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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Sep. 30, 2012

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.