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

FORM 10-K

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended March 31, 2011ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                 to


Commission File Number: 000-23697

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

Colorado(State or other jurisdiction of
of incorporation or organization)

84-1084061(I.R.S. Employer
Identification No.)7007 Winchester Circle, Suite 200, Boulder, Colorado(Address of principal executive offices)

80301(Zip Code)


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

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

Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock par value $.0001
Rights to Purchase Series A Junior Participating Preferred Stock

The Nasdaq Stock Market, LLC


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

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). o YES    o NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ý

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

Large accelerated filer o

Accelerated filer o

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

Smaller reporting company ý


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

The aggregate market value of the Registrant's common stock held by non-affiliates of the Registrant as of September 30, 2010 was approximately
$32,714,000, based on the closing price of the common stock as reported on the NASDAQ Global Select Market on such date.

The
Registrant had 19,201,018 shares of its common stock outstanding on May 25, 2011.

Documents Incorporated by Reference

The information required in response to Part III of Form 10-K is hereby incorporated by reference from the Registrant's Definitive Proxy
Statement to be filed with the Securities and Exchange Commission within 120 days of March 31, 2011 with respect to the Registrant's Annual Meeting of Shareholders expected to be held on
or about August 25, 2011.



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NEW FRONTIER MEDIA INC. AND SUBSIDIARIES  FORM 10-K  FOR THE FISCAL YEAR ENDED MARCH 31, 2011

TABLE OF CONTENTS



PagePART I.Item 1.

Business


1Executive Officers of the Registrant


10Item 1A.

Risk Factors


11Item 1B.

Unresolved Staff Comments


19Item 2.

Properties


19Item 3.

Legal Proceedings


19Item 4.

(Removed and Reserved)


19PART II.Item 5.

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


20Item 6.

Selected Financial Data


22Item 7.

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


23Item 7A.

Quantitative and Qualitative Disclosures About Market Risk


56Item 8.

Financial Statements and Supplementary Data


56Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


56Item 9A.

Controls and Procedures


56Item 9B.

Other Information


57PART III.Item 10.

Directors, Executive Officers and Corporate Governance


57Item 11.

Executive Compensation


58Item 12.

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


58Item 13.

Certain Relationships and Related Transactions and Director Independence


58Item 14.

Principal Accounting Fees and Services


58PART IV.Item 15.

Exhibits and Financial Statement Schedules


58Signatures


64Index to Consolidated Financial Statements


F-1


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PART I.

Forward-Looking Statements and Other Information

This Annual Report on Form 10-K of New Frontier Media, Inc. and its consolidated subsidiaries, hereinafter
identified as we, us, the Company or the Registrant, and the information incorporated by reference includes forward-looking statements within the meaning of the safe harbor provisions of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements regarding trend analysis and our expected
financial position and operating results, our business strategy, our financing plans and the outcome of contingencies are forward-looking statements. Forward-looking statements are also identified by
the words "believe," "project," "expect," "anticipate," "estimate," "intend," "strategy," "plan," "may," "should," "could," "will," "would," and similar expressions. The forward-looking statements are
subject to risks and uncertainties that could cause actual results to
differ materially from those set forth or implied by any forward-looking statements. Some of these risks are detailed in Part I, Item 1A, Risk Factors and elsewhere in this
Form 10-K.

Readers
are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or
revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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

ITEM 1.    BUSINESS.

DESCRIPTION OF BUSINESS

Incorporated in Colorado on February 23, 1998, we are a provider of transactional television services and a distributor of
general motion picture entertainment. Our key customers include large cable and satellite operators, premium movie channel providers and major Hollywood studios. We distribute content worldwide. Our
three principal businesses are reflected in the Transactional TV, Film Production and Direct-to-Consumer operating segments. Our Transactional TV segment distributes adult
content to cable and satellite operators who then distribute the content to retail consumers via video-on-demand (VOD) and pay-per-view (PPV)
technology. We earn revenue by receiving a contractual percentage of the retail price paid by consumers to purchase our content on our customers' VOD and PPV platforms. The Transactional TV segment
has historically been our most profitable segment. The Film Production segment generates revenue through the distribution of mainstream and erotic films to large cable and satellite operators, premium
movie channel providers and other content distributors. This segment also periodically provides contract film production services to major Hollywood studios (producer-for-hire
arrangements). The Film Production segment incurred operating losses in fiscal years 2011, 2010 and 2009 primarily due to impairment charges. Our Direct-to-Consumer segment
primarily generates revenue from membership fees earned through the distribution of adult content to consumer websites. The Direct-to-Consumer segment has historically incurred
operating losses and is expected to continue to incur operating losses for the foreseeable future; however, we have been focused on returning the segment to profitability through efforts described
below. Our Corporate Administration segment includes all costs associated with the operation of the public holding company, New Frontier Media, Inc.

Revenue
from the Transactional TV segment has declined during each of the three fiscal years ended March 31, 2011, 2010 and 2009. We believe domestic consumers that have
historically purchased our content with discretionary income have reduced their spending on our content, eliminated their acquisition of our content, or are viewing content through less expensive
alternatives such as low-cost

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and
free internet websites, which has resulted in a decline in our domestic VOD and PPV revenue. Although we have made adjustments on domestic VOD platforms in order to stabilize that revenue during
fiscal year 2011, we do not have flexibility to make similar adjustments on domestic PPV platforms due to the linear nature of PPV distribution. As a result, the decline in consumer spending has had a
larger unfavorable impact on our domestic PPV revenue as compared to our domestic VOD revenue. Also contributing to the decline in our domestic PPV revenue during fiscal years 2011 and 2010 was our
loss of a channel on a domestic direct broadcast satellite, or DBS, platform in November 2009. The decline in domestic Transactional TV segment revenue has been partially offset by an increase in the
segment's international revenue from our expansion into international markets beginning in fiscal year 2009.

The
Film Production segment has experienced challenging market conditions since fiscal year 2009. As a result of these conditions and in connection with our goodwill impairment testing,
we recorded goodwill impairment charges within the segment in fiscal years 2010 and 2009 of approximately $4.9 million and $10.0 million, respectively. We also recorded film cost
impairment charges in fiscal years 2011, 2010 and 2009 of approximately $2.2 million, $1.2 million and $1.1 million, respectively, as well as an increase in the allowance for
unrecoverable accounts of $0.8 million in each of fiscal years 2011 and 2010 to reserve for certain recoupable costs and producer advances that were not expected to be recovered. See additional
information on these charges within the Film Production segment discussions below.

In
the fourth quarter of fiscal year 2010, we discontinued the operations of an Internet Protocol Television (IPTV) set-top box business within the
Direct-to-Consumer segment. See Note 18Discontinued Operations within the Notes to Consolidated Financial Statements for further discussion on our
discontinuation of the IPTV set-top box business.

INFORMATION ABOUT OUR SEGMENTS

We have the following reportable operating segments:



Financial
information about our segments is included in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and
Note 11Segment and Geographic Information within the Notes to Consolidated Financial Statements.

Transactional TV Segment

The Transactional TV segment generated the majority of its revenue in fiscal year 2011 through the distribution of adult programming on
domestic VOD platforms. VOD distribution primarily occurs through cable multiple system operators, or MSOs, and telephone company operators that also provide

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television
services. VOD presents viewers with layered menus, similar to what is traditionally found in hotel room television offerings. These menus allow users to interactively select a movie and
then view it immediately or at a later time once the transaction has been executed. VOD tends to have a more accretive impact on our Transactional TV segment's business relative to our PPV offering
because of the variety of content available through VOD platforms and because of the flexibility VOD provides in viewing times.

Our
Transactional TV segment also distributes adult programming to cable and satellite television companies through PPV channels. PPV provides consumers access to a timed block of
programmingfor example, a movie or an eventfor a fee payable to the cable or satellite providers. Our PPV programming is offered on channels that are available to viewers
through the same electronic program guides that display basic cable channels. Some of our distributors also offer our Transactional TV segment's channels on a monthly subscription basis. However, the
large majority of the PPV revenue we generate is based on individual movie purchases, while subscription revenue represents a small portion of the segment's total PPV revenue.

We
earn revenue by receiving a percentage (sometimes referred to as a split) of the total retail purchase price paid by consumers to purchase our content on customers' VOD and PPV
platforms. Our Transactional TV segment's products have historically been sold by our customers for a price of between $9.95 and $14.99 for a single movie or event as determined by our customers with
input from us.

We
believe that as a result of the economic downturn, domestic consumers that have historically purchased our content are purchasing less of our content or are viewing content through
less expensive alternatives such as low-cost and free internet websites. Our content is a relatively expensive choice of entertainment as compared to other options including mainstream
categories of content on our customers' platforms and adult content on other off-platform media such as the internet. We believe the high price of our content is contributing to the
consumer trend of purchasing less of our content or purchasing other comparable content through alternative media. In order to confirm this assumption and determine whether reducing the price of our
content could improve overall gross revenue, we are performing price tests with certain customers to determine whether decreasing the price of our content could generate an increase in the buy volume
sufficient to maintain or increase total gross revenue. We continue to investigate the initial results of the tests and
although certain test sites have reported positive results, there remains uncertainty regarding the proper price point. We believe additional analysis is required to determine the optimum price point
necessary to generate and sustain category growth that is consistent with the successful test site results.

We
continue to believe our VOD and PPV programming provides an attractive form of entertainment because it is offered conveniently in the comfort of consumers' homes and can be viewed on
a large, high quality television. During fiscal years 2011, 2010 and 2009, 74%, 74%, and 81%, respectively, of our consolidated net revenue was attributed to the Transactional TV segment. The
Transactional TV segment distributes content to nearly every television provider in the U.S. including the two largest providers of DBS services in the U.S., all major cable television systems, and
the two telephone company providers of cable television services.

During
fiscal year 2009, we began expanding our services into international markets in North America, Europe and Latin America. We have also recently launched new services in Asia. We
believe the business model that we have successfully executed in the U.S. will also be successful in international markets. International expansion has also provided us with an opportunity to leverage
our existing content libraries and technology infrastructure. Additionally, the revenue percentages we receive in international markets are typically higher than the percentages we receive in the U.S.
because the international cable and satellite markets are less consolidated, which allows us to negotiate higher revenue percentages. Thus far, we have had success in expanding our distribution to
international

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markets
and generated approximately $5.9 million of Transactional TV segment VOD and PPV international revenue during fiscal year 2011. We plan to continue to expand our footprint to new
international locations and customers, and gain additional market share and shelf space in international markets where we currently distribute content. We believe our international expansion will be a
key component of our growth over the next five to seven years.

Programming Strategy

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

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

Content Delivery System

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

Our
Transactional TV segment maintains a satellite transponder lease agreement for one full-time digital transponder with a total bandwidth of approximately 18 MHz on the
Galaxy 23 satellite, approximately 9 MHz on the NSS 806 satellite, and approximately 5MHz on Hot Bird 6/8/9. These transponders provide the satellite transmission necessary to broadcast our
Transactional TV segment's networks. The signal of the satellites that we use covers the continental U.S., Alaska, Hawaii, Latin America, Europe, North Africa and portions of the Caribbean Islands and
Canada.

Our
Transactional TV segment delivers its VOD service to domestic cable MSOs primarily through transport services provided by TVN Entertainment Corporation. International VOD services
are delivered through alternative methods such as shipping hard drives that contain content as well as through electronic transfer and related delivery methods.

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Digital Broadcast Technology

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

Programming

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

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

Competition

We believe the Transactional TV segment's most challenging competition has been low-cost and free internet websites. We
believe that the decline in economic conditions has caused consumers to seek lower-cost options for obtaining adult content.
As a result of the growth in low-cost and free internet websites over the past several years, we believe a portion of the consumers who would otherwise purchase our content have been
electing to obtain their content through these low-cost and free internet websites. Our primary consumer research findings are consistent with the above assumptions. Our research has also
indicated that these consumers might transition back from the low-cost and free internet websites to our products if there are improvements to our products' value proposition, such as a
reduction in our products' retail price.

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

Our
content has typically outperformed our competitors' content on the majority of MSO and DBS platforms as measured by revenue per server hour. As a result, we have been able to
increase our shelf space on these platforms through incremental platform hours and the replacement of our competitors' hours. We believe that some competitors have been willing to execute contracts
with distributors that contain lower revenue percentages and/or provide revenue guarantees in order to obtain or retain channels and VOD platform hours. While we believe that our content continues to

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outperform
the competition, we cannot predict whether that performance advantage will insulate us from further pressure on revenue percentages. If our competitors continue to accept lower revenue
percentages from the MSO and DBS platforms and if we are unable to maintain a performance advantage or cause the MSO and DBS providers to recognize the value from this performance advantage, then our
customers could put additional pressure on us to lower our revenue percentages. A reduction in our revenue percentages would have a material adverse impact on our results of operations and financial
condition.

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

Film Production Segment

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

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

The
film markets have been significantly impacted by the economic downturn. As a result of the impact of the economic downturn, we believe the Film Production segment's customers have
reduced their content acquisition budgets. We believe this occurred because our customers were relying upon their existing libraries to reduce spending and costs. These changes have had a significant
negative impact on the Film Production segment's operating results. During fiscal years 2010 and 2009, we incurred goodwill impairment charges of $4.9 million and $10.0 million,
respectively. We also recorded film cost impairment charges of approximately $2.2 million, $1.2 million and $1.1 million during fiscal years 2011, 2010 and 2009, respectively, as
well as an increase in the allowance for unrecoverable accounts of $0.8 million in each of fiscal years 2011 and 2010. These charges were incurred as a result of the depressed performance of
the Film Production segment. It is reasonably possible that the unfavorable conditions within the film markets could persist or further decline, which could cause the operating results of this segment
to remain depressed or continue to decline.

Owned Content Revenue

The Film Production segment produces and distributes its owned content to three primary customer groups. The first customer group
consists of cable MSO and DBS service providers. Since our acquisition of the Film Production segment, we have leveraged our existing Transactional TV segment relationships and established new
customer opportunities for our Film Production segment's owned content. The owned content that is distributed through PPV appears on unbranded linear channels within the mainstream or adult PPV movie
location of the platform's electronic programming guide. Content that is distributed through VOD appears within menu categories such as "uncensored." Our movies are sold to end users at retail prices
typically ranging from $3.99 to $9.99. We receive a

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percentage
share of the revenue derived from sales on these platforms. Revenue percentages are typically higher than those earned by our Transactional TV segment due to the mainstream nature of the
content. Owned content is distributed to cable MSO and DBS service providers using the same technology and transport providers as described above in the Transactional TV segment discussion.

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

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

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

Sales Agency (Repped Content) Service Revenue

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

We
generate revenue from these arrangements, which we refer to as repped content revenue, through arrangements with mainstream distributors world-wide. Distributors deliver
the repped content through various channels including theatrical, pay-television, free television and other similar distribution channels. We also distribute repped content on VOD
platforms through U.S. cable MSOs. We continue to leverage the relationships we have established through the Transactional TV segment with U.S. cable and DBS providers. Additionally, our repped
content is distributed to retail markets including DVD markets, home video markets and other retail markets through arrangements we have executed with leading independent mainstream distribution
partners.

Producer-for-Hire and Other Revenue

Producer-for-hire and other revenue relates to amounts earned through producer-for-hire
arrangements, music royalty fees and the delivery of other miscellaneous film materials to customers. Through our producer-for-hire arrangements, we provide services and incur
costs associated with a film production, and we earn a fee for our services once the film has been delivered to the customer. Although we maintain no ownership rights for the produced content, we are
responsible for the management and oversight of the project and incur significant economic risk until the project is completed. The gross margins we generate from
producer-for-hire arrangements are less than the returns we generate from our owned content and have historically been between 5% and 20% of net revenue; however, we cannot
reasonably predict whether the gross margins we receive will continue to be similar to those generated historically. We generated approximately $4.0 million and $3.9 million of
producer-for-hire services revenue during fiscal years 2011 and 2010, respectively. No material producer-for-hire revenue was generated during fiscal
year 2009. We do not currently expect to execute a producer-for-hire arrangement in fiscal year 2012.

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Competition

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

Direct-to-Consumer Segment

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

In
January 2008, the Direct-to-Consumer segment launched a business by acquiring certain intellectual property rights to an IPTV set-top box that
allowed consumers to access content through the internet and view the content on their television. During fiscal years 2009 and 2010, the IPTV business model's performance was lower than expected and
as a result, we discontinued the operations of the IPTV business model in the fourth quarter of fiscal year 2010. See Note 18Discontinued Operations within the Notes to
Consolidated Financial Statements for further discussion on our discontinuation of the IPTV set-top box business.

Competition

The adult internet industry is highly competitive and highly fragmented given the relatively low barriers to entry. Free content
websites that allow users to access large libraries of content have created an even more challenging environment.

OTHER INFORMATION

Intellectual Property

Despite our efforts to protect our intellectual property rights, unauthorized parties may attempt to copy aspects of our products or
obtain and use information that we regard as proprietary. Policing unauthorized use of our rights is difficult. Additionally, third parties might independently develop technologies that are
substantially equivalent or superior to our technologies.

Seasonality

We have not experienced any material seasonality within our business during the fiscal years ended March 31, 2011, 2010 or 2009.

Working Capital

We fund our operations through a combination of available cash, cash equivalents, and cash flows generated from operations. In
addition, our line of credit is available for additional working capital needs.

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Customers

We derived 46% of our total revenue for the fiscal year ended March 31, 2011 from Comcast Corporation (Comcast),
DIRECTV, Inc. (DirecTV), DISH Network (DISH), and Time Warner Cable Inc. (Time Warner). We generate revenue from these customers through our Transactional TV and Film Production
segments. The loss of any one of these major customers would have a material adverse impact on these segments and the Company as a whole. Specific financial information about the total revenue and
outstanding accounts receivable from each of our major customers is incorporated by reference herein to Note 12Major Customers within the Notes to Consolidated Financial Statements
included herein.

Government Regulation

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

Research and Development

Financial information about research and development costs is incorporated herein by reference to the Research and Development Costs
discussion within Note 1Organization and Summary of Significant Accounting Policies within the Notes to Consolidated Financial Statements included herein.

Employees

As of March 31, 2011, we had approximately 165 employees primarily located in the U.S. Our employees are not members of a union,
and we have never suffered a work stoppage. We consider our employee relations to be good.

Financial Information about Segments and Geographic Areas

Financial information about segments and geographic areas is incorporated herein by reference to Note 11Segment and
Geographic Information within the Notes to Consolidated Financial Statements included herein.

Available Information

We file annual, quarterly and current reports, and amendments thereto, with the Securities and Exchange Commission (SEC) under
Section 13(a) of the Securities Exchange Act of 1934. We make these reports available free of charge on or through our internet website, www.noof.com, as soon as reasonably practicable after we
electronically file such material with, or furnish such material to, the SEC. Information on
our website should not be considered to be a part of this report or any other SEC filing unless explicitly incorporated by reference herein or therein. You may request a copy of these filings at no
cost. Please direct your requests to:



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You
can also read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington DC 20549. You can obtain information on the
operations of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site
(www.sec.gov) that contains our reports, proxy and information statements and other information that we file electronically with the SEC. Information on
the SEC's website should not be considered part of this report or any other SEC filing unless expressly incorporated by reference herein or therein.

EXECUTIVE OFFICERS OF THE REGISTRANT.

Our executive officers are as follows:

Name

Age

PositionMichael Weiner


69

Chairman of the Board, Chief Executive Officer and SecretaryKen Boenish


44

PresidentMarc Callipari


43

Chief Legal OfficerScott Piper


48

Chief Technology and Information OfficerGrant Williams


35

Chief Financial Officer


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

Ken Boenish.Mr. Boenish is a 20-year veteran of the cable television industry. In October 2000, he was named President of
the
Transactional TV segment and in June 2005 he was named President of New Frontier Media. Mr. Boenish joined New Frontier Media as the Senior Vice President of Affiliate Sales in February 1999.
Prior to joining the New Frontier Media, Inc., Mr. Boenish was employed by Jones Intercable ("Jones") from 1994 to 1999. While at Jones he held the positions of National Sales Manager
for Superaudio, a cable radio service serving more than 9 million cable customers. He was promoted to Director of Sales for Great American Country, a then new country music video service, in
1997. While at Great American Country, Mr. Boenish was responsible for adding more than 5 million new customers to the service while competing directly with Country Music Television, a
CBS cable network. From 1988 to 1994 he sold cable television advertising on systems owned by Time Warner, TCI, COX, Jones, Comcast and other cable systems. Mr. Boenish holds a bachelors degree
from St. Cloud State University.

Marc Callipari.Mr. Callipari joined New Frontier Media in August 2006 as the Vice President of Legal Affairs and shortly
thereafter was
promoted to Chief Legal Officer. He is responsible for New

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Frontier
Media's legal and human resources functions. Mr. Callipari started his legal career over 17 years ago in Washington, D.C. where he practiced commercial litigation from 1994 to
1999 with a large, international law firm and a boutique litigation firm. More recently, he served as captive outside and then in-house counsel to Level 3 Communications, an
unaffiliated international communications company, from 1999 to 2006, where he was responsible for a wide range of world-wide litigation and transactional matters, including the
negotiation of several multi-million dollar telecommunication infrastructure asset purchases and sales. He graduated from the University of San Diego School of Law in 1994, is a member of the
Colorado, Virginia and District of Columbia Bars and has been admitted to practice before numerous federal courts throughout the United States.

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

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

ITEM 1A.    RISK FACTORS.

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

We have agreements with the ten largest U.S. cable MSOs and two largest U.S. DBS providers. For our fiscal year ended March 31,
2011, the aggregate revenue we received from our major customers (customers that account for 10% or more of our consolidated net revenue during any one of the fiscal years ended March 31, 2011,
2010 or 2009, namely Comcast, DISH, DirecTV and Time Warner) was approximately 46% of our total company-wide revenue. Our agreements with these operators may be terminated without penalty
and with little advance notice, and as a result are sometimes subject to renegotiation during their stated term. If one or more of these cable MSO or DBS operators terminates or does not renew our
agreements, or negotiates mid-term or agrees only to renew the agreements on terms less favorable than those of our current agreements (including removing or replacing with a competitive
offering or otherwise one or more of our PPV channels or VOD offerings from their platforms), our financial position and results of operations could be materially adversely effected.

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If the general economic environment, consumer discretionary spending or other conditions continue to be unfavorable or further deteriorate, our financial position and
results of operations could be materially adversely impacted.

We believe consumers view our content as a discretionary item rather than a necessity. Accordingly, our results of operations tend to
be more sensitive to changes in macroeconomic conditions that impact consumer spending, including discretionary spending. Other factors, including consumer confidence, employment levels, interest
rates, tax rates, consumer debt levels, and fuel and energy costs, could reduce consumer spending or change consumer purchasing habits. We believe many of these factors have adversely affected
consumer spending during each of our three fiscal years ended March 31, 2011, 2010 and 2009, and, consequently, our business and results of operations.

For
example, our Transactional TV segment revenue decreased in fiscal year 2011 by approximately 4% despite generating international revenue of $5.9 million. We also experienced
challenging conditions within our Film Production segment that caused operating losses during fiscal years 2011, 2010 and 2009. If the general economic environment, consumer discretionary spending or
other conditions continue to be unfavorable or further deteriorate, our financial position and results of operations could be materially adversely impacted.

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

Our satellite uplink, transponder and VOD transport provider services are critical to us. If our service providers fail to provide the
contracted services, our programming operations would in all likelihood be suspended, resulting in a loss of substantial revenue. If our satellite uplink and transponder providers improperly manage
their facilities, we could experience signal disruptions and other quality problems that, if not immediately addressed, could cause us to lose revenue. All our domestic Transactional TV segment VOD
transport services are provided by TVN Entertainment Corporation (TVN). If TVN fails to provide the contracted services, our domestic Transactional TV segment VOD programming operations would in all
likelihood be suspended resulting in a materially adverse impact to our financial position and results of operations.

Our
continued access to satellite transponders is critical to us. Our satellite transponder agreements expire through October 2013. Our satellite programming operations require continued
access to satellite transponders to transmit programming to our cable and DBS customers. Limitations to satellite transponder capacity could materially adversely affect our financial position and
results of operations. Access to transponders may be restricted or denied if:



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

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

Our ability to increase or sustain revenue is impacted by our ability to compete effectively with other forms of adult and
non-adult entertainment. We face competition in the adult entertainment industry from other providers of adult programming, adult video/DVD rentals and sales, books and magazines aimed at
adult consumers, adult-oriented telephone chat lines, adult-oriented internet services, including free website content services, premium movie channels that broadcast adult-themed content and
adult-oriented wireless services. To a lesser extent, we also face general competition from other forms of non-adult entertainment, including sporting and cultural events, other television
networks, feature films, and other programming and entertainment options.

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

Our
existing competitors, as well as potential new competitors, may have significantly greater financial, technical and marketing resources, as well as better name recognition than we
do. This may allow them to devote greater resources than we can to the development and promotion of their product offerings. These competitors may also engage in more extensive technology research and
development, and adopt
more aggressive pricing policies for their content. Additionally, increased competition could result in license fee reductions, lower margins and a negative impact on our financial position and
results of operations.

The
popularity and notoriety of adult entertainment through low-cost and free websites has resulted in additional pressure on our business. The quality and quantity of
content available on these free and low-cost websites continues to improve. The content we sell through the Transactional TV segment typically has a retail price between $9.95 and $14.99
and is typically less explicit than the content offered on internet websites. As a result of the recent deterioration in economic conditions, customers may view internet delivered content as a
replacement to our content based on the difference in cost, edit standard and availability of certain niche content that we do not distribute. A migration of customers to free and low-cost
internet delivered content could result in a further decline in our buy rates and have a negative impact on our financial position and results of operations.

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

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

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

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

Increased government regulation in the United States and abroad could impede our ability to deliver our content and expand our business.

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

Cable
and DBS operators could become subject to new governmental regulations that could further restrict their ability to broadcast our programming. If new regulations make it more
difficult for cable and DBS operators to broadcast our programming, our financial position and results of operations could be adversely affected.

Because
we have expanded our service offerings to international markets, we must now comply with diverse and evolving international regulations. New application of regulations related to
our operations internationally and our ability to comply with these regulations could have a material adverse impact on our financial position and results of operation.

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

We are subject to taxation in various jurisdictions, both domestically and internationally. Significant judgment is required in the
determination of our income tax benefit (expense), and this determination requires the interpretation and application of complex and sometimes uncertain tax laws and regulations. Our effective tax
rate may be adversely impacted by changes in the mix of earnings between jurisdictions with different statutory tax rates, in the valuation of our deferred tax assets, and by changes in tax rules and
regulations. For instance, the availability and timing of lapses in the U.S. research and development tax credit, the accounting for uncertain tax positions and the amount of our estimated tax
deduction for domestic production activities may add more variability to our future effective tax rates. Additionally, we are subject to examination of our fiscal year 2008 amended tax returns,
current tax returns and our determination of certain tax positions. If the Internal Revenue Service audits these returns and determines certain of our tax positions are invalid, our financial position
and results of operations could be materially adversely affected.

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

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

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

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

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

With only approximately 165 employees, our success depends greatly upon the contributions of our executive officers and our other key
personnel. The loss of the services of any of our executive officers or other key personnel could have a material adverse effect on our financial position and results of operations. No assurance can
be given that we will be successful in attracting and retaining these personnel.

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

We are engaged in a business that has experienced significant technological change over the past several years and will likely continue
to experience further changes. As a result, we face all the risks inherent in businesses that are subject to rapid technological advancement, such as the possibility that a technology that we have
invested in becomes obsolete, our inability to identify in a timely manner emerging technologies that may impact our business, or technology advancement that may make our offerings obsolete. In any
such event, we may be required to invest significant amounts of capital in new technology. Our inability to identify, fund the investment in, and commercially exploit such new technology could have an
adverse impact on our financial position and results of operations. Our ability to implement our business plan and to achieve the results projected by management will be dependent upon management's
ability to predict technological advances and implement strategies to take advantage of such changes. We may also experience impairments related to existing investments that we have made in new
technology.

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Negative publicity, lawsuits or boycotts by opponents of adult content could adversely affect our financial position and results of operations and discourage investors from
investing in our publicly traded securities.

We could become a target of negative publicity, lawsuits or boycotts by one or more advocacy groups who oppose the distribution of
adult entertainment. These groups have mounted negative publicity campaigns, filed lawsuits and encouraged boycotts against companies whose businesses involve adult entertainment. The costs of
defending against any such negative publicity, lawsuits or boycotts could be significant, could hurt our finances and could discourage investors from investing in our publicly traded securities. As a
leading provider of adult entertainment, we cannot assure you that we may not become a target of such negative publicity 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 banking entities, investors, investment banking entities, market makers, lenders and other service providers in the investment
community may decide not to provide financing to us, or to participate in our public market or other activities due to the nature of our business, which, in turn, may adversely impact the value of our
stock, and our ability to attract market support or obtain financing.

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

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

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

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

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

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Our goodwill, other identifiable intangible assets and other long-lived assets may incur further charges and expenses.

We conducted our annual goodwill and other identifiable intangible assets impairment tests as of March 31, 2011, 2010 and 2009.
We also performed goodwill and other identifiable intangible assets impairment tests as of December 31, 2008 due to events and circumstances within our Film Production segment that caused us to
believe that it was more likely than not that the segment's goodwill was impaired. We also perform quarterly analyses on the valuation of long-lived assets including our content and
distribution rights, film library, and other long-lived assets as well as the recoverability of recoupable costs and producer advances. We recognized the following continuing operations
charges for asset impairments and in the case of the allowance for unrecoverable accounts, operating expenses, in our statements of operations (in thousands):

Year Ended March 31,2011

2010

2009Goodwill

$


$
4,856

$
10,009Film costs


2,193


1,207


1,062Allowance for unrecoverable accounts


823


771


200Content and distribution rights


241





Other identifiable intangible assets


37


290


Other long-lived assets


128





Total charges and expenses

$
3,422

$
7,124

$
11,271


If
our goodwill, other identifiable intangible assets or other long-lived assets' future benefit does not exceed its carrying value, or if we experience a change in estimates
regarding the recoverability of our recoupable costs and producer advances, we may be required to record further charges and expenses related to the assets, which could materially affect our financial
position and results of operations. The ongoing uncertainty in general economic and market conditions could increase the likelihood of additional asset charges and expenses being recorded in future
periods. In addition, the determination of the fair value of goodwill, other identifiable intangible assets and long-lived assets as well as the estimated recoverability of recoupable
costs and producer advances is subject to a high degree of judgment and complexity and changes in estimates could materially affect our financial position and results of operations.

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

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



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

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

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

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

If we are required to make payments under our guarantee of the state of Georgia producer-for-hire production tax credits that we sold during fiscal
year 2011, our financial position and results of operations could be materially adversely impacted.

Our Film Production segment completed producer-for-hire services related to a movie production in the state of
Georgia during fiscal year 2011. We realized certain transferable production tax credits in the state of Georgia associated with the production, and we sold the tax credits to a third-party resulting
in a reduction in the net cost of the production of approximately $0.8 million. In connection with the sale of
the tax credits, we agreed to reimburse the buyer if the tax credits are recaptured, forfeited, recovered or otherwise become invalid in the next four years. If we are required to make payments under
our guarantee of the tax credits, our financial position and results of operations could be materially adversely impacted.

We currently represent horror films that are distributed through a large video rental retailer and are owed money from the related distribution. The retailer recently filed
for bankruptcy and if we do not receive payments related to the distribution, our financial position and results of operations could be materially adversely impacted.

Our Film Production segment has distributed eight repped content horror films through a large video rental retailer (the Retailer). We
incurred recoupable costs and producer advances associated with the films. The Retailer filed for bankruptcy in late September 2010 and was subsequently acquired in April 2011. If we are unable to
collect amounts owed to us related to our distribution of films through the Retailer, we expect that we will be unable to recover the recoupable costs and producer advances incurred for the related
films. We estimate that we would incur a maximum increase in the allowance for unrecoverable accounts of approximately $0.2 million if we were unable to collect amounts due from the
distribution agreement with the retailer resulting in an adverse impact to our financial position and results of operations.

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We are relocating our corporate and digital broadcast facilities into a new, combined leased facility. If we are unable to execute the relocation, we experience delays in
the relocation, we incur costs in excess of expectations from the relocation, or we experience other issues associated with the relocation, our financial position and results of operations could be
materially adversely impacted.

We are in the process of relocating our corporate and digital broadcast facilities to a new, combined leased facility. Our corporate
facility is used as our corporate headquarters and is also used by our Direct-to-Consumer segment's web production department and our Transactional TV segment's marketing,
sales, branding, promotions and conforming departments. Our digital broadcast facility is used by our Transactional TV segment for key operations activities including broadcasting, encoding and
technical operations, content screening, and quality control functions. We are responsible for completing the building improvements in the new facility and furnishing the new facility, and we are also
responsible for the relocation of our property, equipment, and related assets from our corporate and digital broadcast facilities to the new combined facility. We anticipate that this relocation will
be completed in July 2011. If we are unable to execute the relocation, we experience delays in the relocation, we incur costs in excess of expectations from the relocation, or we experience other
issues associated with the relocation, our financial position and results of operations could be materially adversely impacted.

ITEM 1B.    UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.    PROPERTIES.

We use the following principal facilities in our operations.

Colorado:We lease space in two office buildings in Boulder, Colorado. The north Boulder facility is approximately 12,000 square feet
and houses our
Transactional TV segment's digital broadcast center, encoding and technical operations groups, content screening, and quality control functions. Our Winchester Circle facility is approximately 18,000
square feet and is used as our corporate headquarters, as well as by our Direct-to-Consumer segment's web production department and by our Transactional TV segment's marketing,
sales, branding, promotions and conforming departments. The facilities are 100% utilized.

We
entered into a lease agreement in October 2010 to rent a north Boulder facility that is approximately 48,500 square feet. We expect to vacate our current Colorado facilities discussed
above in July 2011 and combine the occupants of those facilities into the new leased facility. The new facility is expected to be used by our Transactional TV,
Direct-to-Consumer and Corporate Administration segments. Our digital broadcast technology and other groups and functions currently located at our digital broadcast center will
also be relocated to the new facility. We do not currently occupy the facility and expect to utilize 85% of the facility upon completion of occupancy.

California:We lease approximately 4,600 square feet in Santa Monica, California. This facility houses our Film Production segment's
production and
licensing business. The facility is 100% utilized.

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

ITEM 3.    LEGAL PROCEEDINGS.

For a discussion of legal proceedings, see Note 13Commitments and Contingencies in the Notes to Consolidated
Financial Statements included herein and incorporated herein by reference.

ITEM 4.    (REMOVED AND RESERVED).

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PART II.

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

MARKET INFORMATION

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

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

Quarter Ended

High

Low

Quarter Ended

High

LowJune 30, 2010

$
2.15

$
1.54

June 30, 2009

$
2.95

$
1.52September 30, 2010


1.90


1.35

September 30, 2009


2.50


1.87December 31, 2010


2.04


1.58

December 31, 2009


2.18


1.75March 31, 2011


2.18


1.67

March 31, 2010


2.40


1.76


The
high and low sales prices per share as reported on the NASDAQ Global Select Market on May 25, 2011, were $1.53 and $1.45, respectively. As of May 25, 2011, there were
approximately 3,000 beneficial owners and approximately 170 holders of record of New Frontier Media's common stock.

ISSUER PURCHASES OF EQUITY SECURITIES

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

In
June 2008, our Board of Directors extended a share repurchase plan allowing for the repurchase of approximately 1.1 million shares of common stock through June 2010. During the
six month period ended September 30, 2008, we substantially completed the share repurchase plan and repurchased approximately 1.1 million shares for a total purchase price of
approximately $4.3 million. On November 14, 2008, we entered into a Stock Purchase Agreement pursuant to which a shareholder agreed to sell and we agreed to purchase approximately
2.6 million shares of our common stock for a cash purchase price of $1.55 per share or an aggregate purchase price for all of the shares of approximately $4.1 million. We funded the
acquisition of the shares with available cash. On March 11, 2009, we purchased through one broker in an unsolicited single block trade approximately 0.5 million shares of our common
stock for a cash purchase price of $1.30 per share, or an aggregate purchase price for all of the shares of approximately $0.7 million. The acquisition was funded with available cash.

On
August 28, 2009, we announced that our Board of Directors adopted a new stock repurchase program. Under the program, we may purchase with available cash and cash from
operations up to 1.0 million shares of our outstanding common stock, from time to time through open market or privately negotiated transactions, as market and business conditions permit. The
program will expire in March 2012. As of March 31, 2011, we had purchased approximately 0.3 million shares of our common stock under the plan for a total purchase price of approximately
$0.5 million. No common stock purchases were made during the fourth quarter of fiscal year 2011. As of March 31, 2011, approximately 0.7 million shares of common stock remain
authorized for repurchase under the stock repurchase plan.

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STOCK PERFORMANCE GRAPH

The following graph compares the 5 year cumulative total return provided to shareholders of New Frontier Media, Inc.'s
common stock relative to the cumulative total returns of the S&P SmallCap 600 index and two peer group indexes. Peer Group 1 reflects the peer group used in the immediately preceding fiscal year ended
March 31, 2010. The Peer Group 1 index has historically included Playboy Enterprises Inc. (Playboy) and Private Media Group, Inc. (Private); however, the Peer Group 1 index as
presented in the below table only includes Private because Playboy became a privately held company in March 2011. Comparable data for the full 5 year cumulative total return period ended
March 31, 2011 is therefore unavailable for Playboy. The Peer Group 2 index represents a newly selected peer group index for the 5 year cumulative total return period ended
March 31, 2011 and includes: Outdoor Channel Holdings, Inc., Private, Rick's Cabaret International, Inc., and VCG Holding Corp. We changed from the Peer Group 1 index to the Peer
Group 2 index because we do not believe that one company, Private, reflects a reasonable index of issuer peers. We believe the index based on the companies included in the Peer Group 2 index reflects
a reasonable peer group based on the peer issuers' industry and line of business. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock, in the
peer group indexes, and the index on March 31, 2006 and its relative performance is tracked through March 31, 2011.

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

GRAPHIC

---

Copyright©
2011 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

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

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

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ITEM 6.    SELECTED FINANCIAL DATA.

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

Year Ended March 31,2011(4)

2010(3)

2009(2)

2008

2007(1)Net revenue

$
48,709

$
50,428

$
52,595

$
55,911

$
63,271Income (loss) from continuing operations

$
(760
)
$
(1,113
)
$
(2,970
)
$
8,836

$
12,309Income (loss) from continuing operations per basic share(5)

$
(0.04
)
$
(0.06
)
$
(0.13
)
$
0.37

$
0.51Income (loss) from continuing operations per diluted share(5)

$
(0.04
)
$
(0.06
)
$
(0.13
)
$
0.37

$
0.51Weighted average diluted shares


19,291


19,481


22,039


24,148


24,355Total assets

$
61,473

$
61,813

$
68,539

$
83,661

$
88,216Long-term liabilities

$
635

$
837

$
1,863

$
2,013

$
3,684Cash dividends declared per share of common stock

$


$


$


$
0.50

$
0.60


(1)Beginning
in the first quarter of fiscal year 2007, we adopted new standards that changed the accounting for employee equity incentive plans requiring the
recognition of share-based compensation. See Note 3Employee Equity Incentive Plans within the Notes to Consolidated Financial Statements for additional information.(2)We
incurred goodwill impairment charges of $10.0 million and film cost impairment charges of $1.1 million associated with the Film Production
segment during fiscal year 2009. See Note 5Goodwill and Other Identifiable Intangible Assets and Note 8Film Costs within the Notes to Consolidated Financial
Statements for additional information.(3)We
incurred goodwill impairment charges of $4.9 million, film cost impairment charges of $1.2 million, and charges to increase the allowance
for unrecoverable accounts of $0.8 million associated with the Film Production segment during fiscal year 2010. See the Recoupable Costs and Producer Advances discussion in
Note 1Organization and Summary of Significant Accounting Policies as well as Note 5Goodwill and Other Identifiable Intangible Assets and
Note 8Film Costs within the Notes to Consolidated Financial Statements for additional information.(4)We
incurred film cost impairment charges of $2.2 million and charges to increase the allowance for unrecoverable accounts of $0.8 million
associated with the Film Production segment during fiscal year 2011. See the Recoupable Costs and Producer Advances discussion in Note 1Organization and Summary of Significant
Accounting Policies as well as Note 8Film Costs within the Notes to Consolidated Financial Statements for additional information.(5)Amounts
reflect per share information attributable to New Frontier Media, Inc. shareholders.


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

INTRODUCTION

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



This
annual report on Form 10-K includes forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of
1933, as amended. All statements regarding trend analysis and our expected financial position and operating results, business strategy, financing plans and the outcome of contingencies are
forward-looking statements. Forward-looking statements are also identified by the words "believe," "project," "expect," "anticipate," "estimate," "intend," "strategy," "plan," "may," "should,"
"could," "will," "would," "will be," "will continue," "will likely result," and similar expressions. The forward-looking statements are subject to risks and uncertainties that could cause actual
results to differ materially from those set forth or implied by any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only
as of the date on which they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Factors
that could cause actual results to differ materially from the forward-looking statements include, but are not limited to, our ability to: 1) retain our four major
customers and related revenue that accounted for approximately 46% of our total revenue during the fiscal year ended March 31, 2011; 2) maintain the license fee structures currently in
place with our customers; 3) maintain our pay-per-view (PPV) channel and video-on-demand (VOD) shelf space with existing customers;
4) compete effectively with our current competitors and potential future competitors that distribute adult content to U.S. and international cable multiple system operators (MSOs) and direct
broadcast satellite (DBS) providers; 5) retain our key executives; 6) produce film content that is well received by our Film Production segment's customers; 7) comply with current
and future regulatory developments both domestically and internationally; and 8) successfully compete against other forms of adult and non-adult entertainment such as pay and free
adult-oriented internet websites and adult-oriented premium channel content. Our actual results could also differ materially from our forward-looking

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statements
if the general economic environment, consumer discretionary spending or other conditions continue to be unfavorable or further deteriorate. The foregoing list of factors is not exhaustive.
For a more complete list of factors that may cause results to differ materially from projections, please refer to the Risk Factors section of this Form 10-K.

OVERVIEW

We are a provider of transactional television services and a distributor of general motion picture entertainment. Our key customers
include large cable and satellite operators, premium movie channel providers and major Hollywood studios. We distribute content worldwide. Our three principal businesses are reflected in the
Transactional TV, Film Production and Direct-to-Consumer operating segments. Our Transactional TV segment distributes adult content to cable and satellite operators who then
distribute the content to retail consumers via VOD and PPV technology. We earn revenue by receiving a contractual percentage of the retail price paid by consumers to purchase our content on customers'
VOD and PPV platforms. The Transactional TV segment has historically been our most profitable segment. The Film Production segment generates revenue through the distribution of mainstream content to
large cable and satellite operators, premium movie channel providers and other content distributors. This segment also periodically provides contract film production services to major Hollywood
studios (producer-for-hire arrangements). The Film Production segment incurred operating losses in fiscal years 2011, 2010 and 2009 primarily due to impairment charges. Our
Direct-to-Consumer segment primarily generates revenue from membership fees earned through the distribution of adult content to consumer websites. The
Direct-to-Consumer segment has historically incurred operating losses and is expected to continue to incur operating losses for the foreseeable future; however, we have been
focused on returning the segment to profitability through efforts described below. Our Corporate Administration segment includes all costs associated with the operation of the public holding company,
New Frontier Media, Inc.

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

Transactional TV Segment

The Transactional TV segment is focused on the distribution of content to consumers via MSO and DBS customers' VOD and PPV services. We
earn revenue by receiving a percentage (sometimes referred to as a split) of the total retail purchase price paid by consumers to purchase our content on customers' VOD and PPV platforms. Revenue
growth can occur when we launch our services to new cable MSOs or DBS providers primarily in international markets, when the number of digital subscribers for systems where our services are currently
distributed increases, when we launch additional services or replace our competitors' services on existing customer cable and DBS platforms, and when our proportional buy rates improve relative to our
competitors. Alternatively, our revenue could decline if we were to experience lower consumer buy rates, as has been the case with the recent general economic downturn, if consumers migrate to other
forms of entertainment such as pay and free adult-oriented internet websites which we believe may also be occurring as a result of the economic downturn, if our customers pay us a smaller percentage
of the consumer retail purchase
price, if additional competitive channels are added to our customers' platforms or if our existing customers remove or replace our services on their platform.

Beginning
in fiscal year 2009, we focused the Transactional TV segment's growth efforts on expanding distribution into international markets. The expansion of the Transactional TV
segment's distribution into international markets continues to be one of our primary focuses for growth within the

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segment.
We currently distribute content in international markets including North America, Europe, Latin America and Asia. The Transactional TV segment's international revenue during the fiscal years
ended March 31, 2011, 2010 and 2009 was approximately $5.9 million, $3.6 million and $1.0 million, respectively. The large majority of the international growth within the
Transactional TV segment has occurred though the distribution of content to VOD platforms.

In
fiscal year 2011, we executed transponder agreements that allow us to distribute PPV channels in Latin America and Europe. The annual cost of the leased transponders is approximately
$0.6 million and is expected to increase as we expand the quantity of PPV channels that we distribute internationally. We plan to focus on executing new PPV distribution agreements with
customers in the future to further expand the Transactional TV segment's international growth. Although the initial transponder costs associated with the international PPV expansion are higher
relative to the costs to distribute content to international VOD platforms, the international PPV transponder costs are fixed rather than variable relative to the related revenue. Comparatively, the
transport costs associated with the international VOD distribution are variable relative to revenue.

Throughout
fiscal year 2011, the Transactional TV segment's costs increased as a result of our efforts to expand our international distribution. The increase in expenses occurred within
various areas of the Transactional TV segment's cost structure including transponder and uplink costs; content and distribution rights amortization; employee costs for sales, programming, and content
production; depreciation of equipment; and business development consulting. We expect the higher cost structure of the segment will continue in future periods in order to support the international
expansion efforts. If our international distribution and related revenue increase, we expect to experience improvements in our gross and operating margins as a result of the generally fixed cost
structure. If our efforts to increase revenue through international expansion are not successful or occur at a slower pace than expected, the segment could experience a further decline in gross and
operating margins.

Transactional
TV segment revenue during fiscal year 2011 as compared to the prior fiscal year experienced the following trends:



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We
believe that as a result of the economic downturn, domestic consumers that have historically purchased our content are purchasing less of our content or are viewing content through
less expensive alternatives such as low-cost and free internet websites. These conditions have put
pressure on the Transactional TV segment's domestic revenue and caused unfavorable performance over the past three years. It is reasonably possible that difficult economic conditions will persist or
worsen, which could cause our Transactional TV segment results to be materially adversely impacted. Although we believe that the deterioration in the economy has negatively impacted the Transactional
TV segment's results, it is not possible for us to quantify or reasonably estimate the financial impact. We have remained focused on maintaining our competitive market position by offering a wide
range of high-quality content as well as adjusting our content mix and distributing new content packages, and we believe our product is superior to other product offerings in the industry.

Our
Transactional TV segment is reliant on discretionary consumer purchases of our content. When consumers spend less of their discretionary income on non-essential expenses
such as our content, it adversely impacts our business. Additionally, our content is a relatively expensive choice of entertainment as compared to other options including mainstream content that is
available on our customers' platforms and adult content that is available on off-platform media such as the internet. We believe the high price of our content is causing consumers to
purchase less of our content or purchase other comparable content through alternative media. In order to confirm this assumption and determine whether reducing the price of our content could improve
overall gross revenue, we are performing price tests with certain customers to determine whether decreasing the price of our content could generate an increase in the buy volume sufficient to maintain
or increase total gross revenue. Although the initial results of the price tests are positive, there remains uncertainty regarding the optimum price for our products. As a result, we plan to continue
testing various pricing and packaging models with several of our larger customers in order to compile sufficient data to recommend changes to our customers.

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



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

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

During
fiscal year 2012 and future periods, we believe that the Transactional TV segment could experience revenue growth if we can successfully manage and are not materially adversely
impacted by the challenges and risks previously mentioned. We currently expect future growth in the segment to occur if we are successful with the following objectives:



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Film Production Segment

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

We
generate revenue by licensing our owned content for a one-time fee to free TV, premium TV and other domestic and international distributors. We also leverage our existing
relationships with Transactional TV segment customers and license the Film Production segment's owned content to domestic and international cable MSO and DBS providers through revenue percentage
arrangements that are structured in a similar manner to our Transactional TV segment agreements. The revenue percentages we receive from cable MSO and DBS providers for the Film Production segment
content are higher than the revenue percentages we receive for our Transactional TV segment content primarily due to the mainstream nature of the content. However, the retail price for our mainstream
content is lower than our Transactional TV segment content, so the per-buy revenue per transaction is often the same as the Transactional TV segment.

We
generate repped revenue through sales agency arrangements whereby we earn a sales commission and marketing fees by selling mainstream films on behalf of film producers. The Film
Production segment has established relationships with independent mainstream filmmakers and represents these filmmakers' movies primarily through Lightning Entertainment Group, Inc. Beginning
in late fiscal year 2009, we leveraged our existing Transactional TV segment customer relationships and began distributing repped content on VOD platforms through several domestic cable MSOs. We are
also distributing repped content films to retail markets through distribution partners.

The
Film Production segment periodically acts as a contract film producer for major Hollywood studios. Through these producer-for-hire arrangements, we provide
services and incur costs associated with the film production. Once the film has been delivered to the customer, we earn a fee for our services. Although we maintain no ownership rights for the
produced content, we are responsible for the management and oversight of the production. We do not produce these movies unless we have an executed agreement with a customer. These services have
historically generated a gross margin of between 5% and 20%. However, our historical performance may not be representative of producer-for-hire performance in the future.

Film
Production segment revenue during fiscal year 2011 as compared to the prior fiscal year experienced the following trends:



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



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

During
fiscal year 2012 and in future periods, we will focus on improving the revenue we generate from this segment through the following strategic
initiatives:



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Beginning
in fiscal year 2009, the film markets were significantly impacted by the economic downturn. As a result, the Film Production segment's customers reduced their content
acquisition budgets. We believe this occurred because customers were relying on their existing libraries to reduce spending and costs. These changes significantly impacted the Film Production segment
operating results during the third quarter of fiscal year 2009 and as a result, we made material revisions to the segment's internal forecasts resulting in a $10.0 million goodwill impairment
charge. We also recorded film cost impairment charges of approximately $1.1 million during the third quarter of fiscal year 2009 as a result of the economic downturn. During fiscal year 2010,
the Film Production segment results were consistent with our internal budgets excluding the impact of the goodwill and other impairment and related charges. However, conditions continued to be
unfavorable in the film markets where we distribute content, and we believed these challenging conditions would continue for the foreseeable future. As a result, the five year internal forecast for
the Film Production segment was revised downward in connection with the year end goodwill impairment testing which resulted in a goodwill impairment charge of $4.9 million. We also recorded
film cost impairment charges of approximately $1.2 million and an increase in the allowance for unrecoverable accounts of approximately $0.8 million during fiscal year 2010 associated
with the unfavorable film market conditions.

During
fiscal year 2011, owned content films continued to underperform as compared to our expectations. Additionally, the former Co-Presidents of the segment departed. As a
result, we adjusted downward the expected future performance of certain owned content films which resulted in film cost impairment charges of $2.2 million. We also recorded an increase in the
allowance for unrecoverable accounts of $0.8 million because certain recoupable costs and producer advances associated with repped content films were not expected to be recovered. If
challenging conditions within the film markets persist or worsen, the operating results of the Film Production segment could be materially adversely impacted.

Direct-to-Consumer Segment

Our Direct-to-Consumer segment generates revenue primarily by selling memberships to our adult consumer
websites. We have experienced declines in the Direct-to-Consumer segment revenue, which we believe is due to a decline in consumer spending as a result of the unfavorable
economic conditions as well as the availability of free and low-cost internet content. We expect this segment will continue to incur operating losses for the foreseeable future; however,
we have launched additional consumer websites and executed other actions in an effort to improve the segment's performance in the future.

The
Direct-to-Consumer segment also operated an internet protocol television (IPTV) set-top box business beginning in late fiscal year 2008. Customers
of the IPTV set-top box product could obtain content directly through the internet and view the content on television. In the fourth quarter of fiscal year 2010, we discontinued the
operations of the IPTV business model as a result of underperformance in fiscal year 2010. See Note 18Discontinued Operations within the Notes to Consolidated Financial Statements
for further discussion on our discontinuation of the IPTV set-top box business.

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Corporate Administration Segment

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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



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

Revenue Recognition

Our revenue consists primarily of fees earned through the distribution of programming content through various media outlets including
dedicated PPV channels and VOD categories that are distributed on cable and DBS platforms, premium movie channels, pay and free television channels and other available media outlets. Revenue is
recognized when persuasive evidence of an arrangement exists as is typically evidenced through an executed contract, the services have been rendered or delivery conditions as described in the related
contract have been satisfied, the license period related to the content has begun and the customer can begin exploitation of the content, the fee is fixed or determinable and collection of fees is
reasonably assured. The process involved in evaluating the

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appropriateness
of revenue recognition involves judgment including estimating monthly revenue based on historical data and determining collectability of fees.

Transactional TV Segment VOD and PPV Services

The Transactional TV segment's VOD and PPV revenue are recognized based on buys and monthly subscriber counts reported each month by
cable MSOs and DBS providers. We earn revenue by receiving a contractual percentage of the retail price paid by consumers of the content. Monthly sales information is not typically reported to the
Transactional TV segment until approximately 30 - 90 days after the month of service, which requires management to make monthly revenue estimates based on the
Transactional TV segment's historical experience with each customer. The revenue estimates may be subsequently adjusted to reflect the actual amount earned upon receipt of the monthly sales reports. A
10% change in our estimated revenue as of March 31, 2011 would have affected our net loss by approximately $0.3 million in fiscal year 2011.

Film Production Segment Owned Content Licensing

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

Film Production Segment Repped Content Licensing

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

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

Direct-to-Consumer Segment Membership Fees

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

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Income Taxes

We make certain estimates and judgments in determining the income tax benefit (expense). These estimates and judgments are used in the
determination of tax credits, benefits and deductions, uncertain tax positions, and the calculation of certain tax assets and liabilities which are a result of differences in the timing of the
recognition of revenue and expense for tax and financial statement purposes. We also use estimates and judgments in determining interest and penalties on uncertain tax positions. Significant changes
to these estimates could result in a material change to the income tax benefit (expense) in subsequent periods.

We
are required to evaluate the likelihood that we will be able to recover deferred tax assets. We have no material deferred tax asset valuation allowances and estimate that our deferred
tax assets will be recoverable. If these estimates were to change and the assessment indicated we would be unable to recover the deferred tax assets, we would increase the income tax expense in the
period of the change in estimate.

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

Film Costs

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

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

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Film
costs are reviewed for impairment on a film-by-film basis each quarterly reporting period. We record an impairment charge when the fair value of the film is
less than the unamortized cost. Examples of events or circumstances that could result in an impairment charge for film costs include the underperformance of a film as compared to expectations or a
downward adjustment in the estimated future performance of a film due to an adverse change in the general business climate. Impairment charges associated with film costs could have a material impact
on our financial position and results of operations in future periods.

Fiscal Year 2011 Film Cost Impairments

During the second and fourth quarters of fiscal year 2011, we recorded impairment expenses of approximately $0.6 million and
$1.6 million, respectively, associated with certain owned content films. During our second quarter film performance analysis, we adjusted downward the expected performance for certain films
based on a continuation of underperformance as compared to expectations. During our fourth quarter film performance analysis, we adjusted downward the expected results for certain films based on a
continued trend of lower than expected film performance and based on the recent departure of the segment's Co-Presidents. As a result, we performed further assessments on the films and
determined the fair value of the films was less than the unamortized cost of the films, and the differences were recorded as impairment charges. The impairment charges were recorded in the charge for
asset impairments other than goodwill within the Film Production segment. The fair value of the films was estimated by discounting the films' expected future cash flow by the weighted average cost of
capital. The weighted average cost of capital was determined by considering comparable companies and their cost of equity, cost of debt, capital structure, and other risk factors specific to the
segment. A 10% change in the estimated future cash flows of the impaired films would have immaterially affected our net loss by less than approximately $0.1 million in fiscal year 2011. A 10%
change in the weighted average cost of capital would also have immaterially affected our net loss by less than approximately $0.1 million in fiscal year 2011.

Recoupable Costs and Producer Advances

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

Recoupable
costs and producer advances are stated at the amounts contractually recoverable through collection of future license fees net of an allowance for unrecoverable accounts. The
allowance for unrecoverable accounts reflects any loss anticipated from unrecovered recoupable costs and producer advances. Charges to adjust the allowance for unrecoverable accounts are reflected as
a component of operating expenses in the consolidated statements of operations. We evaluate recoupable costs and producer advances on an individual film-by-film basis each
quarter based on a number of factors including our historical experience with charges to the allowance, estimates of future license fee

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collections,
estimates of future recoupable costs to be incurred, and the condition of the general economy and film industry as a whole. A 10% change in the allowance for unrecoverable accounts as of
March 31, 2011 would have affected our net loss by approximately $0.1 million in fiscal year 2011.

Content and Distribution Rights

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

We
periodically review the content library and assess whether the unamortized cost approximates the estimated net realizable value of the library based on expected forecast results. In
the event that the unamortized costs exceed the estimated net realizable value of the film library, we will expense the excess of the unamortized costs to reduce the carrying value to the estimated
net realizable value.

Goodwill, Other Identifiable Intangible and Long-lived Assets

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

As
an overall test of the reasonableness of the estimated fair value of the reporting units and the consolidated Company, we also perform a reconciliation of the fair value estimates for
the reporting units to our market capitalization. The reconciliation considers a control premium based on merger and acquisition transactions within the media and entertainment industry and other
available information. A

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control
premium is the amount that a buyer is willing to pay over the current market price of a company as indicated by the traded price per share (i.e., market capitalization), in order to
acquire a controlling interest. The premium is justified by the expected synergies, such as the expected increase in cash flow resulting from cost savings and revenue enhancements.

Other
identifiable intangible assets subject to amortization have primarily included amounts paid to acquire non-compete agreements with certain key executives, contractual
and non-contractual customer relationships, intellectual property rights, patents and websites. These costs are capitalized and amortized on a straight-line basis over their
estimated useful lives which is typically five years. Other identifiable intangible asset balances are removed from the gross asset and accumulated amortization amounts in the period in which they
become fully amortized or impaired and are no longer in use. For intellectual property and patents, the assets are not removed until our legal claim to the assets has expired.

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

Fiscal Year 2011 Goodwill Impairment Testing

We performed annual goodwill impairment testing for the Transactional TV segment as of March 31, 2011 using the income and
market valuation approaches. The projected results used in the income valuation approach included estimates of revenue, cost of sales, operating expenses, content acquisitions, capital expenditures
and other related cash flows and activities over a five year future period, and the cash flows were discounted by a risk adjusted discount rate. The market valuation approach required us to estimate
and consider market multiples for companies considered to be comparable to ours and although there was a lack of comparable public companies to consider for the market valuation approach, we believe
the comparable companies considered are reasonably similar to our operations. The income valuation approach was more heavily weighted than the market valuation approach because (a) there was a
lack of comparable public companies to consider for the market valuation approach, and (b) the income valuation approach was more representative of our unique operating performance
characteristics relative to the comparable companies considered in the market valuation approach.

We
assumed an average annual growth rate of 10% based on both company-specific and general economic risk, and we used a weighted average cost of capital of 26% for the risk adjusted
discount rate. The weighted average cost of capital was determined by considering comparable companies and their cost of equity, cost of debt, capital structure, and other risk factors specific to the
segment. Based on the testing, the fair value of the Transactional TV segment exceeded the carrying value by approximately 39%. A 1% change in the growth rate would cause the percentage by which the
segment's fair value exceeded the carrying value to change by approximately 200 basis points. A 1% change in the weighted average cost of capital would cause the percentage by which the segment's fair
value exceeded the carrying value to change by approximately 500 basis points. If the five year projected future performance of the Transactional TV segment as estimated in the income valuation
approach is adjusted downward or is lower than expected in the future, we could be required to record a goodwill impairment charge.

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Due to the continued pressure on our stock price, our market capitalization was less than the total New Frontier Media, Inc. shareholders' equity balance as of March 31, 2011. As
an overall test of the reasonableness of the estimated fair value of the reporting units and consolidated Company, a reconciliation of the fair value estimates for the reporting units to our market
capitalization based on the 30-day average closing price of our stock was also performed as of March 31, 2011. The reconciliation reflected an implied control premium of 67%, which is
reflective of historical merger and
acquisition transactions involving comparable companies as well as other relevant information. Based on the reconciliation, our fair value was in excess of the total New Frontier Media, Inc.
shareholders' equity balance by approximately 29%, and there was no indicator of goodwill impairment. A 1% change in the control premium would cause the percentage by which the fair value exceeded the
shareholders' equity balance to change by approximately 100 basis points.

RESULTS OF OPERATIONS

Transactional TV Segment

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

(In millions)
Year Ended March 31,

Percent Change2011

2010

2009

'11 vs '10

'10 vs '09Net revenueVOD

$
21.7

$
20.4

$
22.2


6
%

(8
)%PPV


13.6


16.1


19.5


(16
)%

(17
)%Other revenue


0.5


0.8


0.8


(38
)%

0
%Total


35.9


37.4


42.6


(4
)%

(12
)%Cost of sales


12.8


11.9


11.5


8
%

3
%Gross profit


23.1


25.5


31.1


(9
)%

(18
)%Gross profit %


64
%

68
%

73
%Operating expenses


12.1


10.3


9.5


17
%

8
%Operating income

$
10.9

$
15.1

$
21.6


(28
)%

(30
)%


Net Revenue

VOD

International VOD revenue increased during fiscal year 2011 by approximately $1.6 million as compared to fiscal year 2010.
International revenue was higher primarily as a result of new customer launches, an increase in the quantity of content distributed to existing customers, an improvement in our content performance
with existing customers, and adjustments to customer menu structures. Domestic VOD revenue experienced a minimal decline during fiscal year 2011 of $0.3 million, or 2%, as compared to the prior
fiscal year. Based on our results in the second through fourth quarters of fiscal year 2011, it appears that the domestic VOD performance has generally stabilized in contrast to a declining trend in
the prior fiscal year as described in more detail below. We believe the stabilization in the domestic VOD revenue was due to adjustments we made to our programming mix and our distribution of new
content packages. If the current economic conditions including high unemployment

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and
lower consumer discretionary spending persist or worsen, our domestic VOD performance could be materially adversely impacted.

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

PPV

PPV revenue was lower during fiscal year 2011 as compared to fiscal year 2010 due to a decline in revenue of $1.8 million from
the largest DBS platform in the U.S. primarily from the loss of a channel on that platform in November 2009. Revenue was also lower due to a decline in revenue from domestic DBS and top 10 cable MSO
customers. We believe consumers that have historically purchased our content with discretionary income have reduced their spending on our
content, eliminated their acquisition of our content, or are viewing content through less expensive alternatives such as low-cost and free internet websites, which has resulted in a
decline in our domestic PPV revenue. Although we have made adjustments on domestic VOD platforms in order to stabilize that revenue, we do not have flexibility to make similar adjustments on domestic
PPV platforms due to the linear nature of PPV distribution. As a result, the decline in consumer spending has had a larger unfavorable impact on our domestic PPV revenue as compared to our domestic
VOD revenue. Partially offsetting the decline in revenue was a $0.7 million increase in international PPV revenue from our expansion into international markets primarily in Latin America.

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

Other Revenue

Other revenue primarily includes revenue from advertising on our PPV channels and from content distribution fees. Other revenue
declined during fiscal year 2011 as compared to fiscal year 2010 due to a general decline in advertising and distribution activity. We believe customers reduced or eliminated their spending on these
services as a method to decrease expenses in response to the challenging economic conditions. Other revenue in fiscal year 2010 was consistent with fiscal year 2009.

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Cost of Sales

Our cost of sales primarily consists of expenses associated with our digital broadcast infrastructure; satellite uplinking; satellite
transponder leases; programming acquisition and monitoring activities; VOD transport; amortization of content and distribution rights; depreciation of property and equipment; and related employee
costs.

Cost
of sales increased during fiscal year 2011 as compared to fiscal year 2010 primarily due to (a) a $0.4 million increase in content and distribution rights amortization
from a general increase in acquisitions and the development of new and unique content incurred in an effort to improve domestic buy rates and support international expansion, (b) a
$0.3 million increase in transponder and uplink costs associated with the PPV channel launches in Latin America and Europe, (c) a $0.2 million increase in employee costs to
support content programming analysis, and (d) a $0.2 million increase in costs from accelerating depreciation expense for certain tenant improvement assets. We shortened the estimated
lives of the related tenant improvement assets in anticipation of vacating our current corporate and digital broadcast facilities prior to the end of the lease terms and moving to a new building
during the first half of fiscal year 2012. The increases in costs were partially offset by a decline in transport expenses from executing a new domestic transport agreement that contained more
favorable financial terms.

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

Operating Expenses and Operating Income

The increase in operating expenses during fiscal year 2011 as compared to fiscal year 2010 was primarily due to (a) a
$0.5 million increase in employee costs to support the development of new content packages and to strengthen the international sales expansion efforts, (b) a $0.3 million increase
in depreciation and maintenance expenses from purchasing storage equipment to support our international growth and the increase in domestic content distribution, (c) a $0.3 million
increase in expenses primarily from fully impairing certain content and distribution rights assets that no longer met our quality standards for distribution, (d) a $0.2 million increase
in business development consulting costs incurred in an effort to grow our international revenue, (e) a $0.1 million increase in costs from accelerating depreciation expense for certain
tenant improvement assets, (f) a $0.1 million increase in costs because the same prior year period included a gain from a vendor settlement that did not recur during fiscal year 2011,
and (g) a $0.1 million increase in legal costs from a vendor settlement. Operating income for fiscal year 2011 was $10.9 million as compared to $15.1 million in fiscal year
2010.

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

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Operating Lease for New Facility

In October 2010, we entered into an operating lease agreement to rent an approximately 48,500 square foot facility and expect to
complete occupancy of the facility in July 2011. We expect that the leased facility will be primarily used by the Transactional TV, Direct-to-Consumer and Corporate
Administration segments, and the new facility will replace our digital broadcast and corporate facilities. The landlord of the new facility will assume our current digital broadcast facility lease in
connection with the new operating lease agreement. The initial term of the agreement expires in January 2022 and provides for options to extend the term of the lease if agreed upon by the landlord and
us. In connection with our leasing of the new facility, we reduced the remaining estimated useful lives of certain tenant improvements related to the corporate and digital broadcast facilities we
currently occupy because we expect to vacate the buildings prior to the conclusion of the original lease agreements. As a result, we incurred an increase in depreciation expense in each of the
Transactional TV segment's cost of sales and operating expenses of approximately $0.1 million during each of the third and fourth quarters of fiscal year 2011. We expect to incur a similar
increase in depreciation expense in the first quarter of fiscal year 2012. We also expect to incur a charge in the first quarter of fiscal year 2012 within the Transaction TV segment's operating
expenses of approximately $0.8 million associated with vacating our digital broadcast facility and assigning the remaining lease and related obligations to the landlord of the new facility. The
total remaining lease and related obligations assumed by the new facility landlord will be reflected as a reduction in our rental expense on a straight-line basis over the term of the new
facility lease. Additionally, we expect to incur a $0.3 million charge in the second quarter of fiscal year 2012 from vacating our current corporate facility prior to the end of the lease term,
and the charge is expected to be included in the operating expenses of our segments with the majority of the charge being reflected within the Transactional TV segment. See the Cash Flows from
Investing Activities of Continuing Operations discussion within the Liquidity and Capital Resources section of the MD&A for additional information on the cash flow impact from the new facility.

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Film Production Segment

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

(In millions)
Year Ended March 31,

Percent Change2011(1)

2010(2)

2009(3)

'11 vs '10

'10 vs '09Net revenueOwned content

$
4.9

$
5.5

$
6.7


(11
)%

(18
)%Repped content


2.8


2.2


1.3


27
%

69
%Producer-for-hire and other revenue


4.2


4.3


0.5


(2
)%

#Total


12.0


12.0


8.6


0
%

40
%Cost of sales


6.4


6.6


3.6


(3
)%

83
%Gross profit


5.6


5.4


5.0


4
%

8
%Gross profit %


47
%

45
%

58
%Operating expenses


7.1


10.9


15.9


(35
)%

(31
)%Operating loss

$
(1.5
)
$
(5.4
)
$
(10.9
)

72
%

50
%


(1)The
fiscal year 2011 operating expenses included $2.2 million in film cost impairment charges and charges to increase the allowance for unrecoverable
accounts of $0.8 million. These items are discussed in more detail below.(2)The
fiscal year 2010 operating expenses included a $4.9 million goodwill impairment charge, $1.2 million in film cost impairment charges, and
charges to increase the allowance for unrecoverable accounts of $0.8 million. These items are discussed in more detail below.(3)The
fiscal year 2009 operating expenses included a $10.0 million goodwill impairment charge and $1.1 million in film cost impairment charges.
These items are discussed in more detail below.#Represents
an increase or decrease in excess of 100%.


Net Revenue

Owned Content

The decrease in owned content revenue during fiscal year 2011 was due to a $0.8 million decline in VOD revenue due to lower
consumer spending as described above within the Transactional TV segment discussion. Revenue also declined because the prior fiscal year 2010 results included approximately $0.4 million in
revenue from the delivery of a horror film to a pay television customer, and no similar revenue recurred during fiscal year 2011. The declines in revenue were partially offset by a $0.7 million
increase in revenue from the delivery of the fourth installment of an episodic series, whereas only a partial delivery of films from the third installment of an episodic series occurred in the prior
fiscal year.

Owned
content revenue declined during fiscal year 2010 as compared to fiscal year 2009 primarily due to a $0.9 million decline in revenue from premium cable channel customers
related to the delivery

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of
episodic series. We recognized revenue in fiscal year 2010 from a premium cable channel customer for the remaining partial delivery of the third installment of an episodic series, whereas in fiscal
year 2009, we recognized the full revenue from the delivery of the second installment of an episodic series as well as revenue from the initial partial delivery of the third installment of an episodic
series. Also contributing to the decline in revenue in fiscal year 2010 was lower revenue from the second largest DBS provider in the U.S. because fewer films were distributed on that platform in
fiscal year 2010 as compared to the prior fiscal year.

Repped Content

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

Repped
content revenue increased during fiscal year 2011 due to $0.4 million in incremental revenue from the distribution of repped content on domestic VOD platforms. Revenue also
increased by approximately $0.2 million due to additional revenue from the distribution of content to home video, retail DVD and other retail markets through our arrangements with mainstream
film distributors.

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

Producer-for-hire and Other Revenue

Producer-for-hire and other revenue relates to amounts earned through producer-for-hire
arrangements, music royalty fees and the delivery of other miscellaneous film materials to distributors.

Fiscal
year 2011 producer-for-hire and other revenue included approximately $3.3 million of revenue from the completion of a
producer-for-hire arrangement for a major Hollywood studio. We also recognized approximately $0.7 million of revenue from the final delivery of films from another
producer-for-hire arrangement that began production and delivery in fiscal year 2010 as discussed below.

Fiscal
year 2010 producer-for-hire and other revenue included approximately $2.6 million of revenue from our completion of a
producer-for-hire arrangement for a major Hollywood studio. We also recognized approximately $1.3 million of revenue associated with the initial delivery of films from a
second producer-for-hire arrangement. We did not generate any producer-for-hire revenue in fiscal year 2009.

Cost of Sales

Cost of sales is primarily comprised of the amortization of owned content film costs as well as delivery and distribution costs related
to that content. These expenses also include costs incurred to provide producer-for-hire services.

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Cost
of sales was lower in fiscal year 2011 as compared to fiscal year 2010 due to a $0.5 million decline in film cost amortization from lower owned content revenue and from
generating a larger proportion of revenue from higher margin films. The decrease in cost of sales was partially offset by a $0.4 million increase in production costs associated with
producer-for-hire services. The producer-for-hire services in fiscal year 2011 generated comparable
revenue as the services rendered in fiscal year 2010; however, the production costs associated with the fiscal year 2011 services were higher due to the production of a higher quality film. Film cost
amortization as a percentage of the related owned content revenue during fiscal year 2011 was 42% as compared to 47% during fiscal year 2010. The decline in the film cost amortization as a percentage
of the owned content revenue was due to the above mentioned generation of a larger proportion of revenue from higher margin films during fiscal year 2011.

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

Operating Expenses and Operating Loss

Operating expenses during fiscal year 2011 included $2.2 million in film cost impairment charges, which are discussed in more
detail below. Operating expenses also included $0.8 million in expenses to increase the allowance for unrecoverable accounts to reserve for certain recoupable costs and producer advances that
are not expected to be recovered. Employee costs were higher in fiscal year 2011 as compared to fiscal year 2010 by approximately $0.1 million primarily from severance expenses associated with
the departure of certain employees, and consulting costs increased by approximately $0.1 million from the provision of services related to strategic planning. Comparatively, the fiscal year
2010 results included a $4.9 million goodwill impairment charge, $1.2 million in film cost impairment charges, and $0.8 million in charges to increase the allowance for
unrecoverable accounts. We may incur film cost impairment charges and charges to increase our allowance for unrecoverable accounts in the future if our content underperforms relative to our
expectations. The Film Production segment incurred an operating loss of $1.5 million in fiscal year 2011 as compared to an operating loss of $5.4 million in fiscal year 2010.

Operating
expenses declined during fiscal year 2010 as compared to fiscal year 2009 primarily because the fiscal year 2009 results included a $10.0 million goodwill impairment
charge and $1.1 million in film cost impairment charges whereas the fiscal year 2010 results included a $4.9 million goodwill impairment charge and $1.2 million in film cost
impairment charges. These impairment charges are discussed in additional detail below. Operating expenses in fiscal year 2010 also included approximately $0.8 million of expenses to increase
the allowance for unrecoverable accounts because we estimated the amounts would not be recovered through future sales of the related repped content. Operating expenses declined in fiscal year 2010 by
approximately $0.4 million due to a reduction in tradeshow and travel costs associated with efforts to further reduce expenses in response to the economic downturn. The Film Production segment
incurred an operating loss of $5.4 million in fiscal year 2010 as compared to an operating loss of $10.9 million in fiscal year 2009.

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Goodwill Impairment Charges

We did not perform a goodwill impairment analysis for the Film Production segment as of March 31, 2011 because the segment's
goodwill was fully impaired in fiscal year 2010.

As
part of our prior fiscal year end procedures, we performed a goodwill impairment analysis as of March 31, 2010. We engaged an independent firm to assist us in performing the
impairment test and considered the income and market valuation approaches in determining the estimated fair value of the Film Production segment. Using these methods, we determined that the estimated
fair value of the Film Production segment was less than its carrying value as of March 31, 2010. We then performed additional analysis to estimate the implied fair value of goodwill by first
allocating the estimated fair value of the Film Production segment to the tangible and identifiable intangible assets and liabilities of the operating segment. The excess of the estimated fair value
over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. Based on this analysis, we recorded a goodwill impairment charge in the fourth quarter of fiscal year
2010 of $4.9 million to reduce the Film Production segment's goodwill from $4.9 million to the implied fair value of goodwill of zero. Although the fiscal year 2010 performance of the
Film Production segment was consistent with our internal forecasts (excluding the impact of impairment and related charges), conditions within the film markets continued to be challenging. Based on
our historical and current experience within the film production markets and in connection with our year end annual goodwill impairment test, we modified our five year forecast for the Film Production
segment downward to reflect our estimate that film market conditions would remain depressed and decline further. As a result of our downward adjustment to the five year forecast, we incurred a
goodwill impairment charge in fiscal year 2010.

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

Film Cost Impairment Charges

During the second and fourth quarters of fiscal year 2011, we recorded impairment expenses of approximately $0.6 million and
$1.6 million, respectively, associated with certain owned content films. During our second quarter film performance analysis, we adjusted downward the expected performance for certain films
based on a continuation of underperformance as compared to expectations. During our fourth quarter film performance analysis, we adjusted downward the expected results for certain films based on a
continued trend of lower than expected film performance and based on the recent departure of the segment's Co-Presidents. As a result, we performed further assessments on the films and
determined the fair value of the films was less than the unamortized cost of the films, and the differences were recorded as impairment charges. The impairment charges were recorded in the charge for
asset impairments other than goodwill within the Film Production segment. The fair value of the

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films
was estimated by discounting the films' expected future cash flow by the weighted average cost of capital.

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

During
the third quarter of fiscal year 2009, we recorded impairment expenses of approximately $1.1 million associated with several owned content films. During that quarter and as
part of our quarterly film performance analysis, we determined that downward adjustments to the estimated performance of the films should be recorded as a result of adverse changes to the business
climate. As a result, we recorded impairment charges of approximately $1.1 million representing the difference in the unamortized film costs and the estimated fair value of the films. This
difference was recorded as a charge for asset impairments other than goodwill within the Film Production segment's operating expenses. The fair value of the films was estimated by discounting the
film's projected cash flow by the weighted average cost of capital.

Direct-to-Consumer Segment

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

(In millions)
Year Ended March 31,

Percent Change2011

2010

2009

'11 vs '10

'10 vs '09Net revenueNet membership

$
0.8

$
0.9

$
1.2


(11
)%

(25
)%Other revenue





0.1


0.2


#


(50
)%Total


0.8


1.0


1.5


(20
)%

(33
)%Cost of sales


1.2


1.4


0.9


(14
)%

56
%Gross profit (loss)


(0.4
)

(0.3
)

0.5


(33
)%

#Operating expenses


0.7


0.6


0.9


17
%

(33
)%Operating loss

$
(1.1
)
$
(0.9
)
$
(0.3
)

(22
)%

#


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


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Net Revenue

We believe the decline in net membership revenue during fiscal year 2011 and 2010 as compared to the prior fiscal years was primarily
due to the economic downturn and a related reduction in consumer spending.

Other
revenue primarily relates to the sale of content to other webmasters. We also believe other revenue declined during fiscal years 2011 and 2010 as compared to the prior fiscal years
as a result of the general economic downturn and a related reduction in consumer spending.

Cost of Sales

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

Costs
of sales in fiscal year 2011 declined as compared to fiscal year 2010 primarily due to the impact of cost reduction efforts. The increase in cost of sales during fiscal year 2010
as compared to fiscal year 2009 was primarily due to additional employee costs incurred in an effort to improve our website membership revenue.

Operating Expenses and Operating Loss

Operating expenses in fiscal year 2011 included general increases in administrative costs of approximately $0.2 million
including higher legal, advertising and facility expenses. Operating expenses were also higher by approximately $0.2 million due to settlement expenses associated with a payment processing
vendor and software licensing vendor. Operating expenses in the prior fiscal year 2010 included $0.3 million in other identifiable intangible asset impairment charges as discussed in further
detail below, and no materially similar impairment charges were incurred in fiscal year 2011. The Direct-to-Consumer segment incurred operating losses of $1.1 million
and $0.9 million during the fiscal years ended March 31, 2011 and 2010, respectively.

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

Other Identifiable Intangible Assets Impairment Charges

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

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Corporate Administration

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

(In millions)
Year Ended
March 31,

Percent Change2011

2010

2009

'11 vs '10

'10 vs '09Operating expenses

$
9.5

$
8.8

$
9.9


8
%

(11
)%


The
increase in Corporate Administration segment expenses during fiscal year 2011 as compared to fiscal year 2010 was primarily due to (a) a $0.3 million increase in bonus
accruals primarily for certain executive officers, (b) a $0.2 million increase in employee costs from certain annual salary increases, (c) a $0.1 million increase in stock
option expenses related to awards issued in the third and fourth quarters of fiscal year 2010, and (d) a $0.1 million increase in legal expenses associated with ordinary course
litigation matters.

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

Other Income (Expense) and Income Tax Benefit (Expense)

Other Income (Expense)

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

(In millions)
Year Ended March 31,

Percent Change2011

2010

2009

'11 vs '10

'10 vs '09Other income (expense)

$
0.1

$
(0.2
)
$
0.4


#


#


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


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

The
change in other income (expense) during fiscal year 2011 as compared to fiscal year 2010 was primarily due to a decline in interest expense on our line of credit borrowings. Interest
expense declined as a result of the full year impact of reducing the related line of credit principal balance during the second half of fiscal year 2010 and from further reductions in the principal
balance during fiscal year 2011. Also contributing to the change was the reversal of interest expense in fiscal year 2011 associated with the reversal of uncertain tax position liabilities due to the
expiration of the statute of limitations. There was no similar reversal of interest expense during fiscal year 2010.

The
change in other income (expense) in fiscal year 2010 as compared to fiscal year 2009 primarily occurred because the fiscal year 2009 results included the reversal of approximately
$0.4 million of

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interest
expense associated with the reversal of uncertain tax position liabilities due to the expiration of the statute of limitations. There was no similar reversal of interest expense during fiscal
year 2010. Also contributing to the change was an increase in interest expense in fiscal year 2010 associated with a higher outstanding line of credit principal balance throughout the fiscal year.
There was no outstanding line of credit principal balance in fiscal year 2009 until the third quarter of that fiscal year.

Income Tax Benefit (Expense)

(In millions)
Year Ended March 31,

Percent Change2011

2010

2009

'11 vs '10

'10 vs '09Income tax benefit (expense)

$
0.3

$
(0.8
)
$
(3.9
)

#


(79
)%


During
the third quarter of fiscal year 2011, the statute of limitations expired on approximately $0.2 million of uncertain tax position liabilities. As a result, we recorded a
reduction in our income tax expense of $0.2 million. Additionally, we increased our income tax expense during fiscal year 2011 by approximately $0.1 million in connection with changes in
certain estimates related to permanent tax differences between our tax expense for financial reporting purposes and the amount used for income tax purposes. No other discreet items had a material
impact on our tax rate during fiscal year 2011.

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

March 31,2009(1)

$
2172008(1)


1692007


1292006


86Total

$
601


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


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

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During fiscal year 2009, we recorded a goodwill impairment charge of $10.0 million within our Film Production segment. The impairment charge was a non-deductible
expense for purposes of our fiscal year 2009 tax return. Additionally, the statute of limitations expired on approximately $1.6 million of uncertain tax positions in fiscal year 2009. This
reversal of uncertain tax positions resulted in a $0.4 million reduction in income tax expense and a $0.4 million reversal of related interest
expense during the third quarter of fiscal year 2009. No other discreet items had a material impact on our tax rate during fiscal year 2009.

See
Note 9Income Taxes within the Notes to Consolidated Financial Statements for additional information on our income taxes.

Discontinued Operations

The Direct-to-Consumer segment acquired certain intellectual property rights to an IPTV set-top box
and other identifiable intangible assets in late fiscal year 2008 in an effort to expand the product lines that are delivered directly to consumers. Based primarily on (a) lower than expected
subscriber additions for the IPTV business model during the second half of fiscal year 2009, (b) the significant downturn in economic conditions and related reduction in consumer spending
during the second half of fiscal year 2009, and (c) slower than expected development of new product lines, we restructured the Direct-to-Consumer segment operations as
it related to new product lines. In connection with the restructuring and an analysis of the future expected benefits from the operations, we determined that certain other identifiable intangible
assets associated with the related new product lines were impaired and recorded $0.9 million in other identifiable intangible asset impairment charges in the fourth quarter of fiscal year 2009.
Additionally, several contracts were cancelled prior to the end of the related term in connection with the restructuring and as a result, we also incurred an early contract termination fee of
approximately $0.2 million in the fourth quarter of fiscal year 2009 which was paid in April 2009.

During
fiscal year 2010, we entered into arrangements with third-party affiliates to distribute the IPTV set-top box in Europe and the U.S. Throughout fiscal year 2010, these
affiliates marketed the IPTV set-top box product through a variety of advertising programs including print, billboards and other miscellaneous media. The performance of the IPTV
set-top box business in fiscal year 2010 was lower than expected and as a result, we implemented a plan to discontinue the operations of the IPTV set-top box business in the
fourth quarter of fiscal year 2010. As a result, we recorded inventory obsolescence impairment charges of $0.1 million and equipment impairment charges of $0.1 million. We do not expect
to incur material expenses or cash flows in the future associated with the discontinued operations.

LIQUIDITY AND CAPITAL RESOURCES

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



We
anticipate that our existing cash, cash equivalents and cash flows from operations will be sufficient during the next 12 months to satisfy our operating requirements. We also
anticipate that we

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

In
summary, our cash flows from continuing operations were as follows:

(In millions)
Year Ended March 31,2011

2010

2009Net cash provided by operating activities of continuing operations

$
7.6

$
6.5

$
10.7Net cash used in investing activities of continuing operations


(5.0
)

(1.1
)

(1.8
)Net cash used in financing activities of continuing operations


(1.0
)

(3.2
)

(8.0
)


Cash Flows from Operating Activities of Continuing Operations

Cash provided by operating activities of continuing operations during fiscal year 2011 as compared to fiscal year 2010 was primarily
impacted by the following:



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



Cash
provided by operating activities of continuing operations during fiscal year 2011 was significantly higher as compared to the operating loss incurred as a result of asset impairment
and other charges. Cash from operating activities was also higher as compared to the operating loss incurred during fiscal year 2011 because we collected cash from the completion of an episodic series
and from producer-for-hire services during fiscal year 2011, but the production cash outflows from these arrangements occurred in the prior fiscal year. Cash from operating
activities during fiscal years

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2010
and 2009 was significantly higher as compared to the related operating income (loss) incurred primarily as a result of goodwill, asset impairment and other charges.

Cash Flows from Investing Activities of Continuing Operations

Cash from investing activities of continuing operations during fiscal year 2011 included $5.0 million of cash used to purchase
property and equipment. Approximately $1.3 million of the cash outflows relate to building improvements incurred for a new leased facility discussed in more detail below. The remaining cash
outflows for property and equipment were incurred primarily to purchase storage, transponder receiver, and other broadcast and distribution equipment. The storage and other broadcast and distribution
equipment was purchased to support the Transactional TV segment's international growth and expanded domestic content distribution. The transponder receiver equipment was purchased to supplement a
change in the Transactional TV segment's transponder services, which is expected to stabilize or reduce domestic transponder costs in the future.

In
October 2010, we entered into an operating lease agreement to rent an approximately 48,500 square foot facility. We plan to relocate our corporate and digital broadcast facilities to
the new facility, with occupancy scheduled to be completed in July 2011. During fiscal year 2011, we incurred approximately $1.3 million in cash outflows for building improvements and
$0.1 million in cash outflows for equipment in connection with the planned occupancy of the new facility. We expect to incur an additional $2.0 million in investing cash outflows for
building improvements and $1.2 million in investing cash outflows for equipment related to the new facility during fiscal year 2012. We also expect to receive approximately $1.7 million
of operating cash inflows in fiscal year 2012 associated with a tenant improvement allowance. We are continuing to review and may modify our relocation plans in the future, and modifications to our
plans could result in a material change to the expected cash outflows associated with the relocation.

Cash
from investing activities of continuing operations during fiscal year 2010 included approximately $0.1 million of cash received from net redemptions of investments,
approximately $1.1 million of cash used to purchase property and equipment, and approximately $0.1 million of cash disbursements
associated with purchases of intangible assets within our Direct-to-Consumer segment.

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

Cash Flows from Financing Activities of Continuing Operations

Net cash used in financing activities of continuing operations during fiscal year 2011 consisted of $0.5 million of cash used to
reduce the outstanding principal of our line of credit, $0.4 million of cash used to repurchase approximately 0.2 million shares of common stock at an average purchase price of $1.57 per
share, and $0.1 million in payments for long-term seller financing related to our purchase of a patent.

Our
cash flows from financing activities of continuing operations during fiscal year 2010 were primarily impacted by net payments to reduce the outstanding principal of our line of
credit of

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$3.0 million.
Also impacting the cash flows from financing activities was $0.1 million used to repurchase approximately 62,000 shares of common stock at an average purchase price of
$1.99 per share, and $0.1 million in payments for long-term seller financing related to our purchase of a patent.

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

Stock Repurchase and Cash Dividends

Stock Repurchase

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

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

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

In
August 2009, our Board of Directors adopted a new stock repurchase program. Under the program, we were authorized to purchase with available cash and cash from operations up to
1.0 million shares of outstanding common stock, from time to time through open market or privately negotiated transactions, as market and business conditions permit. The program will expire in
March 2012. We have repurchased approximately 0.3 million shares through this repurchase program as of March 31, 2011 for a total purchase price of approximately $0.5 million.

Cash Dividends

As of March 31, 2008, we had a dividend payable of $3.0 million that was subsequently paid in April 2008. The Board of
Directors did not declare a quarterly dividend during fiscal year 2009, 2010, or 2011, and the payment of future quarterly dividends is at the discretion of the Board of Directors. We currently have
no plans to effect any further dividends; however, we will continue to evaluate available methods to enhance shareholder value, whether in the form of cash dividends or otherwise.

Borrowing Arrangements

On December 15, 2010, our former line of credit matured and we renewed the line of credit. The line of credit is secured by
certain accounts receivable assets, is scheduled to mature on December 15, 2011, and bears interest at the greater of (a) the current prime rate less 0.125 percentage points per

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annum,
or (b) 5.75% per annum. The line of credit may be drawn from time to time to support our operations and short-term working capital needs, if any. A loan origination fee of
0.5% of the available line was paid upon the execution of the line of credit. The line of credit includes a maximum borrowing base equal to the lesser of 75% of certain accounts receivable assets
securing the line of credit or $5.0 million, and the maximum borrowing base as of March 31, 2011 was $4.8 million. The average outstanding line of credit principal balance for the
fiscal years ended March 31, 2011 and 2010 was $1.0 million and $3.3 million, respectively. The interest rate on our line of credit during each of the fiscal years ended March 31, 2011
and 2010 was 5.75%.

The
line of credit contains both conditions precedent that must be satisfied prior to any borrowing and affirmative and negative covenants customary for facilities of this type,
including, without limitation, (a) a requirement to maintain a current asset to current liability ratio of at least 1.5 to 1.0, (b) a requirement to maintain a total liability to
tangible net worth ratio not to exceed 1.0 to 1.0, (c) prohibitions on additional borrowing, lending, investing or fundamental corporate changes without prior consent, (d) a prohibition
on declaring, without consent, any dividends, other than dividends payable in our stock, and (e) a requirement that there be no material adverse change in our current client base as it relates
to our largest clients. The line of credit provides that an event of default will exist in certain circumstances, including without limitation, our failure to make payment of principal or interest on
borrowed amounts when required, failure to perform certain obligations under the line of credit and related documents, defaults in certain other indebtedness, our insolvency, a change in control, any
material adverse change in our financial condition and certain other events customary for
facilities of this type. As of March 31, 2011, our outstanding principal balance under the line of credit was $0.5 million, and we were in compliance with the related covenants.

Historically,
we have made borrowings under the line of credit to ensure we maintained a high level of liquidity through the economic downturn and to ensure the funds were available if
needed. Although we borrowed funds under the line of credit to strengthen our liquidity, we have maintained cash and cash equivalent balances and generated positive cash flows from operations that are
more than sufficient to support our working capital and capital expenditure needs. We do not currently have plans to make significant strategic investments; however, we believe the availability of
funds through the line of credit provides us with additional flexibility when considering strategic investments.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

Contractual Obligations

The following table reflects our contractual cash obligations as of March 31, 2011 for each of the fiscal year time periods
specified (amounts may not sum due to rounding):

Payments Due by Period (In millions):Contractual Obligations

Total

2012

2013 - 2014

2015 - 2016

2017 and thereafterOperating lease obligations

$
15.0

$
2.2

$
3.6

$
3.1

$
6.1Vendor obligations


12.4


3.4


5.5


2.0


1.5Line of credit


0.5


0.5








Interest payments


0.0


0.0








Employment contract obligations


7.4


3.8


3.6





Total

$
35.3

$
9.9

$
12.7

$
5.1

$
7.6


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During
the first quarter of fiscal year 2012, we extended the term of non-cancellable employment contracts with certain executives and other key employees. These employment
contracts expire through March 31, 2015. The impact of the extension of the employment contracts, which was not reflected in the above table, was an increase in our commitments under the
obligations of approximately $0.4 million, $0.8 million, $1.8 million, and $1.1 million during fiscal years 2012, 2013, 2014 and 2015, respectively.

For
the purposes of this table, contractual obligations are defined as agreements that are enforceable and legally binding and that specify all significant terms, such as fixed or
minimum services to be purchased and the approximate timing of the transaction. Obligations to acquire specified quantities of movie license rights that are subject to the delivery of the related
movies are included in vendor obligations because we estimate that the movies will be delivered in the specified time periods. Operating lease obligations also include estimated payments to landlords
for real estate taxes, common area maintenance and related payments and are based on historical payments and estimated future payments. Interest payments include anticipated interest obligations on
our $0.5 million of outstanding principal from our line of credit and assume the amounts will remain outstanding through the remaining term of the line of credit, December 15, 2011, at
an interest rate of 5.75%.

We
maintain non-cancelable leases for office space and equipment under various operating leases. The leases for office space expire through fiscal year 2022. Our
Transactional TV segment has entered into direct lease agreements that expire through October 2013 with unrelated
parties for the use of transponders to broadcast its channels on satellites. We expect to have continued access to transponders subsequent to the expiration of the current leases. In some instances,
we are subject to arbitrary refusal of the transponder service by the service provider if that service provider determines that the content being transmitted by us is harmful to the service provider's
name or business. Any such service disruption would substantially and adversely affect our financial position and results of operations. We also bear the risk that the access of their networks to
transponders may be restricted or denied if a governmental authority commences an investigation concerning the content of the transmissions. Additionally, cable operators may be reluctant to carry
less edited or partially edited adult programming on their systems. If any of the above scenarios occurred, it could adversely affect our financial position and results of operations. We had no
equipment under capital lease as of March 31, 2011 or 2010.

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

We
have recorded long-term income taxes payable of $0.1 million for uncertain tax positions, reduced by the associated federal deduction for state taxes. We are unable
to reliably estimate the timing of future payments, if any, related to these uncertain tax positions. Therefore, the amounts have been excluded from the above table.

Off-Balance Sheet Arrangements

Our Film Production segment completed producer-for-hire services during fiscal year 2011 related to a movie
production in the state of Georgia. Based on the location of the production and other factors, we received certain transferable production tax credits in the state of Georgia. Subsequent to

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

the
completion of the production, we entered into an agreement to sell the tax credits for a net purchase price of approximately $0.8 million. If the tax credits are recaptured, forfeited,
recovered or otherwise become invalid within a four year period subsequent to our sale of the tax credits, we have agreed to reimburse the buyer for the value of the invalid tax credits as well as any
interest, penalties or other fees incurred in connection with the loss of the tax credits. We believe the tax credits are valid and do not expect that we will be required to reimburse the buyer.

Other Contingencies

Uncertain Tax Positions

We had total unrecognized tax benefits of approximately $0.1 million as of March 31, 2011 that are not expected to be
settled within one year and have been classified within long-term taxes payable. If we were to prevail or the uncertainties were settled in our favor for all uncertain tax positions, the
net effect is estimated to be a benefit to tax expense of approximately $0.1 million. As of March 31, 2011, we had accrued immaterial amounts of interest expense related to uncertain tax
position liabilities. During fiscal year 2011, the statute of limitations expired on approximately $0.2 million of uncertain tax positions resulting in a decline in the uncertain tax position
balance as reflected in long-term taxes payable and a reduction in our income tax expense. The reduction in the uncertain tax position balance also resulted in the reversal of
approximately $35,000 in interest expense. The aggregate change in the uncertain tax position balance during fiscal year 2011 was as follows (in thousands):

Beginning balance as of April 1, 2010

$
309Reversal of prior period tax position from expiration of statute of limitations


(193
)Ending balance as of March 31, 2011

$
116


There
were no material changes in our unrecognized tax benefits during fiscal year 2010. During fiscal year 2009, the statute of limitations expired on approximately $1.6 million
of uncertain tax positions resulting in a decline in the uncertain tax position balance as reflected in the current portion of taxes payable. This reversal of the uncertain tax positions resulted in a
$0.4 million reduction in our income tax expense and a $0.4 million reversal of related interest expense. Approximately $1.1 million of the reversal of the uncertain tax position
liabilities was recorded as an increase to additional paid-in capital because the amount was originally recorded as a reduction of additional paid-in capital and had no impact
on income tax expense.

We
file U.S. federal, state and foreign income tax returns. During fiscal year 2009, we concluded an audit by the Internal Revenue Service (IRS) for the fiscal year 2007, and the
IRS proposed no changes to the fiscal year 2007 tax return in connection with the audit. There are currently no tax audits in process with taxing authorities. With few exceptions, we are no longer
subject to examination of our federal income tax returns for years prior to fiscal year 2008, and we are no longer subject to examination of our state income tax returns for years prior to fiscal year
2007.

RECENT ACCOUNTING PRONOUNCEMENTS

See Recently Issued Accounting Pronouncements in Note 1Organization and Summary of Significant Accounting Policies
within the Notes to Consolidated Financial Statements.

55

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Table of Contents

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

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

Interest Rate Sensitivity.Changes in interest rates could impact our anticipated interest income on cash and cash equivalents. An
adverse change in
interest rates in effect as of March 31, 2011 would not have a material impact on our interest income or cash flows.

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

Foreign Currency Exchange Risk.We do not have material foreign currency transactions.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The consolidated financial statements of New Frontier Media, Inc. and its subsidiaries, including the notes thereto and the
report of independent accountants therein, commence at page F-2 of this Report and are incorporated herein by reference.

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

None.

ITEM 9A.    CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

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

Management Report on Internal Control over Financial Reporting

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

Management
assessed our internal control over financial reporting as of March 31, 2011, the end of our fiscal year. Management based its assessment on criteria established in Internal

56

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Table of Contents

ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Management's assessment included evaluation of elements
such as the
design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.

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

Inherent Limitations on Effectiveness of Controls

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

ITEM 9B.    OTHER INFORMATION.

None.

PART III.

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Incorporated by reference to "Information about the Nominees" in the definitive proxy statement to be filed with the SEC relating to
the registrant's Annual Meeting of Shareholders expected to be held on or about August 25, 2011.

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

All
of our directors, officers and employees are subject to a Code of Business Conduct and Ethics, and our financial management, including our principal executive, financial and
accounting officers, are also subject to an additional Code of Ethics for Financial Management, each of which codes are available for review under the Corporate Governance link in the Investor
Relations portion of our website:www.noof.com. Any amendments to any of the provisions of the codes that are applicable to our principal executive,
financial or accounting officers and are required under applicable laws, rules and regulations to be disclosed publicly will be posted for review in the above identified area of our website, and any
waivers of such provisions or similar provisions applicable to our directors will be disclosed on Form 8-K as required by the Securities and Exchange Act of 1934, as amended, and
the applicable rules of The Nasdaq Stock Market, LLC.

57

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Table of Contents

ITEM 11.    EXECUTIVE COMPENSATION.

Incorporated by reference to "Compensation Discussion and Analysis," "Compensation Committee Report," "Summary Compensation Table,"
"Fiscal Year 2011 Grants of Plan-Based Awards," "Outstanding Equity Awards at Fiscal Year-End," "Potential Payments Upon Termination" and "Non-Employee Director
Compensation for Fiscal Year 2011" in the definitive proxy statement to be filed with the SEC relating to the registrant's Annual Meeting of Shareholders expected to be held on or about
August 25, 2011.

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

Incorporated by reference to "Security Ownership of Certain Beneficial Owners and Management" and "Securities Authorized for Issuance
Under Equity Compensation Plans" in the definitive proxy statement to be filed with the SEC relating to the registrant's Annual Meeting of Shareholders expected to be held on or about
August 25, 2011.

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

Incorporated by reference to "Transactions with Related Persons" and "Director Independence" in the definitive proxy statement to be
filed with the SEC relating to the registrant's Annual Meeting of Shareholders expected to be held on or about August 25, 2011.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES.

Incorporated by reference to "Fees Billed by Independent Registered Public Accounting Firm" in the definitive proxy statement to be
filed with the SEC relating to the registrant's Annual Meeting of Shareholders expected to be held on or about August 25, 2011.

PART IV.

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

The following documents are filed as part of this report:

1)    FINANCIAL STATEMENTS

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

2)    FINANCIAL STATEMENT SCHEDULES

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

58

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Table of Contents

3)    EXHIBITS

Exhibit No.

Exhibit Description3.01

Amended and Restated Articles of Incorporation of the Company, dated May 7, 2007(1)3.02

Amended and Restated Bylaws of the Company, dated February 2, 2011(2)4.01

Form of Common Stock Certificate(3)4.02

Amended and Restated Rights Agreement between the Company and Corporate Stock Transfer, Inc., as rights agent, dated August 1, 1998(4)4.03

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

Lease Agreement Office and Industrial Space between the Company and LakeCentre Plaza, Ltd., LLLP, dated August 12, 1999(5)10.02

Lease between the Company and Northview Properties, LLC, dated April 11, 2001(6)10.03

Lease Modification Agreement between the Company and LakeCentre Plaza Ltd., LLLP, dated July 30, 2003(6)10.04
#
Satellite Capacity Lease between Colorado Satellite Broadcasting, Inc. and Transponder Encryption Services Corporation, dated October 24, 2006(7)10.05
*
Summary of Director Compensation Arrangements10.06
*
1998 Incentive Stock Plan, dated July 21, 1998(8)10.07
*
1999 Incentive Stock Plan, dated September 3, 1999(9)10.08
*
Millennium Incentive Stock Option Plan, dated July 13, 2000(10)10.09
*
2001 Incentive Stock Plan, dated June 25, 2001(11)10.10
*
2007 Stock Incentive Plan, dated July 16, 2007(12)10.11
*
Amended and Restated Employment Agreement between the Company and Michael Weiner, dated September 29, 2008(13)10.12
*
Amended and Restated Employment Agreement between the Company and Grant Williams, dated September 29, 2008(13)10.13
*
Amended and Restated Employment Agreement between the Company and Ira Bahr, dated September 29, 2008(13)10.14
*
Amended and Restated Employment Agreement between the Company and Ken Boenish, dated September 29, 2008(13)10.15
*
Amended and Restated Employment Agreement between the Company and Marc Callipari, dated September 29, 2008(13)10.16
*
Amended and Restated Employment Agreement between the Company and Scott Piper, dated September 29, 2008(13)10.17
#
Affiliation Agreement between the Company and Time Warner Cable, a division of Time Warner Entertainment Company, L.P., dated January 1, 2000 and as amended to date(14)


59

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Table of Contents

Exhibit No.

Exhibit Description10.18
#
Video On Demand License Agreement between the Company and Time Warner Cable, a division of Time Warner Entertainment Company, L.P., dated March 13, 2000 and as amended to date(14)10.19
#
Adult VOD License Agreement between Colorado Satellite Broadcasting, Inc. and Comcast Cable Communications, Inc., dated October 18, 2002 and as amended to date(14)10.20
#
Pleasure Service License Agreement between Colorado Satellite Broadcasting, Inc. and Comcast Programming, a division of Comcast Corporation, dated November 16, 2000 and as amended to date(14)10.21

First Amendment to Satellite Capacity Lease between Colorado Satellite Broadcasting, Inc. and Transponder Encryption Services Corporation, dated October 4, 2007(14)10.22
#
Second Amendment to Satellite Capacity Lease between Colorado Satellite Broadcasting, Inc. and Transponder Encryption Services Corporation, dated March 13, 2008(14)10.23
#
Third Amendment to Satellite Capacity Lease between Colorado Satellite Broadcasting, Inc. and Transponder Encryption Services Corporation, dated July 28, 2009(15)10.24
*
First Amendment to the Amended and Restated Employment Agreement between the Company and Michael Weiner, dated August 31, 2009(15)10.25
*
First Amendment to the Amended and Restated Employment Agreement between the Company and Grant Williams, dated August 31, 2009(15)10.26
*
First Amendment to the Amended and Restated Employment Agreement between the Company and Ken Boenish, dated August 31, 2009(15)10.27
*
First Amendment to the Amended and Restated Employment Agreement between the Company and Scott Piper, dated August 31, 2009(15)10.28
*
First Amendment to the Amended and Restated Employment Agreement between the Company and Marc Callipari, dated August 31, 2009(15)10.29
#
Amended and Restated Affiliation Agreement for DTH Satellite Exhibition of Cable Network Programming by and between Colorado Satellite Broadcasting, Inc. and DIRECTV, Inc., dated June 15,
2010(16)10.30
*
2010 Equity Incentive Plan, dated June 29, 2010(17)10.31
*
Employment Agreement between MRG Entertainment, Inc. and Richard Bruce Goldberg, dated February 10, 2006(18)10.32
*
Amendment to Employment Agreement between MRG Entertainment, Inc., the Company and Richard Bruce Goldberg, dated August 25, 2008(18)10.33
*
Second Amendment to Employment Agreement between MRG Entertainment, Inc., the Company and Richard Bruce Goldberg, dated January 13, 2010(18)10.34
*
Employment Agreement between MRG Entertainment, Inc. and Marc Laurence Greenberg, dated February 10, 2006(18)10.35
*
Amendment to Employment Agreement between MRG Entertainment, Inc., the Company and Marc Laurence Greenberg, dated October 8, 2008(18)


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Table of Contents

Exhibit No.

Exhibit Description10.36
*
Second Amendment to Employment Agreement between MRG Entertainment, Inc., the Company and Marc Laurence Greenberg, dated December 15, 2009(18)10.37
#
TVN-CSB Adult Services Agreement between Colorado Satellite Broadcasting, Inc. and TVN Entertainment Corporation, dated April 8, 2010(18)10.38
#
Amendment Four to Adult VOD License Agreement between Colorado Satellite Broadcasting, Inc. and Comcast Cable Communications, LLC, dated July 19, 2007(19)10.39
#
Amendment Five to Adult VOD License Agreement between Colorado Satellite Broadcasting, Inc. and Comcast Cable Communications, LLC, dated August 18, 2010(20)10.40
#
Amendment Two to the Pleasure Service Agreement between Colorado Satellite Broadcasting, Inc. and Comcast Cable Communications, LLC, dated August 18, 2010(20)10.41
*
Form of 2010 Equity Incentive Plan Incentive Stock Option Agreement(21)10.42
*
Form of 2010 Equity Incentive Plan Nonqualified Stock Option Agreement(21)10.43
*
Form of 2010 Equity Incentive Plan Restricted Stock Award Agreement(21)10.44
*
Form of 2010 Equity Incentive Plan Bonus Stock Award Agreement(21)10.45
*
Form of 2010 Equity Incentive Plan Stock Appreciation Right Award Agreement(21)10.46

Promissory Note between New Frontier Media, Inc. and Great Western Bank, dated December 15, 2009(22)10.47

Commercial Security Agreement between New Frontier Media, Inc. and Great Western Bank, dated December 15, 2009(22)10.48
#
Business Loan Agreement, as supplemented (including Change in Terms Agreement), dated December 15, 2010, between New Frontier Media, Inc. and Great Western Bank(2)10.49
*
Confidential Separation Agreement and General Release between MRG Entertainment, Inc. and Marc Laurence Greenberg, dated October 6, 2010(2)10.50
*
Confidential Separation Agreement and General Release between MRG Entertainment, Inc. and Richard B. Goldberg, dated October 26, 2010(2)10.51

Lease Agreement Office and Industrial Space (including Assignment and Assumption of Lease between the Company and 6060 Partnership, LLP), dated October 6, 2010(2)10.52
*
Second Amendment to the Amended and Restated Employment Agreement between the Company and Michael Weiner, dated April 1, 201110.53
*
Second Amendment to the Amended and Restated Employment Agreement between the Company and Grant Williams, dated April 1, 201110.54
*
Second Amendment to the Amended and Restated Employment Agreement between the Company and Ken Boenish, dated April 1, 201110.55
*
Second Amendment to the Amended and Restated Employment Agreement between the Company and Scott Piper, dated April 1, 201110.56
*
Second Amendment to the Amended and Restated Employment Agreement the Company and Marc Callipari, dated April 1, 201121.01

New Frontier Media, Inc. Subsidiaries23.01

Consent of Independent Registered Public Accounting Firm


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Table of Contents

Exhibit No.

Exhibit Description31.01

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

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

Section 1350 Certification of CEO32.02

Section 1350 Certification of CFO


(1)Incorporated
by reference to the corresponding exhibit included in the Company's Current Report on Form 8-K filed on May 9, 2007
(File No. 000-23697).(2)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended December 31, 2010 (File No. 000-23697).(3)Incorporated
by reference to the corresponding exhibit included in the Company's Registration Statement on Form SB-2 filed on
September 10, 1997 (File No. 333-35337).(4)Incorporated
by reference to the corresponding exhibit included in the Company's Current Report on Form 8-K filed on August 1,
2008 (File No. 000-23697).(5)Incorporated
by reference to the corresponding exhibit included in the Company's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1999 (File No. 000-23697).(6)Incorporated
by reference to the corresponding exhibit included in the Company's Annual Report filed on Form 10-K for the fiscal year
ended March 31, 2004 (File No. 000-23697).(7)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended September 30, 2006 (File No. 000-23697).(8)Incorporated
by reference to Exhibit A to the Company's definitive proxy statement filed under cover of Schedule 14A on August 7, 1998
(File No. 000-23697).(9)Incorporated
by reference to Exhibit C to the Company's definitive proxy statement filed under cover of Schedule 14A on September 28,
1999 (File No. 000-23697).(10)Incorporated
by reference to Exhibit B to the Company's definitive proxy statement filed under cover of Schedule 14A on August 29,
2000 (File No. 000-23697).(11)Incorporated
by reference to Exhibit A to the Company's definitive proxy statement filed under cover of Schedule 14A on July 23, 2001
(File No. 000-23697).(12)Incorporated
by reference to Appendix A to the Company's definitive proxy statement filed under cover of Schedule 14A on July 16, 2007
(File No. 000-23697).(13)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended September 30, 2008 (File No. 000-23697).(14)Incorporated
by reference to the corresponding exhibit included in the Company's Annual Report filed on Form 10-K for the fiscal year
ended March 31, 2009 (File No. 000-23697).(15)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended September 30, 2009 (File No. 000-23697).(16)Incorporated
by reference to the corresponding exhibit included in the Company's Amended Quarterly Report filed on Form 10-Q/A for the
quarter ended June 30, 2010 (File No. 000-23697).(17)Incorporated
by reference to Appendix B to the Company's definitive proxy statement filed under cover of Schedule 14A on July 16, 2010
(File No. 000-23697).


62

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Table of Contents

(18)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended June 30, 2010 (File No. 000-23697).(19)Incorporated
by reference to the corresponding exhibit included in the Company's Amended Annual Report filed on Form 10-K/A for the
fiscal year ended March 31, 2010 (File No. 000-23697).(20)Incorporated
by reference to the corresponding exhibit included in the Company's Amended Current Report on Form 8-K/A filed on
December 10, 2010 (File No. 000-23697).(21)Incorporated
by reference to the corresponding exhibit included in the Company's Current Report on Form 8-K filed on September 3,
2010 (File No. 000-23697).(22)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended December 31, 2009 (File No. 000-23697).*Denotes
management contract or compensatory plan or arrangement.#Confidential
portions of this agreement have been redacted pursuant to a confidential treatment request filed separately with the SEC.


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SIGNATURES.

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

NEW FRONTIER MEDIA, INC.By:

/s/ MICHAEL WEINERName:

Michael WeinerTitle:

Chief Executive OfficerDate:

June 3, 2011


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

Name and Capacity

Date/s/ MICHAEL WEINER

June 3, 2011Name:

Michael WeinerTitle:

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

June 3, 2011Name:

Grant WilliamsTitle:

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

June 3, 2011Name:

Melissa HubbardTitle:

Director/s/ ALAN ISAACMAN

June 3, 2011Name:

Alan IsaacmanTitle:

Director/s/ DAVID NICHOLAS

June 3, 2011Name:

David NicholasTitle:

Director


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Table of Contents

Name and Capacity

Date/s/ WALTER TIMOSHENKO

June 3, 2011Name:

Walter TimoshenkoTitle:

Director/s/ HIRAM WOO

June 3, 2011Name:

Hiram WooTitle:

Director


65

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



PageReport of Independent Registered Public Accounting Firm


F-2Consolidated Balance Sheets


F-3Consolidated Statements of Operations


F-4Consolidated Statements of Comprehensive Loss


F-5Consolidated Statements of Total Equity


F-6Consolidated Statements of Cash Flows


F-7Notes to Consolidated Financial Statements


F-8SUPPLEMENTAL INFORMATION


F-41Valuation and Qualifying AccountsSchedule II


F-41


F-1

---



Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Shareholders of



We have audited the accompanying consolidated balance sheets of New Frontier Media, Inc. (a Colorado corporation) and
subsidiaries (collectively, the "Company") as of March 31, 2011 and 2010, and the related consolidated statements of operations, comprehensive loss, total equity, and cash flows for each of the
three years in the period ended March 31, 2011. Our audits
of the basic financial statements included the financial statement schedule listed in the index appearing underValuation and Qualifying
AccountsSchedule II. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and financial statement schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal
control over financial reporting as of March 31, 2011. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Frontier Media, Inc. and
subsidiaries as of March 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2011, in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/
GRANT THORNTON LLP

Denver,
Colorado
June 3, 2011

F-2

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Table of Contents

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

March 31,2011

2010AssetsCurrent assets:Cash and cash equivalents

$
18,787

$
17,187Restricted cash


109


112Accounts receivable, less allowances of $173 and $253, respectively


8,695


10,112Deferred producer-for-hire costs





625Taxes receivable


877


944Prepaid and other assets


2,569


1,749Total current assets


31,037


30,729Property and equipment, net


7,218


4,557Content and distribution rights, net


11,543


11,316Recoupable costs and producer advances, less allowances of $1,898 and $1,074, respectively


2,771


3,421Film costs, net


2,579


5,705Goodwill


3,743


3,743Other identifiable intangible assets, net


45


673Deferred tax assets


1,658


349Other assets


879


1,320Total assets

$
61,473

$
61,813Liabilities and equityCurrent liabilities:Accounts payable

$
1,571

$
1,103Producers payable


1,089


951Deferred revenue


863


685Accrued compensation


1,607


1,802Deferred producer liabilities


1,654


1,377Short-term debt


500


1,000Deferred tax liabilities


46


107Accrued and other liabilities


1,910


1,823Total current liabilities


9,240


8,848Taxes payable


116


309Other long-term liabilities


519


528Total liabilities


9,875


9,685Commitments and contingencies (Note 13)Equity:Preferred stock, $.10 par value, 4,999 shares authorized, no shares issued and outstanding





Common stock, $.0001 par value, 50,000 shares authorized, 19,201 and 19,432 shares issued and outstanding, respectively


2


2Additional paid-in capital


55,169


54,929Accumulated deficit


(3,460
)

(2,735
)Accumulated other comprehensive loss


(69
)

(68
)Total New Frontier Media, Inc. shareholders' equity


51,642


52,128Noncontrolling interests


(44
)

Total equity


51,598


52,128Total liabilities and equity

$
61,473

$
61,813


Refer to Notes to Consolidated Financial Statements.

F-3

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Table of Contents

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

Year Ended March 31,2011

2010

2009Net revenue

$
48,709

$
50,428

$
52,595Cost of sales


20,486


19,858


15,938Gross margin


28,223


30,570


36,657Operating expenses:Sales and marketing


8,665


8,072


8,559General and administrative


18,123


16,238


16,519Charge for goodwill impairment





4,856


10,009Charge for asset impairments other than goodwill


2,599


1,497


1,062Total operating expenses


29,387


30,663


36,149Operating income (loss)


(1,164
)

(93
)

508Other income (expense):Interest income


89


49


208Interest expense


(89
)

(243
)

(208
)Reversal of interest expense for uncertain tax positions


35





429Other income, net


20


12


2Total other income (expense)


55


(182
)

431Income (loss) from continuing operations before income tax benefit (expense)


(1,109
)

(275
)

939Income tax benefit (expense)


349


(838
)

(3,909
)Loss from continuing operations


(760
)

(1,113
)

(2,970
)Loss from discontinued operations, net of income tax benefit of $5, $391 and $1,313, respectively


(9
)

(625
)

(2,218
)Net loss


(769
)

(1,738
)

(5,188
)Add: Net loss attributable to noncontrolling interests


44





Net loss attributable to New Frontier Media, Inc. shareholders

$
(725
)
$
(1,738
)
$
(5,188
)Amounts attributable to New Frontier Media, Inc. shareholders:Loss from continuing operations

$
(716
)
$
(1,113
)
$
(2,970
)Loss from discontinued operations, net of income tax benefit of $5, $391 and $1,313, respectively


(9
)

(625
)

(2,218
)Net loss

$
(725
)
$
(1,738
)
$
(5,188
)Per share information attributable to New Frontier Media, Inc. shareholders:Basic loss per share:Continuing operations

$
(0.04
)
$
(0.06
)
$
(0.13
)Discontinued operations


(0.00
)

(0.03
)

(0.10
)Net basic loss per share(1)

$
(0.04
)
$
(0.09
)
$
(0.24
)Diluted loss per share:Continuing operations

$
(0.04
)
$
(0.06
)
$
(0.13
)Discontinued operations


(0.00
)

(0.03
)

(0.10
)Net diluted loss per share(1)

$
(0.04
)
$
(0.09
)
$
(0.24
)


(1)May
not sum due to rounding.


Refer to Notes to Consolidated Financial Statements.

F-4

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Table of Contents

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

Year Ended March 31,2011

2010

2009Net loss

$
(769
)
$
(1,738
)
$
(5,188
)Other comprehensive income (loss):Unrealized gain on investments








10Currency translation adjustment


(1
)

64


(132
)Total comprehensive loss


(770
)

(1,674
)

(5,310
)Add: Net loss attributable to noncontrolling interests


44





Total comprehensive loss attributable to New Frontier Media, Inc. shareholders

$
(726
)
$
(1,674
)
$
(5,310
)


Refer
to Notes to Consolidated Financial Statements.

F-5

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Table of Contents

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

Common Stock
$.0001 Par Value







Total
New Frontier
Media, Inc.
Shareholders'
EquityRetained
Earnings
(Accumulated
Deficit)

Accumulated
Other
Comprehensive
Income (Loss)Additional
Paid-In
Capital

Noncontrolling
InterestShares

Amounts

Total EquityBalance as of March 31, 2008


23,775

$
2

$
61,854

$
4,191

$
(10
)
$
66,037

$


$
66,037Purchases of common stock


(4,281
)




(9,058
)







(9,058
)




(9,058
)Share-based compensation








902








902





902Reversal of tax benefit for stock option forfeitures/cancellations








(54
)







(54
)




(54
)Reversal of uncertain tax position for capital transaction








1,058








1,058





1,058Unrealized gain on investments














10


10





10Currency translation adjustment














(132
)

(132
)




(132
)Net loss attributable to New Frontier Media, Inc. shareholders











(5,188
)




(5,188
)




(5,188
)Balance as of March 31, 2009


19,494


2


54,702


(997
)

(132
)

53,575





53,575Purchases of common stock


(62
)




(123
)







(123
)




(123
)Share-based compensation








555








555





555Reversal of tax benefit for stock option forfeitures/cancellations








(205
)







(205
)




(205
)Currency translation adjustment














64


64





64Net loss attributable to New Frontier Media, Inc. shareholders











(1,738
)




(1,738
)




(1,738
)Balance as of March 31, 2010


19,432


2


54,929


(2,735
)

(68
)

52,128





52,128Purchases of common stock


(231
)




(363
)







(363
)




(363
)Share-based compensation








608








608





608Reversal of tax benefit for stock option forfeitures/cancellations








(5
)







(5
)




(5
)Currency translation adjustment














(1
)

(1
)




(1
)Noncontrolling interest




















(44
)

(44
)Net loss attributable to New Frontier Media, Inc. shareholders











(725
)




(725
)




(725
)Balance as of March 31, 2011


19,201

$
2

$
55,169

$
(3,460
)
$
(69
)
$
51,642

$
(44
)
$
51,598


Refer to Notes to Consolidated Financial Statements.

F-6

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Table of Contents

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

Year Ended March 31,2011

2010

2009Cash flows from operating activities:Net loss

$
(769
)
$
(1,738
)
$
(5,188
)Add: Loss from discontinued operations


9


625


2,218Loss from continuing operations


(760
)

(1,113
)

(2,970
)Adjustments to reconcile loss from continuing operations to net cash provided by operating activities of continuing operations:Depreciation and amortization


9,118


8,835


8,706Share-based compensation


608


555


907Deferred taxes


(1,374
)

(925
)

625Charge for goodwill impairment





4,856


10,009Charge for asset impairments other than goodwill


2,599


1,497


1,062Reversal of uncertain tax positions


(193
)




(429
)Reversal of interest expense for uncertain tax positions


(35
)




(429
)Changes in operating assets and liabilities:Accounts receivable


1,715


(172
)

3,635Accounts payable


475


(705
)

(537
)Content and distribution rights


(4,736
)

(4,060
)

(4,171
)Film costs


(1,024
)

(2,919
)

(2,762
)Deferred producer-for-hire costs


625


(566
)

(60
)Deferred revenue


198


(60
)

(263
)Deferred producer liabilities


277


(593
)

1,970Producers payable


138


1


(62
)Taxes receivable and payable


73


172


1,082Accrued compensation


(195
)

649


(637
)Recoupable costs and producer advances


649


1,578


(2,551
)Other assets and liabilities


(555
)

(557
)

(2,465
)Net cash provided by operating activities of continuing operations


7,603


6,473


10,660Net cash used in operating activities of discontinued operations


(34
)

(1,061
)

(2,155
)Net cash provided by operating activities


7,569


5,412


8,505Cash flows from investing activities:Purchases of investments





(1,000
)

(2,011
)Redemptions of investments





1,090


2,846Purchases of property and equipment


(5,014
)

(1,064
)

(2,307
)Purchases of intangible assets


(2
)

(108
)

(297
)Payment of related party note arising from business acquisition








(21
)Net cash used in investing activities of continuing operations


(5,016
)

(1,082
)

(1,790
)Net cash provided by (used in) investing activities of discontinued operations





9


(906
)Net cash used in investing activities


(5,016
)

(1,073
)

(2,696
)Cash flows from financing activities:Payments on short-term debt


(500
)

(6,000
)

Proceeds from short-term debt





3,000


4,000Purchases of common stock


(363
)

(123
)

(9,058
)Payment of long-term seller financing


(95
)

(75
)

Payment of dividends








(2,982
)Net cash used in financing activities of continuing operations


(958
)

(3,198
)

(8,040
)Net cash provided by (used in) financing activities of discontinued operations








Net cash used in financing activities


(958
)

(3,198
)

(8,040
)Net increase (decrease) in cash and cash equivalents


1,595


1,141


(2,231
)Effect of exchange rate changes on cash and cash equivalents


5


(3
)

(45
)Cash and cash equivalents, beginning of year


17,187


16,049


18,325Cash and cash equivalents, end of year

$
18,787

$
17,187

$
16,049Supplemental cash flow data:Interest paid

$
57

$
246

$
73Income taxes paid

$
938

$
1,379

$
2,452Noncash investing and financing activities:Exchange of equipment

$
430

$


$



Refer to Notes to Consolidated Financial Statements.

F-7

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Table of Contents

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

NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

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

Transactional TV Segment

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

Film Production Segment

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

Direct-to-Consumer Segment

The Direct-to-Consumer segment generates revenue primarily by selling memberships to our adult consumer
websites. The Direct-to-Consumer segment also historically operated an internet protocol television (IPTV) set-top box business beginning in late fiscal year 2008.
We restructured the IPTV operations in the fourth quarter of fiscal year 2009 and discontinued the IPTV operations in the fourth quarter of fiscal year 2010. See
Note 18Discontinued Operations for additional discussion.

Corporate Administration Segment

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

Noncontrolling Interests

During the third quarter of fiscal year 2011, we entered into an agreement to create an entity within the Transactional TV segment to
develop new channel services.
We control a majority of the entity's common stock, and our consolidated financial statements include the accounts of the entity. The net loss applicable to the noncontrolling interests of the entity
are presented as net loss attributable to noncontrolling interests in the consolidated statements of operations and consolidated statements of comprehensive loss, and the portion of the equity
applicable to the noncontrolling interests of the entity are presented as noncontrolling interests in the consolidated balance sheets and consolidated statements of total equity.

F-8

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Significant Accounting Policies

Principles of Consolidation

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

Use of Estimates

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



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

Reclassifications

Certain prior year amounts in the consolidated financial statements and notes thereto have been reclassified to conform to the current
year's presentation. Charges to the allowance for unrecoverable accounts are reflected in the general and administrative line item within operating expenses and were previously reflected in the charge
for asset impairments other than
goodwill line item within operating expenses. The charges were approximately $0.8 million and $0.2 million during the fiscal years ended March 31, 2010 and 2009, respectively.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash in financial institutions and cash equivalents, which are highly liquid investment
instruments with original maturities of less than 90 days. We had approximately $0.1 million of cash held in foreign financial institutions as of March 31, 2011.

F-9

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Restricted Cash

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

Federal Deposit Insurance Limits

We maintain cash deposits with financial institutions, which exceed federally insured limits. As of March 31, 2011, we exceeded
the federally insured limits by approximately $17.9 million. We periodically assess the financial condition of the institutions and estimate that the risk of any loss from uninsured deposits is
low.

Fair Value of Financial Instruments

The carrying amounts of financial instruments, including cash, cash equivalents, accounts receivable, accounts payable, accrued
liabilities, short-term debt, and certain other current assets and liabilities approximate fair value because of their generally short maturities. See Note 4Fair Value
Measurements for additional detail and discussion.

Accounts Receivable

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

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

Accrued and Other Liabilities

Accrued and other liabilities included approximately $0.3 million and $0.5 million of accrued transport fees as of
March 31, 2011 and 2010, respectively, and accrued insurance premiums of approximately $0.5 million as of March 31, 2011 and 2010. No other individual current liability amounts
within accrued and other liabilities were in excess of 5% of total current liabilities as of March 31, 2011 or 2010.

F-10

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Property and Equipment

Property and equipment are stated at historical cost less accumulated depreciation. The cost of maintenance and repairs to property and
equipment is expensed as incurred, and significant additions and improvements are capitalized. The capitalized costs of leasehold and tenant improvements are depreciated using a
straight-line method over the lesser of the estimated useful life of the assets or the expected term of the related leases. All other property and equipment assets are depreciated using a
straight-line method over the estimated useful lives of the assets. As of March 31, 2011, the estimated useful lives of property and equipment were as follows:

Furniture and fixtures

3 to 5 yearsComputers, equipment and servers

3 to 7 yearsLeasehold and tenant improvements

2 to 10 years


Content and Distribution Rights

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

We
periodically review the content library and assess whether the unamortized cost approximates the estimated net realizable value of the library based on expected forecast results. In
the event that the unamortized costs exceed the estimated net realizable value of the film library, we will expense the excess of the unamortized costs to reduce the carrying value to the estimated
net realizable value. See Note 7Content and Distribution Rights for additional detail and discussion on content and distribution rights impairment.

Recoupable Costs and Producer Advances

Recoupable costs and producer advances represent amounts paid by us that are expected to be subsequently recovered through the
collection of fees associated with the licensing of repped content. In connection with the Film Production segment's repped content operations, we enter into sales agency agreements whereby we act as
a sales agent for a producer's film (Sales Agency Agreements). These Sales Agency Agreements typically include provisions whereby certain costs that are incurred for promotion related activities will
be paid by us on behalf of the producer (such as movie trailer and advertising material costs). We may also pay the producer an advance for the related film prior to the distribution of such film. As
we subsequently license the producer's film and license fees are collected, the recoupable costs and producer advances are recovered by us through these license fee collections.

F-11

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

License
fees typically are not paid to the producer of the related film until such recoupable costs and producer advances have been fully recovered.

Recoupable
costs and producer advances are stated at the amounts contractually recoverable through collection of future license fees net of an allowance for unrecoverable accounts. The
allowance for unrecoverable accounts reflects any loss anticipated from unrecovered recoupable costs and producer advances. Charges to adjust the allowance for unrecoverable accounts are reflected as
a component of operating expenses in the consolidated statements of operations. We evaluate recoupable costs and producer advances on an individual film-by-film basis each
quarter based on a number of factors including our historical experience with charges to the allowance, estimates of future license fee collections, estimates of future recoupable costs to be
incurred, and the condition of the general economy and film industry as a whole. During the fiscal years ended March 31, 2011, 2010 and 2009, we incurred charges related to the allowance for
unrecoverable accounts of approximately $0.8 million, $0.8 million and $0.2 million, respectively.

Film Costs

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

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

Film
costs are reviewed for impairment on a film-by-film basis each quarterly reporting period. We record an impairment charge when the fair value of the film is
less than the unamortized cost. Examples of events or circumstances that could result in an impairment charge for film costs include the underperformance of a film as compared to expectations or a
downward adjustment in the estimated future performance of a film due to an adverse change in the general business climate. Impairment charges associated with film costs could have a material impact
on our financial position and results of operations in future periods.

F-12

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

See
Note 8Film Costs for additional detail and discussion on film cost impairments.

Goodwill and Other Identifiable Intangible Assets

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

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

Other
identifiable intangible assets subject to amortization have primarily included amounts paid to acquire non-compete agreements with certain key executives, contractual
and non-contractual customer relationships, intellectual property rights, patents and websites. These costs are capitalized and amortized on a straight-line basis over their
estimated useful lives, which is typically five years. Other identifiable intangible asset balances are removed from the gross asset and accumulated amortization amounts in the period in which they
become fully amortized or impaired and are no longer in use. For intellectual property and patents, the assets are not removed until our legal claim to the assets has expired. Other identifiable
intangible assets are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value
and future benefits of such assets, we consider whether the estimated undiscounted future net cash flows of the individual assets are less than the related assets' carrying value and if so, we record
an impairment loss for the excess recorded carrying value of the asset as compared to its fair value. See Note 4Fair Value Measurements for additional detail and discussion on
other identifiable intangible asset impairments.

F-13

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

See
Note 5Goodwill and Other Identifiable Intangible Assets for additional detail and discussion on goodwill and other identifiable intangible asset impairments.

Long-Lived Assets

We continually review long-lived assets that are held and used for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of such assets, we consider whether the estimated undiscounted
future net cash flows of the individual assets are less than the related assets' carrying value and if so, we record an impairment loss for the excess recorded carrying value of the asset as compared
to its fair value. See Note 4Fair Value Measurements for additional detail and discussion on long-lived asset impairments.

Deferred Producer Liabilities

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

Revenue Recognition

Our revenue consists primarily of fees earned through the distribution of programming content through various media outlets including
dedicated PPV channels and VOD categories that are distributed on cable and DBS platforms, premium movie channels, pay and free television channels and other available media outlets. Revenue is
recognized when persuasive evidence of an arrangement exists as is typically evidenced through an executed contract, the services have been rendered or delivery conditions as described in the related
contract have been satisfied, the license
period related to the content has begun and the customer can begin exploitation of the content, the fee is fixed or determinable and collection of fees is reasonably assured. The process involved in
evaluating the appropriateness of revenue recognition involves judgment including estimating monthly revenue based on historical data and determining collectability of fees.

F-14

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Transactional TV Segment VOD and PPV Services

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

Film Production Segment Owned Content Licensing

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

Film Production Segment Repped Content Licensing

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

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

Direct-to-Consumer Segment Membership Fees

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

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Multiple Element Transactions

From time to time, we enter into transactions involving multiple elements. These multiple element transactions can involve the
licensing of content (i.e., the licensing of multiple
titles in a single agreement), the sale of content (i.e., the distribution of multiple titles in a single agreement), the sale of content and contemporaneous purchase of advertising
(i.e., receiving a revenue percentage from a cable MSO or DBS operator and purchasing advertising space on that same operator's platform in a single agreement), or the licensing of content and
contemporaneous purchase of advertising (i.e., licensing multiple titles and purchasing advertising space in a publication in a single agreement). Multiple element transactions require the
exercise of judgment in determining the selling price or fair value of the different elements. The judgments impact the amount of revenue and expenses recognized over the term of the contract, as well
as the period in which they are recognized.

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

Producer-for-Hire Arrangements

Our Film Production segment periodically acts as a producer-for-hire for customers. Through these arrangements,
we provide services and incur costs associated with the film production and we earn a fee for our services once the film has been delivered to the customer. We maintain no ownership rights for the
produced content. Revenue for these arrangements is recognized when persuasive evidence of an arrangement exists as evidenced by an executed contract, the film has been delivered to the customer in
accordance with the contract terms, the fee is fixed and determinable and collection is reasonably assured. The costs incurred for production in these arrangements are initially recorded as a deferred
cost within the current assets section of the balance sheet, and the deferred costs are subsequently recorded as a cost of sales when we recognize revenue for the related services. During the fiscal
years ended March 31, 2011 and 2010, we completed and recognized revenue on producer-for-hire arrangements of $4.0 million and $3.9 million, respectively.
We did not recognize any material producer-for-hire revenue during the fiscal year ended March 31, 2009. As of March 31, 2011, we had no deferred costs recorded
in connection with producer-for-hire arrangements.

Advertising Costs

We expense advertising costs, which includes tradeshow and promotional related expenses, as incurred. Advertising costs during the
fiscal years ended March 31, 2011, 2010 and 2009 were approximately $2.4 million, $2.3 million and $2.3 million, respectively.

Research and Development Costs

Costs related to the research, design and development of products are charged to research and development expense as incurred. We did
not incur any material research and development costs related to continuing operations during the fiscal years ended March 31, 2011, 2010 and 2009. Research

F-16

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

and
development costs related to discontinued operations during the fiscal year ended March 31, 2011 were immaterial. Research and development costs related to discontinued operations during
the fiscal years ended March 31, 2010 and 2009 were approximately $0.2 million and $0.3 million, respectively.

Employee Equity Incentive Plans

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

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

Income Taxes

We make certain estimates and judgments in determining the income tax benefit (expense). These estimates and judgments are used in the
determination of tax credits, benefits and deductions, uncertain tax positions, and the calculation of certain tax assets and liabilities which are a result of differences in the timing of the
recognition of revenue and expense for tax and financial statement purposes. We also use estimates and judgments in determining interest and penalties on uncertain tax positions. Significant changes
to these estimates could result in a material change to the income tax benefit (expense) in subsequent periods.

We
periodically evaluate the likelihood that we will be able to recover deferred tax assets. We have no material deferred tax asset valuation allowances and estimate that our deferred
tax assets will be recoverable. If these estimates were to change and the assessment indicated we would be unable to recover the deferred tax assets, we would increase the income tax expense in the
period of the change in estimate.

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

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Loss per Share

Basic loss per share is computed on the basis of the weighted average number of common shares outstanding. Diluted loss per share is
computed on the basis of the weighted average number of common shares outstanding plus the potential dilutive effect of outstanding warrants and stock options. There is no dilutive effect on the
diluted loss per share from outstanding warrants or stock options because inclusion of these items would be antidilutive.

Comprehensive Loss

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

Foreign Currency Translations

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

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the
impact of recently issued standards that are not yet effective will not have a material impact on our results of operations and financial position.

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2LOSS PER SHARE

The components of basic and diluted loss per share from continuing operations attributable to New Frontier Media, Inc. shareholders for the three fiscal years ended
March 31 were as follows (in thousands, except per share data):

2011

2010

2009Loss from continuing operations attributable to New Frontier Media, Inc. shareholders

$
(716
)
$
(1,113
)
$
(2,970
)Weighted average shares outstanding


19,291


19,481


22,039Effect of dilutive securities








Weighted average diluted shares


19,291


19,481


22,039Basic loss per share from continuing operations attributable to New Frontier Media, Inc. shareholders

$
(0.04
)
$
(0.06
)
$
(0.13
)Diluted loss per share from continuing operations attributable to New Frontier Media, Inc. shareholders

$
(0.04
)
$
(0.06
)
$
(0.13
)


NOTE 3EMPLOYEE EQUITY INCENTIVE PLANS

Equity Plan

We adopted the New Frontier Media, Inc. 2010 Equity Incentive Plan (the 2010 Plan) in August 2010. The 2010 Plan replaces the
New Frontier Media, Inc. 2007 Stock Incentive Plan. The 2010 Plan was approved by our shareholders, and the purpose of the 2010 Plan is to encourage the further growth and development of the
Company by providing equity and related awards to selected directors and employees. The 2010 Plan is also intended to assist in attracting and retaining employees and directors, to optimize
profitability and to promote teamwork. Under the 2010 Plan, employees and directors may be granted incentive stock options, restricted stock, bonus stock and other awards, or any combination thereof.
There were 1,250,000 shares of our common stock originally authorized for issuance under the 2010 Plan and the maximum number of shares of common stock that may be subject to one or more awards
granted to a participant during any calendar year is 312,500. Awards granted under the 2010 Plan that subsequently are forfeited or cancelled may be reissued under the provisions of the 2010 Plan.
Awards may be granted to employees and non-employee directors with exercise prices equal to, or in excess of, the fair market value of the underlying common stock at the date of grant.
Generally, the stock options vest ratably over a four-year period and expire ten years from the date of grant.

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3EMPLOYEE EQUITY INCENTIVE PLANS (Continued)

Share-Based Compensation

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

2011

2010

2009Weighted average estimated fair value per award

$
0.77

$
0.91

$
2.33Expected term from grant date (in years)


5


5


5Risk free interest rate


2.0
%

2.4
%

2.7
%Expected volatility


56
%

56
%

52
%Expected dividend yield



%


%


%


Share-based
compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest, which considers estimated forfeitures.
Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We recognize the expense or benefit from the effect
of adjusting the estimated forfeiture rate in the period that the forfeiture estimate changes. The effect of forfeiture adjustments during the fiscal years ended March 31, 2011, 2010, and 2009
was to reduce the related compensation expense by approximately $0.2 million, $0.3 million and $0.2 million, respectively.

The
following table summarizes the effects of share-based compensation from continuing operations resulting from options granted under our equity incentive plans for the three fiscal
years ended
March 31. This expense from continuing operations was included in cost of sales, sales and marketing expenses, and general and administrative expenses (in thousands, except per share amounts):

2011

2010

2009Share-based compensation expense before income taxes

$
608

$
555

$
907Income tax benefit


(213
)

(189
)

(363
)Total share-based compensation expense after income tax benefit

$
395

$
366

$
544Share-based compensation effects on basic and diluted loss per common share

$
0.02

$
0.02

$
0.02


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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3EMPLOYEE EQUITY INCENTIVE PLANS (Continued)

Stock
option transactions during the fiscal year ended March 31, 2011 are summarized as follows:

Stock Options

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term (Years)

Aggregate
Intrinsic
Value(1)
(in thousands)Outstanding as of March 31, 2010


2,228,902

$
5.11Granted


75,000


1.98Forfeited/expired


(132,725
)

2.37Outstanding as of March 31, 2011


2,171,177


5.17


6.2

$
Options exercisable as of March 31, 2011


1,539,052


5.90


5.4


Options vested and expected to vestnon-officers


919,426


5.73


5.6


Options vested and expected to vestofficers


1,200,039


4.84


6.5





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


During
the fiscal year ended March 31, 2010, approximately 28,000 warrants expired. There are no remaining outstanding warrants as of March 31, 2011.

As
of March 31, 2011, there was approximately $0.1 million and $0.4 million of total unrecognized compensation costs for non-officers and officers,
respectively, related to stock option grants. The unrecognized compensation cost for non-officers and officers is expected to be recognized over a weighted average period of one year.

NOTE 4FAIR VALUE MEASUREMENTS

The hierarchy below lists the three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. Fair value measurements are
categorized in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:



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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 4FAIR VALUE MEASUREMENTS (Continued)

Assets Measured at Fair Value on a Nonrecurring Basis

We measure certain assets, such as goodwill, film costs and other identifiable intangible assets, at fair value on a nonrecurring basis
when they are deemed to be impaired. The fair values are determined based on valuation techniques using the best information available and may include quoted market prices, market comparables, and
discounted cash flow projections. An impairment charge is recorded when the cost of the asset exceeds its fair value. The following table presents the assets measured at fair value on a nonrecurring
basis as of March 31, 2011 (in thousands):

Level 1

Level 2

Level 3

Net Fair
ValueFilm costs(1)

$


$


$
354

$
354Other identifiable intangible assets(2)









*

Other long-lived assets(3)








200


200Total

$


$


$
554

$
554


*Fair
values were measured using Level 3 inputs, and the fair values were zero.(1)Measurement
relates to the Film Production segment film cost impairment analysis. See Note 8Film Costs for additional discussion.(2)Measurement
relates to the Direct-to-Consumer segment websites. See Note 5Goodwill and Other Identifiable
Intangible Assets for additional discussion.(3)Measurement
relates to the Transactional TV segment other long-lived assets. The recorded carrying value of an asset was reduced to its
estimated fair value based on management's estimates of assumptions that market participants would use in pricing the asset. As a result, we recorded a $0.1 million impairment charge within the
charge for asset impairments other than goodwill line item in the consolidated statements of operations.


The
following table presents the assets measured at fair value on a nonrecurring basis as of March 31, 2010 (in thousands):

Level 1

Level 2

Level 3

Net Fair
ValueGoodwill(1)

$


$


$

*
$
Film costs(2)








257


257Other identifiable intangible assets(3)









*

Assets held for sale(4)








134


134Inventory(4)









*

Total

$


$


$
391

$
391


*Fair
values were measured using Level 3 inputs, and the fair values were zero.(1)Measurement
relates to the Film Production segment goodwill impairment analysis. See Note 5Goodwill and Other Identifiable
Intangible Assets for additional discussion.


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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 4FAIR VALUE MEASUREMENTS (Continued)

(2)Measurement
relates to the Film Production segment film cost impairment analysis. See Note 8Film Costs for additional discussion.(3)Measurement
relates to the Direct-to-Consumer segment website and related software impairment analysis. See
Note 5Goodwill and Other Identifiable Intangible Assets for additional discussion.(4)Measurement
relates to the discontinued IPTV set-top box equipment and inventory impairment analysis. See
Note 18Discontinued Operations for additional discussion.


NOTE 5GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS

Goodwill

Goodwill is classified within the segment that employs the goodwill in its operations. Changes in the carrying amount of goodwill
during the fiscal years ended March 31, 2011 and 2010, by reportable segment, were as follows (in thousands):

Transactional TV

Film Production

TotalBalance as of March 31, 2009

$
3,743

$
4,856

$
8,599Impairment





(4,856
)

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


3,743





3,743Balance as of March 31, 2011

$
3,743

$


$
3,743


Fiscal Year 2011 Impairment Testing

We performed an annual impairment test on the Transactional TV segment's goodwill as of March 31, 2011 and engaged a third party
valuation firm to assist with the test. The income and market valuation approaches were considered in determining the estimated fair value of the segment. The income valuation approach was more
heavily weighted than the market valuation approach because (a) there was a lack of comparable public companies to consider for the market valuation approach, and (b) the income
valuation approach was more representative of our unique operating performance characteristics relative to the comparable companies considered in the market valuation approach. The results of the
analysis did not indicate any goodwill impairment for the Transactional TV segment.

Due
to the continued pressure on our stock price during the fiscal year ended March 31, 2011, our market capitalization was less than our shareholders' equity balance as of
March 31, 2011. As an overall test of the reasonableness of the estimated fair value of our reporting units and consolidated Company, a reconciliation of the fair value estimates for our
reporting units to our market capitalization was also performed as of March 31, 2011. The reconciliation considered a reasonable control premium based on merger and acquisition transactions
within the media and entertainment industry and other relevant information. Based on the reconciliation, our fair value was in excess of our market capitalization and there was no indicator of
additional goodwill impairment.

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS (Continued)

Fiscal Year 2010 Impairment Testing

We performed annual impairment tests for our Transactional TV and Film Production segment goodwill as of March 31, 2010 and
engaged a third party valuation firm to assist with the tests. The income and market valuation approaches were considered in determining the estimated fair value of the segments. For our Transactional
TV segment, the market valuation approach was more heavily weighted than the income valuation approach because (a) our overall valuation was believed to be primarily based on the performance
and results of the Transactional TV segment, and (b) the results of the Transactional TV segment represented the large majority of our overall activity. For our Film Production segment, the
valuation methodologies were weighted equally. The results of the analysis did not indicate any goodwill impairment for the Transactional TV segment. The results of the analysis did indicate that the
estimated fair value of our Film Production segment was less than the carrying value. We then performed additional analysis to estimate the implied fair value of goodwill. Based on this analysis, we
recorded a goodwill impairment charge of $4.9 million to reduce the Film Production segment's goodwill from $4.9 million to the implied fair value of goodwill of zero. Although the
fiscal year ended March 31, 2010 performance of the Film Production segment was consistent with our internal forecasts, conditions within the film markets continued to be challenging. As a
result, we adjusted the five year forecast for the Film Production segment downward to reflect the expectation that film market conditions would remain depressed and decline further resulting in the
goodwill impairment charge.

Due
to the continued pressure on our stock price during the fiscal year ended March 31, 2010, our market capitalization was less than our shareholders' equity balance as of
March 31, 2010. As an overall test of the reasonableness of the estimated fair value of our reporting units and consolidated Company, a reconciliation of the fair value estimates for our
reporting units to our market capitalization was also performed as of March 31, 2010. The reconciliation considered a reasonable control premium based on merger and acquisition transactions
within the media and entertainment industry and other relevant information. Based on the reconciliation, our fair value was in excess of our market capitalization and there was no indicator of
additional goodwill impairment.

Fiscal Year 2009 Impairment Testing

During the third quarter of fiscal year 2009, we determined that continued adverse changes in the business climate and material
revisions to the Film Production segment's internal three year forecasts based on lower than expected revenue for the third quarter of fiscal year 2009 were events that could indicate that the fair
value of the reporting unit was less than its carrying amount. We therefore performed an impairment test for our Film Production segment as of December 31, 2008 and engaged a third party
valuation firm to assist with the test. The income and market valuation approaches were considered in determining the estimated fair value of the segment. The income valuation approach was more
heavily weighted than the market valuation approach primarily because (a) the comparable market valuation approach companies were not profitable in certain instances which required us to
estimate enterprise value based on revenue multiples and revenue multiples are considered to be a less accurate measure of fair value as compared to alternative measures such as EBITDA, (b) the
difference in the revenue multiples for the comparable companies were material and (c) there was a lack of comparability between the reporting unit and comparable companies. The results of the
analysis indicated that the estimated fair value of the Film Production segment was less than the carrying value. We then performed additional analysis to estimate the implied fair value of goodwill.
Based on this

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS (Continued)

analysis,
we recorded a goodwill impairment charge of $10.0 million to reduce the Film Production segment's goodwill from $14.9 million to the implied fair value of goodwill of
$4.9 million. We also performed the annual goodwill impairment tests for the Transactional TV and Film Production segments as of March 31, 2009. The valuation methodologies for the
Transactional TV and Film Production segments were similar to the methodologies used as of March 31, 2010 and December 31, 2008, respectively. The results of the analysis did not
indicate any additional goodwill impairment.

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

Other Identifiable Intangible Assets

Other identifiable intangible assets that are subject to amortization as of March 31 were as follows (in thousands, except
weighted average useful life):

2011

2010Weighted
Average
Useful Life
(Years)Gross
Carrying
Amounts

Accumulated
Amortization

Impairment

Net

Gross
Carrying
Amounts

Accumulated
Amortization

Impairment

NetNon-compete agreements

5

$


$


$


$


$
2,131

$
(1,739
)
$
(47
)
$
345Contractual/noncontractual relationships

5














1,375


(1,146
)




229Intellectual property

5


540


(126
)

(414
)




540


(126
)

(414
)

Websites

5


91


(54
)

(37
)




156


(65
)

(54
)

37Patents

5


460


(107
)

(353
)




460


(107
)

(353
)

Other

6


87


(42
)




45


234


(102
)

(70
)

62$
1,178

$
(329
)
$
(804
)
$
45

$
4,896

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


Amortization expense for other identifiable intangible assets subject to amortization during the fiscal years ended March 31, 2011, 2010
and 2009 was approximately $0.6 million, $0.8 million, and $0.8 million, respectively. Amortization expense for other identifiable intangible assets subject to amortization for
the fiscal year ending March 31, 2012 and thereafter is expected to be immaterial. The non-compete agreements and contractual/noncontractual relationships other identifiable
intangible assets were fully amortized and no longer in use as of March 31, 2011. The related gross assets and accumulated amortization amounts were therefore removed and were not presented on
the balance sheet as of March 31, 2011. During the fiscal years ended March 31, 2011 and 2010, we removed approximately $3.5 million and $0.4 million, respectively, of
fully amortized other identifiable intangible assets that were no longer in use.

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS (Continued)

During
the fourth quarter of the fiscal years ended March 31, 2011 and 2010, we determined that certain websites and related software used to manage our
Direct-to-Consumer segment consumer websites no longer met our quality standards. The software did not provide sufficient support or functionality for content management,
database interface, consumer facing websites, or reporting of website traffic. As a result, we ceased using the websites and software and determined the software would not provide any substantial
service potential in the future. As a result, we recorded an immaterial impairment charge during the fiscal year ended March 31, 2011 and an impairment charge of $0.3 million during the
fiscal year ended March 31, 2010 to reduce the fair value of the websites and related software to zero.

NOTE 6PROPERTY AND EQUIPMENT

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

2011

2010Furniture and fixtures

$
698

$
701Computers, equipment and servers


9,194


7,274Leasehold and tenant improvements


4,156


2,816Property and equipment, at cost


14,048


10,791Less accumulated depreciation


(6,830
)

(6,234
)Total property and equipment, net

$
7,218

$
4,557


Depreciation
expense was approximately $2.3 million, $1.7 million, and $1.7 million for the fiscal years ended March 31, 2011, 2010, and 2009, respectively.
During the fiscal years ended March 31, 2011 and 2010, we retired approximately $2.5 million and $0.6 million, respectively, of fully depreciated property and equipment.

During
the fiscal year ended March 31, 2011, we acquired approximately $1.7 million of new storage equipment. We paid approximately $1.3 million in cash for the new equipment.
Additionally, we exchanged certain equipment with a net book value of approximately $0.4 million. No gain or loss was recorded in connection with the transaction.

NOTE 7CONTENT AND DISTRIBUTION RIGHTS

The Transactional TV and Direct-to-Consumer segments' content and distribution rights consist of content licensing agreements and original productions. We
capitalize the costs associated with the licenses, certain editing costs and content. These costs are amortized on a straight-line basis, typically

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NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7CONTENT AND DISTRIBUTION RIGHTS (Continued)

over
5 years. The components of content and distribution rights as of March 31 were as follows (in thousands):

2011

2010In release

$
20,281

$
19,705Acquired, not yet released


1,013


1,341In production


19


116Accumulated amortization


(9,770
)

(9,846
)Total content and distribution rights, net

$
11,543

$
11,316


Amortization
expense during the fiscal years ended March 31, 2011, 2010 and 2009 was approximately $4.1 million, $3.8 million and $3.6 million, respectively.
During the fiscal years ended March 31, 2011 and 2010, we retired $3.5 million and $2.4 million, respectively, of fully amortized content and distribution rights. Additionally, we
recorded impairment expenses of approximately $0.2 million during the fiscal year ended March 31, 2011 because certain content and distribution rights no longer met our quality standards
for distribution. We had no material impairments of content and distribution rights during the fiscal years ended March 31, 2010 and 2009.

NOTE 8FILM COSTS

The components of film costs, which are primarily direct-to-television, were as follows as of March 31 (in thousands):

2011

2010In release

$
18,474

$
18,477Completed, not yet released


500


82In production


174


1,645Accumulated amortization


(16,569
)

(14,499
)Total film costs, net

$
2,579

$
5,705


Amortization
expense for the fiscal years ended March 31, 2011, 2010 and 2009 was approximately $2.1 million, $2.6 million and $2.7 million, respectively. We
expect to amortize approximately $2.3 million in capitalized film costs during the fiscal year ending March 31, 2012. Additionally, we expect to amortize substantially all unamortized
film costs for released films by March 31, 2014.

During
the second and fourth quarters of fiscal year 2011, we recorded impairment expenses of approximately $0.6 million and $1.6 million, respectively, associated with
certain owned content films. During our second quarter film performance analysis, we adjusted downward the expected performance for certain films based on a continuation of underperformance as
compared to expectations. During our fourth quarter film performance analysis, we adjusted downward the expected results for certain films based on a continued trend of lower than expected film
performance and based on the recent departure of the segment's Co-Presidents. As a result, we performed further assessments on the films and determined the fair value of the films was less
than the unamortized cost of the films, and the differences were recorded as impairment charges. This expense was recorded in the charge for asset impairments other than goodwill line item in the
consolidated statements of operations. The fair value

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NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 8FILM COSTS (Continued)

of
the films was estimated by discounting the film's projected cash flow by the weighted average cost of capital.

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

During
the third quarter of fiscal year 2009, we recorded impairment expenses of approximately $1.1 million associated with several Film Production segment owned content films. As
part of the quarterly film performance analysis and in connection with the annual goodwill impairment analysis, we estimated that conditions within the film markets would continue to be challenging
and adjusted downward the Film Production segment forecasts as well as certain estimated future film performance. As a result, we recorded impairment charges of approximately $1.1 million
representing the difference in the unamortized film costs and the estimated fair value of the related films. This expense was recorded in the charge for asset impairments other than goodwill line item
in the consolidated statements of operations. The fair value of the films was estimated by discounting the film's projected cash flow by the weighted average cost of capital.

NOTE 9INCOME TAXES

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

2011

2010

2009CurrentFederal

$
(971
)
$
(1,469
)
$
(3,460
)State


(63
)

(186
)

(636
)Total current


(1,034
)

(1,655
)

(4,096
)DeferredFederal


1,359


715


167State


24


102


20Total deferred


1,383


817


187Total

$
349

$
(838
)
$
(3,909
)


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NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9INCOME TAXES (Continued)

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

2011

2010

2009Income tax computed at federal statutory tax rate of 35%

$
388

$
96

$
(329
)State taxes, net of federal benefit


10


(83
)

(338
)Non-deductible goodwill impairment





(1,700
)

(3,503
)Reversal of uncertain tax positions


193





429Federal research and development tax credits


63


751


Meals and entertainment


(88
)

(50
)

(97
)Share-based compensation


(59
)

(45
)

(57
)Other permanent differences, net


(158
)

193


(14
)Total

$
349

$
(838
)
$
(3,909
)


Significant
components of our deferred tax liabilities and assets as of March 31 were as follows (in thousands):

2011

2010Deferred tax liabilities:Depreciation

$
(993
)
$
(426
)Goodwill


(1,287
)

(972
)Film library


(943
)

(1,010
)Tax method changes


(1,001
)

(1,499
)Other identifiable intangible assets





(107
)Other


(54
)

(75
)Total deferred tax liabilities


(4,278
)

(4,089
)Deferred tax assets:Net operating loss carryforward


650


945Deferred revenue


40


70Asset disposition, impairment and other reserves


2,113


1,166Allowance for unrecoverable and doubtful accounts


784


499Share-based compensation


988


838Amortization


235


306Accruals


180


130Other identifiable intangible assets


541


466Tax credits


257


Other


116


131Gross deferred tax assets


5,904


4,551Valuation allowance


(14
)

(220
)Total deferred tax assets


5,890


4,331Net deferred tax assets

$
1,612

$
242


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NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9INCOME TAXES (Continued)

Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. We establish valuation allowances when, based on an evaluation of objective evidence, there is a likelihood that some portion or all of the deferred tax assets
will not be realized. As of March 31, 2011, we determined that it was more likely than not that deferred tax assets associated with capital losses would not be realized and recorded an
immaterial valuation allowance for the full
capital loss deferred tax asset as of March 31, 2011. We had no other valuation allowances as of March 31, 2011.

We
have domestic net operating loss carryforwards of approximately $1.7 million for federal income tax purposes, which expire through 2019. For tax purposes, there is an annual
limitation of approximately $0.2 million for the remaining 8 years on all of our net operating loss under Internal Revenue Code Section 382. Internal Revenue Code
Section 382 also places a limitation on the utilization of net operating loss carryforwards when an ownership change, as defined in the tax law, occurs. Generally, an ownership change occurs
when there is a greater than 50 percent change in ownership. When a change occurs, the actual utilization of net operating loss carryforwards is limited annually to a percentage of our fair
market value at the time of such change. We also have tax credits associated with certain foreign tax withholdings. The deduction of these tax credits was limited during the fiscal year ended
March 31, 2011 because the estimated U.S. tax on foreign sourced income was less than the available tax credit. We expect to utilize the tax credits from foreign tax withholdings in future
periods.

Uncertain Tax Positions

We account for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or
litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon effective settlement. During the third quarter of
fiscal year 2011, the statute of limitations expired on approximately $0.2 million of uncertain tax positions resulting in a decline in the uncertain tax position balance as reflected in
long-term taxes payable and a reduction in income tax expense. The reduction in the uncertain tax position balance also resulted in the reversal of approximately $35,000 in interest
expense. As of March 31, 2011, we had total unrecognized tax benefits of approximately $0.1 million that are not expected to be settled within one year and have been classified within
long-term taxes payable. If we were to prevail or the uncertainties were settled in our favor for all uncertain tax positions, the net effect is estimated to be an income tax benefit of
approximately $0.1 million.

The
aggregate change in the uncertain tax position balance as reflected in long-term taxes payable during the fiscal year ended March 31, 2011 was as follows (in
thousands):

Beginning balance as of April 1, 2010

$
309Reversal of prior period tax position from expiration of statute of limitations


(193
)Ending balance as of March 31, 2011

$
116


F-30

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9INCOME TAXES (Continued)

There
were no material changes in our unrecognized tax benefits during the fiscal year ended March 31, 2010. During the fiscal year ended March 31, 2009, the statute of
limitations expired on approximately $1.6 million of uncertain tax positions resulting in a decline in the uncertain tax position balance as reflected in the current portion of taxes payable.
This reversal of the uncertain tax positions resulted in a $0.4 million reduction in our current period tax expense and a $0.4 million reversal of related interest expense. Approximately
$1.1 million of the reversal of the uncertain tax position liabilities was recorded as an increase to additional paid-in capital because the amount was originally recorded as a
reduction of additional paid-in capital and had no impact on income tax expense.

Research and Development Tax Credits

During the fiscal year ended March 31, 2010, we performed a research and development tax credit study. The study considered
fiscal years for which amended or current tax returns could be filed. We concluded that we were eligible for research and development tax credits that would result in a reduction in the provision for
income tax expense for the noted fiscal years as follows (in thousands):

March 31,2009(1)

$
2172008(1)


1692007


1292006


86Total

$
601


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


We
filed amended and current tax returns during the three month period ended December 31, 2009 for each of the fiscal years noted above and included the research and development
tax credits identified in the study. As a result of the filings, we recorded a reduction in the income tax expense of $0.6 million during the three month period ended December 31, 2009.

We
utilized research and development tax credits during the fiscal year ended March 31, 2010 of approximately $0.1 million based on a research and development tax study
completed during the fiscal year ended March 31, 2011. For the fiscal year ended March 31, 2011, we estimate that we will utilize research and development tax credits of approximately
$0.1 million.

Other

We file U.S. federal, state and foreign income tax returns. With few exceptions, we are no longer subject to examination of our
federal income tax returns for the years prior to the fiscal year ended March 31, 2008, and we are no longer subject to examination of our state income tax returns for years prior to the fiscal
year ended March 31, 2007.

F-31

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NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10STOCK REPURCHASE

Common stock that we repurchase is returned to authorized but unissued shares of common stock in accordance with Colorado law.

During
the fiscal year ended March 31, 2009, our Board of Directors extended a share repurchase plan allowing for the repurchase of approximately 1.1 million shares of
common stock through June 2010. We substantially completed the share repurchase plan in the second quarter of fiscal year 2009 and
repurchased approximately 1.1 million shares of common stock for a total purchase price of approximately $4.3 million. In the third quarter of fiscal year 2009, we entered into an
agreement pursuant to which a shareholder agreed to sell and we agreed to repurchase approximately 2.6 million shares of common stock for a total purchase price of approximately
$4.1 million. In the fourth quarter of fiscal year 2009, we repurchased approximately 0.5 million shares of common stock for a total purchase price of approximately $0.7 million.
The transaction was executed through one broker and occurred through a single block trade.

During
the fiscal year ended March 31, 2010, our Board of Directors adopted a new stock repurchase plan allowing for the repurchase of approximately 1.0 million shares of
common stock through March 2012. We acquired approximately 0.1 million shares of common stock under the plan for a total purchase price of approximately $0.1 million during the fiscal
year ended March 31, 2010.

During
the fiscal year ended March 31, 2011, we acquired approximately 0.2 million shares of common stock under the stock repurchase plan for a total purchase price of
approximately $0.4 million. As of March 31, 2011, approximately 0.7 million shares of common stock remain authorized for repurchase under the stock repurchase plan.

NOTE 11SEGMENT AND GEOGRAPHIC INFORMATION

Operating segments are defined as components of an enterprise for which separate financial information is available and regularly reviewed by our chief operating decision maker. We have
the following reportable operating segments:



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NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11SEGMENT AND GEOGRAPHIC INFORMATION (Continued)

The
accounting policies of the reportable segments are the same as those described in the significant accounting policies. Segment profit (loss) is based on income (loss) from continuing
operations before income tax benefit (expense). The reportable segments are distinct business units, separately managed with different distribution channels. The selected operating results of our
segments during the three fiscal years ended March 31 were as follows (in thousands):

2011

2010

2009Net revenueTransactional TV

$
35,863

$
37,380

$
42,559Film Production


12,023


12,013


8,584Direct-to-Consumer


823


1,035


1,452Total

$
48,709

$
50,428

$
52,595Segment profit (loss)Transactional TV

$
10,939

$
15,139

$
21,637Film Production


(1,462
)

(5,427
)

(10,916
)Direct-to-Consumer


(1,101
)

(943
)

(306
)Corporate Administration


(9,485
)

(9,044
)

(9,476
)Total

$
(1,109
)
$
(275
)
$
939Interest incomeTransactional TV

$


$


$
Film Production


23


5


5Corporate Administration


66


44


203Total

$
89

$
49

$
208Interest expenseDirect-to-Consumer

$
8

$


$
Corporate Administration


81


243


208Total

$
89

$
243

$
208Reversal of interest expense for uncertain tax positionsCorporate Administration

$
35

$


$
429Depreciation and amortizationTransactional TV

$
6,239

$
5,222

$
5,015Film Production


2,679


3,309


3,452Direct-to-Consumer


152


256


209Corporate Administration


48


48


30Total

$
9,118

$
8,835

$
8,706


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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11SEGMENT AND GEOGRAPHIC INFORMATION (Continued)

The
total net identifiable asset balance by operating segment as of March 31 was as follows (in thousands):

2011

2010

2009Net identifiable assetsTransactional TV

$
29,750

$
26,474

$
27,184Film Production


9,125


15,490


22,453Direct-to-Consumer


604


849


1,270Corporate Administration


21,994


18,850


17,066Total continuing operations assets


61,473


61,663


67,973Total discontinued operations assets





150


566Total assets

$
61,473

$
61,813

$
68,539


As
of March 31, 2011, approximately $0.1 million in assets were located in Europe. All other assets were located in the U.S.

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

2011

2010

2009United States net revenue

$
40,594

$
44,661

$
48,216International net revenue:Europe, Middle East and Africa


2,017


1,618


1,814Latin America


2,865


1,991


944Canada


2,869


1,896


939Asia


292


159


443Other


72


103


239Total international net revenue


8,115


5,767


4,379Total net revenue

$
48,709

$
50,428

$
52,595


NOTE 12MAJOR CUSTOMERS

Our major customers (customers with revenue in excess of 10% of consolidated net revenue during any one of the fiscal years ended March 31, 2011, 2010 or 2009) are Comcast
Corporation (Comcast), Time Warner, Inc. (Time Warner), DISH Network Corporation (DISH), and DIRECTV, Inc. (DirecTV). Revenue from these customers is included in the Transactional TV and
Film Production segments. Net revenue from these customers as a percentage of total net revenue for the three fiscal years ended March 31 was as follows:

2011

2010

2009Comcast


16
%

17
%

24
%Time Warner


11
%

12
%

13
%DISH


10
%

11
%

13
%DirecTV


9
%

12
%

15
%


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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12MAJOR CUSTOMERS (Continued)

The
outstanding accounts receivable balances due from the major customers as of March 31 were as follows (in thousands):

2011

2010Comcast

$
1,231

$
1,221DISH


704


1,810DirecTV


634


699Time Warner


448


448


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

NOTE 13COMMITMENTS AND CONTINGENCIES

The following table reflects our contractual cash obligations as of March 31, 2011 for each of the time periods specified (in thousands):

Year Ending March 31,

Operating
Leases

Vendor
Obligations

Total2012

$
2,180

$
3,375

$
5,5552013


1,799


3,120


4,9192014


1,809


2,355


4,1642015


1,635


1,000


2,6352016


1,488


1,000


2,488Thereafter


6,106


1,500


7,606Total minimum payments

$
15,017

$
12,350

$
27,367


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

We
have recorded long-term income taxes payable of approximately $0.1 million for uncertain tax positions, reduced by the associated federal deduction for state taxes.
We are unable to reliably estimate the timing of future payments, if any, related to these uncertain tax positions. Therefore, the amounts have been excluded from the above table.

Operating Lease Obligations

We maintain non-cancelable leases for office space and equipment under various operating leases. The leases for office
space expire through January 2022 and contain annual Consumer Price Index escalation clauses. Our Transactional TV segment has entered into direct lease agreements that expire through October 2013
with an unrelated party for the use of transponders to broadcast its channels on satellites. As the lessee of transponders under the transponder agreements, we are subject to arbitrary refusal of
service by the service provider if that service provider determines that the content being

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 13COMMITMENTS AND CONTINGENCIES (Continued)

transmitted
by us is harmful to the service provider's name or business. We had no equipment under capital lease as of March 31, 2011 or 2010.

Rent
expense for the fiscal years ended March 31, 2011, 2010 and 2009 was approximately $2.2 million, $1.9 million and $1.8 million, respectively, which
includes transponder expenses.

Vendor Obligations

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

Employment Contracts

We employ executives and certain other key employees under non-cancelable employment contracts. The employment contracts in
effect as of March 31, 2011 expire through August 31, 2013. Commitments under these obligations as of March 31, 2011 were as follows (in thousands):

Year Ending March 31,2012

$
3,7712013


2,6912014


9242015


Total obligation under employment contracts

$
7,386


During
the first quarter of fiscal year 2012, we extended the term of non-cancellable employment contracts with certain executives and other key employees. These employment
contracts expire through March 31, 2015. The impact of the extension of the employment contracts was an increase in our commitments under the obligations of approximately $0.4 million,
$0.8 million, $1.8 million, and $1.1 million during the fiscal years ending March 31, 2012, 2013, 2014 and 2015, respectively.

Guarantees

Our Film Production segment completed producer-for-hire services during the fiscal year ended March 31,
2011 related to a movie production in the state of Georgia. Based on the location of the production and other factors, we received certain transferable production tax credits in the state of Georgia.
Subsequent to the completion of the production, we entered into an agreement to sell the tax credits for a net purchase price of approximately $0.8 million. If the tax credits are recaptured,
forfeited, recovered or otherwise become invalid within a four year period subsequent to our sale of the tax credits, we have agreed to reimburse the buyer for the value of the invalid tax credits as
well as any interest, penalties or other fees incurred in connection with the loss of the tax credits. We believe the tax credits are valid and do not expect that we will be required to reimburse the
buyer.

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NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 13COMMITMENTS AND CONTINGENCIES (Continued)

Indemnification

We have agreements whereby we indemnify officers and directors for certain events or occurrences while the officer or director is, or
was, serving in such capacity at our request. The term of the indemnification period is for the officer's or director's lifetime. The maximum potential amount of future payments we could be required
to make under these indemnification agreements is unlimited; however, we have a director and officer insurance policy that limits exposure and we believe that this policy would enable us to recover a
portion, if not all, of any future indemnification payments. As a result of our insurance policy coverage, we believe that our estimated exposure on these indemnification agreements is minimal. We
enter into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, we indemnify, holds harmless, and agree to reimburse the indemnified party for losses
suffered or incurred by the indemnified party in connection with any claim by any third party, including customers, with respect to our products or services, including, but not limited to, alleged
negligence, breach of contract, or infringement of a patent, copyright or other intellectual property right. The term is any time after execution of the agreement. The maximum potential amount of
future payments we could be required to make under these indemnification agreements is unlimited. We have never incurred costs to defend lawsuits or settle claims related to these indemnification
agreements. As a result, we believe that our estimated exposure on these agreements is minimal.

Other Contingencies

Our Film Production segment has distributed eight repped content horror films through a large video rental retailer (the Retailer). We
incurred recoupable costs and producer advances associated with the films distributed to the Retailer. The Retailer filed for bankruptcy in late September 2010 and was subsequently acquired in April
2011. We currently expect that we will be successful in collecting amounts owed to us through the distribution arrangement. If we are unable to collect amounts owed to us related to our distribution
of films through the Retailer, we expect that we will be unable to recover the recoupable costs and producer advances incurred for the related films. We estimate that we would incur a maximum increase
in the allowance for unrecoverable accounts of approximately $0.2 million if we are unable to collect amounts due from the distribution agreement with the Retailer.

Legal Proceedings

In the normal course of business, we are subject to various lawsuits and claims. We believe that the final outcome of these matters,
either individually or in the aggregate, will not have a material effect on our financial statements.

NOTE 14BORROWING ARRANGEMENTS

On December 15, 2010, our former line of credit matured and we renewed the line of credit through December 15, 2011. The line of credit is secured by certain accounts
receivable assets and bears interest at the greater of (a) the current prime rate less 0.125 percentage points per annum, or (b) 5.75% per annum. The line of credit may be drawn
from time to time to support our operations and short-term working capital needs, if any. A loan origination fee of 0.5% of the available line was paid upon the execution of the line of
credit and is being amortized over the life of the line of credit. The line of credit includes a maximum borrowing base equal to the lesser of 75% of certain accounts

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14BORROWING ARRANGEMENTS (Continued)

receivable
assets securing the line of credit or $5.0 million, and the maximum borrowing base as of March 31, 2011 was $4.8 million. The average outstanding line of credit
principal balance for the fiscal years ended March 31, 2011 and 2010 was $1.0 million and $3.3 million, respectively. The interest rate on our line of credit during each of the
fiscal years ended March 31, 2011 and 2010 was 5.75%.

The
line of credit contains both conditions precedent that must be satisfied prior to any borrowing and affirmative and negative covenants customary for facilities of this type,
including without limitation, (a) a requirement to maintain a current asset to current liability ratio of at least 1.5 to 1.0, (b) a requirement to maintain a total liability to tangible
net worth ratio not to exceed 1.0 to 1.0, (c) prohibitions on additional borrowing, lending, investing or fundamental corporate changes without prior consent, (d) a prohibition on
declaring, without consent, any dividends, other than dividends payable in our stock, and (e) a requirement that there be no material adverse change in our current client base as it relates to
our largest clients. The line of credit provides that an event of default will exist in certain circumstances, including without limitation, our failure to make payment of principal or interest on
borrowed amounts when required, failure to perform certain obligations under the line of credit and related documents, defaults in certain other indebtedness, our insolvency, a change in control, any
material adverse change in our financial condition and certain other events customary for facilities of this type. As of March 31, 2011 our outstanding principal balance under the line of
credit was $0.5 million, and we were in compliance with the related covenants.

NOTE 15DEFINED CONTRIBUTION PLAN

We sponsor a 401(k) retirement plan. The plan covers all eligible employees. Employee contributions to the plan are elective and vest immediately. We also have discretion to match
employee contributions. Matching contributions vest ratably over a three year period during the first three years of employee service, and matching contributions vest immediately after three or more
years of employee service. Our matching contributions during each of the fiscal years ended March 31, 2011, 2010, and 2009 were approximately $0.3 million.

NOTE 16STOCKHOLDER RIGHTS PLAN

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

NOTE 17RELATED PARTY TRANSACTIONS

We paid Isaacman, Kaufman & Painter an immaterial amount associated with legal services during the fiscal year ended March 31, 2011. We paid approximately
$0.1 million to Isaacman, Kaufman &

F-38

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 17RELATED PARTY TRANSACTIONS (Continued)

Painter
during each of the fiscal years ended March 31, 2010 and 2009 associated with legal services. Our board member, Alan Isaacman, is a Senior Member of Isaacman, Kaufman & Painter.

NOTE 18DISCONTINUED OPERATIONS

The Direct-to-Consumer segment acquired certain other identifiable intangible assets in late fiscal year 2008 in an effort to expand the product lines that are
delivered directly to consumers. The acquired other identifiable intangible assets primarily related to intellectual property rights technology that allowed us to manufacture a set-top box
through which consumers could obtain content directly through the internet and view the content on television. During the fourth quarter of fiscal year 2010, we implemented a plan to discontinue the
operations of the IPTV set-top box business based primarily on lower than expected performance of the IPTV set-top box business. Cash flows associated with the IPTV
set-top box business have been materially eliminated from our ongoing operations, and we do not have any significant continuing involvement in the operations of the IPTV
set-top box business.

The
discontinued operations generated immaterial net revenue during the fiscal year ended March 31, 2011, and the net revenue for each of the fiscal years ended March 31,
2010 and 2009 was $0.1 million. The pre-tax loss was immaterial during the fiscal year ended March 31, 2011, and the pre-tax loss for the fiscal years ended
March 31, 2010 and 2009 was $1.0 million and $3.5 million, respectively. There were no discontinued operations assets or liabilities as of March 31, 2011.

NOTE 19QUARTERLY INFORMATION (UNAUDITED)

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

Fiscal Year 2011First
Quarter

Second
Quarter

Third
Quarter

Fourth
QuarterNet revenue

$
12,454

$
11,162

$
14,173

$
10,920Gross margin


7,391


6,897


6,929


7,006Income (loss) from continuing operations(1)


557


(195
)

225


(1,347
)Income (loss) from discontinued operations


(7
)

(1
)

(5
)

4Net income (loss)


550


(196
)

220


(1,343
)Net income (loss) attributable to New Frontier Media, Inc. shareholders


550


(196
)

241


(1,320
)Per share information attributable to New Frontier Media, Inc. shareholders:Basic income (loss) per share:Continuing operations


0.03


(0.01
)

0.01


(0.07
)Discontinued operations


(0.00
)

(0.00
)

(0.00
)

0.00Net income (loss) per share


0.03


(0.01
)

0.01


(0.07
)Diluted income (loss) per share:Continuing operations


0.03


(0.01
)

0.01


(0.07
)Discontinued operations


(0.00
)

(0.00
)

(0.00
)

0.00Net income (loss) per share


0.03


(0.01
)

0.01


(0.07
)


F-39

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Table of Contents

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 19QUARTERLY INFORMATION (UNAUDITED) (Continued)



Fiscal Year 2010First
Quarter

Second
Quarter

Third
Quarter

Fourth
QuarterNet revenue

$
12,487

$
11,375

$
11,479

$
15,087Gross margin


8,071


7,336


7,476


7,687Income (loss) from continuing operations(2)


986


1,139


1,571


(4,809
)Loss from discontinued operations


(159
)

(133
)

(66
)

(267
)Net income (loss)


827


1,006


1,505


(5,076
)Net income (loss) attributable to New Frontier Media, Inc. shareholders


827


1,006


1,505


(5,076
)Per share information attributable to New Frontier Media, Inc. shareholders:Basic income (loss) per share:Continuing operations


0.05


0.06


0.08


(0.25
)Discontinued operations


(0.01
)

(0.01
)

(0.00
)

(0.01
)Net income (loss) per share


0.04


0.05


0.08


(0.26
)Diluted income (loss) per share:Continuing operations


0.05


0.06


0.08


(0.25
)Discontinued operations


(0.01
)

(0.01
)

(0.00
)

(0.01
)Net income (loss) per share


0.04


0.05


0.08


(0.26
)


(1)During
the second and fourth quarters of fiscal year 2011, we recorded film cost impairment expenses of approximately $0.6 million and
$1.6 million, respectively. We also recorded charges to increase the allowance for unrecoverable accounts associated with the Film Production segment of $0.3 million, $0.2 million
and $0.3 million during the second, third and fourth quarters of fiscal year 2011, respectively. See the Recoupable Costs and Producer Advances discussion in
Note 1Organization and Summary of Significant Accounting Policies as well as Note 8Film Costs for additional information.(2)During
the fourth quarter of fiscal year 2010, we incurred a goodwill impairment charge of $4.9 million, film cost impairment expenses of
approximately $1.2 million, and charges to increase the allowance for unrecoverable accounts of $0.8 million associated with the Film Production segment. See the Recoupable Costs and
Producer Advances discussion in Note 1Organization and Summary of Significant Accounting Policies as well as Note 5Goodwill and Other Identifiable Intangible
Assets and Note 8Film Costs for additional information.


F-40

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Table of Contents

SUPPLEMENTAL INFORMATION

VALUATION AND QUALIFYING ACCOUNTSSCHEDULE II        (in thousands)

Balance,
Beginning of
Year

Additions
(Deductions) Charged
to Operations

Additions
(Deductions) from
Reserve

Balance,
End of YearAllowance for doubtful accountsMarch 31, 2011

$
253

$
19

$
(99
)
$
173March 31, 2010

$
308

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

$
169

$
169

$
(30
)
$
308




Balance,
Beginning of
Year

Additions
(Deductions) Charged
to Operations

Additions
(Deductions) from
Reserve

Balance,
End of YearReserve for chargebacks/creditsMarch 31, 2011

$
4

$
47

$
(45
)
$
6March 31, 2010

$
14

$
48

$
(58
)
$
4March 31, 2009

$
11

$
106

$
(103
)
$
14




Balance,
Beginning of
Year

Additions
(Deductions) Charged
to Operations

Additions
(Deductions) from
Reserve

Balance,
End of YearAccrued restructuring expense(1)March 31, 2011

$


$


$


$
March 31, 2010

$
189

$


$
(189
)
$
March 31, 2009

$


$
189

$


$
189




Balance,
Beginning of
Year

Additions
(Deductions) Charged
to Operations

Additions
(Deductions) from
Reserve

Balance,
End of YearAllowance for unrecoverable accountsMarch 31, 2011

$
1,074

$
823

$
1

$
1,898March 31, 2010

$
333

$
771

$
(30
)
$
1,074March 31, 2009

$
362

$
200

$
(229
)
$
333


(1)Activity
relates to discontinued operations. See Note 18Discontinued Operations for additional discussion.


F-41

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Table of Contents

EXHIBIT INDEX

Exhibit No.

Exhibit Description3.01

Amended and Restated Articles of Incorporation of the Company, dated May 7, 2007(1)3.02

Amended and Restated Bylaws of the Company, dated February 2, 2011(2)4.01

Form of Common Stock Certificate(3)4.02

Amended and Restated Rights Agreement between the Company and Corporate Stock Transfer, Inc., as rights agent, dated August 1, 1998(4)4.03

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

Lease Agreement Office and Industrial Space between the Company and LakeCentre Plaza, Ltd., LLLP, dated August 12, 1999(5)10.02

Lease between the Company and Northview Properties, LLC, dated April 11, 2001(6)10.03

Lease Modification Agreement between the Company and LakeCentre Plaza Ltd., LLLP, dated July 30, 2003(6)10.04
#
Satellite Capacity Lease between Colorado Satellite Broadcasting, Inc. and Transponder Encryption Services Corporation, dated October 24, 2006(7)10.05
*
Summary of Director Compensation Arrangements10.06
*
1998 Incentive Stock Plan, dated July 21, 1998(8)10.07
*
1999 Incentive Stock Plan, dated September 3, 1999(9)10.08
*
Millennium Incentive Stock Option Plan, dated July 13, 2000(10)10.09
*
2001 Incentive Stock Plan, dated June 25, 2001(11)10.10
*
2007 Stock Incentive Plan, dated July 16, 2007(12)10.11
*
Amended and Restated Employment Agreement between the Company and Michael Weiner, dated September 29, 2008(13)10.12
*
Amended and Restated Employment Agreement between the Company and Grant Williams, dated September 29, 2008(13)10.13
*
Amended and Restated Employment Agreement between the Company and Ira Bahr, dated September 29, 2008(13)10.14
*
Amended and Restated Employment Agreement between the Company and Ken Boenish, dated September 29, 2008(13)10.15
*
Amended and Restated Employment Agreement between the Company and Marc Callipari, dated September 29, 2008(13)10.16
*
Amended and Restated Employment Agreement between the Company and Scott Piper, dated September 29, 2008(13)10.17
#
Affiliation Agreement between the Company and Time Warner Cable, a division of Time Warner Entertainment Company, L.P., dated January 1, 2000 and as amended to date(14)10.18
#
Video On Demand License Agreement between the Company and Time Warner Cable, a division of Time Warner Entertainment Company, L.P., dated March 13, 2000 and as amended to date(14)


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Table of Contents

Exhibit No.

Exhibit Description10.19
#
Adult VOD License Agreement between Colorado Satellite Broadcasting, Inc. and Comcast Cable Communications, Inc., dated October 18, 2002 and as amended to date(14)10.20
#
Pleasure Service License Agreement between Colorado Satellite Broadcasting, Inc. and Comcast Programming, a division of Comcast Corporation, dated November 16, 2000 and as amended to date(14)10.21

First Amendment to Satellite Capacity Lease between Colorado Satellite Broadcasting, Inc. and Transponder Encryption Services Corporation, dated October 4, 2007(14)10.22
#
Second Amendment to Satellite Capacity Lease between Colorado Satellite Broadcasting, Inc. and Transponder Encryption Services Corporation, dated March 13, 2008(14)10.23
#
Third Amendment to Satellite Capacity Lease between Colorado Satellite Broadcasting, Inc. and Transponder Encryption Services Corporation, dated July 28, 2009(15)10.24
*
First Amendment to the Amended and Restated Employment Agreement between the Company and Michael Weiner, dated August 31, 2009(15)10.25
*
First Amendment to the Amended and Restated Employment Agreement between the Company and Grant Williams, dated August 31, 2009(15)10.26
*
First Amendment to the Amended and Restated Employment Agreement between the Company and Ken Boenish, dated August 31, 2009(15)10.27
*
First Amendment to the Amended and Restated Employment Agreement between the Company and Scott Piper, dated August 31, 2009(15)10.28
*
First Amendment to the Amended and Restated Employment Agreement between the Company and Marc Callipari, dated August 31, 2009(15)10.29
#
Amended and Restated Affiliation Agreement for DTH Satellite Exhibition of Cable Network Programming by and between Colorado Satellite Broadcasting, Inc. and DIRECTV, Inc., dated June 15, 2010(16)10.30
*
2010 Equity Incentive Plan, dated June 29, 2010(17)10.31
*
Employment Agreement between MRG Entertainment, Inc. and Richard Bruce Goldberg, dated February 10, 2006(18)10.32
*
Amendment to Employment Agreement between MRG Entertainment, Inc., the Company and Richard Bruce Goldberg, dated August 25, 2008(18)10.33
*
Second Amendment to Employment Agreement between MRG Entertainment, Inc., the Company and Richard Bruce Goldberg, dated January 13, 2010(18)10.34
*
Employment Agreement between MRG Entertainment, Inc. and Marc Laurence Greenberg, dated February 10, 2006(18)10.35
*
Amendment to Employment Agreement between MRG Entertainment, Inc., the Company and Marc Laurence Greenberg, dated October 8, 2008(18)10.36
*
Second Amendment to Employment Agreement between MRG Entertainment, Inc., the Company and Marc Laurence Greenberg, dated December 15, 2009(18)10.37
#
TVN-CSB Adult Services Agreement between Colorado Satellite Broadcasting, Inc. and TVN Entertainment Corporation, dated April 8, 2010(18)10.38
#
Amendment Four to Adult VOD License Agreement between Colorado Satellite Broadcasting, Inc. and Comcast Cable Communications, LLC, dated July 19, 2007(19)


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Table of Contents

Exhibit No.

Exhibit Description10.39
#
Amendment Five to Adult VOD License Agreement between Colorado Satellite Broadcasting, Inc. and Comcast Cable Communications, LLC, dated August 18, 2010(20)10.40
#
Amendment Two to the Pleasure Service Agreement between Colorado Satellite Broadcasting, Inc. and Comcast Cable Communications, LLC, dated August 18, 2010(20)10.41
*
Form of 2010 Equity Incentive Plan Incentive Stock Option Agreement(21)10.42
*
Form of 2010 Equity Incentive Plan Nonqualified Stock Option Agreement(21)10.43
*
Form of 2010 Equity Incentive Plan Restricted Stock Award Agreement(21)10.44
*
Form of 2010 Equity Incentive Plan Bonus Stock Award Agreement(21)10.45
*
Form of 2010 Equity Incentive Plan Stock Appreciation Right Award Agreement(21)10.46

Promissory Note between New Frontier Media, Inc. and Great Western Bank, dated December 15, 2009(22)10.47

Commercial Security Agreement between New Frontier Media, Inc. and Great Western Bank, dated December 15, 2009(22)10.48
#
Business Loan Agreement, as supplemented (including Change in Terms Agreement), dated December 15, 2010, between New Frontier Media, Inc. and Great Western Bank(2)10.49
*
Confidential Separation Agreement and General Release between MRG Entertainment, Inc. and Marc Laurence Greenberg, dated October 6, 2010(2)10.50
*
Confidential Separation Agreement and General Release between MRG Entertainment, Inc. and Richard B. Goldberg, dated October 26, 2010(2)10.51

Lease Agreement Office and Industrial Space (including Assignment and Assumption of Lease between the Company and 6060 Partnership, LLP), dated October 6, 2010(2)10.52
*
Second Amendment to the Amended and Restated Employment Agreement between the Company and Michael Weiner, dated April 1, 201110.53
*
Second Amendment to the Amended and Restated Employment Agreement between the Company and Grant Williams, dated April 1, 201110.54
*
Second Amendment to the Amended and Restated Employment Agreement between the Company and Ken Boenish, dated April 1, 201110.55
*
Second Amendment to the Amended and Restated Employment Agreement between the Company and Scott Piper, dated April 1, 201110.56
*
Second Amendment to the Amended and Restated Employment Agreement the Company and Marc Callipari, dated April 1, 201121.01

New Frontier Media, Inc. Subsidiaries23.01

Consent of Independent Registered Public Accounting Firm31.01

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

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

Section 1350 Certification of CEO32.02

Section 1350 Certification of CFO


(1)Incorporated
by reference to the corresponding exhibit included in the Company's Current Report on Form 8-K filed on May 9, 2007
(File No. 000-23697).


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Table of Contents

(2)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended December 31, 2010 (File No. 000-23697).(3)Incorporated
by reference to the corresponding exhibit included in the Company's Registration Statement on Form SB-2 filed on
September 10, 1997 (File No. 333-35337).(4)Incorporated
by reference to the corresponding exhibit included in the Company's Current Report on Form 8-K filed on August 1,
2008 (File No. 000-23697).(5)Incorporated
by reference to the corresponding exhibit included in the Company's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1999 (File No. 000-23697).(6)Incorporated
by reference to the corresponding exhibit included in the Company's Annual Report filed on Form 10-K for the fiscal year
ended March 31, 2004 (File No. 000-23697).(7)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended September 30, 2006 (File No. 000-23697).(8)Incorporated
by reference to Exhibit A to the Company's definitive proxy statement filed under cover of Schedule 14A on August 7, 1998
(File No. 000-23697).(9)Incorporated
by reference to Exhibit C to the Company's definitive proxy statement filed under cover of Schedule 14A on September 28,
1999 (File No. 000-23697).(10)Incorporated
by reference to Exhibit B to the Company's definitive proxy statement filed under cover of Schedule 14A on August 29,
2000 (File No. 000-23697).(11)Incorporated
by reference to Exhibit A to the Company's definitive proxy statement filed under cover of Schedule 14A on July 23, 2001
(File No. 000-23697).(12)Incorporated
by reference to Appendix A to the Company's definitive proxy statement filed under cover of Schedule 14A on July 16, 2007
(File No. 000-23697).(13)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended September 30, 2008 (File No. 000-23697).(14)Incorporated
by reference to the corresponding exhibit included in the Company's Annual Report filed on Form 10-K for the fiscal year
ended March 31, 2009 (File No. 000-23697).(15)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended September 30, 2009 (File No. 000-23697).(16)Incorporated
by reference to the corresponding exhibit included in the Company's Amended Quarterly Report filed on Form 10-Q/A for the
quarter ended June 30, 2010 (File No. 000-23697).(17)Incorporated
by reference to Appendix B to the Company's definitive proxy statement filed under cover of Schedule 14A on July 16, 2010
(File No. 000-23697).(18)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended June 30, 2010 (File No. 000-23697).(19)Incorporated
by reference to the corresponding exhibit included in the Company's Amended Annual Report filed on Form 10-K/A for the
fiscal year ended March 31, 2010 (File No. 000-23697).(20)Incorporated
by reference to the corresponding exhibit included in the Company's Amended Current Report on Form 8-K/A filed on
December 10, 2010 (File No. 000-23697).(21)Incorporated
by reference to the corresponding exhibit included in the Company's Current Report on Form 8-K filed on September 3,
2010 (File No. 000-23697).(22)Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report filed on Form 10-Q for the quarter
ended December 31, 2009 (File No. 000-23697).*Denotes
management contract or compensatory plan or arrangement.#Confidential
portions of this agreement have been redacted pursuant to a confidential treatment request filed separately with the SEC.


---