10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended September 30, 2012

o Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from               to             

000-23697

(Commission file number)

NEW FRONTIER MEDIA, INC.

(Exact name of registrant as specified in its charter)

Colorado	84-1084061
(State or other jurisdiction of	(I.R.S. Employer
Incorporation or organization)	Identification No.)

6000 Spine Road, Suite 100, Boulder, CO 80301

(Address of principal executive offices)

(303) 444-0900

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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. Yes x No o

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). Yes x No o

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 the 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	Smaller reporting company x
(Do not check if a smaller reporting company)

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

As of November 7, 2012, 16,264,213 shares of the registrant’s Common Stock, par value $.0001, were outstanding.

Form 10-Q

NEW FRONTIER MEDIA, INC.

FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2012

Table of Contents

		Page Number
Part I.	Financial Information
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Cash Flows	5
	Condensed Consolidated Statements of Comprehensive Income (Loss)	6
	Condensed Consolidated Statements of Total Equity	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 4.	Controls and Procedures	30
Part II.	Other Information	30
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 6.	Exhibits	32
SIGNATURES		33

2

PART I.   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS (UNAUDITED).

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par values)

	September 30,			March 31,
	2012			2012
Assets
Current assets:
Cash and cash equivalents	$	13,464		$	13,190
Accounts receivable, less allowance of $481 and $183, respectively	8,172			8,334
Taxes receivable	216			46
Deferred tax asset	159			—
Prepaid and other assets	2,303			2,234
Total current assets	24,314			23,804
Property and equipment, net	8,294			8,619
Content and distribution rights, net	11,675			11,792
Recoupable costs and producer advances, less allowance of $2,199 and $2,467, respectively	2,598			2,227
Film costs, net	2,322			3,984
Deferred tax assets	3,107			3,691
Other assets	720			634
Total assets	$	53,030		$	54,751
Liabilities and equity
Current liabilities:
Accounts payable	$	1,310		$	981
Producers payable	619			393
Deferred revenue	555			606
Accrued compensation	896			930
Deferred producer liabilities	1,500			1,361
Accrued and other liabilities	3,972			3,328
Total current liabilities	8,852			7,599
Other long-term liabilities	1,770			1,702
Total liabilities	10,622			9,301
Commitments and contingencies (Note 10)
Shareholders’ equity:
Preferred stock, $.10 par value, 4,999 shares authorized, no shares issued and outstanding	—			—
Common stock, $.0001 par value, 50,000 shares authorized, 16,264 shares issued and outstanding as of September 30, 2012 and March 31, 2012	2			2
Additional paid-in capital	51,827			51,957
Accumulated deficit	(9,335		)	(6,424		)
Accumulated other comprehensive loss	(86		)	(85		)
Total shareholders’ equity	42,408			45,450
Total liabilities and shareholders’ equity	$	53,030		$	54,751

Refer to Notes to Condensed Consolidated Financial Statements.

3

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

	Three Months Ended September 30,						Six Months Ended September 30,
	2012			2011			2012			2011
Net revenue	$	9,768		$	10,305		$	21,450		$	20,733
Cost of sales	4,264			3,938			10,134			7,906
Gross margin	5,504			6,367			11,316			12,827
Operating expenses:
Sales and marketing	2,085			1,937			4,243			3,996
General and administrative	4,907			3,999			9,668			8,393
Charge for asset impairments	28			186			28			186
Total operating expenses	7,020			6,122			13,939			12,575
Operating income (loss)	(1,516		)	245			(2,623		)	252
Other net income (expenses)	27			(4		)	10			(6		)
Income (loss) before income tax expense	(1,489		)	241			(2,613		)	246
Income tax expense	(1,003		)	(108		)	(298		)	(224		)
Net income (loss)	(2,492		)	133			(2,911		)	22
Net loss attributable to noncontrolling interests	—			—			—			3
Net income (loss) attributable to New Frontier Media, Inc. shareholders	$	(2,492	)	$	133		$	(2,911	)	$	25
Per share information attributable to New Frontier Media, Inc. shareholders:
Net basic and diluted income (loss) per share	$	(0.15	)	$	0.01		$	(0.18	)	$	0.00

Refer to Notes to Condensed Consolidated Financial Statements.

4

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Six Months Ended September 30,
	2012			2011
Cash flows from operating activities:
Net income (loss)	$	(2,911	)	$	22
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	5,395			3,842
Share-based compensation	127			396
Deferred taxes	50			42
Charge for asset impairments	28			186
Changes in operating assets and liabilities:
Accounts receivable	161			595
Accounts payable	329			(287		)
Content and distribution rights	(2,088		)	(2,161		)
Film costs	(319		)	(1,224		)
Deferred producer liabilities	138			(578		)
Deferred revenue	(51		)	(164		)
Producers payable	226			(558		)
Taxes receivable and payable	(170		)	(116		)
Accrued compensation	(34		)	(503		)
Recoupable costs and producer advances	(371		)	706
Other assets and liabilities	982			1,186
Net cash provided by operating activities	1,492			1,384
Cash flows from investing activities:
Purchases of property and equipment	(881		)	(3,356		)
Purchases of intangible assets	(279		)	—
Net cash used in investing activities	(1,160		)	(3,356		)
Cash flows from financing activities:
Purchases of common stock	—			(875		)
Payments on short-term debt	—			(400		)
Payments on long-term seller financing	(55		)	(55		)
Net cash used in financing activities	(55		)	(1,330		)
Net increase (decrease) in cash and cash equivalents	277			(3,302		)
Effect of exchange rate changes on cash and cash equivalents	(3		)	(3		)
Cash and cash equivalents, beginning of period	13,190			18,787
Cash and cash equivalents, end of period	$	13,464		$	15,482

Refer to Notes to Condensed Consolidated Financial Statements.

5

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

	Three Months Ended September 30,						Six Months Ended September 30,
	2012			2011			2012			2011
Net income (loss)	$	(2,492	)	$	133		$	(2,911	)	$	22
Other comprehensive income (loss):
Currency translation adjustment	1			(4		)	(1		)	(3		)
Total comprehensive income (loss)	(2,491		)	129			(2,912		)	19
Add: Net loss attributable to noncontrolling interests	—			—			—			3
Total comprehensive income (loss) attributable to New Frontier Media, Inc. shareholders	$	(2,491	)	$	129		$	(2,912	)	$	22

Refer to Notes to Condensed Consolidated Financial Statements.

6

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF TOTAL EQUITY

(in thousands)

	Six Months Ended September 30,
	2012			2011
Common stock
Balance at beginning of period	$	2		$	2
Balance at end of period	2			2
Additional paid-in capital
Balance at beginning of period	51,957			55,169
Tax reversal for stock option forfeitures/cancellations	(257		)	(62		)
Purchases of common stock	—			(875		)
Share-based compensation	127			396
Balance at end of period	51,827			54,628
Accumulated deficit
Balance at beginning of period	(6,424		)	(3,460		)
Net income (loss) attributable to New Frontier Media, Inc. shareholders	(2,911		)	25
Balance at end of period	(9,335		)	(3,435		)
Accumulated other comprehensive loss
Balance at beginning of period	(85		)	(69		)
Currency translation adjustment	(1		)	(3		)
Balance at end of period	(86		)	(72		)
Total New Frontier Media, Inc. shareholders’ equity	42,408			51,123
Noncontrolling interests
Balance at beginning of period	—			(44		)
Net loss	—			(3		)
Deconsolidation of controlling interests	—			47
Balance at end of period	—			—
Total equity	$	42,408		$	51,123

Refer to Notes to Condensed Consolidated Financial Statements.

7

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of New Frontier Media, Inc. and its wholly owned and majority controlled subsidiaries (collectively hereinafter referred to as New Frontier Media, the Company, we, us, and other similar pronouns) have been prepared without audit pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (GAAP) have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. We believe these statements include all adjustments, which are of a normal and recurring nature, considered necessary for a fair presentation of the financial position and results of operations. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K filed with the SEC on July 19, 2012.  The results of operations for the six month period ended September 30, 2012 are not necessarily indicative of the results to be expected for the full fiscal year.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of New Frontier Media.  All intercompany accounts and transactions have been eliminated in consolidation.

Agreement and Plan of Merger with LFP Broadcasting, LLC and Flynt Broadcast, Inc.

On October 15, 2012, we entered into an Agreement and Plan of Merger, pursuant to which LFP Broadcasting, LLC and Flynt Broadcast, Inc. commenced a tender offer on October 29, 2012 to acquire all of the issued and outstanding shares of our common stock at a price per share equal to (1) $2.02, net to the seller in cash, without interest, and (2) one contingent right per share of our common stock, which shall represent the contractual right to receive a contingent cash payment as defined in the Agreement and Plan of Merger.

Noncontrolling Interests

During fiscal year 2011, we entered into an agreement to create an entity within the Transactional TV segment to develop new channel services. We controlled a majority of the entity’s common stock and included the accounts of the entity in our financial statements. The net loss applicable to the noncontrolling interests of the entity was presented herein as net loss attributable to noncontrolling interests in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), and the portion of the equity applicable to the noncontrolling interests of the entity was presented as noncontrolling interests in the Condensed Consolidated Statements of Total Equity.

During the first quarter of fiscal year 2012, we entered into an arrangement that resulted in the loss of our majority controlling interest in the entity’s common stock. As a result, we deconsolidated the entity, which resulted in an immaterial loss within the Transactional TV segment.  During the fourth quarter of fiscal year 2012, we entered into an agreement to assign our remaining shares. As of March 31, 2012, we had no remaining interests in the entity.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

8

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Estimates have been made in several areas, including, but not limited to, estimated revenue for certain Transactional TV segment pay-per-view (PPV) and video-on-demand (VOD) services; the recognition and measurement of income tax expenses, assets and liabilities (including the measurement of uncertain tax positions, the valuation of deferred tax assets, and the deductibility of certain strategic transaction costs for income tax purposes); the assessment of film costs and the forecast of anticipated revenue (ultimate revenue), which is used to amortize film costs; the determination of the allowance for unrecoverable accounts, which reserves for certain recoupable costs and producer advances that are not expected to be recovered; the amortization methodology and valuation of content and distribution rights; and the valuation of other identifiable intangible and other long-lived assets. 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.

Accrued and Other Liabilities

As of September 30, 2012, accrued and other liabilities included approximately $0.7 million of accrued transport fees, $1.2 million of unsettled customer receipt liabilities, and $0.6 million of accrued legal liabilities. As of March 31, 2012, accrued and other liabilities included approximately $0.2 million of accrued transport fees and $1.0 million of unsettled customer receipt liabilities. Accrued legal liabilities as of March 31, 2012 were immaterial.

Other Long-Term Liabilities

Other long-term liabilities included $1.3 million and $1.4 million of incentive from lessor liabilities as of September 30, 2012 and March 31, 2012, respectively.

NOTE 2 — RECENT 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.

NOTE 3 — INCOME (LOSS) PER SHARE

The components of basic and diluted income (loss) per share attributable to New Frontier Media, Inc. shareholders were as follows (in thousands, except per share amounts):

	Three Months Ended September 30,					Six Months Ended September 30,
	2012			2011		2012			2011
Net income (loss) attributable to New Frontier Media, Inc. shareholders	$	(2,492	)	$	133	$	(2,911	)	$	25
Weighted average shares outstanding	16,264			18,993		16,264			19,096
Effect of dilutive shares	—			—		—			—
Weighted average diluted shares	16,264			18,993		16,264			19,096
Basic income (loss) per share attributable to New Frontier Media, Inc. shareholders	$	(0.15	)	$	0.01	$	(0.18	)	$	0.00
Diluted income (loss) per share attributable to New Frontier Media, Inc. shareholders	$	(0.15	)	$	0.01	$	(0.18	)	$	0.00

We excluded options to purchase 1.9 million and 2.8 million shares of common stock from the calculation of diluted income (loss) per share for the three month periods ended September 30, 2012 and 2011, respectively, because inclusion of these options would be antidilutive.  We excluded options to purchase 2.0 million and 2.5 million shares of common stock from the calculation of diluted income (loss) per share for the six month periods ended September 30, 2012 and 2011, respectively, because inclusion of these options would be antidilutive.

9

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 4 — EMPLOYEE EQUITY INCENTIVE PLANS

We adopted the New Frontier Media, Inc. 2010 Equity Incentive Plan (the 2010 Plan) in August 2010. The 2010 Plan is intended to assist in attracting and retaining employees and directors, optimizing profitability, and promoting teamwork.  There were 1.3 million awards originally authorized for issuance under the 2010 Plan.  As of September 30, 2012, there were 0.7 million awards available for issuance.

Share-Based Compensation

Share-based compensation expense was included in cost of sales, sales and marketing, and general and administrative expenses. The expense resulting from options granted under our equity incentive plans was as follows (in thousands, except per share amounts):

	Three Months Ended September 30,						Six Months Ended September 30,
	2012			2011			2012			2011
Share-based compensation expense before income taxes	$	62		$	118		$	127		$	396
Income tax benefit	(11		)	(93		)	(33		)	(200		)
Total share-based compensation expense after income tax benefit	$	51		$	25		$	94		$	196
Share-based compensation effect on basic and diluted income (loss) per common share	$	0.00		$	0.00		$	0.01		$	0.01

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 and six month periods ended September 30, 2012 and 2011 were as follows:

	Three Months Ended September 30,					Six Months Ended September 30,
	2012		2011			2012		2011
Weighted average estimated fair value per award		(1)	$	0.61		$	(1)	$	0.83
Expected term from grant date (in years)		(1)	5				(1)	6
Risk free interest rate		(1)	1.8		%		(1)	2.5		%
Expected volatility		(1)	55		%		(1)	54		%
Expected dividend yield		(1)	—		%		(1)	—		%

(1)No options were granted during the three or six month periods ended September 30, 2012.

Share-based compensation expense is based on awards that are ultimately expected to vest, which takes into consideration 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 adjusting the estimated forfeiture rate in the period that the forfeiture estimate changes. The effect of forfeiture adjustments was not material during the three month period ended September 30, 2012 and was $0.2 million during the six month period ended September 30, 2012.  The effect of forfeiture adjustments was not material during the three and six month periods ended September 30, 2011.

10

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Stock option transactions during the six month period ended September 30, 2012 are summarized as follows:

	Shares		Weighted Avg. Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value(1) (in thousands)
Outstanding as of April 1, 2012	2,096,952		$	4.08
Forfeited/expired	(726,800	)	3.44
Outstanding as of September 30, 2012	1,370,152		4.41		5.7	$	—
Options exercisable as of September 30, 2012	1,026,177		5.20		4.8	—
Options vested and expected to vest—non-officers	1,054,239		4.70		5.3	—
Options vested and expected to vest—officers	278,037		3.63		6.9	—

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

As of September 30, 2012, there was $0.1 million of total unrecognized compensation costs for each of the non-officer and officer groups related to stock options granted under equity incentive plans. The unrecognized compensation costs for non-officers and officers are expected to be recognized over a weighted average period of approximately one year and two years, respectively.

NOTE 5 — FAIR VALUE MEASUREMENT

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

·Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

·Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (such as a Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

·Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We measure certain assets, such as film costs and intangible assets, at fair value on a nonrecurring basis when they are deemed to be impaired. The fair values are determined based on valuation techniques using the best information available and may include quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded when the unamortized cost of the asset exceeds its fair value. The following table presents our assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2012 (in thousands):

11

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Level 1		Level 2		Level 3		Net Fair Value
Other long-lived assets (1)	$	—	$	—	$	72	$	72

(1)Measurement relates to the Transactional TV segment’s 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 an immaterial impairment charge within the charge for asset impairments line item in the condensed consolidated statements of operations.

The following table presents our assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2012 (in thousands):

	Level 1		Level 2		Level 3			Net Fair Value
Goodwill (2)	$	—	$	—	$	—	*	$	—
Film costs (3)		—		—		6			6
Other long-lived assets (4)		—		—		100			100

*Fair values were measured using level 3 inputs, and the fair values were zero.

(2)Measurement relates to the Transactional TV segment’s goodwill impairment analysis. We recorded a $3.7 million goodwill impairment charge to reduce the goodwill balance from $3.7 million to the implied fair value of goodwill of zero during fiscal year 2012.

(3)Measurement relates to the Film Production segment’s film cost impairment analysis. We adjusted downward the estimated future revenue for several films due to a continuation of underperformance relative to expectations, which caused the estimated fair value of the films to be less than the unamortized film cost. As a result, we recorded a $0.2 million film cost impairment charge.

(4)Measurement relates to the Transactional TV segment’s 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 asset impairment charge in fiscal year 2012.

NOTE 6 — SEGMENT AND GEOGRAPHIC INFORMATION

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

· Transactional TV—distributes branded adult entertainment PPV networks and VOD content through electronic distribution platforms including cable television and direct broadcast satellite (DBS) operators.

· Film Production—produces and distributes mainstream films and erotic features. These films are distributed on U.S. and international premium channels, PPV channels and VOD systems across a range of cable and satellite distribution platforms. The Film Production segment also distributes a full range of independently produced motion pictures to markets around the world. Additionally, this segment periodically provides producer-for-hire services to major Hollywood studios.

· Direct-to-Consumer—aggregates and resells adult content via the internet. The Direct-to-Consumer segment sells content to subscribers primarily through its consumer websites.

· Corporate Administration—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. 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 the public company filings and shareholder communications.

The accounting policies of each reportable segment are the same as those described in the Note 1 — Summary of Significant Accounting Policies. The reportable segments are distinct business units that are separately managed with different distribution channels. The selected operating results of the segments during each of the three and six month periods ended September 30 were as follows (in thousands):

12

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Three Months Ended September 30,						Six Months Ended September 30,
	2012			2011			2012			2011
Net revenue
Transactional TV	$	8,117		$	8,746		$	16,236		$	17,420
Film Production	1,554			1,365			5,010			2,908
Direct-to-Consumer	97			194			204			405
Total	$	9,768		$	10,305		$	21,450		$	20,733
Income (loss) before income tax expense
Transactional TV	$	885		$	2,094		$	1,871		$	4,211
Film Production	596			140			1,270			430
Direct-to-Consumer	(1		)	(106		)	10			(265		)
Corporate Administration	(2,969		)	(1,887		)	(5,764		)	(4,130		)
Total	$	(1,489	)	$	241		$	(2,613	)	$	246
Depreciation and amortization
Transactional TV	$	1,685		$	1,591		$	3,351		$	3,281
Film Production	182			285			1,989			473
Direct-to-Consumer	15			30			32			64
Corporate Administration	12			12			23			24
Total	$	1,894		$	1,918		$	5,395		$	3,842

The total identifiable asset balance by operating segment as of the dates presented was as follows (in thousands):

	September 30, 2012		March 31, 2012
Identifiable Assets
Transactional TV	$	27,675	$	27,642
Film Production	7,709		8,839
Direct-to-Consumer	282		222
Corporate Administration	17,364		18,048
Total assets	$	53,030	$	54,751

Approximately $0.1 million of total assets were located in Europe as of September 30, 2012. All other assets were located in the U.S.

Net revenue, classified by geographic billing location of the customer, during the three and six month periods ended September 30 was as follows (in thousands):

	Three Months Ended September 30,				Six Months Ended September 30,
	2012		2011		2012		2011
United States net revenue	$	7,414	$	8,279	$	16,773	$	16,485
International net revenue:
Europe, Middle East and Africa	419		601		1,159		1,020
Latin America	1,374		721		2,243		1,554
Canada	500		639		1,125		1,481
Asia	61		65		150		193
Total international net revenue	2,354		2,026		4,677		4,248
Total net revenue	$	9,768	$	10,305	$	21,450	$	20,733

13

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 7 — MAJOR CUSTOMERS

Our major customers (customers with revenue equal to or in excess of 10% of consolidated net revenue during any one of the presented periods) are Comcast Corporation (Comcast), Time Warner, Inc. (Time Warner), DIRECTV, Inc. (DirecTV), and DISH Network Corporation (DISH). 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 each of the three and six month periods ended September 30 was as follows:

	Three Months Ended September 30,				Six Months Ended September 30,
	2012		2011		2012		2011
Comcast	19	%	21	%	17	%	19	%
Time Warner	12	%	11	%	10	%	12	%
DirecTV	12	%	11	%	11	%	11	%
DISH	9	%	10	%	8	%	10	%

The outstanding accounts receivable balances due from our major customers as of the dates presented were as follows (in thousands):

	September 30, 2012		March 31, 2012
Comcast	$	1,075	$	1,264
DISH	805		562
DirecTV	912		822
Time Warner	460		292

We also recognized revenue from one Film Production segment customer that represented approximately 11% of the total net revenue during the six month period ended September 30, 2012. No outstanding accounts receivable balance was due from this customer as of September 30, 2012.

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

NOTE 8 — INCOME TAXES

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. This evidence may include, but is not limited to, our historical operating results, the nature of the deferred tax assets, our projected future operating results, and any unusual expenses that are not expected to recur. We had no material changes in our valuation allowances during the six month period ended September 30, 2012.

Our effective tax rates for the periods presented differ from the U.S. statutory rate of 35% due to a number of factors including the mix of profit and loss between various taxing jurisdictions and the impact of permanent items that affect book income but do not affect taxable income.  For example, our results of operations during the three and six month periods ended September 30, 2012 include certain strategic assessment costs incurred in connection with the Agreement and Plan of Merger with LFP Broadcasting, LLC and Flynt Broadcast, Inc.  These transaction costs are not expected to be deductible for income tax purposes because we expect to complete the merger. If the merger is not completed, the transaction costs are expected to be deductible.

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 fiscal year ended March 31, 2012, the Internal Revenue Service (IRS) initiated an audit of our fiscal year 2010 tax returns and expanded its audit to also include certain deductions included in the fiscal year 2011 returns. Based on recent discussions and correspondence, the IRS has proposed adjustments to our previously filed fiscal year 2011 and 2010 tax returns to disallow the acceleration of certain film cost deductions. We have agreed to settle the amounts with the IRS, which represent approximately $48,000 of deductions. The adjustment did not have a material impact on our consolidated statements of operations.

14

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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, 2009, and we are no longer subject to examination of our state income tax returns for years prior to the fiscal year ended March 31, 2008.

NOTE 9 — BORROWING ARRANGEMENTS

On December 13, 2011, we extended our $5.0 million line of credit through December 15, 2012. 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 term 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 September 30, 2012 was $4.7 million. The average outstanding line of credit principal balance for each of the three and six month periods ended September 30, 2012 and 2011 was $0.1 million. The interest rate on our line of credit during each of the three and six month periods ended September 30, 2012 and 2011 was 5.75%.

The line of credit contains 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 from the lender, (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 September 30, 2012, our outstanding principal balance under the line of credit was $0.1 million, and we were in compliance with the related covenants.

NOTE 10 — COMMITMENTS AND CONTINGENCIES

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.

Legal Proceedings

On October 15, 2012, the Company, LFP Broadcasting, LLC (Parent), and Flynt Broadcast, Inc., a wholly-owned subsidiary of Parent (Merger Sub), entered into an Agreement and Plan of Merger (the Merger Agreement), pursuant to which Merger Sub commenced a cash offer (Offer) on October 29, 2012 to acquire all of the issued and outstanding shares of common stock of the Company at a price per share equal to (1) $2.02, net to the seller in cash, without interest, and (2) one contingent right per share of the Company, which shall represent the contractual right to receive a Contingent Cash Payment (as such term is defined in the Contingent Payment Rights Agreement in the form attached to the Merger Agreement as Exhibit A). 

15

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Merger Complaints

On October 19, 2012, a class action complaint captioned Elwood M. White, on behalf of himself and all others similarly situated v. New Frontier Media Inc., et. al., Filing ID 47171741, was filed in the Denver County District Court in the State of Colorado (the White Complaint). The White Complaint purports to assert claims on behalf of the public shareholders of the Company and names as defendants the members of the special committee and the Company’s board of directors, as well as the Company, Parent and Merger Sub. The White Complaint alleges, among other things, that the Company’s directors breached their fiduciary duties to the Company’s shareholders in connection with the Offer and the subsequent merger contemplated by the Merger Agreement and further claims that the Company and Parent aided and abetted those alleged breaches of fiduciary duty. It seeks injunctive relief to prevent the parties from proceeding with, consummating, or closing the Offer and the subsequent merger contemplated by the Merger Agreement, an accounting by the defendants for damages sustained as a result of the alleged wrongdoing, and plaintiff’s costs and attorneys’ and experts’ fees. The Company believes the White Complaint lacks merit and intends to contest it vigorously. Based on our current knowledge, a reasonable estimate of the possible loss or range of loss associated with the complaint cannot be made at this time. Legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on our financial position, results of operation, or cash flows.

On November 2, 2012, a class action complaint captioned Dennis Palkon, individually and on behalf all others similarly situated v. New Frontier Media Inc., et. al., was filed in the Boulder County District Court in the State of Colorado (the Palkon Complaint). The Palkon Complaint purports to assert claims on behalf of the public shareholders of the Company and names as defendants the members of the special committee and the Company’s board of directors, as well as the Company, Parent and Merger Sub. The Palkon Complaint alleges, among other things, that the Company’s directors breached their fiduciary duties to the Company’s shareholders in connection with the Offer and the subsequent merger contemplated by the Merger Agreement and further claims that the Company, Parent and Merger Sub aided and abetted those alleged breaches of fiduciary duty. It seeks injunctive relief to prevent the parties from proceeding with, consummating, or closing the Offer and the subsequent merger contemplated by the Merger Agreement and plaintiff’s costs and attorneys’ and experts’ fees. The Company believes the Palkon Complaint lacks merit and intends to contest it vigorously. Based on our current knowledge, a reasonable estimate of the possible loss or range of loss associated with the complaint cannot be made at this time. Legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on our financial position, results of operation, or cash flows.

On November 6, 2012, a derivate action and class action complaint captioned Gopal Chakravarthy, on behalf of himself and all others similarly situated, and derivatively on behalf of New Frontier Media, Inc. v. New Frontier Media Inc., et. al., was filed in the Boulder County District Court in the State of Colorado (the Chakravarthy Complaint). The Chakravarthy Complaint purports to assert claims on behalf of the public shareholders of the Company and names as defendants the members of the special committee and the Company’s board of directors, as well as the Company, Parent and Merger Sub. The Chakravarthy Complaint alleges, among other things, inadequate disclosure in respect of the Company’s Schedule 14D-9 filed with the SEC on October 29, 2012, that the Company’s directors breached their fiduciary duties to the Company’s shareholders in connection with the Offer and the subsequent merger contemplated by the Merger Agreement and further claims that the Company, Parent and Merger Sub aided and abetted those alleged breaches of fiduciary duty. It seeks alleged injunctive relief to prevent the parties from proceeding with, consummating, or closing the Offer and the subsequent merger contemplated by the Merger Agreement, an accounting by the defendants for damages sustained as a result of the alleged wrongdoing, and plaintiff’s costs and attorneys’ and experts’ fees. The Company believes the Chakravarthy Complaint lacks merit and intends to contest it vigorously. Based on our current knowledge, a reasonable estimate of the possible loss or range of loss associated with the complaint cannot be made at this time. Legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on our financial position, results of operation, or cash flows.

On November 8, 2012, a class action complaint captioned Craig Telke, individually and on behalf all others similarly situated v. New Frontier Media Inc., et. al., was filed in the United States District Court for the District of Colorado (the Telke Complaint, and together with the White Complaint, the Palkon Complaint, the Chakravarthy Complaint — the Merger Complaints). The Telke Complaint purports to assert claims on behalf of the public shareholders of the Company and names as defendants the members of the special committee and the Company’s board of directors, as well as the Company, Parent and Merger Sub. The Telke Complaint alleges, among other things, disclosure deficiencies in respect of the Company’s Schedule 14D-9 filed with the SEC on October 29, 2012, and that the Company’s directors breached their fiduciary duties to the Company’s shareholders in

16

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

connection with the Offer and the subsequent merger contemplated by the Merger Agreement and further claims that the Company, Parent and Merger Sub aided and abetted those alleged breaches of fiduciary duty. It seeks, among other things, alleged injunctive relief to prevent the parties from proceeding with, consummating, or closing the Offer and the subsequent merger contemplated by the Merger Agreement, a declaration that the Company’s Schedule 14D-9 filed with the SEC on October 29, 2012 is materially misleading and contains omissions of material facts, an accounting by the defendants for damages sustained as a result of the alleged wrongdoing, and plaintiff’s costs and attorneys’ and experts’ fees. The Company believes the Telke Complaint lacks merit and intends to contest it vigorously. Based on our current knowledge, a reasonable estimate of the possible loss or range of loss associated with the complaint cannot be made at this time. Legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on our financial position, results of operation, or cash flows.

With respect to the foregoing matters, there can be no assurance that the Company will be successful in their defense. The absence of an injunction or court order (i) challenging or seeking to make illegal, delay materially or otherwise directly or indirectly restraining or prohibiting the making of the Offer, the acceptance for payment of or payment for some or all of the shares of the Company by Parent or Merger Sub or the consummation of the Offer or the subsequent merger contemplated by the Merger Agreement, (ii) seeking to obtain material damages in connection with the Offer or the subsequent merger contemplated by the Merger Agreement, (iii) seeking to restrain, prohibit or limit Parent’s, the Company’s or any of their respective affiliates’ ownership or operation of all or any material portion of the business or assets of the Company or any of its subsidiaries, or (iv) seeking to impose material limitations on the ability of Parent, Merger Sub or any of Parent’s other affiliates effectively to acquire, hold or exercise full rights of ownership of any shares of the Company or any shares of common stock of the surviving corporation after the subsequent merger contemplated by the Merger Agreement, is a condition to Merger Sub’s obligation to consummate the Offer pursuant to the Merger Agreement.  See Risk Factors herein for additional discussion.

Mr. White had also previously filed a class action complaint on March 23, 2012 in the Boulder County, Colorado District Court against the Company and its board of directors, purportedly on behalf of the Company’s public shareholders. The complaint alleged that the individual members of the Company’s board of directors breached their fiduciary duties owed to the Company’s shareholders in connection with their consideration of a proposal to acquire all of the outstanding shares of the Company’s common stock made by an existing shareholder. On August 31, 2012, Mr. White dismissed the suit without prejudice.

Longkloof Settlement

On July 12, 2012, the Company entered into a settlement agreement (the Settlement Agreement) with Longkloof Limited, Hosken Consolidated Investments Limited (Johannesburg Stock Exchange: HCI) and various associated parties (the Longkloof Parties) to end the Longkloof Parties’ proxy contest related to the Company’s 2012 annual meeting of shareholders. The settlement also ends the related litigation between the Company and the Longkloof Parties that was pending in the United States District Court for the District of Colorado.

Under the terms of the Settlement Agreement, the Longkloof Parties, which beneficially own in the aggregate approximately 15.9% of the Company’s outstanding shares, agreed to immediately terminate their proxy contest, withdraw their notice of intent to nominate four candidates for election to the Company’s board of directors, and not support, for the balance of 2012, any other person not recommended by the board in seeking representation on the board. In addition, the Longkloof Parties agreed to certain standstill restrictions through December 31, 2012 and the Company agreed that if it does not engage in a sale, merger or similar change of control transaction by December 31, 2012, Longkloof will have the right to designate one person for appointment to the board for a term expiring at the 2013 annual meeting of shareholders and, under certain circumstances, the Company will be obligated to include such designee on the slate of nominees presented by the Company to shareholders at the 2013 annual meeting of shareholders.

17

NEW FRONTIER MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

As part of the Settlement Agreement, all pending litigation between the Company and the Longkloof Parties was dismissed by the parties without prejudice and without admission of any wrongdoing by any party.

Other 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.

Other Contingencies

During the six month period ended September 30, 2012, we incurred approximately $0.5 million in litigation costs within the Corporate Administration segment in connection with litigation between us and the Longkloof Parties.  This litigation was settled and dismissed without prejudice on July 12, 2012 pursuant to the Settlement Agreement entered into by us and the Longkloof Parties. A portion of the litigation costs incurred for the Longkloof litigation, as well as those incurred in connection with the Merger Complaints discussed above, may be reimbursable under certain of our insurance policies including, but not limited to, those that provide coverage for our directors and officers against claims made against them. Based on our current knowledge, the ultimate outcome of the reimbursements cannot be reasonably determined at this time.  Accordingly, we have not recorded any amounts associated with the possible insurance reimbursements, and the insurance reimbursements, if any, will not be recorded in the financial statements until we reach a final resolution of these claims with our insurance carriers. While we believe that a portion of the legal fees incurred in connection with the Longkloof litigation, including, but not limited to, those incurred in connection with defending us and our directors against the various counterclaims that Longkloof filed against us and our directors are recoverable, given that discussions with the insurance carriers are still ongoing, no assurances can be given that the insurance carriers will reimburse us for any of the legal fees incurred in connection with the Longkloof litigation.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements

This Quarterly Report on Form 10-Q of New Frontier Media, Inc. and its consolidated subsidiaries, hereinafter identified as we, us, the Company, the Registrant, or similar expressions, 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, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. 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,” and similar expressions or the negative of these terms or other comparable terminology. 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 update or revise publicly 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 six month period ended September 30, 2012; 2) maintain the license fee structures currently in place with our customers; 3) maintain our pay-per-view (PPV) 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) successfully compete against other forms of adult entertainment such as pay and free adult-oriented internet websites and adult-oriented premium channel content; 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; 8) retain our key executives; and 9) successfully merge with Flynt Broadcast, Inc. pursuant to the Agreement and Plan of Merger entered into on October 15, 2012, which itself is contingent upon the tender of a majority of our shares in the tender offer commenced by LFP Broadcasting, LLC and Flynt Broadcast, Inc. on October 29, 2012, and has been the subject of four legal suits.

18

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The foregoing list of factors is not exhaustive. A more complete list of factors that might cause such differences include, but are not limited to, those discussed in the Risk Factors section of our most recently filed Annual Report on Form 10-K, as amended, as updated by periodic and current reports that we may file from time to time with the United States Securities and Exchange Commission (SEC) that amend or update such factors. Risk factors are also discussed in Part II, Item 1A, Risk Factors, herein and elsewhere in this Form 10-Q.

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. 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 represents our largest operating segment based on revenue and assets and has historically been our most profitable segment; however, the segment has been experiencing declining operating income due to competition from free and low-cost adult websites and the continued global economic downturn.  The Film Production segment primarily generates revenue through the distribution of mainstream content to large cable and satellite operators, premium movie channel providers and other content distributors. This segment also periodically provides contract film production services to major Hollywood studios (producer-for-hire arrangements). 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.  Our Corporate Administration segment includes all costs associated with the operation of the public holding company, New Frontier Media, Inc.

On October 15, 2012, we entered into an Agreement and Plan of Merger, pursuant to which LFP Broadcasting, LLC and Flynt Broadcast, Inc. commenced a tender offer on October 29, 2012 to acquire all of the issued and outstanding shares of our common stock at a price per share equal to (1) $2.02, net to the seller in cash, without interest, and (2) one contingent right per share of our common stock, which shall represent the contractual right to receive a contingent cash payment as defined in the Agreement and Plan of Merger.

Each of our segments is further 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 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, which would primarily occur in international markets; when the number of subscribers for customers where our services are currently distributed increases, assuming the new subscribers are not a result of consumers switching from one provider to another; when we launch additional services or replace our competitors’ services on existing customer cable and DBS platforms; or 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 low-cost or free adult entertainment such as pay and free internet websites; if our customers contract to pay us a smaller percentage of the consumer retail purchase price; if additional competitive channels are added to our customers’ platforms; if our existing customers remove or replace our services on their platform; or if the volume of consumer buys of lower priced content is not significant enough to offset the impact of lower prices.

19

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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.

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.

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. We expect the costs for this segment to be higher in fiscal year 2013 due to existing and future litigation as well as our review of strategic alternatives.

Critical Accounting Policies and Estimates

The significant accounting policies and estimates set forth in Note 1 to our audited consolidated financial statements included in our Annual Report on Form 10-K, as amended, for the fiscal year ended March 31, 2012, as updated by Note 1 to the Unaudited Condensed Consolidated Financial Statements included herein, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K, as amended, for the fiscal year ended March 31, 2012, appropriately represent, in all material respects, the current status of our critical accounting policies and estimates, the disclosure with respect to which is incorporated herein by reference.

20

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Results of Operations

Transactional TV Segment

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

	Three Months Ended September 30,								Six Months Ended September 30,
(dollars in millions)	2012			2011			% change		2012			2011			% change
Net revenue
VOD	$	5.1		$	5.3		(4	)%	$	10.0		$	10.7		(7	)%
PPV	2.8			3.3			(15	)%	5.8			6.5			(11	)%
Other	0.2			0.1				#	0.4			0.2				#
Total	8.1			8.7			(7	)%	16.2			17.4			(7	)%
Cost of sales	3.8			3.2			19	%	7.5			6.5			15	%
Gross profit	4.3			5.5			(22	)%	8.8			10.9			(19	)%
Gross profit %	53		%	63		%			54		%	63		%
Operating expenses	3.4			3.4			0	%	6.9			6.7			3	%
Operating income	$	0.9		$	2.1		(57	)%	$	1.9		$	4.2		(55	)%

# Change is in excess of 100%.

Net Revenue

VOD

Domestic VOD revenue declined during the three and six month periods ended September 30, 2012 by approximately $0.2 million and $0.4 million, respectively, due to a general decline in revenue from cable customers. We believe the increase in availability and quality of free and low-cost adult internet websites in combination with the challenging global economic conditions has caused consumers to view adult content through free and low-cost internet providers rather than through our VOD television services. We also believe that consumers that have historically viewed our content are reducing their discretionary spending and are generally purchasing less adult programming due to the relatively high cost of our content compared to other media entertainment options.  International VOD revenue also declined during the six month period ended September 30, 2012 by approximately $0.3 million, and we believe this decline was also due to the same above noted causes of the domestic VOD revenue decline as well as the impact of increased competition on certain customer platforms.

PPV

Domestic PPV revenue declined during the three and six month periods ended September 30, 2012 by approximately $0.6 million and $1.0 million, respectively.  Revenue from the second largest DBS provider in the U.S. declined by approximately $0.2 million and $0.5 million during the three and six month periods ended September 30, 2012, respectively, primarily due to increased competition on the platform. Revenue from the second largest cable operator in the U.S. also declined by approximately $0.2 million and $0.4 million during the three and six month periods ended September 30, 2012, respectively, and we believe this decline is due to the migration of buys from the PPV service to the subscription VOD service, which is reflected in the VOD revenue amounts. We also believe domestic revenue declined due to the increased availability and quality of free and low-cost adult internet websites and the global economic challenges discussed in more detail above.

21

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Partially offsetting the decline in revenue during the six month period ended September 30, 2012 was a $0.2 million increase in international PPV revenue primarily from improved content performance and new launches in Latin America.

Other

Other revenue primarily includes amounts from advertising on our PPV channels and from distribution fees. The increase in other revenue during the three and six month periods ended September 30, 2012 was primarily due to an increase in content distribution fees associated with an increase in the volume of content distributed.

Cost of Sales

Our cost of sales 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 were higher during the three and six month periods ended September 30, 2012 primarily due to (a) a $0.1 million and $0.2 million increase, respectively, in employee costs incurred to support an increase in content output; (b) a $0.1 million and $0.3 million increase, respectively, in content and distribution rights amortization related to our acquisition of new and unique content; and c) a $0.3 million and $0.4 million increase, respectively, in transport costs. The increase in transport costs was primarily due to a market test with our largest U.S. cable operator that required us to deliver incremental content packages.  Transport costs also increased due to the delivery of new domestic content packages distributed in an effort to improve domestic revenue.

Operating Expenses and Operating Income

Operating expenses during the three and six month periods ended September 30, 2012 included the following activity: (a) a $0.1 million and $0.2 million increase, respectively,  in employee and related sales costs associated with our efforts to improve domestic and international revenue performance; (b) a $0.1 million increase in employee costs associated with efforts to develop an over-the-top product; (c) a $0.1 million and $0.2 million increase, respectively, in expenses associated with asset impairments and increases in our allowance for doubtful accounts related to Latin America customers; (d) a $0.1 million and $0.3 million decrease, respectively, in advertising and promotion costs associated with general cost reduction efforts; (e) a $0.2 million decrease in rent expense associated with the expiration of our former corporate facility lease; and (f) a $0.1 million increase in tradeshow costs during the six month period ended September 30, 2012 associated with efforts to improve domestic and international revenue.

Operating income for the three month periods ended September 30, 2012 and 2011 was $0.9 million and $1.9 million, respectively.  Operating income for the six month periods ended September 30, 2012 and 2011 was $2.1 million and $4.2 million, respectively.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Film Production Segment

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

	Three Months Ended September 30,								Six Months Ended September 30,
(dollars in millions)	2012			2011			% change		2012			2011			% change
Net revenue
Owned content	$	0.9		$	0.9		0	%	$	3.6		$	1.6			#
Repped content	0.6			0.4			50	%	1.2			1.1			9	%
Producer-for-hire and other	0.1			0.1			0	%	0.2			0.2			0	%
Total	1.6			1.4			14	%	5.0			2.9			72	%
Cost of sales	0.4			0.5			(20	)%	2.5			0.9				#
Gross profit	1.2			0.9			33	%	2.5			2.0			25	%
Gross profit %	75		%	64		%			50		%	69		%
Operating expenses	0.6			0.7			(14	)%	1.2			1.5			(20	)%
Operating income	$	0.6		$	0.1			#	$	1.3		$	0.4			#

# Change is in excess of 100%.

Net Revenue

Owned Content

Owned content revenue during the three month period ended September 30, 2012 was consistent with the same prior year quarter.  Owned content revenue increased during the six month period ended September 30, 2012 primarily due to the completion of an episodic series arrangement with a premium movie channel customer, which resulted in the recognition of approximately $2.3 million in revenue. The increase was partially offset by a general decline in revenue from the execution and completion of fewer other distribution sales agreements.

Repped Content

Repped content revenue includes amounts from the licensing of film titles that we represent (but do not own) under sales agency relationships with various independent film producers. The increase in revenue during the three and six month periods ended September 30, 2012 was due to the execution and completion of additional distribution sales agreements as compared to the same prior year period.

Producer-for-Hire and Other

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. The results from the three and six month periods ended September 30, 2012 were consistent with the same prior year periods.

Cost of Sales

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

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Cost of sales during the three month period ended September 30, 2012 were generally consistent with the same prior year quarter.  The increase in costs during the six month period ended September 30, 2012 was due to higher owned content film cost amortization incurred in connection with the completion of an episodic series agreement.

Operating Expenses and Operating Income

Operating expenses declined during the three and six month periods ended September 30, 2012 primarily because the same prior year periods included $0.2 million in film cost impairment charges that did not recur. Operating expenses were also lower during the six month period ended September 30, 2012 due to a $0.3 million reduction in charges to increase the allowance for unrecoverable accounts, which reserves for recoupable costs and producer advances that are not expected to be recovered. The declines in operating expenses were partially offset by increases in employee costs primarily due to higher commission compensation. 

The Film Production segment generated operating income of $0.6 million and $1.3 million during the three and six month periods ended September 30, 2012, respectively, as compared to operating income of $0.1 million and $0.4 million during the three and six month periods ended September 30, 2011, respectively.

Direct-to-Consumer Segment

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

	Three Months Ended September 30,								Six Months Ended September 30,
(dollars in millions)	2012			2011			% change		2012		2011			% change
Net revenue	$	0.1		$	0.2		(50	)%	$	0.2	$	0.4		(50	)%
Cost of sales	0.1			0.2			(50	)%	0.2		0.4			(50	)%
Gross profit (loss)	0.0			(0.0		)		#	0.0		(0.0		)		#
Operating expenses	0.0			0.1				#	0.0		0.2				#
Operating income (loss)	$	(0.0	)	$	(0.1	)		#	$	0.0	$	(0.3	)		#

#   Change is in excess of 100%.

Net Revenue

Net revenue primarily consists of membership fees earned from customer subscriptions to our consumer websites. We believe the decline in net revenue during the three and six month periods ended September 30, 2012 was primarily due to the increase in availability and quality of free and low-cost adult internet websites as well as the continued global economic challenges.

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. Cost of sales declined during the three and six month periods ended September 30, 2012 primarily due to lower employee costs associated with redeploying the resources to work on Transactional TV segment projects including technology to support over-the-top services.

Operating Expenses and Operating Income (Loss)

Operating expenses declined during each of the three and the six month periods ended September 30, 2012 primarily due to lower employee costs associated with redeploying the resources to work on Transactional TV segment projects including technology to support over-the-top services. 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

We incurred an immaterial operating loss and income during the three and six month periods ended September 30, 2012, respectively, as compared to operating losses of $0.1 million and $0.3 million during the three and six month periods ended September 30, 2011, respectively.

Corporate Administration Segment

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

	Three Months Ended September 30,						Six Months Ended September 30,
(dollars in millions)	2012		2011		% change		2012		2011		% change
Operating expenses	$	3.0	$	1.9	58	%	$	5.7	$	4.1	39	%

Corporate Administration segment expenses increased during the three and six month periods ended September 30, 2012 due to (a) a $0.2 million and $0.6 million increase in legal fees, respectively, associated with services provided in connection with a legal settlement; (b) $0.9 million and $1.5 million increase, respectively, in expenses associated with strategic assessment legal and financial advisor services; (c) $0.1 million and $0.2 million increase in expenses, respectively,  incurred in connection with board of director special committee fees; and (d) $0.1 million increase in certain consulting and assurance expenses. The increase in expenses was partially offset by (a) a $0.2 million and $0.4 million decline, respectively, in employee bonus accruals; and (b) a $0.1 million and $0.4 million decrease, respectively, in employee costs associated with the departure of our former President in August 2011.

Income Tax Expense

Our effective tax rates for the periods presented differ from the U.S. statutory rate of 35% due to a number of factors including the mix of profit and loss between various taxing jurisdictions and the impact of permanent items that affect book income but do not affect taxable income.  For example, our results of operations during the three and six month periods ended September 30, 2012 include certain strategic assessment costs incurred in connection with the Agreement and Plan of Merger with LFP Broadcasting, LLC and Flynt Broadcast, Inc.  These transaction costs are not expected to be deductible for income tax purposes because we expect to complete the merger. If the merger is not completed, the transaction costs will be deductible.

During the fiscal year ended March 31, 2012, the Internal Revenue Service (IRS) initiated an audit of our fiscal year 2010 tax returns and expanded its audit to also include certain deductions included in the fiscal year 2011 returns. Based on recent discussions and correspondence, the IRS has proposed adjustments to our previously filed fiscal year 2011 and 2010 tax returns to disallow the acceleration of certain film cost deductions. We have agreed to settle the amounts with the IRS, which represent approximately $48,000 of deductions. The adjustment did not have a material impact on our consolidated statements of operations.

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, 2009, and we are no longer subject to examination of our state income tax returns for years prior to the fiscal year ended March 31, 2008.

Liquidity and Capital Resources

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

· investments in processes intended to improve the quality and marketability of our products;

· funding our operating and capital requirements; and

· funding, from time to time, opportunities to enhance shareholder value, whether in the form of repurchase of shares of our common stock, cash dividends or other strategic transactions.

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

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

In summary, our cash flows were as follows:

	(In millions) Six Months Ended September 30,
	2012			2011
Net cash provided by operating activities	$	1.5		$	1.4
Net cash used in investing activities	(1.2		)	(3.4		)
Net cash used in financing activities	(0.1		)	(1.3		)

Cash Flows from Operating Activities

Cash flows from operating activities during the six month period ended September 30, 2012 as compared to the same prior year period was primarily impacted by the following:

· a decrease in operating income (loss) primarily associated with a decline in the Transactional TV and the Corporate Administration segment’s operating results; and

· a $2.3 million comparable increase in cash flows related to collection of amounts due from the completion of the Film Production segment’s episodic series arrangement with a premium cable customer.

Cash from operating activities during the six month period ended September 30, 2012 was significantly higher as compared to the related net loss primarily because we collected approximately $2.3 million during the six month period ended September 30, 2012 from the completion of an episodic series arrangement as discussed above. The cash outflows for the production occurred during fiscal year 2012.

Cash Flows from Investing Activities

Cash flows from investing activities during the six month period ended September 30, 2012 included $0.9 million of cash used to purchase property and equipment for general operating activity purposes. We also used $0.3 million of cash to purchase and develop intangible assets primarily associated with new product development of an over-the-top solution.

Cash Flows from Financing Activities

Cash flows from financings activities during the six month period ended September 30, 2012 included $0.1 million in payments for long-term seller financing related to our license of a patent.

Borrowing Arrangements

On December 13, 2011, we extended our $5.0 million line of credit through December 15, 2012. 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 term 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 September 30, 2012 was $4.7 million. The average outstanding line of credit principal balance for each of the three and six month periods ended September 30, 2012 and 2011 was $0.1 million. The interest rate on our line of credit during each of the three and six month periods ended September 30, 2012 and 2011 was 5.75%.

The line of credit contains 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 from the lender, (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.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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 September 30, 2012, our outstanding principal balance under the line of credit was $0.1 million, and we were in compliance with the related covenants.

Legal Proceedings

On October 15, 2012, the Company, LFP Broadcasting, LLC (Parent), and Flynt Broadcast, Inc., a wholly-owned subsidiary of Parent (Merger Sub), entered into an Agreement and Plan of Merger (the Merger Agreement), pursuant to which Merger Sub commenced a cash offer (Offer) on October 29, 2012 to acquire all of the issued and outstanding shares of common stock of the Company at a price per share equal to (1) $2.02, net to the seller in cash, without interest, and (2) one contingent right per share of the Company, which shall represent the contractual right to receive a Contingent Cash Payment (as such term is defined in the Contingent Payment Rights Agreement in the form attached to the Merger Agreement as Exhibit A). 

Merger Complaints

On October 19, 2012, a class action complaint captioned Elwood M. White, on behalf of himself and all others similarly situated v. New Frontier Media Inc., et. al., Filing ID 47171741, was filed in the Denver County District Court in the State of Colorado (the White Complaint). The White Complaint purports to assert claims on behalf of the public shareholders of the Company and names as defendants the members of the special committee and the Company’s board of directors, as well as the Company, Parent and Merger Sub. The White Complaint alleges, among other things, that the Company’s directors breached their fiduciary duties to the Company’s shareholders in connection with the Offer and the subsequent merger contemplated by the Merger Agreement and further claims that the Company and Parent aided and abetted those alleged breaches of fiduciary duty. It seeks injunctive relief to prevent the parties from proceeding with, consummating, or closing the Offer and the subsequent merger contemplated by the Merger Agreement, an accounting by the defendants for damages sustained as a result of the alleged wrongdoing, and plaintiff’s costs and attorneys’ and experts’ fees. The Company believes the White Complaint lacks merit and intends to contest it vigorously. Based on our current knowledge, a reasonable estimate of the possible loss or range of loss associated with the complaint cannot be made at this time. Legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on our financial position, results of operation, or cash flows.

On November 2, 2012, a class action complaint captioned Dennis Palkon, individually and on behalf all others similarly situated v. New Frontier Media Inc., et. al., was filed in the Boulder County District Court in the State of Colorado (the Palkon Complaint). The Palkon Complaint purports to assert claims on behalf of the public shareholders of the Company and names as defendants the members of the special committee and the Company’s board of directors, as well as the Company, Parent and Merger Sub. The Palkon Complaint alleges, among other things, that the Company’s directors breached their fiduciary duties to the Company’s shareholders in connection with the Offer and the subsequent merger contemplated by the Merger Agreement and further claims that the Company, Parent and Merger Sub aided and abetted those alleged breaches of fiduciary duty. It seeks injunctive relief to prevent the parties from proceeding with, consummating, or closing the Offer and the subsequent merger contemplated by the Merger Agreement and plaintiff’s costs and attorneys’ and experts’ fees. The Company believes the Palkon Complaint lacks merit and intends to contest it vigorously. Based on our current knowledge, a reasonable estimate of the possible loss or range of loss associated with the complaint cannot be made at this time. Legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on our financial position, results of operation, or cash flows.

On November 6, 2012, a derivate action and class action complaint captioned Gopal Chakravarthy, on behalf of himself and all others similarly situated, and derivatively on behalf of New Frontier Media, Inc. v. New Frontier Media Inc., et. al., was filed in the Boulder County District Court in the State of Colorado (the Chakravarthy Complaint). The Chakravarthy Complaint purports to assert claims on behalf of the public shareholders of the Company and names as defendants the members of the special committee and the Company’s board of directors, as well as the Company, Parent and Merger Sub. The Chakravarthy Complaint alleges, among other things, inadequate disclosure in respect of the Company’s Schedule 14D-9 filed with the SEC on October 29, 2012, that the Company’s directors breached their fiduciary duties to the Company’s shareholders in connection with the Offer and the subsequent merger contemplated by the Merger Agreement and further claims that the Company, Parent and Merger Sub aided and abetted those alleged breaches of fiduciary duty. It seeks alleged injunctive relief to prevent the parties from proceeding with, consummating, or closing the Offer and the subsequent merger contemplated by the Merger Agreement, an accounting by the defendants for damages sustained as a result of the alleged wrongdoing, and plaintiff’s costs and attorneys’ and experts’ fees. The Company believes the Chakravarthy Complaint lacks merit and intends to contest it vigorously. Based on our current knowledge, a reasonable estimate of the possible loss or range of loss associated with the complaint cannot be made at this time. Legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on our financial position, results of operation, or cash flows.

On November 8, 2012, a class action complaint captioned Craig Telke, individually and on behalf all others similarly situated v. New Frontier Media Inc., et. al., was filed in the United States District Court for the District of Colorado (the Telke Complaint, and together with the White Complaint, the Palkon Complaint, the Chakravarthy Complaint — the Merger Complaints). The Telke Complaint purports to assert claims on behalf of the public shareholders of the Company and names as defendants the members of the special committee and the Company’s board of directors, as well as the Company, Parent and Merger Sub. The Telke Complaint alleges, among other things, disclosure deficiencies in respect of the Company’s Schedule 14D-9 filed with the SEC on October 29, 2012, and that the Company’s directors breached their fiduciary duties to the Company’s shareholders in

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

connection with the Offer and the subsequent merger contemplated by the Merger Agreement and further claims that the Company, Parent and Merger Sub aided and abetted those alleged breaches of fiduciary duty. It seeks, among other things, alleged injunctive relief to prevent the parties from proceeding with, consummating, or closing the Offer and the subsequent merger contemplated by the Merger Agreement, a declaration that the Company’s Schedule 14D-9 filed with the SEC on October 29, 2012 is materially misleading and contains omissions of material facts, an accounting by the defendants for damages sustained as a result of the alleged wrongdoing, and plaintiff’s costs and attorneys’ and experts’ fees. The Company believes the Telke Complaint lacks merit and intends to contest it vigorously. Based on our current knowledge, a reasonable estimate of the possible loss or range of loss associated with the complaint cannot be made at this time. Legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on our financial position, results of operation, or cash flows.

With respect to the foregoing matters, there can be no assurance that the Company will be successful in their defense. The absence of an injunction or court order (i) challenging or seeking to make illegal, delay materially or otherwise directly or indirectly restraining or prohibiting the making of the Offer, the acceptance for payment of or payment for some or all of the shares of the Company by Parent or Merger Sub or the consummation of the Offer or the subsequent merger contemplated by the Merger Agreement, (ii) seeking to obtain material damages in connection with the Offer or the subsequent merger contemplated by the Merger Agreement, (iii) seeking to restrain, prohibit or limit Parent’s, the Company’s or any of their respective affiliates’ ownership or operation of all or any material portion of the business or assets of the Company or any of its subsidiaries, or (iv) seeking to impose material limitations on the ability of Parent, Merger Sub or any of Parent’s other affiliates effectively to acquire, hold or exercise full rights of ownership of any shares of the Company or any shares of common stock of the surviving corporation after the subsequent merger contemplated by the Merger Agreement, is a condition to Merger Sub’s obligation to consummate the Offer pursuant to the Merger Agreement.  See Risk Factors herein for additional discussion.

Mr. White had also previously filed a class action complaint on March 23, 2012 in the Boulder County, Colorado District Court against the Company and its board of directors, purportedly on behalf of the Company’s public shareholders. The complaint alleged that the individual members of the Company’s board of directors breached their fiduciary duties owed to the Company’s shareholders in connection with their consideration of a proposal to acquire all of the outstanding shares of the Company’s common stock made by an existing shareholder. On August 31, 2012, Mr. White dismissed the suit without prejudice.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Longkloof Settlement

On July 12, 2012, the Company entered into a settlement agreement (the Settlement Agreement) with Longkloof Limited, Hosken Consolidated Investments Limited (Johannesburg Stock Exchange: HCI) and various associated parties (the Longkloof Parties) to end the Longkloof Parties’ proxy contest related to the Company’s 2012 annual meeting of shareholders. The settlement also ends the related litigation between the Company and the Longkloof Parties that was pending in the United States District Court for the District of Colorado.

Under the terms of the Settlement Agreement, the Longkloof Parties, which beneficially own in the aggregate approximately 15.9% of the Company’s outstanding shares, agreed to immediately terminate their proxy contest, withdraw their notice of intent to nominate four candidates for election to the Company’s board of directors, and not support, for the balance of 2012, any other person not recommended by the board in seeking representation on the board. In addition, the Longkloof Parties agreed to certain standstill restrictions through December 31, 2012 and the Company agreed that if it does not engage in a sale, merger or similar change of control transaction by December 31, 2012, Longkloof will have the right to designate one person for appointment to the board for a term expiring at the 2013 annual meeting of shareholders and, under certain circumstances, the Company will be obligated to include such designee on the slate of nominees presented by the Company to shareholders at the 2013 annual meeting of shareholders. As part of the Settlement Agreement, all pending litigation between the Company and the Longkloof Parties was dismissed by the parties without prejudice and without admission of any wrongdoing by any party.

Other 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.

Other Contingencies

During the six month period ended September 30, 2012, we incurred approximately $0.5 million in litigation costs within the Corporate Administration segment in connection with litigation between us and the Longkloof Parties.  This litigation was settled and dismissed without prejudice on July 12, 2012 pursuant to the Settlement Agreement entered into by us and the Longkloof Parties. A portion of the litigation costs incurred for the Longkloof litigation, as well as those incurred in connection with the Merger Complaints discussed above, may be reimbursable under certain of our insurance policies including, but not limited to, those that provide coverage for our directors and officers against claims made against them. Based on our current knowledge, the ultimate outcome of the reimbursements cannot be reasonably determined at this time.  Accordingly, we have not recorded any amounts associated with the possible insurance reimbursements, and the insurance reimbursements, if any, will not be recorded in the financial statements until we reach a final resolution of these claims with our insurance carriers. While we believe that a portion of the legal fees incurred in connection with the Longkloof litigation, including, but not limited to, those incurred in connection with defending us and our directors against the various counterclaims that Longkloof filed against us and our directors are recoverable, given that discussions with the insurance carriers are still ongoing, no assurances can be given that the insurance carriers will reimburse us for any of the legal fees incurred in connection with the Longkloof litigation.

Recent Accounting Pronouncements

For a discussion of the recent accounting pronouncements related to our operations, see Note 2 — Recent Accounting Pronouncements within the unaudited condensed consolidated financial statements, which information is incorporated herein by reference.

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ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Based on management’s evaluation (with the participation of our co-Principal Executive Officers (PEOs) and Chief Financial Officer (CFO)), as of the end of the period covered by this report, our co-PEOs 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 (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 co-principal executive officers 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 quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including the co-PEOs 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.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a discussion of legal proceedings, see Note 10 — Commitments and Contingencies — Legal Proceedings within the unaudited condensed consolidated financial statements, which information is incorporated herein by reference.

ITEM 1A. RISK FACTORS.

In addition to the other information set forth in this report and the risk factor discussed below, you should carefully consider the factors discussed in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K, as amended, for the fiscal year ended March 31, 2012, as such risk factors are updated by the filing with the SEC of subsequent periodic and current reports from time to time, which factors could materially affect our business, financial condition, or future results.

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Such risks, however, are not the only risks we face.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or reporting results.

The potential merger with LFP Broadcasting, LLC and Flynt Broadcast, Inc. presents certain risks to our business and operations.

On October 15, 2012, we entered into an Agreement and Plan of Merger, pursuant to which LFP Broadcasting, LLC and Flynt Broadcast, Inc. commenced a tender offer on October 29, 2012 to acquire all of the issued and outstanding shares of our common stock at a price per share equal to (1) $2.02, net to the seller in cash, without interest, and (2) one contingent right per share of our common stock, which shall represent the contractual right to receive a contingent cash payment as defined in the Agreement and Plan of Merger.

We are subject to a number of risks in connection with the proposed merger.  Not only may such merger be subject to shareholder approval, but the consummation is subject to certain conditions, including, among other things: (1) the tender of common stock by our shareholders, which, together with any common stock owned by LFP Broadcasting, LLC and Flynt Broadcast, Inc., represent a majority of our common stock outstanding on a fully diluted basis, (2) the absence of a material adverse effect on the Company, (3) the absence of any order from any governmental entity challenging or seeking to (a) delay materially or prohibit the Agreement and Plan of Merger, (b) obtain material damages in connection with the Agreement and Plan of Merger, (c) restrain, prohibit or limit ownership or operation of all or any material portion of the business or assets of the Company or any of its subsidiaries, or (d) impose material limitations on the ability of LFP Broadcasting, LLC and Flynt Broadcast, Inc. to acquire or exercise full rights of ownership of any Company common stock, (4) the Company having at least $11,514,000 of cash or cash equivalents net of the Company’s expenses related to the transactions contemplated by the Merger Agreement and (5) certain other customary conditions.

Prior to closing, the merger may present certain risks to our business and operations, including, among other things, that:

·if the merger does not occur, we may incur payment obligations to Flynt Broadcast, Inc. under certain circumstances;

·failure to complete the merger could negatively impact the market value of our common stock and our future business, financial results and prospects;

·consummation of the merger may result in a substantial diversion of time and resources of both our management and other employees and may limit the time available to them to focus on other aspects of our business;

·due to provisions in the Agreement and Plan of Merger, we may be unable, during the pending merger, to pursue certain strategic transactions, undertake certain significant capital projects or financing transactions or pursue other actions that we might consider beneficial, and current and prospective customers or vendors may delay or defer decisions to enter into agreements or transactions with us;

·the pending merger could have other adverse effects on our business and operations; and

·we have incurred substantial expenses and expect to incur additional substantial expenses related to the proposed merger, including legal, accounting, financial advisory, filing, printing and mailing expenses, which expenses are not contingent upon the successful completion of the merger.

In addition, as of the date of this filing, four lawsuits have been filed against us with respect to the Agreement and Plan of Merger.  See Legal Proceedings above. An adverse judgment in these lawsuits may prevent or delay the consummation of the proposed Merger, result in substantial additional expense to us and divert our management’s time and resources. We cannot reasonably estimate the outcome of these or any similar future lawsuits, including costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation or settlement of these claims. Whether or not the plaintiffs’ claims are successful, this type of litigation is often expensive and diverts management’s time and resources.

31

ITEM 6. EXHIBITS.

Exhibit No.	Exhibit Description
10.01	Settlement Agreement between New Frontier Media, Inc. and Longkloof Entities, dated July 11, 2012(1)
31.01	Certification by CFO and co-PEO Grant Williams pursuant to Rule 13a-14(a)/15d-14(d)
31.02	Certification by co-PEO Marc Callipari pursuant to Rule 13a-14(a)/15d-14(d)
31.03	Certification by co-PEO Scott Piper pursuant to Rule 13a-14(a)/15d-14(d)
32.01†	Certification by co-PEOs and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS††	XBRL Instance Document
101.SCH††	XBRL Taxonomy Extension Schema Document
101.CAL††	Taxonomy Extension Calculation Linkbase Document
101.DEF††	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB††	XBRL Taxonomy Extension Label Linkbase Document
101.PRE††	XBRL Taxonomy Extension Presentation Linkbase Document

(1) Incorporated by reference to the corresponding exhibit included in the Company’s Current Report on Form 8-K filed on July 13, 2012 (File No. 000-23697).

† Furnished, not filed.

†† XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and is otherwise not subject to liability under these sections.

32

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized.

Dated: November 13, 2012		/s/ Grant Williams
	Name:	Grant Williams
	Title:	Chief Financial Officer
		(Principal Financial Officer and duly authorized signatory)

33

EXHIBIT INDEX

Exhibit No.	Exhibit Description
10.01	Settlement Agreement between New Frontier Media, Inc. and Longkloof Entities, dated July 11, 2012(1)
31.01	Certification by CFO and co-PEO Grant Williams pursuant to Rule 13a-14(a)/15d-14(d)
31.02	Certification by co-PEO Marc Callipari pursuant to Rule 13a-14(a)/15d-14(d)
31.03	Certification by co-PEO Scott Piper pursuant to Rule 13a-14(a)/15d-14(d)
32.01†	Certification by co-PEOs and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS††	XBRL Instance Document
101.SCH††	XBRL Taxonomy Extension Schema Document
101.CAL††	Taxonomy Extension Calculation Linkbase Document
101.DEF††	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB††	XBRL Taxonomy Extension Label Linkbase Document
101.PRE††	XBRL Taxonomy Extension Presentation Linkbase Document

(1) Incorporated by reference to the corresponding exhibit included in the Company’s Current Report on Form 8-K filed on July 13, 2012 (File No. 000-23697).

† Furnished, not filed.

†† XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and is otherwise not subject to liability under these sections.

34

EX-31.01

Exhibit 31.01

CERTIFICATION

I, Grant Williams, certify that:

1. I have reviewed this quarterly report on Form 10-Q of New Frontier Media, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 13, 2012	/s/ GRANT WILLIAMS
	Grant Williams
	Chief Financial Officer
	(Principal Financial and Accounting Officer and co-Principal Executive Officer)

EX-31.02

Exhibit 31.02

CERTIFICATION

I, Marc Callipari, certify that:

1. I have reviewed this quarterly report on Form 10-Q of New Frontier Media, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 13, 2012	/s/ Marc Callipari
	Marc Callipari
	Chief Legal Officer
	(co-Principal Executive Officer)

EX-31.03

Exhibit 31.03

CERTIFICATION

I, Scott Piper, certify that:

1. I have reviewed this quarterly report on Form 10-Q of New Frontier Media, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 13, 2012	/s/ Scott Piper
	Scott Piper
	Chief Technology and Information Officer
	(co-Principal Executive Officer)

EX-32.01

Exhibit 32.01

WRITTEN STATEMENT
PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. Section 1350)

Each of the undersigned officers of New Frontier Media, Inc., a Colorado company (the “Company”), hereby certify that, to his knowledge on the date hereof:

(a) the Form 10-Q of the Company for the fiscal quarter ended September 30, 2012, filed on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 /s/ GRANT WILLIAMS

Grant Williams

Chief Financial Officer and co-Principal Executive Officer

November 13, 2012

 /s/ MARC CALLIPARI

Marc Callipari

Chief Legal Officer and co-Principal Executive Officer

November 13, 2012

 /s/ SCOTT PIPER

Scott Piper

Chief Technology and Information Officer and co-Principal Executive Officer

November 13, 2012

XML

COMMITMENTS AND CONTINGENCIES (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Sep. 30, 2012
Commitments and contingencies
Litigation costs	$ 0.5
Guarantees | Film Production
Commitments and contingencies
Net purchase price of tax credits sold	$ 0.8
Period for guarantee of tax credits sold	4 years

XML

INCOME (LOSS) PER SHARE (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
INCOME (LOSS) PER SHARE
Net income (loss) attributable to New Frontier Media, Inc. shareholders	$ (2,492)	$ 133	$ (2,911)	$ 25
Weighted average shares outstanding	16,264,000	18,993,000	16,264,000	19,096,000
Weighted average diluted shares	16,264,000	18,993,000	16,264,000	19,096,000
Basic income (loss) per share attributable to New Frontier Media, Inc. shareholders (in dollars per share)	$ (0.15)	$ 0.01	$ (0.18)	$ 0.00
Diluted income (loss) per share attributable to New Frontier Media, Inc. shareholders (in dollars per share)	$ (0.15)	$ 0.01	$ (0.18)	$ 0.00
Number of options excluded from the calculation of diluted income (loss) per share	1,900,000	2,800,000	2,000,000	2,500,000

XML

RECENT ACCOUNTING PRONOUNCEMENTS

6 Months Ended

Sep. 30, 2012

RECENT ACCOUNTING PRONOUNCEMENTS

RECENT ACCOUNTING PRONOUNCEMENTS

NOTE 2 — RECENT 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.

XML

SEGMENT AND GEOGRAPHIC INFORMATION (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Mar. 31, 2012
Segment and geographic information
Net revenue	$ 9,768	$ 10,305	$ 21,450	$ 20,733
Income (loss) before income tax expense	(1,489)	241	(2,613)	246
Depreciation and amortization	1,894	1,918	5,395	3,842
Identifiable Assets	53,030		53,030		54,751
Europe
Segment and geographic information
Identifiable Assets	100		100
United States
Segment and geographic information
Net revenue	7,414	8,279	16,773	16,485
Europe, Middle East and Africa
Segment and geographic information
Net revenue	419	601	1,159	1,020
Latin America
Segment and geographic information
Net revenue	1,374	721	2,243	1,554
Canada
Segment and geographic information
Net revenue	500	639	1,125	1,481
Asia
Segment and geographic information
Net revenue	61	65	150	193
Total international
Segment and geographic information
Net revenue	2,354	2,026	4,677	4,248
Transactional TV
Segment and geographic information
Net revenue	8,117	8,746	16,236	17,420
Income (loss) before income tax expense	885	2,094	1,871	4,211
Depreciation and amortization	1,685	1,591	3,351	3,281
Identifiable Assets	27,675		27,675		27,642
Film Production
Segment and geographic information
Net revenue	1,554	1,365	5,010	2,908
Income (loss) before income tax expense	596	140	1,270	430
Depreciation and amortization	182	285	1,989	473
Identifiable Assets	7,709		7,709		8,839
Direct-to-Consumer
Segment and geographic information
Net revenue	97	194	204	405
Income (loss) before income tax expense	(1)	(106)	10	(265)
Depreciation and amortization	15	30	32	64
Identifiable Assets	282		282		222
Corporate Administration
Segment and geographic information
Income (loss) before income tax expense	(2,969)	(1,887)	(5,764)	(4,130)
Depreciation and amortization	12	12	23	24
Identifiable Assets	$ 17,364		$ 17,364		$ 18,048

XML

FAIR VALUE MEASUREMENTS (Details) (USD $)	6 Months Ended	12 Months Ended
	Sep. 30, 2012	Mar. 31, 2012
Assets and liabilities measured at fair value on a nonrecurring basis
Goodwill impairment charge		$ 3,700,000
Charge for film cost impairments	200,000
Asset impairment charge	100,000
Nonrecurring | Level 3
Assets and liabilities measured at fair value on a nonrecurring basis
Other long-lived assets	72,000	100,000
Film costs		6,000
Nonrecurring | Net Fair Value
Assets and liabilities measured at fair value on a nonrecurring basis
Other long-lived assets	72,000	100,000
Film costs		$ 6,000

XML

MAJOR CUSTOMERS (Details) (USD $) In Thousands, unless otherwise specified			6 Months Ended	3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended
	Sep. 30, 2012	Mar. 31, 2012	Sep. 30, 2012 Net revenue Customer concentration risk item	Sep. 30, 2012 Net revenue Customer concentration risk Comcast	Sep. 30, 2011 Net revenue Customer concentration risk Comcast	Sep. 30, 2012 Net revenue Customer concentration risk Comcast	Sep. 30, 2011 Net revenue Customer concentration risk Comcast	Sep. 30, 2012 Net revenue Customer concentration risk Time Warner	Sep. 30, 2011 Net revenue Customer concentration risk Time Warner	Sep. 30, 2012 Net revenue Customer concentration risk Time Warner	Sep. 30, 2011 Net revenue Customer concentration risk Time Warner	Sep. 30, 2012 Net revenue Customer concentration risk DirecTV	Sep. 30, 2011 Net revenue Customer concentration risk DirecTV	Sep. 30, 2012 Net revenue Customer concentration risk DirecTV	Sep. 30, 2011 Net revenue Customer concentration risk DirecTV	Sep. 30, 2012 Net revenue Customer concentration risk DISH	Sep. 30, 2011 Net revenue Customer concentration risk DISH	Sep. 30, 2012 Net revenue Customer concentration risk DISH	Sep. 30, 2011 Net revenue Customer concentration risk DISH	Sep. 30, 2012 Net revenue Customer concentration risk Film Production	Sep. 30, 2012 Accounts receivable Customer concentration risk Comcast	Mar. 31, 2012 Accounts receivable Customer concentration risk Comcast	Sep. 30, 2012 Accounts receivable Customer concentration risk Time Warner	Mar. 31, 2012 Accounts receivable Customer concentration risk Time Warner	Sep. 30, 2012 Accounts receivable Customer concentration risk DirecTV	Mar. 31, 2012 Accounts receivable Customer concentration risk DirecTV	Sep. 30, 2012 Accounts receivable Customer concentration risk DISH	Mar. 31, 2012 Accounts receivable Customer concentration risk DISH
MAJOR CUSTOMERS
Number of customers			1
Percentage of concentration				19.00%	21.00%	17.00%	19.00%	12.00%	11.00%	10.00%	12.00%	12.00%	11.00%	11.00%	11.00%	9.00%	10.00%	8.00%	10.00%	11.00%
Outstanding accounts receivable balances due from major customers	$ 8,172	$ 8,334																			$ 1,075	$ 1,264	$ 460	$ 292	$ 912	$ 822	$ 805	$ 562

XML

INCOME TAXES (Details) (USD $)	6 Months Ended
	Sep. 30, 2012
INCOME TAXES
U.S. statutory tax rate	35.00%
Amount of deduction included in tax settlement	$ 48,000

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Sep. 30, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of New Frontier Media, Inc. and its wholly owned and majority controlled subsidiaries (collectively hereinafter referred to as New Frontier Media, the Company, we, us, and other similar pronouns) have been prepared without audit pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (GAAP) have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. We believe these statements include all adjustments, which are of a normal and recurring nature, considered necessary for a fair presentation of the financial position and results of operations. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K filed with the SEC on July 19, 2012.  The results of operations for the six month period ended September 30, 2012 are not necessarily indicative of the results to be expected for the full fiscal year.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of New Frontier Media.  All intercompany accounts and transactions have been eliminated in consolidation.

Agreement and Plan of Merger with LFP Broadcasting, LLC and Flynt Broadcast, Inc.

On October 15, 2012, we entered into an Agreement and Plan of Merger, pursuant to which LFP Broadcasting, LLC and Flynt Broadcast, Inc. commenced a tender offer on October 29, 2012 to acquire all of the issued and outstanding shares of our common stock at a price per share equal to (1) $2.02, net to the seller in cash, without interest, and (2) one contingent right per share of our common stock, which shall represent the contractual right to receive a contingent cash payment as defined in the Agreement and Plan of Merger.

Noncontrolling Interests

During fiscal year 2011, we entered into an agreement to create an entity within the Transactional TV segment to develop new channel services. We controlled a majority of the entity’s common stock and included the accounts of the entity in our financial statements. The net loss applicable to the noncontrolling interests of the entity was presented herein as net loss attributable to noncontrolling interests in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), and the portion of the equity applicable to the noncontrolling interests of the entity was presented as noncontrolling interests in the Condensed Consolidated Statements of Total Equity.

During the first quarter of fiscal year 2012, we entered into an arrangement that resulted in the loss of our majority controlling interest in the entity’s common stock. As a result, we deconsolidated the entity, which resulted in an immaterial loss within the Transactional TV segment.  During the fourth quarter of fiscal year 2012, we entered into an agreement to assign our remaining shares. As of March 31, 2012, we had no remaining interests in the entity.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

Estimates have been made in several areas, including, but not limited to, estimated revenue for certain Transactional TV segment pay-per-view (PPV) and video-on-demand (VOD) services; the recognition and measurement of income tax expenses, assets and liabilities (including the measurement of uncertain tax positions, the valuation of deferred tax assets, and the deductibility of certain strategic transaction costs for income tax purposes); the assessment of film costs and the forecast of anticipated revenue (ultimate revenue), which is used to amortize film costs; the determination of the allowance for unrecoverable accounts, which reserves for certain recoupable costs and producer advances that are not expected to be recovered; the amortization methodology and valuation of content and distribution rights; and the valuation of other identifiable intangible and other long-lived assets. 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.

Accrued and Other Liabilities

As of September 30, 2012, accrued and other liabilities included approximately $0.7 million of accrued transport fees, $1.2 million of unsettled customer receipt liabilities, and $0.6 million of accrued legal liabilities. As of March 31, 2012, accrued and other liabilities included approximately $0.2 million of accrued transport fees and $1.0 million of unsettled customer receipt liabilities. Accrued legal liabilities as of March 31, 2012 were immaterial.

Other Long-Term Liabilities

Other long-term liabilities included $1.3 million and $1.4 million of incentive from lessor liabilities as of September 30, 2012 and March 31, 2012, respectively.

XML

BORROWING ARRANGEMENTS (Details) (Line of credit, USD $) In Millions, unless otherwise specified	1 Months Ended	3 Months Ended		6 Months Ended
	Dec. 31, 2011	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
BORROWING ARRANGEMENTS
Variable rate base				prime rate
Base rate added to variable base rate (as a percent)		0.125%		0.125%
Variable interest rate (as a percent)				5.75%
Percentage of loan origination fee	0.50%
Borrowing base as percentage of securing accounts receivable	75.00%
Maximum borrowing base		$ 4.7		$ 4.7
Remaining borrowing base		5.0		5.0
Average outstanding principal balance		0.1	0.1	0.1	0.1
Interest rate (as a percent)		5.75%	5.75%	5.75%	5.75%
Outstanding principal balance under the line of credit		$ 0.1		$ 0.1
Minimum
BORROWING ARRANGEMENTS
Ratio of current asset to current liability				1.5
Maximum
BORROWING ARRANGEMENTS
Ratio of total liability to tangible net worth				1.0

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Mar. 31, 2012
Current assets:
Cash and cash equivalents	$ 13,464	$ 13,190
Accounts receivable, less allowance of $481 and $183, respectively	8,172	8,334
Taxes receivable	216	46
Deferred tax asset	159
Prepaid and other assets	2,303	2,234
Total current assets	24,314	23,804
Property and equipment, net	8,294	8,619
Content and distribution rights, net	11,675	11,792
Recoupable costs and producer advances, less allowance of $2,199 and $2,467, respectively	2,598	2,227
Film costs, net	2,322	3,984
Deferred tax assets	3,107	3,691
Other assets	720	634
Total assets	53,030	54,751
Current liabilities:
Accounts payable	1,310	981
Producers payable	619	393
Deferred revenue	555	606
Accrued compensation	896	930
Deferred producer liabilities	1,500	1,361
Accrued and other liabilities	3,972	3,328
Total current liabilities	8,852	7,599
Other long-term liabilities	1,770	1,702
Total liabilities	10,622	9,301
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred stock, $.10 par value, 4,999 shares authorized, no shares issued and outstanding
Common stock, $.0001 par value, 50,000 shares authorized, 16,264 shares issued and outstanding as of September 30, 2012 and March 31, 2012	2	2
Additional paid-in capital	51,827	51,957
Accumulated deficit	(9,335)	(6,424)
Accumulated other comprehensive loss	(86)	(85)
Total shareholders' equity	42,408	45,450
Total liabilities and shareholders' equity	$ 53,030	$ 54,751

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net income (loss)	$ (2,492)	$ 133	$ (2,911)	$ 22
Other comprehensive income (loss):
Currency translation adjustment	1	(4)	(1)	(3)
Total comprehensive income (loss)	(2,491)	129	(2,912)	19
Add: Net loss attributable to noncontrolling interests				3
Total comprehensive income (loss) attributable to New Frontier Media, Inc. shareholders	$ (2,491)	$ 129	$ (2,912)	$ 22

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SEGMENT AND GEOGRAPHIC INFORMATION (Tables)

6 Months Ended

Sep. 30, 2012

SEGMENT AND GEOGRAPHIC INFORMATION

Schedule of selected operating results of the segments

	Three Months Ended September 30,						Six Months Ended September 30,
	2012			2011			2012			2011
Net revenue
Transactional TV	$	8,117		$	8,746		$	16,236		$	17,420
Film Production	1,554			1,365			5,010			2,908
Direct-to-Consumer	97			194			204			405
Total	$	9,768		$	10,305		$	21,450		$	20,733
Income (loss) before income tax expense
Transactional TV	$	885		$	2,094		$	1,871		$	4,211
Film Production	596			140			1,270			430
Direct-to-Consumer	(1		)	(106		)	10			(265		)
Corporate Administration	(2,969		)	(1,887		)	(5,764		)	(4,130		)
Total	$	(1,489	)	$	241		$	(2,613	)	$	246
Depreciation and amortization
Transactional TV	$	1,685		$	1,591		$	3,351		$	3,281
Film Production	182			285			1,989			473
Direct-to-Consumer	15			30			32			64
Corporate Administration	12			12			23			24
Total	$	1,894		$	1,918		$	5,395		$	3,842

Schedule of total identifiable asset balance by operating segment

	September 30, 2012		March 31, 2012
Identifiable Assets
Transactional TV	$	27,675	$	27,642
Film Production	7,709		8,839
Direct-to-Consumer	282		222
Corporate Administration	17,364		18,048
Total assets	$	53,030	$	54,751

Schedule of net revenue, classified by geographic billing location of the customer

	Three Months Ended September 30,				Six Months Ended September 30,
	2012		2011		2012		2011
United States net revenue	$	7,414	$	8,279	$	16,773	$	16,485
International net revenue:
Europe, Middle East and Africa	419		601		1,159		1,020
Latin America	1,374		721		2,243		1,554
Canada	500		639		1,125		1,481
Asia	61		65		150		193
Total international net revenue	2,354		2,026		4,677		4,248
Total net revenue	$	9,768	$	10,305	$	21,450	$	20,733

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	Sep. 30, 2012	Mar. 31, 2012	Oct. 15, 2012 LFP Broadcasting, LLC and Flynt Broadcast, Inc Subsequent event item
Agreement and Plan of Merger with LFP Broadcasting, LLC and Flynt Broadcast, Inc
Per share value to be received by entity's shareholders (in dollars per share)			$ 2.02
Number of contingent rights per share of our common stock to be received by entity's stockholders			1
Accrued and Other Liabilities
Accrued transport fee liabilities	$ 0.7	$ 0.2
Unsettled customer receipt liabilities	1.2	1.0
Accrued legal liabilities	0.6
Other Long-Term Liabilities
Incentive from lessor liabilities	$ 1.3	$ 1.4

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CONDENSED CONSOLIDATED STATEMENTS OF TOTAL EQUITY (USD $) In Thousands, unless otherwise specified	Total	Total New Frontier Media, Inc. shareholders' equity	Common stock	Additional paid-in capital	Accumulated deficit	Accumulated other comprehensive loss	Noncontrolling interests
Balance at Mar. 31, 2011	$ 51,598		$ 2	$ 55,169	$ (3,460)	$ (69)	$ (44)
Increase (Decrease) in Shareholders' Equity
Tax reversal for stock option forfeitures/cancellations	(62)			(62)
Purchases of common stock	(875)			(875)
Share-based compensation	396			396
Net income (loss) attributable to New Frontier Media, Inc. shareholders	22				25		(3)
Currency translation adjustment	(3)					(3)
Deconsolidation of controlling interests	47						47
Balance at Sep. 30, 2011	51,123	51,123	2	54,628	(3,435)	(72)
Balance at Mar. 31, 2012	51,123		2	51,957	(6,424)	(85)
Increase (Decrease) in Shareholders' Equity
Tax reversal for stock option forfeitures/cancellations	(257)			(257)
Share-based compensation	127			127
Net income (loss) attributable to New Frontier Media, Inc. shareholders	(2,911)				(2,911)
Currency translation adjustment	(1)					(1)
Balance at Sep. 30, 2012	$ 42,408	$ 42,408	$ 2	$ 51,827	$ (9,335)	$ (86)	$ 0

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Sep. 30, 2012	Mar. 31, 2012
CONDENSED CONSOLIDATED BALANCE SHEETS
Accounts receivable, allowance (in dollars)	$ 481	$ 183
Recoupable costs and producer advances, allowance (in dollars)	$ 2,199	$ 2,467
Preferred stock, par value (in dollars per share)	$ 0.10	$ 0.10
Preferred stock, shares authorized	4,999	4,999
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	50,000	50,000
Common stock, shares issued	16,264	16,264
Common stock, shares outstanding	16,264	16,264

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Sep. 30, 2012

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

NOTE 10 — COMMITMENTS AND CONTINGENCIES

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.

Legal Proceedings

On October 15, 2012, the Company, LFP Broadcasting, LLC (Parent), and Flynt Broadcast, Inc., a wholly-owned subsidiary of Parent (Merger Sub), entered into an Agreement and Plan of Merger (the Merger Agreement), pursuant to which Merger Sub commenced a cash offer (Offer) on October 29, 2012 to acquire all of the issued and outstanding shares of common stock of the Company at a price per share equal to (1) $2.02, net to the seller in cash, without interest, and (2) one contingent right per share of the Company, which shall represent the contractual right to receive a Contingent Cash Payment (as such term is defined in the Contingent Payment Rights Agreement in the form attached to the Merger Agreement as Exhibit A). 

Merger Complaints

On October 19, 2012, a class action complaint captioned Elwood M. White, on behalf of himself and all others similarly situated v. New Frontier Media Inc., et. al., Filing ID 47171741, was filed in the Denver County District Court in the State of Colorado (the White Complaint). The White Complaint purports to assert claims on behalf of the public shareholders of the Company and names as defendants the members of the special committee and the Company’s board of directors, as well as the Company, Parent and Merger Sub. The White Complaint alleges, among other things, that the Company’s directors breached their fiduciary duties to the Company’s shareholders in connection with the Offer and the subsequent merger contemplated by the Merger Agreement and further claims that the Company and Parent aided and abetted those alleged breaches of fiduciary duty. It seeks injunctive relief to prevent the parties from proceeding with, consummating, or closing the Offer and the subsequent merger contemplated by the Merger Agreement, an accounting by the defendants for damages sustained as a result of the alleged wrongdoing, and plaintiff’s costs and attorneys’ and experts’ fees. The Company believes the White Complaint lacks merit and intends to contest it vigorously. Based on our current knowledge, a reasonable estimate of the possible loss or range of loss associated with the complaint cannot be made at this time. Legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on our financial position, results of operation, or cash flows.

On November 2, 2012, a class action complaint captioned Dennis Palkon, individually and on behalf all others similarly situated v. New Frontier Media Inc., et. al., was filed in the Boulder County District Court in the State of Colorado (the Palkon Complaint). The Palkon Complaint purports to assert claims on behalf of the public shareholders of the Company and names as defendants the members of the special committee and the Company’s board of directors, as well as the Company, Parent and Merger Sub. The Palkon Complaint alleges, among other things, that the Company’s directors breached their fiduciary duties to the Company’s shareholders in connection with the Offer and the subsequent merger contemplated by the Merger Agreement and further claims that the Company, Parent and Merger Sub aided and abetted those alleged breaches of fiduciary duty. It seeks injunctive relief to prevent the parties from proceeding with, consummating, or closing the Offer and the subsequent merger contemplated by the Merger Agreement and plaintiff’s costs and attorneys’ and experts’ fees. The Company believes the Palkon Complaint lacks merit and intends to contest it vigorously. Based on our current knowledge, a reasonable estimate of the possible loss or range of loss associated with the complaint cannot be made at this time. Legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on our financial position, results of operation, or cash flows.

On November 6, 2012, a derivate action and class action complaint captioned Gopal Chakravarthy, on behalf of himself and all others similarly situated, and derivatively on behalf of New Frontier Media, Inc. v. New Frontier Media Inc., et. al., was filed in the Boulder County District Court in the State of Colorado (the Chakravarthy Complaint). The Chakravarthy Complaint purports to assert claims on behalf of the public shareholders of the Company and names as defendants the members of the special committee and the Company’s board of directors, as well as the Company, Parent and Merger Sub. The Chakravarthy Complaint alleges, among other things, inadequate disclosure in respect of the Company’s Schedule 14D-9 filed with the SEC on October 29, 2012, that the Company’s directors breached their fiduciary duties to the Company’s shareholders in connection with the Offer and the subsequent merger contemplated by the Merger Agreement and further claims that the Company, Parent and Merger Sub aided and abetted those alleged breaches of fiduciary duty. It seeks alleged injunctive relief to prevent the parties from proceeding with, consummating, or closing the Offer and the subsequent merger contemplated by the Merger Agreement, an accounting by the defendants for damages sustained as a result of the alleged wrongdoing, and plaintiff’s costs and attorneys’ and experts’ fees. The Company believes the Chakravarthy Complaint lacks merit and intends to contest it vigorously. Based on our current knowledge, a reasonable estimate of the possible loss or range of loss associated with the complaint cannot be made at this time. Legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on our financial position, results of operation, or cash flows.

On November 8, 2012, a class action complaint captioned Craig Telke, individually and on behalf all others similarly situated v. New Frontier Media Inc., et. al., was filed in the United States District Court for the District of Colorado (the Telke Complaint, and together with the White Complaint, the Palkon Complaint, the Chakravarthy Complaint — the Merger Complaints). The Telke Complaint purports to assert claims on behalf of the public shareholders of the Company and names as defendants the members of the special committee and the Company’s board of directors, as well as the Company, Parent and Merger Sub. The Telke Complaint alleges, among other things, disclosure deficiencies in respect of the Company’s Schedule 14D-9 filed with the SEC on October 29, 2012, and that the Company’s directors breached their fiduciary duties to the Company’s shareholders in connection with the Offer and the subsequent merger contemplated by the Merger Agreement and further claims that the Company, Parent and Merger Sub aided and abetted those alleged breaches of fiduciary duty. It seeks, among other things, alleged injunctive relief to prevent the parties from proceeding with, consummating, or closing the Offer and the subsequent merger contemplated by the Merger Agreement, a declaration that the Company’s Schedule 14D-9 filed with the SEC on October 29, 2012 is materially misleading and contains omissions of material facts, an accounting by the defendants for damages sustained as a result of the alleged wrongdoing, and plaintiff’s costs and attorneys’ and experts’ fees. The Company believes the Telke Complaint lacks merit and intends to contest it vigorously. Based on our current knowledge, a reasonable estimate of the possible loss or range of loss associated with the complaint cannot be made at this time. Legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on our financial position, results of operation, or cash flows.

With respect to the foregoing matters, there can be no assurance that the Company will be successful in their defense. The absence of an injunction or court order (i) challenging or seeking to make illegal, delay materially or otherwise directly or indirectly restraining or prohibiting the making of the Offer, the acceptance for payment of or payment for some or all of the shares of the Company by Parent or Merger Sub or the consummation of the Offer or the subsequent merger contemplated by the Merger Agreement, (ii) seeking to obtain material damages in connection with the Offer or the subsequent merger contemplated by the Merger Agreement, (iii) seeking to restrain, prohibit or limit Parent’s, the Company’s or any of their respective affiliates’ ownership or operation of all or any material portion of the business or assets of the Company or any of its subsidiaries, or (iv) seeking to impose material limitations on the ability of Parent, Merger Sub or any of Parent’s other affiliates effectively to acquire, hold or exercise full rights of ownership of any shares of the Company or any shares of common stock of the surviving corporation after the subsequent merger contemplated by the Merger Agreement, is a condition to Merger Sub’s obligation to consummate the Offer pursuant to the Merger Agreement.  See Risk Factors herein for additional discussion.

Mr. White had also previously filed a class action complaint on March 23, 2012 in the Boulder County, Colorado District Court against the Company and its board of directors, purportedly on behalf of the Company’s public shareholders. The complaint alleged that the individual members of the Company’s board of directors breached their fiduciary duties owed to the Company’s shareholders in connection with their consideration of a proposal to acquire all of the outstanding shares of the Company’s common stock made by an existing shareholder. On August 31, 2012, Mr. White dismissed the suit without prejudice.

Longkloof Settlement

On July 12, 2012, the Company entered into a settlement agreement (the Settlement Agreement) with Longkloof Limited, Hosken Consolidated Investments Limited (Johannesburg Stock Exchange: HCI) and various associated parties (the Longkloof Parties) to end the Longkloof Parties’ proxy contest related to the Company’s 2012 annual meeting of shareholders. The settlement also ends the related litigation between the Company and the Longkloof Parties that was pending in the United States District Court for the District of Colorado.

Under the terms of the Settlement Agreement, the Longkloof Parties, which beneficially own in the aggregate approximately 15.9% of the Company’s outstanding shares, agreed to immediately terminate their proxy contest, withdraw their notice of intent to nominate four candidates for election to the Company’s board of directors, and not support, for the balance of 2012, any other person not recommended by the board in seeking representation on the board. In addition, the Longkloof Parties agreed to certain standstill restrictions through December 31, 2012 and the Company agreed that if it does not engage in a sale, merger or similar change of control transaction by December 31, 2012, Longkloof will have the right to designate one person for appointment to the board for a term expiring at the 2013 annual meeting of shareholders and, under certain circumstances, the Company will be obligated to include such designee on the slate of nominees presented by the Company to shareholders at the 2013 annual meeting of shareholders. As part of the Settlement Agreement, all pending litigation between the Company and the Longkloof Parties was dismissed by the parties without prejudice and without admission of any wrongdoing by any party.

Other 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.

Other Contingencies

During the six month period ended September 30, 2012, we incurred approximately $0.5 million in litigation costs within the Corporate Administration segment in connection with litigation between us and the Longkloof Parties.  This litigation was settled and dismissed without prejudice on July 12, 2012 pursuant to the Settlement Agreement entered into by us and the Longkloof Parties. A portion of the litigation costs incurred for the Longkloof litigation, as well as those incurred in connection with the Merger Complaints discussed above, may be reimbursable under certain of our insurance policies including, but not limited to, those that provide coverage for our directors and officers against claims made against them. Based on our current knowledge, the ultimate outcome of the reimbursements cannot be reasonably determined at this time.  Accordingly, we have not recorded any amounts associated with the possible insurance reimbursements, and the insurance reimbursements, if any, will not be recorded in the financial statements until we reach a final resolution of these claims with our insurance carriers. While we believe that a portion of the legal fees incurred in connection with the Longkloof litigation, including, but not limited to, those incurred in connection with defending us and our directors against the various counterclaims that Longkloof filed against us and our directors are recoverable, given that discussions with the insurance carriers are still ongoing, no assurances can be given that the insurance carriers will reimburse us for any of the legal fees incurred in connection with the Longkloof litigation.

XML

Document and Entity Information	6 Months Ended
	Sep. 30, 2012	Nov. 07, 2012
Document and Entity Information
Entity Registrant Name	NEW FRONTIER MEDIA INC
Entity Central Index Key	0000847383
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--03-31
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		16,264,213
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Sep. 30, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of New Frontier Media, Inc. and its wholly owned and majority controlled subsidiaries (collectively hereinafter referred to as New Frontier Media, the Company, we, us, and other similar pronouns) have been prepared without audit pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (GAAP) have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. We believe these statements include all adjustments, which are of a normal and recurring nature, considered necessary for a fair presentation of the financial position and results of operations. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K filed with the SEC on July 19, 2012.  The results of operations for the six month period ended September 30, 2012 are not necessarily indicative of the results to be expected for the full fiscal year.

Principles of Consolidation

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of New Frontier Media.  All intercompany accounts and transactions have been eliminated in consolidation.

Agreement and Plan of Merger with LFP Broadcasting, LLC and Flynt Broadcast, Inc.

Agreement and Plan of Merger with LFP Broadcasting, LLC and Flynt Broadcast, Inc.

On October 15, 2012, we entered into an Agreement and Plan of Merger, pursuant to which LFP Broadcasting, LLC and Flynt Broadcast, Inc. commenced a tender offer on October 29, 2012 to acquire all of the issued and outstanding shares of our common stock at a price per share equal to (1) $2.02, net to the seller in cash, without interest, and (2) one contingent right per share of our common stock, which shall represent the contractual right to receive a contingent cash payment as defined in the Agreement and Plan of Merger.

Noncontrolling Interests

Noncontrolling Interests

During fiscal year 2011, we entered into an agreement to create an entity within the Transactional TV segment to develop new channel services. We controlled a majority of the entity’s common stock and included the accounts of the entity in our financial statements. The net loss applicable to the noncontrolling interests of the entity was presented herein as net loss attributable to noncontrolling interests in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), and the portion of the equity applicable to the noncontrolling interests of the entity was presented as noncontrolling interests in the Condensed Consolidated Statements of Total Equity.

During the first quarter of fiscal year 2012, we entered into an arrangement that resulted in the loss of our majority controlling interest in the entity’s common stock. As a result, we deconsolidated the entity, which resulted in an immaterial loss within the Transactional TV segment.  During the fourth quarter of fiscal year 2012, we entered into an agreement to assign our remaining shares. As of March 31, 2012, we had no remaining interests in the entity.

Use of Estimates

Use of Estimates

The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

Estimates have been made in several areas, including, but not limited to, estimated revenue for certain Transactional TV segment pay-per-view (PPV) and video-on-demand (VOD) services; the recognition and measurement of income tax expenses, assets and liabilities (including the measurement of uncertain tax positions, the valuation of deferred tax assets, and the deductibility of certain strategic transaction costs for income tax purposes); the assessment of film costs and the forecast of anticipated revenue (ultimate revenue), which is used to amortize film costs; the determination of the allowance for unrecoverable accounts, which reserves for certain recoupable costs and producer advances that are not expected to be recovered; the amortization methodology and valuation of content and distribution rights; and the valuation of other identifiable intangible and other long-lived assets. 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.

Accrued and Other Liabilities

Accrued and Other Liabilities

As of September 30, 2012, accrued and other liabilities included approximately $0.7 million of accrued transport fees, $1.2 million of unsettled customer receipt liabilities, and $0.6 million of accrued legal liabilities. As of March 31, 2012, accrued and other liabilities included approximately $0.2 million of accrued transport fees and $1.0 million of unsettled customer receipt liabilities. Accrued legal liabilities as of March 31, 2012 were immaterial.

Other Long-Term Liabilities

Other Long-Term Liabilities

Other long-term liabilities included $1.3 million and $1.4 million of incentive from lessor liabilities as of September 30, 2012 and March 31, 2012, respectively.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net revenue	$ 9,768	$ 10,305	$ 21,450	$ 20,733
Cost of sales	4,264	3,938	10,134	7,906
Gross margin	5,504	6,367	11,316	12,827
Operating expenses:
Sales and marketing	2,085	1,937	4,243	3,996
General and administrative	4,907	3,999	9,668	8,393
Charge for asset impairments	28	186	28	186
Total operating expenses	7,020	6,122	13,939	12,575
Operating income (loss)	(1,516)	245	(2,623)	252
Other net income (expenses)	27	(4)	10	(6)
Income (loss) before income tax expense	(1,489)	241	(2,613)	246
Income tax expense	(1,003)	(108)	(298)	(224)
Net income (loss)	(2,492)	133	(2,911)	22
Net loss attributable to noncontrolling interests				3
Net income (loss) attributable to New Frontier Media, Inc. shareholders	$ (2,492)	$ 133	$ (2,911)	$ 25
Per share information attributable to New Frontier Media, Inc. shareholders:
Net basic income (loss) per share (in dollars per share)	$ (0.15)	$ 0.01	$ (0.18)	$ 0.00
Net diluted income (loss) per share (in dollars per share)	$ (0.15)	$ 0.01	$ (0.18)	$ 0.00

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FAIR VALUE MEASUREMENT

6 Months Ended

Sep. 30, 2012

FAIR VALUE MEASUREMENT

FAIR VALUE MEASUREMENT

NOTE 5 — FAIR VALUE MEASUREMENT

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

·Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

·Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (such as a Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

·Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We measure certain assets, such as film costs and intangible assets, at fair value on a nonrecurring basis when they are deemed to be impaired. The fair values are determined based on valuation techniques using the best information available and may include quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded when the unamortized cost of the asset exceeds its fair value. The following table presents our assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2012 (in thousands):

	Level 1		Level 2		Level 3		Net Fair Value
Other long-lived assets (1)	$	—	$	—	$	72	$	72

(1)Measurement relates to the Transactional TV segment’s 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 an immaterial impairment charge within the charge for asset impairments line item in the condensed consolidated statements of operations.

The following table presents our assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2012 (in thousands):

	Level 1		Level 2		Level 3			Net Fair Value
Goodwill (2)	$	—	$	—	$	—	*	$	—
Film costs (3)		—		—		6			6
Other long-lived assets (4)		—		—		100			100

*Fair values were measured using level 3 inputs, and the fair values were zero.

(2)Measurement relates to the Transactional TV segment’s goodwill impairment analysis. We recorded a $3.7 million goodwill impairment charge to reduce the goodwill balance from $3.7 million to the implied fair value of goodwill of zero during fiscal year 2012.

(3)Measurement relates to the Film Production segment’s film cost impairment analysis. We adjusted downward the estimated future revenue for several films due to a continuation of underperformance relative to expectations, which caused the estimated fair value of the films to be less than the unamortized film cost. As a result, we recorded a $0.2 million film cost impairment charge.

(4)Measurement relates to the Transactional TV segment’s 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 asset impairment charge in fiscal year 2012.

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EMPLOYEE EQUITY INCENTIVE PLANS

6 Months Ended

Sep. 30, 2012

EMPLOYEE EQUITY INCENTIVE PLANS

EMPLOYEE EQUITY INCENTIVE PLANS

NOTE 4 — EMPLOYEE EQUITY INCENTIVE PLANS

We adopted the New Frontier Media, Inc. 2010 Equity Incentive Plan (the 2010 Plan) in August 2010. The 2010 Plan is intended to assist in attracting and retaining employees and directors, optimizing profitability, and promoting teamwork.  There were 1.3 million awards originally authorized for issuance under the 2010 Plan.  As of September 30, 2012, there were 0.7 million awards available for issuance.

Share-Based Compensation

Share-based compensation expense was included in cost of sales, sales and marketing, and general and administrative expenses. The expense resulting from options granted under our equity incentive plans was as follows (in thousands, except per share amounts):

	Three Months Ended September 30,						Six Months Ended September 30,
	2012			2011			2012			2011
Share-based compensation expense before income taxes	$	62		$	118		$	127		$	396
Income tax benefit	(11		)	(93		)	(33		)	(200		)
Total share-based compensation expense after income tax benefit	$	51		$	25		$	94		$	196
Share-based compensation effect on basic and diluted income (loss) per common share	$	0.00		$	0.00		$	0.01		$	0.01

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 and six month periods ended September 30, 2012 and 2011 were as follows:

	Three Months Ended September 30,					Six Months Ended September 30,
	2012		2011			2012		2011
Weighted average estimated fair value per award		(1)	$	0.61		$	(1)	$	0.83
Expected term from grant date (in years)		(1)	5				(1)	6
Risk free interest rate		(1)	1.8		%		(1)	2.5		%
Expected volatility		(1)	55		%		(1)	54		%
Expected dividend yield		(1)	—		%		(1)	—		%

(1)No options were granted during the three or six month periods ended September 30, 2012.

Share-based compensation expense is based on awards that are ultimately expected to vest, which takes into consideration 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 adjusting the estimated forfeiture rate in the period that the forfeiture estimate changes. The effect of forfeiture adjustments was not material during the three month period ended September 30, 2012 and was $0.2 million during the six month period ended September 30, 2012.  The effect of forfeiture adjustments was not material during the three and six month periods ended September 30, 2011.

Stock option transactions during the six month period ended September 30, 2012 are summarized as follows:

	Shares		Weighted Avg. Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value(1) (in thousands)
Outstanding as of April 1, 2012	2,096,952		$	4.08
Forfeited/expired	(726,800	)	3.44
Outstanding as of September 30, 2012	1,370,152		4.41		5.7	$	—
Options exercisable as of September 30, 2012	1,026,177		5.20		4.8	—
Options vested and expected to vest—non-officers	1,054,239		4.70		5.3	—
Options vested and expected to vest—officers	278,037		3.63		6.9	—

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

As of September 30, 2012, there was $0.1 million of total unrecognized compensation costs for each of the non-officer and officer groups related to stock options granted under equity incentive plans. The unrecognized compensation costs for non-officers and officers are expected to be recognized over a weighted average period of approximately one year and two years, respectively.

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MAJOR CUSTOMERS (Tables)

6 Months Ended

Sep. 30, 2012

MAJOR CUSTOMERS

Schedule of net revenue from the customers as a percentage of total net revenue

	Three Months Ended September 30,				Six Months Ended September 30,
	2012		2011		2012		2011
Comcast	19	%	21	%	17	%	19	%
Time Warner	12	%	11	%	10	%	12	%
DirecTV	12	%	11	%	11	%	11	%
DISH	9	%	10	%	8	%	10	%

Schedule of outstanding accounts receivable balances due from major customers

	September 30, 2012		March 31, 2012
Comcast	$	1,075	$	1,264
DISH	805		562
DirecTV	912		822
Time Warner	460		292

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INCOME (LOSS) PER SHARE (Tables)

6 Months Ended

Sep. 30, 2012

INCOME (LOSS) PER SHARE

Schedule of components of basic and diluted income (loss) per share

	Three Months Ended September 30,					Six Months Ended September 30,
	2012			2011		2012			2011
Net income (loss) attributable to New Frontier Media, Inc. shareholders	$	(2,492	)	$	133	$	(2,911	)	$	25
Weighted average shares outstanding	16,264			18,993		16,264			19,096
Effect of dilutive shares	—			—		—			—
Weighted average diluted shares	16,264			18,993		16,264			19,096
Basic income (loss) per share attributable to New Frontier Media, Inc. shareholders	$	(0.15	)	$	0.01	$	(0.18	)	$	0.00
Diluted income (loss) per share attributable to New Frontier Media, Inc. shareholders	$	(0.15	)	$	0.01	$	(0.18	)	$	0.00

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INCOME TAXES

6 Months Ended

Sep. 30, 2012

INCOME TAXES

INCOME TAXES

NOTE 8 — INCOME TAXES

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. This evidence may include, but is not limited to, our historical operating results, the nature of the deferred tax assets, our projected future operating results, and any unusual expenses that are not expected to recur. We had no material changes in our valuation allowances during the six month period ended September 30, 2012.

Our effective tax rates for the periods presented differ from the U.S. statutory rate of 35% due to a number of factors including the mix of profit and loss between various taxing jurisdictions and the impact of permanent items that affect book income but do not affect taxable income.  For example, our results of operations during the three and six month periods ended September 30, 2012 include certain strategic assessment costs incurred in connection with the Agreement and Plan of Merger with LFP Broadcasting, LLC and Flynt Broadcast, Inc.  These transaction costs are not expected to be deductible for income tax purposes because we expect to complete the merger. If the merger is not completed, the transaction costs are expected to be deductible.

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 fiscal year ended March 31, 2012, the Internal Revenue Service (IRS) initiated an audit of our fiscal year 2010 tax returns and expanded its audit to also include certain deductions included in the fiscal year 2011 returns. Based on recent discussions and correspondence, the IRS has proposed adjustments to our previously filed fiscal year 2011 and 2010 tax returns to disallow the acceleration of certain film cost deductions. We have agreed to settle the amounts with the IRS, which represent approximately $48,000 of deductions. The adjustment did not have a material impact on our consolidated statements of operations.

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, 2009, and we are no longer subject to examination of our state income tax returns for years prior to the fiscal year ended March 31, 2008.

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SEGMENT AND GEOGRAPHIC INFORMATION

6 Months Ended

Sep. 30, 2012

SEGMENT AND GEOGRAPHIC INFORMATION

SEGMENT AND GEOGRAPHIC INFORMATION

NOTE 6 — SEGMENT AND GEOGRAPHIC INFORMATION

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

· Transactional TV—distributes branded adult entertainment PPV networks and VOD content through electronic distribution platforms including cable television and direct broadcast satellite (DBS) operators.

· Film Production—produces and distributes mainstream films and erotic features. These films are distributed on U.S. and international premium channels, PPV channels and VOD systems across a range of cable and satellite distribution platforms. The Film Production segment also distributes a full range of independently produced motion pictures to markets around the world. Additionally, this segment periodically provides producer-for-hire services to major Hollywood studios.

· Direct-to-Consumer—aggregates and resells adult content via the internet. The Direct-to-Consumer segment sells content to subscribers primarily through its consumer websites.

· Corporate Administration—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. 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 the public company filings and shareholder communications.

The accounting policies of each reportable segment are the same as those described in the Note 1 — Summary of Significant Accounting Policies. The reportable segments are distinct business units that are separately managed with different distribution channels. The selected operating results of the segments during each of the three and six month periods ended September 30 were as follows (in thousands):

	Three Months Ended September 30,						Six Months Ended September 30,
	2012			2011			2012			2011
Net revenue
Transactional TV	$	8,117		$	8,746		$	16,236		$	17,420
Film Production	1,554			1,365			5,010			2,908
Direct-to-Consumer	97			194			204			405
Total	$	9,768		$	10,305		$	21,450		$	20,733
Income (loss) before income tax expense
Transactional TV	$	885		$	2,094		$	1,871		$	4,211
Film Production	596			140			1,270			430
Direct-to-Consumer	(1		)	(106		)	10			(265		)
Corporate Administration	(2,969		)	(1,887		)	(5,764		)	(4,130		)
Total	$	(1,489	)	$	241		$	(2,613	)	$	246
Depreciation and amortization
Transactional TV	$	1,685		$	1,591		$	3,351		$	3,281
Film Production	182			285			1,989			473
Direct-to-Consumer	15			30			32			64
Corporate Administration	12			12			23			24
Total	$	1,894		$	1,918		$	5,395		$	3,842

The total identifiable asset balance by operating segment as of the dates presented was as follows (in thousands):

	September 30, 2012		March 31, 2012
Identifiable Assets
Transactional TV	$	27,675	$	27,642
Film Production	7,709		8,839
Direct-to-Consumer	282		222
Corporate Administration	17,364		18,048
Total assets	$	53,030	$	54,751

Approximately $0.1 million of total assets were located in Europe as of September 30, 2012. All other assets were located in the U.S.

Net revenue, classified by geographic billing location of the customer, during the three and six month periods ended September 30 was as follows (in thousands):

	Three Months Ended September 30,				Six Months Ended September 30,
	2012		2011		2012		2011
United States net revenue	$	7,414	$	8,279	$	16,773	$	16,485
International net revenue:
Europe, Middle East and Africa	419		601		1,159		1,020
Latin America	1,374		721		2,243		1,554
Canada	500		639		1,125		1,481
Asia	61		65		150		193
Total international net revenue	2,354		2,026		4,677		4,248
Total net revenue	$	9,768	$	10,305	$	21,450	$	20,733

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MAJOR CUSTOMERS

6 Months Ended

Sep. 30, 2012

MAJOR CUSTOMERS

MAJOR CUSTOMERS

NOTE 7 — MAJOR CUSTOMERS

Our major customers (customers with revenue equal to or in excess of 10% of consolidated net revenue during any one of the presented periods) are Comcast Corporation (Comcast), Time Warner, Inc. (Time Warner), DIRECTV, Inc. (DirecTV), and DISH Network Corporation (DISH). 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 each of the three and six month periods ended September 30 was as follows:

	Three Months Ended September 30,				Six Months Ended September 30,
	2012		2011		2012		2011
Comcast	19	%	21	%	17	%	19	%
Time Warner	12	%	11	%	10	%	12	%
DirecTV	12	%	11	%	11	%	11	%
DISH	9	%	10	%	8	%	10	%

The outstanding accounts receivable balances due from our major customers as of the dates presented were as follows (in thousands):

	September 30, 2012		March 31, 2012
Comcast	$	1,075	$	1,264
DISH	805		562
DirecTV	912		822
Time Warner	460		292

We also recognized revenue from one Film Production segment customer that represented approximately 11% of the total net revenue during the six month period ended September 30, 2012. No outstanding accounts receivable balance was due from this customer as of September 30, 2012.

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

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BORROWING ARRANGEMENTS

6 Months Ended

Sep. 30, 2012

BORROWING ARRANGEMENTS

BORROWING ARRANGEMENTS

NOTE 9 — BORROWING ARRANGEMENTS

On December 13, 2011, we extended our $5.0 million line of credit through December 15, 2012. 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 term 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 September 30, 2012 was $4.7 million. The average outstanding line of credit principal balance for each of the three and six month periods ended September 30, 2012 and 2011 was $0.1 million. The interest rate on our line of credit during each of the three and six month periods ended September 30, 2012 and 2011 was 5.75%.

The line of credit contains 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 from the lender, (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 September 30, 2012, our outstanding principal balance under the line of credit was $0.1 million, and we were in compliance with the related covenants.

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COMMITMENTS AND CONTINGENCIES (Details 2) (USD $)	Jul. 12, 2012 Settlement Agreement Longkloof Limited item	Oct. 15, 2012 LFP Broadcasting, LLC and Flynt Broadcast, Inc Subsequent event item
Legal Proceedings
Per share value to be received by entity's shareholders (in dollars per share)		$ 2.02
Number of contingent rights per share of our common stock to be received by entity's stockholders		1
Percentage of Company's outstanding shares own by investor	15.90%
Number of candidates that can be nominated for election to entity's board of directors by investor	4
Number of persons that can be designated for appointment to the board by investor	1

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Sep. 30, 2012

FAIR VALUE MEASUREMENT

Schedule of assets and liabilities measured at fair value on a nonrecurring basis

	Level 1		Level 2		Level 3		Net Fair Value
Other long-lived assets (1)	$	—	$	—	$	72	$	72

(1)Measurement relates to the Transactional TV segment’s 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 an immaterial impairment charge within the charge for asset impairments line item in the condensed consolidated statements of operations.

	Level 1		Level 2		Level 3			Net Fair Value
Goodwill (2)	$	—	$	—	$	—	*	$	—
Film costs (3)		—		—		6			6
Other long-lived assets (4)		—		—		100			100

*Fair values were measured using level 3 inputs, and the fair values were zero.

(2)Measurement relates to the Transactional TV segment’s goodwill impairment analysis. We recorded a $3.7 million goodwill impairment charge to reduce the goodwill balance from $3.7 million to the implied fair value of goodwill of zero during fiscal year 2012.

(3)Measurement relates to the Film Production segment’s film cost impairment analysis. We adjusted downward the estimated future revenue for several films due to a continuation of underperformance relative to expectations, which caused the estimated fair value of the films to be less than the unamortized film cost. As a result, we recorded a $0.2 million film cost impairment charge.

(4)Measurement relates to the Transactional TV segment’s 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 asset impairment charge in fiscal year 2012.

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EMPLOYEE EQUITY INCENTIVE PLANS (Details) (USD $) Share data in Millions, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
EMPLOYEE EQUITY INCENTIVE PLANS
Number of shares originally authorized for issuance	1.3		1.3
Number of shares available for issuance	0.7		0.7
Share-based compensation expense
Share-based compensation expense before income taxes	$ 62,000	$ 118,000	$ 127,000	$ 396,000
Income tax benefit	(11,000)	(93,000)	(33,000)	(200,000)
Total share-based compensation expense after income tax benefit	51,000	25,000	94,000	196,000
Share-based compensation effect on basic and diluted income (loss) per common share (in dollars per share)			$ 0.01	$ 0.01
Weighted average assumptions used in calculating the weighted average estimated fair value of stock option grants
Weighted average estimated fair value per award (in dollars per share)		$ 0.61		$ 0.83
Expected term from grant date		5 years		6 years
Risk free interest rate (as a percent)		1.80%		2.50%
Expected volatility (as a percent)		55.00%		54.00%
Expected dividend yield (as a percent)		0.00%		0.00%
Effect of forfeiture adjustments			$ 200,000

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash flows from operating activities:
Net income (loss)	$ (2,911)	$ 22
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	5,395	3,842
Share-based compensation	127	396
Deferred taxes	50	42
Charge for asset impairments	28	186
Changes in operating assets and liabilities:
Accounts receivable	161	595
Accounts payable	329	(287)
Content and distribution rights	(2,088)	(2,161)
Film costs	(319)	(1,224)
Deferred producer liabilities	138	(578)
Deferred revenue	(51)	(164)
Producers payable	226	(558)
Taxes receivable and payable	(170)	(116)
Accrued compensation	(34)	(503)
Recoupable costs and producer advances	(371)	706
Other assets and liabilities	982	1,186
Net cash provided by operating activities	1,492	1,384
Cash flows from investing activities:
Purchases of property and equipment	(881)	(3,356)
Purchases of intangible assets	(279)
Net cash used in investing activities	(1,160)	(3,356)
Cash flows from financing activities:
Purchases of common stock		(875)
Payments on short-term debt		(400)
Payments on long-term seller financing	(55)	(55)
Net cash used in financing activities	(55)	(1,330)
Net increase (decrease) in cash and cash equivalents	277	(3,302)
Effect of exchange rate changes on cash and cash equivalents	(3)	(3)
Cash and cash equivalents, beginning of period	13,190	18,787
Cash and cash equivalents, end of period	$ 13,464	$ 15,482

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INCOME (LOSS) PER SHARE

6 Months Ended

Sep. 30, 2012

INCOME (LOSS) PER SHARE

INCOME (LOSS) PER SHARE

NOTE 3 — INCOME (LOSS) PER SHARE

The components of basic and diluted income (loss) per share attributable to New Frontier Media, Inc. shareholders were as follows (in thousands, except per share amounts):

	Three Months Ended September 30,					Six Months Ended September 30,
	2012			2011		2012			2011
Net income (loss) attributable to New Frontier Media, Inc. shareholders	$	(2,492	)	$	133	$	(2,911	)	$	25
Weighted average shares outstanding	16,264			18,993		16,264			19,096
Effect of dilutive shares	—			—		—			—
Weighted average diluted shares	16,264			18,993		16,264			19,096
Basic income (loss) per share attributable to New Frontier Media, Inc. shareholders	$	(0.15	)	$	0.01	$	(0.18	)	$	0.00
Diluted income (loss) per share attributable to New Frontier Media, Inc. shareholders	$	(0.15	)	$	0.01	$	(0.18	)	$	0.00

We excluded options to purchase 1.9 million and 2.8 million shares of common stock from the calculation of diluted income (loss) per share for the three month periods ended September 30, 2012 and 2011, respectively, because inclusion of these options would be antidilutive.  We excluded options to purchase 2.0 million and 2.5 million shares of common stock from the calculation of diluted income (loss) per share for the six month periods ended September 30, 2012 and 2011, respectively, because inclusion of these options would be antidilutive.

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EMPLOYEE EQUITY INCENTIVE PLANS (Details 2) (USD $) In Millions, except Share data, unless otherwise specified	6 Months Ended
	Sep. 30, 2012
Shares
Outstanding at the beginning of the period (in shares)	2,096,952
Forfeited/expired (in shares)	(726,800)
Outstanding at the end of the period (in shares)	1,370,152
Options exercisable at the end of the period (in shares)	1,026,177
Weighted Avg. Exercise Price
Outstanding at the beginning of the period (in dollars per share)	$ 4.08
Forfeited/expired (in dollars per share)	$ 3.44
Outstanding at the end of the period (in dollars per share)	$ 4.41
Options exercisable (in dollars per share)	$ 5.20
Weighted Average Remaining Contractual Term
Options outstanding	5 years 8 months 12 days
Options exercisable	4 years 9 months 18 days
Officers
Shares
Options vested and expected to vest (in shares)	278,037
Weighted Avg. Exercise Price
Options vested and expected to vest (in dollars per share)	$ 3.63
Weighted Average Remaining Contractual Term
Options vested and expected to vest	6 years 10 months 24 days
Unrecognized compensation costs
Total unrecognized compensation costs	$ 0.1
Recognition period of unrecognized compensation costs	2 years
Non-officers
Shares
Options vested and expected to vest (in shares)	1,054,239
Weighted Avg. Exercise Price
Options vested and expected to vest (in dollars per share)	$ 4.70
Weighted Average Remaining Contractual Term
Options vested and expected to vest	5 years 3 months 18 days
Unrecognized compensation costs
Total unrecognized compensation costs	$ 0.1
Recognition period of unrecognized compensation costs	1 year

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EMPLOYEE EQUITY INCENTIVE PLANS (Tables)

6 Months Ended

Sep. 30, 2012

EMPLOYEE EQUITY INCENTIVE PLANS

Schedule of expense resulting from options granted under the entity's equity incentive plans

	Three Months Ended September 30,						Six Months Ended September 30,
	2012			2011			2012			2011
Share-based compensation expense before income taxes	$	62		$	118		$	127		$	396
Income tax benefit	(11		)	(93		)	(33		)	(200		)
Total share-based compensation expense after income tax benefit	$	51		$	25		$	94		$	196
Share-based compensation effect on basic and diluted income (loss) per common share	$	0.00		$	0.00		$	0.01		$	0.01

Schedule of weighted average assumptions used in calculating the estimated fair value of stock option grants

	Three Months Ended September 30,					Six Months Ended September 30,
	2012		2011			2012		2011
Weighted average estimated fair value per award		(1)	$	0.61		$	(1)	$	0.83
Expected term from grant date (in years)		(1)	5				(1)	6
Risk free interest rate		(1)	1.8		%		(1)	2.5		%
Expected volatility		(1)	55		%		(1)	54		%
Expected dividend yield		(1)	—		%		(1)	—		%

(1)No options were granted during the three or six month periods ended September 30, 2012.

Schedule of stock option transactions

	Shares		Weighted Avg. Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value(1) (in thousands)
Outstanding as of April 1, 2012	2,096,952		$	4.08
Forfeited/expired	(726,800	)	3.44
Outstanding as of September 30, 2012	1,370,152		4.41		5.7	$	—
Options exercisable as of September 30, 2012	1,026,177		5.20		4.8	—
Options vested and expected to vest—non-officers	1,054,239		4.70		5.3	—
Options vested and expected to vest—officers	278,037		3.63		6.9	—

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