SECURITIES & EXCHANGE COMMISSION
                             Washington, D.C. 20549
           ----------------------------------------------------------

                                   FORM 10-KSB

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                    For the Fiscal Year Ended March 31, 2000
                       Commission File Number: 33-27494-FW

                            NEW FRONTIER MEDIA, INC.
         --------------------------------------------------------------
              (Exact name of small business issuer in its charter)

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

                       5435 Airport Boulevard, Suite 100,
                                Boulder, CO 80301
        -----------------------------------------------------------------
              (Address of principal executive offices and Zip Code)

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

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

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

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB: [ ]

Registrant's revenues for its most recent fiscal year (ended March 31, 2000):
$47,988,000

Aggregate market value of voting stock held by non-affiliates: $90,719,475 based
on 12,844,326 shares at June 14, 2000 held by non-affiliates and the closing
price on the Nasdaq SmallCap Market on that date which was $7.063.

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

20,524,636 common shares were outstanding as of March 31, 2000.

Documents Incorporated by Reference: Not Applicable

<PAGE>

                                    FORM 10-KSB
               Form 10-KSB for the Fiscal Year ended March 31, 2000

                                Table of Contents
                                                                           PAGE
PART I

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

Item 2   Property.......................................................... 25

Item 3   Legal Proceedings................................................. 25

Item 4   Submission of Matters to a Vote of Securities Holders............. 26

PART II

Item 5   Market for Registrant's Common Equity and Related Stockholder
         Matters........................................................... 27

Item 6   Management's Discussion and Analysis of Financial Condition and
         Results of Operations ............................................ 27

Item 7   Financial  Statements and Supplementary Data...................... 38

Item 8   Changes In and Disagreements With Accountants on  Accounting and
         Financial Disclosure.............................................. 38

PART III

Item 9   Directors and Executive Officers of the Registrant................ 39

Item 10  Executive  Compensation........................................... 43

Item 11  Security Ownership of Certain Beneficial Owners and Management.... 47

Item 12  Certain  Relationships and Related Transactions................... 48

Item 13  Exhibits, Financial Statement Schedules and Reports on Form 8-K .. 49

SIGNATURES ................................................................ 51

                                        2

<PAGE>
PART I.

ITEM 1.  DESCRIPTION OF BUSINESS.

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

         THIS ANNUAL REPORT ON FORM 10-KSB AND THE INFORMATION INCORPORATED BY
REFERENCE MAY INCLUDE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. THE COMPANY
INTENDS THE FORWARD-LOOKING STATEMENTS TO BE COVERED BY THE SAFE HARBOR
PROVISIONS FOR FORWARD-LOOKING STATEMENTS. ALL STATEMENTS REGARDING THE
COMPANY'S EXPECTED FINANCIAL POSITION AND OPERATING RESULTS, ITS BUSINESS
STRATEGY, ITS FINANCING PLANS AND THE OUTCOME OF ANY CONTINGENCIES ARE
FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS
AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE SET FORTH OR IMPLIED BY ANY FORWARD LOOKING STATEMENTS.

GENERAL

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

         On February 18, 1998, the Company consummated an underwritten public
offering of 1,500,000 units, each consisting of one share of common stock and
one redeemable common stock purchase warrant, raising $7,087,000 in net proceeds
after underwriting fees (excluding related offering expenses). Simultaneous with
the public offering, New Frontier Media acquired the adult satellite television
assets of Fifth Dimension Communications (Barbados), Inc. and its related
entities ("Fifth Dimension"). As a result of the Fifth Dimension acquisition,
New Frontier Media through its wholly owned subsidiary, Colorado Satellite
Broadcasting, Inc. ("CSB") became a leading provider of adult programming to
low-powered ("C-Band") direct-to-home ("DTH") households through its networks
Extasy, True Blue and GonzoX.

         In August 1998, New Frontier Media launched TeN: the erotic network
("TeN") as its first adult network targeted specifically to cable television
system operators and medium-to-high powered DTH satellite service providers
(Direct Broadcast Satellite, or "DBS"). Unlike New Frontier Media's C-Band
networks, TeN offers partially-edited adult programming which is intended to
appeal to cable operators and DBS providers while delivering more of the editing
style adult network subscribers expect to receive.

         On June 1, 1999, New Frontier Media launched Pleasure, a 24-hour adult
network that incorporates the most edited standard available in the category.
Pleasure competes directly with Playboy Enterprises, Inc.'s ("Playboy") adult
network services (Playboy TV, Spice and Spice 2) in the most-edited (i.e., least
explicit) adult programming category and is marketed to cable operators and DBS
providers.

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

         IGallery is a leading aggregator and reseller of adult content via the
Internet. IGallery aggregates adult-recorded video, live-feed video and still
photography from adult content studios and distributes it via its membership
websites and Pay-Per-View feeds. In addition, IGallery resells its aggregated
content to third-party web masters and resells its Internet traffic that does
not convert into memberships. IGallery maintains a consumer membership base of
over 135,000 subscribers to its owned and operated websites.

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

                                       3
<PAGE>
         CTI is currently in a developmental stage and has no operations. CTI
will be developed into an Internet Payment Services Provider ("PSP") that will
provide various Internet billing options including secure, fully automated
credit card payment processing.

         New Frontier Media is now uniquely positioned to be the leader in the
electronic distribution of adult entertainment through cable television,
satellite, and the Internet. New Frontier Media's current operational structure
centers around four segments: Subscription/Pay-Per-View ("PPV") TV, Internet
Content, Internet Services, and Payment Services.

RECENT DEVELOPMENTS

         On May 17, 2000, New Frontier Media launched Erotic Television Clips
("ETC") as its second partially-edited network. ETC's unique formatting offers
thematically organized 90-minute blocks of programming. Each 90-minute block
includes approximately eight, 10-minute clips of programming that relate to the
specific theme of that block. ETC is being marketed to cable operators and DBS
providers on a PPV basis.

SUBSCRIPTION/PPV TV

INDUSTRY OVERVIEW

         New Frontier Media, through its wholly owned subsidiary CSB, is focused
on the distribution of adult entertainment programming through electronic
technologies including cable television and C-band/DBS satellite. Adult
entertainment content distribution has evolved over the past twenty-five years
from home video platforms (video cassette) to cable television systems and DBS
providers, and most recently to the Internet. In the early 1980's, cable
television operators began offering subscription and PPV adult programming from
network providers such as Playboy. In the 1990's, adult programming became
widely available with nearly every cable operator and DBS provider in the U.S.
offering subscription or PPV programming. Paul Kagan Associates ("Kagan"), a
leading media research organization, estimates that adult PPV, Near
Video-on-Demand ("NVOD"), and Video-on-Demand ("VOD") revenues will grow from
$342 million in 1999 to $440 million in 2000.

         The distribution of adult entertainment via electronic media has
continued to grow as technological advances allow easier and more private access
to programming. Most major hotel chains, including Marriott, Hyatt, and Hilton,
offer in-room adult programming through services such as On Command. The
Internet represents the fastest growing distribution means for adult
programming. The tremendous growth of the Internet, including web sites
dedicated to adult entertainment, has resulted in millions of customers, as
measured by Media Metrix, accessing such sites through their computers.
Management believes that the adult entertainment industry in general, and the
electronic distribution of adult programming via cable, satellite and the
Internet, specifically, will continue to grow. In particular, as advances in
technology such as broadband (high speed) Internet access and VOD programming
are made, adult content viewers will be afforded complete flexibility in terms
of start times and movie selection.

         PPV television enables a cable television or satellite delivered
television subscriber with an addressable television set-top receiver to
purchase a block of programming, an individual movie, or an event for a set fee.
PPV also permits subscribers to purchase the Company's programming on a monthly,
quarterly, semiannual and annual basis and view programming according to their
own schedule. PPV allows subscribers to control the availability of the
programming within their households. In addition, PPV programming competes well
with other forms of entertainment because of its relatively low price point.

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

         Most multi-channel television service in the United States is
distributed either through large multiple system operators ("MSOs") and their
affiliated cable systems or DBS providers. Individual cable systems or DBS
providers determine the retail prices for each PPV and subscription service. The
Company markets Pleasure, TeN, ETC and Extasy to cable MSO's and DBS providers
with retail prices ranging from $4.95 to $9.99 for each PPV service.

         According to Kagan, cable MSO's delivered service to 67.3 million basic
households in the United States as of December 31, 1999, up from 65.9 million
households as of December 31, 1998. In addition, Kagan indicates that total
analog distribution (i.e., addressable households which have the capability of
receiving PPV services) as of December 31, 1999 was provided to 21.2 million
households. As of May 2000, the Company had arrangements with six of the eleven
largest domestic cable MSO's which control access to 43.5 million or 65% of the
total basic cable household market.

                                       4
<PAGE>
         Growth in the PPV market is expected to result in part from cable
system upgrades utilizing fiber-optic, digital compression technologies or other
bandwidth expansion methods that provide cable operators additional channel
capacity. In recent years, cable operators have begun the shift from analog to
digital technology in order to upgrade their cable systems and to respond to
competition from DBS providers who offer programming in a 100% digital
environment. When implemented, digital compression technology increases MSOs'
channel capacity, improves audio and video quality, provides fully secure
scrambled signals, allows for advanced set-top boxes for increased
interactivity, and provides for integrated programming guides. Industry analysts
expect a large percentage of the additional channel capacity to be dedicated to
PPV programming. The timing and extent of these developments and their impact on
the Company cannot yet be determined. However, the Company expects that many of
its future cable launches will be on the digital platform. Kagan estimates that
total U.S. digital households will grow from 5.1 million in 1999 to 34.1 million
by 2003.

         In addition to cable, the Company provides its programming on both a
PPV and subscription basis to home satellite dish viewers through either large
satellite dishes receiving a C-band low-power analog or digital signal or with
small dishes receiving a Ku-band medium or high-power digital signal (DBS
providers). According to General Instrument Corporation's Access Control Center
reports, the U.S. C-band market has declined from approximately 1.8 million
households as of May 1999 to 1.5 million as of May 2000. Kagan estimates that
the domestic DBS market will continue to increase rapidly from approximately
11.5 million households in 1999 to 24.0 million by 2003.

NETWORKS

DELIVERED VIA C-BAND

         The Company currently owns, operates, and distributes three leading
adult programming networks to the C-Band market: Extasy, True Blue, and GonzoX
(collectively referred to as the "Extasy Networks"). C-band subscribers receive
the Extasy Networks through a satellite television receiver/decoder box.
Subscribers have the option of subscribing to programming on a monthly,
quarterly, semi-annual or annual basis or purchasing single movies or events on
a PPV basis by calling the Company's call center in Boulder, Colorado. In
addition, the Company maintains agreements with the major C-band satellite
programming distributors in the United States for the resell of the Company's
networks directly to C-band subscribers.

         Extasy, True Blue and GonzoX each provide an average of 60 movie titles
per month with at least 20 first-time broadcasts ("premieres") and four network
specials. There is no cross-over programming among the three networks. All
networks are available 24-hours per day, presenting a mix of adult programming.
Staggered movie start times allow for maximum viewing flexibility. The Extasy
Networks deliver the least edited adult programming available to satellite and
cable television households.

DELIVERED VIA CABLE/DBS

         The Company provides three 24-hour per day adult programming networks
which are edited to meet the standards of cable television operators and DBS
providers: Pleasure, TeN, and ETC. Pleasure's and TeN's programming consists of
feature length film and video, with each network providing an average of 60
movie titles per month with at least 20 premieres. There is less than 9%
cross-over programming between the two networks. Pleasure delivers the most
edited adult programming available to cable and DBS households while TeN
delivers a partially-edited standard.

         An increasing number of cable television operators and DBS providers
have expressed an interest in carrying Extasy, the Company's flagship, least
edited network. Extasy is attracting cable operators and DBS providers because
its least edited format tends to generate higher buy rates.

         New Frontier Media's newest network, ETC, premiered on May 17, 2000.
ETC is the Company's second partially-edited network whose unique formatting
offers thematically organized 90-minute blocks of programming. Each 90-minute
block includes approximately eight, 10-minute clips of programming that relate
to the specific theme of that block.

VIDEO-ON-DEMAND (VOD)

         On March 24, 2000, the Company announced that it had entered into a
partnership with Time Warner Cable to provide content for all of Time Warner
Cable's VOD systems. The initial markets covered by the agreement include
Honolulu, HI, Austin, TX and Tampa/St. Petersburg, FL. Under the terms of the
agreement, New Frontier Media intends to provide up to 30 Pleasure titles per
month, 60% of which will be premiere titles, delivered in a VOD-prepped digital
library tape ("DLT") format. The technical capability for VOD distribution was
deployed late last year by many leading cable operators and represents the next
layer of on-demand viewing technology to be placed in the hands of the consumer.
VOD enables digital cable consumers to receive entertainment through their
set-top boxes and provides virtual VCR functionality including the ability to
pause, fast-forward and rewind programming.

         The Company anticipates that the VOD market will grow quickly in the
future and it expects to be a leader in providing various editing standards of
adult content to VOD distribution platforms.

                                       5
<PAGE>
DESCRIPTION OF NETWORKS

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

                                     TABLE 1
                                  ------------
                               SUMMARY OF NETWORKS

<TABLE>
<CAPTION>
NETWORK                  DISTRIBUTION METHOD           ESTIMATED ADDRESSABLE HOUSEHOLDS
-------                  -------------------           --------------------------------
                                                                (in thousands)
                                                           As of       As of
                                                         March 31,    March 31,
                                                           2000         1999    % change
                                                         ---------    --------- --------
<S>                      <C>                             <C>            <C>     <C>
Pleasure                 Cable/DBS                       4,600          n/a       n/a
TeN                      Cable/DBS                       5,300          2,500    112% (2)
ETC                      Launched May 17, 2000           n/a            n/a       n/a
Extasy                   C-band/Cable/DBS                2,600          1,800     44% (1), (2)
True Blue                C-band/DBS                      2,000          1,800     11% (1), (2)
GonzoX                   C-band                          1,500          1,800    -17% (1)

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

(1) % change includes 17% decline in C-band market addressable households

(2) March 31, 2000 figures include 500,000 addressable households for Express Vu
</FN>
</TABLE>

PLEASURE

         On June 1, 1999, the Company launched Pleasure, a 24-hour per day adult
network that incorporates the most edited standard available in the category.
Pleasure is distributed via cable television operators and DBS providers.
Pleasure's programming consists of adult feature length film and video and is
programmed to deliver subscription and PPV households 20 premiere adult movies
and four network specials each month with a total of 60 adult movies per month.
As of March 31, 2000, Pleasure reached an estimated 4.6 million addressable
multi-channel households, including EchoStar Communications Corporation's DISH
Network ("DISH"). Pleasure was developed as a competitive service to Playboy
(Playboy TV, Spice and Spice 2) and offers a favorable and highly competitive
revenue split for a cable television operator or DBS provider. Pleasure was
specifically designed to provide adult content programming to operators that
have not yet embraced a partially-edited programming philosophy and for those
operators that wish to use the service to "upsell" subscription or PPV
households to a less edited network such as TeN.

                                       6
<PAGE>
TEN: THE EROTIC NETWORK (TEN)

         On August 15, 1998, the Company launched TeN, a 24-hour per day adult
network which incorporates a partial-editing standard targeted to cable
television system operators and DBS providers. The Company has programmed TeN
with feature length film and video that incorporates less editing than
traditional adult premium networks such as those offered by Playboy (Playboy TV,
Spice and Spice 2). As of March 31, 2000, TeN reached an estimated 5.3 million
addressable multi-channel households, including its distribution on DISH and
Express Vu. In addition, TeN is offered on a monthly subscription basis by DISH
for a retail price of $19.99. As of March 31, 2000, TeN had approximately 76,000
monthly DISH subscribers.

         TeN offers a diverse programming mix with movies and specials that
appeal to a wide variety of tastes and interests. TeN's programming is
partially-edited and, as such, incorporates more editing than the standard
available in the adult home video markets. TeN offers subscription and PPV
households 20 premiere adult movies and four network specials per month and a
minimum of 60 adult movies per month. TeN was developed to capitalize on the
quality and number of cable operators/DBS providers now willing to carry
partially-edited adult network services and the momentum toward broader market
acceptance of partially-edited adult programming by their subscribers. New
Frontier Media believes the growing market acceptance of partially-edited
programming is due, in large part, to the higher subscriber buy rates (the
theoretical percentage of addressable households ordering one PPV movie, program
or event in a month) achieved for cable system operators/DBS providers as
compared to network programming that incorporates the most edited adult
programming. Since its launch on August 15, 1998, TeN has averaged monthly buy
rates of approximately 7% to 15% compared to most edited adult network
programming (such as those services offered by Playboy) averaging monthly buy
rates of approximately 3% to 7%.

EROTIC TELEVISION CLIPS (ETC)

         The Company launched ETC on May 17, 2000 as its newest, partially-
edited 24-hour per day adult network. ETC's unique formatting provides for
thematically organized 90-minute blocks of programming in order to encourage
appointment viewing by the PPV adult consumer. The Company has organized its
partially-edited content library into 60 thematic categories. Through New
Frontier Media's proprietary database technology, approximately eight scenes are
organized thematically and programmed into one 90-minute block. ETC delivers 240
unique thematic blocks with over 500 different adult film scenes during a
typical month. ETC is being marketed to cable and DBS providers on a PPV basis.

EXTASY

         Extasy was acquired from Fifth Dimension on February 18, 1998. Extasy's
programming consists of feature length adult film and video and is programmed
with 20 premieres per month and a total of approximately 60 adult movies per
month. Extasy's editing standard is similar to the editing standard employed in
the home video markets. The network offers a diverse programming mix with movies
and specials that appeal to a wide variety of tastes and interests. Extasy is
the least-edited programming service available to multi-channel households and
is principally distributed via the C-band DTH market and, to a lesser extent,
via cable and DBS. Extasy is available on a PPV basis as well as on a monthly,
quarterly, semiannual and annual subscription basis. As of April 30, 2000,
Extasy had 55,096 active C-Band subscriptions compared to 52,939 at April 30,
1999.

                                       7
<PAGE>
         DISH launched Extasy on both a PPV and monthly subscription basis to
its DISH 500 households in January 2000. A monthly subscription to Extasy is
available on DISH for a retail rate of $24.99 or as a combination package with
TeN for $34.99. As of March 31, 2000, Extasy had 4,000 monthly DISH subscribers
plus 1,300 monthly DISH subscribers to TeN and Extasy as a combination package.
In addition, as of March 31, 2000, Extasy was available to 105,000 cable
households through several MSO's and to 500,000 Express Vu DBS households.

TRUE BLUE

         True Blue was acquired from Fifth Dimension on February 18, 1998. True
Blue incorporates the same editing standard as Extasy and is programmed with
adult movies that feature amateur talent, compilations, and other adult
programming genres. True Blue is programmed to deliver 60 adult movies per
month. As of April 30, 2000, True Blue had 52,066 active C-Band subscriptions
compared to 46,703 at April 30, 1999. In addition, True Blue is available to
500,000 addressable DBS households through Express Vu. True Blue is available
on a PPV basis as well as on a monthly, quarterly, semiannual and annual
subscription basis.

GONZOX

         GonzoX was acquired from Fifth Dimension on February 18, 1998. GonzoX
incorporates the same editing standard as Extasy and is programmed to deliver
gonzo or "first person" perspective styled, amateur and foreign adult feature
films. GonzoX is programmed to deliver 60 adult features per month. GonzoX is
presently only distributed via the C-band DTH market. As of April 30, 2000,
GonzoX had 46,842 active C-Band subscriptions compared to 38,808 at April 30,
1999. GonzoX is available on a PPV basis as well as on a monthly, quarterly,
semiannual and annual subscription basis.

SATELLITE TRANSMISSION

         New Frontier Media delivers its video programming via satellite
transmission. Satellite delivery of video programming is accomplished as
follows:

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

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

         C-Band subscribers purchase programming directly from the Company or
its distributors. The satellite receivers of C-Band subscribers contain
unscrambling equipment that is authorized to unscramble the Company's satellite
services. Each set top box or satellite receiver must have an electronic
"address". This "address" is activated for the requisite services purchased from
either the Company or its distributors.

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

                                       8
<PAGE>
TRANSPONDER AGREEMENTS

         New Frontier Media maintains satellite transponder sub-lease agreements
for four full-time analog transponders with Fifth Dimension on Loral Skynet's
Telstar 4 satellite. These transponders provide the satellite transmission
necessary to broadcast each of the Company's six adult networks. By employing
General Instrument Corporation's ("GI") DigiCipher II Edgeband technology the
Company is able to transmit its Pleasure, TeN and ETC networks over the same
satellite transponders as are used for Extasy, GonzoX, True Blue and its 24-hour
promotional C-Band channel ("Barker"). GI's Edgeband System permits multiple
services to be carried over an existing satellite transponder by adding a
multiplex of MPEG-2 compressed programs at the band edge of the transponder.
These services can be received and decoded at the cable or DBS headend and
carried as an analog cable service or be re-multiplexed in digital form for
carriage as part of a digital multiplex. Through the use of the Edgeband
technology, the Company did not incur any additional cash outlays for
transponder space as it added Pleasure, TeN and ETC to its family of networks.
The Company was the first programmer to utilize this Edgeband technology
developed by GI.

         In April 2000, New Frontier Media signed a multi-year agreement with iN
DEMAND L.L.C. ("iN DEMAND") for carriage of its Pleasure network. As a result of
the contract, Pleasure will be available to cable operators representing over
three million digital households across the country. iN DEMAND will carry
Pleasure on Telstar 7, transponder 4. iN DEMAND is the nation's leading
pay-per-view network, offering titles from all of the major Hollywood and
independent studios, plus sports, subscription sports packages and entertainment
events through its 60-channel digital pay-per-view multiplex service. iN DEMAND
serves over 1,800 affiliated systems with approximately 28 million addressable
households nationwide. The Company's five shareholders include TCI
Communications, Inc., Time Warner Entertainment Advance/Newhouse Partnership,
Comcast Programming Ventures, Inc., MediaOne of Delaware, Inc. and Cox
Communications Holdings, Inc.

PLAYOUT BROADCAST FACILITY

         On April 1, 1999, the Company completed Phase One of its Playout
Broadcast Facility in Boulder, Colorado, which allows for the direct-to-
broadcast playout for TeN, Pleasure and its C-Band Barker channel. Phase Two of
this facility was completed on January 24, 2000. The Phase Two additions allow
the Company to bring the direct-to-broadcast playout for Extasy, True Blue and
GonzoX in-house to its Boulder facility from Ottawa, Canada where it was being
outsourced to Fifth Dimension. Currently, the Boulder facility broadcasts 7
channels to cable/DBS systems and direct-to-home C-band subscribers.

         Phase Two also added the capacity to broadcast a total of 12 channels,
allowing for 5 additional services. Playout of all media to air is now
accomplished utilizing the latest state-of-the-art technology solutions, which
includes: playlist automation for all channels; SeaChange MPEG 2 encoding and
playout to air and MPEG 1 encoding for internet and broadband use; archiving
capability of over 270,000 hours on DLT data cartridges pushing and pulling the
data through a StorageTek jukebox; and complete integration of the media
management database to create automated playlists. The Company has secured a
license to allow an 18ghz microwave transmission path to deliver a fully
redundant multiplexed signal of all 7 channels as a back-up to its uplinking
vendor, Williams Communication Vyvx Services ("Vyvx").

                                       9
<PAGE>
NETWORK PROGRAMMING

         The Company contracts with Pegasus Programming ("Pegasus") in
California to screen, edit, and program content for its networks. The Company
acquires 100% of its broadcast programming for each network by licensing the
rights from third party adult content studios. The Company does not produce any
of its own content for its networks. In most cases, New Frontier Media pays
approximately $6,000 to $10,000 for a Premiere and $500 for a title that has
previously been exhibited via satellite broadcast ("Encore") for
exclusive/nonexclusive broadcast, Internet and VOD rights in the United States
for a specified period of time (usually one to five years). The Company
maintains relationships with approximately 50 adult movie studios, fifteen on an
exclusive basis, and purchases a wide variety of programming from each studio on
a monthly basis. Once the Company receives a title, a rigorous quality control
process is completed prior to playing to air to ensure compliance with the
strict broadcasting standards the Company uses for its adult content.

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

CALL CENTER SERVICE

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

                                       10
<PAGE>
         The Company's call center is operational 24-hours per day, seven days a
week, and is staffed according to call traffic patterns, which take into
account time of day, day of the week, seasonal variances, holidays, and special
promotions. Customers pay for their order with credit cards, which are
authorized and charged before the order is sent electronically to GI's Access
Control Center in San Diego, California for processing. GI receives the
subscriber order and the subscriber's identification information, and sends a
signal to the appropriate satellite, which "unlocks" the service ordered for the
applicable period of time.

MARKETING

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

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

         The Company creates interstitial programming for use on its networks
between each movie to promote and market additional movies premiering in the
current month, movies premiering in the following month, behind-the-scenes
segments of its movies, and star and director profiles. This interstitial
programming encourages appointment viewing of its networks by cable/DBS
consumers.

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

         The Company engaged an outside advertising firm in March 2000 to assist
the Company in branding its networks to the cable/DBS markets as well as to the
consumer. This agency will assist in developing network identities, establishing
branding methods, positioning of the networks in trade and consumer magazines,
and increasing the overall consistency of presentation and visibility of the
Company's networks to the trades and the public.

                                       11
<PAGE>
COMPETITION

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

         The Company competes with other adult networks in the multi-channel and
PPV markets including Califa Entertainment (The Hot Network) and Emerald Media,
Inc. (SXTV).

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

CUSTOMER CONCENTRATION

         New Frontier Media derived 11% of its total revenue for the year ended
March 31, 2000 from DISH for its TeN, Pleasure, and Extasy PPV and subscription
services.

GOVERNMENT REGULATION

         In 1996, the United States Congress passed the Telecommunications Act
of 1996 ("the Act"), a comprehensive overhaul of the Federal Communication Act
of 1934. Section 641 of the Act requires full audio and video scrambling of
channels which are primarily dedicated to "sexually explicit" programming. If a
multi-channel video programming distributor, including a cable television
operator, cannot comply with the full scrambling requirement, then the channel
must be blocked during the hours when children are likely to be watching
television, i.e., from 6:00 a.m. to 10:00 p.m. Programming providers offering
the most edited adult services (such as Playboy) and programming providers
offering partially-edited adult services (such as TeN), feature "sexually
explicit" programming as contemplated by Section 641 of the Act. Although all
adult programming companies fully scramble their signals for security purposes,
several cable television MSO's lack the technical capability to fully scramble
the audio portion of the signal. These cable systems are required to block adult
broadcasts between 6:00 a.m. and 10:00 p.m. Section 641 of the Act affects New
Frontier Media to the extent its programming is offered by cable television
MSO's without such technical scrambling ability.

                                       12
<PAGE>
         In February 1996, the leading adult network providers including Playboy
challenged Section 505 of the Act which, among other things, regulates the cable
transmission of adult programming such as New Frontier Media's domestic pay
television networks. Enforcement of Section 505 of the Act commenced May
18,1997. The case was heard by the United States District Court in Wilmington,
Delaware (the "Delaware District Court") in March 1998. In December 1998, the
Delaware District Court unanimously declared Section 505 of the Act
unconstitutional. The defendants appealed this judgement and the Supreme Court
heard the appeal on November 30, 1999.

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

         New Frontier Media began offering adult programming for cable system
operators in February 1998, which is after the May 18, 1997 date that
enforcement of Section 505 of the Act commenced. Our business has not been
adversely affected by these regulations because we have never had the
opportunity, or prior history, of selling our programming under any other
regulatory structure. It is difficult to estimate at this time what effect the
Supreme Court ruling striking down Section 505 will have on our business
operations except to note that the number of potential subscribers would appear
to have been substantially increased.

INTERNET SERVICE PROVIDER (INTERACTIVE TELECOM NETWORK, INC.)

INDUSTRY OVERVIEW

         The Internet has experienced rapid growth in the 1990's and has emerged
as a global medium for communications and commerce. Internet access and
value-added Internet services represent two of the fastest growing segments of
the telecommunications services market. The Internet's growth is driven by a
number of factors, including the large and increasing number of personal
computers in the office and in the home linked to the Internet, advances in
network designs, increased availability of Internet-based software and
applications, the emergence of useful content and electronic commerce
technologies, and convenient, fast and inexpensive Internet access.

         According to Dataquest/Gartner Group, an independent research firm, the
total number of Internet users worldwide reached approximately 129 million in
1998 and is forecasted to increase to approximately 404 million by 2003.
According to Dataquest, total worldwide Internet service provider revenue,
including both corporate and residential access, are projected to grow from
approximately $17.0 billion in 1998 to $49.4 billion in 2003. Forrester
Research, Inc., another independent research firm, has estimated that the number
of U.S. enterprise businesses online will increase from approximately 1.8
million in 1998 to approximately 4.3 million in 2003.

         Businesses initially established corporate Internet sites as a means to
improve internal and external corporate communications. Today, businesses are
increasingly utilizing the Internet for functions critical to their core
business strategies, such as sales and marketing, customer service and project
coordination. The Internet presents a compelling profit opportunity for
businesses as it enables them to reduce operating costs, access valuable
information and reach new markets. To maintain a significant presence on the
Internet, businesses typically purchase Internet access services along with the
establishment of a web site. Internet access services allow customers to
transfer e-mail, access information, connect with employees, customers and
suppliers, and provides a basic gateway to the Internet. Dataquest predicts that
worldwide corporate Internet access revenues will grow 27% annually from
approximately $6.9 billion in 1998 to $22.7 billion in 2003.

                                       13
<PAGE>
         A web site provides a company with a tangible identity and interactive
presence on the Internet, allowing it to post company information and automate
the business processes necessary to provide product information, order entry and
customer service. According to Forrester Research, revenue in the United States
from value-added Internet services, such as electronic commerce and security
services will grow 34% annually from approximately $3.0 billion in 1998 to $12.9
billion in 2003. Forrester Research has estimated that the market for managed
Web site hosting in the United States will grow from less than $1.0 billion in
1998 to over $14.0 billion in 2003. Dataquest predicts Europe will experience
similar strong growth, with corporate Internet access revenue increasing 40%
annually from approximately $1.7 billion in 1998 to $9.1 billion in 2003. In
order to ensure the quality, reliability and availability of these Internet
operations, corporate information technology departments make substantial
investments in developing Internet expertise and infrastructure. These
information technology groups are challenged by the need to implement their
organization's Internet business strategy, adopt new and rapidly changing
technologies and continuously update content.

         The implementation, establishment and maintenance of these solutions
requires significant technical expertise in a number of areas, such as
electronic commerce systems, security and privacy technologies, application and
database programming, mainframe and legacy integration technologies, advanced
user interface, and multimedia production. As a result, corporate information
technology departments are increasingly seeking collaborative outsourcing
arrangements that can increase performance, provide continuous operation and
reduce Internet operating expenses.

         According to Forrester Research, businesses in the United States are
now spending approximately 25% of their overall information technology budgets
on outsourced services. The rapidly growing need for Internet access and other
Internet products and services has resulted in a highly fragmented industry with
the proliferation of Internet service providers ("ISPs") operating worldwide as
well as within the United States. These ISPs primarily consist of large national
and global ISPs and smaller local and regional ISPs. The large national and
global ISPs are generally more focused on Internet access and rely on indirect
sales, telemarketing and remote network operation centers to serve their
customers. In addition, large national and global ISPs typically do not offer a
full range of services. Smaller local or regional ISPs typically focus on
serving their local market and lack the resources to provide and support a full
range of Internet products and services. Accordingly, ITN believes that the
needs of businesses for comprehensive Internet products and services are not
being met by the larger national and global or smaller local and regional ISPs
who constitute most of ITN's competitors.

ITN

         ITN is a leading provider of Internet access and sophisticated Internet
products and services to medium and large size businesses primarily in the
entertainment industry. ITN's comprehensive range of high-performance products
and services enable its customers to maximize the value of the Internet. ITN's
customers primarily use its products and services to maintain high-speed,
high-capacity, redundant links to the Internet to establish and support complex
web sites and to generate and optimize end-user traffic.

         ITN's products are flexible and scaleable, allowing them to modify the
size and breadth of services they provide as the needs of their customers
change. ITN has emerged as one of the leading providers of streaming media
services in the Los Angeles area. ITN offers its customers completely
integrated, in-house services, including media preparation, programming and
hosting of live or pre-recorded events. ITN believes that it is one of the few
providers to offer expertise in all three components of streaming media
technology, combined with an established customer base for Internet products and
services and access to low cost, scalable bandwidth.

CUSTOMERS

         ITN provides its services to approximately sixteen customers in the
entertainment industry. Its primary customer is its sister company, IGallery,
from which it derives approximately 90% of its revenue currently. Until ITN
completes the build out of its Internet data center, its capacity is 100%
utilized by IGallery and its fifteen other customers.

                                       14
<PAGE>
PRODUCTS

INTERNET DATA CENTER

         ITN's Internet data center, which is currently being expanded, features
uninterruptable power supplies with a back-up generator, a fire suppression
system, 24 X 7 monitoring and high levels of security. ITN provides integration
services including local and wide-area network configuration, web and database
server integration and application-specific software solutions. ITN applies its
expertise across multiple operating platforms utilizing leading networking
hardware, high-end web and database servers and application software to more
effectively address its customers' diverse systems and network integration
needs. ITN's system administration and web site management solutions support its
customers' Internet operations by providing detailed monitoring, reporting and
management systems to control their Internet-related hardware, software and
network applications.

SECURITY SOLUTIONS

         The nature of Internet traffic demands protection from unauthorized
access while at the same time maintaining the ability to deliver all types of
content whether streaming media, data files or e-mail. ITN designs and
integrates customized security solutions that ensure network integrity while
enabling users to perform business tasks in a secure, yet unhindered,
environment. Its security solutions provide users with secure access to the
Internet as well as segregated public servers from their internal network and
the ability to restrict or open access between departments as required. ITN's
security solutions track communications to ensure pre-established security
policies are met.

WEB HOSTING

         ITN offers shared web-hosting services for its customers whose hosting
needs are modest. ITN also offers dedicated server web hosting solutions to
larger customers that require substantially more server and network capacity
than provided under the shared hosting plans. The dedicated web hosting
solutions provide its customers with NT, UNIX or LINUX-based dedicated servers
that ITN owns and maintains within its data center. These services allow its
customers to host complex web sites and applications without incurring
unnecessary infrastructure and overhead costs. ITN offers dedicated server
hosting at various price levels depending on customers' hardware, data transfer
and service requirements.

CO-LOCATION SERVICES

         ITN offers co-location services for customers who prefer to own and
have physical access to their servers, but require the high performance,
reliability and security of an Internet data center. Co-location customers are
typically larger enterprises employing more sophisticated Internet hardware and
software, and having the expertise to maintain their web sites and related
equipment. Implementation of these scalable solutions is available in phased
delivery to provide its customers with the ability to outsource an increasing
amount of their Internet operations one step at a time. ITN's comprehensive
system administration and web management solutions enable it to identify and
begin to resolve hardware, software, network and application problems almost
immediately. Web site development and implementation services range from basic
informational sites to complex interactive sites featuring sophisticated
graphics, animation, sound and other multimedia content. ITN works with content
providers, end users and production companies to provide technical, design and
production services.

DOMAIN NAME REGISTRATION SERVICE

         DomainDomain.com is the trade name for ITN's soon to be launched domain
name registration service. ITN believes it can be a leader and innovator as the
demand for domain names and related services continues to expand. Management
believes that it will be favorably situated to acquire the rights to register
new top level domains as they become available from the Internet Corporation for
Assigned Names and Numbers ("ICANN"). ITN also believes that its site design and
application architecture allows the fastest, easiest way to find and register a
 .com, .net and .org top-level domain name. ITN intends to expand its "dot com"
suite of products and services and enhance its distribution channels to reach
more customers and build brand awareness as the "dot com specialist". Through
DomainDomain.com, ITN intends to continue to offer services that complement a
Web property and ultimately help businesses build successful online identities.

SEARCH ENGINE OPTIMIZATION

         Through its Search Engine Optimization services division, HitWerks.com,
ITN strives to deliver highly qualified traffic to leaders in online commerce.
ITN achieves this by engineering targeted placement in such services as search
engines, online directories, and banner advertising. Through a consistent
refining of its methods, HitWerks.com has developed technology to gain
high-quality links in the top search engines and seamlessly deliver this traffic
to its clients' sites.

                                       15
<PAGE>
GROWTH STRATEGY

         In addition to the build-out of the Internet data center, another key
aspect of ITN's growth strategy is to make its engineering and technology
expertise available to other vertical markets on a broader scale. In addition,
ITN's management believes that a meaningful opportunity exists with the move by
consumers from a narrow-band environment into a broadband environment. That is
why ITN recently established a division through which it will market Broadband
services. Through BroadbandAmerica.com, ITN's plan is to market its specialized
Internet outsourcing solutions to the over 100,000 Southern California
entertainment-based businesses and other businesses requiring the highest level
and quality of Broadband/Internet service and engineering.

         As greater demands continue to be placed on the Internet and
applications become increasingly sophisticated, ITN expects that end users will
become more critical of the quality of Internet service that they receive. ITN's
plan is to become a leading Broadband/Internet service provider delivering
high-quality live events, IP-based video and other media-rich content.

COMPETITION

      The market served by ITN is intensely competitive, and competition is
increasing. There are few substantial barriers to entry, and ITN expects that it
will face additional competition from existing competitors and new market
entrants in the future.

      ITN believes that superior facilities, a reliable network, a broad range
of quality products and services, and the quality of its customer support are
the primary competitive factors in ITN's targeted market and that price is
generally secondary to these factors. ITN's current and potential competitors in
the market include other Internet service providers and global, regional, and
local telecommunications companies.

         OTHER INTERNET SERVICE PROVIDERS. ITN's current and potential
competitors in the market include Internet service providers with a significant
national or global presence that focus on business customers, such as DIGEX,
Exodus, Global Crossing's GlobalCenter, SoftAware, Globix, NaviSite, PSINet and
UUNET. While ITN believes that its level of customer service and support and
target market distinguish it from these competitors, many of these competitors
have greater financial, technical, and marketing resources, larger customer
bases, greater name recognition, and more established relationships in the
industry than ITN.

      TELECOMMUNICATIONS CARRIERS. Many long distance and cable companies
including, AT&T, British Telecom, Cable & Wireless, Level 3, MCI WorldCom,
Qwest, and Sprint offer Internet access services and compete with ITN. Recent
changes in federal regulation have created greater opportunities for
telecommunications companies to enter the Internet access market. ITN believes
that there is a move toward horizontal integration by telecommunications
companies through acquisitions of or joint ventures with ISP's to meet the
Internet access requirements of the business customers of long distance and
local carriers. Accordingly, ITN expects that it will experience increased
competition from the traditional telecommunications carriers. In addition to
their greater network coverage, market presence, and financial, technical, and
personnel resources, many of these telecommunications carriers also have large
existing commercial customer bases.

      OTHER COMPETITORS. Because ITN offers a broad range of products and
services, it encounters competition from numerous businesses that provide one or
more similar products or services. For example, ITN encounters competition from
numerous providers of video streaming. ITN does not believe that any of the
competitors in its target market offer as focused a range of Internet products
and services.

                                     16
<PAGE>
GOVERNMENT REGULATION

      In the United States, ITN is not currently subject to direct regulation
other than pursuant to laws applicable to businesses generally, including
business operating on the Internet. However, it is likely that laws and
regulations will be adopted, implemented and challenged at the international,
federal, state or local levels with respect to the Internet, covering issues
such as user privacy, freedom of expression, pricing, characteristics and
quality of products and services, taxation, advertising, intellectual property
rights, information security and the convergence of traditional
telecommunications services with Internet communications. Moreover, a number of
laws and regulations are currently being considered by federal, state and
foreign legislatures with respect to such issues. The nature of any new
international, federal, state or local laws and regulations and the manner in
which existing laws and regulations may be interpreted and enforced cannot be
fully determined. The adoption of any future laws or regulations or the adverse
application of existing laws to the Internet industry might decrease the growth
of the Internet, decrease demand for services of ITN, impose taxes or other
costly technical requirements or otherwise increase the cost of doing business
or in some other manner have a material adverse effect on ITN or its customers,
each of which could have a material adverse effect on ITN's business, results of
operations and financial condition.

INTERNET CONTENT PROVIDER (INTERACTIVE GALLERY, INC.)

INDUSTRY OVERVIEW

            The Internet's growth is unabated. International Data Corporation
("IDC") estimates that there are currently 84 million Internet users in the U.S.
That number is expected to grow to 136 million by the end of 2002. Projections
for worldwide growth on the Internet show that the 170 million current users
will grow to 320 million by 2002. According to Datamonitor, consumer spending in
the adult Internet industry generated approximately $1.0 billion in sales in
1999, and is expected to generate $3.12 billion by 2003. In addition,
Datamonitor estimates that adult entertainment accounts for the majority of
spending for online content (including subscription and pay-on-demand services).

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

            Today, the adult Internet industry is dominated by less than ten
companies, of which only one is part of a publicly traded company - IGallery.
Over the last 10 years, companies like IGallery were able to establish
themselves as leaders in the adult Internet industry by implementing programs
that created traffic flow to and from sites between thousands of adult
webmasters. Those adult webmasters, in turn, generate traffic from various other
sources including search engines, "vanity" domain names (i.e. nude.com) and
opt-in email programs.

         Currently, IGallery's sites generate more than two million visits per
day. According to Media Metrix, several IGallery adult web sites are included
among the top 25 adult destinations on the Internet. IGallery generates traffic
to its web sites through three primary sources. The first ,"type-in" traffic, is
generated when a consumer types the name of one of IGallery's web sites or one
of its 1,300 domain names into their browser address bar. The second is
generated by IGallery's affiliate marketing programs via banner ads, hypertext,
or graphic links. The webmaster is compensated for the referred visitor. The
third, search engine traffic, is generated from listings of IGallery web sites
in search engines and directories. Through HitWerks, a division of its sister
company, ITN, IGallery uses discreet and proprietary technology to position
(optimize) its web sites so that visitors using a search engine to look for
certain types of content have a higher chance of finding what they want. In
combination, these three methods generate over two million Internet visits each
day to IGallery's business-to-consumer and business-to-business sites, or over
60 million visits per month.

            Among the top adult Internet companies, IGallery stands out as a
leader both in the business-to-consumer market and the business-to-business
market.

                                       17
<PAGE>
BUSINESS TO CONSUMER: MEMBERSHIP SITES

            IGallery designs, creates and implements membership-based web sites
for the adult Internet consumer market. IGallery currently owns and operates
more than 27 consumer web sites in addition to 1,300 vanity adult domains of
significant value. Recurring monthly subscription rates are $29.95 for a
one-month membership, $39.95 for a three-month membership and $69.95 for a
12-month membership. In addition, IGallery offers consumers the ability to view
its web sites on a trial basis, generally one to five days, for a special rate
of between $1.97 and $5.97. At March 31, 2000, IGallery had 135,000 members to
its sites (including monthly, quarterly, yearly and trial memberships).

BUSINESS TO BUSINESS:  CONTENT AND TRAFFIC SALES

         CONTENT SALES: IGallery is one of the leading licensors of adult
content on the Internet, and currently markets its content to a database of over
20,000 webmasters. IGallery and its sister company, CSB, have licensed thousands
of hours of adult content and more than 250,000 still images from various adult
studios, all of which it has organized thematically and, if necessary, digitized
for Internet distribution. In addition, IGallery has exclusive rights to four
live streaming video feeds and produces several monthly online adult
publications. IGallery sublicenses this content to webmasters through its
business-to-business programs either on a flat-rate monthly basis or based on
bandwidth usage.

            TRAFFIC SALES: IGallery has developed a significant source of
revenue by selling traffic from its own websites to other adult websites. Since
every visitor to IGallery's 27 web sites does not necessarily purchase a
membership, IGallery maximizes its return on traffic by pushing these exiting
non-member visitors to other adult websites. In doing so, IGallery is able to
generate revenue from affiliate webmaster programs on a routing or click-through
basis or revenue sharing basis.

IGALLERY AFFILIATE MARKETING PROGRAMS

            IGallery's affiliate marketing programs are incentive-based traffic
generation programs that compensate affiliate webmasters in one of two ways. A
webmaster may elect to be compensated for the routing, or click-through, of a
unique visitor to an IGallery web site, at an average payout of $0.05 per
click-through. Alternatively, a webmaster may elect to a revenue sharing
arrangement when and if a visitor becomes a member to an IGallery site, at an
average payout of $40.00 per member. IGallery markets these programs to its
database of over 20,000 webmasters. The cost to acquire a single customer
averaged between the affiliate marketing programs and IGallery-owned domain
traffic (i.e., "typed-in traffic") is $23.00.

COMPETITION

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

         Because the barrier to entry has become substantial, the adult Internet
market is dominated by a short list of companies. All of the major adult
Internet competitors of IGallery are privately held, though many have created
alliances with various publicly traded companies. Companies such as Cyber
Entertainment Network (http://www.privategold.com) and VS Media
(http://www.privatechannels.com) have joint-venture websites with Private Media
Group (NASDAQ: PRVT). Rick's Cabaret International (NASDAQ: RICK) has signed a
letter of intent to acquire several membership websites from Voice Media
(http://www.cybererotica.com), a leading adult Internet company. In addition,
companies such as Python Communications, a privately-held adult Internet content
provider and membership website company, have acquired smaller adult properties
in their attempt to expand their base of business via acquisition. Other larger
competitors of IGallery such as RJB Telcom (http://www.karasxxx.com), Babenet
Ltd (http://www.vcaexposed.com), and Vivid Video (http://www.vividvideo.com)
continue to be privately held and to expand their businesses via increased
marketing efforts.

         Management believes that it can increase market share by acquiring
selected businesses in complimentary markets, thereby continuing the
consolidation of the adult Internet industry and achieving economies of scale
that will provide a competitive advantage. Management believes that with the
combined resources of its sister companies, ITN, CTI, and CSB, IGallery will
continue leading the adult Internet market.

GROWTH STRATEGIES

         Management believes there is an opportunity to increase IGallery's
market share through the acquisition of additional vanity domain names. Because
traffic from vanity domain names does not originate from webmaster referrals,
acquisition of such domains both increases overall traffic to its sites and
reduces member acquisition costs. IGallery has identified a number of
high-traffic adult domain names and several large baskets of adult domain names
that are available for acquisition.

                                       18
<PAGE>
         Management also believes that it can increase market share by acquiring
selected businesses in complimentary markets, thereby continuing the
consolidation of the adult Internet industry and achieving economies of scale
that will provide a competitive advantage. Additionally, IGallery believes that
acquisition of such businesses will enable it to establish a presence in new
markets, thereby creating future opportunities for growth.

         Finally, IGallery's management anticipates that additional licensing of
video and still images, and the resulting increase in product offerings for its
business-to-business programs, will result in an increase in content sales.
IGallery's content is also being formatted for broadband distribution via the
Internet as well as via set-top boxes, which are gaining increased distribution
to both cable and DBS households. Management believes that IGallery will be a
leader in the distribution of broadband content in both the business-to-business
and business-to-consumer markets.

PAYMENT SERVICES PROVIDER (CARD TRANSACTIONS, INC.)

         CTI is a development stage Payment Services Provider (PSP) for various
Internet billing options. CTI's infrastructure is based on more than ten years
of credit card processing experience and utilizes secure Internet commerce
technologies. With the growth of the Internet expected to continue unabated,
CTI's management believes there is increasing demand for on-line transaction
processing expertise and capacity. Transactions over the Internet, valued at $50
billion in 1998, are expected to grow to approximately $1.3 trillion by the end
of 2003. CTI believes it is uniquely positioned to capitalize on these trends.

            CTI has developed a PSP gateway called Card.com. Card.com is
designed to provide a full range of secure, fully automated credit card payment
processing technologies including fraud control, authorization and credit card
settlement, real time transaction searching, and reporting for monitoring
business transactions over the Internet.

         CTI's solution provides the most comprehensive set of features,
services and functionality, including:

*  Merchant banking service
*  Dynamic risk profiling
*  Transaction distributed networking
*  Hosting and ISP services
*  Affiliate marketing programs
*  Alternate billing solutions
*  Support for all major payment cards including Visa, MasterCard, American
   Express, Discover and JCB
*  Authorization requests/captures; AVS; CVV2; on demand transaction searching
   capabilities and reporting via administrative server interface

         While CTI has been providing transaction processing services primarily
to IGallery, it plans to market its transaction processing services and merchant
account management expertise to medium and large sized businesses involved in
all aspects of commerce over the Internet. CTI has been staffing up with experts
in the banking and credit card processing industries to further enhance its
unique base of technology, engineering and transaction processing expertise. Its
plan is to begin marketing its services to non-adult business customers and
become one of the leading transaction processing companies serving the Internet.
In addition, CTI is developing alternate methods of payment over the Internet to
allow its merchant customers greater flexibility in the collection of receipts
for goods and services.

EMPLOYEES

         As of the date of this report, New Frontier Media and its subsidiaries
had 148 full-time and 14 part-time employees. New Frontier Media employees are
not members of a union, and New Frontier Media has never suffered a work
stoppage. The Company believes that it maintains a good relationship with its
employees.

                                       19
<PAGE>
                                  RISK FACTORS

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

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

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

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

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

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

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

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

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

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

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

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


                                     20
<PAGE>
WE HAVE BEEN SUED BY A PROSPECTIVE INVESTOR SEEKING TO ENFORCE AN ALLEGED
AGREEMENT TO CONVEY A 70% EQUITY INTEREST IN NEW FRONTIER MEDIA AND IF WE DO NOT
PREVAIL IN THIS LAWSUIT WE COULD SUFFER A MATERIAL FINANCIAL LOSS.

         In a January 25, 1999 amended complaint in District Court in Boulder,
Colorado, (Case No. 99CV30), J.P. Lipson seeks to enforce an alleged agreement
by New Frontier Media to convey to Lipson a 70% equity interest in New Frontier
Media. Lipson is also seeking $10 million in liquidated damages and/or
unspecified damages. If we do not prevail in this lawsuit, we could suffer a
material financial loss which loss, if any, can not be estimated. We dispute
that there exists a binding and enforceable agreement to transfer any equity
interest in New Frontier Media to Lipson. The case has been set for trial in
August 2000. We will continue to vigorously defend against Lipson's claims.

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

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

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

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

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

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

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

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


                                     21
<PAGE>
WE MAY BE LIABLE FOR THE CONTENT WE MAKE AVAILABLE ON THE INTERNET.

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

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

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

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

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

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

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

                                       22

<PAGE>

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

         Our ability to accept credit cards as a form of payment for our
products and services is critical to us. With the ongoing efforts of the card
associations to restrict the processing of credit cards for online adult-related
content, we must continue to invest heavily in new technologies to better
profile against fraud. Unlike a merchant handling a sales transaction in a card
present environment, the e-commerce merchant is 100% responsible for all fraud
perpetrated against them.

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

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

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

*  if we experience excessive chargebacks and/or credits;

*  if we experience excessive fraud ratios;

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

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

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

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

         As a small company with approximately 148 employees, our success
depends upon the contributions of our executive officers and our other key
technical personnel. The loss of the services of any of our executive officers
or other key personnel could have a significant adverse effect on our business
and operating results. We cannot assure that New Frontier Media will be
successful in attracting and retaining these personnel. It may also be more
difficult for us to attract and recruit new personnel due to the adult nature of
our business.

                                       23
<PAGE>
OUR INABILITY TO IDENTIFY, FUND THE INVESTMENT IN, AND COMMERCIALLY EXPLOIT NEW
TECHNOLOGY COULD HAVE AN ADVERSE IMPACT ON OUR FINANCIAL CONDITION.

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

GOVERNMENT REGULATION OF CABLE SYSTEM OPERATORS COULD MAKE IT MORE DIFFICULT FOR
THEM TO BROADCAST OUR PROGRAMMING AND ADVERSELY AFFECT OUR OPERATING
PERFORMANCE.

         Cable system operators could become subject to new governmental
regulations that could further restrict their ability to broadcast our
programming. If new regulations make it more difficult for cable operators to
broadcast our programming our operating performance would be adversely affected.
It is not possible for us to predict what new governmental regulations we may be
subject to in the future.

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

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

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

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

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

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

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

         Future sales of shares of common stock by New Frontier Media and/or its
stockholders could cause the market price of the common stock to drop. As of May
31, 2000 there were 8,400,571 restricted shares and 11,652,826 shares of common
stock which are freely tradable or eligible to have the restrictive legend
removed pursuant to Rule 144(k) promulgated under the Securities Act. Of the
8,400,571 restricted shares, 2,195,139 of such shares are currently eligible for
resale under Rule 144. Sales of substantial amounts of common stock in the
public market, or the perception that such sales may occur, could have a
significant adverse effect on the market price of the common stock.

                                       24
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY.

         The following table shows the approximate square footage of the
premises that the Company leases as of March 31, 2000.

<TABLE>
<CAPTION>
LOCATION                    SEGMENT USING PROPERTY             APPROXIMATE SQUARE FOOTAGE
--------                    ----------------------             --------------------------
<S>                         <C>                                <C>
Boulder, Colorado           Corporate Headquarters and               12,000
                            Subscription/PPV TV Group,
                            including broadcast operations and
                            call center

Los Angeles, California     Programming Acquisition sub-contractor    2,750

Sherman Oaks, California    Internet Content Provider/Internet       12,800
                            Service Provider/Payment Service
                            Provider Groups

Sherman Oaks, California    Internet Service Provider, including      7,100
                            Internet Data Center

Aspen, Colorado             Internet Service Provider                   205

</TABLE>

ITEM 3.  LEGAL PROCEEDINGS.

         In a January 25, 1999 amended complaint in District Court in Boulder,
Colorado (Case No. 99CV30), J.P. Lipson seeks to enforce an alleged agreement by
New Frontier Media to convey to Lipson a 70% equity interest in New Frontier
Media. Lipson is also seeking large and/or unspecified damages. New Frontier
Media disputes that there exists a binding and enforceable agreement to transfer
any equity interest in New Frontier Media to Lipson. The case has been set for
trial on August 14, 2000. New Frontier Media will continue to vigorously defend
against Lipson's claims.

         In a June 2, 1999 complaint filed in District Court in Boulder,
Colorado (Case No. 99CV913), Scott Wussow, the Company's former chief financial
officer, seeks to enforce an alleged oral agreement to increase his salary,
bonus, and car allowance, and issue to him warrants to purchase up to 300,000
shares of New Frontier Media common stock, following the Company's public
offering of February 1998. We dispute that there was any promise or agreement,
oral or otherwise, made to or with Mr. Wussow to increase his compensation and
intend to vigorously defend against this claim.

         On August 3, 1999 the Company filed a lawsuit in District Court for the
City and County of Denver, (Colorado Satellite Broadcasting, Inc. vs. Pleasure
Licensing LLC, et al. Case No. 99 CV 4652) against Pleasure Licensing L.L.C and
Pleasure Productions Inc. alleging, breach of contract, breach of express and
implied warranty, breach of implied warrant of fitness for a particular purpose
and declaratory judgement for the return of 700,000 New Frontier Media shares
and warrants for another 700,000 New Frontier Media shares issued to such
entities. Defendants removed the Denver District Court action to Federal
District Court Colorado, (Case No. 99 WM 1753) and have filed their first
amended answer, affirmative defenses and counter claims against the Company and
are seeking damages in excess of $700,000. The Company intends to vigorously
pursue its rights against Pleasure Licensing L.L.C and Pleasure Productions Inc.
and to vigorously defend against the counterclaims filed against it. The Company
believes that Pleasure has breached its license agreement with the Company by,
among other things, failing to deliver to the Company 4,000 beta masters for the
films licensed by it as required by the agreement and delivering to the Company
as "New Releases" films that were produced as early as 1997.

                                       25
<PAGE>
         On August 23, 1999, Generation Capital Associates ("GCA")and Greenwood
Partners filed a motion for a temporary restraining order and preliminary
injunction in Federal District Court, New York (File No.99 Civ. 9099 (WK))
seeking to enjoin the Company's redemption of its publicly outstanding warrants.
The Company filed a response to this action and on August 31, 1999 the court
issued an order denying Greenwood Partners and GCA's motion for a temporary
restraining order and a preliminary injunction. The case has been moved, at the
Company's request, to Colorado and is continuing as a damages action by
Greenwood Partners and GCA against the Company in the amount of $4.00 per
warrant held by them, or approximately $1 million. The Company intends to
vigorously defend this action.

         On or about September 17, 1999, the Company filed a complaint seeking a
declaratory judgment in the District Court for Arapahoe County (New Fronter
Media, Inc. v. Khan et al. Case No. 99 CV 3239) seeking to confirm that it was
not obliged to issue warrants to purchase 250,000 shares of its common stock to
EBI Securities, Inc. (formerly known as Cohig & Assoc.) under a consulting
agreement with EBI Securities, Inc. ("EBI") which was terminated by the Company
in June 1998. Separately, the person who introduced the Company to EBI
instituted an action in the United States District Court, Central District of
California, (Kahn vs. New Frontier Media, Inc. et al., Case No. CV 99-09730
R[RZx]), seeking to require the Company to issue 90% of the subject warrants to
him, alleging that, under a separate agreement allegedly entered into by him
with EBI, he was to receive 90% of any compensation received by EBI under its
consulting agreement with the Company. The Company intends to vigorously defend
itself against this action insofar as, among other things, it did not issue any
warrants to EBI, EBI did not perform any services for the Company, EBI has not
demanded these warrants from the Company and the Company never agreed to issue
any warrants to Khan.

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

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

                                       26
<PAGE>
PART II.

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

MARKET INFORMATION.

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

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

<TABLE>
<CAPTION>
QUARTER ENDED            HIGH           LOW            QUARTER ENDED            HIGH           LOW
-------------            ----           ---            -------------            ----           ---
<S>                      <C>            <C>            <C>                      <C>            <C>
June 30, 1998            4-1/4          2-3/4          June 30, 1999            10-3/8         3-29/32

September 30, 1998       3-11/16        1-9/32         September 30, 1999       9.00           5.00

December 31, 1998        1-5/8          13/16          December 31, 1999        6-7/8          3-30/32

March 31, 1999           5-3/8          14/16          March 31, 2000           11-3/4         4-1/4
</TABLE>

         As of March 31, 2000, there were approximately 425 record holders of
New Frontier Media's Common Stock.

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

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

THIS ANNUAL REPORT ON FORM 10-KSB AND THE INFORMATION INCORPORATED BY REFERENCE
MAY INCLUDE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. THE COMPANY INTENDS THE
FORWARD-LOOKING STATEMENTS TO BE COVERED BY THE SAFE HARBOR PROVISIONS FOR
FORWARD-LOOKING STATEMENTS. ALL STATEMENTS REGARDING THE COMPANY'S EXPECTED
FINANCIAL POSITION AND OPERATING RESULTS, ITS BUSINESS STRATEGY, ITS FINANCING
PLANS AND THE OUTCOME OF ANY CONTINGENCIES ARE FORWARD-LOOKING STATEMENTS. THE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH OR IMPLIED BY ANY
FORWARD LOOKING STATEMENTS.

                                       27
<PAGE>
OVERVIEW

         On February 18, 1998, the Company consummated an underwritten public
offering of 1,500,000 units, each consisting of one share of common stock and
one redeemable common stock warrant, raising $7,087,000 in net proceeds after
underwriting fees. Simultaneous with the public offering, New Frontier Media
acquired the adult satellite television assets of Fifth Dimension. As a result
of the Fifth Dimension acquisition, the Company through its wholly owned
subsidiary CSB, became a leading provider of adult programming to C-Band
households through its networks, Extasy, True Blue, and GonzoX.

         As of April 30, 2000, the Company had the following number of
subscribers to its three C-Band networks: Extasy 55,096, True Blue 52,066, and
GonzoX 46,842. In addition, Extasy is marketed to cable MSO's and DBS providers.
In January 2000, Extasy was launched on a PPV and subscription basis on DISH's
DISH 500 platform. As of April 30, 2000, Extasy was available to approximately
105,000 cable households and 1 million DBS households.

         In August 1998, New Frontier Media launched TeN: the erotic network
("TeN") as its first adult network targeted specifically to cable MSO's and DBS
providers. Unlike New Frontier Media's C-Band networks, TeN offers
partially-edited adult programming which is intended to appeal to cable
operators and DBS providers while delivering more of the editing style adult
network subscribers expect to receive. As of April 30, 2000 TeN was available to
approximately 5.5 million cable/DBS households and had approximately 76,000
monthly DISH subscribers to its service.

         On June 1, 1999, New Frontier Media launched Pleasure, a 24-hour adult
network that incorporates the most edited standard available in the category.
Pleasure competes directly with Playboy's adult network services (Playboy TV,
Spice and Spice 2) in the most-edited adult programming category. As of April
30, 2000, Pleasure was available to approximately 4.8 million cable/DBS
households.

         On October 27, 1999, the Company completed its acquisition of ITN,
IGallery and 90% of CTI. Under the terms of the acquisition, which was accounted
for in the accompanying financial statements as a pooling of interests, the
Company exchanged 6,000,000 shares of restricted common stock for all of the
outstanding stock in ITN and IGallery and 90% of CTI.

         ITN is a leading Internet technology and e-commerce company that
provides turnkey Internet software engineering, bandwidth, merchant account
management, and credit card processing. ITN provides the following Internet
technology functions: dedicated Internet access, web hosting, co-location
services, systems and network integration, web site management, web development,
and streaming media products.

         IGallery is a leading aggregator and reseller of adult content via the
Internet. IGallery aggregates adult-recorded video, live feed video and still
photography from adult content studios and distributes to consumers via its
membership websites and Pay-Per-View feeds. In addition, IGallery resells its
aggregated content to web master affiliates ("content" revenue) and resells its
Internet traffic that does not convert into memberships ("sale of traffic"
revenue). IGallery maintains a consumer membership base of over 135,000
subscribers to its owned and operated websites.

         CTI has no operations at this time. The Company intends to develop CTI
into a payment services gateway that provides various Internet billing options.

                                       28
<PAGE>
RESULTS OF OPERATIONS

                                                     (in millions)
                                                  Twelve Months Ended
                                                        March 31
                                                 ---------------------
                                                    2000       1999
                                                 ---------------------
NET REVENUE
Subscription/Pay-Per-View TV
     Cable/DBS                                       6.3        0.3
     C-Band                                         10.5        9.1
Internet Content Provider
     Membership                                     23.0       15.9
     Content/Sale of Traffic                         7.0        2.2
     Internet Pay-Per-View                           0.5        2.4
Internet Service Provider                            0.6        0.3
Payment Service Provider                               -          -
Corporate Administration                             0.1          -
                                                 ---------------------
  Total                                             48.0       30.2
                                                 =====================
COST OF SALES
Subscription/Pay-Per-View TV                        10.9        9.1
Internet Content Provider                           16.7       12.6
Internet Service Provider                            0.4          -
Payment Service Provider                               -          -
Corporate Administration                               -          -
                                                 ---------------------
  Total                                             28.0       21.7
                                                 =====================

INCOME (LOSS) FROM CONTINUING OPERATIONS
Subscription/Pay-Per-View TV                        (2.1)      (6.5)
Internet Content Provider                            6.4        1.7
Internet Service Provider                           (1.5)       0.2
Payment Service Provider                            (0.4)      (0.1)
Corporate Administration                            (2.1)      (0.8)
                                                 ---------------------
  Total                                              0.3       (5.5)
                                                 =====================

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

OVERVIEW

NET REVENUE

         Net Revenue for the Company was $48 million for the year ended March
31, 2000, an increase of 59% from $30.2 million for the year ended March 31,
1999. This improvement is due to increases in net revenue for both the
Subscription/PPV TV Group and Internet Content Provider Group. Revenue for the
Subscription/PPV TV Group increased to $16.8 million as of the year ended March
31, 2000 from $9.4 million for the year ended March 31, 1999, an increase of
79%, primarily related to the increase in its cable/DBS revenue. Revenue for the
Internet Content Provider Group increased to $30.5 million for the year ended
March 31, 2000 from $20.5 million for the year ended March 31, 1999, an increase
of 49%, primarily related to an increase in membership revenue from its
websites.

OPERATING INCOME/(LOSS)

         Operating Income for the Company increased to $.3 million for the year
ended March 31, 2000 from an operating loss of $5.5 million for the year ended
March 31, 1999. The improvement in operating income is primarily related to the
increase in revenue and gross profit margins for both the Subscription/PPV TV
and Internet Content Provider Groups. Operating loss for the Subscription/PPV TV
Group improved from $6.5 million for the year ended March 31, 1999 to $2.1
million for the year ended March 31, 2000. Operating income for the Internet
Content Provider Group increased from $1.7 million for the year ended March 31,
1999 to $6.4 million for the year ended March 31, 2000.

                                       29
<PAGE>
SUBSCRIPTION/PAY-PER-VIEW TV GROUP

NET REVENUE

         Total net revenue for the Subscription/PPV TV Group was $16.8 million
for the year ended March 31, 2000 a 79% increase from $9.4 million for the year
ended March 31, 1999. Of total net revenue, C-Band net revenue was $10.5 million
for the year ended March 31, 2000 compared to $9.1 million for the year ended
March 31, 1999, an increase of 15%. Revenue from the Group's Cable/DBS products
for the year ended March 31, 2000 was $6.3 million compared to $.3 million for
the year ended March 31, 1999, an increase of 2000%. Revenue from the Group's
cable/DBS products is responsible for approximately 37% of the Group's total net
revenue for the year ended March 31, 2000 compared to 3% for the year ended
March 31, 1999.

         The increase in C-Band revenue for the year ended March 31, 2000 is
primarily due to an increase in the number of total subscriptions to each of the
Company's C-Band networks. Total C-Band subscriptions have increased 11% during
the year ended March 31, 2000. However, the total C-Band market declined from
2.0 million to 1.5 million households during the same period. Due to the
declining nature of the C-Band market the Company does not expect any
significant future growth in its C-Band revenue.

         Increases in the Subscription/PPV TV Group's cable/DBS revenue for the
year ended March 31, 2000 are a result of several factors: 1) an increase in
distribution of TeN; 2) adding TeN as a PPV service on DISH in addition to its
availability on a monthly and yearly subscription basis; 3)the successful launch
of Pleasure on DISH; and 4) the successful launch of Extasy on DISH.

         As of March 31, 2000, TeN, was available to 5.3 million addressable
cable and DBS households, up from 2.5 million households as of March 31, 1999,
an increase of 112% as a result of both the launch of new cable and DBS systems
and on-line growth of existing affiliates. In addition, TeN is available on a
monthly and annual subscription basis to DBS households via DISH. As of March
31, 2000, TeN had approximately 76,000 monthly DISH subscribers up from 40,000
monthly subscribers as of March 31, 1999, a 90% increase.

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

         TeN launched on DISH in September 1998 and was initially available to
DISH households only on a monthly and annual subscription basis. In September
1999, TeN was made available to DISH households on both a subscription and PPV
basis. In addition, the price of a monthly subscription was increased $5.00 to
$19.99. At the time, these two changes resulted in an approximately 50% increase
in monthly revenues for TeN. Due to the fact that TeN is now offered on a PPV
basis by DISH, the Company does not expect the growth in the number of monthly
DISH subscriptions to continue at the same rate as this fiscal year.

         Pleasure was launched on June 1, 1999 on three Time Warner Cable
systems and on DISH to a total addressable universe of 2.3 million households.
Pleasure has grown to a total of 4.6 million addressable households as of March
31, 2000. In January 2000, New Frontier Media announced that it had signed a
corporate carriage agreement with Time Warner Cable for the distribution of
Pleasure on its systems. The Subscription/PPV TV Group expects to increase its
carriage to a total of 3 million Time Warner Cable households by July 2000,
bringing its total Pleasure distribution to approximately 7 million addressable
households. Pleasure is offered by cable MSO's/DBS providers on a PPV basis with
retail rates ranging from $4.95 to $7.95 per block. Pleasure's buy rates, which
depend upon customer demographics and the number of total adult networks
provided by the multi-channel distributor, average approximately 5% per month.

                                       30
<PAGE>
         The Subscription/PPV TV Group began to market Extasy on a limited basis
to cable MSOs and DBS providers during the fiscal year ended March 31, 2000. In
January 2000, DISH launched Extasy on its newest satellite at 110 degrees and
made it available to its DISH 500 customers. DISH markets Extasy as both a
subscription and PPV service, as well as offering a monthly combination
subscription to both Extasy and TeN. As of March 31, 2000, Extasy was available
to approximately 1.1 million cable/DBS addressable households. In addition,
Extasy had 4,000 monthly DISH subscribers at a retail rate of $24.99 plus 1,300
monthly DISH subscribers to the Extasy/TeN combination package at a retail rate
of $34.99.

         Prior to Janury 2000, Extasy had been available to DISH customers
through its Sky Vista platform and as of March 31, 2000 had approximately 1,400
monthly Sky Vista subscribers. DISH is discontinuing this platform in May 2000.
The Group does not expect to experience any significant financial impact from
the loss of these subscribers.

         Extasy is offered by cable MSOs/DBS providers on a PPV basis with
retail prices ranging from $7.95 to $9.99 per block. Extasy's buy rates, which
depend upon customer demographics and the number of total adult networks
provided by the multi-channel distributor, average approximately 12% per month.

         On March 24, 2000, New Frontier Media announced that it had entered
into a partnership with Time Warner Cable to provide content for all of its VOD
systems. The initial markets covered by the agreement include Honolulu, HI,
Austin, TX and Tampa/St. Petersburg, FL. Under the terms of the agreement, New
Frontier Media intends to provide up to 30 Pleasure titles per month, 60% of
which will be premiere titles, delivered in a VOD-prepped digital library tape
("DLT") format. The technical capability for VOD distribution was deployed late
last year by many leading cable operators and represents the next layer of
on-demand viewing technology to be placed in the hands of the consumer. VOD
enables digital cable consumers to receive instant access to PPV entertainment
through their set-top boxes and provides virtual VCR functionality including the
ability to pause, fast-forward and rewind programming.

         The Subscription/PPV TV Group anticipates that the VOD market will grow
quickly in the future and it expects to be a leader in providing various editing
standards of adult content to VOD distribution platforms. Retail rates for VOD
content average approximately $6.95 per block, with expected buy rates of 20%
for Pleasure content. As of May 2000, the Group had launched to the Honolulu, HI
Time Warner Cable system with approximately 25,000 addressable homes.

         The Company launched Erotic Television Clips or ETC on May 17, 2000 as
its newest, partially-edited 24-hour per day adult network. ETC's unique
formatting provides for thematically organized 90-minute blocks of programming
in order to encourage appointment viewing by the PPV adult consumer. The Company
has organized its partially-edited content library into 60 thematic categories.
Through New Frontier Media's proprietary database technology, approximately
eight scenes are organized thematically and programmed into one 90-minute block.
ETC delivers 240 unique thematic blocks with over 500 different adult film
scenes during a typical month. ETC will be marketed to cable and DBS providers
on a PPV basis.

         Management expects that its cable/DBS revenues will continue to
increase and the number of addressable households will continue to increase in
future periods as it aggressively promotes TeN, Pleasure, ETC and Extasy to
additional cable MSO and DBS providers.

                                       31
<PAGE>
COST OF SALES

         Cost of Sales for the Subscription/PPV TV Group was $10.9 million, or
65% of revenue, for the year ended March 31, 2000 as compared to $9.1 million,
or 97% of revenue, for the year ended March 31, 1999, an increase of 20%. Cost
of sales consists of expenses associated with broadcast playout, satellite
uplinking, satellite transponder leases, programming acquisition costs,
amortization of content licenses, and call center operations.

         The increase in absolute dollars for cost of sales is primarily due to
the following: a) an increase in the amortization of content licenses due to the
acquisition of the Pleasure Productions and Metro libraries as well as to the
purchase of additional content licenses necessary to program Pleasure, TeN, and
Extasy and b) an increase in costs associated with the creation and expansion of
the broadcast playout facility in Boulder, Colorado.

         Due to the fact that approximately 70% of the Group's cost of sales are
fixed in nature, management does not anticipate any significant increases in
cost of sales in future periods with respect to its products that are currently
launched. The Group anticipates that Cost of Sales as a percentage of revenue
will decline to approximately 50% of net revenue in future periods.

OPERATING INCOME/(LOSS)

         Operating loss for the Subscription/PPV TV Group for the year ended
March 31, 2000 was $2.1 million compared to $6.5 million for the year ended
March 31, 1999, an improvement of 68%. This decrease in operating loss is
primarily due to the 79% increase in revenue combined with a 29% increase in
gross profit margin for the year ended March 31, 2000.

         Total operating expenses increased 17% over the year ended March
31, 1999, and declined from 64% of revenue as of March 31, 1999 to 41% of
revenue as of March 31, 2000. The slight increase in total operating expenses
during the year was primarily due to an increase in payroll and employee benefit
costs associated with increased hiring as the Subscription/PPV TV Group has
continued to build the infrastructure necessary to support itself, increased
commission expenses paid to the Group's sales department as additional
addressable households are added, and additional trade show expenses necessary
to market the Group's networks.

         The Group's management anticipates that its operating loss will
continue to decrease in future periods as its cable/DBS revenue increases. The
Group is aggressively promoting TeN, Pleasure, ETC, and Extasy and anticipates
additional launch commitments in future periods. The Subscription/PPV TV Group
expects that total operating costs will increase in future periods, but will
remain approximately 40% of total revenue, as it aggressively expands its
marketing and internal creative departments, focuses on branding its networks,
and continues to add to its current infrastructure to support its products and
customers.

                                       32
<PAGE>
INTERNET CONTENT PROVIDER  (ICP) GROUP

NET REVENUE

         Net Revenue for the ICP Group for the year ended March 31, 2000 was
$30.5 million, a 49% increase from $20.5 million for the year ended March 31,
1999.

         Membership revenue was $23.0 million for the year ended March 31, 2000,
a 45% increase from $15.9 million for the year ended March 31, 1999. Revenue
growth was due to new marketing programs and the addition of a direct sales
staff in December 1998.

         Revenue from content sales and the sale of traffic was $7.0 million for
the year ended March 31, 2000, a 218% increase from $2.2 million for the year
ended March 31, 1999. Revenue growth for the year ended March 31, 2000 was the
result of focused marketing programs concentrating on promoting the group's
website content and reporting systems, and the addition of a direct sales staff
in December 1998.

         Pay-Per-View revenue was $.5 million for the year ended March 31, 2000,
a 79% decrease from $2.4 million for the year ended March 31, 1999. This
decrease for the year ended March 31, 2000 was expected as the Pay-Per-View
subscribers switched to the group's membership products.

         During the year ended March 31, 2000, fourteen additional websites were
launched resulting in a total of twenty-seven Company-owned websites. These
websites hosted a daily average of 2,000,000 visits at March 31, 2000, a 300%
increase from the daily average of 700,000 visits at March 31, 1999. While the
daily average visits increased, the conversion rate to new memberships decreased
due to management's emphasis on fraud control programs to reduce the level of
chargebacks and credits. Monthly membership prices vary among the websites from
$20.00 to $30.00. Marketing programs introducing three day trial memberships at
prices varying from $2.00 to $3.00 were introduced during the year ended March
31, 2000, which resulted in an average membership price of $15.00 during the
quarter ended March 31, 2000.

         Content was sold to 280 webmasters at March 31, 2000, a 233% increase
from 90 webmasters at March 31, 1999. The average price for each product was
$500 at March 31, 2000, a 50% decrease from $1,000 at March 31, 1999.
Customers purchased an average of three products at both March 31, 2000 and
March 31, 1999. Management expects that increased price competition and the
effect of more restrictive credit card policies may further reduce the average
price for content and will cause a slower growth in revenue from content sales.
Management intends to continue to offer additional content through new websites
to offset these risks.

         Revenue is earned from traffic sales by forwarding exit traffic and
traffic from selected vanity domains to other affiliate marketing programs. Due
to the increase in traffic to the ICP Group's websites, Management has increased
exit traffic sales to other affiliate marketing programs at similar rates paid
by the ICP Group for its purchased traffic.

         Management expects a slower growth in membership revenue in the future
due to the continued emphasis on fraud control to reduce the level of
chargebacks and credits. Revenue from content sales and sale of traffic should
continue to increase in future periods.

                                       33
<PAGE>
COST OF SALES

         Cost of sales for the year ended March 31, 2000 was $16.7 million as
compared to $12.6 million for the year ended March 31, 1999, an increase of 33%.
Cost of sales consists of variable expenses associated with credit card
chargebacks, credits, and merchant banking fees; bandwidth; membership
acquisition costs and website content. Cost of sales was 55% of revenue for the
year ended March 31, 2000. Cost of sales was 61% of revenue for the year ended
March 31, 1999. The cost of sales percentage continues to improve due to
reductions in communications bandwidth and merchant banking fees.

         The average new membership acquisition payment made to webmasters
(i.e., "purchased" traffic) has increased from $30.00 at March 31, 1999 to
$40.00 at March 31, 2000. However, the Group's overall new membership
acquisition cost when considering both "typed-in" and "purchased" traffic has
remained constant at an average of $23.00 per new member. The Group's vanity
domain name acquisition strategy has contributed to an increase in new members
via "typed-in" traffic and results in no direct acquisition costs. The domain
names are amortized over a three to five year period, and this amortization is
part of the Group's cost of sales. Management intends to increase its efforts to
acquire vanity domain names in the future.

         Credit card chargebacks and credits decreased as a percentage of
revenue during the fourth quarter of the fiscal year ended March 31, 2000 due to
the implementation of tighter fraud controls by Management in response to Visa
and MasterCard organizations' efforts to target chargeback activities of certain
industries, including Direct Marketing, Travel Agencies, Outbound Telemarketing
Merchants and Videotext (Internet) Merchants. The effect of this effort by Visa
and MasterCard has been the elimination of warning periods by these
organizations (i.e., fees are assessed without any warning periods) and
increased review fees and chargeback fees when chargebacks exceed the chargeback
parameters. During the year ended March 31, 2000, the ICP Group incurred
additional one-time fees as described above of $.4 million. Management believes
that chargebacks and merchant banking fees may increase in future periods;
however, cost of sales, as a percentage of revenue, is not expected to increase
significantly.

OPERATING INCOME

         Operating income for the year ended March 31, 2000 was $6.4 million
compared to $1.7 million for the year ended March 31, 1999, an increase of 276%.
The increase in operating income for the year ended March 31, 2000 is primarily
due to an increase in revenue combined with an increase in gross profit margin.
Operating expense increased approximately 19% for the year ended March 31, 2000
compared to the year ended March 31, 1999. The increases were primarily
associated with increased payroll and office facility costs, and increases in
advertising costs necessary to promote the Group's websites. The year ended
March 31, 2000 included $.4 million of non-recurring costs associated with the
sale of the ICP Group to New Frontier Media.

                                       34
<PAGE>
INTERNET SERVICE PROVIDER (ISP) GROUP

NET REVENUE

         Net Revenue for the ISP Group was $.6 million for the year ended March
31, 2000, a 100% increase from $.3 million for the year ended March 31, 1999.

         Revenue for the ISP Group includes income from website hosting and
server co-location, sale of bandwidth, and merchant processing. In addition to
providing service to the ICP Group, the ISP Group provides services to
approximately fifteen other customers. However, approximately 90% of the ISP
Group's revenue is derived from the sale of its services to the ICP Group.
Revenue for website hosting, server co-location, and for the sale of bandwidth
is expected to increase in future periods as the Group completes the upgrade of
its ISP facility to a Level One data center and adds sales staff to market the
ISP services to other customers.

OPERATING INCOME/LOSS

         Operating loss for the year ended March 31, 2000 was $1.5 million, a
decrease of 850% from the operating profit of $.2 million for the year ended
March 31, 1999. The operating losses for the year ended March 31, 2000 are a
result of the upgrades in process at the ISP facility. These expenses, which are
related primarily to payroll, consulting costs, communication upgrades,
equipment depreciation and amortization, resulted in additional expenses of $1.2
million for the year ended March 31, 2000.

         Management expects that the ISP Group will continue to have an
operating loss at approximately the same rate as that in the year ended March
31, 2000 in future periods until the ISP marketing plan is fully implemented.

PAYMENT SERVICE PROVIDER (PSP) GROUP

         Operating expenses and the loss for the PSP Group for the year ended
March 31, 2000 was $.4 million, an increase of 300% from the operating expenses
and loss of $.1 million for the year ended March 31, 1999.

         The operating losses for the year ended March 31, 2000 are the result
of the additional personnel necessary to initiate the planning and initial
implementation of the PSP. Management expects the PSP will continue to have
operating losses in future periods.

CORPORATE ADMINISTRATION

         The Corporate Administration segment includes all costs associated with
the operation of the public entity known as New Frontier Media, Inc. These costs
include legal and accounting expenses, registration and filing fees with NASDAQ
and the SEC, investor relations costs, and printing costs associated with public
filings. The operating loss for this segment increased from $.8 million for the
year ended March 31, 1999 to $2.1 million as of March 31, 2000, an increase of
163%. This increase is primarily related to a 200% increase in legal fees
related to the Company's policy to vigorously defend itself against all claims,
an increase in consulting costs related to investor and public relations
activity, an increase in net interest expense related to its convertible
preferred stock, and an increase in printing costs related to the Company's
public filings. The Company does not anticipate any increase in its corporate
administration costs in future periods.

                                       35

<PAGE>
DEFERRED TAX ASSET

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

         The Company reported pretax profits of $.3 million for the year ended
March 31, 2000, a significant improvement from its pre-tax loss of $5.8 million
as of March 31, 1999. As of March 31, 2000, the Company has total net deferred
tax assets of approximately $4.2 million, which includes a net operating loss
carry forward of approximately $9.2 million. Based on the recent history of
profits for the year ended March 31, 2000, and the expected profitability of the
Company in future periods, the Company provided a valuation allowance for $3.4
million of its net deferred assets, while recognizing the benefit of $.8
million. The Company would need to recognize $2.0 million in pre-tax income in
order to recognize this deferred tax asset. Based on the acquisitions made
during the year ended March 31, 2000, and the increased profitability of the
Subscription/PPV TV Group, the Company expects the deferred tax asset to be
realized in future periods.

LIQUIDITY AND CAPITAL RESOURCES

         At March 31, 2000, the Company had cash and cash equivalents of $7.3
million, of which $.7 million is restricted, compared to $4.0 million at March
31, 1999. This increase in cash was primarily the result of the issuance of $6.0
million of convertible preferred stock and $3.9 million raised from the exercise
of 600,000 of the Company's 1.5 million publicly traded warrants.

         For the year ended March 31, 2000, cash used in operating activities of
$.8 million was primarily associated with an increase in prepaid distribution
rights of $2.6 million, a decrease in accounts payable of $1.4 million, an
increase in accounts receivable of $1.9 million, and an increase in the
Company's net deferred tax asset of $.7 million. This use of cash was offset by
net income of $1.0 million, depreciation and amortization of $4.2, and an
increase in accrued liabilities of $1.2 million. For the year ended March 31,
1999, cash provided by operating activities of $.2 million was primarily
associated with depreciation and amortization expense of $2.3 million, an
increase in accounts payables of $1.3 million, and an increase in deferred
revenue of $2.9 million. This cash provided by operations was offset by a net
loss of $5.8 million, an increase in prepaid distribution rights of $1.4
million, and an increase in other assets of $1.1 million. For both years, the
increase in prepaid distribution rights was due to the Company's aggressive
acquisition of content licenses necessary to program its five networks. The
increase in accounts receivable for the year ended March 31, 2000 was due to
the increase in revenue for both the Subscription/PPV TV and ICP Groups.

         Cash used in investing activities was $4.6 million for the year ended
March 31, 2000. This use of cash was primarily for capital expenditures. Capital
expenditures were comprised of broadcast playout equipment, editing equipment,
receiver/decoder equipment, computer equipment, and domain name purchases. Cash
used in investing activities for the year ended March 31, 1999 was $1.0 million
and was primarily comprised of capital expenditures related to broadcast
equipment, editing equipment, and computer equipment.

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


                                     36
<PAGE>
         The Company's material commitments include the payments required under
its operating and capital lease agreements and the repayment of its related
party obligations. The Company believes that its existing cash balances together
with funds generated from operations will be sufficient to satisfy these
obligations.

         The Company anticipates the following capital expenditures: 1) The
Company will purchase additional broadcast equipment estimated at $1.6 million
in order to ensure complete redundancy of its Boulder, Colorado facility as well
as to increase storage capacity and improve the broadcast quality of its
networks; 2) the Company will purchase approximately $.3 million of
receiver/decoder equipment as additional cable carriage is obtained for its TeN,
Pleasure, ETC, and Extasy networks during the next 12 months; 3) the Company
anticipates capital expenditures for editing equipment and additional computer
and communication equipment of approximately $2.0 million; and 4) the Company
will upgrade its ISP facility into a level one data center at an estimated cost
of $2.0 million. The Company anticipates funding this $2.0 million upgrade to
its ISP facility through a lease line commitment.

         The Company will continue to pursue its strategy to purchase additional
vanity domain names based on its available cash balances. Based on the
availability of cash the Company anticipates spending $.5 to $10 million on
domain name acquisitions. The Company estimates a return of capital on these
purchases within 18 - 24 months.

         As discussed above, the Company issued 600 shares of 7% Series C
Convertible Redeemable Preferred Stock at $10,000 per share to a single
institutional investor as of October 14, 1999. The dividends due on this stock
are payable in either shares of the Company's common stock or cash. The Company
anticipates paying these dividends with shares of its common stock. As of March
31, 2000, 130 shares of the preferred stock had been converted into common
stock.

         Per the terms of the agreement, the Preferred Stock may be redeemed in
cash by the Holder upon the occurrence of the following triggering events: 1)
lapsing of the effectiveness of the underlying shares registration statement for
more than three trading days; 2) failure of the Company's Common Stock to be
listed for trading on the NASDAQ or on a subsequent market or the suspension of
the Common Stock from trading on the NASDAQ or on a subsequent market for more
than three trading days; 3) failure of the Company to deliver certificates
representing the underlying shares issuable upon a conversion within ten days of
a Conversion Date; 4) the Company is a party to any Change of Control
transaction as defined in the agreement; 5) failure to cure a breach of any
material term of the agreement within the time frame specified in the agreement;
6) failure to pay in full the amount of cash due pursuant to a Buy-In within
seven days after notice is delivered; and 7) the Company fails to have available
a sufficient number of authorized and unreserved shares of Common Stock to issue
upon a conversion.

                                       37
<PAGE>
         New Frontier Media believes that its existing cash and cash generated
from operations will be sufficient to satisfy its short term and long term
operating requirements.

         The Company, however, may not be able to fund the cash necessary to
redeem the Series C Preferred Stock if a triggering event were to occur.

         The Company is a defendant in a lawsuit filed on January 25, 1999, in
which the plaintiff seeks to enforce an alleged agreement by the Company to
convey to the plaintiff a 70% equity interest in the Company. The plaintiff is
also seeking $10 million in liquidated damages and/or unspecified damages. The
Company disputes that there exists a binding and enforceable agreement to
transfer any equity interest in New Frontier Media. The case has been set for
trial on August 14, 2000. The Company will continue to vigorously defend itself
against the plaintiff's claims. The loss, if any, cannot be estimated at the
present time.

         The Company's continued NASDAQ listing was considered and maintained by
a Nasdaq Listing and Qualifications Panel in July, 1999. In accordance with the
advice of counsel, the Company had consummated two transactions that were found
not to have received advance shareholder approval, as required by the NASD's
rules. In August 1999, the NASDAQ Listing and Hearing Review Council called the
matter for review "in order to determine whether the Panel's decision to
continue the listing of the Company's securities was appropriate ..."

         The Council reversed the Panel's decision to continue listing of the
Company's shares, but determined to permit continued listing for a 60-day time
period to provide an opportunity for the Company to rescind or restructure the
transactions at issue to the Panel's satisfaction. On April 14, 2000, the
Company completed a restructuring of the transactions, which involved the
contribution to the Company by members of management of $1.3 million in cash and
589,135 shares of the Company stock, for a total consideration of $7,449,155. By
letter dated April 24, 2000, the Panel accepted the Company's proposed
restructuring and determined that the Company had complied with the terms of the
Review Council's exception. The Panel concluded: "Therefore, the Company's
securities will continue to be listed on The Nasdaq SmallCap Market."

ITEM 7.  FINANCIAL STATEMENTS.

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

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.

         None.

                                       38
<PAGE>
PART III.

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

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

<TABLE>
<CAPTION>
NAME                       AGE            POSITION
----                       ---            --------
<S>                        <C>            <C>
Mark H. Kreloff            38             Chairman of the Board, President,
                                          and Chief Executive Officer, New
                                          Frontier Media, Inc. and Colorado
                                          Satellite Broadcasting, Inc.

Michael Weiner             58             Executive Vice President/Corporate
                                          Development, Secretary-Treasurer
                                          and Director, New Frontier Media,
                                          Inc. and Colorado Satellite
                                          Broadcasting, Inc.

Karyn L. Miller            34             Chief Financial Officer, New
                                          Frontier Media, Inc. and Colorado
                                          Satellite Broadcasting, Inc. and
                                          Chief Operating Officer, Colorado
                                          Satellite Broadcasting, Inc.

Koung Y. Wong              47             Director

Edward J. Bonn             48             Director and Chief Executive Officer
                                          Interactive Telecom Network, Inc.

Alan Isaacman              57             Director

Brad Weber                 40             Director and Chief Operating Officer,
                                          Interactive Telecom Network, Inc.

Tom Nyiri                  37             Chief Technology Officer, Colorado
                                          Satellite Broadcasting, Inc.

Ken Boenish                33             Sr. V.P. of Affiliate Sales,
                                          Colorado Satellite Broadcasting, Inc.

Jerry Howard               61             Chief Financial Officer, Interactive
                                          Telecom Network, Inc., Interactive
                                          Gallery, Inc., and Card Transactions,
                                          Inc.

Gregory Dumas              34             President, Interactive Gallery, Inc.

Scott Schalin              33             Chief Operating Officer, Interactive
                                          Gallery, Inc.
</TABLE>


         MARK H. KRELOFF. Mr. Kreloff has held the title Chairman and Chief
Executive Officer of New Frontier Media, Inc. since the Company's inception in
September, 1995. Mr. Kreloff has been actively involved in the cable television,
entertainment and computer software industries since 1977. Prior to founding the
Company and during the four years immediately preceding his employment with the
Company, he was the President of LaserDisc Entertainment, a video disc
distribution company; Elmfield IV, Inc., an entertainment production and
distribution company, and California Software Partners, L.P., a computer
software development and publishing company. Previously, Mr. Kreloff held the
title Vice President, Mergers and Acquisitions, with Kidder Peabody & Co. and
Drexel Burnham Lambert. From 1983 through 1986, Mr. Kreloff was employed by
Butcher & Singer, Inc., a Philadelphia-based investment bank, in a variety of
departments including the Cable Television and Broadcast Media Group. From 1977
through 1983, Mr. Kreloff held a variety of positions, including Marketing
Director, in his family's cable television system based in New Jersey. Mr.
Kreloff is an honors graduate of Syracuse University and holds B.S. degrees in
Finance and Public Communications.

                                       39
<PAGE>
         MICHAEL WEINER. Mr. Weiner has been Executive Vice President/Corporate
Development and a director of New Frontier Media, Inc. since the Company's
inception. Prior to founding the Company, Mr. Weiner was actively involved as a
principal and director in a variety of publishing businesses, including a fine
art poster company. His background includes 20 years in real estate development
and syndication.

         KARYN L. MILLER. Ms. Miller has eleven years of accounting and finance
experience and is a licensed CPA in the state of Colorado. Ms. Miller joined New
Frontier Media on February 15, 1999 and began her career at Ernst & Young in
Atlanta, Georgia. Prior to joining the Company, Ms. Miller was the Corporate
Controller for Airbase Services, Inc. a leading aircraft repair and maintenance
company. Previous to that, she was the Finance Director for Community Medical
Services Organization and Controller for Summit Medical Group, P.L.L.C. Before
joining Summit Medical Group, P.L.L.C., Ms. Miller was a Treasury Analyst at
Clayton Homes, Inc., a $1 billion company traded on the NYSE. Ms. Miller
graduated with Honors with both a Bachelors of Science degree and a Masters in
Accounting from the University of Florida.

         KOUNG Y. WONG. Mr. Wong was born in Canton, China in 1952 and
immigrated to the United States in 1969 with his family. He earned a Bachelor of
Arts degree from City College of San Francisco in 1975, and studied Architecture
at the University of California at Berkeley for one year. For the past 23 years,
Mr. Wong has been the president and sole shareholder of WAV Entertainment, Inc.,
a leading electronics hardware and software distribution company based in South
San Francisco, California. WAV Entertainment, Inc. includes a 20,000 square-foot
corporate headquarters and distribution center and an 8,500 square-foot retail
superstore in San Francisco, California. Mr. Wong has been a director of New
Frontier Media since the Company's inception in September, 1995.

                                       40
<PAGE>
         EDWARD J. BONN. Mr. Bonn is the founder and CEO of ITN. He became a
director of New Frontier Media in June 1999. ITN is a leading Internet
technology company that provides turn-key e-commerce solutions, Internet
software engineering, bandwith, hosting and credit card processing systems. Mr.
Bonn was formerly the Chairman of the Board of Independent Entertainment Group,
a California-based, publicly traded, service bureau and information provider. He
was also a founder and President of ICOM Group, Inc., an audio text service
bureau that specialized in automated credit card processing and fraud control
procedures, and is the founder and President of Response Telemedia, Inc., a
privately held company offering a variety of 800/900 information and
entertainment. Mr. Bonn attended the University of Oregon from 1969-1972 with a
focus in International Studies and attended business and accounting classes at
UCLA from 1980-1982.

         ALAN ISAACMAN. Mr. Isaacman joined the Company as a Director in
November 1999. Mr. Isaacman is a Senior Partner of Isaacman, Kaufman & Painter,
Inc. Mr. Isaacman is a renowned litigation attorney based in Los Angeles
representing general corporate clients, as well as clients from the media and
entertainment industries. He is considered an expert on First Amendment rights
and has experience in areas of copyright, antitrust, securities, right to
privacy and general entertainment law. Mr. Isaacman has successfully defended
clients on First Amendment cases throughout the judicial system up to and
including the Supreme Court of the United States. Mr. Isaacman received his
undergraduate at Penn State University and received his law degree from Harvard
University Law School. He is a Fellow of the American College of Trial Lawyers
and is included in the Best Lawyers in America.

         BRADLEY WEBER. Mr Weber is Vice President and Chief Operating Officer
of ITN. He joined ITN in 1995 as Executive Vice President and became Chief
Operating Officer in January 1998. He became a director of New Frontier Media in
October 1999. ITN is a leading Internet technology company that provides
turn-key e-commerce solutions, Internet software engineering, bandwidth,
hosting, and credit card processing systems. Mr. Weber was formerly Director of
Interactive Audiotext Services, Inc., an audio text service bureau and
information provider. He was also a founder and CEO of the ICOM Group, Inc., an
audit text service bureau that specializes in automated credit card processing
and fraud control procedures. Mr. Weber received his undergraduate degree in
Economics at Occidental College and received his Masters in Business
Administration from California Lutheran University.

         THOMAS W. NYIRI. Mr. Nyiri currently holds the title of Chief
Technology Officer for Colorado Satellite Broadcasting. Prior to this position,
Mr. Nyiri held the title of General Manager of Colorado Satellite Broadcasting
from October 1998 - July 1999 and Management Information Systems Director from
August 1997 to September 1998. Before joining Colorado Satellite Broadcasting,
Mr. Nyiri spent the prior four years developing consumer e-commerce applications
for the Internet. He is a founder of Virtual Dreams, the first recognized adult
Internet service. He is considered a pioneer of several Internet consumer
interactive services, and has been featured in several prominent publications
including Forbes, Wired, and Time Digital.

         KEN BOENISH. Mr. Boenish is a 12-year veteran of the cable television
industry. He joined New Frontier Media, Inc. as the Senior Vice President of
Affiliate Sales on February 22, 1999. Prior to joining the Company, Mr. Boenish,
was employed by Jones Intercable from 1994 - 1999. While at Jones he held the
positions of National Sales Manager for Superaudio, a cable radio service
serving more than 9 million cable customers. He was promoted to Director of
Sales for Great American Country a new country music video service in 1997.
While at Great American Country Mr. Boenish was responsible for adding more than
5 million new customers to the service while competing directly with Country
Music Television, a CBS cable network. From 1988 - 1994 he sold cable television
advertising on systems owned by Time Warner, TCI, COX, Jones, Comcast and other
cable systems. Mr. Boenish holds a B.S. degree in Marketing from St. Cloud State
University.

                                       41
<PAGE>
         JERRY HOWARD. Mr. Howard has over 35 years of accounting and finance
experience. He joined ITN in 1994 as Controller and has held the title of CFO
for ITN and IGallery since 1997. Mr. Howard also holds the title of CFO for CTI.
Prior to joining ITN, Mr. Howard held various financial and accounting
positions, including seven years with Arthur Young and Company, 14 years with
Sprint, and four years as founder, president and CEO of Quintessential
Solutions, Inc., a leading decision support software maker. Mr. Howard holds a
B.S. degree in Business Administration from Drake University and is a CPA.

         GREGORY DUMAS. Mr. Dumas has served as President of Interactive
Gallery, Inc. since its formation in 1996. Prior to IGallery, Mr. Dumas served
as the Vice President of Marketing for Larry Flynt Publications, Inc. (LFP).
During Mr. Dumas' tenure at LFP, the flagship title, Hustler, was launched on
the Internet as Hustler Online. This online publication became one of the first
membership websites whose revenue was derived from recurring memberships instead
of advertising. Other titles, both adult and non-adult, were subsequently
launched with the same success. On the heels of the success at LFP, Mr. Dumas
joined Internet Entertainment Group as its Director of Sales and Marketing and
was integral in the launch of the Club Love web site that became one of the
earlier entrepreneurial Internet success stories. Club Love used a similar
business model as Hustler Online and quickly became both popular and profitable.
Seeing the opportunity to create a company that could provide both
consumer-level adult entertainment and wholesale content to other adult
websites, Mr. Dumas founded IGallery with Mr. Weber, Mr. Bonn, and Mr. Schalin.
Mr. Dumas has earned a B.A. in English and History and a M.A. in Organizational
Management.

         SCOTT SCHALIN. Mr. Schalin began his career in broadcasting working for
Stephen J. Cannell Productions as a Production Coordinator for the television
show, 21 Jump Street. Mr. Schalin later worked as a freelance writer and editor
for such publications as SPIN, Billboard, Request and Music Connection
magazines, and became an Editor of Hustler Magazine. While working at Larry
Flynt Publications, Mr. Schalin helped launch several successful magazines,
including Barely Legal, and was promoted to Executive Editor of Chic magazine.
In January, 1996, Mr. Schalin was recruited by Internet Entertainment Group
("IEG") to help launch their flagship web site, Club Love which quickly became
one of the most popular web sites in the world. In June of that year, Mr.
Schalin left IEG to become the Creative Director of ITN's new online division,
IGallery. A year later, Mr. Schalin was promoted to Chief Operating Officer of
IGallery while still overseeing Creative Directorial duties. Today, Mr. Schalin
manages the day-to-day operations, creative production, sales and marketing
aspects of IGallery. Mr. Schalin attended California State University Northridge
and has a B.A. in Journalism.

         No director or executive officer of the Company is related to any other
director or executive officer. None of the Company's officers or directors hold
any directorships in any other public company. There are currently two outside
directors on the Company's Board of Directors. The Company's compensation
committee is comprised of Messrs. Bonn, Isaacman, and Wong. The Company's audit
committee is comprised of Messrs. Isaacman, Bonn and Wong.

                                       42
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Pursuant to Section 16 of the Exchange Act, the Company's Directors and
executive officers and beneficial owners of more than 10% of the Company's
Common Stock are required to file certain reports, within specified time
periods, indicating their holdings of and transactions in the Common Stock and
derivative securities. Based solely on a review of such reports provided to the
Company and written representations from such persons regarding the necessity to
file such reports, the Company is not aware of any failures to file reports or
report transactions in a timely manner during the Company's fiscal year ended
March 31, 2000, except that: (i) Mr. Nyiri, Mr. Bonn, Ms. Miller, Mr. Weber, Mr.
Howard, Mr. Schalin, Mr. Dumas, Mr. Boenish, Mr. Isaacman and Mr. Wong each
filed one late Form 3; (ii) Mr. Weber, Mr, Bonn, Mr. Weiner and Mr. Kreloff each
filed one late Form 4 regarding one transaction; and (iii) Mr. Kreloff, Mr.
Weiner, Mr. Weber, Mr. Bonn, Mr. Dumas and Mr. Issaacman each filed one late
report Form 5 regarding one transaction.

ITEM 10.  EXECUTIVE COMPENSATION.

         The following table sets forth the annual compensation paid to the CEO
and the four highest compensated persons acting as an Executive Officer for the
fiscal years ended March 31, 2000, 1999 and 1998.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                              ANNUAL COMPENSATION                      LONG-TERM COMPENSATION
                     -----------------------------------        ------------------------------------
                                                                OTHER       SECURITIES          ALL
NAME AND                    YEAR                                ANNUAL      UNDERLYING         OTHER
PRINCIPAL POSITION      COMPENSATION   SALARY($)   BONUS($)  COMPENSATION  OPTIONS/SARS     COMPENSATION
                                                                ($)(1)          (#)            ($)(2)
-----------------------------------------------------------------------------------------------------------
<S>                      <C>          <C>          <C>        <C>            <C>            <C>
Mark H. Kreloff,           2000        117,134      37,212        --          275,000             730
  CEO, Pres., and          1999        103,750          --        --          269,000             730
  Chairman.............    1998         39,167      75,000        --               --              --

Jerry Howard, CFO of       2000        100,228     134,970        --           75,000           9,697
  ITN, IGallery, CTI...    1999         99,057      67,468        --               --          11,307
                           1998         76,327      34,520        --               --             611

Brad Weber, COO of         2000        152,500      27,500        --           25,000          15,533
  ITN..................    1999        180,000          --        --               --           9,764
                           1998        180,000          --        --               --              99

Gregory Dumas, President   2000         89,985     111,000        --          125,000           8,273
  of IGallery..........    1999         72,000     117,313        --               --          16,107
                           1998         66,000      74,119        --               --             800

Scott Schalin, COO of      2000        108,077     111,000        --           50,000           8,954
  IGallery.............    1999         80,000     103,374        --               --          15,312
                           1998         80,000      36,613        --               --             915

-----------------------------------------------------------------------------------------------------------
<FN>
(1) While each Executive Officer enjoys certain other perquisites, such
    perquisites do not exceed the lesser of either $50,000 or 10% of each
    Executive Officer's salary and bonus.

(2) The amount shown for Mr. Kreloff is related to premiums paid for life
    insurance. All Other Compensation for the other Executuve Officers includes
    amounts contributed to the ITN 401(k) Plan on behalf of the Executive
    Officers.
</FN>
</TABLE>

                                       43
<PAGE>
                    STOCK OPTIONS GRANTED IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
NAME            NUMBER OF SECURITIES         % OF TOTAL OPTIONS       EXERCISE OR BASE   EXPIRATION
                UNDERLYING OPTIONS GRANTED   GRANTED TO EMPLOYEES     PRICE ($/SH)       DATE
                (# OF SHARES)                IN 3/31/00
---------------------------------------------------------------------------------------------------
<S>             <C>                          <C>                        <C>                <C>
Mark Kreloff    250,000 (1)                  14%                        $ 4.00             12/30/09
Mark Kreloff     25,000 (2)                   1%                        $ 5.00               1/7/10
Jerry Howard     75,000 (3)                   4%                        $ 4.14             12/30/09
Brad Weber       25,000 (2)                   1%                        $ 5.00               1/7/10
Gregory Dumas    50,000 (3)                   3%                        $ 4.14             12/30/09
Gregory Dumas    25,000 (4)                   1%                        $ 5.50             10/27/03
Gregory Dumas    25,000 (4)                   1%                        $ 7.00             10/27/03
Gregory Dumas    25,000 (4)                   1%                        $10.00             10/27/03
Scott Schalin    50,000 (3)                   3%                        $ 4.14             12/30/09
---------------------------------------------------------------------------------------------------
<FN>
(1) On December 30, 1999, the Company granted options to Mr. Kreloff and other
    executive officers and key employees to purchase common stock of the
    Company under the Company's 1999 Incentive Stock Option Plan. Mr. Kreloff's
    options vest at a rate of 50% per year, commencing December 30, 2000 and
    expire ten years from the grant date, subject to early termination in
    certain circumstances.
(2) On January 7, 2000, the Company granted options to Mr. Kreloff, Mr. Weber
    and other executive officers to purchase common stock of the Company under
    the Company's 1999 Incentive Stock Option Plan. Mr. Kreloff's and Mr.
    Weber's options vest at a rate of 50% per year, commencing January 7, 2001
    and expire ten years from the grant date, subject to early termination in
    certain circumstances.
(3) On December 30, 1999, the Company granted options to Mr. Howard, Mr. Dumas,
    Mr. Schalin and other executive officers and key employees to purchase
    common stock of the Company under the Company's 1999 Incentive Stock Option
    Plan. Mr. Howard's, Mr. Dumas', and Mr. Schalin's options vest at a rate of
    33% per year, commencing December 30, 2000 and expire ten years from the
    grant date, subject to early termination in certain circumstances.
(4) On October 27, 1999, the Company granted warrants to Mr. Dumas to purchase
    common stock of the Company. Mr. Dumas' warrants vest at a rate of 33% per
    year, commencing October 27, 2000 and expire four years from the grant date,
    subject to early termination in certain circumstances.
</FN>
</TABLE>

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                            AND FY-END OPTION VALUES

<TABLE>
<CAPTION>
NAME              SHARES ACQUIRED    VALUE         NUMBER OF SECURITIES          VALUE OF UNEXERCISED
                  ON EXERCISE (#) REALIZED ($)    UNDERLYING UNEXERCISED         IN-THE-MONEY OPTIONS
                                                   OPTIONS AT FY-END (#)          AT FY-END ($) (1)
                                                ---------------------------   ---------------------------
                                                EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
---------------------------------------------------------------------------------------------------------
<S>                   <C>         <C>           <C>           <C>             <C>           <C>
Mark Kreloff          -           -             223,000       321,000         $2,369,375    $2,560,625
Jerry Howard          -           -                -           75,000               -       $  561,525
Brad Weber            -           -                -           25,000               -       $  165,625
Gregory Dumas         -           -                -          125,000               -       $  683,725
Scott Schalin         -           -                -           50,000               -       $  374,350
---------------------------------------------------------------------------------------------------------
<FN>
(1) The dollar value of each exercisable and unexercisable option was calculated
    by multiplying the number of shares of common stock underlying the option by
    the difference between the exercise price of the option and the closing
    price of the Company's common stock on March 31, 2000 ($11.625).
</FN>
</TABLE>

                                       44
<PAGE>
COMPENSATION OF DIRECTORS

         The Company only compensates its outside Board of Director members for
their services. The Company paid Alan Isaacman $10,000 for his services.
Additionally, the Company issued 25,000 options to purchase stock to Alan
Isaacman and Koung Wong each for their services.

EMPLOYMENT AGREEMENTS

         The Company has an Employment Agreement with Mark Kreloff which ends on
December 31, 2001. The Agreement provides for the payment of an annual base
salary of $115,000 for calendar year 1999, $130,000 for calendar year 2000 and
$150,000 for calendar year 2001. The Agreement also provides for an annual
incentive bonus equal to: (a) 30% of his annual base salary if the Company's
annual earnings before income taxes, depreciation and amortization ("EBITDA") is
at least $1 million; (b) 50% of his annual base salary if the Company's EBITDA
is at least $2 million, or (c) 100% of his annual base salary if the Company's
EBITDA is at least $4 million. The Agreement provides for the one-time issuance
of 150,000 nonstatutory options to Mr. Kreloff at the fair market value of the
common stock on the date of grant. The options are to vest over three years,
except upon a change of control of the Company, as defined in the Agreement, or
upon the death or disability of Mr. Kreloff, the discharge of Mr. Kreloff
without cause or the resignation of Mr. Kreloff for "good reason", as defined in
the Agreement. The Agreement further provides for the payment to Mr. Kreloff
upon the occurrence of any of the above events of a lump sum equal to his annual
base salary and bonus. In addition, if the terminating event occurs on or before
June 30, 2000, the Company is to pay to Mr. Kreloff an additional $100,000.

         The Company has an Employment Agreement with Jerry D. Howard which ends
on March 31, 2003. The Agreement provides for the payment of an annual base
salary of not less than $100,000. The Agreement also provides for an annual
incentive bonus equal to .62% of the amount by which IGallery's annual gross
revenue exceed $20,000,000, but less than $40,000,000. The Agreement provides
for the one-time issuance of 75,000 non-statutory stock options to Mr. Howard at
the fair market value on the date of grant. The options are to vest over three
years, except upon change of control of the Company, as defined in the Agreement
or upon the death or disability of Mr. Howard, the discharge of Mr. Howard
without cause or the resignation of Mr. Howard for "good reason", as defined in
the Agreement. The Agreement further provides for the payment to Mr. Howard upon
the occurrence of any of the above events of a lump sum equal to his annual base
salary and bonus. In addition, if the terminating event occurs on or before
September 30, 2000, the Company is to pay Mr. Howard an additional $100,000.

         The Company has an Employment Agreement with Bradley A. Weber which
ends on March 31, 2003. The Agreement provides for the payment of an annual base
salary of not less than $115,000, and will not be less than the base salary paid
to any other executive of ITN or New Frontier Media during the term of his
Agreement. The Agreement also provides for an annual incentive bonus equal to:
(a) 30% of his annual base salary if New Frontier Media's EBITDA is at least $1
million; (b) 50% of his annual base salary if New Frontier Media's EBITDA is at
least $2 million; or (c) 100% of his annual base salary if New Frontier Media's
EBITDA is at least $4 million. The Agreement also provides for a monthly
commission equal to .3% of the first $22 million of revenues earned by IGI,
which is applied against and reduced on a dollar-for-dollar basis on any bonus
received by Mr. Weber under the annual incentive bonus scheme above. The
Agreement provides for long-term incentive plans and programs applicable
generally to other peer executives of ITN and/or New Frontier Media. The
Agreement further provides for the payment to Mr. Weber upon the change of
control of the Company, as defined in the Agreement or upon the death or
disability of Mr. Weber, the discharge of Mr. Weber without cause or the
resignation of Mr. Weber for "good reason", as defined in the Agreement, a lump
sum equal to his annual base salary and bonus. In addition, if the terminating
event occurs on or before September 30, 2000, the Company is to pay Mr. Weber an
additional $100,000.

                                       45
<PAGE>
         The Company has an Employment Agreement with Gregory Dumas which ends
on March 31, 2003. The Agreement provides for the payment of an annual base
salary of not less than $110,000. The Agreement also provides for an annual
incentive bonus equal to .62% of the amount by which IGallery's annual gross
revenue exceed $20 million, but less than $40 million, and 1% of the amount of
IGallery's annual gross revenues that exceed $40 million. The Agreement provides
for the one-time issuance of 50,000 non-statutory stock options to Mr. Dumas at
the fair market value on the date of grant. The options are to vest over three
years, except upon change of control of the Company, as defined in the Agreement
or upon the death or disability of Mr. Dumas, the discharge of Mr. Dumas without
cause or the resignation of Mr. Dumas for "good reason", as defined in the
Agreement. The Agreement further provides for the payment to Mr. Dumas upon the
occurrence of any of the above events of a lump sum equal to his annual base
salary and bonus. In addition, if the terminating event occurs on or before
September 30, 2000, the Company is to pay Mr. Dumas an additional $100,000.

         The Company has an Employment Agreement with Scott Schalin which ends
on March 31, 2003. The Agreement provides for the payment of an annual base
salary of not less than $110,000. The Agreement also provides for an annual
incentive bonus equal to .62% of the amount by which IGallery's annual gross
revenue exceed $20 million, but less than $40 million, and 1% of the amount of
IGallery's annual gross revenues that exceed $40 million. The Agreement provides
for the one-time issuance of 50,000 non-statutory stock options to Mr. Schalin
at the fair market value on the date of grant. The options are to vest over
three years, except upon change of control of the Company, as defined in the
Agreement or upon the death or disability of Mr. Schalin, the discharge of Mr.
Schalin without cause or the resignation of Mr. Schalin for "good reason", as
defined in the Agreement. The Agreement further provides for the payment to Mr.
Schalin upon the occurrence of any of the above events of a lump sum equal to
his annual base salary and bonus. In addition, if the terminating event occurs
on or before September 30, 2000, the Company is to pay Mr. Schalin an additional
$100,000.

                                       46
<PAGE>
ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The following table sets forth, as of March 31, 2000, the number and
percentage of shares of outstanding Common Stock owned by each person
owning at least 5% of the Company's Common Stock, each officer and director
owning stock, and all officers and directors as a group:

<TABLE>
<CAPTION>

NAME AND ADDRESS OF                                                NUMBER OF SHARES
BENEFICIAL OWNER                                                  BENEFICIALLY OWNED        PERCENT
---------------------                                            --------------------      ---------
<S>                                                                   <C>                   <C>
Mark H. Kreloff...............................................        1,457,307 (1),(2)         7%
5435 Airport Blvd., Suite 100
Boulder, CO  80301

Michael Weiner................................................          745,400 (1),(3)         4%
5435 Airport Blvd., Suite 100
Boulder, CO  80301

Koung Y. Wong.................................................           58,500 (4)             *
168 Beacon St.
South San Francisco, CA 94080

Edward Bonn...................................................        4,189,157 (1)            20%
15303 Ventura Blvd., Suite 675
Sherman Oaks, CA 91403

Brad Weber....................................................        1,806,506 (1)             9%
15303 Ventura Blvd., Suite 675
Sherman Oaks, CA 91403

Jerry Howard..................................................            4,337                 *
15303 Ventura Blvd., Suite 675
Sherman Oaks, CA 91403

SAC Capital...................................................        1,211,600                 6%
777 Long Ridge Road
Stamford, CT 06902

All officers and directors as a group
(6 persons)...................................................        8,261,207                40%
                                                                    -----------             ------
   Total......................................................        9,472,807                46%
                                                                    ===========             ======
<FN>
* Less than 1%.

(1) This amount represents common stock ownership as of 3/31/00. As such it
    includes the 147,284 shares of common stock that each Officer contributed
    to the Company in April 2000 as part of the settlement reached with
    NASDAQ to continue the listing of the Company's securities.

(2) Includes the right to acquire 223,000 shares of common stock within 60 days
    upon the exercise of employee stock options and warrants.

(3) Includes the right to acquire 190,000 shares of common stock within 60 days
    upon the exercise of employee stock options and warrants.

(4) Includes the right to acquire 50,000 shares of common stock within 60 days
    upon the exercise of employee stock options and warrants.
</FN>
</TABLE>

                                       47
<PAGE>
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         On March 2, 1998, the Company loaned Laramie Capital LLC, an entity
controlled by Messrs. Mark Kreloff and Michael Weiner, $100,000 in the form of a
promissory note receivable. The note bore interest at 8% per annum. In March
1999, the note plus accrued interest was repaid.

         The Company leased certain equipment and office space via entities
controlled by Mr. Kreloff on a month to month basis. During the year ended March
31, 1999 the Company paid $52,425 to these entities relating to these leases.
The leases have since been terminated.

         The Company's subsidiary, IGallery, purchased several vanity domain
names from an entity controlled by Mr. Edward Bonn prior to the Company's
acquisition of IGallery. This purchase was financed through a note payable. This
note payable has a balance due of $809,000 as of March 31, 2000. The note and
related interest is payable in 2001. Interest is calculated at prime rate.

         The Company owed Messrs. Brad Weber and Edward Bonn $671,828 as of
March 31, 2000 for amounts earned by them prior to the acquisition date of
October 27, 1999. These amounts are non-interest bearing and are payable on
demand.

         The Company owed Mr. Bonn $700,000 as an unsecured note payable as of
March 31, 1999. The note bore interest at 4% per annum and had no stated
maturity date. The balance of this note payable is $0 as of March 31, 2000.

         The Company loaned Mr. Nyiri $87,000 in fiscal 1999. This amount was
repaid during the fiscal year ended March 31, 2000. The loan was non-interest
bearing.

         The Company paid $72,000 to Isaacman, Kaufman, & Painter during the
fiscal year ended March 31, 2000 for legal services provided by Mr. Isaacman and
his associates.

                                       48
<PAGE>
ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

EXHIBITS
NUMBER                           DESCRIPTION
------                          -------------
 3.01  --Articles of Incorporation of Company, with Amendment*

 3.02  --First Amended Bylaws of Company*

 4.01  --Form of Common Stock Certificate*

 4.02  --Certificate of Designation of Preferences, Rights and Limitations of
         7% Series C Convertible Preferred Stock filed with the State of
         Colorado on October 14, 1999*****

10.01  --Asset Purchase Agreement Among the Company, CSB, Fifth Dimension
         Communications (Barbados) Inc., and Merlin Sierra, Inc.*

10.02  --Asset Purchase Agreement Among the Company, CSB, and 1043133 Ontario
         Inc.*

10.03  --Asset Purchase Agreement Among the Company, CSB, and 1248663 Ontario
         Inc.*

10.04  --Settlement and Stock and Warrant Transfer Agreement, dated June 16,
         1998, by and among the Company, BIG, Quarto Holdings, Inc., New
         Frontier Media, Inc., Mark Kreloff, Michael Weiner, Andrew Brandt, and
         Scott Wussow**

10.05  --Convertible Preferred Stock Purchase Agreement dated as of September
         30, 1999, by and between the Company and JNC Opportunity Fund Ltd.*****

10.06  --Warrant Agreement dated as of September 30, 1999 by and between the
         Company and JNC Opportunity Fund Ltd.*****

10.07  --Form of Warrant Agreement.*****

10.08  --Employment Agreement, dated December 22, 1998, by and between the
         Company and Mark Kreloff.****

10.09  --Employment Agreement, dated December 22, 1998, by and between the
         Company and Michael Weiner.****

10.10  --Office Lease Agreement, dated August 12, 1998, for premises at 5435
         Airport Boulevard, Boulder CO.***

10.11  --Content License Agreement with Pleasure Products LLC***

10.12  --Stock Purchase Agreement by and between Edward J. Bonn, Bradley A.
         Weber, and Jerry D. Howard and the Company, dated August 19, 1999******

10.13  --Employment Agreement, dated October 27, 1999, by and between
         Interactive Gallery, Inc. and Gregory Dumas*******

10.14  --Employment Agreement, dated October 27, 1999, by and between
         Interactive Gallery, Inc. and Scott Schalin*******

10.15  --Employment Agreement, dated October 27, 1999, by and between
         Interactive Telecom Network, Inc. and Jerry Howard*******

10.16  --Employment Agreement, dated October 27, 1999, by and between
         Interactive Telecom Network, Inc. and Brad Weber*******

10.17  --Employment Agreement, dated October 27, 1999, by and between
         Interactive Telecom Network, Inc. and Edward Bonn*******

10.18  --Employment Agreement, dated August 1, 1999, by and between the
         Company and Karyn Miller*******

10.19  --Employment Agreement, dated February 22, 1999, by and between Colorado
         Satellite Broadcasting, Inc. and Ken Boenish*******

10.20  --Employment Agreement, dated December 31, 1998, by and between the
         Company and Tom Nyiri*******

10.21  --Promissory Note between Interactive Gallery, Inc. and Net Play Media,
         Inc.*******

21.01  --Subsidiaries of the Company*******

27.01  --Financial Data Schedule.


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

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

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

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

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

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

*******  Filed with this Form 10KSB.

                                       49
<PAGE>
REPORTS ON FORM 8-K

         The Company did not file any Forms 8-K during the quarter ended
March 31, 2000.

SIGNATURES

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

                                                    NEW FRONTIER  MEDIA, INC.

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

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

Name and Capacity                                             Date
------------------------                                   -----------
/s/  Mark H. Kreloff                                             , 2000
-----------------------------------
Name: Mark H. Kreloff
Title: Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)

/s/  Michael Weiner                                              , 2000
-----------------------------------
Name: Michael Weiner
Title: Director, Executive Vice President/
Corporate Development, Secretary and Treasurer

/s/  Karyn Miller                                                , 2000
-----------------------------------
Name: Karyn Miller
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)

/s/  Edward Bonn                                                 , 2000
-----------------------------------
Name: Edward Bonn
Title: Director

/s/  Koung Y. Wong                                               , 2000
-----------------------------------
Name: Koung Y. Wong
Title: Director

/s/  Alan Isaacman                                               , 2000
-----------------------------------
Name:  Alan Isaacman
Title: Director

/s/  Bradley Weber                                               , 2000
-----------------------------------
Name:  Bradley Weber
Title: Director

                                       50

<PAGE>

                               NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                               TABLE OF CONTENTS

                                                                        Page
                                                                        ----

Independent Auditors' Report........................................  F-2 - F-3

Consolidated Balance Sheets.........................................  F-4 - F-5

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

Consolidated Statements of Changes in Shareholders' Equity..........     F-7

Consolidated Statements of Cash Flows...............................  F-8 - F-9

Notes to Consolidated Financial Statements.......................... F-10 - F-22

                                       F-1
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

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

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

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

In our opinion, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of New Frontier Media, Inc. and
subsidiaries as of March 31, 2000, and the results of their operations and their
cash flows for the years ended March 31, 2000 and 1999 in conformity with
generally accepted accounting principles.

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

As discussed in Note 18 to the financial statements, the Company is involved in
litigation. The ultimate outcome of this matter cannot presently be determined
until the court has ruled on the action.

                                               SPICER, JEFFRIES & CO.
Denver, Colorado
May 23, 2000
                                       F-2
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders
Interactive Gallery, Inc.
Interactive Telecom Network, Inc.
Card Transactions, Inc. and subsidiaries

We have audited the accompanying combined balance sheet of Interactive Gallery,
Inc., Interactive Telecom Network, Inc., and Card Transactions, Inc. and
subsidiaries as of March 31, 2000, and the related combined statements of
operations, shareholders' equity, and cash flows for each of the two years in
the period ended March 31, 2000. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Interactive Gallery,
Inc., Interactive Telecom Network, Inc., and Card Transactions, Inc. and
subsidiaries as of March 31, 2000, and the results of their operations and their
cash flows for each of the two years in the period ended March 31, 2000 in
conformity with generally accepted accounting principles.

SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
May 2, 2000

                                       F-3

<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
                                    IN (000s)

                                 MARCH 31, 2000

                                     ASSETS
<TABLE>
<CAPTION>
                                                                           2000
                                                                  --------------
<S>                                                                <C>
CURRENT ASSETS:
   Cash and cash equivalents, including restricted cash
     of $684,665 (Note 1)                                                 $7,329
   Accounts receivable                                                     2,996
   Prepaid distribution rights (Note 1)                                    1,531
   Prepaid expenses                                                          975
   Deferred tax asset (Note 6)                                               750
   Other                                                                     597
                                                                  --------------

          TOTAL CURRENT ASSETS                                            14,178
                                                                  --------------

FURNITURE AND EQUIPMENT, at cost (Note 1)                                 12,832
   Less: accumulated depreciation and amortization                        (3,693)
                                                                  --------------

          NET FURNITURE AND EQUIPMENT                                      9,139
                                                                  --------------
OTHER ASSETS:

   Prepaid distribution rights (Note 1)                                    6,776
   Goodwill, less accumulated amortization of $1,345,404
     (Note 1)                                                              5,015
   Available for sale securities (Note 1)                                    188
   Other                                                                     992
                                                                  --------------

          TOTAL OTHER ASSETS                                              12,971
                                                                  --------------

TOTAL ASSETS                                                             $36,288
                                                                  ==============

 The accompanying notes are an integral part of the audited consolidated financial statements.
</TABLE>

                                       F-4

<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                    (IN 000s)
                                 MARCH 31, 2000

                      LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                            2000
                                                                     -----------
<S>                                                                   <C>
CURRENT LIABILITIES:
  Accounts payable                                                       $ 1,079
  Current portion of obligations under capital lease (Note 12)               918
  Deferred revenue (Note 1)                                                3,999
  Reserve for chargebacks/credits                                            452
  Due to related party (Note 10)                                              12
  Distribution payable to shareholders                                       672
  Other accrued liabilities                                                2,573
                                                                     -----------
          TOTAL CURRENT LIABILITIES                                        9,705
                                                                     -----------
LONG-TERM LIABILITIES:
  Obligations under capital leases (Note 12)                               1,120
  Note Payable-related parties (Note 10)                                     809
  Series C redeemable preferred stock (Note 11)                            4,073
  Other                                                                       74
                                                                     -----------

     TOTAL LONG-TERM LIABILITIES                                           6,076
                                                                     -----------
         TOTAL LIABILITIES                                                15,781
                                                                     -----------

SHAREHOLDERS' EQUITY (Notes 1 and 4):
   Common stock, $.0001 par value, 50,000,000                                  2
    shares authorized, 20,524,636 shares issued and outstanding
   Preferred stock, $.10 par value, 5,000,000 shares authorized:
     Class A, no shares issued and outstanding                                 -
     Class B, no shares issued and outstanding                                 -
     Additional paid-in capital                                           34,500
   Minority interest in subsidiary (Notes 1 and 2)                           (56)
   Other comprehensive income (loss) (Note 9)                               (438)
   Deficit                                                               (13,501)
                                                                     -----------

          TOTAL SHAREHOLDERS' EQUITY                                      20,507
                                                                     -----------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                               $36,288
                                                                     ===========


 The accompanying notes are an integral part of the audited consolidated financial statements.
</TABLE>
                                       F-5

<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                    (IN 000s)
<TABLE>
<CAPTION>
                                                                              Year ended March 31,
                                                                    --------------------------------------
                                                                            2000                      1999
                                                                    ------------              ------------
<S>                                                                      <C>                       <C>
SALES, net                                                               $47,988                   $30,195

COST OF SALES                                                             28,032                    21,661
                                                                 ---------------           ---------------
GROSS MARGIN                                                              19,956                     8,534
                                                                 ---------------           ---------------
OPERATING EXPENSES:
  Occupancy and equipment                                                  2,101                     1,100
  Legal and professional                                                   1,577                       652
  Advertising and promotion                                                5,218                     5,148
  Salaries, wages and benefits                                             6,943                     3,850
  Communications                                                             382                       239
  General and administrative                                               1,583                     1,498
  Goodwill amortization                                                      635                       626
  Consulting                                                                 624                       602
                                                                 ---------------           ---------------
          TOTAL OPERATING EXPENSES                                        19,063                    13,715
                                                                 ---------------           ---------------
OTHER INCOME (EXPENSE):
  Income (loss) on trading securities                                          6                        (5)
  Interest income                                                            170                        36
  Interest expense                                                          (778)                     (365)
                                                                 ---------------           ---------------

          TOTAL OTHER INCOME (EXPENSE)                                      (602)                     (334)
                                                                 ---------------           ---------------

          INCOME (LOSS) FROM CONTINUING OPERATIONS                           291                    (5,515)
                                                                 ---------------           ---------------
DISCONTINUED OPERATIONS:
  Loss from operations of discontinued subsidiaries                            -                      (179)
  Loss on disposal of discontinued subsidiaries                               (4)                     (138)
                                                                 ---------------           ---------------

NET INCOME (LOSS) BEFORE MINORITY INTEREST                                   287                    (5,832)
                                                                 ---------------           ---------------

  Minority interest in loss of subsidiary                                     45                        12
                                                                 ---------------           ---------------
NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES                          332                    (5,820)

  Benefit (provision) for income taxes                                       750                       (15)
                                                                 ---------------           ---------------

NET INCOME (LOSS)                                                        $ 1,082                   $(5,835)
                                                                 ===============           ===============
BASIC EARNINGS (LOSS) PER COMMON SHARE
   FROM CONTINUING OPERATIONS (Note 1 and 3)                             $   .02                   $  (.42)
                                                                 ===============           ===============
DILUTED EARNINGS (LOSS) PER COMMON SHARE
   FROM CONTINUING OPERATIONS (Note 1 and 3)                             $   .01                   $  (.42)
                                                                 ===============           ===============
BASIC AND DILUTED NET LOSS PER COMMON SHARE
   FROM DISCONTINUED OPERATIONS (Note 1 and 3)                           $   .00                   $  (.02)
                                                                 ===============           ===============
BASIC EARNINGS (LOSS) PER COMMON SHARE (Note 1 and 3)                    $   .06                   $  (.44)
                                                                 ===============           ===============
DILUTED EARNINGS (LOSS) PER COMMON SHARE (Note 1 and 3)                  $   .05                   $  (.44)
                                                                 ===============           ===============

     The accompanying notes are an integral part of the audited consolidated financial statements.
</TABLE>

                                       F-6


<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                       YEARS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
                                                                            (in 000s)
                                                 COMMON STOCK               ADDITIONAL        (in 000s)
                                               $.0001 PAR VALUE              PAID-IN        COMPREHENSIVE     (in 000s)
                                             SHARES       AMOUNTS            CAPITAL        INCOME (LOSS)      DEFICIT
                                          --------------------------      -----------------------------------------------
<S>                                         <C>           <C>              <C>               <C>             <C>
BALANCES, March 31, 1998                     6,542,000    $ 654             $12,265              $  0         $(9,869)

Issuance of common stock for ITN/IGI/CTI
acquisition                                  6,000,000      600               3,147

Conversion of debentures plus accrued
interest into common stock                   2,474,184      247               1,826

Exercise of warrants                           135,000       14                 470

Issuance of common stock for license
agreement                                      700,000       70               2,184

Issuance of common stock for services           78,333        8                 237

Issuance of common stock in private
placement, less offering costs of $514,323   2,610,000      261               4,705

Sale of discontinued subsidiary                      -                       (1,121)                            1,121

Net loss                                             -                            -                            (5,835)
                                            ---------------------------------------------------------------------------
BALANCES, March 31, 1999                    18,539,517    1,854              23,713                 0         (14,583)

Conversion of series C redeemable
preferred stock plus interest into
common stock and issuance of warrants          187,813       19               2,162

Exercise of warrants                         1,166,681      116               5,373

Exercise of stock options                      125,625       13                 126

Issuance of common stock for settlement
of lawsuit                                       5,000        1                  23

Issuance of common stock for license
agreement                                      500,000       50               3,938

Unrealized losses on available-for-sale
securities                                                                                       (438)

Distribution to shareholders in connection
with the elimination of related party
balances                                                                        (14)

Distribution to shareholders (including
distribution payable of $671,828)                                              (821)

Net income                                                                                                      1,082
                                            ---------------------------------------------------------------------------
BALANCES, March 31, 2000                    20,524,636   $2,053             $34,500             $(438)       $(13,501)
                                            ===========================================================================

     The accompanying notes are an integral part of the audited consolidated financial statements.
</TABLE>
                                       F-7

<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (IN 000s)
<TABLE>
<CAPTION>

                                                                                      Year ended March 31,
                                                                             -----------------------------
                                                                            2000                      1999
                                                                    ------------              ------------
<S>                                                                   <C>                          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income  (loss)                                                       $ 1,082                   $(5,835)
   Adjustments to reconcile net income (loss) to net cash
     (used in) provided by operating activities:
         Conversion of interest to common stock                               89                        76
         Accretion of interest                                               125                         -
         Stock issued for services                                            23                         9
         Gain on disposal of subsidiary                                        -                       (67)
         Depreciation and amortization                                     4,167                     2,331
         (Gain) Loss on securities                                            (6)                        5
         (Decrease) Increase in accounts payable                          (1,420)                    1,313
         (Increase) Decrease in accounts receivable                       (1,950)                      363
         Decrease in inventories                                               -                       182
         Increase in prepaid distribution rights                          (2,634)                   (1,369)
         Increase in other assets                                            (72)                   (1,098)
         Increase in other accrued liabilities                             1,247                       698
         Minority interest in loss of subsidiary                             (45)                      (12)
         (Increase) Decrease in deposits                                    (117)                       93
         (Decrease) Increase in deferred revenue, net                       (269)                    2,911
         Increase (Decrease) in reserve for chargebacks                     (246)                      447
         Increase in accrued guaranteed payments                              23                       119
         Decrease in royalties payable                                       (24)                       (8)
         Increase in deferred tax asset                                     (750)                        -
                                                                    ------------          ----------------

          NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES               (777)                      158
                                                                    ------------          ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:

   Purchase of equipment and furniture                                    (4,699)                   (1,196)
   Decrease in notes receivable - related party                                -                       100
   Proceeds from trading securities                                           56                       138
                                                                    ------------          ----------------

          NET CASH USED IN INVESTING ACTIVITIES                           (4,643)                     (958)
                                                                    ------------          ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:

   Payments on capital lease obligations                                    (865)                     (552)
   Payment of related party notes payable                                 (1,598)                     (802)
   Payments on note payable                                                    -                      (500)
   Issuance of common stock                                                5,522                     6,935
   Issuance of Series C preferred stock                                    6,000                         -
   Distribution to shareholders                                             (150)                   (2,208)
   Increase in debt offering cost                                           (180)                        -
                                                                    ------------          ----------------

          NET CASH PROVIDED BY FINANCING ACTIVITIES                        8,729                     2,873
                                                                    ------------          ----------------


     The accompanying notes are an integral part of the audited consolidated financial statements.
</TABLE>
                                       F-8

<PAGE>
                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (IN 000s)
                                   (Concluded)
<TABLE>
<CAPTION>
                                                                                      Year ended March 31,
                                                                                 -------------------------
                                                                            2000                      1999
                                                                      ----------                ----------
<S>                                                                   <C>                       <C>
NET INCREASE IN CASH                                                       3,309                     2,073

CASH, beginning of year                                                    4,020                     1,947
                                                                    ------------            --------------

CASH, end of year                                                         $7,329                    $4,020
                                                                    ============            ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:

  Interest paid                                                           $  488                    $  266
                                                                    ============            ==============
  Income taxes paid                                                       $ --                      $   13
                                                                    ============            ==============
SUPPLEMENTAL DISCLOSURE OF NONCASH
  INVESTING AND FINANCING ACTIVITIES:

    Purchase of equipment via capital lease obligation                    $1,096                    $1,653
                                                                    ============            ==============
    Common stock issued for services                                      $ --                      $   74
                                                                    ============            ==============
    Common stock issued for prepaid distribution right
      license agreement                                                   $3,938                    $2,184
                                                                    ============            ==============
    Interest on debentures converted into common stock                    $   89                    $   76
                                                                    ============            ==============
    Allocation of preferred stock proceeds to warrants                    $  752                    $ --
                                                                    ============            ==============
    Common stock issued in legal settlement                               $   23                    $ --
                                                                    ============            ==============
    Receipt of available for sale securities in exchange for
      services to be provided over a five year period                     $  625                    $ --
                                                                    ============            ==============
    Acquired domain names with a note payable to a related
      party                                                               $  809                    $ --
                                                                    ============            ==============
    Distribution to shareholders in connection with the
      elimination of related party balances                               $   14                    $ --
                                                                    ============            ==============

     The accompanying notes are an integral part of the audited consolidated financial statements.
</TABLE>

                                       F-9
<PAGE>

                            NEW FRONTIER MEDIA, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       YEARS ENDED MARCH 31, 2000 AND 1999

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

ORGANIZATION

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

BUSINESS

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

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

IGI is a leading aggregator and reseller of adult content via the Internet. IGI
aggregates adult-recorded video, live-feed video and still photography from
adult content studios and distributes it via its membership websites and
Pay-Per-View feeds. In addition, IGI resells its aggregated content to
third-party web masters and resells its Internet traffic that does not convert
into memberships. IGI maintains a consumer membership base of over 135,000
subscribers to its owned and operated websites.

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

CTI is currently in a developmental stage and has no operations. CTI will be
developed into an Internet Payment Services Provider ("PSP") of various Internet
billing options including secure, fully automated credit card payment
processing.

PRINCIPLES OF CONSOLIDATION

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

USE OF ESTIMATES

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

RECLASSIFICATIONS

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

MARKETABLE SECURITIES

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

                                       F-10
<PAGE>
FURNITURE AND EQUIPMENT

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

INCOME TAXES

The Company files a consolidated income tax return with its majority owned
subsidiaries.

CASH EQUIVALENTS

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

PREPAID DISTRIBUTION RIGHTS

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

REVENUE RECOGNITION

Revenue from sales of movie subscriptions, from one to twelve months, is
recognized on a monthly basis over the term of the subscription. Revenue from
internet membership fees is recognized over the life of the membership. The
Company provides an allowance for refunds based on expected membership
cancellations, credits and chargebacks. Revenue from processing fees is
recorded in the period services are rendered. A significant portion of the
Company's Internet sales are from the United States. International sales were
$6,735,000 and $2,539,000 for the years ended March 31, 2000 and 1999,
respectively.

LONG-LIVED ASSETS

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

GOODWILL

Goodwill, the excess of the purchase price of acquired businesses over the fair
value of net assets acquired, is amortized over a period of 120 months.

STOCK WARRANTS

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

INCOME (LOSS) PER COMMON SHARE

The Company adopted the provisions of SFAS No. 128, Earnings per Share. SFAS 128
simplifies the previous standards for computing earnings per share and requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures. See Note 3 - Earnings Per
Share.

                                       F-11
<PAGE>
NOTE 2 -- ACQUISITIONS

On October 27, 1999, the Company acquired ITN, IGI, and 90% of CTI. ITN is a
leading Internet technology and e-commerce company that provides turnkey
Internet software engineering, bandwidth, merchant account management, and
credit card processing. IGI is a leading aggregator and reseller of adult
content via the Internet. CTI does not currently have operations but will be
developed over the next year into a transaction processing company marketed to
Internet companies. Under the terms of the acquisition, which was accounted for
as a pooling of interests, the Company exchanged 6,000,000 shares of restricted
common stock for all of the outstanding stock in ITN and IGI and 90% of the
outstanding stock of CTI.

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

                                                        ACQUIRED
                                    COMPANY             COMPANIES
                                    -------             ---------
Net sales                           $ 8,690              $17,126
Net income                          $(2,769)             $ 1,987

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

                                                        ACQUIRED
                                    COMPANY             COMPANIES
                                    -------             ---------
Cash and cash equivalents           $ 6,761              $   765
Other current assets                 10,274                  906
Property, plant & equipment           3,040                2,278
Other assets                          6,664                  432
                                    -------              -------
                                     26,739                4,381

Current liabilities                 (20,610)              (3,697)
Long-term debt                       (6,591)                (670)
                                    -------              -------
Equity                              $  (462)             $    14
                                    =======              =======

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

                                                                YEAR ENDED
                                                              MARCH 31, 1999
                                                              --------------
Net sales and other revenue:
  As previously reported                                        $     9,452
  Acquired companies                                                 20,743
                                                                -----------
  As restated                                                   $    30,195
                                                                ===========

Net income:
  As previously reported                                        $    (7,581)
  Acquired companies                                                  1,746
                                                                -----------
  As restated                                                   $    (5,835)
                                                                ===========

                                       F-12
<PAGE>
NOTE 3 -- EARNINGS PER SHARE

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

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

EARNINGS PER SHARE
(in 000s)
                                                         12 MONTHS ENDED
                                                             MARCH 31,
                                                         ----------------
                                                         2000        1999
                                                         ----------------

Net income (loss) available for common shareholders   $ 1,082     $(5,835)
                                                      =======     =======
Average outstanding shares of common stock ....        19,257      13,288

Dilutive effect of:

Warrants ......................................         1,559         -
Employee Stock Options ........................           367         -
                                                      -------     -------
Common stock and common stock equivalents .....        21,183      13,288
                                                      =======     =======

Earnings per share:

Basic .........................................       $   .06     $  (.44)
Diluted .......................................       $   .05     $  (.44)



                                      F-13
<PAGE>

NOTE 4 -- SHAREHOLDERS' EQUITY

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

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

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

In July 1999, New Frontier Media issued 500,000 shares of its common stock to
Metro Global Media, Inc. ("Metro") at $7.875 per share as consideration in
obtaining a license agreement for the rights to distribute the entity's 3,000
title adult film and video library and multi-million still image archive. In
addition, the Company issued 100,000 warrants to purchase its common stock at an
exercise price equal to the market value of the stock on the date the warrants
were issued (see note 14).

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

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

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

During the year, 755,125 shares of common stock were issued for exercise of
compensatory warrants and options.

During the year, the Company issued 187,813 shares of its common stock for the
conversion of 130 Series C Convertible Redeemable Preferred Stock shares and
related interest (see note 11).



                                      F-14
<PAGE>

NOTE 5 -- STOCK OPTIONS AND WARRANTS

During the years ended March 31, 1999 and March 31, 2000, the Company formalized
employee incentive stock option plans. Under the plans, 1,500,000 shares of
common stock were reserved for the year ended March 31, 2000 and 750,000 shares
of common stock were reserved for the year ended March 31, 1999. The options
granted pursuant to these plans are at a price equal to or in excess of the
current market price of the Company's common stock on the date of grant. At
March 31, 2000, 25,550 share options were available for future grant under the
1999 employee incentive stock option plan.

The Company has also granted warrants to officers and employees allowing them to
purchase common stock of the Company at a price in excess of the market value of
the stock at date of grant.

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

EXPIRATION DATE                            WARRANTS   EXERCISE PRICE
---------------                            --------   --------------
September, 2002                             92,500     $6.00
February, 2003                             100,000     $6.75
February, 2004                             700,000     $1.12
July, 2004                                 100,000     $7.87
September, 2004                            400,000     $5.00
September, 2004                            360,000     $7.87
                                         ---------
                                         1,752,500
                                         =========

The following table describes certain information related to the Company's
compensatory stock option and warrant activity for the years ending March 31,
2000 and 1999.
<TABLE>
<CAPTION>
                                  Long-term           Other                                              Weighted
                                  Incentive       Warrants and                       Exercise             Average
                                    Plan            Options            Total        Price-Range        Exercise Price
                                  ---------       ------------      -----------  -----------------   ------------------
<S>                              <C>                 <C>              <C>          <C>                     <C>
Balances at March 31, 1998            -                146 666          146 666    $     6.00              $ 6.00
Granted                            735 500           2 030 000        2 765 500    $1.00-8.50              $ 1.88
                                 ---------           ---------        ---------    -----------             ------
Balances at March 31, 1999         735 500           2 176 666        2 912 166    $1.00-8.50              $ 2.09
Granted                          1 568 700             774 642        2 343 342    $1.00-10.00             $ 5.03
Exercised                         (130 625)           (482 000)        (612 625)   $1.00-6.75              $(2.03)
Expired                               -               (246 666)        (246 666)   $1.00-6.00              $(4.07)
Forfeited                          (80 500)            (55 000)        (135 500)   $1.00-9.50              $(3.38)
                                 ---------           ---------        ---------    -----------             ------
Balances at March 31, 2000       2 093 075           2 167 642        4 260 717    $1.00-10.00             $ 3.46
                                 =========           =========        =========    ===========             ======
Number of options and warrants
  exercisable at March 31, 1999       -              1 031 666        1 031 666    $1.00-6.00              $ 4.13
                                 =========           =========        =========    ===========             ======
Number of options and warrants
  exercisable at March 31, 2000    443 332           1 099 974        1 543 306    $1.00-9.00              $ 2.41
                                 =========           =========        =========    ===========             ======
</TABLE>



                                      F-15
<PAGE>

The following table summarizes additional information regarding all stock
options and warrants outstanding at March 31, 2000.

<TABLE>
<CAPTION>
                                           Options and Warrants Outstanding                    Options and Warrants Exercisable
                                      ------------------------------------------------       ------------------------------------
                                          Number      Weighted Average    Weighted               Number             Weighted
                                      Outstanding at      Remaining        Average           Exercisable at          Average
Exercise Prices                       March 31, 2000  Contractual Life  Exercise Price       March 31, 2000       Exercise Price
---------------                       --------------  ----------------  --------------       --------------       --------------
<S>                                     <C>              <C>              <C>                  <C>                  <C>
$1.00- $2.00                            1 283 332        4.5 years        $1.12                1 081 777            $1.13
$2.01- $3.00                              846 668        2.3 years        $2.40                  385 555            $2.53
$3.01- $5.00                              605 000        3.7 years        $4.82                  605 000            $4.82
$5.01- $8.50                            1 108 809        4.0 years        $7.18                  778 809            $7.31
$8.51-$10.50                               76 333        3.7 years        $9.98                    1 333            $9.00
$1.00-$10.50                            2 093 075        9.4 years        $3.76                  443 332            $1.20
                                        ---------                                              ---------
                                        6 013 217                                              3 295 806
                                        =========                                              =========
</TABLE>

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-based
Compensation" which recommends, but does not require, measuring compensation
cost for stock options based on the fair value of the options at the grant date.
The Company has elected not to adopt SFAS 123 but continues to apply Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
employee incentive stock option plans and other stock option activity.

Had the Company measured compensation cost based on the fair value of the
options at the grant date for 2000 consistent with the method prescribed by SFAS
123, the Company's net income and income per common share would have been
decreased to the pro forma amounts indicated below:

                                                        (in 000s)
                                                          2000
                                                      ------------
Net income (loss) attributable   As reported          $     1 082
  to common stock                Pro forma                 (3 031)
Basic income (loss) per          As reported                 0.06
  common share                   Pro forma                  (0.16)
Diluted income (loss) per        As reported                 0.05
  common share                   Pro Forma                  (0.14)

The fair value of each option grant was estimated at the date of the grant using
the Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 6.23% to 6.81% depending on the expected life; no dividend
yield; expected life of 1.5 to 10 years; and volatility of 112%.

During the initial phase-in period of applying SFAS 123 for pro forma disclosure
purposes, the results may not be representative of the effects on reported net
income for future years because options vest over several years and additional
grants generally are made each year.



                                      F-16
<PAGE>

NOTE 6 -- INCOME TAXES

The Company has an unused net operating loss carryforward of approximately
$9,200,000 for income tax purposes, of which approximately $500,000 expires
through 2012, $1,600,000 expires in 2013, 5,200,000 expires in 2019, and the
remainder in 2020. This net operating loss carryforward may result in future
income tax benefits; however, because realization of the total amount is
uncertain at this time, a valuation reserve of $3,425,000 has been established.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

Significant components of the Company's deferred tax liabilities and assets as
of March 31, 2000 are as follows:
                                                       (in 000s)
Deferred tax liabilities:                                 2000
                                                         ------
  Depreciation                                           $ (263)
  Change in accounting method                              (231)
                                                         ------
                                                           (494)
Deferred tax assets:
  Net operating loss carryforward                         3 450
  Deferred revenue                                        1 040
  Goodwill and other                                        179
                                                         ------
                                                          4 175
Valuation allowance for deferred tax asset               (3 425)
                                                         ------
Net deferred tax asset                                   $  750
                                                         ======

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

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

NOTE 7 -- SEGMENT INFORMATION

For internal reporting purposes, management segregates the Company into five
divisions: 1) Subscription/Pay-Per View TV, 2) Internet Content Provider,
3) Internet Service Provider, 4) Payment Service Provider and 5) Corporate
Administration.

The following tables represent financial information by reportable segment (in
thousands):
                                                      TWELVE MONTHS ENDED
                                                           MARCH 31,
                                                     ----------------------
                                                     2000              1999
NET REVENUE
Subscription/Pay-Per-View TV.....................  $16,841          $  9,390
Internet Content Provider .......................   30,485            20,454
Internet Service Provider .......................      586               289
Payment Service Provider ........................        -                 -
Corporate Administration ........................       76                62
                                                   -------          --------
Total ...........................................  $47,988          $ 30,195
                                                   =======          ========

INCOME (LOSS) FROM CONTINUING OPERATIONS
Subscription/Pay-Per-View TV.....................  $(2,146)         $ (6,479)
Internet Content Provider .......................    6,456             1,697
Internet Service Provider .......................   (1,468)              176
Payment Service Provider ........................     (448)             (124)
Corporate Administration ........................   (2,103)             (785)
                                                   -------          --------
Total ...........................................  $   291          $ (5,515)
                                                   =======          ========

INTEREST INCOME
Subscription/Pay-Per-View TV ....................  $    20          $      8
Internet Content Provider .......................       17                 -
Internet Service Provider .......................       18                15
Payment Service Provider ........................        -                 -
Corporate Administration ........................      115                13
                                                   -------          --------
Total                                              $   170          $     36
                                                   =======          ========
INTEREST EXPENSE
Subscription/Pay-Per-View TV ....................  $   123          $     34
Internet Content Provider .......................        -                32
Internet Service Provider .......................      254               109
Payment Service Provider ........................        -                 -
Corporate Administration ........................      401               190
                                                   -------          --------
Total                                              $   778          $    365
                                                   =======          ========
DEPRECIATION AND AMORTIZATION
Subscription/Pay-Per-View TV ....................  $ 1,392          $    938
Internet Content Provider .......................      259               800
Internet Service Provider .......................       87               534
Payment Service Provider ........................        -                 -
Corporate Administration ........................       45                23
                                                   -------          --------
Total                                              $ 1,783          $  2,295
                                                   =======          ========

                                                    MARCH 31,
                                                      2000
IDENTIFIABLE ASSETS
Subscription/Pay-Per-View TV ....................  $21,305
Internet Content Provider .......................    5,594
Internet Service Provider .......................    3,857
Payment Service Provider ........................      190
Corporate Administration.........................    5,342
Eliminations ....................................      -
                                                   -------
Total ...........................................  $36,288
                                                   =======


                                      F-17
<PAGE>

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

                                   2000      1999
                                   ----      ----
Customer A                          11%       1%

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

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

NOTE 8 -- DISCONTINUED OPERATIONS

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

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

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

                                            2000                   1999
                                            ----                   ----
Revenues                                    $ -                    $ 201
Net Loss                                    $ -                    $(179)




                                      F-18
<PAGE>
NOTE 9 -- COMPREHENSIVE INCOME/(LOSS)

The Company adopted the provisions of SFAS No. 130, Reporting Comprehensive
Income. SFAS 130 requires that the Company disclose comprehensive income in
addition to net income (loss). Comprehensive income is a more inclusive
financial reporting methodology that encompasses net income (loss) and all other
nonshareholder changes in equity (other comprehensive income or loss).

The components of comprehensive income (loss), net of tax, are as follows (in
thousands):
                                           12 MONTHS ENDED
                                               MARCH 31,
                                          ------------------
                                          2000        1999
                                          ----        ----
Net income (loss) ...................    $1,082     $(5,835)
Unrealized income (loss) on
  available-for-sale securities .....      (438)          -
                                         ------     -------
Comprehensive net income/(loss) .....    $  644     $(5,835)
                                         ======     =======

Accumulated other comprehensive loss consists of the unrealized losses on
available-for-sale securities presented on the accompanying consolidated balance
sheet. The Company received 250,000 shares of Metro's common stock in exchange
for services to be provided to Metro by CSB over a five-year period.

NOTE 10 -- RELATED PARTIES TRANSACTIONS

Amounts due to related parties for the period ended March 31, 2000 aggregated to
$12,142. These amounts due are non-interest bearing and are payable on demand.
The Company issued a note payable to a related party in the amount of $809,000
for the purchase of domain names. This note and related interest is payable on
October 21, 2001. The note's interest is calculated at prime rate (9% at March
31, 2000).

On March 2, 1998, the Company loaned an entity owned by two major shareholders
of the Company $100,000 in the form of a promissory note receivable. The Note
bore interest at 8% per annum, was due on demand after April 30, 1998 and was
secured by common stock of the Company. During the year ended March 31, 1999,
the loan was paid off plus accrued interest of $8,000.

The Company leased certain equipment and office space via entities controlled by
an officer and shareholder on a month to month basis. During the year ended
March 31, 1999 the Company paid $52,425 to these entities relating to these
leases. These leases were terminated in October of 1998.

NOTE 11 -- SERIES C CONVERTIBLE REDEEMABLE PREFERRED STOCK

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

The Preferred Stock is initially convertible into the Company's common stock at
a price of $7.87 per share which was equal to 140% of the market price of the
Company's stock at the closing date of the transaction. The Company has the
right to redeem the Preferred Stock at any time, in whole or in part, at a price
equal to the amount the investor would have received if the investor had then
converted its shares of Preferred Stock into common stock, or, if greater, 115%
of the amount paid by the investor for the Preferred Stock. The preferred stock
is redeemable by the holder upon certain triggering events outside the control
of the Company. The triggering events are: 1) lapsing of the effectiveness of
the underlying shares registration statement for more than three trading days;
2) failure of the Company's Common Stock to be listed for trading on the NASDAQ
or on a subsequent market or the suspension of the Common Stock from trading on
the NASDAQ or on a subsequent market for more than three trading days; 3)
failure of the Company to deliver certificates representing the underlying
shares issuable upon a conversion within ten days of a Conversion Date; 4) the
Company is a party to any Change of Control transaction as defined in the
agreement; 5) failure to cure a breach of any material term of the agreement
within the time frame specified in the agreement; 6) failure to pay in full the
amount of cash due pursuant to a Buy-In within seven days after notice is
delivered; and 7) the Company fails to have available a sufficient number of
authorized and unreserved shares of Common Stock to issue upon a conversion. The
shares automatically convert after three years, or September 30, 2002, if not
redeemed earlier. In March 2000, 130 of the preferred shares were converted to
common stock.

On the six-month anniversary of the date of closing, the conversion price will
be reset to 95% of the average of the five lowest daily volume-weighted average
prices for the Company's common stock during the ten trading days immediately
preceding such anniversary date, if such price is lower than $7.87. Until the
Preferred Stock is converted or redeemed, the conversion price will similarly
reset on every following three-month anniversary.

In connection with this transaction, the Company also issued to its investor
60,000 warrants dated September 30, 1999, exercisable at $7.87 per share, to
purchase common stock of the Company for each $1 million invested with the
Company. These warrants have been valued at $752,000 by reducing the face amount
of the related redeemable convertible preferred stock. The difference between
the face amount and the stated value is being accreted to interest expense
over the term of the obligation.

                                      F-19
<PAGE>

NOTE 12 -- COMMITMENTS

The Company has leases for office space and equipment under various operating
and capital leases. Included in furniture and equipment at March 31, 2000 and
1999 is $3,976,997 and $2,881,107 of equipment under capital lease and
accumulated depreciation relating to these leases of $1,591,231 and $779,956. In
addition, CSB has entered into sub-lease agreements with an unrelated party for
the use of transponders to broadcast CSB's channels on satellites.

Future minimum lease payments under these leases as of March 31, 2000 are as
follows (in 000s):

Year ended
 March 31,              Operating         Capital
----------             -----------       ----------
  2001                  $ 6,120            $1,217
  2002                    5,922               998
  2003                    1,635               264
  2004                       28                 -
  2005                        2                 -
                        -------            ------
                        $13,707            $2,479
                        =======

Less amount representing interest            (441)
                                           ------
Present value of net minimum lease         $2,038
  payments                                 ======

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

NOTE 13 -- ACCRUED GUARANTEED PAYMENTS

The Company has made on-line arrangements with various webmasters, which
guarantee variable payments based on the percentage of total converted sales and
fixed payments, which are based on the amount of traffic sent to the Company's
various websites. At March 31, 2000, the amount due was $309,793.

NOTE 14 -- LICENSE AGREEMENTS

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


As discussed in Note 4, New Frontier Media executed a definitive license
agreement to acquire exclusive rights to Metro's 3,000 title adult film and
video library and multi-million still image archive for a period of seven years
with renewal provisions. In addition, the Company entered into a multi-year
production agreement with Metro which calls for the delivery of at least three
new adult feature titles per month over the next five years.

NOTE 15 -- DEFERRED COMPENSATION PLAN

The Company sponsors a 401(k) retirement plan. The plan covers substantially all
eligible employees of ITN, IGI and CTI. Employee contributions to the plan are
elective, and ITN matches 100% of employee contributions up to 10% of the
employee's compensation. All contributions by ITN are vested over a five-year
period. Contributions by ITN for the years ended March 31, 2000 and 1999 were
$199,778 and $130,855, respectively.



                                      F-20
<PAGE>

NOTE 16 -- FOURTH QUARTER ADJUSTMENTS

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

NOTE 17 -- YEAR 2000 ISSUE

The Company has completed a comprehensive review of its computer systems to
identify the systems that could be affected by ongoing Year 2000 problems.
Upgrades to systems judged critical to business operations have been
successfully installed. To date, no significant costs have been incurred in the
Company's systems related to the Year 2000.

Based on the review of the computer systems, management believes all action
necessary to prevent significant additional problems has been taken. While the
Company has taken steps to communicate with outside suppliers, they cannot
guarantee that the suppliers have all taken the necessary steps to prevent any
service interruption that may affect the Company.

NOTE 18 -- RISKS AND UNCERTAINTIES

The Company is a defendant in a lawsuit filed on January 25, 1999, in which the
plaintiff seeks to enforce an alleged agreement by the Company to convey to the
plaintiff a 70% equity interest in the Company. The plaintiff is also seeking
large and/or unspecified damages. The Company disputes that there exists a
binding and enforceable agreement to transfer any equity interest in New
Frontier Media. The case has been set for trial on August 14, 2000. The Company
will continue to vigorously defend itself against the plaintiff's claims. The
loss, if any, for an adverse outcome cannot be estimated at the present time. In
addition, in the normal course of business, the Company is subject to various
lawsuits and claims. The Company believes that the outcome of these additional
matters, either individually or in the aggregate, will not have a material
effect on their financial statements.

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

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

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



                                      F-21
<PAGE>

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

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

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

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

NOTE 19 -- SUBSEQUENT EVENTS

The Company's continued NASDAQ listing was considered and maintained by a Nasdaq
Listing and Qualifications Panel in July, 1999. In accordance with the advice of
counsel, the Company had consummated two transactions that were found not to
have received advance shareholder approval, as required by the National
Association of Securities Dealer's rules. In August 1999, the NASDAQ Listing and
Hearing Review Council called the matter for review "in order to determine
whether the Panel's decision to continue the listing of the Company's securities
was appropriate ..."

On April 14, 2000, the Company completed a restructuring of the transactions,
which involved the contribution to the Company by members of management of $1.3
million in cash and 589,135 shares of the Company's stock, for a total
consideration of $7,449,155. By letter dated April 24, 2000, the Panel accepted
the Company's proposed restructuring and determined that the Company had
complied with the terms of the Review Council's exception. The Panel concluded:
"Therefore, the Company's securities will continue to be listed on The Nasdaq
SmallCap Market."

                                       F-22