMATION

VALUATION AND QUALIFYING ACCOUNTSSCHEDULE II

(in thousands)

Balance,
Beginning of
Year

Additions
(Deductions) Charged
to Operations

Additions
(Deductions) from
Reserve

Balance,
End of YearAllowance for doubtful accountsMarch 31, 2010

$
308

$
(3
)
$
(52
)
$
253March 31, 2009

$
169

$
169

$
(30
)
$
308March 31, 2008

$
41

$
307

$
(179
)
$
169




Balance,
Beginning of
Year

Additions
(Deductions) Charged
to Operations

Additions
(Deductions) from
Reserve

Balance,
End of YearReserve for chargebacks/creditsMarch 31, 2010

$
14

$
48

$
(58
)
$
4March 31, 2009

$
11

$
106

$
(103
)
$
14March 31, 2008

$
7

$
40

$
(36
)
$
11




Balance,
Beginning of
Year

Additions
(Deductions) Charged
to Operations

Additions
(Deductions) from
Reserve

Balance,
End of YearAccrued restructuring expenseMarch 31, 2010

$
189

$


$
(189
)
$
March 31, 2009

$


$
189

$


$
189March 31, 2008

$
46

$
(46
)
$


$



F-45

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Table of Contents

EXHIBIT INDEX

Exhibit No.

Exhibit Description3.01

Amended and Restated Articles of Incorporation of the Company(1)3.02

Amended and Restated Bylaws of the Company(2)4.01

Form of Common Stock Certificate(3)4.02

Amended and Restated Rights Agreement between New Frontier Media, Inc. and Corporate Stock Transfer, Inc., as rights agent(4)4.03

Form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, together with the related Rights Certificate, included as Appendices A and B to the Rights Agreement
incorporated by reference herein as Exhibit 4.0210.01

Lease Agreement for premises at 5435 Airport Boulevard, Boulder CO(5)10.02

Agreement between Colorado Satellite Broadcasting, Inc. and Loral Skynet Concerning Skynet Transponder Service(6)10.03

Agreement between Colorado Satellite Broadcasting, Inc. and Loral Skynet Concerning Skynet Space Segment Service(6)10.04

Amendment Number One to Agreement between Colorado Satellite Broadcasting, Inc. and Loral Skynet Concerning Skynet Space Segment Service(6)10.05

License Agreement between Colorado Satellite Broadcasting, Inc. and Metro Global Media, Inc.(6)10.06

Amendment Number Two to the Agreement between Colorado Satellite Broadcasting, Inc. and Loral Skynet Concerning Skynet Space Segment Service(7)10.07

Amendment Number One to the Agreement between Colorado Satellite Broadcasting, Inc. and Loral Skynet Concerning Skynet Transponder Service(8)10.08

Amendment Number Four to the Agreement between Colorado Satellite Broadcasting, Inc. and Loral Skynet Concerning Skynet Space Segment Service(9)10.09

Office Lease Agreement between New Frontier Media, Inc. and Northview Properties, LLC(9)10.10

Lease Modification Agreement between New Frontier Media, Inc. and LakeCentre Plaza Limited, LLLP(9)10.11

Catalog License Agreement between Pleasure Productions, Inc. and Colorado Satellite Broadcasting, Inc.(9)10.12

Telecommunications Services Agreement between WilTel Communications, LLC and Colorado Satellite Broadcasting, Inc.(10)10.13

Amendment No. 3 to Contract Number T70112100 between Colorado Satellite Broadcasting, Inc. and Intelsat USA Sales Corp.(11)10.14
#
Satellite Capacity Lease between Colorado Satellite Broadcasting, Inc. and Transponder Encryption Services Corporation(12)10.15
*
Summary of Director Compensation Arrangements(22)10.16
*
1998 Incentive Stock Plan(13)10.17
*
1999 Incentive Stock Plan(14)10.18
*
Millennium Incentive Stock Option Plan(15)


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Table of Contents

Exhibit No.

Exhibit Description10.19
*
2001 Incentive Stock Plan(16)10.20
*
2007 Stock Incentive Plan(17)10.21
*
Form of Award Agreements under 2007 Stock Incentive Plan(18)10.22
*
Amended and Restated Independent Contractor Agreement, dated November 7, 2007, between New Frontier Media, Inc. and Matthew Pullam(19)10.23
*
Amended and Restated Employment Agreement between New Frontier Media, Inc. and Michael Weiner(2)10.24
*
Amended and Restated Employment Agreement between New Frontier Media, Inc. and Grant Williams(2)10.25
*
Amended and Restated Employment Agreement between New Frontier Media, Inc. and Ira Bahr(2)10.26
*
Amended and Restated Employment Agreement between New Frontier Media, Inc. and Ken Boenish(2)10.27
*
Amended and Restated Employment Agreement between New Frontier Media, Inc. and Marc Callipari(2)10.28
*
Amended and Restated Employment Agreement between New Frontier Media, Inc. and Scott Piper(2)10.29
#
Amended and Restated Affiliation Agreement for DTH Satellite Exhibition of Cable Network Programming by and between Colorado Satellite Broadcasting, Inc. and DirecTV, Inc.(19)10.30

Stock Purchase Agreement, dated and effective as of November 13, 2008, by and between New Frontier Media, Inc. and Steel Partners II, L.P.(20)10.31
#
Affiliation Agreement, dated January 1, 2000 and as amended to date, between the Company and Time Warner Cable, a division of Time Warner Entertainment Company, L.P.(21)10.32
#
Video On Demand License Agreement, dated March 13, 2000 and as amended to date, between the Company and Time Warner Cable, a division of Time Warner Entertainment Company, L.P.(21)10.33
#
Adult VOD License Agreement, dated October 18, 2002 and as amended to date, between Colorado Satellite Broadcasting, Inc. and Comcast Cable Communications, Inc.(21)10.34
#
Pleasure Service License Agreement, dated November 16, 2000 and as amended to date, between Colorado Satellite Broadcasting, Inc. and Comcast Programming, a division of Comcast Corporation(21)10.35

First Amendment to Satellite Capacity Lease between Colorado Satellite Broadcasting, Inc. and Transponder Encryption Services Corporation(21)10.36
#
Second Amendment to Satellite Capacity Lease between Colorado Satellite Broadcasting, Inc. and Transponder Encryption Services Corporation(21)10.37
#
Third Amendment to Satellite Capacity Lease between Colorado Satellite Broadcasting, Inc. and Transponder Encryption Services Corporation(22)10.38
*
First Amendment to the Amended and Restated Employment Agreement between New Frontier Media, Inc. and Michael Weiner(22)


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Table of Contents

Exhibit No.

Exhibit Description10.39
*
First Amendment to the Amended and Restated Employment Agreement between New Frontier Media, Inc. and Grant Williams(22)10.40
*
First Amendment to the Amended and Restated Employment Agreement between New Frontier Media, Inc. and Ken Boenish(22)10.41
*
First Amendment to the Amended and Restated Employment Agreement between New Frontier Media, Inc. and Scott Piper(22)10.42
*
First Amendment to the Amended and Restated Employment Agreement between New Frontier Media, Inc. and Marc Callipari(22)10.43

Promissory Note, dated December 15, 2009 between New Frontier Media, Inc. and Great Western Bank(23)10.44
#
Business Loan Agreement, dated December 15, 2009 between New Frontier Media, Inc. and Great Western Bank(23)10.45

Commercial Security Agreement, dated December 15, 2009 between New Frontier Media, Inc. and Great Western Bank(23)10.46
##
TVN-CSB Adult VOD Services Agreement dated April 8, 2010 between Colorado Satellite Broadcasting, Inc. and TVN Entertainment Corporation21.01

Subsidiaries of the Company23.01

Consent of Grant Thornton LLP31.01

CEO Certification pursuant to Rule 13a-14(a)/15d-14(a)31.02

CFO Certification pursuant to Rule 13a-14(a)/15d-14(a)32.01

Section 1350 Certification of CEO32.02

Section 1350 Certification of CFO


(1)Incorporated
by reference to the corresponding exhibit included in the Company's Current Report on Form 8-K filed on May 9, 2007
(File No. 000-23697).(2)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended September 30, 2008 (File No. 000-23697).(3)Incorporated
by reference to the corresponding exhibit included in the Company's Registration Statement on Form SB-2 filed on
September 10, 1997 (File No. 333-35337).(4)Incorporated
by reference to the corresponding exhibit included in the Company's Current Report on Form 8-K filed on August 1,
2008 (File No. 000-23697).(5)Incorporated
by reference to the corresponding exhibit included in the Company's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1999 (File No. 000-23697).(6)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002 (File No. 000-23697).(7)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002 (File No. 000-23697).(8)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 2002 (File No. 000-23697).(9)Incorporated
by reference to the corresponding exhibit included in the Company's Annual Report filed on Form 10-K for the fiscal year
ended March 31, 2004 (File No. 000-23697).


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Table of Contents

(10)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended September 30, 2004 (File No. 000-23697).(11)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended September 30, 2005 (File No. 000-23697).(12)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended September 30, 2006 (File No. 000-23697).(13)Incorporated
by reference to the Company's definitive proxy statement filed under cover of Schedule 14A on August 7, 1998 (File
No. 000-23697).(14)Incorporated
by reference to the Company's definitive proxy statement filed under cover of Schedule 14A on September 28, 1999 (File
No. 000-23697).(15)Incorporated
by reference to the Company's definitive proxy statement filed under cover of Schedule 14A on August 29, 2000 (File
No. 000-23697).(16)Incorporated
by reference to the Company's definitive proxy statement filed under cover of Schedule 14A on July 23, 2001 (File
No. 000-23697).(17)Incorporated
by reference to Appendix A to the Company's definitive proxy statement filed under cover of Schedule 14A on July 16, 2007
(File No. 000-23697).(18)Incorporated
by reference to the corresponding exhibit included in the Company's Current Report on Form 8-K filed on August 24,
2007 (File No. 000-23697).(19)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended September 30, 2007 (File No. 000-23697).(20)Incorporated
by reference to the corresponding exhibit included in the Company's Current Report on Form 8-K filed on November 14,
2008 (File No. 000-23697).(21)Incorporated
by reference to the corresponding exhibit included in the Company's Annual Report filed on Form 10-K for the fiscal year
ended March 31, 2009 (File No. 000-23697).(22)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended September 30, 2009 (File No. 000-23697).(23)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended December 31, 2009 (File No. 000-23697).*Denotes
management contract or compensatory plan or arrangement.#Confidential
portions of this agreement have been redacted pursuant to a confidential treatment request filed separately with the SEC.##Confidential
treatment has been requested as to portions of this exhibit. Such portions have been redacted and filed separately with the SEC.


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