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.