UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-K




(Mark
One)




x
            ANNUAL REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934




For the
fiscal year ended March 31, 2010


or





 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934





Commission
File Number 00-10039




NEUMEDIA,
INC. (f/k/a MANDALAY MEDIA, INC.)




(Exact
Name of Registrant as Specified in Its Charter)




Delaware
              
              22-2267658(State
      or Other Jurisdiction of
                Incorporation
      or Organization)
              
              (I.R.S.
      Employer Identification No.)





2000 Avenue of the Stars, Suite 410, Los Angeles,
      CA
              
              90067(Address
      of Principal Executive Offices)
              
              (Zip
      Code)





(310)
601-2500


(Issuer’s
Telephone Number, Including Area Code)




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




Securities
registered under Section 12(g) of the Exchange Act:




Common Stock, Par Value
$0.0001 Per Share


(Title of
Class)




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes    ̈   
     No  x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. Yes    ̈   
     No  x




Indicate
by check mark whether the registrant : (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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   ̈





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    ̈   
     No   ̈




Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-K (§ 229.405) is not contained herein, and will not be contained,
to the best of Registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. 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
definitions of a “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.   (Check
One)





 ̈ Large Accelerated
      Filer
             ̈ Accelerated
      Filer ̈ Non-accelerated
      Filer (do not check if smaller reporting company)
            x 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 
 ̈   
      No   x




The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold on the OTC Bulletin Board on September 30, 2009 was
$8,839,777.




Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act
subsequent to the distribution of securities under a plan confirmed by a court.
Yes   x
         No   ̈




As of
July 14, 2010, the Issuer had 35,573,502 shares of its common stock,
$0.0001 par value per share, outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE


None.








NeuMedia,
Inc.





ANNUAL
REPORT ON FORM 10-K


FOR THE
PERIOD ENDED MARCH 31, 2010





TABLE
OF CONTENTS





PART I
                        
                        
                        
                        3ITEM
      1.
                        
                        BUSINESS
                        
                        3ITEM
      1A.
                        
                        RISK
      FACTORS
                        
                        7ITEM
      2.
                        
                        PROPERTIES
                        
                        22ITEM
      3.
                        
                        LEGAL
      PROCEEDINGS
                        
                        22ITEM
      4.
                        
                        REMOVED
      AND RESERVED
                        
                        23PART II
                        
                        
                        
                        24ITEM
      5.
                        
                        MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
                        
                        24ITEM
      6.
                        
                        SELECTED
      FINANCIAL DATA
                        
                        25ITEM
      7.
                        
                        MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                        
                        25ITEM
      7A.
                        
                        QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                        
                        37ITEM
      8.
                        
                        FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                        
                        38ITEM
      9.
                        
                        CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
                        
                        38ITEM
      9A(T).
                        
                        CONTROLS
      AND PROCEDURES
                        
                        38ITEM
      9B.
                        
                        OTHER
      INFORMATION
                        
                        39PART III
                        
                        
                        
                        39ITEM
      10.
                        
                        DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
                        
                        39ITEM
      11.
                        
                        EXECUTIVE
      COMPENSATION
                        
                        41ITEM
      12.
                        
                        SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                        
                        43ITEM
      13.
                        
                        CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
                        
                        45ITEM
      14.
                        
                        PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                        
                        47ITEM
      15.
                        
                        EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
                        
                        49


2





Safe Harbor Statement under
the Private Securities Litigation Reform Act of 1995




Information
included in this Annual Report on Form 10-K may contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”), and Section 21E of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). All statements, other than statements
of historical facts included in this Annual Report on Form 10-K regarding our
strategy, future operations, future financial position, projected expenses,
prospects and plans and objectives of management are forward-looking statements.
These statements may involve known and unknown risks, uncertainties and other
factors which may cause our actual results, performance or achievements to be
materially different from our future results, performance or achievements
expressed or implied by any forward-looking statements. Forward-looking
statements, which involve assumptions and describe our future plans, strategies
and expectations, are generally identifiable by use of the words “may,” “will,”
“should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project”
or the negative of these words or other variations on these words or comparable
terminology. Forward-looking statements are based on assumptions that may be
incorrect, and there can be no assurance that any projections or other
expectations included in any forward-looking statements will come to pass. Our
actual results could differ materially from those expressed or implied by the
forward-looking statements as a result of various factors, including the risk
factors described in greater detail in the section entitled “Risk Factors.”
Except as required by applicable laws, we undertake no obligation to update
publicly any forward-looking statements for any reason, even if new information
becomes available or other events occur in the future.




PART
I




ITEM
1. BUSINESS




Historical
Operations of NeuMedia, Inc.




NeuMedia,
Inc. (“NeuMedia” or the “Company”), formerly known as Mandalay Media, Inc., was
originally incorporated in the State of Delaware on November 6, 1998 under the
name eB2B Commerce, Inc. On April 27, 2000, the company merged into DynamicWeb
Enterprises Inc., a New Jersey corporation, and changed its name to eB2B
Commerce, Inc. On April 13, 2005, the company changed its name to Mediavest,
Inc. On November 7, 2007, through a merger, the Company reincorporated
in the State of Delaware under the name Mandalay Media, Inc.  On May
12, 2010, the company changed its name to NeuMedia, Inc.




On
October 27, 2004, and as amended on December 17, 2004, NeuMedia filed a plan for
reorganization under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the Southern District of New York (the “Plan
of Reorganization”). Under the Plan of Reorganization, as completed on January
26, 2005: (1) NeuMedia’s net operating assets and liabilities were transferred
to the holders of the secured notes in satisfaction of the principal and accrued
interest thereon; (2) $400,000 were transferred to a liquidation trust and used
to pay administrative costs and certain preferred creditors; (3) $100,000 were
retained by NeuMedia to fund the expenses of remaining public; (4) 3.5% of the
new common stock of NeuMedia (140,000 shares) was issued to the holders of
record of NeuMedia’s preferred stock in settlement of their liquidation
preferences; (5) 3.5% of the new common stock of NeuMedia (140,000 shares) was
issued to common stockholders of record as of January 26, 2005 in exchange for
all of the outstanding shares of the common stock of the company; and (6) 93% of
the new common stock of NeuMedia (3,720,000 shares) was issued to the sponsor of
the Plan of Reorganization in exchange for $500,000 in cash. Through January 26,
2005, NeuMedia and its subsidiaries were engaged in providing
business-to-business transaction management services designed to simplify
trading between buyers and suppliers.




Prior to
February 12, 2008, NeuMedia was a public shell company with no operations, and
controlled by its significant stockholder, Trinad Capital Master Fund,
L.P.





Our
Current Operations




Twistbox
Entertainment, Inc.





On
February 12, 2008, NeuMedia completed its acquisition of Twistbox Entertainment,
Inc. pursuant to an Agreement and Plan of Merger entered into on December 31,
2007, as subsequently amended by the Amendment to Agreement and Plan of Merger
dated February 12, 2008, with Twistbox Acquisition, Inc., a Delaware corporation
and a wholly-owned subsidiary of NeuMedia (“Merger Sub”), Twistbox
Entertainment, Inc. (“Twistbox”), and Adi McAbian and Spark Capital, L.P., as
representatives of the stockholders of Twistbox, as part of which Merger Sub
merged with and into Twistbox, with Twistbox as the surviving corporation (the
“Merger”). Following the Merger, Twistbox became the sole operating subsidiary
of NeuMedia until the acquisition of AMV Holding Limited, a United Kingdom
private limited company (“AMV”) on October 23, 2008 as described
below.


3





Twistbox
is a global publisher and distributor of entertainment content primarily focused
on video and games for Third Generation (3G) mobile networks. Twistbox publishes
its content in over 40 countries with distribution representing more than one
billion subscribers. Operating since 2003, Twistbox has developed an
intellectual property portfolio unique to its 18 to 40 year old target
demographic (18 to 40) that includes worldwide or territory exclusive mobile
rights to content from leading film, television and lifestyle media companies.
Twistbox has built a proprietary mobile publishing platform that includes: tools
that automate handset portability for the distribution of images and video; a
mobile games development suite that automates the porting of mobile games and
applications to over 1,500 handsets; and a content standards and ratings system
globally adopted by major wireless carriers to assist with the responsible
deployment of age-verified programming and services. Twistbox has leveraged its
brand portfolio and platform to secure “direct” distribution agreements with the
leading mobile operators throughout Europe, North America and Latin America,
including, among others, Vodafone, Telefonica, Orange, Hutchinson 3G, O2
Verizon, Sprint and Orange.




Twistbox
maintains distribution agreements with leading mobile network operators
throughout the North American, European, Latin America and Asia-Pacific regions
that include Verizon, Virgin Mobile, T-Mobile, Telefonica, America Movil,
Hutchinson 3G, O2 and Orange.  Twistbox maintains a worldwide
distribution agreement with Vodafone. Through this relationship, in certain
markets Twistbox serves as Vodafone’s exclusive supplier and aggregator of late
night content, a portion of which is age-verified.  Twistbox has
similar exclusive agreements with other operators in selected territories for
both Late Night and Play for Prizes mobile games categories.





Twistbox’s
intellectual property encompasses over 75 worldwide exclusive, territory
exclusive or non-exclusive content licensing agreements that cover its
lifestyle, late night and casual games programming and
services.  Twistbox’s content portfolio is distributed via mobile
applications and services that include more than 350 WAP sites, 250 games and 66
mobile TV channels.




In
addition to its content publishing business through mobile operators, Twistbox
operates a suite of Direct to Consumer services including text and video chat
and web2mobile marketing services of video, images and games that are promoted
through on-line, print, and TV advertising.  Payments for the
Company’s Direct to Consumer services are through integration with Premium Short
Message Service (Premium SMS) billing aggregators and credit card processing
companies.





Twistbox
target customers are the highly-mobile, digitally-aware 18 to 40 year old
demographic. This group is a leading consumer of new mobile handsets and
represents more than 50% of mobile content consumption revenue
globally.  In addition, this group is very focused on consumer
lifestyle brands and is much sought after by advertisers.




Revenue
Model




Twistbox’s
revenue model includes pay per-download and a growing base of recurring
subscription services.  Video services include daily, weekly and
monthly subscriptions to access a specific WAP site or suite of mobile TV
channels.  Twistbox’s play-for-prizes tournament games revenue model
is based on a monthly recurring subscription per game although a subscriber can
elect for a higher priced one-time payment.




Collectively,
Twistbox’s mobile content sites generate in excess of 500 million advertising
impressions monthly.  In turn, Twistbox has begun to leverage its
distribution and traffic to generate revenues from WAP advertising on mobile
content portals that Twistbox manages on an exclusive basis.




Twistbox
bills and receives payment directly through mobile operators and billing
aggregators that form the majority of its revenue. Twistbox receives between 40%
to 60% of the billings from the mobile operator or billing aggregator, which it
recognizes as its Gross Revenue.  Twistbox’s Cost of Revenues
represents license fees paid to content providers, which currently averages
approximately 30%.




Content and Game
Development




Twistbox’s
production activities currently address over 1,500 handsets, including models
manufactured by Nokia, Motorola, Samsung and Sony Ericsson. Twistbox has created
an automated handset abstraction and publishing tools that significantly reduces
the time required to “port” and publish games and mobile services across a
significant number of these handsets.




Twistbox
develops games and applications that work with a number of languages, platforms,
and formats, including J2ME, BREW, DoJa, and Symbian, and localizes its releases
in the EFIGS languages (English, French, Italian, German and Spanish). It is
actively involved in a number of technical initiatives aimed at enhancing its
titles with value-added features, such as multi-player functionality, 3D
graphics, and location-based features. In addition to mobile video clips, games,
WAP sites, and other entertainment applications, Twistbox is currently focusing
its development and licensing activities on complementary applications such as
in game advertising, TV-SMS campaigns, play-for-prizes and multi-player
games.





Twistbox
intends to acquire additional third-party licenses and to develop new
applications through relationships with third-party developers as well as its
in-house development staff to assure that it has a steady supply of new content
to offer its customers.    The Company believes that the market for
mobile entertainment should continue to increase as mobile operators continue to
roll out their next generation service offerings and advanced handsets offering
improvements in data handling capability, graphics resolution and other
features.


4





Publishing




RenuxTM is
Twistbox’s carrier class content management and publishing platform developed
internally for the deployment and marketing of mobile content and applications.
The system has been in operation for over five years and today supports over 350
WAP sites, more than 66 mobile TV channels and 250 games in 18 languages. The
RenuxTM content management system stores image and video content formatted for
1.5G to up to 3G devices, and incorporates a comprehensive metadata format that
categorizes the content for handset recognition, programming, marketing and
reporting. Twistbox maintains content hosting facilities in Los Angeles,
Washington, D.C. and Frankfurt that support the distribution of content to
mobile network operators globally.




RapidPort TM




RapidPortTM
is Twistbox’s software suite that enables the development and porting of mobile
games and applications to over 1,500 different handsets from leading
manufacturers including Nokia, Motorola, Samsung and Sony Ericsson. Twistbox has
created an automated handset abstraction tool that significantly reduces the
time required to “port” a game across a significant number of these handsets.
The RapidPortTM development platform supports a broad number of wireless device
formats including J2ME, BREW, DoJa and Symbian, and provides localization in
over 18 languages. Twistbox Games has recently enhanced RapidPortTM to include
new technology designed to enhance titles with value-added features, such as
in-game advertising, multi-player and play-for-prizes functionality, 3D graphics
and location-based services (LBS).





Nitro-CDPTM




Nitro-CDPTM
is an internally developed content download and delivery platform for mobile
network operators, portals and content publishers. The Nitro-CDPTM platform
allows for real-time content upload, editing, rating and deployment, and
merchandising, while maintaining carrier-grade security, reliability and
scalability. The platform enables mobile network operators to effectively manage
millions of mobile download transactions across multiple channels and
categories. Nitro-CDPTM also provides innovative cross-promotional tools,
including purchase history-based up-sales and advertising, an individual “My
Downloads” area for each consumer and peer-to-peer recommendations.




CMX
Wrapper TM




The CMX
WrapperTM technology, developed internally by Twistbox, enables mobile operators
to integrate additional and complimentary functionality into existing mobile
games and applications without the need to alter the original code or involve
the original developer. This value-added functionality includes support for
in-game promotions and billing, and “try before you buy” and “refer a friend”
functionality.




Play-for-Prizes
- Competition Goes Mobile ®




The
Twistbox Games for-prizes network, currently deployed by major mobile operators
across the U.S. such as AT&T Wireless and Verizon, offers several genres of
games in which players compete in daily and weekly skill-based multiplayer
tournaments to win prizes. Subscribers can compete in both daily head-to-head
and weekly progressive tournaments. The Twistbox Games for-prizes platform
enables unique in-game promotions through carrier-specific campaigns in
cooperation with sponsors and advertisers.  On July 25, 2008, Twistbox
filed with the United States Patent and Trademark Office a patent application
for the Improvements In Skill-Based Electronic Gaming Tournament Play having
Serial Number 12/180,405.




WAAT
Media Wireless Content Standards Rating Matrix ©




First
developed in 2003, and refined over the last several years, Twistbox has
developed a proprietary content standards matrix widely known as the “WAAT Media
Wireless Content Standards Ratings Matrix©” (the “Ratings Matrix”). The Ratings
Matrix has been filed with the Library of Congress’s Copyright Office. It is the
globally-accepted content ratings system for age-verified mobile programming
that encompasses language, violence and explicitness. The system is licensed on
a royalty-free basis by the world’s leading mobile carriers and leading content
providers and is the basis for the United Kingdom’s Code of Practice. The
Ratings Matrix currently supports 33 ratings levels and incorporates a suite of
content validation tools and industry best practices that takes into account
country-by-country carrier programming requirements and local broadcast
standards.




Distribution




Twistbox
distributes its programming and services through on-deck relationships with
mobile carriers and off-deck relationships with third-party aggregation,
connectivity and billing providers.


5





On-Deck




Twistbox’s
on-deck services include the programming and provisioning of games and games
aggregation, images, videos and mobileTV content and portal management. Twistbox
currently has on-deck agreements with more than 100 mobile operators including
Vodafone, T-Mobile, Verizon, AT&T, Orange, O2, Virgin Mobile, Telefonica and
MTS in over 40 countries. Through these on-deck agreements, Twistbox relies on
the carriers for both marketing and billing. Twistbox currently reaches over one
billion mobile subscribers worldwide through these relationships. Its currently
deployed programming includes over 350 WAP sites, 250 games and 66 mobile TV
channels.




Off-Deck




Twistbox
has recently deployed off-deck services that include the programming and
distribution of games, images, videos, chat services and mobile marketing
campaigns. Twistbox manages the campaigns directly and maintains billing and
connectivity agreements with leading service providers in each territory. In
addition, Twistbox has built and implemented a “Web-to-Mobile” affiliate program
that allows for the cross-marketing and sales of mobile content from Web
storefronts of its various programming partners and their
affiliates.




Mobile Operators
(Carriers)




Twistbox
currently has a large number of distribution agreements with mobile operators
and portals in Europe, the U.S., Japan and Latin America. Twistbox currently has
distribution agreements with more than 100 single territory operators in 40
countries. Twistbox continues to sign new operators on a quarterly basis and, in
the near term, intends to extend its distribution base into Eastern Europe and
South America. The strength and coverage of these relationships is of paramount
importance and the ability to support and service them is a vital component in
route to the consumer.





Affiliates
Program




Twistbox
has also established an Affiliates Program to market and sell its content
“off-deck,” that is, through a direct-to-consumer online portal that end users
can access directly from their PCs or phones. We believe that this channel
offers an attractive secondary outlet for consumers wishing to peruse and
purchase content in an environment less limiting and restrictive than an
operator’s “walled garden.”




Sales and
Marketing




In order
to sell to its target base of carrier and infrastructure customers, Twistbox has
built an affiliate sales and marketing team that is localized on a
country-by-country basis.  As of March 31, 2010, Twistbox had a
workforce of approximately 100 employees




Competition




While
many mobile marketing companies sell a diversified portfolio of content from
ring tones to wall papers and kids programming to adult, Twistbox has taken a
more focused and disciplined approach. Twistbox focuses on programming and
platforms where it can manage categories on an exclusive or semi-exclusive basis
for a mobile operator. Target markets include Age Verified Programming,
Play4Prizes or areas in which Twistbox has exclusive rights to the top one or
two brands in a genre.




In the
area of mature themed mobile entertainment, Twistbox is a leading provider of
content and services. The industry trend has been for leading operators to focus
on fewer partners and often assign a company to manage the category. We believe
that Twistbox’s responsible reputation and the Ratings Matrix combined with its
publishing platform and leading brands that maximize revenue positions it to
manage the age-verified category for operators globally.




Twistbox
competes with a number of other companies in the mobile games publishing
industry, including Arvato, Minick, Jamba, Buongiorno, Mobile Streams, Glu
Mobile, ZED Group and Gameloft. Brands such as Playboy have sought to create
their own direct distribution arrangements with network operators. To the extent
that such firms continue to seek such relationships, they will compete directly
with Twistbox in their respective content segments. While Twistbox competes with
many of the leading publishers, its core business is providing services and
platforms for operators and publishers to enhance revenues. In turn, through the
management of an operator’s download platform, providing a cross carrier
Play4Prizes infrastructure or facilitating in game advertising or billing,
Twistbox has become a strategic value added partner to both the mobile operator
and publishing communities.




Direct-to-consumer
(D2C) Web portals may have an adverse impact on Twistbox’s business, as these
portals may not strike distribution arrangements with Twistbox. Additionally,
wireless device manufacturers such as Nokia, Sony Ericsson and Motorola may
choose to pursue their own content strategies.


6





We
believe that the principal competitive factors in the market for mobile games
and other content include carrier relationships, access to compelling content,
quality and reliability of content delivery, availability of talented content
developers and skilled technical personnel, and financial
stability.




Trademarks, Trade names,
Patent and Copyrights




Twistbox
has used, registered and applied to register certain trademarks and service
marks to distinguish its products, technologies and services from those of its
competitors in the United States and in foreign countries. Twistbox also
has a copyright known as the “WAAT Media Wireless Content Standards Ratings
Matrix©”, which has been filed with the Library of Congress’s Copyright Office.
On July 25, 2008, Twistbox filed with the United States Patent and Trademark
Office a patent application for the Improvements In Skill-Based Electronic
Gaming Tournament Play having Serial Number 12/180,405. We believe that these
trademarks, trade names, patent and copyrights are important to its business.
The loss of some of Twistbox’s intellectual property might have a negative
impact on its financial results and operations.





AMV
Holding Limited





On
October 23, 2008, NeuMedia consummated the acquisition of 100% of the issued and
outstanding share capital of AMV Holding Limited, a United Kingdom private
limited company (“AMV”) and 80% of the issued and outstanding share capital of
Fierce Media Limited, United Kingdom private limited company (collectively the
“Shares”).  The acquisition of AMV is referred to herein as the “AMV
Acquisition”. The aggregate purchase price (subject to adjustments as provided
in the stock purchase agreement) for the Shares consisted of (i) $5,375,000 in
cash; (ii) 4,500,000 shares of common stock, par value $0.0001 per share; (iii)
a secured promissory note in the aggregate principal amount of $5,375,000 (the
“AMV Note”); and (iv) additional earn-out amounts, if any, based on certain
targeted earnings as set forth in the stock purchase agreement.





AMV is a
mobile media and marketing company delivering games and lifestyle content
directly to consumers in the United Kingdom, Australia, South Africa and various
other European countries. AMV markets its well established branded services
including Bling, Phonebar and GameZone through a unique
Customer Relationship Management (CRM) platform that drives revenue through
mobile internet, print and TV advertising.





On June
21, 2010, NeuMedia sold all of the operating subsidiaries of AMV in exchange for
the release of $23.3 million of secured indebtedness, comprising of a release of
all amounts due and payable under the AMV Note and all amounts due and payable
under that certain Senior Secured Note, as amended, in favor of ValueAct
SmallCap Master Fund, L.P. (“ValueAct”) dated July 30, 2007 and due July 31,
2010 (“Note”) except for $3.5 million in principal. See “Management’s Discussion
and Analysis or Plan of Operation – Historical Operations of NeuMedia, Inc. –
Summary of the AMV Acquisition”.





ITEM 1A. RISK FACTORS




Unless
the context otherwise indicates, the use of the terms “we,” “our” “us” or the
“Company” refer to the business and operations of NeuMedia , Inc. (“NeuMedia”)
through its operating and wholly-owned subsidiary Twistbox Entertainment, Inc.
(“Twistbox”).




Risks
Related to Our Business




The
Company has a history of net losses, may incur substantial net losses in the
future and may not achieve profitability.




We expect
to continue to increase expenses as we implement initiatives designed to
continue to grow our business, including, among other things, the development
and marketing of new products and services, further international and domestic
expansion, expansion of our infrastructure, development of systems and
processes, acquisition of content, and general and administrative expenses
associated with being a public company. If our revenues do not increase to
offset these expected increases in operating expenses, we will continue to incur
significant losses and will not become profitable. Our revenue growth in recent
periods should not be considered indicative of our future performance. In fact,
in future periods, our revenues could decline. Accordingly, we may not be able
to achieve profitability in the future.




We
have a limited operating history in an emerging market, which may make it
difficult to evaluate our business.




We have
only a limited history of generating revenues, and the future revenue potential
of our business in this emerging market is uncertain. As a result of our short
operating history, we have limited financial data that can be used to evaluate
our business. Any evaluation of our business and our prospects must be
considered in light of our limited operating history and the risks and
uncertainties encountered by companies in our stage of development. As an early
stage company in the emerging mobile entertainment industry, we face increased
risks, uncertainties, expenses and difficulties. To address these risks and
uncertainties, we must do the following:




·
            maintain our current, and develop
      new, wireless carrier relationships, in both the international and
      domestic markets;


7





·
            maintain and expand our current,
      and develop new, relationships with third-party branded and non-branded
      content owners;





·
            retain or improve our current
      revenue-sharing arrangements with carriers and third-party content
      owners;





·
            maintain and enhance our own
      brands;





·
            continue to develop new
      high-quality products and services that achieve significant market
      acceptance;





·
            continue to port existing
      products to new mobile
handsets;





·
            continue to develop and upgrade
      our technology;





·
            continue to enhance our
      information processing
systems;




·
            increase the number of end users
      of our products and
services;





·
            maintain and grow our
      non-carrier, or “off-deck,” distribution, including through our
      third-party direct-to-consumer
  distributors;





·
            expand our development capacity
      in countries with lower
costs;





·
            execute our business and
      marketing strategies
successfully;





·
            respond to competitive
      developments; and





·
            attract, integrate, retain and
      motivate qualified
personnel.





We may be
unable to accomplish one or more of these objectives, which could cause our
business to suffer. In addition, accomplishing many of these efforts might be
very expensive, which could adversely impact our operating results and financial
condition.





We
may not be able to resume our operations in Russia, which could have a material
adverse impact on our results of operations.





From
April 2009 to December 2009, approximately 13% of Twistbox’s revenues were
generated from our operations in Russia. In January 2010, our assets and
operations in Russia were diverted to an unaffiliated entity. We may take action
to reacquire our Russian operations in the future, however there is no assurance
that we will be successful. If we are unable reacquire our Russian assets and
operations, our results of operations and financial condition could be
materially and adversely affected.





Our
financial results could vary significantly from quarter to quarter and are
difficult to predict.




Our
revenues and operating results could vary significantly from quarter to quarter
because of a variety of factors, many of which are outside of our control. As a
result, comparing our operating results on a period-to-period basis may not be
meaningful. In addition, we may not be able to predict our future revenues or
results of operations. We base our current and future expense levels on our
internal operating plans and sales forecasts, and our operating costs are to a
large extent fixed. As a result, we may not be able to reduce our costs
sufficiently to compensate for an unexpected shortfall in revenues, and even a
small shortfall in revenues could disproportionately and adversely affect
financial results for that quarter. Individual products and services, and
carrier relationships, represent meaningful portions of our revenues and net
loss in any quarter. We may incur significant or unanticipated expenses when
licenses are renewed. In addition, some payments from carriers that we recognize
as revenue on a cash basis may be delayed unpredictably.





In
addition to other risk factors discussed in this section, factors that may
contribute to the variability of our quarterly results include:




·
            the number of new products and
      services released by us and our
  competitors;





·
            the timing of release of new
      products and services by us and our competitors, particularly those that
      may represent a significant portion of revenues in a
      period;





·
            the popularity of new products
      and services, and products and services released in prior
      periods;





·
            changes in prominence of deck
      placement for our leading products and those of our
      competitors;





·
            the expiration of existing
      content licenses;


8





·
            the timing of charges related to
      impairments of goodwill, intangible assets, royalties and minimum
      guarantees;





·
            changes in pricing policies by
      us, our competitors or our carriers and other
      distributors;





·
            changes in the mix of original
      and licensed content, which have varying gross
    margins;





·
            the timing of successful mobile
      handset launches;





·
            the seasonality of our
      industry;





·
            fluctuations in the size and rate
      of growth of overall consumer demand for mobile products and services and
      related content;





·
            strategic decisions by us or our
      competitors, such as acquisitions, divestitures, spin-offs, joint
      ventures, strategic investments or changes in business
      strategy;





·
            our success in entering new
      geographic markets;





·
            foreign exchange
      fluctuations;





·
            accounting rules governing
      recognition of revenue;





·
            general economic, political and
      market conditions and
trends;





·
            the timing of compensation
      expense associated with equity compensation grants;
    and





·
            decisions by us to incur
      additional expenses, such as increases in marketing or research and
      development.





As a
result of these and other factors, our operating results may not meet the
expectations of investors or public market analysts who choose to follow our
company. Our failure to meet market expectations would likely result in
decreases in the trading price of our common stock.




The
markets in which we operate are highly competitive, and many of our competitors
have significantly greater resources than we do.




The
development, distribution and sale of mobile products and services is a highly
competitive business. We compete for end users primarily on the basis of
“on-deck” or “off-deck” positioning, brand, quality and price. We compete for
wireless carriers for “on-deck” placement based on these factors, as well as
historical performance, technical know-how, perception of sales potential and
relationships with licensors of brands and other intellectual property. We
compete for content and brand licensors based on royalty and other economic
terms, perceptions of development quality, porting abilities, speed of
execution, distribution breadth and relationships with carriers. We also compete
for experienced and talented employees.




Our
primary competitors for the on-deck distribution channels include Arvato,
Minick, Jamba, Buongiorno, Mobile Streams, Glu Mobile, Player X and Gameloft,
and for end-users via our direct-to-consumer off-deck distribution channels they
include Red Circle (recently acquired by Zamano plc), Playphone, Inc, Mobile
Messenger Pty Ltd, Jamba (a subsidiary of News Corp), Zero9 S.p.A. and Flycell
Inc.  In the future, likely competitors include major media companies,
traditional video game publishers, platform developers, content aggregators,
mobile software providers and independent mobile game publishers. Carriers may
also decide to develop, internally or through a managed third-party developer,
and distribute their own products and services. If carriers enter the wireless
market as publishers, they might refuse to distribute some or all of our
products and services or might deny us access to all or part of their
networks.





Some of
our competitors’ and our potential competitors’ advantages over us, either
globally or in particular geographic markets, include the
following:





·
            significantly greater revenues
      and financial resources;





·
            stronger brand and consumer
      recognition regionally or
worldwide;





·
            the capacity to leverage their
      marketing expenditures across a broader portfolio of mobile and non-mobile
      products;





·
            more substantial intellectual
      property of their own from which they can develop products and services
      without having to pay
royalties;





·
            pre-existing relationships with
      brand owners or carriers that afford them access to intellectual property
      while blocking the access of competitors to that same intellectual
      property;


9





·
            greater resources to make
      acquisitions;





·
            lower labor and development
      costs; and





·
            broader global distribution and
      presence.





If we are
unable to compete effectively or we are not as successful as our competitors in
our target markets, our sales could decline, our margins could decline and we
could lose market share, any of which would materially harm our business,
operating results and financial condition.




Failure
to renew our existing brand and content licenses on favorable terms or at all
and to obtain additional licenses would impair our ability to introduce new
products and services or to continue to offer our products and services based on
third-party content.




Revenues
are derived from our products and services based on or incorporating brands or
other intellectual property licensed from third parties. Any of our licensors
could decide not to renew our existing license or not to license additional
intellectual property and instead license to our competitors or develop and
publish its own products or other applications, competing with us in the
marketplace. Several of these licensors already provide intellectual property
for other platforms, and may have significant experience and development
resources available to them should they decide to compete with us rather than
license to us.




We have
both exclusive and non-exclusive licenses and both licenses that are global and
licenses that are limited to specific geographies. Our licenses generally have
terms that range from two to five years. We may be unable to renew these
licenses or to renew them on terms favorable to us, and we may be unable to
secure alternatives in a timely manner. Failure to maintain or renew our
existing licenses or to obtain additional licenses would impair our ability to
introduce new products and services or to continue to offer our current products
or services, which would materially harm our business, operating results and
financial condition. Some of our existing licenses impose, and licenses that we
obtain in the future might impose, development, distribution and marketing
obligations on us. If we breach our obligations, our licensors might have the
right to terminate the license which would harm our business, operating results
and financial condition.




Even if
we are successful in gaining new licenses or extending existing licenses, we may
fail to anticipate the entertainment preferences of our end users when making
choices about which brands or other content to license. If the entertainment
preferences of end users shift to content or brands owned or developed by
companies with which we do not have relationships, we may be unable to establish
and maintain successful relationships with these developers and owners, which
would materially harm our business, operating results and financial condition.
In addition, some rights are licensed from licensors that have or may develop
financial difficulties, and may enter into bankruptcy protection under U.S.
federal law or the laws of other countries. If any of our licensors files for
bankruptcy, our licenses might be impaired or voided, which could materially
harm our business, operating results and financial condition.




We
currently rely on wireless carriers to market and distributes some of our
products and services and thus to generate some of our revenues. The loss of or
a change in any of these significant carrier relationships could cause us to
lose access to their subscribers and thus materially reduce our revenues.




The
future success of our “on-deck” business is highly dependent upon maintaining
successful relationships with the wireless carriers with which we currently work
and establishing new carrier relationships in geographies where we have not yet
established a significant presence. A significant portion of our revenue is
derived from a very limited number of carriers. We expect that we will continue
to generate a substantial portion of our revenues through distribution
relationships with a limited number of carriers for the foreseeable future. Our
failure to maintain our relationships with these carriers would materially
reduce our revenues and thus harm our business, operating results and financial
condition.





We have
both exclusive and non-exclusive carrier agreements. Typically, carrier
agreements have a term of one or two years with automatic renewal provisions
upon expiration of the initial term, absent a contrary notice from either party.
In addition, some carrier agreements provide that the carrier can terminate the
agreement early and, in some instances, at any time without cause, which could
give them the ability to renegotiate economic or other terms. The agreements
generally do not obligate the carriers to market or distribute any of our
products or services. In many of these agreements, we warrant that our products
do not violate community standards, do not contain libelous content, do not
contain material defects or viruses, and do not violate third-party intellectual
property rights and we indemnify the carrier for any breach of a third party’s
intellectual property. In addition, many of our agreements allow the carrier to
set the retail price without adjustment to the negotiated revenue split. If one
of these carriers sets the retail price below historic pricing models, the total
revenues received from these carriers will be significantly
reduced.




Many
other factors outside our control could impair our ability to generate revenues
through a given carrier, including the following:




·
            the carrier’s preference for our
      competitors’ products and services rather than
  ours;


10





·
            the carrier’s decision not to
      include or highlight our products and services on the deck of its mobile
      handsets;





·
            the carrier’s decision to
      discontinue the sale of some or all of products and
      services;





·
            the carrier’s decision to offer
      similar products and services to its subscribers without charge or at
      reduced prices;





·
            the carrier’s decision to require
      market development funds from publishers like
  us;





·
            the carrier’s decision to
      restrict or alter subscription or other terms for downloading our products
      and services;





·
            a failure of the carrier’s
      merchandising, provisioning or billing
  systems;





·
            the carrier’s decision to offer
      its own competing products and
services;





·
            the carrier’s decision to
      transition to different platforms and revenue models;
      and





·
            consolidation among
      carriers.





If any of
our carriers decides not to market or distribute our products and services or
decides to terminate, not renew or modify the terms of its agreement with us or
if there is consolidation among carriers generally, we may be unable to replace
the affected agreement with acceptable alternatives, causing us to lose access
to that carrier’s subscribers and the revenues they afford us, which could
materially harm our business, operating results and financial
condition.




End
user tastes are continually changing and are often unpredictable; if we fail to
develop and publish new products and services that achieve market acceptance,
our sales would suffer.




Our
business depends on developing and publishing new products and services that
wireless carriers distribute and end users will buy. We must continue to invest
significant resources in licensing efforts, research and development, marketing
and regional expansion to enhance our offering of new products and services, and
we must make decisions about these matters well in advance of product release in
order to implement them in a timely manner. Our success depends, in part, on
unpredictable and volatile factors beyond our control, including end-user
preferences, competing products and services and the availability of other
entertainment activities. If our products and services are not responsive to the
requirements of our carriers or the entertainment preferences of end users, are
not marketed effectively through our direct-to-consumer operations, or they are
not brought to market in a timely and effective manner, our business, operating
results and financial condition would be harmed. Even if our products and
services are successfully introduced, marketed effectively and initially
adopted, a subsequent shift in our carriers, the entertainment preferences of
end users, or our relationship with third-party billing aggregators could cause
a decline in the popularity of, or access to, our offerings could materially
reduce our revenues and harm our business, operating results and financial
condition.




Inferior
on-deck placement would likely adversely impact our revenues and thus our
operating results and financial condition.




Wireless
carriers provide a limited selection of products that are accessible to their
subscribers through a deck on their mobile handsets. The inherent limitation on
the volume of products available on the deck is a function of the limited screen
size of handsets and carriers’ perceptions of the depth of menus and numbers of
choices end users will generally utilize. Carriers typically provide one or more
top level menus highlighting products that are recent top sellers or are of
particular interest to the subscriber, that the carrier believes will become top
sellers or that the carrier otherwise chooses to feature, in addition to a link
to a menu of additional products sorted by genre. We believe that deck placement
on the top level or featured menu or toward the top of genre-specific or other
menus, rather than lower down or in sub-menus, is likely to result in products
achieving a greater degree of commercial success. If carriers choose to give our
products less favorable deck placement, our products may be less successful than
we anticipate, our revenues may decline and our business, operating results and
financial condition may be materially harmed.




If
we are unsuccessful in establishing and increasing awareness of our brand and
recognition of our products and services or if we incur excessive expenses
promoting and maintaining our brand or our products and services, our potential
revenues could be limited, our costs could increase and our operating results
and financial condition could be harmed.





We believe that establishing and maintaining our brand is
critical to retaining and expanding our existing relationships with wireless
carriers and content licensors, as well as developing new relationships.
Promotion of the Company’s brands will depend on our success in providing
high-quality products and services. Similarly, recognition of our products and
services by end users will depend on our ability to develop engaging products
and quality services to maintain existing, and attract new, business
relationships and end users. However, our success will also depend, in part, on
the services and efforts of third parties, over which we have little or no
control. For instance, if our carriers fail to provide high levels of service,
our end users’ ability to access our products and services may be interrupted,
which may adversely affect our brand. If end users, branded content owners and
carriers do not perceive our offerings as high-quality or if we introduce new
products and services that are not favorably received by our end users and
carriers, then we may be unsuccessful in building brand recognition and brand
loyalty in the marketplace. In addition, globalizing and extending our brand and
recognition of our products and services will be costly and will involve
extensive management time to execute successfully. Further, the markets in which
we operate are highly competitive and some of our competitors already have
substantially more brand name recognition and greater marketing resources than
we do. If we fail to increase brand awareness and consumer recognition of our
products and services, our potential revenues could be limited, our costs could
increase and our business, operating results and financial condition could
suffer.


11





We
currently rely on the current state of the law in certain territories where we
operate our “off-deck” direct-to-consumer business and any adverse change in
such laws may significantly adversely impact our revenues and thus our operating
results and financial condition.




Decisions
that regulators or governing bodies make with regard to the provision and
marketing of mobile content and/or billing can have a significant impact on the
revenues generated in that market. Although most of our markets are mature with
regulation clearly defined and implemented, there remains the potential for
regulatory changes that would have adverse consequences on the business and
subsequently  our revenue.





If
we are unsuccessful in expanding the distribution of our “off-deck”
direct-to-consumer products and services, our potential revenues could be
limited and our operating results and financial condition could be
harmed.




As mature
markets tend to flatten, they can deliver more challenging levels of margin
growth. This is especially the case where regulation is introduced (despite the
fact that the sector is still young). To compensate for such trends, the Company
will continue to make its products and services available in new geographic
markets and target launches in markets that it believes are best suited for its
direct-to-consumer business.





We
currently rely on third-party billing aggregators to provide end-users with
access to some of our products and services through premium short message system
(Premium SMS) technologies. The loss of, or a change in, any of these
significant third-party relationships or the use of Premium SMS technologies
could reduce the number of transactions initiated by these end-users and thus
materially reduce our revenues.




Our
off-deck business is dependent upon billing aggregators that use premium short
message system (Premium SMS) technologies to deliver and bill for our products
and services. If we were to lose one or more of these relationships, or if there
is a material change or limitation in the use of Premium SMS technologies, we
would experience a significant reduction in the number of transactions initiated
by end-users and thus material reduction in our revenues.





We
rely on our current understanding of regional regulatory requirements pertaining
to the marketing, advertising and promotion of our “off-deck” direct-
to-consumer products and services and any adverse change in such regulations, or
a finding that we did not properly understand such regulations, may
significantly impact our ability to market, advertise and promote our products
and services thereby adversely impact our revenues and thus our operating
results and financial condition.




Our
off-deck business relies extensively on marketing, advertising and promoting its
products and services requiring it to have an understanding of the local laws
and regulations governing its business.  In the event that we have
relied on inaccurate information or advice, and engage in marketing, advertising
or promotional activities that are not permitted, we may be subject to
penalties, restricted from engaging in further activities or altogether
prohibited from offering our products and services in a particular territory,
all or any of which will adversely impact our revenues and thus our operating
results and financial condition





Our business and
growth may suffer if we are unable to hire and retain key personnel, who are in
high demand.





We depend
on the continued contributions of our domestic and international senior
management and other key personnel. The loss of the services of any of our
executive officers or other key employees could harm our business. All of our
executive officers and key employees are under short term employment agreements
which means, that their future employment with the Company is uncertain. We do
maintain a key-person life insurance policy on some of our officers or other
employees, but the continuation of such insurance coverage is
uncertain.




Our
future success also depends on our ability to identify, attract and retain
highly skilled technical, managerial, finance, marketing and creative personnel.
We face intense competition for qualified individuals from numerous technology,
marketing and mobile entertainment companies. In addition, competition for
qualified personnel is particularly intense in the Los Angeles area, where our
headquarters are located. Further, we conduct principal overseas operations in
Germany, an area that, similar to our headquarters region, has a high cost of
living and consequently high compensation standards and/or intense demand for
qualified individuals which may require us to incur significant costs to attract
them. We may be unable to attract and retain suitably qualified individuals who
are capable of meeting our growing creative, operational and managerial
requirements, or may be required to pay increased compensation in order to do
so. If we are unable to attract and retain the qualified personnel we need to
succeed, our business would suffer.


12





Volatility
or lack of performance in our stock price may also affect our ability to attract
and retain our key employees. Many of our senior management personnel and other
key employees have become, or will soon become, vested in a substantial amount
of stock or stock options. Employees may be more likely to leave us if the
shares they own or the shares underlying their options have significantly
appreciated in value relative to the original purchase prices of the shares or
the exercise prices of the options, or if the exercise prices of the options
that they hold are significantly above the market price of our common stock. If
we are unable to retain our employees, our business, operating results and
financial condition would be harmed.




Growth
may place significant demands on our management and our
infrastructure.




We
operate in an emerging market and have experienced, and may continue to
experience, growth in our business through internal growth and acquisitions.
This growth has placed, and may continue to place, significant demands on our
management and our operational and financial infrastructure. Continued growth
could strain our ability to:




·
            develop and improve our
      operational, financial and management
  controls;





·
            enhance our reporting systems and
      procedures;





·
            recruit, train and retain highly
      skilled personnel;





·
            maintain our quality standards;
      and





·
            maintain branded content owner,
      wireless carrier and end-user
  satisfaction.





Managing
our growth will require significant expenditures and allocation of valuable
management resources. If we fail to achieve the necessary level of efficiency in
our organization as it grows, our business, operating results and financial
condition would be harmed.




The
acquisition of other companies, businesses or technologies could result in
operating difficulties, dilution and other harmful consequences.




We have
made acquisitions and, although we have no present understandings, commitments
or agreements to do so, we may pursue further acquisitions, any of which could
be material to our business, operating results and financial condition. Future
acquisitions could divert management’s time and focus from operating our
business. In addition, integrating an acquired company, business or technology
is risky and may result in unforeseen operating difficulties and expenditures.
We may also raise additional capital for the acquisition of, or investment in,
companies, technologies, products or assets that complement our business. Future
acquisitions or dispositions could result in potentially dilutive issuances of
our equity securities, including our common stock, or the incurrence of debt,
contingent liabilities, amortization expenses or acquired in-process research
and development expenses, any of which could harm our financial condition and
operating results. Future acquisitions may also require us to obtain additional
financing, which may not be available on favorable terms or at all.




International
acquisitions involve risks related to integration of operations across different
cultures and languages, currency risks and the particular economic, political
and regulatory risks associated with specific countries.




Some or
all of these issues may result from our acquisition of the Germany based mobile
games development and publishing company Charismatix Ltd & Co KG (now known
as Twistbox Games Ltd & Co KG) in May 2006 and the U.S. based mobile games
studio from Infospace, Inc. in January 2007. If the anticipated benefits of
these or future acquisitions do not materialize, we experience difficulties
integrating Twistbox Games, the games studio or businesses acquired in the
future, or other unanticipated problems arise, our business, operating results
and financial condition may be harmed.




In
addition, a significant portion of the purchase price of companies we acquire
may be allocated to acquired goodwill and other intangible assets, which must be
assessed for impairment at least annually. In the future, if our acquisitions do
not yield expected returns, we may be required to take charges to our earnings
based on this impairment assessment process, which could harm our operating
results.




The
effects of the recession in the United States and general downturn in the global
economy, including financial market disruptions, could have an adverse impact on
our business, operating results or financial condition.




Our
operating results also may be affected by uncertain or changing economic
conditions such as the challenges that are currently affecting economic
conditions in the United States. If global economic and market conditions, or
economic conditions in the United States or other key markets, remain uncertain
or persist, spread, or deteriorate further, we may experience material impacts
on our business, operating results, and financial condition in a number of ways
including negatively affecting our profitability and causing our stock price to
decline.


13





We face added business, political, regulatory, operational,
financial and economic risks as a result of our international operations and
distribution, any of which could increase our costs and hinder our growth.




We expect
international sales to continue to be an important component of our revenues.
Risks affecting our international operations include:




·
            challenges caused by distance,
      language and cultural
differences;





·
            multiple and conflicting laws and
      regulations, including complications due to unexpected changes in these
      laws and regulations;





·
            the burdens of complying with a
      wide variety of foreign laws and
  regulations;





·
            higher costs associated with
      doing business
internationally;





·
            difficulties in staffing and
      managing international
operations;





·
            greater fluctuations in sales to
      end users and through carriers in developing countries, including longer
      payment cycles and greater difficulty collecting accounts
      receivable;





·
            protectionist laws and business
      practices that favor local businesses in some
      countries;





·
            foreign tax
      consequences;




·
            foreign exchange controls that
      might prevent us from repatriating income earned in countries outside the
      United States;





·
            price
      controls;





·
            the servicing of regions by many
      different carriers;





·
            imposition of public sector
      controls;





·
            political, economic and social
      instability, including relating to the current European sovereign debt
      crisis;





·
            restrictions on the export or
      import of technology;





·
            trade and tariff
      restrictions;





·
            variations in tariffs, quotas,
      taxes and other market barriers;
and





·
            difficulties in enforcing
      intellectual property rights in countries other than the United
      States.




In
addition, developing user interfaces that are compatible with other languages or
cultures can be expensive. As a result, our ongoing international expansion
efforts may be more costly than we expect. Further, expansion into developing
countries subjects us to the effects of regional instability, civil unrest and
hostilities, and could adversely affect us by disrupting communications and
making travel more difficult. These risks could harm our international expansion
efforts, which, in turn, could materially and adversely affect our business,
operating results and financial condition.




If
we fail to deliver our products and services at the same time as new mobile
handset models are commercially introduced, our sales may suffer.




Our
business is dependent, in part, on the commercial introduction of new handset
models with enhanced features, including larger, higher resolution color
screens, improved audio quality, and greater processing power, memory, battery
life and storage. We do not control the timing of these handset launches. Some
new handsets are sold by carriers with certain products or other applications
pre-loaded, and many end users who download our products or use our services do
so after they purchase their new handsets to experience the new features of
those handsets. Some handset manufacturers give us access to their handsets
prior to commercial release. If one or more major handset manufacturers were to
cease to provide us access to new handset models prior to commercial release, we
might be unable to introduce compatible versions of our products and services
for those handsets in coordination with their commercial release, and we might
not be able to make compatible versions for a substantial period following their
commercial release. If, because of launch delays, we miss the opportunity to
sell products and services when new handsets are shipped or our end users
upgrade to a new handset, or if we miss the key holiday selling period, either
because the introduction of a new handset is delayed or we do not deploy our
products and services in time for the holiday selling season, our revenues would
likely decline and our business, operating results and financial condition would
likely suffer.


14





Wireless
carriers generally control the price charged for our products and services and
the billing and collection for sales and could make decisions detrimental to us.




Wireless
carriers generally control the price charged for our products and services
either by approving or establishing the price of the offering charged to their
subscribers. Some of our carrier agreements also restrict our ability to change
prices. In cases where carrier approval is required, approvals may not be
granted in a timely manner or at all. A failure or delay in obtaining these
approvals, the prices established by the carriers for our offerings, or changes
in these prices could adversely affect market acceptance of our offerings.
Similarly, for the significant minority of our carriers, when we make changes to
a pricing plan (the wholesale price and the corresponding suggested retail price
based on our negotiated revenue-sharing arrangement), adjustments to the actual
retail price charged to end users may not be made in a timely manner or at all
(even though our wholesale price was reduced). A failure or delay by these
carriers in adjusting the retail price for our offerings, could adversely affect
sales volume and our revenues for those offerings.




Carriers
and other distributors also control billings and collections for our products
and services, either directly or through third-party service providers. If our
carriers or their third-party service providers cause material inaccuracies when
providing billing and collection services to us, our revenues may be less than
anticipated or may be subject to refund at the discretion of the carrier. This
could harm our business, operating results and financial condition.





We
may be unable to develop and introduce in a timely way new products or services,
and our products and services may have defects, which could harm our brand.




The
planned timing and introduction of new products and services are subject to
risks and uncertainties. Unexpected technical, operational, deployment,
distribution or other problems could delay or prevent the introduction of new
products and services, which could result in a loss of, or delay in, revenues or
damage to our reputation and brand. If any of our products or services is
introduced with defects, errors or failures, we could experience decreased
sales, loss of end users, damage to our carrier relationships and damage to our
reputation and brand. Our attractiveness to branded content licensors might also
be reduced. In addition, new products and services may not achieve sufficient
market acceptance to offset the costs of development, particularly when the
introduction of a product or service is substantially later than a planned
“day-and-date” launch, which could materially harm our business, operating
results and financial condition.




If
we fail to maintain and enhance our capabilities for porting our offerings to a
broad array of mobile handsets, our attractiveness to wireless carriers and
branded content owners will be impaired, and our sales could
suffer.




Once
developed, a product or application may be required to be ported to, or
converted into separate versions for, more than 1,000 different handset models,
many with different technological requirements. These include handsets with
various combinations of underlying technologies, user interfaces, keypad
layouts, screen resolutions, sound capabilities and other carrier-specific
customizations. If we fail to maintain or enhance our porting capabilities, our
sales could suffer, branded content owners might choose not to grant us licenses
and carriers might choose not to give our products and services desirable deck
placement or not to give our products and services placement on their decks at
all.




Changes
to our design and development processes to address new features or functions of
handsets or networks might cause inefficiencies in our porting process or might
result in more labor intensive porting processes. In addition, we anticipate
that in the future we will be required to port existing and new products and
applications to a broader array of handsets. If we utilize more labor intensive
porting processes, our margins could be significantly reduced and it might take
us longer to port our products and applications to an equivalent number of
handsets. This, in turn, could harm our business, operating results and
financial condition.




If
we do not adequately protect our intellectual property rights, it may be
possible for third parties to obtain and improperly use our intellectual
property and our competitive position may be adversely affected.




Our
intellectual property is an essential element of our business. We rely on a
combination of copyright, trademark, trade secret and other intellectual
property laws and restrictions on disclosure to protect our intellectual
property rights. To date, we have not obtained patent protection.
Consequently, we may not be able to protect our technologies from independent
invention by third parties. Despite our efforts to protect our intellectual
property rights, unauthorized parties may attempt to copy or otherwise to obtain
and use our technology and software. Monitoring unauthorized use of our
technology and software is difficult and costly, and we cannot be certain that
the steps we have taken will prevent piracy and other unauthorized distribution
and use of our technology and software, particularly internationally where the
laws may not protect our intellectual property rights as fully as in the United
States. In the future, we may have to resort to litigation to enforce our
intellectual property rights, which could result in substantial costs and
diversion of our management and resources.


15





In
addition, although we require third parties to sign agreements not to disclose
or improperly use our intellectual property, it may still be possible for third
parties to obtain and improperly use our intellectual properties without our
consent. This could harm our business, operating results and financial
condition.





Third parties may sue us for intellectual property infringement,
which, if successful, may disrupt our business and could require us to pay
significant damage awards.




Third
parties may sue us for intellectual property infringement or initiate
proceedings to invalidate our intellectual property, either of which, if
successful, could disrupt the conduct of our business, cause us to pay
significant damage awards or require us to pay licensing fees. In the event of a
successful claim against us, we might be enjoined from using our licensed
intellectual property, we might incur significant licensing fees and we might be
forced to develop alternative technologies. Our failure or inability to develop
non-infringing technology or software or to license the infringed or similar
technology or software on a timely basis could force us to withdraw products and
services from the market or prevent us from introducing new products and
services. In addition, even if we are able to license the infringed or similar
technology or software, license fees could be substantial and the terms of these
licenses could be burdensome, which might adversely affect our operating
results. We might also incur substantial expenses in defending against
third-party infringement claims, regardless of their merit. Successful
infringement or licensing claims against us might result in substantial monetary
liabilities and might materially disrupt the conduct of our
business.




Indemnity
provisions in various agreements potentially expose us to substantial liability
for intellectual property infringement, damages caused by malicious software and
other losses.




In the
ordinary course of our business, most of our agreements with carriers and other
distributors include indemnification provisions. In these provisions, we agree
to indemnify them for losses suffered or incurred in connection with our
products and services, including as a result of intellectual property
infringement and damages caused by viruses, worms and other malicious software.
The term of these indemnity provisions is generally perpetual after execution of
the corresponding license agreement, and the maximum potential amount of future
payments we could be required to make under these indemnification provisions is
generally unlimited. Large future indemnity payments could harm our business,
operating results and financial condition.




As
a result of a majority of our revenues from on-deck distribution channels
currently being derived from a limited number of wireless carriers, if any one
of these carriers were unable to fulfill its payment obligations, our financial
condition and results of operations would suffer.




If any of
our primary carriers is unable to fulfill its payment obligations to us under
our carrier agreements with them, our revenues attributable to on-deck
distribution could decline significantly and our financial condition will be
harmed.




We
may need to raise additional capital to grow our business, and we may not be
able to raise capital on terms acceptable to us or at all.




The
operation of our business and our efforts to grow our business will further
require significant cash outlays and commitments. If our cash, cash equivalents
and short-term investments balances and any cash generated from operations are
not sufficient to meet our cash requirements, we will need to seek additional
capital, potentially through debt or equity financings, to fund our growth. We
may not be able to raise needed cash on terms acceptable to us or at all.
Financings, if available, may be on terms that are dilutive or potentially
dilutive to our stockholders, and the prices at which new investors would be
willing to purchase our securities may be lower than the fair market value of
our common stock. The holders of new securities may also receive rights,
preferences or privileges that are senior to those of existing holders of our
common stock. If new sources of financing are required but are insufficient or
unavailable, we would be required to modify our growth and operating plans to
the extent of available funding, which would harm our ability to grow our
business.




We
face risks associated with currency exchange rate fluctuations.




We
currently transact a significant portion of our revenues in foreign currencies.
Conducting business in currencies other than U.S. Dollars subjects us to
fluctuations in currency exchange rates that could have a negative impact on our
reported operating results. Fluctuations in the value of the U.S. Dollar
relative to other currencies impact our revenues, cost of revenues and operating
margins and result in foreign currency transaction gains and losses. To date, we
have not engaged in exchange rate hedging activities. Even if we were to
implement hedging strategies to mitigate this risk, these strategies might not
eliminate our exposure to foreign exchange rate fluctuations and would involve
costs and risks of their own, such as ongoing management time and expertise,
external costs to implement the strategies and potential accounting
implications.


16





Our
business in countries with a history of corruption and transactions with foreign
governments, including with government owned or controlled wireless carriers,
increase the risks associated with our international activities.




As we
operate and sell internationally, we are subject to the U.S. Foreign Corrupt
Practices Act, or the FCPA, and other laws that prohibit improper payments or
offers of payments to foreign governments and their officials and political
parties by the United States and other business entities for the purpose of
obtaining or retaining business. We have operations, deal with carriers and make
sales in countries known to experience corruption, particularly certain emerging
countries in Eastern Europe and Latin America, and further international
expansion may involve more of these countries. Our activities in these countries
create the risk of unauthorized payments or offers of payments by one of our
employees, consultants, sales agents or distributors that could be in violation
of various laws including the FCPA, even though these parties are not always
subject to our control. We have attempted to implement safeguards to discourage
these practices by our employees, consultants, sales agents and distributors.
However, our existing safeguards and any future improvements may prove to be
less than effective, and our employees, consultants, sales agents or
distributors may engage in conduct for which we might be held responsible.
Violations of the FCPA may result in severe criminal or civil sanctions, and we
may be subject to other liabilities, which could negatively affect our business,
operating results and financial condition.





Changes to financial accounting standards could make it more
expensive to issue stock options to employees, which would increase compensation
costs and might cause us to change our business practices.




We
prepare our financial statements to conform with accounting principles generally
accepted in the United States. These accounting principles are subject to
interpretation by the Financial Accounting Standards Board, or FASB, the
Securities and Exchange Commission (“SEC” or the “Commission”) and various other
bodies. A change in those principles could have a significant effect on our
reported results and might affect our reporting of transactions completed before
a change is announced. For example, we have used stock options as a fundamental
component of our employee compensation packages. We believe that stock options
directly motivate our employees to maximize long-term stockholder value and,
through the use of vesting, encourage employees to remain in our employ. Several
regulatory agencies and entities have made regulatory changes that could make it
more difficult or expensive for us to grant stock options to employees. We may,
as a result of these changes, incur increased compensation costs, change our
equity compensation strategy or find it difficult to attract, retain and
motivate employees, any of which could materially and adversely affect our
business, operating results and financial condition.




We
may be liable for the content we make available through our products and
services with mature themes.




Because
some of our products and services contain content with mature themes, we may be
subject to obscenity or other legal claims by third parties. Our business,
financial condition and operating results could be harmed if we were found
liable for this content. Implementing measures to reduce our exposure to this
liability may require us to take steps that would substantially limit the
attractiveness of our products and services and/or its availability in various
geographic areas, which would negatively impact our ability to generate revenue.
Furthermore, our insurance may not adequately protect us against all of these
types of claims.




Government
regulation of our content with mature themes could restrict our ability to make
some of our content available in certain jurisdictions.




Our
business is regulated by governmental authorities in the countries in which we
operate. Because of our international operations, we must comply with diverse
and evolving regulations. The governments of some countries have sought to limit
the influence of other cultures by restricting the distribution of products
deemed to represent foreign or “immoral” influences. Regulation aimed at
limiting minors’ access to content with mature themes could also increase our
cost of operations and introduce technological challenges, such as by requiring
development and implementation of age verification systems. As a result,
government regulation of our adult content could have a material adverse effect
on our business, financial condition or results of operations.





Government
regulation of our marketing methods could restrict our ability to adequately
advertise and promote our content and services available in certain
jurisdictions.




Our
business is regulated by governmental authorities in the countries in which we
operate. Because of our international operations, we must comply with diverse
and evolving regulations. The governments of some countries have sought to
regulate the methods and manner in which certain of our products and services
may be marketed to potential end-users.  Regulation aimed at
prohibiting, limiting or restricting various forms of advertising and promotion
we use to market our products and services could also increase our cost of
operations or preclude the ability to offer our products and services
altogether. As a result, government regulation of our marketing efforts could
have a material adverse effect on our business, financial condition or results
of operations.




Negative
publicity, lawsuits or boycotts by opponents of content with mature themes could
adversely affect our operating performance and discourage investors from
investing in our publicly traded securities.




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


17





Risks
Relating to Our Industry




Wireless
communications technologies are changing rapidly, and we may not be successful
in working with these new technologies.




Wireless
network and mobile handset technologies are undergoing rapid innovation. New
handsets with more advanced processors and supporting advanced programming
languages continue to be introduced. In addition, networks that enable enhanced
features are being developed and deployed. We have no control over the demand
for, or success of, these products or technologies. If we fail to anticipate and
adapt to these and other technological changes, the available channels for our
products and services may be limited and our market share and our operating
results may suffer. Our future success will depend on our ability to adapt to
rapidly changing technologies and develop products and services to accommodate
evolving industry standards with improved performance and reliability. In
addition, the widespread adoption of networking or telecommunications
technologies or other technological changes could require substantial
expenditures to modify or adapt our products and services.




Technology
changes in the wireless industry require us to anticipate, sometimes years in
advance, which technologies we must implement and take advantage of in order to
make our products and services, and other mobile entertainment products,
competitive in the market. Therefore, we usually start our product development
with a range of technical development goals that we hope to be able to achieve.
We may not be able to achieve these goals, or our competition may be able to
achieve them more quickly and effectively than we can. In either case, our
products and services may be technologically inferior to those of our
competitors, less appealing to end users, or both. If we cannot achieve our
technology goals within our original development schedule, then we may delay
their release until these technology goals can be achieved, which may delay or
reduce our revenues, increase our development expenses and harm our reputation.
Alternatively, we may increase the resources employed in research and
development in an attempt either to preserve our product launch schedule or to
keep up with our competition, which would increase our development expenses. In
either case, our business, operating results and financial condition could be
materially harmed.




The
complexity of and incompatibilities among mobile handsets may require us to use
additional resources for the development of our products and services.




To reach
large numbers of wireless subscribers, mobile entertainment publishers like us
must support numerous mobile handsets and technologies. However, keeping pace
with the rapid innovation of handset technologies together with the continuous
introduction of new, and often incompatible, handset models by wireless carriers
requires us to make significant investments in research and development,
including personnel, technologies and equipment. In the future, we may be
required to make substantial investments in our development if the number of
different types of handset models continues to proliferate. In addition, as more
advanced handsets are introduced that enable more complex, feature rich products
and services, we anticipate that our development costs will increase, which
could increase the risks associated with one or more of our products or services
and could materially harm our operating results and financial
condition.




If
wireless subscribers do not continue to use their mobile handsets to access
mobile entertainment and other applications, our business growth and future
revenues may be adversely affected.




We
operate in a developing industry. Our success depends on growth in the number of
wireless subscribers who use their handsets to access data services and, in
particular, entertainment applications of the type we develop and distribute.
New or different mobile entertainment applications developed by our current or
future competitors may be preferred by subscribers to our offerings. In
addition, other mobile platforms may become widespread, and end users may choose
to switch to these platforms. If the market for our products and services does
not continue to grow or we are unable to acquire new end users, our business
growth and future revenues could be adversely affected. If end users switch
their entertainment spending away from the kinds of offerings that we publish,
or switch to platforms or distribution where we do not have comparative
strengths, our revenues would likely decline and our business, operating results
and financial condition would suffer.




Our
industry is subject to risks generally associated with the entertainment
industry, any of which could significantly harm our operating
results.




Our
business is subject to risks that are generally associated with the
entertainment industry, many of which are beyond our control. These risks could
negatively impact our operating results and include: the popularity, price and
timing of release of our offerings and mobile handsets on which they are
accessed; economic conditions that adversely affect discretionary consumer
spending; changes in consumer demographics; the availability and popularity of
other forms of entertainment; and critical reviews and public tastes and
preferences, which may change rapidly and cannot necessarily be
predicted.





A
shift of technology platform by wireless carriers and mobile handset
manufacturers could lengthen the development period for our offerings, increase
our costs and cause our offerings to be of lower quality or to be published
later than anticipated.




Mobile
handsets require multimedia capabilities enabled by technologies capable of
running applications such as ours. Our development resources are concentrated in
today’s most popular platforms, and we have experience developing applications
for these platforms. If one or more of these technologies fall out of favor with
handset manufacturers and wireless carriers and there is a rapid shift to a new
technology where we do not have development experience or resources, the
development period for our products and services may be lengthened, increasing
our costs, and the resulting products and services may be of lower quality, and
may be published later than anticipated. In such an event, our reputation,
business, operating results and financial condition might
suffer.


18





System or network failures could reduce our sales, increase costs
or result in a loss of end users of our products and services.




Mobile
publishers rely on wireless carriers’ networks to deliver products and services
to end users and on their or other third parties’ billing systems to track and
account for the downloading of such offerings. In certain circumstances, mobile
publishers may also rely on their own servers to deliver products on demand to
end users through their carriers’ networks. In addition, certain
products require access over the mobile internet to our servers in order to
enable certain features. Any failure of, or technical problem with, carriers’,
third parties’ or our billing systems, delivery systems, information systems or
communications networks could result in the inability of end users to download
our products, prevent the completion of a billing transaction, or interfere with
access to some aspects of our products. If any of these systems fail or if there
is an interruption in the supply of power, an earthquake, fire, flood or other
natural disaster, or an act of war or terrorism, end users might be unable to
access our offerings. For example, from time to time, our carriers have
experienced failures with their billing and delivery systems and communication
networks, including gateway failures that reduced the provisioning capacity of
their branded e-commerce system. Any failure of, or technical problem with, the
carriers’, other third parties’ or our systems could cause us to lose end users
or revenues or incur substantial repair costs and distract management from
operating our business. This, in turn, could harm our business, operating
results and financial condition.




Our
business depends on the growth and maintenance of wireless communications
infrastructure.




Our
success will depend on the continued growth and maintenance of wireless
communications infrastructure in the United States and internationally. This
includes deployment and maintenance of reliable next-generation digital networks
with the speed, data capacity and security necessary to provide reliable
wireless communications services. Wireless communications infrastructure may be
unable to support the demands placed on it if the number of subscribers
continues to increase, or if existing or future subscribers increase their
bandwidth requirements. Wireless communications have experienced a variety of
outages and other delays as a result of infrastructure and equipment failures,
and could face outages and delays in the future. These outages and delays could
reduce the level of wireless communications usage as well as our ability to
distribute our products and services successfully. In addition, changes by a
wireless carrier to network infrastructure may interfere with downloads and may
cause end users to lose functionality. This could harm our business, operating
results and financial condition.




Future
mobile handsets may significantly reduce or eliminate wireless carriers’ control
over delivery of our products and services and force us to rely further on
alternative sales channels, which, if not successful, could require us to
increase our sales and marketing expenses significantly.




A growing
number of handset models currently available allow wireless subscribers to
browse the internet and, in some cases, download applications from sources other
than through a carrier’s on-deck portal. In addition, the development of other
application delivery mechanisms such as premium-SMS may enable subscribers to
download applications without having to access a carrier’s on-deck portal.
Increased use by subscribers of open operating system handsets or premium-SMS
delivery systems will enable them to bypass the carriers’ on-deck portal and
could reduce the market power of carriers. This could force us to rely further
on alternative sales channels and could require us to increase our sales and
marketing expenses significantly. Relying on placement of our products and
services in the menus of off-deck distributors may result in lower revenues than
might otherwise be anticipated. We may be unable to develop and promote our
direct website distribution sufficiently to overcome the limitations and
disadvantages of off-deck distribution channels. This could harm our business,
operating results and financial condition





Actual
or perceived security vulnerabilities in mobile handsets or wireless networks
could adversely affect our revenues.




Maintaining
the security of mobile handsets and wireless networks is critical for our
business. There are individuals and groups who develop and deploy viruses, worms
and other illicit code or malicious software programs that may attack wireless
networks and handsets. Security experts have identified computer “worm” programs
that target handsets running on certain operating systems. Although these worms
have not been widely released and do not present an immediate risk to our
business, we believe future threats could lead some end users to seek to reduce
or delay future purchases of our products or reduce or delay the use of their
handsets. Wireless carriers and handset manufacturers may also increase their
expenditures on protecting their wireless networks and mobile phone products
from attack, which could delay adoption of new handset models. Any of these
activities could adversely affect our revenues and this could harm our business,
operating results and financial condition.




Changes
in government regulation of the media and wireless communications industries may
adversely affect our business.




It is
possible that a number of laws and regulations may be adopted in the United
States and elsewhere that could restrict the media and wireless communications
industries, including laws and regulations regarding customer privacy, taxation,
content suitability, copyright, distribution and antitrust. Furthermore, the
growth and development of the market for electronic commerce may prompt calls
for more stringent consumer protection laws that may impose additional burdens
on companies such as ours conducting business through wireless carriers. We
anticipate that regulation of our industry will increase and that we will be
required to devote legal and other resources to address this regulation. Changes
in current laws or regulations or the imposition of new laws and regulations in
the United States or elsewhere regarding the media and wireless communications
industries may lessen the growth of wireless communications services and may
materially reduce our ability to increase or maintain sales of our products and
services.


19





A number
of studies have examined the health effects of mobile phone use, and the results
of some of the studies have been interpreted as evidence that mobile phone use
causes adverse health effects. The establishment of a link between the use of
mobile phone services and health problems, or any media reports suggesting such
a link, could increase government regulation of, and reduce demand for, mobile
phones and, accordingly, the demand for our products and services, and this
could harm our business, operating results and financial condition.





Risks Relating to Our Common Stock




There
is a limited trading market for our common stock.




Although
prices for our shares of common stock are quoted on the OTC Bulletin Board
(under the symbol MNDL.OB), there is no established public trading market for
our common stock, and no assurance can be given that a public trading market
will develop or, if developed, that it will be sustained.




The
liquidity of our common stock will be affected by its limited trading
market.




Bid and
ask prices for shares of our common stock are quoted on the OTC Bulletin Board
under the symbol MNDL.OB. There is currently no broadly followed, established
trading market for our common stock. While we are hopeful that we will command
the interest of a greater number of investors, an established trading market for
our shares of common stock may never develop or be maintained. Active trading
markets generally result in lower price volatility and more efficient execution
of buy and sell orders. The absence of an active trading market reduces the
liquidity of our common stock. As a result of the lack of trading activity, the
quoted price for our common stock on the OTC Bulletin Board is not necessarily a
reliable indicator of its fair market value. Further, if we cease to be quoted,
holders of our common stock would find it more difficult to dispose of, or to
obtain accurate quotations as to the market value of, our common stock, and the
market value of our common stock would likely decline.




If
and when a trading market for our common stock develops, the market price of our
common stock is likely to be highly volatile and subject to wide fluctuations,
and you may be unable to resell your shares at or above the current
price.




The
market price of our common stock is likely to be highly volatile and could be
subject to wide fluctuations in response to a number of factors that are beyond
our control, including announcements of new products or services by our
competitors. In addition, the market price of our common stock could be subject
to wide fluctuations in response to a variety of factors,
including:





·
            quarterly variations in our
      revenues and operating
expenses;





·
            developments in the financial
      markets, and the worldwide or regional
  economies;





·
            announcements of innovations or
      new products or services by us or our
  competitors;





·
            fluctuations in merchant credit
      card interest rates;





·
            significant sales of our common
      stock or other securities in the open market;
  and





·
            changes in accounting
      principles.





In the
past, stockholders have often instituted securities class action litigation
after periods of volatility in the market price of a company’s securities. If a
stockholder were to file any such class action suit against us, we would incur
substantial legal fees and our management’s attention and resources would be
diverted from operating our business to respond to the litigation, which could
harm our business.




The
sale of securities by us in any equity or debt financing could result in
dilution to our existing stockholders and have a material adverse effect on our
earnings.




Any sale
of common stock by us in a future private placement offering could result in
dilution to the existing stockholders as a direct result of our issuance of
additional shares of our capital stock. In addition, our business strategy may
include expansion through internal growth by acquiring complementary businesses,
acquiring or licensing additional brands, or establishing strategic
relationships with targeted customers and suppliers. In order to do so, or to
finance the cost of our other activities, we may issue additional equity
securities that could dilute our stockholders’ stock ownership. We may also
assume additional debt and incur impairment losses related to goodwill and other
tangible assets if we acquire another company, and this could negatively impact
our earnings and results of operations.


20





If
securities or industry analysts do not publish research or reports about our
business, or if they downgrade their recommendations regarding our common stock,
our stock price and trading volume could decline.




The
trading market for our common stock will be influenced by the research and
reports that industry or securities analysts publish about us or our business.
If any of the analysts who cover us downgrade our common stock, our common stock
price would likely decline. If analysts cease coverage of our Company or fail to
regularly publish reports on us, we could lose visibility in the financial
markets, which in turn could cause our common stock price or trading volume to
decline.




“Penny
stock” rules may restrict the market for our common stock.




Our
common stock is subject to rules promulgated by the SEC relating to “penny
stocks,” which apply to companies whose shares are not traded on a national
stock exchange, trade at less than $5.00 per share, or who do not meet certain
other financial requirements specified by the SEC. These rules require brokers
who sell “penny stocks” to persons other than established customers and
“accredited investors” to complete certain documentation, make suitability
inquiries of investors, and provide investors with certain information
concerning the risks of trading in such penny stocks. These rules may discourage
or restrict the ability of brokers to sell our common stock and may affect the
secondary market for our common stock. These rules could also hamper our ability
to raise funds in the primary market for our common stock .




We
do not anticipate paying dividends.




We have
never paid cash or other dividends on our common stock. Payment of dividends on
our common stock is within the discretion of our Board of Directors and will
depend upon our earnings, our capital requirements and financial condition, and
other factors deemed relevant by our Board of Directors. However, the earliest
our Board of Directors would likely consider a dividend is if we begin to
generate excess cash flow.





Our
officers, directors and principal stockholders can exert significant influence
over us and may make decisions that are not in the best interests of all
stockholders.




Our
officers, directors and principal stockholders (greater than 5% stockholders)
collectively beneficially own approximately 54% of our outstanding common stock.
As a result, this group will be able to affect the outcome of, or exert
significant influence over, all matters requiring stockholder approval,
including the election and removal of directors and any change in control. In
particular, this concentration of ownership of our common stock could have the
effect of delaying or preventing a change of control of us or otherwise
discouraging or preventing a potential acquirer from attempting to obtain
control of us. This, in turn, could have a negative effect on the market price
of our common stock. It could also prevent our stockholders from realizing a
premium over the market prices for their shares of common stock. Moreover, the
interests of this concentration of ownership may not always coincide with our
interests or the interests of other stockholders, and, accordingly, this group
could cause us to enter into transactions or agreements that we would not
otherwise consider.




If we fail to
maintain an effective system of internal controls, we might not be able to
report our financial results accurately or prevent fraud; in that case, our
stockholders could lose confidence in our financial reporting, which could
negatively impact the price of our stock.





Effective
internal controls are necessary for us to provide reliable financial reports and
prevent fraud. In addition, Section 404 of the Sarbanes-Oxley Act of 2002,
or the Sarbanes-Oxley Act, will require us to evaluate and report on our
internal control over financial reporting and have our independent registered
public accounting firm attest to our evaluation beginning with our Annual Report
on Form 10-K for the year ending March 31, 2011. We are in the process of
preparing and implementing an internal plan of action for compliance with
Section 404 and strengthening and testing our system of internal controls.
The process of implementing our internal controls and complying with
Section 404 is expensive and time consuming and requires significant
attention of management. We cannot be certain that these measures will ensure
that we implement and maintain adequate controls over our financial processes
and reporting in the future. Even if we conclude, and our independent registered
public accounting firm concurs, that our internal control over financial
reporting provides reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles, because of its
inherent limitations, internal control over financial reporting may not prevent
or detect fraud or misstatements. Failure to implement required new or improved
controls, or difficulties encountered in their implementation, could harm our
operating results or cause us to fail to meet our reporting obligations. If we
or our independent registered public accounting firm discover a material
weakness or a significant deficiency in our internal control, the disclosure of
that fact, even if quickly remedied, could reduce the market’s confidence in our
financial statements and harm our stock price. In addition, a delay in
compliance with Section 404 could subject us to a variety of administrative
sanctions, including ineligibility for short form resale registration, action by
the SEC, and the inability of registered broker-dealers to make a market in our
common stock, which could further reduce our stock price and harm our
business.


21





Maintaining
and improving our financial controls and the requirements of being a public
company may strain our resources, divert management’s attention and affect our
ability to attract and retain qualified members for our Board of Directors.




As a
public company, we are subject to the reporting requirements of the Exchange Act
and the Sarbanes-Oxley Act. The requirements of these rules and regulations has
resulted in an increase in our legal, accounting and financial compliance costs,
may make some activities more difficult, time-consuming and costly and may place
undue strain on our personnel, systems and resources.




The
Sarbanes-Oxley Act requires, among other things, that we maintain effective
disclosure controls and procedures and internal control over financial
reporting. This can be difficult to do. For example, we depend on the reports of
wireless carriers for information regarding the amount of sales of our products
and services and to determine the amount of royalties we owe branded content
licensors and the amount of our revenues. These reports may not be timely, and
in the past they have contained, and in the future they may contain,
errors.




In order
to maintain and improve the effectiveness of our disclosure controls and
procedures and internal control over financial reporting, we expend significant
resources and provide significant management oversight. We have a substantial
effort ahead of us to implement appropriate processes, document our system of
internal control over relevant processes, assess their design, remediate any
deficiencies identified and test their operation. As a result, management’s
attention may be diverted from other business concerns, which could harm our
business, operating results and financial condition. These efforts will also
involve substantial accounting-related costs.





The
Sarbanes-Oxley Act makes it more difficult and more expensive for us to maintain
directors’ and officers’ liability insurance, and we may be required in the
future  to accept reduced coverage or incur substantially higher costs
to maintain coverage. If we are unable to maintain adequate directors’ and
officers’ insurance, our ability to recruit and retain qualified directors, and
officers will be significantly curtailed.




The
ownership interest of our current stockholders will be substantially diluted if
our outstanding securities convertible and/or exercisable  into shares
of our common stock are converted and/or exercised.




As of
June 21, 2010, we had an aggregate of $2,500,000 of Senior Secured Convertible
Notes due June 21, 2013 convertible into 16,666,666 shares of our common stock,
and warrants to purchase 8,333,333 shares of our common stock. To the extent our
outstanding securities convertible and/or exercisable into shares of our common
stock are converted and/or exercised, additional shares of our common stock will
be issued, which will result in dilution to our stockholders and increase the
number of shares of common stock eligible for resale into the public market.
Sales of such shares of common stock could adversely affect the market price of
our common stock.





ITEM
2. PROPERTIES




The
principal offices of NeuMedia are the offices of Trinad Capital, L.P., located
at 2000 Avenue of the Stars, Suite 410, Los Angeles, California 90067. In March
2007, we entered into a month-to-month lease for such office space with Trinad
Management, LLC (“Trinad Management”) for rent in the amount of $8,500 per
month, which was subsequently amended to $5,000 per month




The
principal offices of our subsidiary Twistbox are headquartered at 14242 Ventura
Boulevard, 3rd Floor, Sherman Oaks, California 91423. On July 1, 2005, The WAAT
Corp. (Twistbox’s predecessor-in-interest) entered into a lease for these
premises with Berkshire Holdings, LLC at a base rent of $21,000 per month. The
term of the lease expires on July 15, 2010, and becomes month-to-month
thereafter. Twistbox
also leases property in Dortmund, Germany and Poland, where it has branch
operations.





ITEM 3. LEGAL PROCEEDINGS





From time
to time, we are subject to various claims, complaints and legal actions in the
normal course of business. Except as set forth below, we do not believe we are
party to any currently pending litigation, the outcome of which will have a
material adverse effect on our operations or financial position. Our failure to
obtain necessary license or other rights, or litigation arising out
of intellectual property claims, could adversely affect our
business.





Twistbox’s
wholly owned subsidiary WAAT Media Corp. (“WAAT”) and General Media
Communications, Inc. (“GMCI”) are parties to a content license
agreement dated May 30, 2006, whereby GMCI granted to WAAT certain
exclusive rights to exploit GMCI branded content via mobile devices.  GMCI
terminated the agreement on January 26, 2009 based on its claim that WAAT
failed to cure a material breach pertaining to the non-payment of a minimum
royalty guarantee installment in the amount of $485,000.  On or about March
16, 2009, GMCI filed a complaint in California Superior Court, LA Superior
Court seeking the balance of the minimum guarantee payments due under the
agreement in the approximate amount of $4,085,000.  WAAT has counter-sued
claiming GMCI is not entitled to the claimed amount and that it has
breached the agreement by, among other things, failing to promote, market and
advertise the mobile services as required under the agreement and by
fraudulently inducing WAAT to enter into the agreement based on GMCI’s
repeated assurances of its intention to reinvigorate its flagship
brand.  Non-binding meditation was held on November 16,
2009.  The parties were not able to settle their
dispute.  The litigation is proceeding and WAAT intends to
vigorously defend against this action.  Principals of both parties continue
to communicate to find a mutually acceptable resolution.


22





ITEM 4. (REMOVED AND RESERVED).


23





PART
II




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




Market
Information




As of
July 8, 2010, the closing price of our common stock was $0.35.




Our
common stock is quoted on the OTC Bulletin Board under the symbol “MNDL.OB.” Any
investor who purchases our common stock is not likely to find any liquid trading
market for our common stock and there can be no assurance that any liquid
trading market will develop.




The
following table reflects the high and low bids for our common stock for periods
indicated. The quotations reflect high and low bid price on a daily basis and
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.




High
                        
                        
                        LowYear
      Ended March 31, 2010First
      quarter
                        
                        $
                        0.91
                        
                        
                        $
                        0.31Second
      quarter
                        
                        $
                        0.60
                        
                        
                        $
                        0.39Third
      quarter
                        
                        $
                        0.55
                        
                        
                        $
                        0.35Fourth
      quarter
                        
                        $
                        0.50
                        
                        
                        $
                        0.30Year
      Ended March 31, 2009First
      quarter
                        
                        $
                        6.00
                        
                        
                        $
                        2.00Second
      quarter
                        
                        $
                        3.00
                        
                        
                        $
                        1.00Third
      quarter
                        
                        $
                        2.39
                        
                        
                        $
                        0.60Fourth
      quarter
                        
                        $
                        1.75
                        
                        
                        $
                        0.50




Holders




As of
July 7, 2010, there were 538 holders of record of our common stock. There were
also an undetermined number of holders who hold their stock in nominee or
“street” name.




Dividends




We have
not declared cash dividends on our common stock since our inception and we do
not anticipate paying any cash dividends in the foreseeable future.




Equity
Compensation Plan Information




The
following table sets forth information concerning our equity compensation plans
as of March 31, 2010.




Plan Category
                  
                  Number of securities to
                    be issued upon exercise
                    of outstanding options,
                    warrants and rights
                    (a)
                  
                  
                  Weighted-average
                    exercise price of
                    outstanding options,
                    warrants and rights
                    (b)
                  
                  
                  Number of securities
                    remaining available for
                    future issuance under
                    equity compensation plans
                    (excluding securities
                    reflected in column (a))
                    (c)Equity
      compensation plans approved by security holders
                  
                  
                  3,000,000
                  
                  
                  $
                  2.49
                  
                  
                  
                  0Equity
      compensation plans not approved by security holders
                  
                  
                  3,187,000
                  
                  
                  $
                  2.49
                  
                  
                  
                  982,000Total
                  
                  
                  6,187,000
                  
                  
                  $
                  2.49
                  
                  
                  
                  813,000





24





Unregistered
Sales of Equity Securities





None.





Issuer Purchases of Equity Securities





Period
                                        
                                        (a)Total Number of
                                          Shares (or Units)
                                          Purchased
                                        
                                        
                                        (b)Average Price Paid
                                          per Share (or Unit)
      ($)
                                        
                                        
                                        (c)
                                          Total Number of
                                          Shares (or Units)
                                          Purchased as Part of
                                          Publicly Announced
                                          Plans or Programs
                                        
                                        
                                        (d)
                                          Maximum Number
                                          (or Approximate
                                          Dollar Value) of
                                          Shares (or Units)
                                          that May Yet Be
                                          Purchased Under
                                          the Plans or
                                          ProgramsJanuary
      1, 2010 -
                                          January
      31, 2010
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -February
      1, 2010 -
                                          February
      28, 2010
                                        
                                        
                                        12,992
                                        
                                        
                                        $
                                        0.40
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -March
      1, 2010 –
                                          March
      31, 2010
                                        
                                        
                                        45,848
                                        
                                        
                                        $
                                        0.40
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -





(1) These
shares were repurchased by the Company in satisfaction of tax liability pursuant
to Rule 16b-3 of the Exchange Act, or were cancelled in connection with an
employee termination




ITEM
6.  SELECTED FINANCIAL DATA





Not
applicable as we are a smaller reporting company.





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





The
following discussion should be read in conjunction with, and is qualified in its
entirety by, the Financial Statements and the Notes thereto included in this
report. This discussion contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Annual Report on Form
10-K, the words “anticipate,” “believe,” “estimate,” “expect” and similar
expressions, as they relate to our management or us, are intended to identify
such forward-looking statements. Our actual results, performance or achievements
could differ materially from those expressed in, or implied by, these
forward-looking statements as a result of a variety of factors including those
set forth under “Risk Factors” beginning on page 8 and elsewhere in this filing.
Historical operating results are not necessarily indicative of the trends in
operating results for any future period.




Unless
the context otherwise indicates, the use of the terms “we,” “our” “us” or the
“Company” refer to the business and operations of NeuMedia, Inc. (“NeuMedia”)
through its operating and wholly-owned subsidiary, Twistbox Entertainment, Inc.
(“Twistbox”).




Historical
Operations of NeuMedia, Inc.




NeuMedia
was originally incorporated in the State of Delaware on November 6, 1998 under
the name eB2B Commerce, Inc. On April 27, 2000, the company merged into
DynamicWeb Enterprises Inc., a New Jersey corporation, and changed its name to
eB2B Commerce, Inc. On April 13, 2005, the company changed its name to
Mediavest, Inc. On November 7, 2007, through a
merger, the Company reincorporated in the State of Delaware under
the name Mandalay Media, Inc.  On May 12, 2010, the company changed
its name to NeuMedia, Inc.




On
October 27, 2004, and as amended on December 17, 2004, NeuMedia filed a plan for
reorganization under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the Southern District of New York (the “Plan
of Reorganization”). Under the Plan of Reorganization, as completed on January
26, 2005: (1) NeuMedia’s net operating assets and liabilities were transferred
to the holders of the secured notes in satisfaction of the principal and accrued
interest thereon; (2) $400,000 were transferred to a liquidation trust and used
to pay administrative costs and certain preferred creditors; (3) $100,000 were
retained by NeuMedia to fund the expenses of remaining public; (4) 3.5% of the
new common stock of NeuMedia (140,000 shares) was issued to the holders of
record of NeuMedia’s preferred stock in settlement of their liquidation
preferences; (5) 3.5% of the new common stock of NeuMedia (140,000 shares) was
issued to common stockholders of record as of January 26, 2005 in exchange for
all of the outstanding shares of the common stock of the company; and (6) 93% of
the new common stock of NeuMedia (3,720,000 shares) was issued to the sponsor of
the Plan of Reorganization in exchange for $500,000 in cash. Through January 26,
2005, NeuMedia and its subsidiaries were engaged in providing
business-to-business transaction management services designed to simplify
trading between buyers and suppliers.


25





Prior to
February 12, 2008, NeuMedia was a public shell company with no operations, and
controlled by its significant stockholder, Trinad Capital Master Fund,
L.P.




SUMMARY
OF THE MERGER




NeuMedia
entered into an Agreement and Plan of Merger on December 31, 2007, as
subsequently amended by the Amendment to Agreement and Plan of Merger dated
February 12, 2008 (the “Merger Agreement”), with Twistbox Acquisition, Inc., a
Delaware corporation and a wholly-owned subsidiary of NeuMedia (“Merger Sub”),
Twistbox Entertainment, Inc. (“Twistbox”), and Adi McAbian and Spark Capital,
L.P., as representatives of the stockholders of Twistbox, pursuant to which
Merger Sub would merge with and into Twistbox, with Twistbox as the surviving
corporation (the “Merger”). The Merger was completed on February 12,
2008.




Pursuant
to the Merger Agreement, upon the completion of the Merger, each outstanding
share of Twistbox common stock, $0.001 par value per share, on a fully-converted
basis, with the conversion on a one-for-one basis of all issued and outstanding
shares of the Series A Convertible Preferred Stock of Twistbox and the Series B
Convertible Preferred Stock of Twistbox, each $0.01 par value per share (the
“Twistbox Preferred Stock”), converted automatically into and became
exchangeable for NeuMedia common stock in accordance with certain exchange
ratios set forth in the Merger Agreement. In addition, by virtue of the Merger,
each outstanding Twistbox option to purchase Twistbox common stock issued
pursuant to the Twistbox 2006 Stock Incentive Plan was assumed by NeuMedia,
subject to the same terms and conditions as were applicable under such plan
immediately prior to the Merger, except that (a) the number of shares of
NeuMedia common stock issuable upon exercise of each Twistbox option was
determined by multiplying the number of shares of Twistbox common stock that
were subject to such Twistbox option immediately prior to the Merger by 0.72967
(the “Option Conversion Ratio”), rounded down to the nearest whole number; and
(b) the per share exercise price for the shares of NeuMedia common stock
issuable upon exercise of each Twistbox option was determined by dividing the
per share exercise price of Twistbox common stock subject to such Twistbox
option, as in effect prior to the Merger, by the Option Conversion Ratio,
subject to any adjustments required by the Internal Revenue Code. As part of the
Merger, NeuMedia also assumed all unvested Twistbox options. The merger
consideration consisted of an aggregate of up to 12,325,000 shares of NeuMedia
common stock, which included the conversion of all shares of Twistbox capital
stock and the reservation of 2,144,700 shares of NeuMedia common stock required
for assumption of the vested Twistbox options. NeuMedia reserved an additional
318,772 shares of NeuMedia common stock required for the assumption of the
unvested Twistbox options. All warrants to purchase shares of Twistbox
common stock outstanding at the time of the Merger were terminated on or before
the effective time of the Merger.





Upon the
completion of the Merger, all shares of the Twistbox capital stock were no
longer outstanding and were automatically canceled and ceased to exist, and each
holder of a certificate representing any such shares ceased to have any rights
with respect thereto, except the right to receive the applicable merger
consideration. Additionally, each share of the Twistbox capital stock held by
Twistbox or owned by Merger Sub, NeuMedia or any subsidiary of Twistbox or
NeuMedia immediately prior to the Merger, was canceled and extinguished as of
the completion of the Merger without any conversion or payment in respect
thereof. Each share of common stock, $0.001 par value per share, of Merger Sub
issued and outstanding immediately prior to the Merger was converted upon
completion of the Merger into one validly issued, fully paid and non-assessable
share of common stock, $0.001 par value per share, of the surviving
corporation.





As part
of the Merger, NeuMedia agreed to guarantee up to $8,250,000 of
Twistbox’s outstanding debt to ValueAct SmallCap Master Fund L.P.
(“ValueAct”), with certain amendments. On July 30, 2007,
Twistbox had entered into a Securities Purchase Agreement by and among
Twistbox, the Subsidiary Guarantors (as defined therein) and
ValueAct, pursuant to which ValueAct purchased a note in the
amount of $16,500,000 (the “ValueAct Note”) and a warrant which entitled
ValueAct to purchase from Twistbox up to a total of 2,401,747 shares of
Twistbox’s common stock (the “Warrant”).  Twistbox and
ValueAct had also entered into a Guarantee and Security Agreement by
and among Twistbox, each of the subsidiaries of Twistbox, the Investors, as
defined therein, and ValueAct, as collateral agent, pursuant to which the
parties agreed that the ValueAct Note would be secured by substantially all of
the assets of Twistbox and its subsidiaries (the “VAC Note Security Agreement”).
In connection with the Merger, the Warrant was terminated and we issued two
warrants in place thereof to ValueAct to purchase shares of our common
stock. One of such warrants entitled ValueAct to purchase up to a total of
1,092,622 shares of our common stock at an exercise price of $7.55 per
share. The other warrant entitled ValueAct to purchase up to a total of
1,092,621 shares of our common stock at an initial exercise price of
$5.00 per share, which, if not exercised in full by February 12, 2009, would
have been permanently increased to an exercise price of $7.55 per share. 
Both warrants were scheduled to expire on July 30, 2011. The warrants were
subsequently modified on October 23, 2008 and cancelled on June 21, 2010, as set
forth below. We also entered into a Guaranty (the “ValueAct Note Guaranty”) with
ValueAct whereby NeuMedia agreed to guarantee Twistbox’s payment to ValueAct of
up to $8,250,000 of principal under the Note in accordance with the terms,
conditions and limitations contained in the ValueAct Note, which was
subsequently amended as set forth below. The financial covenants of the ValueAct
Note were also amended,  pursuant to which Twistbox was
required to maintain a cash balance of not less than $2,500,000 at all
times and NeuMedia is required to maintain a cash balance of not less
than $4,000,000 at all times. The ValueAct Note was subsequently amended and
restated as set forth below.


26





SUMMARY
OF THE AMV ACQUISITION





On
October 23, 2008, NeuMedia consummated the acquisition of 100% of the issued and
outstanding share capital of AMV Holding Limited, a United Kingdom private
limited company (“AMV”) and 80% of the issued and outstanding share capital of
Fierce Media Limited, United Kingdom private limited company (collectively the
“Shares”).  The acquisition of AMV is referred to herein as the “AMV
Acquisition”. The aggregate purchase price (subject to adjustments as provided
in the stock purchase agreement) for the Shares consisted of (i) $5,375,000 in
cash; (ii) 4,500,000 shares of common stock, par value $0.0001 per share; (iii)
a secured promissory note in the aggregate principal amount of $5,375,000 (the
“AMV Note”); and (iv) additional earn-out amounts, if any, based on certain
targeted earnings as set forth in the stock purchase agreement. The
AMV Note was scheduled to mature on July 31, 2010, and bore interest at an
initial rate of 5% per annum, subject to adjustment as provided
therein.





In
addition, also on October 23, 2008, in connection with the AMV Acquisition,
NeuMedia, Twistbox and ValueAct  entered into a Second Amendment to the
ValueAct Note, which among other things, provided for a payment in kind election
at the option of Twistbox, modified the financial covenants set forth in
the ValueAct Note to require that NeuMedia and Twistbox maintain certain
minimum combined cash balances and provided for certain covenants with respect
to the indebtedness of NeuMedia and its subsidiaries.  Also on October 23,
2008, AMV granted to ValueAct a security interest in its assets to secure
the obligations under the ValueAct Note. In addition, NeuMedia and ValueAct
entered into an allonge to each of those certain warrants issued to ValueAct in
connection with the Merger, which, among other things, amended the exercise
price of each of the warrants to $4.00 per share.





In
addition, also on October 23, 2008, NeuMedia entered into a Securities Purchase
Agreement with certain investors identified therein (the “Investors”), pursuant
to which NeuMedia agreed to sell to the Investors in a private offering an
aggregate of 1,685,394 shares of common stock and warrants to purchase 842,697
shares of common stock for gross proceeds to NeuMedia of $4,500,000. The
warrants have a five year term and an exercise price of $2.67 per share. The
funds were held in an escrow account pursuant to an Escrow Agreement, dated
October 23, 2008 and were released to NeuMedia on or about November 8,
2008.





On August
14, 2009, the Company and ValueAct entered into a Second Allonge to Warrant to
Purchase 1,092,621 shares of common stock (the “Second Allonge”), which amended
that certain warrant to purchase 1,092,621 shares of the Company’s common stock,
issued to ValueAct on February 12, 2008, as amended (the “ValueAct
Warrant”).  Pursuant to the Second Allonge, the exercise price of the
ValueAct Warrant decreased from $4.00 per share to the lesser of $1.25 per
share, or the exercise price per share for any warrant to purchase shares of the
Company’s common stock issued by the Company to certain other parties. In
addition, also on August 14, 2009, NeuMedia, Twistbox and ValueAct entered
into a Third Amendment to the ValueAct Note. Pursuant to the Third
Amendment, the maturity date was changed to July 31, 2010 and the interest rate
of the ValueAct Note increased from 10% to 12.5%.





On
January 25, 2010, NeuMedia, Twistbox and ValueAct entered into a Waiver to
Senior Secured Note (the “Waiver”), pursuant to which ValueAct agreed to waive
certain provisions of the ValueAct Note. Pursuant to the Waiver, subject to
Twistbox’s compliance with certain conditions set forth in the Waiver, certain
rights to prepay the ValueAct Note were extended from January 31, 2010 to March
1, 2010. In addition, subject to Twistbox’s compliance with certain conditions
set forth in the Waiver, the timing obligation of NeuMedia and Twistbox to
comply with the cash covenant set forth in the ValueAct Note was extended to
March 1, 2010 and the minimum cash balance by which Twistbox and NeuMedia must
maintain was increased to $1,600,000.





On
February 25, 2010, Twistbox received a letter (the “Letter”) from ValueAct
alleging certain events of default with respect to the ValueAct Note. The Letter
claimed that an event of default had occurred and was continuing under the
ValueAct Note as  result of certain alleged defaults, including the
failure to provide weekly evidence of compliance with certain of Twistbox’s and
NeuMedia’s covenants under the ValueAct Note, the failure to comply with
limitations on certain payments by NeuMedia and each of its subsidiaries, and
the failure of Twistbox and Neumedia to maintain minimum cash balances in
deposit accounts of each of Twistbox and Neumedia. The Letter also claimed that
the Waiver had ceased to be effective as a result of the alleged failure of
NeuMedia to comply with the conditions set forth in the Waiver.  On
May 10, 2010, Twistbox received from ValueAct a Notice of Event of Default and
Acceleration (“Notice”) in which ValueAct stated that an event of default had
occurred under the ValueAct Note as a result of Twistbox’s and NeuMedia’s
failure to comply with the cash balance covenant under the ValueAct Note and,
therefore, ValueAct accelerated all outstanding amounts payable by Twistbox
under the ValueAct Note.In connection with the
Notice, ValueAct instituted an administration proceeding in the United Kingdom
against AMV.





On June
21, 2010, NeuMedia sold all of the operating subsidiaries of AMV to an entity
controlled by ValueAct and certain of AMV’s founders in exchange for the release
of $23,000,000 of secured indebtedness, comprising of a release of all amounts
due and payable under the AMV Note and all amounts due and payable under the VAC
Note except for $3,500,000 in principal (the “Restructure”). In connection with
the Restructure, the ValueAct Note (as amended and restated, the “Amended
ValueAct Note”), the Value Act Security Agreement and the Value Act Guaranty
were amended and restated in their entirety. In addition, all warrants and
common stock of NeuMedia held by ValueAct were cancelled and all warrants and
common stock of NeuMedia held by AMV founders Nate MacLeitch and Jonathan
Cresswell were repurchased by NeuMedia for a price of $0.02 per
share.


27





The
Amended ValueAct Note matures on June 21, 2013 and bears interest at 10% payable
in cash semi-annually in arrears on each January 1 and July 1 that the Amended
ValueAct Note is outstanding. Twistbox may prepay the Amended ValueAct Note in
whole or in part at any time without penalty. Notwithstanding the
foregoing, at any time on or prior to January 1, 2012, Twistbox may, at its
option, in lieu of making any cash payment of interest, elect that the amount of
any interest due and payable on any interest payment date on or prior to January
1, 2012 be added to the principal due under the Amended ValueAct
Note.  In the event of a Fundamental Change (as defined therein) of
Twistbox, the holder of the Amended ValueAct Note will have the right for a
period of thirty days to require Twistbox to repurchase the Amended ValueAct
Note at a price equal to 100% of the outstanding principal and all accrued and
unpaid interest.





Also on
June 21, 2010, for purposes of capitalizing NeuMedia, NeuMedia sold and issued
$2,500,000 of Senior Secured Convertible Notes due June 21, 2013 (the “New
Senior Secured Notes” or the “Senior Debt”) to certain significant
stockholders.  The New Senior Secured Notes have a three year term and
bear interest at a rate of 10% per annum payable in arrears semi-annually.
Notwithstanding the foregoing, at any time on or prior to the 18th month
following the original issue date of the New Senior Secured Notes,
NeuMedia  may, at its option, in lieu of making any cash payment of
interest, elect that the amount of any interest due and payable on any interest
payment date on or prior to the 18th month following the original issue date of
the New Senior Secured Notes be added to the principal due under the New Senior
Secured Notes. The accrued and unpaid principal and interest due on the New
Senior Secured Notes are convertible at any time at the election of the holder
into shares of common stock of NeuMedia at a conversion price of US$0.15 per
share, subject to adjustment. The New Senior Secured Notes are secured by a
first lien on substantially all of the assets of NeuMedia and its subsidiaries.
The Amended ValueAct Note is subordinated to the New Senior Secured
Notes.





Each purchaser of a New Senior Secured
Note also received a warrant (“Warrant”) to purchase shares of common stock of
NeuMedia at an exercise price of US$0.25 per share, subject to
adjustment.  For each $50,000 of New Senior Secured Notes purchased,
the purchaser received a Warrant to purchase 166,667 shares of common stock of
NeuMedia.  Each Warrant has a five year term.





The Merger and the AMV Acquisition both
included the issuance of common stock as all or part of the consideration. Based
on the trading price of the common stock as of the acquisition dates, the total
consideration was approximately $67.5 million for the Merger and approximately
$22.2 million for the AMV Acquisition. Subsequent to the Merger and the AMV
Acquisition, the average trading price of the common stock decreased
significantly. If the decrease in trading price is deemed to “not be temporary
in nature”, management expects that an impairment of goodwill and other long
lived intangible assets could occur by year end. Other factors affecting
management’s estimate of impairment include the current profitability and
expected future cash flows from the acquired business.





Overview




From
February 12, 2008 to October 23, 2008, our sole operations were those of our
wholly-owned subsidiary, Twistbox. In October 2008, we acquired AMV Holding
Limited, a mobile media and marketing company. On June 21, 2010, we sold all of
the operating subsidiaries of AMV. On Twistbox is a global publisher and
distributor of branded entertainment content, including images, video, TV
programming and games, for Third Generation (3G) mobile networks. Twistbox
publishes and distributes its content in over 40 countries representing more
than one billion subscribers. Operating since 2003, Twistbox has developed an
intellectual property portfolio unique to its target demographic (18 to 35 year
old) that includes worldwide exclusive (or territory exclusive) mobile rights to
global brands and content from leading film, television and lifestyle content
publishing companies. Twistbox has built a proprietary mobile publishing
platform that includes: tools that automate handset portability for the
distribution of images and video; a mobile games development suite that
automates the porting of mobile games and applications to over 1,500 handsets;
and a content standards and ratings system globally adopted by major wireless
carriers to assist with the responsible deployment of age-verified content.
Twistbox has leveraged its brand portfolio and platform to secure “direct”
distribution agreements with the largest mobile operators in the world,
including, among others, AT&T, Hutchinson 3G, O2, MTS, Orange, T-Mobile,
Telefonica, Verizon and Vodafone. Twistbox has experienced annual revenue growth
in excess of 50% over the past two years and expects to become one of the
leading players in the rapidly-growing, multibillion-dollar mobile entertainment
market.




Twistbox
maintains a worldwide distribution agreement with Vodafone. Through this
relationship, Twistbox serves as Vodafone’s exclusive supplier of late night
content, a portion of which is age-verified. Additionally, Twistbox is one of
the select few content aggregators for Vodafone. Twistbox aggregates content
from leading entertainment companies and manages distribution of this content to
Vodafone. Additionally, Twistbox maintains distribution agreements with other
leading mobile network operators throughout the North American, European, and
Asia-Pacific regions that include Verizon, Virgin Mobile, T-Mobile, Telefonica,
Hutchinson 3G, Three, O2 and Orange.




Twistbox’s
intellectual property encompasses over 75 worldwide exclusive or territory
exclusive content licensing agreements that cover all of its key content genres
including lifestyle, glamour, and celebrity news and gossip for U.S. Hispanic
and Latin American markets, poker news and information, late night entertainment
and casual games.




Twistbox
currently has content live on more than 100 network operators in 40 countries.
Through these relationships, Twistbox can currently reach over one billion
mobile subscribers worldwide. Its existing content portfolio includes 300 WAP
sites, 250 games and 66 mobile TV channels.


28





In
addition to its content publishing business, Twistbox operates a rapidly growing
suite of premium short message service (Premium SMS) services that include text
and video chat and web2mobile marketing services of video, images and games that
are promoted through on-line, magazine and TV affiliates. The Premium SMS
infrastructure essentially allows end consumers of Twistbox content to pay for
their content purchases directly from their mobile phone bills.





Twistbox’s
end-users are the highly-mobile, digitally-aware 18 to 35 year old demographic.
This group is a major consumer of digital entertainment services and commands
significant amounts of disposable income. In addition, this group is very
focused on consumer lifestyle brands and is much sought after by
advertisers.





RESULTS OF
OPERATIONS





Year ended
                      
                      
                      Year endedMarch 31,
                      
                      
                      March 31,2010
                      
                      
                      2009Revenues
                      
                      $
                      14,037
                      
                      
                      $
                      20,064Cost of
      revenues
                      
                      
                      3,188
                      
                      
                      
                      7,903Gross
profit
                      
                      
                      10,849
                      
                      
                      
                      12,161SG&A
                      
                      
                      14,351
                      
                      
                      
                      20,808Amortization of intangible
      assets
                      
                      
                      547
                      
                      
                      
                      547Impairment of
      goodwill
                      
                      
                      38,430
                      
                      
                      
                      31,784Operating income
      (loss)
                      
                      
                      (42,479
                      )
                      
                      
                      (40,978
                      )Interest expense,
      net
                      
                      
                      (3,053
                      )
                      
                      
                      (2,110
                      )Other income /
      (expenses)
                      
                      
                      1,650
                      
                      
                      
                      (552
                      )(Loss) before income
      taxes
                      
                      
                      (43,882
                      )
                      
                      
                      (43,640
                      )Income tax
      provision
                      
                      
                      (305
                      )
                      
                      
                      (158
                      )(Loss) from continuing
      operations
                      
                      
                      (44,187
                      )
                      
                      
                      (43,798
                      )Profit from discontinued
      operations, net of taxes
                      
                      
                      1,704
                      
                      
                      
                      2,198Net (loss)
                      
                      $
                      (42,483
                      )
                      
                      $
                      (41,600
                      )Basic and Diluted net loss per
      common share:Continuing
      operations
                      
                      $
                      (1.11
                      )
                      
                      $
                      (1.20
                      )Discontinued
      opeations
                      
                      $
                      0.04
                      
                      
                      $
                      0.05Net loss
                      
                      $
                      (1.07
                      )
                      
                      $
                      (1.15
                      )Basic and Diluted weighted average
      shares outstanding
                      
                      
                      39,837
                      
                      
                      
                      36,264


29





Comparison
of the Year Ended March 31, 2010 and the Year Ended March 31, 2009





Revenues





Year Ended March
      31,2010
                
                
                2009(In
    thousands)Revenues by
      type:Games
                
                $
                4,204
                
                
                $
                5,736Other
    content
                
                
                9,833
                
                
                
                14,328Total
                
                $
                14,037
                
                
                $
                20,064





Games
revenue – the decline in revenue largely reflects a strategic decision to
curtail investment in development of new games for carrier sales, along with the
loss of on-deck placement with US carriers. In addition, we have wound down our
development work on behalf of third parties. This was partly offset by higher
platform and services fees, particularly in Germany.   Games
revenue includes both licensed and internally developed games for use on mobile
phones.





The
revenue decline for Other content is the result of multiple factors – the
largest variance ($2.8million) relates to off-deck revenue in the prior year
which was transferred to Twistbox’s sister company and thus was not part of
continuing operations in fiscal 2010. In addition, revenues were impacted by a
very challenging European sales environment for our carrier partners and
consequently for us. This resulted in lower sales in major territories
particularly in the UK, Germany and Greece. Revenues were also affected by the
closure of our Russian operations in Q4 and the loss of a significant on-deck
advertising management agreement. Other content includes a broad range of
licensed and internally developed products delivered in the form of WAP, Video,
Wallpaper and Mobile TV as well as interactive voice services.





Cost of
Revenues





Year Ended March
      31,2010
                        
                        
                        2009(In
    thousands)Cost of
      revenues:License
fees
                        
                        $
                        2,780
                        
                        
                        $
                        7,178Other direct cost of
      revenues
                        
                        
                        408
                        
                        
                        
                        725Total cost of
      revenues
                        
                        $
                        3,188
                        
                        
                        $
                        7,903Revenues
                        
                        $
                        14,037
                        
                        
                        $
                        20,064Gross
margin
                        
                        
                        77.3
                        %
                        
                        
                        60.6
                        %





License
fees represent costs payable to content providers for use of their intellectual
property in products sold. Our licensing agreements are predominantly on a
revenue-share basis, and therefore license fees have decreased as a result of
reductions in the revenue share attributable to several licensed product
arrangements, renegotiation of major license agreements resulting in a lower
revenue share, and a change in mix towards product for which the rights have
been acquired in perpetuity. In addition, license fees benefited from the
reversal of previously accrued license fees, following resolution of discussions
with providers. These one-time adjustments contributed approximately 15% of
margin in the period.


30





Operating
Expenses





Year Ended March
      31,2010
                
                
                2009(In
    thousands)Product development
      expenses
                
                $
                4,194
                
                
                $
                6,663Sales and marketing
      expenses
                
                
                2,428
                
                
                
                4,439General and administrative
      expenses
                
                
                7,729
                
                
                
                9,706Amortization of intangible
      assets
                
                
                547
                
                
                
                547Impairment of goodwill and
      intangible assets
                
                
                38,430
                
                
                
                31,784





Product
development expenses include the costs to develop, edit and make content ready
for consumption on a mobile phone. The decrease in expenses, compared to the
prior year, is primarily the result of restructuring during the year resulting
in a reduction in employees, particularly in the product development
areas.





Sales and
marketing expenses represent the costs of sales and marketing personnel, and
advertising and marketing campaigns. The decrease year-over-year is the result
of curtailed D2C direct marketing expenses, as that business was transferred to
a sister company and is not part of continuing operations.  In
addition cost savings were made by headcount reductions and reduced
travel.





General
and administrative expenses represent management and support personnel costs in
each of the subsidiary companies and related expenses, as well as professional
and consulting costs, and other costs such as stock based compensation,
depreciation and bad debt expenses. Significant savings were made during fiscal
2010 through headcount reductions, but were largely offset by higher expenses
from the costs of restructuring the on-deck business, higher professional costs,
legal costs related to the Company’s debt restructuring and disputes with the
Senior Debt holder, legal costs related to content provider disputes, and legal
and accounting costs incurred in complying with an SEC request to re-file
certain historical financial statements presenting Twistbox as our “predecessor”
entity.





Amortization
of intangibles represents amortization of the intangibles identified as part of
the purchase price accounting related to both acquisitions and attributed to
operating expenses.





Impairment of goodwill and intangible assets represents the write
down in value of goodwill and intangible assets associated with the acquisition
of Twistbox. The consideration in the Twistbox acquisition was entirely
stock-based, and generated significant goodwill since Twistbox was not a capital
intensive company.  Subsequent to the acquisition, the Company
experienced a significant and continued decline in the market value of its
common stock, which resulted in the Company’s market capitalization falling
below its net book value. The Company recorded an impairment charge in the value
of goodwill and intangible assets in fiscal 2009. The Company performed its
annual impairment review for goodwill and intangible assets in the fourth
quarter of fiscal 2010. As a result of the assessment, the Company determined
that its net book value exceeded the implied fair value; therefore, the Company
recorded an additional impairment charge of $32,694 to write down goodwill and
$5,736 to write down intangibles assets. The intangible assets impaired were the
valuation associated with the Twistbox trademark/trade name, and values assigned
to customer list and license agreements.




Other
Income and  Expenses





Year Ended March
      31,2010
                    
                    
                    2009(In
    thousands)Interest and other
      income/(expense)
                    
                    $
                    (1,403
                    )
                    
                    $
                    (2,662
                    )





Interest
and other income/(expense) includes interest income on invested funds, interest
expense related to the ValueAct Note and the AMV Note, foreign exchange
transaction gains, and other income/expense. The decrease in net expense
compared to the prior year relates to foreign exchange gains (versus losses in
the prior year), and miscellaneous income primarily related to the settlement of
two long outstanding matters – one related to fees payable to an investment bank
in conjunction with the Twistbox acquisition and the other related to amounts
potentially payable to a significant customer associated with VAT liabilities in
Europe.  Both matters were settled favorably during the year. These
were partially offset by increased interest expense related to the increase in
the balance due and higher interest rates under both the ValueAct Note and the
AMV Note.


31





Financial
Condition





Assets





Our
current assets related to continuing operations totaled $5.8 million and $9.9
million at March 31, 2010 and March 31, 2009, respectively, while current assets
including discontinued operations were $13.2 million and $18.0 million,
respectively. Total assets related to continuing operations were $22.8 million
and $66.5 million at March 31, 2010 and March 31, 2009, respectively, while
total assets including discontinued operations were $46.8 million and $91.2
million, respectively . The decrease in current assets is primarily due to lower
cash balances and prepayments. The decrease in total assets is primarily due to
the impairment charge recorded against goodwill and intangibles assets, as well
as the movement in cash and prepayments.





Liabilities
and Working Capital





At  March
31, 2010, our current and total liabilities related to continuing operations
were $33.7 million, compared to $34.0 million at March 31, 2009. Total
liabilities including discontinued operations were $38.4 million and $42.2
million, respectively.  The change in liabilities was related to an
overall reduction in accounts payable and other current liabilities, offset by
interest accrued on debt. The Company had negative working capital of $25.5
million at March 31, 2010 and $24.1 million at March 31, 2009 as a result of the
timing of maturity of the ValueAct Note and the AMV Note.





Liquidity
and Capital Resources





Year Ended March
      31,2010
                
                
                2009(In
    thousands)Consolidated Statement of Cash
      Flows Data:Capital
      expenditures
                
                $
                433
                
                
                $
                219Cash flows used in operating
      activities
                
                
                3,470
                
                
                
                5,360Cash flows used in investing
      activities
                
                
                -
                
                
                
                3,554Cash flows provided by financing
      activities
                
                
                -
                
                
                
                4,300





Twistbox
has incurred losses and negative annual cash flows since inception, although the
operating loss has narrowed significantly in fiscal year 2010. The Company also
incurred significant costs in attempting to restructure the debt held by the
Senior Note holder.





The
primary sources of liquidity have historically been issuance of common and
preferred stock, and in the case of Twistbox, borrowings under credit facilities
with aggregate proceeds of $16.5 million. In the future, we anticipate that our
primary sources of liquidity will be cash generated by our operating
activities.





Operating
Activities





In the
year ended March 31, 2010, we used $4.0 million of net cash, flowing from the
loss excluding impairment charge of $3.7 million as well as decreases in
accounts payable of $3.8 million, offset by non-cash stock based compensation
and depreciation and amortization. In the year ended March 31, 2009, we used
$5.0 million of net cash. This primarily related to the net loss excluding
impairment charge of $9.8 million, and reductions in accounts payable/accrued
license fees/other liabilities of $4.2 million, partially offset by non cash
stock based compensation and depreciation and amortization included in the net
loss and increases in accounts receivable of $4.5million.





As of
March 31, 2009, the Company had approximately $0.6 million of cash attributed to
continuing operations. The Company has subsequently restructured its debt, as
described in Note 16 to the accompanying financial statements, and has
recapitalized by means of receiving $2.5 million in the form of a new Senior
Debt facility.





The
Company’s cash requirements in the future will be dependent on actions taken to
improve cash flow, including operational restructuring. We may require
additional cash resources due to changed business conditions or other future
developments, including any investments or acquisitions we may decide to pursue.
If these sources are insufficient to satisfy our cash requirements, we may seek
to sell additional debt securities or additional equity securities or to obtain
a credit facility. The sale of convertible debt securities or additional equity
securities could result in additional dilution to our stockholders. The
incurrence of increased indebtedness would result in additional debt service
obligations and could result in additional operating and financial covenants
that would restrict our operations. In addition, there can be no assurance that
any additional financing will be available on acceptable terms, if at
all.


32





Debt
obligations include interest payments under the new Senior Debt facility, and
also under the Amended ValueAct Note. Under both facilities the Company may
elect to add interest to the principal, until 18 months following June 21, 2010,
with the full amount payable at the end of the term. The Company’s operating
lease obligations include non-cancelable operating leases for the Company’s
office facilities in several locations, expiring in various years through 2014.
Twistbox has entered into license agreements with various owners of brands and
other intellectual property in order to develop and publish branded products for
mobile handsets. Pursuant to some of these agreements, we are required to pay
minimum royalties over the term of the agreements regardless of actual
sales.





Off-Balance
Sheet Arrangements




We do not
have any relationships with unconsolidated entities or financial partners, such
as entities often referred to as structured finance or special purpose entities,
which would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purposes. In
addition, we do not have any undisclosed borrowings or debt, and we have not
entered into any synthetic leases. We are, therefore, not materially exposed to
any financing, liquidity, market or credit risk that could arise if we had
engaged in such relationships.




Stock
Sales and Liquidity


On August
3, 2006, we increased our authorized shares of common stock from 19,000,000 to
100,000,000 and authorized and effectuated a 2.5 to 1 stock split of our common
stock to increase our outstanding shares from 4,000,000 to 10,000,000. All share
and per share amounts have been retroactively adjusted to reflect the effect of
the stock split.




On
September 14, 2006, we sold 2,800,000 units; on October 12, 2006, we sold
3,400,000 units; and on December 26, 2006, we sold 530,000 units. Each unit
sold, at a price per unit of $1.00, consisted of one share of our common stock
and one warrant to purchase one share of our common stock. We realized net
proceeds of $6,057,000 after the costs of the offering. The warrants have an
exercise price of $2.00 per share and expire as follows: 2,800,000 warrants
expire in September 2008, 3,400,000 warrants expire in October 2008, and 530,000
warrants expired in December 2008.




On
October 12, 2006, we entered into a Series A Convertible Preferred Stock
Purchase Agreement with Trinad Management, LLC (“Trinad Management”). Pursuant
to the terms of the agreement, Trinad Management purchased 100,000 shares of our
Series A Convertible Preferred Stock, par value $ 0.0001 per share (“Series A
Preferred Stock”), for an aggregate purchase price of $100,000. Series A
Preferred stockholders are entitled to convert, at their option, all or any
shares of the Series A Preferred Stock into the number of fully paid and
non-assessable shares of common stock equal to the number obtained by dividing
the original purchase price of such Series A Preferred Stock, plus the amount of
any accumulated but unpaid dividends as of the conversion date, by the original
purchase price (subject to certain adjustments) in effect at the close of
business on the conversion date. The fair value of the 100,000 shares of our
common stock underlying the Series A Convertible Preferred Stock was $1.425 per
share at the date of grant. Since the value was $0.425 lower than the fair value
of our common stock on October 12, 2006, the $42,500 intrinsic value of the
conversion option resulted in the reduction of stockholders’ equity for
the recognition of a preferred stock dividend and an increase to additional
paid-in capital.




On July
24, 2007, we entered into a Subscription Agreement with certain investors,
pursuant to which such investors agreed to subscribe for an aggregate of
5,000,000 shares of our common stock. Each share of common stock was sold
at the price of $0.50, for an aggregate purchase price of
$2,500,000.





In
September, October and December 2007, warrants to purchase 625,000 shares of
common stock were exercised in a cashless exchange for 239,000 shares of the
Company’s common stock based on the average closing price of the Company’s
common stock for the five days prior to the exercise date.





As described above, pursuant to the Merger, we issued
10,180,292 shares of NeuMedia common stock as part of the merger
consideration in connection with the Merger. Such issuance was made pursuant to
the exemption from registration permitted under Section 4(2) of the Securities
Act.




In
addition, also in connection with the Merger, on February 12, 2008, we entered
into non-qualified stock option agreements with certain of our directors and
officers under the Plan whereby we issued options to purchase an aggregate of
1,700,000 shares of our common stock to Ian Aaron, Chief Executive Officer of
Twistbox and a director of the Company, Russell Burke, Chief Financial Officer
of Twistbox and the Company, David Mandell, Executive Vice-President, General
Counsel and Corporate Secretary of Twistbox and Patrick Dodd, Senior Vice of
Worldwide Sales and Marketing of Twistbox, each of whom received an option to
purchase 600,000 shares, 350,000 shares, 450,000 shares and 300,000 shares,
respectively, of our common stock. The options have a ten-year term and are
exercisable at a price of $4.75 per share. The options become exercisable over a
two-year period, with one-third of the options granted vesting immediately upon
grant, an additional one-third vesting on the first anniversary of the date of
grant, and the remaining one-third on the second anniversary of the date of
grant. The options were granted pursuant to the exemption from registration
permitted under Rule 506 of Regulation D of the Securities Act.


33





In April
and June 2008, warrants to purchase 350,000 shares of common stock were
exercised in a cashless exchange for 217,000 shares of the Company’s common
stock based on the average closing price of the Company’s common stock for the
five days prior to the exercise date.





On June
18, 2008, the Company granted non-qualified stock options to purchase 1,500,000
shares of common stock of the Company to four directors under the Plan. The
options have a ten year term and are exercisable at a price of $2.75 per share,
with one-third of the options granted vesting immediately upon grant, one-third
vesting on the first anniversary of the date of grant and the remaining
one-third vesting on the second anniversary of the date of grant.





As
described above, pursuant to the AMV Acquisition, on October 23, 2008, we
entered into a Securities Purchase Agreement with certain investors identified
therein, pursuant to which NeuMedia agreed to sell to the Investors in a
private offering an aggregate of 1,685,394 shares of common stock and warrants
to purchase 842,697 shares of common stock for gross proceeds to the Company of
$4,500,000. The warrants have a five year term and an exercise price of $2.67
per share. The funds were held in an escrow account pursuant to an Escrow
Agreement, dated October 23, 2008 and were released to NeuMedia on or about
November 8, 2008.





Also as
described above, in connection with the AMV Acquisition, on October 23, 2008,
NeuMedia and ValueAct entered into an allonge to each of those certain warrants
issued to ValueAct in connection with the Merger, which, among other things,
amended the exercise price of each of the warrants to $4.00 per
share.





In
October 2008, warrants to purchase 2,300,000 shares of common stock were
exercised in a cashless exchange for 286,000 shares of the Company’s common
stock based on the average closing price of the Company’s common stock for the
five days prior to the exercise date.





In
September 2009, the Company granted warrants to purchase 1,200,000 shares of
common stock of the Company a vendor. The warrants are exercisable at $1.25 per
share, through September 23, 2014 and were valued at $134,000 at the time of
issue.





Revenues




The
discussion herein regarding our future operations pertain to the results and
operations of Twistbox. Twistbox has historically generated and expects to
continue to generate the vast majority of its revenues from mobile phone
carriers that market and distribute its content. These carriers generally charge
a one-time purchase fee or a monthly subscription fee on their subscribers’
phone bills when the subscribers download Twistbox’s games to their mobile
phones. The carriers perform the billing and collection functions and generally
remit to Twistbox a contractual percentage of their collected fee for each game.
Twistbox recognizes as revenues the percentage of the fees due to it from the
carrier. End users may also initiate the purchase of Twistbox’s games through
various Internet portal sites or through other delivery mechanisms, with
carriers or third parties being responsible for billing, collecting and
remitting to Twistbox a portion of their fees. To date, Twistbox’s international
revenues have been much more significant than its domestic
revenues.




We
believe that improving quality and greater availability of 2.5 and 3G handsets
is in turn encouraging consumer awareness and demand for high quality content on
their mobile devices. At the same time, carriers and branded content owners are
focusing on a small group of publishers that have the ability to provide
high-quality mobile content consistently and port it rapidly and
cost-effectively to a wide variety of handsets. Additionally, branded content
owners are seeking publishers that have the ability to distribute content
globally through relationships with most or all of the major carriers. We
believe Twistbox has created the requisite development and porting technology
and has achieved the scale to operate at this level. We also believe that
leveraging carrier and content owner relationships will allow us to grow our
revenues without corresponding percentage growth in our infrastructure and
operating costs. Our revenue growth rate will depend significantly on continued
growth in the mobile content market and our ability to leverage our distribution
and content relationships, as well as to continue to expand. Our ability to
attain profitability will be affected by the extent to which we must incur
additional expenses to expand our sales, marketing, development, and general and
administrative capabilities to grow our business. The largest component of our
expenses is personnel costs. Personnel costs consist of salaries, benefits and
incentive compensation, including bonuses and stock-based compensation, for our
employees. Our operating expenses will continue to grow in absolute dollars,
assuming our revenues continue to grow. As a percentage of revenues, we expect
these expenses to decrease.




Many new
mobile handset models are released in the fourth calendar quarter to coincide
with the holiday shopping season. Because many end users download our content
soon after they purchase new handsets, we may experience seasonal sales
increases based on this key holiday selling period. However, due to the time
between handset purchases and content purchases, much of this holiday impact may
occur in our March quarter. For a variety of reasons, we may experience seasonal
sales decreases during the summer, particularly in Europe, which is
predominantly reflected in our September quarter. In addition to these possible
seasonal patterns, our revenues may be impacted by new or changed carrier deals,
and by changes in the manner that our major carrier partners marketing our
content on their deck. Initial spikes in revenues as a result of successful
launches or campaigns may create further aberrations in our revenue
patterns.


34





Cost
of Revenues




Twistbox’s
cost of revenues historically, and our cost of revenues going forward, consists
primarily of royalties that we pay to content owners from which we license
brands and other intellectual property. In addition, certain other direct costs
such as quality assurance (“QA”) and use of short codes are included in cost of
revenues. Our cost of revenues also includes noncash expenses—amortization of
certain acquired intangible assets, and any impairment of guarantees. We
generally do not pay advance royalties to licensors. Where we acquire rights in
perpetuity or for a specific time period without revenue share or additional
fees, we record the payments made to content owners as prepaid royalties on our
balance sheet when payment is made to the licensor. We recognize royalties in
cost of revenues based upon the revenues derived from the relevant game
multiplied by the applicable royalty rate. If applicable, we will record an
impairment of prepaid royalties or accrue for future guaranteed royalties that
are in excess of anticipated recoupment. At each balance sheet date, we perform
a detailed review of prepaid royalties and guarantees that considers multiple
factors, including forecasted demand, anticipated share for specific content
providers, development and launch plans, and current and anticipated sales
levels. We expense the costs for development of our content prior to
technological feasibility as we incur them throughout the development process,
and we include these costs in product development expenses.




Gross
Margin




Our gross
margin going forward will be determined principally by the mix of content that
we deliver, and the costs of distribution. Our games based on licensed
intellectual property require us to pay royalties to the licensor and the
royalty rates in our licenses vary significantly. Our own in-house developed
games, which are based on our own intellectual property, require no royalty
payments to licensors. For late night business, branded content requires royalty
payment to the licensors, generally on a revenue share basis, while for acquired
content we amortize the cost against revenues, and this will generally result in
a lower cost associated with it. There are multiple internal and external
factors that affect the mix of revenues between games and late night content,
and among licensed, developed and acquired content within those categories,
including the overall number of licensed games and developed games available for
sale during a particular period, the extent of our and our carriers’ marketing
efforts for each type of content, and the deck placement of content on our
carriers’ mobile handsets. We believe the success of any individual game during
a particular period is affected by the recognizability of the title, its
quality, its marketing and media exposure, its overall acceptance by end users
and the availability of competitive games. In the case of Play for Prizes games,
this is further impacted by its suitability to “tournament” play and the prizes
available. For other content, we believe that success is driven by the carrier’s
deck placement, the rating of the content, by quality and by brand recognition.
If our product mix shifts more to licensed games or games with higher royalty
rates, our gross margin would decline. For other content as we increase scale,
we believe that we will have the opportunity to move the mix towards higher
margin acquired product. Our gross margin is also affected by direct costs such
as charges for mobile phone short codes, and QA, and by periodic charges for
impairment of intangible assets and of prepaid royalties and guarantees. These
charges can cause gross margin variations, particularly from quarter to
quarter.




Operating
Expenses




Our
operating expenses going forward will primarily include product development
expenses, sales and marketing expenses and general and administrative expenses.
Our product development expenses consist primarily of salaries and benefits for
employees working on creating, developing, editing, programming, porting,
quality assurance, carrier certification and deployment of our content, on
technologies related to interoperating with our various mobile phone carriers
and on our internal platforms, payments to third parties for developing our
content, and allocated facilities costs. We devote substantial resources to the
development, supporting technologies, porting and quality assurance of our
content. We believe that developing games internally through our own development
studios allows us to increase operating margins, leverage the technology we have
developed and better control game delivery. Games development may encompass
development of a game from concept through deployment or adaptation or
rebranding of an existing game. For acquired content, typically we will receive
content from our licensors which must be edited for mobile phone users, combined
with other appropriate content, and packaged for end consumers. The process is
made more complex by the need to deliver content on multiple carriers platforms
and across a large number of different handsets.




Sales and
Marketing.   Sales and marketing expenses historically,
and our sales and marketing expenses going forward, will consist primarily of
salaries, benefits and incentive compensation for sales, business development,
project management and marketing personnel, expenses for advertising, trade
shows, public relations and other promotional and marketing activities, expenses
for general business development activities, travel and entertainment expenses
and allocated facilities costs. We expect sales and marketing expenses to
increase in absolute terms with the growth of our business and as we further
promote our content and expand our carrier network.





General and
Administrative.  Our general and
administrative expenses historically, and going forward, will consist primarily
of salaries and benefits for general and administrative personnel, consulting
fees, legal, accounting and other professional fees, information technology
costs and allocated facilities costs. We expect that general and administrative
expenses will increase in absolute terms as we hire additional personnel and
incur costs related to the anticipated growth of our business and our operation
as a public company. We also expect that these expenses will increase because of
the additional costs to comply with the Sarbanes-Oxley Act and related
regulation, our efforts to expand our international operations and, in the near
term, additional accounting costs related to our operation as a public
company.


35





Amortization of
Intangible Assets.We will record amortization of acquired intangible assets that are
directly related to revenue-generating activities as part of our cost of
revenues and amortization of the remaining acquired intangible assets, such as
customer lists and platform, as part of our operating expenses. We will record
intangible assets on our balance sheet based upon their fair value at the time
they are acquired. We will determine the fair value of the intangible assets
using a contribution approach. We will amortize the amortizable intangible
assets using the straight-line method over their estimated useful lives of three
to five years.




Estimates
and Assumptions




The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.




Income
Taxes




We
provide for deferred income taxes using the liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and the tax
effect of net operating loss carry-forwards. A valuation allowance has been
provided as it is more likely than not that the deferred assets will not be
realized.




Recent
Accounting Pronouncements





Adopted
Accounting Pronouncements




Effective
July 1, 2009, the Company adopted Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10 , Generally Accepted
Accounting Principles (“ASC 105-10”) (the “Codification”). ASC 105-10
establishes the exclusive authoritative reference for U.S. GAAP for use in
financial statements, except for SEC rules and interpretive releases, which are
also authoritative GAAP for SEC registrants. The Codification will supersede all
existing non-SEC accounting and reporting standards. The Company has included
the references to the Codification, as appropriate, in these consolidated
financial statements. As the Codification was not intended to change or alter
existing GAAP, it did not have any impact on the Company’s consolidated
financial statements.





Effective
April 1, 2009, the Company adopted ASC 855, Subsequent Events (“ASC
855-10”). The standard modifies the names of the two types of subsequent events
either as “recognized subsequent events” (previously referred to in practice as
Type I subsequent events) or “non-recognized subsequent events” (previously
referred to in practice as Type II subsequent events). In addition, the standard
modifies the definition of subsequent events to refer to events or transactions
that occur after the balance sheet date, but before the financial statements are
issued (for public entities) or available to be issued (for nonpublic entities).
It also requires the disclosure of the date through which subsequent events have
been evaluated. The standard did not result in significant changes in the
practice of subsequent event disclosures or the related accounting thereof, and
therefore the adoption did not have any impact on the Company’s consolidated
financial statements.





Effective
April 1, 2009, the Company adopted three accounting standard updates which
were intended to provide additional application guidance and enhanced
disclosures regarding fair value measurements and impairments of securities.
They also provide additional guidelines for estimating fair value in accordance
with fair value accounting. The first update, as codified in ASC 820-10-65,
provides additional guidelines for estimating fair value in accordance with fair
value accounting. The second accounting update, as codified in ASC 320-10-65,
changes accounting requirements for other-than-temporary-impairment
(OTTI) for debt securities by replacing the current requirement that a
holder have the positive intent and ability to hold an impaired security to
recovery in order to conclude an impairment was temporary with a requirement
that an entity conclude it does not intend to sell an impaired security and it
will not be required to sell the security before the recovery of its amortized
cost basis. The third accounting update, as codified in ASC 825-10-65, increases
the frequency of fair value disclosures. These updates were effective for fiscal
years and interim periods ended after June 15, 2009. The adoption of these
accounting updates did not have any impact on the Company’s consolidated
financial statements.





Effective
April 1, 2009, the Company adopted a new accounting standard update regarding
business combinations, ASC 805, which establishes principles and requirements
for how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree. ASC 805-10 also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. ASC 805-10 applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. We will apply the
requirements of ASC 805-10 prospectively to any future acquisitions. Although
the Company did not enter into any business combinations during the first year
ended March 31, 2010, the Company believes ASC 805-10 may have a material impact
on the Company’s future consolidated financial statements if the Company were to
enter into any future business combinations depending on the size and nature of
any such future transactions.


36





In
August 2009, the FASB issued Update No. 2009-05, Fair Value
Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair
Value  (ASU 2009-05). ASU 2009-05 amends ASC 820, Fair Value
Measurements and Disclosures, of the Codification to provide further guidance on
how to measure the fair value of a liability, an area where practitioners have
been seeking further guidance. It primarily does three things: (1) sets
forth the types of valuation techniques to be used to value a liability when a
quoted price in an active market for the identical liability is not available,
(2) clarifies that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of the liability and (3) clarifies that both a quoted price in an
active market for the identical liability at the measurement date and the quoted
price for the identical liability when traded as an asset in an active market
when no adjustments to the quoted price of the asset are required are Level 1
fair value measurements. This standard became effective beginning in the fourth
quarter of 2009 for the Company. The adoption of this pronouncement did not have
a material impact on our results of operations, financial position or cash
flows.





In
January 2010, the FASB issued ASU 2010-02, Consolidation (Topic 810): Accounting
and Reporting for Decreases in Ownership of a Subsidiary ("ASU 2010-02"). This
amendment to Topic 810 clarifies, but does not change, the scope of current
US GAAP. It clarifies the decrease in ownership provisions of Subtopic
810-10 and removes the potential conflict between guidance in that Subtopic and
asset derecognition and gain or loss recognition guidance that may exist in
other US GAAP. An entity will be required to follow the amended guidance
beginning in the period that it first adopts FAS 160 (now included in
Subtopic 810-10). For those entities that have already adopted FAS 160, the
amendments are effective at the beginning of the first interim or annual
reporting period ending on or after December 15, 2009, which was our year
ended March 31, 2010. The amendments should be applied retrospectively to
the first period that an entity adopted FAS 160. The adoption of this
pronouncement did not have a material impact on our results of operations,
financial position or cash flows.





In
January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements
("ASU 2010-06"). ASU 2010-06 amends ASC 820 and clarifies and provides
additional disclosure requirements related to recurring and non-recurring fair
value measurements and employers' disclosures about postretirement benefit plan
assets. ASU 2010-06 is effective for interim and annual reporting periods
beginning after December 15, 2009, which was our year ending March 31,
2010. Our adoption of this pronouncement did not have a material impact on our
results of operations, financial position or cash flows. Disclosures about
purchases, sales, issuances, and settlements in the roll forward activity in
Level 3 fair value measurements are effective for fiscal years beginning
after December 15, 2010, and for interim periods within those fiscal years,
which will be our quarter ending June 30, 2011. The adoption is not
expected to have a material impact on our results of operations, financial
position or cash flows.





New
Accounting Pronouncements





In
September 2009, the FASB issued Update No. 2009-13,
Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging
Issues Task Force ” (ASU 2009-13). It updates the existing multiple-element
revenue arrangements guidance currently included under ASC 605-25, which
originated primarily from the guidance in EITF Issue No. 00-21, “Revenue
Arrangements with Multiple Deliverables” (EITF 00-21). The revised guidance
primarily provides two significant changes: (1) eliminates the need for
objective and reliable evidence of the fair value for the undelivered element in
order for a delivered item to be treated as a separate unit of accounting, and
(2) eliminates the residual method to allocate the arrangement consideration. In
addition, the guidance also expands the disclosure requirements for revenue
recognition. ASU 2009-13 will be effective for the first annual reporting period
beginning on or after June 15, 2010, with early adoption permitted provided
that the revised guidance is retroactively applied to the beginning of the year
of adoption. The adoption of this standard update is not expected to impact the
Company’s consolidated financial statements.




In
October 2009, the FASB concurrently issued ASU No. 2009-14, Software (Topic
985): Certain Revenue Arrangements That Include Software Elements (a consensus
of the FASB Emerging Issues Task Force). This new guidance amends the scope of
existing software revenue recognition accounting. Tangible products containing
software components and non-software components that function together to
deliver the product's essential functionality would be scoped out of the
accounting guidance on software and accounted for based on other appropriate
revenue recognition guidance. For the Company, this guidance is effective for
all new or materially modified arrangements entered into on or after January 1,
2011 with earlier application permitted as of the beginning of a fiscal year.
Full retrospective application of the new guidance is optional. This guidance
must be adopted in the same period that the company adopts the amended
accounting for arrangements with multiple deliverables described in the
preceding paragraph. The Company is currently assessing its implementation of
this new guidance, but does not expect a material impact on the consolidated
financial statements.




Other
recently issued accounting pronouncements are not expected to have a significant
impact on the company’s results of operations or financial
position.





ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Interest
Rate and Credit Risk




Our
current operations have exposure to interest rate risk that relates primarily to
our investment portfolio. All of our current investments are classified as cash
equivalents or short-term investments and carried at cost, which approximates
market value. We do not currently use or plan to use derivative financial
instruments in our investment portfolio. The risk associated with fluctuating
interest rates is limited to our investment portfolio, and we do not believe
that a 10% change in interest rates would have a significant impact on our
interest income, operating results or liquidity.




Currently,
our cash and cash equivalents are maintained by financial institutions in
the United States, Germany, the United Kingdom, Poland, Argentina and Colombia
and our current deposits are likely in excess of insured limits. We believe that
the financial institutions that hold our investments are financially sound and,
accordingly, minimal credit risk exists with respect to these investments. Our
accounts receivable primarily relate to revenues earned from domestic and
international Mobile phone carriers. We perform ongoing credit evaluations of
our carriers’ financial condition but generally require no collateral from
them. As of March 31, 2010, our two largest customers represented
approximately 44% and 6% of our gross accounts receivable
outstanding.


37





Foreign
Currency Risk




The
functional currencies of our United States and German operations are the United
States Dollar, or USD, and the Euro, respectively. A significant portion of our
business is conducted in currencies other than the USD or the Euro. Our revenues
are usually denominated in the functional currency of the carrier. Operating
expenses are usually in the local currency of the operating unit, which
mitigates a portion of the exposure related to currency fluctuations.
Intercompany transactions between our domestic and foreign operations are
denominated in either the USD or the Euro. At month-end, foreign
currency-denominated accounts receivable and intercompany balances are marked to
market and unrealized gains and losses are included in other income (expense),
net. Our foreign currency exchange gains and losses have been generated
primarily from fluctuations in the Euro and pound sterling versus the USD and in
the Euro versus the pound sterling. In the future, we may experience foreign
currency exchange losses on our accounts receivable and intercompany receivables
and payables. Foreign currency exchange losses could have a material adverse
effect on our business, operating results and financial condition.




Inflation




We do not
believe that inflation has had a material effect on our business, financial
condition or results of operations. If our costs were to become subject to
significant inflationary pressures, we might not be able to offset these higher
costs fully through price increases. Our inability or failure to do so could
harm our business, operating results and financial condition.




ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




The
financial statements required by Item 8 are submitted in a separate section of
this report, beginning on Page F-1, and are incorporated herein and made apart
hereof.




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





None.




ITEM
9A (T) CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





Our
principal executive officer and principal financial officer, after evaluating
the effectiveness of our disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered
by this Annual Report on Form 10-K, have concluded that, based on such
evaluation, our disclosure controls and procedures were effective to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the SEC’s rules and forms, and is accumulated and
communicated to our management, including our principal executive and principal
financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.







Changes
in Controls and Procedures





There
were no changes in our internal controls over financial reporting or in other
factors identified in connection with the evaluation required by Exchange Act
Rules 13a-15(d) or 15d-15(d) that occurred during the fiscal period ended March
31, 2010 that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.





Management’s
Report on Internal Control Over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Our internal controls over financial reporting are
designed 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.





Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. In addition, projections of any evaluation of
effectiveness to future periods are subject to risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





Our
management assessed the effectiveness of our internal controls over financial
reporting as of March 31, 2010 based on the framework in Internal Control-Integrated
Framework , published by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).  Based on our assessment, we have concluded
that our internal controls over financial reporting were effective as of March
31, 2010.


38





This
Annual Report on Form 10-K does not include an attestation report by our
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the SEC that permit us to
provide only our management’s report in this Annual Report on Form
10-K.




ITEM
9B. OTHER INFORMATION




None.




PART
III





ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE




The
following table sets forth our directors and executive officers as of July
14, 2010:





Name
                
                Age
                
                Position(s)Ray
      Schaaf
                
                49
                
                President
      and DirectorJames
      Lefkowitz
                
                51
                
                Chief
      Operating OfficerRussell
      Burke
                
                50
                
                Chief
      Financial Officer, and Senior Vice President and Chief Financial Officer
      of TwistboxDavid
      Mandell
                
                49
                
                Executive
      Vice President, General Counsel and Corporate Secretary of
      TwistboxPeter
      Guber
                
                68
                
                Co-ChairmanRobert
      S. Ellin
                
                45
                
                Co-ChairmanAdi
      McAbian
                
                36
                
                DirectorPaul
      Schaeffer
                
                62
                
                Director




Biographical
information for our directors and executive officers are as
follows:




Ray Schaaf.Mr.
Schaaf has been our President since October 27, 2009 and a director since April
5, 2010.  He is a 25 year veteran digital media veteran with
significant experience in the casual games, content, ecommerce, and mobile
industries. Prior to joining the Company, from 2007 to 2009, Mr. Schaaf served
as president and chief executive officer of Arcadia Entertainment, Inc. From
2005 to 2007, Mr. Schaaf was chief operating officer of Navio, a digital
content, ecommerce, and promotions solution provider to Fox Interactive Media,
Shockwave, Disney, Sony BMG, EMI, and MasterCard. Prior to Navio, he was
president of publishing at Glu Mobile.  Prior to Glu Mobile, he served
as president of Intershop, where he oversaw the Americas and APAC
operations.  Prior to Intershop, Mr. Schaaf was chief executive
officer and president of XMARC, where he launched the first location-based
application deployed on a public wireless network. He also has held executive
management positions at Veritas Software, NeXT Computers, and Ziff Davis. Mr.
Schaaf received his B.S. degree in business from Boston College. The Company
selected Mr. Schaaf as a director because he has over 25 years experience
managing companies in the gaming, wireless and digital content industries with
operations in the US, Asia and Europe.  His specific experience will assist
the Company in building and implementing a strategy for growth and
expansion





James Lefkowitz.   Mr.
Lefkowitz has been our Chief Operating Officer since October 27, 2009. He is a
20 year entertainment industry veteran with a wide range of experience in law,
business, finance, film and television. Mr. Lefkowitz joined NeuMedia from
Cantor Fitzgerald (Cantor), where he was managing director of Cantor
Entertainment. Prior to Cantor, Mr. Lefkowitz was an agent for eight years at
Creative Artists Agency, the premiere talent agency in Hollywood, where he
represented actors, writers and directors. He began his career as an attorney at
the law firm of Manatt, Phelps, and Phillips in Los Angeles. He subsequently
worked for six years as a business affairs executive at Walt Disney Studios and
Touchstone Pictures. Mr. Lefkowitz is a graduate of the University of Michigan
School of Business Administration and Michigan Law School.




Russell Burke.
   Mr. Burke has served as our Chief Financial Officer since May
21, 2009 and Senior Vice President and Chief Financial Officer of Twistbox
since December 2006 and is responsible for all aspects of Twistbox’s
financial infrastructure including reporting and financial systems and
information systems. He also has responsibility for strategic planning and for
managing investor relationships. Mr. Burke was previously the Managing Director
for Australia and New Zealand for Weight Watchers International, Inc, a publicly
traded company. He had full responsibility for the company’s operations across
those territories, and was a member of the company’s global executive committee.
Prior to this, Mr. Burke served as the Senior Vice-President and Chief Financial
Officer of Pressplay, a joint venture of Sony Music and Universal Music. He
joined Pressplay at the start up stage and was part of a small management team
which forged a viable business in the digital music arena. He was responsible
for developing all financial systems and oversaw the creation of management and
external reporting; as well as international business development. Additionally,
he was involved in the acquisition of Pressplay by Roxio, Inc. and the
subsequent re-branding and re-launching of the service as Napster. Before
joining Pressplay, Mr. Burke held a number of senior financial positions at Sony
Music International in Sydney (Australia), New York and London. Mr. Burke began
his career with Price Waterhouse (now PricewaterhouseCoopers) in Australia,
where over a period of 13 years he worked with a broad range of clients in the
Los Angeles, Sydney and Newcastle (Australia) offices of Price Waterhouse,
advising on business and compliance matters. Mr. Burke received a B. Comm. from
the University of Newcastle (Australia).


39





David Mandell. Mr.
Mandell has served as Executive Vice President, General Counsel and Corporate
Secretary of Twistbox since June 2006. Mr. Mandell is responsible for all
corporate governance matters for Twistbox, including those related to all
foreign and domestic subsidiaries and affiliated companies. Prior to joining
Twistbox, Mr. Mandell was Senior Vice President, Business/Legal Affairs of
Gemstar-TV Guide International, Inc. (now ROVI Corporation), which was a NASDAQ
publicly traded company that engaged in the development, licensing, marketing,
and distribution of products and services for TV guidance and home entertainment
needs of TV viewers worldwide. From October 1998 to January 2003, Mr. Mandell
served as Vice President, Business/Legal Affairs of Playboy Entertainment Group,
Inc., a subsidiary of Playboy Enterprises, Inc., which owns film and television
properties (Playboy Films, Playboy TV, Spice Networks), related home video
imprints, and online content and gaming operations. Mr. Mandell received a B.A.
from the University of Florida and a J.D. from the University of Miami, School
of Law.




Peter Guber.  Mr.
Guber has served as Co-Chairman of our Board of Directors since August
2007.  He is a 30-year veteran of the entertainment industry. His
positions previously held include: Former Studio Chief, Columbia Pictures;
Founder of Casablanca Record and Filmworks; Founder, and Former Chairman/CEO,
PolyGram Filmed Entertainment; Founder and Former Co-owner, Guber-Peters
Entertainment Company; Former Chairman and CEO, Sony Pictures Entertainment
(SPE). Films directly produced and executive produced by Guber have received
more than 50 Academy Award nominations, including four times for Best Picture.
Among his personal producing credits are Witches of Eastwick, The Deep, Color
Purple, Midnight Express, The Jacket, Missing, Batman and Rain Man, which won
the Oscar for best picture. During Mr. Guber’s tenure at SPE, the Motion Picture
Group achieved, over four years, an industry-best domestic box office market
share averaging 17%. During the same period, Sony Pictures led all competitors
with a remarkable total of 120 Academy Award nominations, the highest four-year
total ever for a single company. After leaving Sony in 1995, Mr. Guber formed
Mandalay Entertainment Group (“Mandalay Entertainment”) as a multimedia
entertainment vehicle in motion pictures, television, sports entertainment and
new media. Mr. Guber is a full professor at the UCLA School of Theater, Film and
Television and has been a member of the faculty for over 30 years. He also can
be seen every Sunday morning on the American Movie Channel (AMC), as the co-host
of the critically acclaimed show, Sunday Morning Shootout. He received his B.A.
from Syracuse University, and both a Masters and Juris Doctor degree in law from
New York University and was recruited by Columbia Pictures Corporation from NYU
where he pursued an M.B.A. degree. He is a member of the New York and California
Bars. The Company selected Mr. Guber as Co-Chairman of the Board because of his
extensive experience in the film, music and television businesses and world-wide
recognition thereby enabling the Company to more successfully navigate through
complex and relationship driven ventures.





Robert S. Ellin.
   Mr. Ellin has been a member of our Board of Directors and our
Co-Chairman since February 2005. Mr. Ellin has twenty years of investment and
turnaround experience. Mr. Ellin is a partner and co-founder of Trinad, an
activist hedge fund focused on micro-cap public companies. Prior to founding
Trinad, Mr. Ellin was the founder and President of Atlantis Equities, Inc.
(“Atlantis”), a personal investment company. Founded in 1990, Atlantis actively
managed an investment portfolio of small capitalization public companies, as
well as select private company investments. Mr. Ellin frequently played an
active role in its investee companies including board representation, management
selection, corporate finance and other advisory services. Through Atlantis and
related companies, Mr. Ellin spearheaded investments into ThQ, Inc., Grand Toys,
Forward Industries, Inc. and completed a leveraged buyout of S&S Industries,
Inc. where he also served as President from 1996 to 1998. Prior to founding
Atlantis, Mr. Ellin worked in Institutional Sales at LF Rothschild and prior to
that he was the Manager of Retail Operations at Lombard Securities. Mr. Ellin is
Chief Executive Officer of Zoo Entertainment, Inc. and President of Noble
Medical Technologies, Inc.  Mr. Ellin currently sits on the boards of
Command Security Corporation, Lateral Media, Inc., Zoo Entertainment, Inc.,
Noble Medical Technologies, Inc. and New Motion, Inc. d/b/a Artrinsic, Inc. Mr.
Ellin also serves on the Board of Governors at Cedars-Sinai Hospital. Mr. Ellin
received his B.A. from Pace University. The Company selected Mr. Ellin as
Co-Chairman of the Board based, in part, on his experience in institutional
sales at LF Rothschild and as a manager of retail operations at Lombard
Securities.  His invaluable experience in the retail equity and debt
markets will assist the Company in efforts to raise additional capital to fund
operations and expand its operations.




Paul Schaeffer.
Mr. Schaeffer has served on our Board of Directors since August 2007 as
Vice-Chairman.  He is Vice Chairman, Chief Operating Officer and
Co-Founder of Mandalay Entertainment. Along with Peter Guber, Mr. Schaeffer is
responsible for all aspects of the motion picture and television business,
focusing primarily on the corporate and business operations of those entities.
Prior to forming Mandalay Entertainment, Mr. Schaeffer was the Executive-Vice
President of Sony Pictures Entertainment, overseeing the worldwide corporate
operations for SPE including Worldwide Administration, Financial Affairs, Human
Resources, Corporate Affairs, Legal Affairs and Corporate Communications. During
his tenure, Mr. Schaeffer also had supervisory responsibility for the $105
million rebuilding and renovation of Sony Pictures Studios. Mr. Schaeffer is a
member of the Academy of Motion Pictures, Arts, & Sciences. A veteran of 20
years of private law practice, Mr. Schaeffer joined SPE from Armstrong, Hirsch
and Levine, where he was a senior partner working with corporate entertainment
clients. He spent two years as an accountant with Arthur Young & Company in
Philadelphia. He graduated from the University of Pennsylvania Law School and
received his accounting degree from Pennsylvania State University. The Company
considered Mr. Schaeffer to be a valuable resource when it selected him as a
director based on having served for more than 5 years as the Chairman of the
Finance Committee, and a member of the Board of Trustees of Childrens Hospital
Los Angeles, as well as a member of its Audit Committee, Compensation Committee
and Executive Committee for more than five years.


40




Adi McAbian. Mr.
McAbian has served on our Board of Directors since February 2008 and is a
co-founder and former Managing Director of Twistbox since May
2003.  As the Managing Director of Twistbox, Mr. McAbian was
responsible for global sales and carrier relationships that span the globe. Mr.
McAbian’s background includes experience as an entrepreneur and executive
business leader with over 12 years experience as a business development and
sales manager in the broadcast television industry. Mr. McAbian is experienced
in entertainment and media rights management, licensing negotiation and
production, and has previously secured deals with AOL/Time Warner, Discovery
Channel, BMG, RAI, Disney, BBC and Universal among others. He has been
responsible for facilitating strategic collaborations with over 60 mobile
operators worldwide on content standards and minor protection legislation and he
has been a frequent speaker, lecturing on adult mobile content business and
management issues throughout Europe and the U.S., including conferences
organized by iWireless World, Mobile Entertainment Forum, and Informa. The
Company considered Mr. McAbian to be a valuable addition to the Board based on
his expertise and frequent lecturing in the emerging mobile entertainment
business, as well as having served on the Mobile Marketing Associations’
Consumer Best Practices Committee.





Audit
Committee




The
Company’s audit committee was established during the fiscal year ended March 31,
2010 and consists of Paul Schaeffer and Robert Ellin. Mr. Schaeffer has been
designated as the Chairman of the committee and the financial expert within the
rules and regulations of the SEC. The committee met regularly during the course
of the year, including regular meetings with the company’s auditors, and
monitors the Company’s compliance with its obligations under the assessment of
internal control over financial reporting.


Nominating
Committee





The
entire Board of Directors currently operates as our Nominating
Committee.




Code
of Ethics




We intend
to establish a code of ethics.





Section
16(A) Beneficial Ownership Reporting Compliance




Section
16(a) of the Exchange Act requires our officers, directors, and persons owning
more than ten percent of a registered class of our equity securities (“ten
percent stockholders”) to file reports of ownership and changes of ownership
with the SEC. Officers, directors, and ten-percent stockholders are required by
the SEC regulations to furnish us with copies of all Section 16(a) reports they
file with the SEC. To the best of our knowledge, based solely on review of the
copies of such reports and amendments thereto furnished to us, we believe that
during the fiscal year ended March 31, 2010, all Section 16(a) filing
requirements applicable to our officers, directors, and ten percent stockholders
were met except for the following: one Form 4 report was not timely filed by
Trinad Capital Master Fund, Ltd and Robert Ellin with respect to one
transaction.




ITEM
11. EXECUTIVE COMPENSATION





SUMMARY
COMPENSATION TABLE




The
following table sets forth information concerning the total compensation paid
during our fiscal years ended March 31, 2009 and March 31, 2010, for our
principal executive officer and two most highly compensated executive
officers:


41





Position
                                    
                                    Period
                                    
                                    Salary
                                    
                                    
                                    Bonus
                                    
                                    
                                    Stock
                                    
                                    
                                    Option
                                    
                                    
                                    All Other
                                    
                                    
                                    Total($)
                                    
                                    
                                    ($)
                                    
                                    
                                    ($)
                                    
                                    
                                    ($)
                                    
                                    
                                    ($)
                                    
                                    
                                    ($)Ray
      Schaaf
                                    
                                    Year
      ended March 31, 2010
                                    
                                    
                                    105,128
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    61,363
                                    
                                    
                                    
                                    166,491President
      (appointed 10/27/09)
                                    
                                    Year
      ended March 31, 2009
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Ian
      Aaron
                                    
                                    Year
      ended March 31, 2010
                                    
                                    
                                    296,025
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    14,208
                                    
                                    
                                    
                                    310,233Former
      CEO of Twistbox (until 10/7/09)
                                    
                                    Year
      ended March 31, 2009
                                    
                                    
                                    314,163
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    23,457
                                    
                                    
                                    
                                    337,620Jonathan
      Cresswell
                                    
                                    Year
      ended March 31, 2010
                                    
                                    
                                    159,660
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    496,927
                                    
                                    
                                    
                                    656,587Co-Managing
      Director of AMV
                                    
                                    Year
      ended March 31, 2009
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    4,774
                                    
                                    
                                    
                                    4,774Nathaniel
      MacLeitch
                                    
                                    Year
      ended March 31, 2010
                                    
                                    
                                    159,660
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    496,927
                                    
                                    
                                    
                                    656,587Co-Managing
      Director of AMV
                                    
                                    Year
      ended March 31, 2009
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,798
                                    
                                    
                                    
                                    2,798





Mr.
Schaaf was appointed as President of the Company on October 27, 2009 following a
period of acting in a consulting capacity to the Company. Amounts disclosed as
salary represent salary paid in his capacity as President, while amounts
disclosed as “All Other” include fees prior to his appointment as President and
other benefits paid.





Mr. Aaron
resigned his position as Chief Executive Officer of Twistbox on October 10,
2009. In connection with Mr. Aaron’s resignation, the Company, Twistbox and Mr.
Aaron entered into a Severance and Release Agreement (the “Severance
Agreement”), dated as of October 7, 2009. Pursuant to the Severance Agreement,
the Company agreed to extend the time period during which Mr. Aaron may exercise
his vested stock options to purchase the Company’s common stock, until the
earlier of September 30, 2010, and 90 days following the date that Mr. Aaron
shall first be eligible to sell the shares of common stock under a registration
statement that has been declared effective by the SEC. The Company also agreed
that 157,422 shares of common stock that were issued to Mr. Aaron pursuant to a
restricted stock agreement dated March 16, 2009, that are the total number of
shares subject to forfeiture as a result of his termination of service, shall
not be forfeited as of the termination date and that such right of forfeiture
shall be amended so that it lapses upon the earlier of March 31, 2010, and a
change in control, provided that Mr. Aaron does not breach certain provisions of
the Severance Agreement prior to such date.





The
Severance Agreement also provided that the Company issue to Mr. Aaron 79,938
shares of common stock on March 31, 2010 in full satisfaction of Mr. Aaron’s
accrued, but unused, paid vacation days, provided that Mr. Aaron did not breach
certain provisions of the Severance Agreement and that the Company will pay Mr.
Aaron’s, and his eligible covered dependents’, COBRA continuation insurance
coverage premiums for a period of six months ending on April 7,
2010.  Mr. Aaron was also prohibited from selling or otherwise
transferring any of his shares of common stock without the prior written consent
of the Company for a period ending on the March 31, 2010.





Mr.
Aaron’s compensation in both years included stock granted in lieu of cash salary
foregone. In the year ended March 31, 2010 the amount disclosed as salary
includes $286,425 of stock compensation, while in the year ended March 31, 2009
$182,130 of salary represented stock compensation for salary
foregone.





Mr.
Cresswell and Mr. MacLeitch served as the Co-Managing Directors of AMV during
the year ended March 31, 2010.  During this period they received a
salary, and also received payments in connection with an earn-out formula which
was part of the Stock Purchase Agreement for the acquisition of AMV Holding
Limited. These payments are included under “All Other”.




Other
than as described above, we have no plans or arrangements with respect to
remuneration received or that may be received by our named executive officers to
compensate such officers in the event of termination of employment (as a result
of resignation, retirement, change of control) or a change of responsibilities
following a change of control.




OUTSTANDING
EQUITY AWARDS AT THE PERIOD ENDED MARCH 31, 2010




The
following table presents information regarding outstanding options held by
certain of our executive officers as of March 31, 2010.


42





Number of Securities
                              Underlying Unexercised
                              Options
                            
                            
                            Number of Securities
                              Underlying Unexercised
                              Options
                            
                            
                            Equity Incentive PlanAwards:
                              Number ofSecurities
                              UnderlyingUnexercised
                              UneranedOptions
                            
                            
                            Option Exercise Price
                            
                            OptionExpiration(#)
                            
                            
                            (#)Name
                            
                            Exercisable
                            
                            
                            Unexercisable
                            
                            
                            (#)
                            
                            
                            ($)
                            
                            DateIan Aaron, Former
      Chief Executive Officer of Twistbox(1)
                            
                            
                            54,725
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            0.48
                            
                            1/17/2016400,000
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            4.75
                            
                            2/12/2018





(1)  Twistbox’s board of
directors granted Mr. Aaron the options pursuant to the terms of the Twistbox
2006 Stock Incentive Plan on January 17, 2006 in connection with his employment
as Chief Executive Officer of Twistbox. The options have a 10-year term and are
exercisable at a price of $0.35 per share. Upon consummation of the Merger, all
of the options held by Mr. Aaron, became immediately exercisable for 54,725
shares of NeuMedia common stock. In connection with the Merger, the Board of
Directors granted Mr. Aaron the options pursuant to the Plan on February 12,
2008 as partial compensation in connection with Mr. Aaron entering into an
amendment to his employment agreement with Twistbox. One-third of the options
were immediately exercisable upon grant, an additional one-third became
exercisable on February 12, 2009 and the remaining options became exercisable on
February 12, 2010.





DIRECTOR
COMPENSATION




The
following table presents information regarding outstanding compensation paid to
our directors during the fiscal year ended March 31, 2010.




Name
                            
                            Fees Earned or
                              Paid in Cash(1)
                              ($)
                            
                            
                            Option Awards
                              ($)
                            
                            
                            All Other
                              Compensation
                              ($)
                            
                            
                            Total ($)Paul
      Schaeffer
                            
                            $
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            -Richard
      Spitz (2)
                            
                            $
                            28,000
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            28,000Peter
      Guber
                            
                            $
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            -Robert
      Ellin
                            
                            $
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            -Barry
      Regenstein (3)
                            
                            $
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            -Keith
      McCurdy (2)
                            
                            $
                            28,000
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            28,000Ray
      Schaaf
                            
                            $
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            -Adi
      McAbian
                            
                            $
                            20,000
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            20,000Jay
      Wolf (4)
                            
                            $
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            -





(1)
Amounts paid to Richard Spitz, Keith McCurdy, and Adi McAbian represent fees in
connection with their work for the Company’s Special Committee reviewing
restructuring options.










Compensation
Policies and Practices As They Relate to the Company’s Risk
Management




The
Company believes that its compensation policies and practices for all employees,
including executive officers, do not create risks that are reasonably likely to
have a material adverse effect on the Company




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




Reference
is made to the information contained in the Equity Compensation Plan Information
table contained in Item 5 of this Annual  Report on Form 10-K, which
is incorporated herein by reference.





The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of July 8, 2010, by (i) each of our
current named executive officers and directors, (ii) all persons, including
groups, known to us to own beneficially more than five percent (5%) of the
outstanding common stock, and (iii) all named executive officers and directors
as a group. As of July 14, 2010, there were a total of 35,573,502
shares of common stock outstanding.


43





Name and Address
      (1)
                            
                            Number of Shares
                              Beneficially Owned
      (2)
                            
                            
                            Percentage Owned(%)Trinad
      Capital Master Fund, Ltd.(3)
                            
                            
                            4,643,132
                            
                            
                            
                            10.6
                            %Robert
      S. Ellin(3)
                            
                            
                            5,143,132
                            
                            
                            
                            11.8
                            %Peter
      Guber (4)
                            
                            
                            6,414,124
                            
                            
                            
                            14.7
                            %David
      E. Smith (5)
                            
                            
                            4,749,698
                            
                            
                            
                            10.9
                            %Lyrical
      Partners, L.P.(6)
                            
                            
                            2,784,121
                            
                            
                            
                            6.4
                            %Paul
      Schaeffer (7)
                            
                            
                            800,000
                            
                            
                            
                            1.8
                            %Adi
      McAbian (8)
                            
                            
                            966,813
                            
                            
                            
                            2.2
                            %Spark
      Capital, L.P. (9)
                            
                            
                            2,857,144
                            
                            
                            
                            6.5
                            %Ray
      Schaaf
                            
                            
                            -
                            
                            
                            
                            -Ian Aaron(10)
                            
                            
                            1,773,410
                            
                            
                            
                            4.1
                            %Jonathan
      Cresswell
                            
                            
                            -
                            
                            
                            
                            -Nathaniel
      MacLeitch
                            
                            
                            -
                            
                            
                            
                            -All
      directors and named executive officers as a group (8
      individuals)
                            
                            
                            15,097,479
                            
                            
                            
                            34.5
                            %




(1)
Except as otherwise indicated, the address of each of the following persons is
c/o NeuMedia, Inc., 2000 Avenue of the Stars, Suite 410, Los Angeles, CA
90067.





(2)
Except as specifically indicated in the footnotes to this table, the persons
named in this table have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them, subject to community
property laws where applicable. Beneficial ownership is determined in accordance
with the rules of the Commission. In computing the number of shares beneficially
owned by a person and the percentage ownership of that person, shares of common
stock subject to options, warrants or rights held by that person that are
currently exercisable or exercisable, convertible or issuable within 60 days of
July 14, 2010, are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any other
person.





(3) In
the case of Robert S. Ellin, consists of 4,262,233 shares of common stock,
280,899 shares of common stock issuable upon exercise of warrants, 500,000
shares of common stock issuable upon exercise of options and 100,000 shares of
common stock issuable upon conversion of 100,000 shares of Series A Convertible
Preferred Stock, assuming a conversion on a one-for-one basis of the Series A
Convertible Preferred Stock. The number of shares of common stock into
which the Series A Convertible Preferred Stock is convertible is subject to
adjustment for stock splits, stock dividends, reorganizations, the issuance of
dividends, and other events specified in our certificate of
incorporation. Trinad Capital Master Fund, Ltd. is the beneficial owner of
4,643,132 shares of the common stock, which includes 4,262,233 shares of common
stock and 280,899 shares of common stock issuable upon exercise of warrants held
by Trinad Capital Master Fund, Ltd., at an exercise price of $2.67 per share.
Trinad Management, LLC (as the manager of the Trinad Capital Master Fund, Ltd.
and Trinad Capital LP) is deemed the beneficial owner of 4,643,132 shares of the
common stock which includes 4,262,233 shares of the common stock held by Trinad
Capital Master Fund, Ltd. and 100,000 shares of common stock issuable upon
conversion of 100,000 shares of Series A Convertible Preferred Stock held by
Trinad Management LLC, assuming conversion price $1.00 per
share.  Trinad Management, LLC disclaims beneficial ownership of the
shares of common stock directly and beneficially owned by Trinad Capital Master
Fund, Ltd. Robert S. Ellin, the managing director of and portfolio manager for
Trinad Management, LLC and the managing director of Trinad Advisors II LLC is
deemed the beneficial owner of 5,143,132 shares of the common stock which
includes 4,262,233 shares of the common stock held by Trinad Capital Master
Fund, Ltd. and 100,000 shares of common stock issuable upon conversion of
100,000 shares of Series A Convertible Preferred Stock held by Trinad Management
LLC and options to purchase 500,000 shares of common stock of the Issuer owned
by Mr. Ellin individually.  Robert S. Ellin disclaims beneficial
ownership of the shares of common stock directly and beneficially owned by
Trinad Capital Master Fund, Ltd. except to the extent of his pecuniary interests
therein.Trinad
Capital LP (as the owner of 84.53% of the shares of Trinad Capital Master Fund,
Ltd. as of September 30, 2009) and Trinad Advisors II, LLC (as the general
partner of Trinad Capital LP), are each deemed the beneficial owner of 3,602,866
(representing 84.53% of the shares of the 4,262,233 shares of the common stock
held by Trinad Capital Master Fund, Ltd.).  Trinad Advisors II, LLC
disclaims beneficial ownership of the shares of common stock. Trinad Management,
LLC and Robert S. Ellin have shared power to direct the vote and shared power to
direct the disposition of the 4,643,132 shares of common stock. The address of
each of the beneficial owners is 2000 Avenue of the Stars, Suite 410, Los
Angeles, CA 90067.


44





(4) The
securities indicated are held indirectly by Mr. Guber through the Guber
Family Trust for which he serves as a trustee. Mr. Guber disclaims
beneficial ownership of these securities except to the extent of his pecuniary
interest.





(5) David
E. Smith, Coast Investment Management, LLC, The Coast Fund, LP and Coast Medina,
LLC share voting and dispositive power with respect to 4,749,698 shares of
common stock. David E. Smith holds sole voting and dispositive power with
respect to 2,232,000 shares of common stock. The address for each of the
beneficial owners is 2450 Colorado Ave., Suite 100 E. Tower, Santa Monica, CA
90404.





(6)
Lyrical Multi-Manager Fund, LP beneficially owns 2,535,321 shares of common
stock  and Lyrical Multi-Manager Offshore Fund Ltd. beneficially owns
248,800 shares of common stock of the company. Lyrical Partners, L.P., as the
investment manager of Lyrical Multi-Manager Fund, LP and Lyrical Multi-Manager
Offshore Fund Ltd., has the sole power to vote and dispose of the 2,784,121
shares of common stock held collectively by Lyrical Multi-Manager Fund, LP and
Lyrical Multi-Manager Offshore Fund Ltd.  This information is based solely
on a Schedule 13D filed by Jeffrey Keswin with the Commission on February 13,
2007, which reported ownership as of September 12, 2006. The address for Lyrical
Multi-Manager Fund is 405 Park Avenue, 6th Floor, New York, New York
10022.





(7)
Consists of 500,000 shares of common stock and 100,000 shares of common stock
underlying options. The securities indicated are held indirectly by
Mr. Schaeffer through the Paul and Judy Schaeffer Living Trust for which he
serves as a trustee. Mr. Schaeffer disclaims beneficial ownership of these
securities except to the extent of his pecuniary interest.





(8)
Includes 54,725 shares of common stock underlying options. The address for Mr.
McAbian is c/o Twistbox Entertainment, Inc., 14242 Ventura Blvd., 3 rd Floor,
Sherman Oaks, CA 91423.





(9)
Consists of: (i) 2,779,986 shares of common stock held by Spark
Capital, (ii) 49,357 shares of common stock held by Spark Founders
Fund, and (iii) 27,801 shares of common stock held by Spark Member Fund. Messrs.
Dagres, Politi, Miller, Sabet and Conway are the sole managing members of Spark
Management, the sole general partner of each of Spark Capital, Spark Member Fund
and Spark Founders Fund. Each of Spark Member Fund and Spark Founders Fund
invests alongside Spark Capital in investments made by Spark Capital. This
information is based solely on a Schedule 13G filed with the Commission on
February 21, 2008 by Spark Capital, L.P. (“Spark Capital”), Spark Management
Partners, LLC (“Spark Management”), Spark Member Fund, L.P. (“Spark Member
Fund”), Spark Capital Founders’ Fund, L.P. (“Spark Founders Fund”), Todd Dagres,
Santo Politi, Dennis A. Miller, Bijan R. Sabet and Paul J. Conaway. The address
for Spark Capital is 137 Newbury Street, Boston, Massachusetts
02116.





(10)
Consists of 1,318,685 shares of common stock and 454,725 shares of common stock
underlying options.





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




NeuMedia





Management
Agreement





On
September 14, 2006, we entered into a management agreement (the “Management
Agreement”) with Trinad Management, the manager of Trinad Capital Master Fund,
which is one of our principal stockholders. Pursuant to the terms of the
Management Agreement, which is for a term of five years, Trinad Management will
provide certain management services, including without limitation the sourcing,
structuring and negotiation of a potential business combination transaction
involving the Company. We have agreed to pay Trinad Management a management fee
of $90,000 per quarter, plus reimbursement of all expenses reasonably incurred
by Trinad Management in connection with the provision of management services.
Either party may terminate with prior written notice. However, in the event the
Company terminates the Management Agreement, we shall pay to Trinad Management a
termination fee of $1,000,000. For the year ended March 31, 2010 the Company
paid management fees under the agreement of $360,000.





In March
2008, the Company entered into a month to month lease for office space with
Trinad Management for rent of $9,000  per month subsequently reduced
to $5,000 per month. Rent expense in connection with this lease was $99,000 for
the year ended March 31, 2010.





Robert
Ellin, our director, is the managing director of and portfolio manager for
Trinad Management.


45





Senior
Secured Convertible Notes





On June
21, 2010, we sold and issued $2,500,000 of Senior Secured Convertible Notes due
June 21, 2013 (the “New Senior Secured Notes”) to certain significant
stockholders, comprised of a $1,500,000 New Senior Secured Note sold and issued
to Trinad Capital Master Fund and a $1,000,000 New Senior Secured Note sold and
issued to the Guber Family Trust (the “Offering”). Trinad Capital Master
Fund is one of our principal stockholders and an affiliate of our director
Robert Ellin.  Peter Guber, our director, serves as trustee of the Guber
Family Trust. The New Senior Secured Notes have a three year term and bear
interest at a rate of 10% per annum payable in arrears semi-annually.
Notwithstanding the foregoing, at any time on or prior to the 18th month
following the original issue date of the New Senior Secured Notes,
NeuMedia  may, at its option, in lieu of making any cash payment of
interest, elect that the amount of any interest due and payable on any interest
payment date on or prior to the 18th month following the original issue date of
the New Senior Secured Notes be added to the principal due under the New Senior
Secured Notes. The accrued and unpaid principal and interest due on the New
Senior Secured Notes are convertible at any time at the election of the holder
into shares of common stock of NeuMedia at a conversion price of US$0.15 per
share, subject to adjustment. The New Senior Secured Notes are secured by a
first lien on substantially all of the assets of NeuMedia and its subsidiaries.
The Amended ValueAct Note is subordinated to the New Senior Secured
Notes.





Each purchaser of a New Senior Secured
Note also received a warrant (“Warrant”) to purchase shares of our common stock
at an exercise price of US$0.25 per share, subject to adjustment.  For
each $50,000 of New Senior Secured Notes purchased, the purchaser received a
Warrant to purchase 166,667 shares of common stock.  Each Warrant has
a five year term.





In connection with the Offering,
certain of our significant stockholders, David Smith, Coast Medina, LLC, Spark
Capital and Lyrical Multi-Manager Fund L.P., have the right to purchase on or
prior to July 15, 2010, up to an aggregate of $600,000 of the New Senior Secured
Notes purchased by Trinad Capital Master Fund and the Guber Family Trust, upon
the same the same terms and conditions described above.





Twistbox





Twistbox
engages in various business relationships with its stockholders and officers and
their related entities. The significant relationships are as
follows:





Lease
of Premises




Twistbox
leases its primary offices in Los Angeles, California from Berkshire Holdings,
LLC, a company with common ownership by Adi McAbian, a director of NeuMedia and
a common stockholder. Amounts paid in connection with this lease were $426,400
and $382,180 for the years ended March 31, 2010 and 2009
respectively.




Loans




As part
of the Merger, NeuMedia agreed to guarantee up to $8,250,000 of
Twistbox’s outstanding debt to ValueAct, with certain amendments.
On July 30, 2007, Twistbox had entered into a Securities Purchase
Agreement by and among Twistbox, the Subsidiary Guarantors, as defined therein,
and ValueAct, pursuant to which ValueAct purchased the
ValueAct Note in the amount of $16,500,000 and the Warrant which
entitled ValueAct to purchase from Twistbox up to a total of 2,401,747 shares of
Twistbox’s common stock.  In connection therewith, Twistbox and
ValueAct had also entered into a Guarantee and Security Agreement by
and among Twistbox, each of the subsidiaries of Twistbox, the Investors, as
defined therein, and ValueAct, as collateral agent, pursuant to which the
parties agreed that the ValueAct Note would be secured by substantially all of
the assets of Twistbox and its subsidiaries. In connection with the
Merger, the Warrant was terminated and we issued two warrants in
place thereof to ValueAct to purchase shares of our common stock. One of
such warrants entitled ValueAct to purchase up to a total of 1,092,622 shares
of our common stock at an exercise price of $7.55 per share. The other
warrant entitled ValueAct to purchase up to a total of 1,092,621 shares
of our common stock at an initial exercise price of $5.00 per
share.  Both warrants were scheduled to expire on July 30, 2011. We
also entered into a Guaranty with ValueAct whereby NeuMedia agreed to guarantee
Twistbox’s payment to ValueAct of up to $8,250,000 of principal under the
ValueAct Note in accordance with the terms, conditions and limitations contained
in the ValueAct Note. The financial covenants of the ValueAct Note were also
amended,  pursuant to which Twistbox is required maintain a cash
balance of not less than $2,500,000 at all times and NeuMedia is
required to maintain a cash balance of not less than $4,000,000 at all
times. ValueAct is one of our greater than 5% stockholders.





On
October 23, 2008, in connection with the AMV Acquisition, NeuMedia, Twistbox and
ValueAct entered into a Second Amendment to the ValueAct Note in the amount of
$16,500,000, which among other things, provided for a payment in kind election
at the option of Twistbox, modified the financial covenants set forth in
the ValueAct Note to require that NeuMedia and Twistbox maintain certain
minimum combined cash balances and provides for certain covenants with respect
to the indebtedness of NeuMedia and its subsidiaries.  Also on October 23,
2008, AMV granted to ValueAct a security interest in its assets to secure
the obligations under the ValueAct Note. In addition, NeuMedia and ValueAct
entered into an allonge to each of those certain warrants issued to ValueAct in
connection with the Merger, which, among other things, amended the exercise
price of each of the warrants to $4.00 per share.


46





On August
14, 2009, the Company and ValueAct entered into a Second Allonge to Warrant to
Purchase 1,092,621 shares of common stock (the “Second Allonge”), which amended
that certain warrant to purchase 1,092,621 shares of the Company’s common stock,
issued to ValueAct on February 12, 2008, as amended (the “ValueAct
Warrant”).  Pursuant to the Second Allonge, the exercise price of the
ValueAct Warrant decreased from $4.00 per share to the lesser of $1.25 per
share, or the exercise price per share for any warrant to purchase shares of the
Company’s common stock issued by the Company to certain other
parties.





On August
14, 2009, NeuMedia, Twistbox and ValueAct entered into a Third Amendment
to the ValueAct Note. Pursuant to the Third Amendment, the maturity date
was changed to July 31, 2010 and the interest rate of the Note increased from
10% to 12.5%.





On
January 25, 2010, NeuMedia, Twistbox and ValueAct entered into a Waiver to
Senior Secured Note (the “Waiver”), pursuant to which ValueAct agreed to waive
certain provisions of the ValueAct Note. Pursuant to the Waiver, subject to
Twistbox’s compliance with certain conditions set forth in the Waiver, certain
rights to prepay the ValueAct Note were extended from January 31, 2010 to March
1, 2010. In addition, subject to Twistbox’s compliance with certain conditions
set forth in the Waiver, the timing obligation of NeuMedia and Twistbox to
comply with the cash covenant set forth in the ValueAct Note was extended to
March 1, 2010 and the minimum cash balance by which Twistbox and NeuMedia must
maintain was increased to $1,600,000.





On
February 25, 2010, Twistbox received a letter (the “Letter”) from ValueAct
alleging certain events of default with respect to the ValueAct Note. The Letter
claimed that an event of default had occurred and was continuing under the
ValueAct Note as  result of certain alleged defaults, including the
failure to provide weekly evidence of compliance with certain of Twistbox’s and
NeuMedia’s covenants under the ValueAct Note, the failure to comply with
limitations on certain payments by NeuMedia and each of its subsidiaries, and
the failure of Twistbox and Neumedia to maintain minimum cash balances in
deposit accounts of each of Twistbox and Neumedia. The Letter also claimed that
the Waiver had ceased to be effective as a result of the alleged failure of
NeuMedia to comply with the conditions set forth in the Waiver.  On
May 10, 2010, Twistbox received from ValueAct a Notice of Event of Default and
Acceleration (“Notice”) in which ValueAct stated that an event of default had
occurred under the ValueAct Note as a result of Twistbox’s and NeuMedia’s
failure to comply with the cash balance covenant under the ValueAct Note and,
therefore, ValueAct accelerated all outstanding amounts payable by Twistbox
under the ValueAct Note.In connection with the
Notice, ValueAct instituted an administration proceeding in the United Kingdom
against AMV.





On
June 21, 2010, NeuMedia sold all of the operating subsidiaries of AMV to an
entity controlled by ValueAct and certain of AMV’s founders in exchange for the
release of $23,000,000 of secured indebtedness, comprising of a release of all
amounts due and payable under the AMV Note and all amounts due and payable under
the VAC Note except for $3,500,000 in principal. In connection with the
Restructure, the ValueAct Note, the Value Act Security Agreement and the Value
Act Guaranty were amended and restated in their entirety. In addition, all
warrants and common stock of NeuMedia held by ValueAct were cancelled and all
warrants and common stock of NeuMedia held by AMV founders Nate MacLeitch and
Jonathan Cresswell were repurchased by NeuMedia for a price of $0.02 per
share.





The
Amended ValueAct Note matures on June 21, 2013 and bears interest at 10% payable
in cash semi-annually in arrears on each January 1 and July 1 that the Amended
ValueAct Note is outstanding. Twistbox may prepay the Amended ValueAct Note in
whole or in part at any time without penalty. Notwithstanding the
foregoing, at any time on or prior to January 1, 2012, Twistbox may, at its
option, in lieu of making any cash payment of interest, elect that the amount of
any interest due and payable on any interest payment date on or prior to January
1, 2012 be added to the principal due under the Amended ValueAct
Note.  In the event of a Fundamental Change (as defined therein) of
Twistbox, the holder of the Amended ValueAct Note will have the right for a
period of thirty days to require Twistbox to repurchase the Amended ValueAct
Note at a price equal to 100% of the outstanding principal and all accrued and
unpaid interest.





The above
description of the Restructure does not purport to be complete and is qualified
in its entirety by reference to the Current Report on Form 8-K filed by us on
June 23, 2010, which is incorporated by reference herein.




Director
Independence





Of
the 5 members on our Board of Directors, none of the directors are
independent directors based on the listing standards of the NYSE
Alternext.





ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES





Effective
May 28, 2008, the Board approved the engagement of Grobstein Horwath &
Company LLP (“ Grobstein” ) as the Company’s new independent registered public
accounting firm to provide audit services for the Company. We engaged Grobstein
to audit our financial statements for the Transition Period Ended March 31,
2008. Raiche Ende Malter & Co. LLP conducted the reviews of our annual
financial statements and other audit related services for the fiscal years ended
December 31, 2007 and 2006.


47





Effective
February 15, 2009, the Company's Board of Directors approved the engagement of
Crowe Horwath LLP ("Crowe") as the Company's new independent certified
registered public accounting firm due to the acquisition of certain assets of
Grobstein, the Company's former independent certified public accounting firm.
Grobstein resigned as the Company's independent certified public accounting firm
simultaneous with the engagement of Crowe.





On
June 2, 2009, the Company dismissed Crowe as the Company's independent
registered public accounting firm. The decision to change accountants was
approved by the Company's Board of Directors.  No reports issued by
Crowe during the time that it served as the Company's principal accountant, from
February 15, 2009 to June 2, 2009, contained an adverse opinion or disclaimer of
opinion, nor were any reports issued by Crowe qualified or modified as to
uncertainty, audit scope, or accounting principles. During the time that Crowe
served as the Company's principal accountant, there were no disagreements with
Crowe on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Crowe, would have caused Crowe to make reference to the
subject matter of the disagreements in connection with its reports on the
Company's financial statements during such periods. None of the events described
in Item 304(a)(1)(iv) or (v) of Regulation S-K occurred during the period that
Crowe served as the Company's principal accountant.





Effective
June 2, 2009, the Company engaged Singer Lewak, LLP ("Singer") as the Company's
new independent registered public accounting firm to provide audit services for
the Company. During the period that Crowe served as the Company's principal
accountant, the Company did not consult with Singer regarding the application of
accounting principles to a specific transaction, or type of audit opinion that
might be rendered on the Company's financial statements and no written or oral
advice was provided by Singer that was a factor considered by the Company in
reaching a decision as to accounting, auditing or financial reporting issues,
and the Company did not consult with Singer on or regarding any of the matters
set forth in Item 304(a)(2)(i) or (ii) of Regulation S-K.





The
Company subsequently engaged Crowe to complete certain specific audit procedures
related to amended historical filings.




Fees





Aggregate
fees for professional services rendered to us by Singer, MacIntrye Hudson
LLP,  Grobstein and Raiche Ende Malter & Co. LLP for the Year
Ended March 31, 2009 were:




Year
                        Ended
                        March
                        31,
                        2009Audit
      fees
                      
                      
                      400,436Audit
      related fees
                      
                      
                      3,695Tax
      fees
                      
                      
                      8,840All
      other fees
                      
                      
                      17,679Total
                      
                      $
                      430,650





Aggregate
fees for professional services rendered to us by Singer and Crowe for the Year
Ended March 31, 2010 were:




Year
                    Ended
                    March
                    31,
                    2010Audit
      fees
                  
                  
                  272,674Audit
      related fees
                  
                  
                  137,971Tax
      fees
                  
                  
                  -All
      other fees
                  
                  
                  -Total
                  
                  $
                  410,645


48





Policy
on Pre-Approval of Audit and Permissible Non-audit Services of Independent
Auditors




Consistent
with the SEC policies regarding auditor independence, the Board of Directors has
responsibility for appointing, setting compensation and overseeing the work of
the independent auditor. In recognition of this responsibility, the Board of
Directors has established a policy to pre-approve all audit and permissible
non-audit services provided by the independent auditor.




Prior to
engagement of the independent auditor for the next year’s audit, management will
submit an aggregate of services expected to be rendered during that year for
each of the following four categories of services to the Board of Directors for
approval.




1.  
Audit
services include audit work performed in the preparation of financial
statements, as well as work that generally only the independent auditor can
reasonably be expected to provide, including comfort letters, statutory audits,
and attest services and consultation regarding financial accounting and/or
reporting standards.




2.  
Audit-Related
services are for assurance and related services that are traditionally performed
by the independent auditor, including due diligence related to mergers and
acquisitions, employee benefit plan audits, and special procedures required to
meet certain regulatory requirements.




3.  
Tax
services include all services performed by the independent auditor’s tax
personnel except those services specifically related to the audit of the
financial statements, and includes fees in the areas of tax compliance, tax
planning, and tax advice.




4.  
Other
Fees are those associated with services not captured in the other
categories.





Prior to
engagement, the Board of Directors pre-approves these services by category of
service. The fees are budgeted and the Board of Directors requires the
independent auditor and management to report actual fees versus the budget
periodically throughout the year by category of service. During the year,
circumstances may arise when it may become necessary to engage the independent
auditor for additional services not contemplated in the original pre-approval.
In those instances, the Board of Directors requires specific pre-approval before
engaging the independent auditor.




The Board
of Directors may delegate pre-approval authority to one or more of its members.
The member to whom such authority is delegated must report, for informational
purposes only, any pre-approval decisions to the Board of Directors at its next
scheduled meeting.




Our Board
of Directors pre-approved the retention of the independent
auditors for all audit and audit-related services during fiscal 2009 and
2010.




ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





(a) The
following documents are filed as part of this Annual Report on
Form 10-K.





(1)Financial
Statements: The list of financial statements required by this item is set forth
in Item 8.




(2)Financial
Statement Schedules: All financial statement schedules called for under
Regulation S-X are not required under the related instructions, are not
material or are not applicable and, therefore, have been omitted or are included
in the consolidated financial statements or notes thereto included elsewhere in
this Annual Report on Form 10-K.





(3)Exhibits:
See Item 15(b) below.





(b)  The
following documents are filed as exhibits to this Annual Report on Form 10-K or
have been previously filed with the SEC as indicated and are incorporated herein
by reference:




Exhibit
                    No.
                  
                  Description2.1
                  
                  Amended
      Disclosure Statement filed with the United States Bankruptcy Court for the
      Southern District of New York. 12.2
                  
                  Amended
      Plan of Reorganization filed with the United States Bankruptcy Court for
      the Southern District of New York 12.3
                  
                  Order
      Confirming Amended Plan of Reorganization issued by the United States
      Bankruptcy Court for the Southern District of New York. 1


49






2.4
                
                Plan
      and Agreement of Merger, dated September 27, 2007, of NeuMedia Media,
      Inc., a Delaware corporation, and Mediavest, Inc., a New Jersey
      corporation. 22.5
                
                Certificate
      of Merger merging Mediavest, Inc., a New Jersey corporation, with and into
      NeuMedia Media, Inc., a Delaware corporation, as filed with the Secretary
      of State of the State of Delaware. 22.6
                
                Certificate
      of Merger merging Mediavest, Inc., a New Jersey corporation, with and into
      NeuMedia Media, Inc., a Delaware corporation, as filed with the Secretary
      of State of the State of New Jersey. 22.7
                
                Agreement
      and Plan of Merger, dated as of December 31, 2007, by and among NeuMedia
      Media, Inc., Twistbox Acquisition, Inc., Twistbox Entertainment, Inc. and
      Adi McAbian and Spark Capital, L.P. 32.8
                
                Amendment
      to Agreement and Plan of Merger, dated as of February 12, 2008, by and
      among NeuMedia Media, Inc., Twistbox Acquisition, Inc., Twistbox
      Entertainment, Inc. and Adi McAbian and Spark Capital, L.P. 43.1
                
                Certificate
      of Incorporation. 23.2
                
                Bylaws.
      24.1
                
                Form
      of Warrant to Purchase Common Stock dated September 14, 2006. 54.2
                
                Form
      of Warrant to Purchase Common Stock dated October 12, 2006. 64.3
                
                Form
      of Warrant to Purchase Common Stock dated December 26, 2006. 74.4
                
                Form
      of Warrant Issued to David Chazen to Purchase Common Stock dated August 3,
      2006. 84.5
                
                Form
      of Warrant issued to Investors, dated October 23, 2008. 94.6
                
                Warrant
      dated September 23, 2008 issued to Vivid Entertainment, LLC. 234.7
                
                Form
      of Warrant issued to Investors, dated June 21, 2010. 254.8
                
                Form
      of Senior Secured Convertible Note due June 21, 213. 254.9
                
                Amended
      and Restated Senior Subordinated Secured Note due June 21, 2013, by
      Twistbox Entertainment, Inc. in favor of ValueAct SmallCap Master Fund,
      L.P. 2510.1
                
                2007
      Employee, Director and Consultant Stock Plan. 210.1.1
                
                Form
      of Non-Qualified Stock Option Agreement. 210.2
                
                Amendment
      to 2007 Employee, Director and Consultant Stock Plan. 410.3
                
                Second
      Amendment to 2007 Employee, Director and Consultant Stock Plan. 1010.4
                
                Form
      of Restricted Stock Agreement. 1110.5
                
                Twistbox
      2006 Stock Incentive Plan. 410.6
                
                Form
      of Stock Option Agreement for Twistbox 2006 Stock Incentive Plan. 410.7
                
                Loan
      Agreement with Trinad Capital Master Fund, Ltd., dated March 20, 2006.
      1210.8
                
                Form
      of Subscription Agreement between the Company and certain investors listed
      thereto dated September 14, 2006.  510.9
                
                Form
      of Subscription Agreement between the Company and certain investors listed
      thereto dated October 12, 2006. 610.10
                
                Series
      A Convertible Preferred Stock Purchase Agreement dated October 12, 2006
      between the Company and Trinad Management, LLC. 6


50





10.11
                            
                            Form
      of Subscription Agreement between the Company and certain investors listed
      thereto dated December 26, 2006.  710.12
                            
                            Form
      of Subscription Agreement between the Company and certain investors listed
      thereto. 1310.13
                            
                            Employment
      Letter, by and between the Company and James Lefkowitz, dated as of June
      28, 2007. 1410.14
                            
                            Salary
      Reduction Letter by and between Mandalay Media, Inc. and James Lefkowitz,
      dated March 16, 2009. 1110.15
                            
                            Securities
      Purchase Agreement, dated July 30, 2007, by and among Twistbox
      Entertainment, Inc., the Subsidiary Guarantors and ValueAct SmallCap
      Master Fund, L.P. 410.16
                            
                            Guarantee
      and Security Agreement, dated July 30, 2007 by and among Twistbox
      Entertainment, Inc., each of the Subsidiaries party thereto, the Investor
      party thereto and ValueAct SmallCap Master Fund, L.P. 410.17
                            
                            Control
      Agreement, dated July 30, 2007, by and among Twistbox Entertainment. Inc.
      and ValueAct SmallCap Master Fund, L.P. to East West Bank. 410.18
                            
                            Trademark
      Security Agreement, dated July 30, 2007, by Twistbox, in favor of ValueAct
      SmallCap Master Fund, L.P.  410.19
                            
                            Copyright
      Security Agreement, dated July 30, 2007, by Twistbox in favor of ValueAct
      SmallCap Master Fund, L.P. 410.20
                            
                            Guaranty
      given as of February 12, 2008, by Mandalay Media, Inc. to ValueAct
      SmallCap Master Fund, L.P. 410.21
                            
                            Termination
      Agreement, dated as of February 12, 2008, by and between Twistbox
      Entertainment, Inc. and ValueAct SmallCap Master Fund, L.P. 410.22
                            
                            Waiver
      to Guarantee and Security Agreement, dated February 12, 2008, by and
      between Twistbox Entertainment, Inc. and ValueAct SmallCap Master Fund,
      L.P. 410.23
                            
                            Standard
      Industrial/Commercial Multi-Tenant Lease, dated July 1, 2005, by and
      between Berkshire Holdings, LLC and The WAAT Corp. 410.24
                            
                            Letter
      Agreement, dated May 16, 2006, between The WAAT Corp. and Adi McAbian.
      410.25
                            
                            Amendment
      to Employment Agreement by and between Twistbox Entertainment, Inc. and
      Adi McAbian, dated as of December 31, 2007. 410.26
                            
                            Second
      Amendment to Employment Agreement, dated February 12, 2008, by and between
      Twistbox Entertainment, Inc. and Adi McAbian. 410.27
                            
                            Letter
      Agreement, dated May 16, 2006 between The WAAT Corp. and Ian Aaron. 410.28
                            
                            Salary
      Reduction Letter by and between Mandalay Media, Inc. and Ian Aaron, dated
      March 16, 2009. 1110.29
                            
                            Amendment
      to Employment Agreement, by and between Twistbox Entertainment, Inc. and
      Ian Aaron, dated as of December 31, 2007. 410.30
                            
                            Second
      Amendment to Employment Agreement by and between Twistbox Entertainment,
      Inc. and Ian Aaron, dated February 12, 2008. 410.31
                            
                            Employment
      Agreement, dated May 9, 2006, between Charismatix and Eugen Barteska.
      410.32
                            
                            Employment
      Agreement, dated June 5, 2006, between The WAAT Corp. and David Mandell.
      410.33
                            
                            First
      Amendment to Employment Agreement, by and between Twistbox Entertainment,
      Inc. and David Mandell, dated February 12, 2008. 410.34
                            
                            Employment
      Agreement, dated December 11, 2006 between Twistbox and Russell Burke.
      410.35
                            
                            First
      Amendment to Employment Agreement by and between Twistbox Entertainment,
      Inc. and Russell Burke, dated February 12, 2008. 4


51





10.36
              
              Directory
      Agreement, dated as of May 1, 2003, between Vodafone Global Content
      Services Limited and The WAAT Corporation. 410.37
              
              Contract
      Acceptance Notice - Master Global Content Reseller Agreement by Vodafone
      Hungary Ltd. 410.38
              
              Master
      Global Content Agency Agreement, effective as of December 17, 2004,
      between Vodafone Group Services Limited and The WAAT Media Corporation.
      410.39
              
              Letter
      of Amendment, dated February 27, 2007, by and between WAAT Media
      Corporation and Vodafone UK Content Services Limited. 410.40
              
              Content
      Schedule, dated December 17, 2004, by and between WAAT Media Corporation
      and Vodafone Group Services Limited. 410.41
              
              Contract
      Acceptance Notice - Master Global Content Agency Agreement by Vodafone D2
      GmbH. 410.42
              
              Contract
      Acceptance Notice - Master Global Content Agency Agreement by Vodafone
      Sverige AB. 410.43
              
              Master
      Global Content Reseller Agreement, effective January 17, 2005, between
      Vodafone Group Services Limited and The WAAT Corporation. 410.44
              
              Contract
      Acceptance Notice - Master Global Content Agency Agreement by Vodafone New
      Zealand Limited. 410.45
              
              Contract
      Acceptance Notice - Master Global Content Agency Agreement by Vodafone
      España, S.A. 410.46
              
              Contract
      Acceptance Notice - Master Global Content Reseller Agreement by Vodafone
      UK Content Services LTD. 410.47
              
              Contract
      Acceptance Notice - Master Global Content Reseller Agreement by
      VODAFONE-PANAFON Hellenic Telecommunications Company S.A. 410.48
              
              Content
      Schedule, dated January 17, 2005, by and between WAAT Media Corporation
      and Vodafone Group Services Limited. 410.49
              
              Contract
      Acceptance Notice - Master Global Content Agency Agreement by Belgacom
      Mobile NV. 410.50
              
              Content
      Schedule, dated January 17, 2005, by and between WAAT Media Corporation
      and Vodafone Group Services Limited. 410.51
              
              Contract
      Acceptance Notice - Master Global Content Agency Agreement by Swisscom
      Mobile. 410.52
              
              Linking
      Agreement, dated November 1, 2006 between Vodafone Libertel NV and
      Twistbox Entertainment, Inc. 410.53
              
              Agreement,
      dated as of March 23, 2007, between Twistbox Entertainment, Inc. and
      Vodafone Portugal - COMUNICAÇÕES PESSOAIS, S.A 410.54
              
              Contract
      for Content Hosting and Services “Applications and Games Services,”
      effective August 27, 2007 between Vodafone D2 GmbH and Twistbox Games Ltd
      & Co. KG. 410.55
              
              Partner
      Agreement, dated August 27, 2007, by and between Vodafone D2 GmbH and
      Twistbox. 410.56
              
              Letter
      of Amendment, dated February 25, 2006 by and between WAAT Media
      Corporation and Vodafone UK Content Services Limited. 410.57
              
              Letter
      of Amendment, dated August 2007, by and between WAAT Media Corporation and
      Vodafone UK Content Services Limited. 410.58
              
              Content
      Schedule, dated December 17, 2004, by and between WAAT Media Corporation
      and Vodafone Group Services Limited. 410.59
              
              Consolidated
      financial statements of Twistbox Entertainment, Inc. for the fiscal years
      ended March 31, 2006 and March 31, 2007. 410.60
              
              Consolidated
      financial statements of Twistbox Entertainment, Inc. for the six months
      ended September 20, 2006 and September 30, 2007. 410.61
              
              Stock
      Purchase Agreement, by and among Mandalay Media, Inc., Jonathan Cresswell,
      Nathaniel MacLeitch and the shareholders of AMV Holding Limited
      signatories thereto, dated as of October 8, 2008. 15


52





10.62
              
              Amendment
      to the Stock Purchase Agreement, between Mandalay Media, Inc. and
      Nathaniel MacLeitch as the Sellers’ Representative, dated as of October
      23, 2008. 910.63
              
              Employment
      Agreement, by and between AMV Holding Limited and Nathaniel MacLeitch,
      dated as of October 23, 2008. 910.64
              
              Employment
      Agreement, by and between AMV Holding Limited and Jonathan Cresswell
      (a/k/a Jack Cresswell), dated as of October 23, 2008. 910.65
              
              Securities
      Purchase Agreement, by and among Mandalay Media, Inc. and the investors
      set forth therein, dated as of October 23, 2008. 910.66
              
              Note,
      dated October 23, 2008, issued by Mandalay Media, Inc. to Nathaniel
      MacLeitch, as the Sellers’ Representative. 910.67
              
              Management
      Agreement dated September 14, 2006 between the Company and Trinad
      Management, LLC. 510.68
              
              Commercial
      Lease Agreement, dated as of March 1, 2007, between Trinad Management LLC
      and Mediavest, Inc. 1610.69
              
              First
      Amendment to Promissory Note, dated August 14, 2009, issued by Mandalay
      Media, Inc. to Nathaniel MacLeitch, as the Sellers’ Representative.2110.70
              
              Severance
      and Release Agreement, by and among Mandalay Media, Inc., Twistbox
      Entertainment, Inc. and Ian Aaron, dated as of October 7, 2009.2210.71
              
              Waiver
      to Senior Secured Note by and among Mandalay Media, Inc., Twistbox
      Entertainment, Inc. and ValueAct SmallCap Master Fund, L.P., dated as
      of January 25, 2010.2410.72
              
              Agreement,
      dated as of June 21, 2010, between ValueAct SmallCap Master Fund, L.P.,
      NeuMedia, Inc., Jonathan Cresswell, Nathaniel MacLeitch, Robert Ellin,
      Trinad Management, LLC, Trinad Capital Master Fund, Ltd. and the Guber
      Family Trust. 2510.73
              
              Mutual
      Release, dated as of June 21, 2010, among ValueAct SmallCap Master Fund,
      L.P., Antiphony (Management Holdings) Limited, Nathaniel MacLeitch,
      Jonathan Cresswell, NeuMedia, Inc., Twistbox Entertainment, Inc., Peter
      Guber, Robert Ellin, Paul Schaeffer, Adi McAbian, Richard Spitz, Ray
      Schaaf, Keith McCurdy, Russell Burke, James Lefkowitz and Trinad
      Management. 2510.74
              
              Subordination
      Agreement, dated as of June 21, 2010, by and between Trinad Capital Master
      Fund, Ltd., and ValueAct SmallCap Master Fund, L.P., and each of NeuMedia,
      Inc. and Twistbox Entertainment, Inc.2510.74
              
              Deed
      Poll Release, dated as of June 21, 2010, between NeuMedia, Inc., Twistbox
      Entertainment, Inc., James Lefkowitz and Russell Burke.2510.74
              
              Non-Competition
      Agreement, dated as of June 21, 2010, among NeuMedia, Inc., Antiphony
      (Management Holdings) Limited,  Jack Cresswell and Nate
      MacLeitch.2510.74
              
              Earn-Out
      Termination Letter Agreement, dated as of June 21, 2010, among ValueAct
      SmallCap Master Fund, L.P., NeuMedia, Inc., Jonathan Cresswell, Nathaniel
      MacLeitch and certain other parties.2510.74
              
              Amended
      and Restated Guaranty, dated as of June 21, 2010, by NeuMedia, Inc. to
      ValueAct SmallCap Master Fund, L.P.2510.74
              
              Letter
      Agreement, dated as of June 21, 2010, between ValueAct SmallCap Master
      Fund, L.P., NeuMedia, Inc., Rob Ellin and Trinad Management, LLC.2510.74
              
              Amended
      and Restated Guarantee and Security Agreement, dated as of June 21, 2010,
      among Twistbox Entertainment, Inc., NeuMedia, Inc. and each of its
      subsidiaries identified on Schedule I as being a subsidiary guarantor, the
      investors party thereto and ValueAct SmallCap Master Fund, L.P.2510.74
              
              Guarantee
      and Security Agreement, dated as of June 21, 2010, among Twistbox
      Entertainment, Inc., NeuMedia, Inc., each of the subsidiaries thereof
      party thereto, the investors party thereto and Trinad Capital Management,
      LLC.16.1
              
              Letter
      dated May 11, 2007 from Most & Company, LLP to the Securities and
      Exchange Commission. 1716.2
              
              Letter
      regarding change in certifying accountant, dated June 2, 2008 from Raich
      Ende Malter & Co. LLP. 18


53





16.3
              
              Letter
      from Grobstein Horwath & Company LLP, dated February 20, 2009. 1916.4
              
              Letter
      regarding change in certifying accountant, dated June 4, 2009 from Crowe
      Horwath, LLP. 2021
              
              List
      of Subsidiaries *31.1
              
              Certification
      of Ray Schaaf, Principal Executive Officer. *31.2
              
              Certification
      of  Russell Burke, Principal Financial Officer. *32.1
              
              Certification
      of Ray Schaaf, Principal Executive Officer pursuant to U.S.C. Section
      1350. *32.2
              
              Certification
      of Russell Burke, Principal Financial Officer pursuant to U.S.C. Section
      1350. *




* Filed
herewith





(1)
Incorporated by reference to the Registrant’s Annual Report on Form 10-KSB (File
No. 000-10039), filed with the Commission on December 2, 2005.


(2)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on November 14, 2007.


(3)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on January 2, 2008.


(4)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on February 12,
2008.


(5)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on September 20, 2006.


(6)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on October 18, 2006.


(7)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on January 3, 2007.


(8)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on August 9, 2006.


(9)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on October 27, 2008.


(10)
Incorporated by reference to our Current Report on Form 8-K (File No. 000-10039
), filed with the Commission on March 28, 2008.


(11)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on March 20, 2009.


(12)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on March 23, 2006.


(13)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on July 30, 2007.


(14)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on July 3, 2007.


(15)
Incorporated by reference to our Current Report on Form 8-K (File No. 000-10039
), filed with the Commission on October 15, 2008.


(16)
Incorporated by reference to our Registrant’s Transition Report on Form
10-KT (File No. 000-10039), filed with the Commission on July 15,
2008.


(17)
Incorporated by reference to our Current Report on Form 8-K (File No. 000-10039
), filed with the Commission on May 16, 2007.


(18)
Incorporated by reference to our Current Report on Form 8-K (File No. 000-10039
), filed with the Commission on June 2, 2008.


(19)
Incorporated by reference to our Current Report on Form 8-K (File No. 000-10039
), filed with the Commission on February 23, 2009.


(20)
Incorporated by reference to our Current Report on Form 8-K (File No. 000-10039
), filed with the Commission on June 4, 2009.


(21)
Incorporated by reference to our Quarterly Report on Form 10-Q (File No.
000-10039 ), filed with the Commission on August 14, 2009.


(22)
Incorporated by reference to our Current Report on Form 8-K (File No. 000-10039
), filed with the Commission on October 14, 2009.


(23)
Incorporated by reference to our Quarterly Report on Form 10-Q (File No.
000-10039 ), filed with the Commission on November 16, 2009.


(24)
Incorporated by reference to our Current Report on Form 8-K (File No. 000-10039
), filed with the Commission on January 28, 2010.


(25)
Incorporated by reference to our Current Report on Form 8-K (File No. 000-10039
), filed with the Commission on June 23, 2010.





(c)
Financial Statement Schedules. Reference is made to Item 15(a)(2)
above.


54





SIGNATURES




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





NeuMedia,
      Inc.Dated:
      July 14, 2010By:
              /s/ Ray SchaafPresident
                (Principal
      Executive Officer)




Pursuant
to the requirements of the Exchange Act, this Report has been signed below by
the following persons in the capacities and on the dates indicated.





Signatures
              
              Title
              
              Date/s/ Robert S. Ellin
              
              Co-
      Chairman of the Board
              
              July
      14, 2010Robert
      S. Ellin/s/ Peter Guber
              
              Co-Chairman
      of the Board
              
              July
      14, 2010Peter
      Guber/s/ Ray Schaaf
              
              President
              
              July
      14, 2010Ray
      Schaaf
              
              (Principal
      Executive Officer)/s/ Russell Burke
              
              Chief
      Financial Officer
              
              July
      14, 2010Russell
      Burke
              
              (Principal
      Financial Officer and Principal Accounting Officer)/s/ Ray Schaaf
              
              Director
              
              July
      14, 2010Ray
      Schaaf/s/ Paul Schaeffer
              
              Director
              
              July
      14, 2010Paul
      Schaeffer/s/ Adi McAbian
              
              Director
              
              July
      14, 2010Adi
      McAbian


55




EXHIBIT
INDEX




Exhibit
                      No.
                    
                    Description2.1
                    
                    Amended
      Disclosure Statement filed with the United States Bankruptcy Court for the
      Southern District of New York. 12.2
                    
                    Amended
      Plan of Reorganization filed with the United States Bankruptcy Court for
      the Southern District of New York 12.3
                    
                    Order
      Confirming Amended Plan of Reorganization issued by the United States
      Bankruptcy Court for the Southern District of New York. 12.4
                    
                    Plan
      and Agreement of Merger, dated September 27, 2007, of NeuMedia Media,
      Inc., a Delaware corporation, and Mediavest, Inc., a New Jersey
      corporation. 22.5
                    
                    Certificate
      of Merger merging Mediavest, Inc., a New Jersey corporation, with and into
      NeuMedia Media, Inc., a Delaware corporation, as filed with the Secretary
      of State of the State of Delaware. 22.6
                    
                    Certificate
      of Merger merging Mediavest, Inc., a New Jersey corporation, with and into
      NeuMedia Media, Inc., a Delaware corporation, as filed with the Secretary
      of State of the State of New Jersey. 22.7
                    
                    Agreement
      and Plan of Merger, dated as of December 31, 2007, by and among NeuMedia
      Media, Inc., Twistbox Acquisition, Inc., Twistbox Entertainment, Inc. and
      Adi McAbian and Spark Capital, L.P. 32.8
                    
                    Amendment
      to Agreement and Plan of Merger, dated as of February 12, 2008, by and
      among NeuMedia Media, Inc., Twistbox Acquisition, Inc., Twistbox
      Entertainment, Inc. and Adi McAbian and Spark Capital, L.P. 43.1
                    
                    Certificate
      of Incorporation. 23.2
                    
                    Bylaws.
      24.1
                    
                    Form
      of Warrant to Purchase Common Stock dated September 14, 2006. 54.2
                    
                    Form
      of Warrant to Purchase Common Stock dated October 12, 2006. 64.3
                    
                    Form
      of Warrant to Purchase Common Stock dated December 26, 2006. 74.4
                    
                    Form
      of Warrant Issued to David Chazen to Purchase Common Stock dated August 3,
      2006. 84.5
                    
                    Form
      of Warrant issued to Investors, dated October 23, 2008. 94.6
                    
                    Warrant
      dated September 23, 2008 issued to Vivid Entertainment, LLC. 234.7
                    
                    Form
      of Warrant issued to Investors, dated June 21, 2010. 254.8
                    
                    Form
      of Senior Secured Convertible Note due June 21, 213. 254.9
                    
                    Amended
      and Restated Senior Subordinated Secured Note due June 21, 2013, by
      Twistbox Entertainment, Inc. in favor of ValueAct SmallCap Master Fund,
      L.P. 2510.1
                    
                    2007
      Employee, Director and Consultant Stock Plan. 210.1.1
                    
                    Form
      of Non-Qualified Stock Option Agreement. 210.2
                    
                    Amendment
      to 2007 Employee, Director and Consultant Stock Plan. 410.3
                    
                    Second
      Amendment to 2007 Employee, Director and Consultant Stock Plan. 1010.4
                    
                    Form
      of Restricted Stock Agreement. 11


56





10.5
                      
                      Twistbox
      2006 Stock Incentive Plan. 410.6
                      
                      Form
      of Stock Option Agreement for Twistbox 2006 Stock Incentive Plan. 410.7
                      
                      Loan
      Agreement with Trinad Capital Master Fund, Ltd., dated March 20, 2006.
      1210.8
                      
                      Form
      of Subscription Agreement between the Company and certain investors listed
      thereto dated September 14, 2006.  510.9
                      
                      Form
      of Subscription Agreement between the Company and certain investors listed
      thereto dated October 12, 2006. 610.10
                      
                      Series
      A Convertible Preferred Stock Purchase Agreement dated October 12, 2006
      between the Company and Trinad Management, LLC. 610.11
                      
                      Form
      of Subscription Agreement between the Company and certain investors listed
      thereto dated December 26, 2006.  710.12
                      
                      Form
      of Subscription Agreement between the Company and certain investors listed
      thereto. 1310.13
                      
                      Employment
      Letter, by and between the Company and James Lefkowitz, dated as of June
      28, 2007. 1410.14
                      
                      Salary
      Reduction Letter by and between Mandalay Media, Inc. and James Lefkowitz,
      dated March 16, 2009. 1110.15
                      
                      Securities
      Purchase Agreement, dated July 30, 2007, by and among Twistbox
      Entertainment, Inc., the Subsidiary Guarantors and ValueAct SmallCap
      Master Fund, L.P. 410.16
                      
                      Guarantee
      and Security Agreement, dated July 30, 2007 by and among Twistbox
      Entertainment, Inc., each of the Subsidiaries party thereto, the Investor
      party thereto and ValueAct SmallCap Master Fund, L.P. 410.17
                      
                      Control
      Agreement, dated July 30, 2007, by and among Twistbox Entertainment. Inc.
      and ValueAct SmallCap Master Fund, L.P. to East West Bank. 410.18
                      
                      Trademark
      Security Agreement, dated July 30, 2007, by Twistbox, in favor of ValueAct
      SmallCap Master Fund, L.P.  410.19
                      
                      Copyright
      Security Agreement, dated July 30, 2007, by Twistbox in favor of ValueAct
      SmallCap Master Fund, L.P. 410.20
                      
                      Guaranty
      given as of February 12, 2008, by Mandalay Media, Inc. to ValueAct
      SmallCap Master Fund, L.P. 410.21
                      
                      Termination
      Agreement, dated as of February 12, 2008, by and between Twistbox
      Entertainment, Inc. and ValueAct SmallCap Master Fund, L.P. 410.22
                      
                      Waiver
      to Guarantee and Security Agreement, dated February 12, 2008, by and
      between Twistbox Entertainment, Inc. and ValueAct SmallCap Master Fund,
      L.P. 410.23
                      
                      Standard
      Industrial/Commercial Multi-Tenant Lease, dated July 1, 2005, by and
      between Berkshire Holdings, LLC and The WAAT Corp. 410.24
                      
                      Letter
      Agreement, dated May 16, 2006, between The WAAT Corp. and Adi McAbian.
      410.25
                      
                      Amendment
      to Employment Agreement by and between Twistbox Entertainment, Inc. and
      Adi McAbian, dated as of December 31, 2007. 410.26
                      
                      Second
      Amendment to Employment Agreement, dated February 12, 2008, by and between
      Twistbox Entertainment, Inc. and Adi McAbian. 410.27
                      
                      Letter
      Agreement, dated May 16, 2006 between The WAAT Corp. and Ian Aaron. 410.28
                      
                      Salary
      Reduction Letter by and between Mandalay Media, Inc. and Ian Aaron, dated
      March 16, 2009. 1110.29
                      
                      Amendment
      to Employment Agreement, by and between Twistbox Entertainment, Inc. and
      Ian Aaron, dated as of December 31, 2007. 4


57





10.30
              
              Second
      Amendment to Employment Agreement by and between Twistbox Entertainment,
      Inc. and Ian Aaron, dated February 12, 2008. 410.31
              
              Employment
      Agreement, dated May 9, 2006, between Charismatix and Eugen Barteska.
      410.32
              
              Employment
      Agreement, dated June 5, 2006, between The WAAT Corp. and David Mandell.
      410.33
              
              First
      Amendment to Employment Agreement, by and between Twistbox Entertainment,
      Inc. and David Mandell, dated February 12, 2008. 410.34
              
              Employment
      Agreement, dated December 11, 2006 between Twistbox and Russell Burke.
      410.35
              
              First
      Amendment to Employment Agreement by and between Twistbox Entertainment,
      Inc. and Russell Burke, dated February 12, 2008. 410.36
              
              Directory
      Agreement, dated as of May 1, 2003, between Vodafone Global Content
      Services Limited and The WAAT Corporation. 410.37
              
              Contract
      Acceptance Notice - Master Global Content Reseller Agreement by Vodafone
      Hungary Ltd. 410.38
              
              Master
      Global Content Agency Agreement, effective as of December 17, 2004,
      between Vodafone Group Services Limited and The WAAT Media Corporation.
      410.39
              
              Letter
      of Amendment, dated February 27, 2007, by and between WAAT Media
      Corporation and Vodafone UK Content Services Limited. 410.40
              
              Content
      Schedule, dated December 17, 2004, by and between WAAT Media Corporation
      and Vodafone Group Services Limited. 410.41
              
              Contract
      Acceptance Notice - Master Global Content Agency Agreement by Vodafone D2
      GmbH. 410.42
              
              Contract
      Acceptance Notice - Master Global Content Agency Agreement by Vodafone
      Sverige AB. 410.43
              
              Master
      Global Content Reseller Agreement, effective January 17, 2005, between
      Vodafone Group Services Limited and The WAAT Corporation. 410.44
              
              Contract
      Acceptance Notice - Master Global Content Agency Agreement by Vodafone New
      Zealand Limited. 410.45
              
              Contract
      Acceptance Notice - Master Global Content Agency Agreement by Vodafone
      España, S.A. 410.46
              
              Contract
      Acceptance Notice - Master Global Content Reseller Agreement by Vodafone
      UK Content Services LTD. 410.47
              
              Contract
      Acceptance Notice - Master Global Content Reseller Agreement by
      VODAFONE-PANAFON Hellenic Telecommunications Company S.A. 410.48
              
              Content
      Schedule, dated January 17, 2005, by and between WAAT Media Corporation
      and Vodafone Group Services Limited. 410.49
              
              Contract
      Acceptance Notice - Master Global Content Agency Agreement by Belgacom
      Mobile NV. 410.50
              
              Content
      Schedule, dated January 17, 2005, by and between WAAT Media Corporation
      and Vodafone Group Services Limited. 410.51
              
              Contract
      Acceptance Notice - Master Global Content Agency Agreement by Swisscom
      Mobile. 410.52
              
              Linking
      Agreement, dated November 1, 2006 between Vodafone Libertel NV and
      Twistbox Entertainment, Inc. 410.53
              
              Agreement,
      dated as of March 23, 2007, between Twistbox Entertainment, Inc. and
      Vodafone Portugal - COMUNICAÇÕES PESSOAIS, S.A 410.54
              
              Contract
      for Content Hosting and Services “Applications and Games Services,”
      effective August 27, 2007 between Vodafone D2 GmbH and Twistbox Games Ltd
      & Co. KG. 410.55
              
              Partner
      Agreement, dated August 27, 2007, by and between Vodafone D2 GmbH and
      Twistbox. 4


58





10.56
                  
                  Letter
      of Amendment, dated February 25, 2006 by and between WAAT Media
      Corporation and Vodafone UK Content Services Limited. 410.57
                  
                  Letter
      of Amendment, dated August 2007, by and between WAAT Media Corporation and
      Vodafone UK Content Services Limited. 410.58
                  
                  Content
      Schedule, dated December 17, 2004, by and between WAAT Media Corporation
      and Vodafone Group Services Limited. 410.59
                  
                  Consolidated
      financial statements of Twistbox Entertainment, Inc. for the fiscal years
      ended March 31, 2006 and March 31, 2007. 410.60
                  
                  Consolidated
      financial statements of Twistbox Entertainment, Inc. for the six months
      ended September 20, 2006 and September 30, 2007. 410.61
                  
                  Stock
      Purchase Agreement, by and among Mandalay Media, Inc., Jonathan Cresswell,
      Nathaniel MacLeitch and the shareholders of AMV Holding Limited
      signatories thereto, dated as of October 8, 2008. 1510.62
                  
                  Amendment
      to the Stock Purchase Agreement, between Mandalay Media, Inc. and
      Nathaniel MacLeitch as the Sellers’ Representative, dated as of October
      23, 2008. 910.63
                  
                  Employment
      Agreement, by and between AMV Holding Limited and Nathaniel MacLeitch,
      dated as of October 23, 2008. 910.64
                  
                  Employment
      Agreement, by and between AMV Holding Limited and Jonathan Cresswell
      (a/k/a Jack Cresswell), dated as of October 23, 2008. 910.65
                  
                  Securities
      Purchase Agreement, by and among Mandalay Media, Inc. and the investors
      set forth therein, dated as of October 23, 2008. 910.66
                  
                  Note,
      dated October 23, 2008, issued by Mandalay Media, Inc. to Nathaniel
      MacLeitch, as the Sellers’ Representative. 910.67
                  
                  Management
      Agreement dated September 14, 2006 between the Company and Trinad
      Management, LLC. 510.68
                  
                  Commercial
      Lease Agreement, dated as of March 1, 2007, between Trinad Management LLC
      and Mediavest, Inc. 1610.69
                  
                  First
      Amendment to Promissory Note, dated August 14, 2009, issued by Mandalay
      Media, Inc. to Nathaniel MacLeitch, as the Sellers’ Representative.2110.70
                  
                  Severance
      and Release Agreement, by and among Mandalay Media, Inc., Twistbox
      Entertainment, Inc. and Ian Aaron, dated as of October 7, 2009.2210.71
                  
                  Waiver
      to Senior Secured Note by and among Mandalay Media, Inc., Twistbox
      Entertainment, Inc. and ValueAct SmallCap Master Fund, L.P., dated as
      of January 25, 2010.2410.72
                  
                  Agreement,
      dated as of June 21, 2010, between ValueAct SmallCap Master Fund, L.P.,
      NeuMedia, Inc., Jonathan Cresswell, Nathaniel MacLeitch, Robert Ellin,
      Trinad Management, LLC, Trinad Capital Master Fund, Ltd. and the Guber
      Family Trust. 2510.73
                  
                  Mutual
      Release, dated as of June 21, 2010, among ValueAct SmallCap Master Fund,
      L.P., Antiphony (Management Holdings) Limited, Nathaniel MacLeitch,
      Jonathan Cresswell, NeuMedia, Inc., Twistbox Entertainment, Inc., Peter
      Guber, Robert Ellin, Paul Schaeffer, Adi McAbian, Richard Spitz, Ray
      Schaaf, Keith McCurdy, Russell Burke, James Lefkowitz and Trinad
      Management. 2510.74
                  
                  Subordination
      Agreement, dated as of June 21, 2010, by and between Trinad Capital Master
      Fund, Ltd., and ValueAct SmallCap Master Fund, L.P., and each of NeuMedia,
      Inc. and Twistbox Entertainment, Inc.2510.74
                  
                  Deed
      Poll Release, dated as of June 21, 2010, between NeuMedia, Inc., Twistbox
      Entertainment, Inc., James Lefkowitz and Russell Burke.2510.74
                  
                  Non-Competition
      Agreement, dated as of June 21, 2010, among NeuMedia, Inc., Antiphony
      (Management Holdings) Limited,  Jack Cresswell and Nate
      MacLeitch.2510.74
                  
                  Earn-Out
      Termination Letter Agreement, dated as of June 21, 2010, among ValueAct
      SmallCap Master Fund, L.P., NeuMedia, Inc., Jonathan Cresswell, Nathaniel
      MacLeitch and certain other parties.2510.74
                  
                  Amended
      and Restated Guaranty, dated as of June 21, 2010, by NeuMedia, Inc. to
      ValueAct SmallCap Master Fund, L.P.25


59





10.74
              
              Letter
      Agreement, dated as of June 21, 2010, between ValueAct SmallCap Master
      Fund, L.P., NeuMedia, Inc., Rob Ellin and Trinad Management, LLC.2510.74
              
              Amended
      and Restated Guarantee and Security Agreement, dated as of June 21, 2010,
      among Twistbox Entertainment, Inc., NeuMedia, Inc. and each of its
      subsidiaries identified on Schedule I as being a subsidiary guarantor, the
      investors party thereto and ValueAct SmallCap Master Fund, L.P.2510.74
              
              Guarantee
      and Security Agreement, dated as of June 21, 2010, among Twistbox
      Entertainment, Inc., NeuMedia, Inc., each of the subsidiaries thereof
      party thereto, the investors party thereto and Trinad Capital Management,
      LLC.16.1
              
              Letter
      dated May 11, 2007 from Most & Company, LLP to the Securities and
      Exchange Commission. 1716.2
              
              Letter
      regarding change in certifying accountant, dated June 2, 2008 from Raich
      Ende Malter & Co. LLP. 1816.3
              
              Letter
      from Grobstein Horwath & Company LLP, dated February 20, 2009. 1916.4
              
              Letter
      regarding change in certifying accountant, dated June 4, 2009 from Crowe
      Horwath, LLP. 2021
              
              List
      of Subsidiaries *31.1
              
              Certification
      of Ray Schaaf, Principal Executive Officer. *31.2
              
              Certification
      of  Russell Burke, Principal Financial Officer. *32.1
              
              Certification
      of Ray Schaaf, Principal Executive Officer pursuant to U.S.C. Section
      1350. *32.2
              
              Certification
      of Russell Burke, Principal Financial Officer pursuant to U.S.C. Section
      1350. *




* Filed
herewith





(1)
Incorporated by reference to the Registrant’s Annual Report on Form 10-KSB (File
No. 000-10039), filed with the Commission on December 2, 2005.


(2)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on November 14, 2007.


(3)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on January 2, 2008.


(4)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on February 12,
2008.


(5)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on September 20, 2006.


(6)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on October 18, 2006.


(7)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on January 3, 2007.


(8)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on August 9, 2006.


(9)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on October 27, 2008.


(10)
Incorporated by reference to our Current Report on Form 8-K (File No. 000-10039
), filed with the Commission on March 28, 2008.


(11)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on March 20, 2009.


(12)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on March 23, 2006.


(13)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on July 30, 2007.


(14)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File
No. 000-10039), filed with the Commission on July 3, 2007.


(15)
Incorporated by reference to our Current Report on Form 8-K (File No. 000-10039
), filed with the Commission on October 15, 2008.


(16)
Incorporated by reference to our Registrant’s Transition Report on Form
10-KT (File No. 000-10039), filed with the Commission on July 15,
2008.


(17)
Incorporated by reference to our Current Report on Form 8-K (File No. 000-10039
), filed with the Commission on May 16, 2007.


60





(18)
Incorporated by reference to our Current Report on Form 8-K (File No. 000-10039
), filed with the Commission on June 2, 2008.


(19)
Incorporated by reference to our Current Report on Form 8-K (File No. 000-10039
), filed with the Commission on February 23, 2009.


(20)
Incorporated by reference to our Current Report on Form 8-K (File No. 000-10039
), filed with the Commission on June 4, 2009.


(21)
Incorporated by reference to our Quarterly Report on Form 10-Q (File No.
000-10039 ), filed with the Commission on August 14, 2009.


(22)
Incorporated by reference to our Current Report on Form 8-K (File No. 000-10039
), filed with the Commission on October 14, 2009.


(23)
Incorporated by reference to our Quarterly Report on Form 10-Q (File No.
000-10039 ), filed with the Commission on November 16, 2009.


(24)
Incorporated by reference to our Current Report on Form 8-K (File No. 000-10039
), filed with the Commission on January 28, 2010.


(25)
Incorporated by reference to our Current Report on Form 8-K (File No. 000-10039
), filed with the Commission on June 23, 2010.


61


NeuMedia,
Inc. (formerly known


as
Mandalay Media, Inc.)


and
Subsidiaries


Consolidated
Financial Statements


March
31, 2010





Page(s)Consolidated
      Balance Sheets as of March 31, 2010  and March 31,
      2009
              F-3Consolidated
      Statements of Operations for the years ended March 31, 2010 and March 31,
      2009
              F-4Consolidated
      Statements of Stockholders’ Equity and Comprehensive Loss for the periods
      ended March 31, 2010 and March 31, 2009
              F-5Consolidated
      Statements of Cash Flows for the years ended March 31, 2010 and March 31,
      2009
              F-6Notes
      to Consolidated Financial Statements
              F-7-F-36


F-1




Report of Independent Registered Public
Accounting Firm
 
 
 To the Board of Directors and
Stockholders
 NeuMedia, Inc. and
Subsidiaries
 
 We have audited the accompanying
consolidated balance sheets of NeuMedia, Inc. and subsidiaries as of March 31,
2010 and 2009, and the related consolidated statements of operations,
stockholders' equity and comprehensive loss, and cash flows for each of the two
years in the period ended March 31, 2010. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
 We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States).  Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our auditsprovide a reasonable basis for our
opinion.
 
 In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of NeuMedia, Inc. and subsidiaries as of March 31, 2010
and 2009, and the results of their operations and their cash flows for each of
the two years in the period ended March 31, 2010, in conformity with U.S.
generally accepted accounting principles.
 
 We were not engaged to examine
management's assessment of the effectiveness of NeuMedia, Inc. and
subsidiaries’internal control over financial
reporting as of March 31, 2010, included in the accompanyingManagement’s Report on Internal Control
over Financial Reportingand, accordingly, we do not express an opinion thereon.
 
 SingerLewak LLP
 
 
 Los Angeles, CA
 July 14, 2010
 F-2




NeuMedia,
Inc. and Subsidiaries
 Consolidated
Balance Sheets








(In
thousands, except share amounts)





March 31,
                                                                      
                                                                      
                                                                      March 31,2010
                                                                      
                                                                      
                                                                      2009ASSETSCurrent
      assetsCash
      and cash equivalents
                                                                      
                                                                      $
                                                                      640
                                                                      
                                                                      
                                                                      $
                                                                      3,340Accounts
      receivable, net of allowances of $403 and $174,
    respectively
                                                                      
                                                                      
                                                                      4,711
                                                                      
                                                                      
                                                                      
                                                                      5,963Prepaid
      expenses and other current assets
                                                                      
                                                                      
                                                                      477
                                                                      
                                                                      
                                                                      
                                                                      1,072Net
      current assets of assets to be sold
                                                                      
                                                                      
                                                                      7,377
                                                                      
                                                                      
                                                                      
                                                                      7,631Total
      current assets
                                                                      
                                                                      
                                                                      13,205
                                                                      
                                                                      
                                                                      
                                                                      18,006Property
      and equipment, net
                                                                      
                                                                      
                                                                      603
                                                                      
                                                                      
                                                                      
                                                                      862Intangible
      assets, net
                                                                      
                                                                      
                                                                      8,195
                                                                      
                                                                      
                                                                      
                                                                      14,885Goodwill
                                                                      
                                                                      
                                                                      8,155
                                                                      
                                                                      
                                                                      
                                                                      40,849Net
      non-current assets of assets to be sold
                                                                      
                                                                      
                                                                      16,623
                                                                      
                                                                      
                                                                      
                                                                      16,588TOTAL
      ASSETS
                                                                      
                                                                      $
                                                                      46,781
                                                                      
                                                                      
                                                                      $
                                                                      91,190LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable
                                                                      
                                                                      $
                                                                      4,011
                                                                      
                                                                      
                                                                      $
                                                                      5,341Accrued
      license fees
                                                                      
                                                                      
                                                                      1,814
                                                                      
                                                                      
                                                                      
                                                                      2,795Accrued
      compensation
                                                                      
                                                                      
                                                                      537
                                                                      
                                                                      
                                                                      
                                                                      592Current
      portion of long term debt
                                                                      
                                                                      
                                                                      26,082
                                                                      
                                                                      
                                                                      
                                                                      23,296Other
      current liabilities
                                                                      
                                                                      
                                                                      1,638
                                                                      
                                                                      
                                                                      
                                                                      3,541Net
      current liabilities of assets to be sold
                                                                      
                                                                      
                                                                      4,625
                                                                      
                                                                      
                                                                      
                                                                      6,574Total
      currrent liabilities
                                                                      
                                                                      
                                                                      38,707
                                                                      
                                                                      
                                                                      
                                                                      42,139Net
      non-current liabilities of assets to be sold
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      27Total
      liabilities
                                                                      
                                                                      $
                                                                      38,707
                                                                      
                                                                      
                                                                      $
                                                                      42,166Commitments
      and contingencies (Note 15)Stockholders'
      equityPreferred
      stockSeries
      A convertible preferred stock at $0.0001 par value; 100,000 shares
      authorized,issued and outstanding (liquidation preference of
      $1,000,000)
                                                                      
                                                                      
                                                                      100
                                                                      
                                                                      
                                                                      
                                                                      100Common
      stock, $0.0001 par value: 100,000,000 shares authorized;39,776,597
      issued and outstanding at March 31, 2010; 39,653,125 issued and
      outstanding at March 31, 2009
                                                                      
                                                                      
                                                                      4
                                                                      
                                                                      
                                                                      
                                                                      4Additional
      paid-in capital
                                                                      
                                                                      
                                                                      95,741
                                                                      
                                                                      
                                                                      
                                                                      93,918Accumulated
      other comprehensive loss
                                                                      
                                                                      
                                                                      (419
                                                                      )
                                                                      
                                                                      
                                                                      (129
                                                                      )Accumulated
      deficit
                                                                      
                                                                      
                                                                      (87,352
                                                                      )
                                                                      
                                                                      
                                                                      (44,869
                                                                      )Total
      stockholders' equity
                                                                      
                                                                      
                                                                      8,074
                                                                      
                                                                      
                                                                      
                                                                      49,024TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                      
                                                                      $
                                                                      46,781
                                                                      
                                                                      
                                                                      $
                                                                      91,190





The
accompanying notes are an integral part of these consolidated financial
statements


F-3




NeuMedia, Inc. and
Subsidiaries
 Consolidated
Statement of Operations





(In
thousands, except per share amounts)





Year ended
                                                      
                                                      
                                                      Year endedMarch 31,
                                                      
                                                      
                                                      March 31,2010
                                                      
                                                      
                                                      2009Net
      revenues
                                                      
                                                      $
                                                      14,037
                                                      
                                                      
                                                      $
                                                      20,064Cost
      of revenuesLicense
      fees
                                                      
                                                      
                                                      2,780
                                                      
                                                      
                                                      
                                                      7,178Other
      direct cost of revenues
                                                      
                                                      
                                                      408
                                                      
                                                      
                                                      
                                                      725Total
      cost of revenues
                                                      
                                                      
                                                      3,188
                                                      
                                                      
                                                      
                                                      7,903Gross
      profit
                                                      
                                                      
                                                      10,849
                                                      
                                                      
                                                      
                                                      12,161Operating
      expensesProduct
      development
                                                      
                                                      
                                                      4,194
                                                      
                                                      
                                                      
                                                      6,663Sales
      and marketing
                                                      
                                                      
                                                      2,428
                                                      
                                                      
                                                      
                                                      4,439General
      and administrative
                                                      
                                                      
                                                      7,729
                                                      
                                                      
                                                      
                                                      9,706Amortization
      of intangible assets
                                                      
                                                      
                                                      547
                                                      
                                                      
                                                      
                                                      547Impairment
      of goodwill and intangible assets
                                                      
                                                      
                                                      38,430
                                                      
                                                      
                                                      
                                                      31,784Total
      operating expenses
                                                      
                                                      
                                                      53,328
                                                      
                                                      
                                                      
                                                      53,139Loss
      from operations
                                                      
                                                      
                                                      (42,479
                                                      )
                                                      
                                                      
                                                      (40,978
                                                      )Interest
      and other income / (expense)Interest
      income
                                                      
                                                      
                                                      9
                                                      
                                                      
                                                      
                                                      147Interest
      expense
                                                      
                                                      
                                                      (3,062
                                                      )
                                                      
                                                      
                                                      (2,257
                                                      )Foreign
      exchange transaction gain / (loss)
                                                      
                                                      
                                                      155
                                                      
                                                      
                                                      
                                                      (466
                                                      )Other
      income / (expense)
                                                      
                                                      
                                                      1,495
                                                      
                                                      
                                                      
                                                      (86
                                                      )Interest
      and other expense
                                                      
                                                      
                                                      (1,403
                                                      )
                                                      
                                                      
                                                      (2,662
                                                      )Loss from
      operations before income taxes
                                                      
                                                      
                                                      (43,882
                                                      )
                                                      
                                                      
                                                      (43,640
                                                      )Income
      tax provision
                                                      
                                                      
                                                      (305
                                                      )
                                                      
                                                      
                                                      (158
                                                      )Net
      loss from continuing operations net of taxes
                                                      
                                                      
                                                      (44,187
                                                      )
                                                      
                                                      
                                                      (43,798
                                                      )Discontinued
      operations, net of taxes:Profit
      from discontinued operations net of taxes
                                                      
                                                      
                                                      1,704
                                                      
                                                      
                                                      
                                                      2,198Net
      loss
                                                      
                                                      $
                                                      (42,483
                                                      )
                                                      
                                                      $
                                                      (41,600
                                                      )Comprehensive
      loss
                                                      
                                                      $
                                                      (42,773
                                                      )
                                                      
                                                      $
                                                      (41,790
                                                      )Basic
      and diluted net loss per common share
                                                      
                                                      $
                                                      (1.07
                                                      )
                                                      
                                                      $
                                                      (1.15
                                                      )Continuing
      operations
                                                      
                                                      $
                                                      (1.11
                                                      )
                                                      
                                                      $
                                                      (1.20
                                                      )Discontinued
      opeations
                                                      
                                                      $
                                                      0.04
                                                      
                                                      
                                                      $
                                                      0.05Net
      loss
                                                      
                                                      $
                                                      (1.07
                                                      )
                                                      
                                                      $
                                                      (1.15
                                                      )Weighted
      average common shares outstanding, basic and diluted
                                                      
                                                      
                                                      39,837
                                                      
                                                      
                                                      
                                                      36,264





The
accompanying notes are an integral part of these consolidated financial
statements


F-4





NeuMedia, Inc. and
Subsidiaries
 Consolidated
Statements of Stockholders’ Equity and Comprehensive
Loss








(In
thousands, except share amounts)





AccumulatedAdditional
                                                                        
                                                                        
                                                                        OtherCommon Stock
                                                                        
                                                                        
                                                                        Preferred Stock
                                                                        
                                                                        
                                                                        Paid-In
                                                                        
                                                                        
                                                                        Comprehensive
                                                                        
                                                                        
                                                                        Accumulated
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        ComprehensiveShares
                                                                        
                                                                        
                                                                        Amount
                                                                        
                                                                        
                                                                        Shares
                                                                        
                                                                        
                                                                        Amount
                                                                        
                                                                        
                                                                        Capital
                                                                        
                                                                        
                                                                        Income/(Loss)
                                                                        
                                                                        
                                                                        Deficit
                                                                        
                                                                        
                                                                        Total
                                                                        
                                                                        
                                                                        LossBalance
      at March 31, 2008
                                                                        
                                                                        
                                                                        32,149,089
                                                                        
                                                                        
                                                                        $
                                                                        3
                                                                        
                                                                        
                                                                        
                                                                        100,000
                                                                        
                                                                        
                                                                        $
                                                                        100
                                                                        
                                                                        
                                                                        $
                                                                        76,154
                                                                        
                                                                        
                                                                        $
                                                                        61
                                                                        
                                                                        
                                                                        $
                                                                        (3,269
                                                                        )
                                                                        
                                                                        $
                                                                        73,049Net
      Loss
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        (41,600
                                                                        )
                                                                        
                                                                        
                                                                        (41,600
                                                                        )
                                                                        
                                                                        
                                                                        (41,600
                                                                        )Issuance
      of common stock in satisfaction of payable
                                                                        
                                                                        
                                                                        25,000
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        100
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        100Issuance
      of common stock on cashless exercise of warrants
                                                                        
                                                                        
                                                                        241,688
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        0Issuance
      of common stock on cashless exercise of warrants
                                                                        
                                                                        
                                                                        38,000
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        0Issuance
      of common stock related to acquisition
                                                                        
                                                                        
                                                                        4,499,997
                                                                        
                                                                        
                                                                        
                                                                        1
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        9,899
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        9,900Adjustment
      in valuation of warrants in connection with the
      acquisition
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        377
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        377Issuance
      of common stock in satisfaction of payable
                                                                        
                                                                        
                                                                        45,000
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        79
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        79Issuance
      of common stock on cashless exercise of warrants
                                                                        
                                                                        
                                                                        285,500
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        0Issuance
      of common stock net of issuance costs
                                                                        
                                                                        
                                                                        1,685,394
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        4,354
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        4,354Issuance
      of common stock as part of compensation
                                                                        
                                                                        
                                                                        683,457
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        155
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        155Foreign
      currency translation gain/(loss)
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        (190
                                                                        )
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        (190
                                                                        )
                                                                        
                                                                        
                                                                        (190
                                                                        )Stock-based
      compensation
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        2,800
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        2,800Comprehensive
      loss
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        $
                                                                        (41,790
                                                                        )Balance
      at March 31, 2009
                                                                        
                                                                        
                                                                        39,653,125
                                                                        
                                                                        
                                                                        $
                                                                        4
                                                                        
                                                                        
                                                                        
                                                                        100,000
                                                                        
                                                                        
                                                                        $
                                                                        100
                                                                        
                                                                        
                                                                        $
                                                                        93,918
                                                                        
                                                                        
                                                                        $
                                                                        (129
                                                                        )
                                                                        
                                                                        $
                                                                        (44,869
                                                                        )
                                                                        
                                                                        $
                                                                        49,024Net
      Loss
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        (42,483
                                                                        )
                                                                        
                                                                        
                                                                        (42,483
                                                                        )
                                                                        
                                                                        
                                                                        (42,483
                                                                        )Foreign
      currency translation gain/(loss)
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        (290
                                                                        )
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        (290
                                                                        )
                                                                        
                                                                        
                                                                        (290
                                                                        )Issuance
      of common stock as part of compensation, net of
      forfeitures
                                                                        
                                                                        
                                                                        123,472
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        572
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        572Stock-based
      compensation
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        1,117
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        1,117Issuance
      of warrants to vendor for services rendered
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        134
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        134Comprehensive
      loss
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        $
                                                                        (42,773
                                                                        )Balance
      at March 31, 2010
                                                                        
                                                                        
                                                                        39,776,597
                                                                        
                                                                        
                                                                        $
                                                                        4
                                                                        
                                                                        
                                                                        
                                                                        100,000
                                                                        
                                                                        
                                                                        $
                                                                        100
                                                                        
                                                                        
                                                                        $
                                                                        95,741
                                                                        
                                                                        
                                                                        $
                                                                        (419
                                                                        )
                                                                        
                                                                        $
                                                                        (87,352
                                                                        )
                                                                        
                                                                        $
                                                                        8,074





The
accompanying notes are an integral part of these consolidated financial
statements


F-5





NeuMedia, Inc. and
Subsidiaries
 Consolidated
Statements of Cash Flows (Unaudited)





(In
thousands)





Year ended
                                      
                                      
                                      Year endedMarch 31,
                                      
                                      
                                      March 31,2010
                                      
                                      
                                      2009Cash
      flows from operating activitiesNet
      loss
                                      
                                      $
                                      (42,483
                                      )
                                      
                                      $
                                      (41,600
                                      )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                                      
                                      
                                      1,612
                                      
                                      
                                      
                                      1,518Allowance
      for doubtful accounts
                                      
                                      
                                      229
                                      
                                      
                                      
                                      6Stock-based
      compensation
                                      
                                      
                                      1,689
                                      
                                      
                                      
                                      2,955Impairment
      of goodwill and intangibles
                                      
                                      
                                      38,430
                                      
                                      
                                      
                                      31,784Warrants
      issued as compensation for services
                                      
                                      
                                      134
                                      
                                      
                                      
                                      -(Increase)
      / decrease in assets:Accounts
      receivable
                                      
                                      
                                      38
                                      
                                      
                                      
                                      4,489Prepaid
      expenses and other current assets
                                      
                                      
                                      400
                                      
                                      
                                      
                                      (312
                                      )Increase
      / (decrease) in liabilities:Accounts
      payable
                                      
                                      
                                      (3,849
                                      )
                                      
                                      
                                      (3,133
                                      )Accrued
      license fees
                                      
                                      
                                      (996
                                      )
                                      
                                      
                                      (1,039
                                      )Accrued
      compensation
                                      
                                      
                                      (70
                                      )
                                      
                                      
                                      (96
                                      )Other
      liabilities
                                      
                                      
                                      1,396
                                      
                                      
                                      
                                      68Net
      cash used in operating activities
                                      
                                      
                                      (3,470
                                      )
                                      
                                      
                                      (5,360
                                      )Cash
      flows from investing activitiesPurchase
      of property and equipment
                                      
                                      
                                      (433
                                      )
                                      
                                      
                                      (219
                                      )Transaction
      costs
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (802
                                      )Cash
      used in acquisition of subsidiary
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (6,132
                                      )Cash
      acquired with acquisition of subsidiary
                                      
                                      
                                      -
                                      
                                      
                                      
                                      3,380Net
      cash used in investing activities
                                      
                                      
                                      (433
                                      )
                                      
                                      
                                      (3,773
                                      )Cash
      flows from financing activitiesProceeds
      from the sale of common stock (net of issuance costs of
    $146)
                                      
                                      
                                      -
                                      
                                      
                                      
                                      4,354Installment
      payments related to prior acquisition
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (54
                                      )Net
      cash provided by financing activities
                                      
                                      
                                      -
                                      
                                      
                                      
                                      4,300Effect
      of exchange rate changes on cash and cash equivalents
                                      
                                      
                                      (133
                                      )
                                      
                                      
                                      (176
                                      )Net
      decrease in cash and cash equivalents
                                      
                                      
                                      (4,036
                                      )
                                      
                                      
                                      (5,009
                                      )Cash
      and cash equivalents, beginning of period
                                      
                                      
                                      5,927
                                      
                                      
                                      
                                      10,936Cash
      and cash equivalents, end of period
                                      
                                      $
                                      1,891
                                      
                                      
                                      $
                                      5,927Supplemental
      disclosure of cash flow information:Taxes
      paid
                                      
                                      
                                      1,208
                                      
                                      
                                      
                                      561







The
accompanying notes are an integral part of these consolidated financial
statements




F-6




NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all
      numbers in thousands except per share
amounts)




1.
              Organization





NeuMedia,
Inc. (“we”, “us”, “our”, the “Company” or “NeuMedia”), formerly Mandalay Media,
Inc. (“Mandalay Media”) and formerly Mediavest, Inc. (Mediavest), was originally
incorporated in the state of Delaware on November 6, 1998 under the name eB2B
Commerce, Inc. On April 27, 2000, it merged into DynamicWeb Enterprises Inc., a
New Jersey corporation, the surviving company, and changed its name to eB2B
Commerce, Inc. On April 13, 2005, the Company changed its name to Mediavest,
Inc.  Through January 26, 2005, the Company and its former
subsidiaries were engaged in providing business-to-business transaction
management services designed to simplify trading between buyers and suppliers.
The Company was inactive from January 26, 2005 until its merger with Twistbox
Entertainment, Inc., February 12, 2008 (Note 7).  On September 14,
2007, Mediavest was re-incorporated in the state of Delaware as Mandalay Media,
Inc.





On
November 7, 2007, Mediavest merged into its wholly-owned, newly formed
subsidiary, Mandalay Media, with Mandalay Media as the surviving corporation.
Mandalay Media issued: (1) one new share of common stock in exchange for
each share of Mediavest’s outstanding common stock and (2) one new share of
preferred stock in exchange for each share of Mediavest’s outstanding
preferred stock as of November 7, 2007. Mandalay Media’s preferred and common
stock had the same status and par value as the respective stock of
Mediavest and Mandalay Media acceded to all the rights, acquired all the assets
and assumed all of the liabilities of Mediavest.





On
February 12, 2008, Mandalay Media completed a merger (the “Merger”) with
Twistbox Entertainment, Inc. (“Twistbox”) through an exchange of all outstanding
capital stock of Twistbox for 10,180 shares of common stock of the Company. In
connection with the Merger, the Company assumed of all the outstanding options
under Twistbox’s Stock Incentive Plan by the issuance of options to purchase
2,463 shares of common stock of the Company, including 2,145 vested and 319
unvested options.





After the
Merger, Twistbox became a wholly-owned subsidiary of the Company, and the
Company’s only active subsidiary. Twistbox Entertainment, Inc. (formerly known
as The WAAT Corporation) is incorporated in the State of Delaware.





Twistbox
is a global publisher and distributor of branded entertainment content,
including images, video, TV programming and games, for Third Generation (3G)
mobile networks.  Twistbox publishes and distributes its content in a
number of countries.  Since operations began in 2003, Twistbox has
developed an intellectual property portfolio that includes mobile rights to
global brands and content from leading film, television and lifestyle content
publishing companies. Twistbox has built a proprietary mobile publishing
platform that includes: tools that automate handset portability for the
distribution of images and video; a mobile games development suite that
automates the porting of mobile games and applications to multiple handsets; and
a content standards and ratings system globally adopted by major wireless
carriers to assist with the responsible deployment of age-verified
content.  Twistbox has distribution agreements with many of the
largest mobile operators in the world.





Twistbox
is headquartered in the Los Angeles area and has offices in Europe and South
America that provide local sales and marketing support for both mobile operators
and third party distribution in their respective regions.


F-7




NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all
      numbers in thousands except per share
amounts)





On
October 23, 2008 the Company completed an acquisition of 100% of the issued and
outstanding share capital of AMV Holding Limited, a United Kingdom private
limited company (“AMV”), and 80% of the issued and outstanding share capital of
Fierce Media Ltd (“Fierce”).





In
consideration for the shares of AMV and Fierce, and subject to adjustment as set
forth in the Stock Purchase Agreement (“Stock Purchase Agreement”), the
aggregate purchase price (the “Purchase Price”) consisted of: (a) $5,375 in cash
(the “Cash Consideration”); (b) 4,500 fully paid shares of common stock (the
“Stock Consideration”); (c) a secured promissory note in the aggregate original
principal amount of $5,375 (the “AMV Note”); and (d) additional earn-out
amounts, if any, if the acquired companies achieved certain targeted earnings
for each of the periods from October 1, 2008 to March 31, 2009, April 1, 2009 to
March 31, 2010, and April 1, 2010 to September 30, 2010, as determined in
accordance with the Stock Purchase Agreement. The Purchase Price was subject to
certain adjustments based on the working capital of AMV, to be determined
initially within 75 days of the closing, and subsequently within 60 days
following June 30, 2009. Any such adjustment of the Purchase Price would be made
first by means of an adjustment to the principal sum due under the AMV Note, as
set forth in the Stock Purchase Agreement. An initial adjustment of $443 was
made subsequent to closing, and was added to the AMV Note. The initial period
earn-out was recognized in the year ended March 31, 2009 and was added to the
amount of consideration for the acquisition, as described in Note
7.





AMV is a
leading mobile media and marketing company delivering games and lifestyle
content directly to consumers in the United Kingdom, Australia, South Africa and
various other European countries. AMV markets its well established branded
services through a unique Customer Relationship Management platform that drives
revenue through mobile internet, print and TV advertising. AMV is headquartered
in Marlow, outside of London in the United Kingdom.





On May
10, 2010 an administrator was appointed over AMV Holding Limited in the UK, at
the request of the Company’s senior debt holder. As from that date, AMV and its
subsidiaries are considered to be a discontinued operation. AMV and its
subsidiaries were subsequently disposed, as set out in Note 7
below.





On May
11, 2010, Mandalay Media merged into its wholly-owned, newly formed subsidiary,
NeuMedia Inc. (“NeuMedia”), with NeuMedia as the surviving corporation. NeuMedia
issued: (1) one new share of common stock in exchange for each share of
Mandalay Media’s outstanding common stock and (2) one new share of preferred
stock in exchange for each share of Mandalay Media’s outstanding preferred
stock as of May 11, 2010. NeuMedia’s preferred and common stock had the
same status and par value as the respective stock of Mandalay Media and NeuMedia
acceded to all the rights, acquired all the assets and assumed all of the
liabilities of Mandalay Media.





2.
              Summary
      of Significant Accounting
Policies





Basis
of Presentation


The
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) and pursuant to the
rules and regulations of the Securities and Exchange Commission (“SEC”) for
annual financial statements.  The financial statements, in the opinion
of management, include all adjustments necessary for a fair statement of the
results of operations, financial position and cash flows for each period
presented.


F-8




NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all
      numbers in thousands except per share
amounts)




Principles
of Consolidation


The
consolidated financial statements include the accounts of the Company and our
wholly-owned subsidiaries. All material intercompany balances and transactions
have been eliminated in consolidation. Discontinued operations have been treated
in accordance with Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”)  205-20, Discontinued
Operations.





Revenue
Recognition


The
Company’s revenues are derived primarily by licensing material and software in
the form of products (Image Galleries, Wallpapers, video, WAP Site access,
Mobile TV) and mobile games. License arrangements with the end user can be on a
perpetual or subscription basis.





A
perpetual license gives an end user the right to use the product, image or game
on the registered handset on a perpetual basis. A subscription license gives an
end user the right to use the product, image or game on the registered handset
for a limited period of time, ranging from a few days to as long as one
month.





The
Company either markets and distributes its products directly to consumers, or
distributes products through mobile telecommunications service providers
(“carriers”), in which case the carrier markets the product, images or games to
end users. License fees for perpetual and subscription licenses are usually
billed upon download of the product, image or game by the end user. In the case
of subscriber licenses, many subscriber agreements provide for automatic renewal
until the subscriber opts-out, while others provide opt-in renewal. In either
case, subsequent billings for subscription licenses are generally billed
monthly. The Company applies the provisions of FASB ASC 985-605, Software Revenue Recognition,
to all transactions.





Revenues
are recognized from the Company’s products, images and games when persuasive
evidence of an arrangement exists, the product, image or game has been
delivered, the fee is fixed or determinable, and the collection of the resulting
receivable is probable. For both perpetual and subscription licenses, management
considers a license agreement to be evidence of an arrangement with a carrier or
aggregator and a “clickwrap” agreement to be evidence of an arrangement with an
end user. For these licenses, the Company defines delivery as the download of
the product, image or game by the end user.





The
Company estimates revenues from carriers in the current period when reasonable
estimates of these amounts can be made. Most carriers only provide detailed
sales transaction data on a one to two month lag. Estimated revenue is treated
as unbilled receivables until the detailed reporting is received and the
revenues can be billed. Some carriers provide reliable interim preliminary
reporting and others report sales data within a reasonable time frame following
the end of each month, both of which allow the Company to make reasonable
estimates of revenues and therefore to recognize revenues during the reporting
period when the end user licenses the product, image or game. Determination of
the appropriate amount of revenue recognized involves judgments and estimates
that the Company believes are reasonable, but it is possible that actual results
may differ from the Company’s estimates. The Company’s estimates for revenues
include consideration of factors such as preliminary sales data,
carrier-specific historical sales trends, volume of activity on company
monitored sites, seasonality, time elapsed from launch of services or product
lines, the age of games and the expected impact of newly launched games,
successful introduction of new handsets, growth of 3G subscribers by carrier,
promotions during the period and economic trends. When the Company receives the
final carrier reports, to the extent not received within a reasonable time frame
following the end of each month, the Company records any differences between
estimated revenues and actual revenues in the reporting period when the Company
determines the actual amounts. Revenues earned from certain carriers may not be
reasonably estimated. If the Company is unable to reasonably estimate the amount
of revenues to be recognized in the current period, the Company recognizes
revenues upon the receipt of a carrier revenue report and when the Company’s
portion of licensed revenues are fixed or determinable and collection is
probable. To monitor the reliability of the Company’s estimates, management,
where possible, reviews the revenues by country, by carrier and by product line
on a regular basis to identify unusual trends such as differential adoption
rates by carriers or the introduction of new handsets. If the Company deems a
carrier not to be creditworthy, the Company defers all revenues from the
arrangement until the Company receives payment and all other revenue recognition
criteria have been met.


F-9





NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all
      numbers in thousands except per share
amounts)





In
accordance with FASB ASC 605-45, Reporting Revenue Gross as a
Principal Versus Net as an Agent, the Company recognizes as revenues the
amount the carrier reports as payable upon the sale of the Company’s products,
images or games. The Company has evaluated its carrier agreements and has
determined that it is not the principal when selling its products, images or
games through carriers. Key indicators that it evaluated to reach this
determination include:





•
            wireless
      subscribers directly contract with the carriers, which have most of the
      service interaction and are generally viewed as the primary obligor by the
      subscribers;


•
            carriers
      generally have significant control over the types of content that they
      offer to their subscribers;


•
            carriers
      are directly responsible for billing and collecting fees from their
      subscribers, including the resolution of billing
  disputes;


•
            carriers
      generally pay the Company a fixed percentage of their revenues or a fixed
      fee for each game;


•
            carriers
      generally must approve the price of the Company’s content in advance of
      their sale to subscribers, and the Company’s more significant carriers
      generally have the ability to set the ultimate price charged to their
      subscribers; and


•
            the
      Company has limited risks, including no inventory risk and limited credit
      risk.





For
direct to consumer business, revenue is earned by delivering a product or
service directly to the end user of that product or service. In those cases, the
Company records as revenue the amount billed to that end user and recognizes the
revenue when persuasive evidence of an arrangement exists, the product, image or
game has been delivered, the fee is fixed or determinable, and the collection of
the resulting receivable is probable. Substantially all of our discontinued
operations represents direct to consumer business.





Net
(Loss) per Common Share





Basic
loss per common share is computed by dividing net loss attributable to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted net loss per share is computed by dividing net loss attributable
to common stockholders by the weighted average number of common shares
outstanding for the period plus dilutive common stock equivalents, using the
treasury stock method. Potentially dilutive shares from stock options and
warrants and the conversion of the Series A preferred stock were as
follows:


F-10





NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all
      numbers in thousands except per share
amounts)





12 Months Ended
                  
                  
                  12 Months EndedMarch 31
                  
                  
                  March 312010
                  
                  
                  2009Potentially
      dilutive shares
                  
                  
                  100
                  
                  
                  
                  2,478





These
shares were not included in the computation of diluted loss per share as they
were anti-dilutive in each period.





Comprehensive
Loss


Comprehensive
income consists of two components, net income and other comprehensive income.
Other comprehensive income refers to gains and losses that under generally
accepted accounting principles are recorded as an element of stockholders’
equity but are excluded from net income. The Company’s other comprehensive
income currently includes only foreign currency translation
adjustments.





Cash
and Cash Equivalents


The
Company considers all highly liquid short-term investments purchased with a
maturity of three months or less to be cash equivalents.





Content
Provider Licenses





Content
Provider License Fees and Minimum Guarantees


The
Company’s royalty expenses consist of fees that it pays to branded content
owners for theuse
of their intellectual property in the development of the Company’s games and
other content, and other expenses directly incurred in earning revenue.
Royalty-based obligations are either accrued as incurred and subsequently paid,
or in the case of longer term content acquisitions, paid in advance and
capitalized on our balance sheet as prepaid royalties. These royalty-based
obligations are expensed to cost of revenues either at the applicable
contractual rate related to that revenue or over the estimated life of the
prepaid royalties. Advanced license payments that are not recoupable against
future royalties are capitalized and amortized over the lesser of the estimated
life of the branded title or the term of the license
agreement.





The
Company’s contracts with some licensors include minimum guaranteed royalty
payments, which are payable regardless of the ultimate volume of sales to end
users. Each quarter, the Company evaluates the realization of its royalties as
well as any unrecognized guarantees not yet paid to determine amounts that it
deems unlikely to be realized through product sales. The Company uses estimates
of revenues, and share of the relevant licensor to evaluate the future
realization of future royalties and guarantees. This evaluation considers
multiple factors, including the term of the agreement, forecasted demand,
product life cycle status, product development plans, and current and
anticipated sales levels, as well as other qualitative factors. To the extent
that this evaluation indicates that the remaining future guaranteed royalty
payments are not recoverable, the Company records an impairment charge to cost
of revenues and a liability in the period that impairment is
indicated.


F-11





NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all
      numbers in thousands except per share
amounts)





Content
Acquired


Amounts
paid to third party content providers as part of an agreement to make content
available to the Company for a term or in perpetuity, without a revenue share,
have been capitalized and are included in the balance sheet as prepaid
expenses.  These balances will be expensed over the estimated life of
the material acquired.





Software
Development Costs


The
Company applies the principles of FASB ASC 985-20, Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed(“ASC 985-20”). ASC
985-20 requires that software development costs incurred in conjunction with
product development be charged to research and development expense until
technological feasibility is established. Thereafter, until the product is
released for sale, software development costs must be capitalized and reported
at the lower of unamortized cost or net realizable value of the related
product.





The
Company has adopted the “tested working model” approach to establishing
technological feasibility for its products and games. Under this approach, the
Company does not consider a product or game in development to have passed the
technological feasibility milestone until the Company has completed a model of
the product or game that contains essentially all the functionality and features
of the final game and has tested the model to ensure that it works as expected.
To date, the Company has not incurred significant costs between the
establishment of technological feasibility and the release of a product or game
for sale; thus, the Company has expensed all software development costs as
incurred. The Company considers the following factors in determining whether
costs can be capitalized: the emerging nature of the mobile market; the gradual
evolution of the wireless carrier platforms and mobile phones for which it
develops products and games; the lack of pre-orders or sales history for its
products and games; the uncertainty regarding a product’s or game’s
revenue-generating potential; its lack of control over the carrier distribution
channel resulting in uncertainty as to when, if ever, a product or game will be
available for sale; and its historical practice of canceling products and games
at any stage of the development process.





Product
Development Costs


The
Company charges costs related to research, design and development of products toproduct
development expense as incurred. The types of costs included in product
development expenses include salaries, contractor fees and allocated facilities
costs.





Advertising
Expenses


The
Company expenses the production costs of advertising, including direct response
advertising, the first time the advertising takes place. Advertising expense for
continuing operations was ($485) and $1,119 in the years ended March 31, 2010
and 2009, respectively. Advertising expense for discontinued operations was
$7,018 and $3,755 in the years ended March 31, 2010 and 2009,
respectively.





Restructuring


The
Company accounts for costs associated with employee terminations and other exit
activities in accordance with FASB ASC 420-10, Accounting for Costs Associated
with Exit or Disposal Activities. The Company records employee
termination benefits as an operating expense when it communicates the benefit
arrangement to the employee and it requires no significant future services,
other than a minimum retention period, from the employee to earn the termination
benefits.


F-12





NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all
      numbers in thousands except per share
amounts)





Fair
Value of Financial Instruments


As of
March 31, 2010 and March 31, 2009, the carrying value of cash and cash
equivalents, accounts receivable, prepaid expenses and other current assets,
accounts payable, accrued license fees, accrued compensation and other current
liabilities approximates fair value due to the short-term nature of such
instruments. The carrying value of current portion of long-term debt
approximates fair value as the related interest rates approximate rates
currently available to the Company.





Foreign Currency
Translation.


The
Company uses the United States dollar for financial reporting
purposes.  Assets and liabilities of foreign operations are translated
using current rates of exchange prevailing at the balance sheet date. Equity
accounts have been translated at their historical exchange rates when the
capital transaction occurred.  Statement of Operations amounts are
translated at average rates in effect for the reporting period. The foreign
currency translation adjustment loss of $290 in the year ended March 31, 2010
and $190 in the year ended March 31, 2009 has been reported as a component of
comprehensive loss in the consolidated statements of stockholders’ equity and
comprehensive income. Translation gains or losses are shown as a separate
component of stockholders’ equity.





Concentrations
of Credit Risk


Financial
instruments which potentially subject us to concentration of credit risk consist
principally of cash and cash equivalents, and accounts receivable. We have
placed cash and cash equivalents with a single high credit-quality institution.
Most of our sales are made directly to large national Mobile Phone Operators in
the countries that we operate. We have a significant level of business and
resulting significant accounts receivable balance with one operator and
therefore have a high concentration of credit risk with that operator. We
perform ongoing credit evaluations of our customers and maintain an allowance
for potential credit losses. As of March 31, 2010, one major customer
represented approximately 36% of our gross accounts receivable outstanding, and
15% of gross accounts receivable outstanding as of March 31, 2009. This customer
accounted for 44% of our gross revenues in the year ended March 31, 2010; and
33% in the year ended March 31, 2009.





Property
and Equipment


Property
and equipment is stated at cost.  Depreciation and amortization is
calculated using the straight-line method over the estimated useful lives of the
related assets. Estimated useful lives are 8 to 10 years for leasehold
improvements and 5 years for other assets.





Goodwill
and Indefinite Life Intangible Assets


Goodwill
represents the excess of cost over fair value of net assets of businesses
acquired. In accordance with FASB ASC 350-20 Goodwill and Other Intangible
Assets, the value assigned to goodwill and indefinite lived intangible
assets, including trademarks and tradenames, is not amortized to expense, but
rather they are evaluated at least on an annual basis to determine if there are
potential impairments. If the fair value of the reporting unit is less than its
carrying value, an impairment loss is recorded to the extent that the implied
fair value of the reporting unit goodwill is less than the carrying value. If
the fair value of an indefinite lived intangible (such as trademarks and trade
names) is less than its carrying amount, an impairment loss is recorded. Fair
value is determined based on discounted cash flows, market multiples or
appraised values, as appropriate. Discounted cash flow analysis requires
assumptions about the timing and amount of future cash inflows and outflows,
risk, the cost of capital, and terminal values. Each of these factors can
significantly affect the value of the intangible asset. The estimates of future
cash flows, based on reasonable and supportable assumptions and projections,
require management’s judgment. Any changes in key assumptions about the
Company’s businesses and their prospects, or changes in market conditions, could
result in an impairment charge. Some of the more significant estimates and
assumptions inherent in the intangible asset valuation process include: the
timing and amount of projected future cash flows; the discount rate selected to
measure the risks inherent in the future cash flows; and the assessment of the
asset’s life cycle and the competitive trends impacting the asset, including
consideration of any technical, legal or regulatory trends.


F-13





NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all
      numbers in thousands except per share
amounts)





In the
year ended March 31, 2009, the Company determined that there was an impairment
of goodwill, amounting to $27,844.  In the year ended March 31, 2010,
the Company determined that there was an impairment of goodwill, amounting to
$32,694. In performing the related valuation analysis, the Company used various
valuation methodologies including probability weighted discounted cash flows,
comparable transaction analysis, and market capitalization and comparable
company multiple comparison. The impairment is detailed in Note 8
below.





Impairment of Long-Lived Assets and Finite Life
Intangibles





Long-lived
assets, including, intangible assets subject to amortization primarily consist
of customer lists, license agreements and software that have been acquired are
amortized using the straight-line method over their useful  ranging from
three to ten years and are reviewed for impairment in accordance with FASB ASC
360-10, Accounting for the
Impairment or Disposal of Long-Lived Assets, whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.





In the
year ended March 31, 2009, the Company determined that there was an impairment
of intangible assets, amounting to $3,940. In the year ended March 31, 2010, the
Company determined that there was an impairment of intangible assets, amounting
to $5,736. In performing the related valuation analysis the Company used various
valuation methodologies including probability weighted discounted cash flows,
comparable transaction analysis, and market capitalization and comparable
company multiple comparison. The impairment is detailed in Note 8
below.





Income
Taxes


The
Company accounts for income taxes in accordance with FASB ASC 740-10, Accounting for Income Taxes(“ASC 740-10”), which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in its financial statements or tax returns. Under ASC 740-10, the
Company determines deferred tax assets and liabilities for temporary differences
between the financial reporting basis and the tax basis of assets and
liabilities along with net operating losses, if it is more likely than not the
tax benefits will be realized using the enacted tax rates in effect for the year
in which it expects the differences to reverse.  To the extent a
deferred tax asset cannot be recognized, a valuation allowance is established if
necessary.


F-14





NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all
      numbers in thousands except per share
amounts)





ASC
740-10 prescribes that a company should use a more-likely-than-not recognition
threshold based on the technical merits of the tax position taken. Tax positions
that meet the “more-likely-than-not” recognition threshold should be measured as
the largest amount of the tax benefits, determined on a cumulative probability
basis, which is more likely than not to be realized upon ultimate settlement in
the financial statements. We recognize interest and penalties related to income
tax matters as a component of the provision for income taxes. We do not
currently anticipate that the total amount of unrecognized tax benefits will
significantly change within the next 12 months.





Stock-based compensation.


We have
applied FASB ASC 718 Share-Based Payment (“ASC
718”) and accordingly, we record stock-based compensation expense for all of our
stock-based awards.





Under ASC
718, we estimate the fair value of stock options granted using the Black-Scholes
option pricing model. The fair value for awards that are expected to vest is
then amortized on a straight-line basis over the requisite service period of the
award, which is generally the option vesting term. The amount of expense
recognized represents the expense associated with the stock options we expect to
ultimately vest based upon an estimated rate of forfeitures; this rate of
forfeitures is updated as necessary and any adjustments needed to recognize the
fair value of options that actually vest or are forfeited are
recorded.





The
Black-Scholes option pricing model, used to estimate the fair value of an award,
requires the input of subjective assumptions, including the expected volatility
of our common stock, interest rates, dividend rates and an option’s expected
life. As a result, the financial statements include amounts that are based upon
our best estimates and judgments relating to the expenses recognized for
stock-based compensation.





Preferred
Stock


The
Company applies the guidance enumerated in FASB ASC  480-10, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity(“ASC
480-10”) when determining the classification and measurement of preferred stock.
Preferred shares subject to mandatory redemption (if any) are classified as
liability instruments and are measured at fair value in accordance with ASC
480-10. All other issuances of preferred stock are subject to the classification
and measurement principles of ASC 480-10. Accordingly, the Company classifies
conditionally redeemable preferred shares (if any), which includes preferred
shares that feature redemption rights that are either within the control of the
holder or subject to redemption upon the occurrence of uncertain events not
solely within the Company’s control, as temporary equity. At all other times,
the Company classifies its preferred shares in stockholders’
equity.





Use
of Estimates


The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent asset and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the period. Actual results could
differ from those estimates. The most significant estimates relate to revenues
for periods not yet reported by Carriers, liabilities recorded for future
minimum guarantee payments under content licenses, accounts receivable
allowances, and stock-based compensation expense.


F-15





NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all
      numbers in thousands except per share
amounts)





Recent
Accounting Pronouncements


With the
exception of those discussed below, there have been no recent accounting
pronouncements or changes in accounting pronouncements during the year ended
March 31, 2010, as compared to the recent accounting pronouncements described in
the Company’s Annual Report on Form 10-K for the fiscal year ended March 31,
2009, that are of significance, or potential significance to the
Company.





Adopted
Accounting Pronouncements





Effective
July 1, 2009, the Company adopted FASB ASC 105-10 , Generally Accepted Accounting
Principles (“ASC 105-10”) (the “Codification”). ASC 105-10 establishes
the exclusive authoritative reference for U.S. GAAP for use in financial
statements, except for SEC rules and interpretive releases, which are also
authoritative GAAP for SEC registrants. The Codification will supersede all
existing non-SEC accounting and reporting standards. The Company has included
the references to the Codification, as appropriate, in these consolidated
financial statements. As the Codification was not intended to change or alter
existing GAAP, it did not have any impact on the Company’s consolidated
financial statements.





Effective
April 1, 2009, the Company adopted ASC 855, Subsequent Events (“ASC
855-10”). The standard modifies the names of the two types of subsequent events
either as “recognized subsequent events” (previously referred to in practice as
Type I subsequent events) or “non-recognized subsequent events” (previously
referred to in practice as Type II subsequent events). In addition, the standard
modifies the definition of subsequent events to refer to events or transactions
that occur after the balance sheet date, but before the financial statements are
issued (for public entities) or available to be issued (for nonpublic entities).
It also requires the disclosure of the date through which subsequent events have
been evaluated. The standard did not result in significant changes in the
practice of subsequent event disclosures or the related accounting thereof, and
therefore the adoption did not have any impact on the Company’s consolidated
financial statements.





Effective
April 1, 2009, the Company adopted three accounting standard updates which
were intended to provide additional application guidance and enhanced
disclosures regarding fair value measurements and impairments of securities.
They also provide additional guidelines for estimating fair value in accordance
with fair value accounting. The first update, as codified in ASC 820-10-65,
provides additional guidelines for estimating fair value in accordance with fair
value accounting. The second accounting update, as codified in ASC 320-10-65,
changes accounting requirements for other-than-temporary-impairment
(OTTI) for debt securities by replacing the current requirement that a
holder have the positive intent and ability to hold an impaired security to
recovery in order to conclude an impairment was temporary with a requirement
that an entity conclude it does not intend to sell an impaired security and it
will not be required to sell the security before the recovery of its amortized
cost basis. The third accounting update, as codified in ASC 825-10-65, increases
the frequency of fair value disclosures. These updates were effective for fiscal
years and interim periods ended after June 15, 2009. The adoption of these
accounting updates did not have any impact on the Company’s consolidated
financial statements.


F-16





NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all
      numbers in thousands except per share
amounts)





Effective
April 1, 2009, the Company adopted a new accounting standard update regarding
business combinations, ASC 805, which establishes principles and requirements
for how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree. ASC 805-10 also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. ASC 805-10 applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. We will apply the
requirements of ASC 805-10 prospectively to any future acquisitions. Although
the Company did not enter into any business combinations during the first year
ended March 31, 2010, the Company believes ASC 805-10 may have a material impact
on the Company’s future consolidated financial statements if the Company were to
enter into any future business combinations depending on the size and nature of
any such future transactions.





In
August 2009, the FASB issued Update No. 2009-05, Fair Value Measurements and
Disclosures (Topic 820) — Measuring Liabilities at Fair
Value  (ASU 2009-05). ASU 2009-05 amends ASC 820, Fair Value
Measurements and Disclosures, of the Codification to provide further guidance on
how to measure the fair value of a liability, an area where practitioners have
been seeking further guidance. It primarily does three things: (1) sets
forth the types of valuation techniques to be used to value a liability when a
quoted price in an active market for the identical liability is not available,
(2) clarifies that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of the liability and (3) clarifies that both a quoted price in an
active market for the identical liability at the measurement date and the quoted
price for the identical liability when traded as an asset in an active market
when no adjustments to the quoted price of the asset are required are Level 1
fair value measurements. This standard became effective beginning in the fourth
quarter of 2009 for the Company. The adoption of this pronouncement did not have
a material impact on our results of operations, financial position or cash
flows.





In
January 2010, the FASB issued ASU 2010-02, Consolidation (Topic 810):
Accounting and Reporting for Decreases in Ownership of a Subsidiary ("ASU
2010-02"). This amendment to Topic 810 clarifies, but does not change, the scope
of current US GAAP. It clarifies the decrease in ownership provisions of
Subtopic 810-10 and removes the potential conflict between guidance in that
Subtopic and asset derecognition and gain or loss recognition guidance that may
exist in other US GAAP. An entity will be required to follow the amended
guidance beginning in the period that it first adopts FAS 160 (now included
in Subtopic 810-10). For those entities that have already adopted FAS 160,
the amendments are effective at the beginning of the first interim or annual
reporting period ending on or after December 15, 2009, which was our year
ended March 31, 2010. The amendments should be applied retrospectively to
the first period that an entity adopted FAS 160. The adoption of this
pronouncement did not have a material impact on our results of operations,
financial position or cash flows.





In
January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements ("ASU 2010-06"). ASU 2010-06 amends ASC 820 and clarifies
and provides additional disclosure requirements related to recurring and
non-recurring fair value measurements and employers' disclosures about
postretirement benefit plan assets. ASU 2010-06 is effective for interim and
annual reporting periods beginning after December 15, 2009, which was our
year ending March 31, 2010. Our adoption of this pronouncement did not have
a material impact on our results of operations, financial position or cash
flows. Disclosures about purchases, sales, issuances, and settlements in the
roll forward activity in Level 3 fair value measurements are effective for
fiscal years beginning after December 15, 2010, and for interim periods
within those fiscal years, which will be our quarter ending June 30, 2011.
The adoption is not expected to have a material impact on our results of
operations, financial position or cash flows.


F-17





NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all
      numbers in thousands except per share
amounts)





In
February 2010, the FASB issued ASU 2010-09, "Amendments to Certain Recognition
and Disclosure Requirements" ("ASU2010-09"), which is included in the FASB
Accounting Standards Codification (the "ASC") Topic 855 Subsequent Events. ASU
2010-09 clarifies that an SEC filer is required to evaluate subsequent events
through the date that the financial statements are issued. ASU 2010-09 is
effective upon the issuance of the final update and had no impact on our balance
sheet, statement of operations or cash flows.





New
Accounting Pronouncements





In
September 2009, the FASB issued Update No. 2009-13, Multiple-Deliverable Revenue
Arrangements—a consensus of the FASB Emerging Issues Task Force ” (ASU
2009-13). It updates the existing multiple-element revenue arrangements guidance
currently included under ASC 605-25, which originated primarily from the
guidance in EITF Issue No. 00-21, “Revenue Arrangements with Multiple
Deliverables” (EITF 00-21). The revised guidance primarily provides two
significant changes: (1) eliminates the need for objective and reliable evidence
of the fair value for the undelivered element in order for a delivered item to
be treated as a separate unit of accounting, and (2) eliminates the residual
method to allocate the arrangement consideration. In addition, the guidance also
expands the disclosure requirements for revenue recognition. ASU 2009-13 will be
effective for the first annual reporting period beginning on or after
June 15, 2010, with early adoption permitted provided that the revised
guidance is retroactively applied to the beginning of the year of adoption. The
adoption of this standard update is not expected to impact the Company’s
consolidated financial statements.




In
October 2009, the FASB concurrently issued ASU No. 2009-14, Software (Topic
985): Certain Revenue Arrangements That Include Software Elements (a consensus
of the FASB Emerging Issues Task Force). This new guidance amends the scope of
existing software revenue recognition accounting. Tangible products containing
software components and non-software components that function together to
deliver the product's essential functionality would be scoped out of the
accounting guidance on software and accounted for based on other appropriate
revenue recognition guidance. For the Company, this guidance is effective for
all new or materially modified arrangements entered into on or after January 1,
2011 with earlier application permitted as of the beginning of a fiscal year.
Full retrospective application of the new guidance is optional. This guidance
must be adopted in the same period that the company adopts the amended
accounting for arrangements with multiple deliverables described in the
preceding paragraph. The Company is currently assessing its implementation of
this new guidance, but does not expect a material impact on the consolidated
financial statements.


3.
              Fair
      Value Measurements




As of
March 31, 2010 the carrying amounts of cash and cash equivalents, accounts
receivables, accounts payable and accrued liabilities approximate their fair
values due to the short-term maturities of these instruments.




On April
1, 2009, the Company adopted FASB ASC  820-10, Fair Value Measurements and
Disclosures - Measuring
Liabilities at Fair Value (“ASC 820-10”). ASC 820-10, which defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
ASC 820-10 does not require any new fair value measurements, but provides
guidance on how to measure fair value by providing a fair value hierarchy used
to classify the source of the information.




ASC
820-10 establishes a three-level valuation hierarchy of valuation techniques
that is based on observable and unobservable inputs. Classification within the
hierarchy is determined based on the lowest level of input that is significant
to the fair value measurement. The first two inputs are considered observable
and the last unobservable, that may be used to measure fair value and include
the following:




Level 1
- Quoted prices in active markets for identical assets or
liabilities.




Level 2
- Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data for substantially the full term of
the assets or liabilities.


F-18




NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
  Level 3
- Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or
liabilities.
  As of
March 31, 2010, the Company held certain assets and liabilities that are
required to be measured at fair value on a recurring basis, including its cash
and cash equivalents. The fair value of these assets and liabilities was
determined using the following inputs in accordance with ASC 820-10 at March 31,
2010:
  Fair Value Measurement as of March
      31, 2010Description
                      
                      Total
                      
                      
                      Level 1
                      
                      
                      Level 2
                      
                      
                      Level 3Cash
      and cash equivalents
                      
                      $
                      640
                      
                      
                      $
                      640
                      
                      
                      
                      -
                      
                      
                      
                      -
  Fair Value on A Nonrecurring
Basis
 
 Certain
assets and liabilities are measured at fair value on a nonrecurring basis;
that is, the instruments are not measured at fair value on an ongoing basis but
are subject to fair value adjustments in certain circumstances (for example,
when there is evidence of impairment). The following table presents the assets
and liabilities carried on the balance sheet by caption and by level within the
fair value hierarchy (as described above) as of March 31, 2010, for which a
nonrecurring change in fair value has been recorded during the year ended March
31, 2010.
 
 Carrying
      value at March 31, 2010
                
                
                Year
      ended March 31, 2010(in
      thousands)
                
                Total
                
                
                Level
      1
                
                
                Level
      2
                
                
                Level
      3
                
                
                Total
      lossesGoodwill
      and other intangible assets
                
                $
                16,350
                
                
                $
                -
                
                
                $
                -
                
                
                $
                16,350
                
                
                $
                38,450
  Goodwill
and other intangible assets measured at fair value on a nonrecurring basis
relate to goodwill and intangible assets that were acquired in connection with
an acquisition. Losses of $38,430 represent an impairment charge related to
these intangible assets recorded in fiscal 2010. The fair value of these
intangible assets was calculated based on the methods and criteria described in
Note 7 – Goodwill.
  4.
                Accounts
      Receivable
  March 31,
                      
                      
                      March 31,2010
                      
                      
                      2009Accounts
      receivable
                      
                      $
                      5,114
                      
                      
                      $
                      6,137Less:
      allowance for doubtful accounts
                      
                      
                      (403
                      )
                      
                      
                      (174
                      )Net
      Accounts receivable of continuing operations
                      
                      $
                      4,711
                      
                      
                      $
                      5,963Net
      Accounts receivable of discontinued operations
                      
                      $
                      5,694
                      
                      
                      $
                      4,782
  Accounts
receivable includes amounts billed and unbilled as of the respective balance
sheet dates. The Company had no significant write-offs or recoveries during the
years ended March 31, 2010 and March 31, 2009.
  5.
                Property
      and Equipment
  March 31,
                      
                      
                      March 31,2010
                      
                      
                      2009Equipment
                      
                      $
                      829
                      
                      
                      $
                      864Furniture
      & fixtures
                      
                      
                      278
                      
                      
                      $
                      302Leasehold
      improvements
                      
                      
                      140
                      
                      
                      $
                      1401,247
                      
                      
                      $
                      1,306Accumulated
      depreciation
                      
                      
                      (644
                      )
                      
                      $
                      (444
                      )Net
      Property and Equipment of continuing operations
                      
                      $
                      603
                      
                      
                      $
                      862Net
      Property and Equipment of discontinued operations
                      
                      $
                      668
                      
                      
                      $
                      369
  Depreciation
expense for the years ended March 31, 2010 and 2009 was $354 and $353,
respectively for continuing operations and $141 and $49 for discontinued
operations.
  F-19
  NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
  6.
                Description
      of Stock Plans
  On
September 27, 2007, the stockholders of the Company adopted the 2007 Employee,
Director and Consultant Stock Plan (“Plan”). Under the Plan, the Company may
grant up to 3,000 shares or equivalents of common stock of the Company as
incentive stock options (ISO), non-qualified options (NQO), stock grants or
stock-based awards to employees, directors or consultants, except that ISO’s
shall only be issued to employees. Generally, ISO’s and NQO’s shall be issued at
prices not less than fair market value at the date of issuance, as defined, and
for terms ranging up to ten years, as defined. All other terms of grants shall
be determined by the board of directors of the Company, subject to the
Plan.
 
 On
February 12, 2008, the Company amended the Plan to increase the number of shares
of our common stock that may be issued under the Plan to 7,000 shares and on
March 7, 2008, amended the Plan to increase the maximum number of shares of
the Company's common stock with respect to which stock rights may be granted in
any fiscal year to 1,100 shares. All other terms of the plan remain in full
force and effect.
 
 Option
Plans
 
 The
following table summarizes options granted for the periods or as of the dates
indicated:
 
 Number of
                      
                      
                      Weighted AverageShares
                      
                      
                      Exercise PriceOutstanding
      at March 31, 2008
                      
                      
                      6,802
                      
                      
                      $
                      2.70Granted
                      
                      
                      1,860
                      
                      
                      $
                      2.67Canceled
                      
                      
                      (1,702
                      )
                      
                      $
                      0.48Exercised
                      
                      
                      -
                      
                      
                      $
                      0.48Outstanding
      at March 31, 2009
                      
                      
                      6,960
                      
                      
                      $
                      2.52Granted
                      
                      
                      -
                      
                      
                      $
                      -Canceled
                      
                      
                      (773
                      )
                      
                      $
                      2.76Exercised
                      
                      
                      -
                      
                      
                      $
                      -Outstanding
      at March 31, 2010
                      
                      
                      6,187
                      
                      
                      $
                      2.49Exercisable
      at March 31, 2010
                      
                      
                      5,205
                      
                      
                      $
                      2.32
 
 The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average
assumptions:
 
 Options GrantedYear Ended
                          
                          
                          
                          Options TranferredMarch 31, 2009
                          
                          Options Granted
                          
                          from TwistboxExpected
      life (years)
                          
                          6
                          
                          4
      to 6
                          
                          3
      to 7Risk-free
      interest rate
                          
                          3.90%
      to 3.92
                          %
                          2.7%
      to 3.89
                          %
                          2.03%
      to 5.03
                          %Expected
      volatility
                          
                          49.73%
      to 54.33
                          %
                          70%
      to 75.2
                          %
                          70%
      to 75
                          %Expected
      dividend yield
                          
                          0
                          %
                          0
                          %
                          0
                          %
  F-20
 
 NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 The
exercise price for options outstanding at March 31, 2010 were as
follows:
 
 Options outstandingWeightedAverage
                    
                    
                    
                    
                    
                    WeightedRemaining
                    
                    
                    Number
                    
                    
                    Average
                    
                    
                    AggregateRange of
                    
                    Contractual Life
                    
                    
                    Outsanding
                    
                    
                    Exercise
                    
                    
                    IntrinsicExercise Price
                    
                    (Years)
                    
                    
                    March 31, 2010
                    
                    
                    Price
                    
                    
                    Value$0
      - $1.00
                    
                    
                    6.58
                    
                    
                    
                    2,071
                    
                    
                    $
                    0.63
                    
                    
                    $
                    22,511$2.00
      - $3.00
                    
                    
                    8.33
                    
                    
                    
                    2,616
                    
                    
                    $
                    2.67
                    
                    
                    $
                    -$4.00
      - $5.00
                    
                    
                    8.12
                    
                    
                    
                    1,500
                    
                    
                    $
                    4.75
                    
                    
                    $
                    -7.69
                    
                    
                    
                    6,187
                    
                    
                    $
                    2.49
                    
                    
                    $
                    22,511
 
 The
exercise price for options exercisable at March 31, 2010 were as
follows:
 
 Options ExercisableWeightedAverage
                    
                    
                    
                    
                    
                    WeightedRemaining
                    
                    
                    Options
                    
                    
                    Average
                    
                    
                    AggregateRange of
                    
                    Contractual Life
                    
                    
                    Exercisable
                    
                    
                    Exercise
                    
                    
                    IntrinsicExercise Price
                    
                    (Years)
                    
                    
                    March 31, 2010
                    
                    
                    Price
                    
                    
                    Value$0
      - $1.00
                    
                    
                    6.57
                    
                    
                    
                    2,027
                    
                    
                    $
                    0.63
                    
                    
                    $
                    22,501$2.00
      - $3.00
                    
                    
                    8.26
                    
                    
                    
                    2,045
                    
                    
                    $
                    2.66
                    
                    
                    $
                    -$4.00
      - $5.00
                    
                    
                    8.12
                    
                    
                    
                    1,133
                    
                    
                    $
                    4.75
                    
                    
                    $
                    -7.57
                    
                    
                    
                    5,205
                    
                    
                    $
                    2.32
                    
                    
                    
                    22,501
 
 Stock
Plans
 
 A summary
of the status of the Company’s nonvested shares as of March 31, 2010 pursuant to
the Plan, and changes during the year ended March 31, 2010 is presented
below:
 
 Weighted AverageNumber of
                      
                      
                      Grant DateNonvestedshares
                      
                      Shares
                      
                      
                      FairValueNonvested
      at March 31, 2009
                      
                      
                      498,767
                      
                      
                      $
                      0.85Granted
                      
                      
                      309,326
                      
                      
                      $
                      0.79Vested
                      
                      
                      778,609
                      
                      
                      $
                      0.84Cancelled
                      
                      
                      29,484
                      
                      
                      $
                      0.85Nonvested
      at March 31, 2010
                      
                      
                      -
                      
                      
                      $
                      -Cumulative
      Forfeited
                      
                      
                      (218,379
                      )
                      
                      $
                      0.61
  F-21
 
 NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 As of
March 31, 2010, there was $0 of total unrecognized compensation cost related to
nonvested share-based compensation arrangements granted under the Plan.. The
total fair value of shares vested during the year ended March 31, 2010 was $652,
and $80 was forfeited to cover individual tax withholdings. The total fair value
of shares vested during the year ended March 31, 2009 was $210, and $52 was
forfeited to cover individual tax withholdings.
 
 Option
Plans and Stock Plans
 
 Total
stock compensation expense is included in the following statements of operations
components:
 
 12 Months Ended
                    
                    
                    12 Months EndedMarch 31
                    
                    
                    March 312010
                    
                    
                    2009Product
      development
                    
                    $
                    12
                    
                    
                    $
                    34Sales
      and marketing
                    
                    $
                    80
                    
                    
                    $
                    39General
      and administrative
                    
                    $
                    1,677
                    
                    
                    $
                    2,934$
                    1,769
                    
                    
                    $
                    3,007Stock
      forfeited
                    
                    $
                    (80
                    )
                    
                    $
                    (52
                    )
 
 7.
                Acquisitions/Purchase
      Price Accounting/Discontinued
Operations
  Acquisition
- AMV Holding Limited and subsidiaries (Discontinued Operation)
 
 On
October 23, 2008, the Company completed an acquisition of 100% of AMV Holding
Limited, a United Kingdom private limited company (“AMV”) and 80% of Fierce
Media Limited. The acquisition was effective on October 1, 2008.
 
 Subject to adjustment as set forth in the Stock Purchase
Agreement, the aggregate purchase price (the “Purchase Price”) consisted of: (a)
$5,375 in cash (the “Cash Consideration”); (b) 4,500 fully paid and
non-assessable shares of common stock (the “Stock Consideration”); (c) a secured
promissory note in the aggregate original principal amount of $5,375 (the “AMV
Note”); and (d) additional earn-out amounts, if any, if the acquired companies
achieved certain targeted earnings for each of the periods from October 1, 2008
to March 31, 2009, April 1, 2009 to March 31, 2010, and April 1, 2010 to
September 30, 2010, as determined in accordance with the Stock Purchase
Agreement. The Purchase Price was subject to certain adjustments based on the
working capital of AMV, to be determined initially within 75 days of the
closing, and subsequently within 60 days following June 30, 2009. Any such
adjustment of the Purchase Price would be made first by means of an adjustment
to the principal sum due under the AMV Note, as set forth in the Stock Purchase
Agreement. The initial adjustment has been determined preliminarily as $443, to
be added to the AMV Note.
  F-22
 
 NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 Prior to
closing, each outstanding option to purchase shares of capital stock of AMV (an
“AMV Option”) was either exercised in full or terminated. The AMV Note was
scheduled to mature on July 31, 2010, and bore interest at an initial rate of 5%
per annum, subject to adjustment as provided therein. In the event the Company
completed an equity financing that resulted in gross proceeds of over $6,000,
the Company would have been obligated to prepay a portion of the AMV Note in an
amount equal to one-third of the excess of the gross proceeds of such financing
over $6,000.   Additionally, in connection with the AMV Note, AMV
granted to the sellers a security interest in its assets. Such security interest
was subordinate to the security interest granted to ValueAct Small Cap Master
Fund, L.P. (“ValueAct) under the Senior Secured Note, issued by Twistbox,
 due July 31, 2010, as amended on February 12, 2008 (the “ValueAct Note”),
and as subsequently amended on October 23, 2008. AMV also agreed to guarantee
Mandalay Media’s repayment of the AMV Note to the sellers.
 
 The
Purchase Price was preliminarily estimated by the Company to be $23,030
consisting of $9,900 attributed to the Stock Consideration issued, $5,375 in
cash, $95 in stamp duty, $5,818 under the AMV Note referenced above (inclusive
of the working-capital adjustment), $1,098 as an estimate of the initial period
earn-out adjustment and $744 in transaction costs.  Any
further  adjustments required under the “working capital adjustment”
provision and any further adjustment under the “earn-out” provision of the Stock
Purchase Agreement have not yet been determined and therefore have not been
included in the preliminary calculation of the purchase price. The shares of the
Stock Consideration were valued using the closing stock price at the acquisition
date of $2.20 per share. Under the purchase method of accounting, the Company
allocated the total Purchase Price of $23,030 to the net tangible and intangible
assets acquired and liabilities assumed based upon their respective estimated
fair values as of the acquisition date as follows:
 
 Cash
      and cash equivalents
                    
                    $
                    3,380Accounts
      receivable, net of allowances
                    
                    
                    9,087Prepaid
      expenses and other current assets
                    
                    
                    16Property
      and equipment, net
                    
                    
                    406Accounts
      payable
                    
                    
                    (10,391
                    )Bank
      overdrafts
                    
                    
                    (1,902
                    )Other
      current liabilities
                    
                    
                    (1,262
                    )Other
      long term liabilities
                    
                    
                    (223
                    )Minority
      interests
                    
                    
                    95Identified
      intangibles
                    
                    
                    1,368Acquisition
      related restructuring reservesGoodwill
                    
                    
                    22,456$
                    23,030
 
 Net
assets associated with Fierce Media Limited were insignificant. Goodwill
recognized in the above transaction is preliminarily estimated at $22,456. The
business acquired is not capital intensive and does not require significant
identifiable intangible assets – as a result the greater proportion of
consideration has been allocated to goodwill.  Goodwill in relation to
the acquisition of AMV is not expected to be deductible for US income tax
purposes.
 
 At March
31, 2010 AMV has been treated as a discontinued operation, and as a result, the
goodwill allocated to the acquisition of AMV has been segregated on the balance
sheet as part of discontinued non-current assets.
  F-23
 
 NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 Discontinued
Operations
 
 The
Company had been negotiating a restructuring of debt with its senior debt holder
for some time.  These negotiations were finalized subsequent to year
end, and as described in Note 16, on June 21, 2010 the Company signed and closed
a number of transactions, which included the sale of AMV. Pursuant to the
Agreement, ValueAct and the AMV Founders, acting through a newly formed company
(“NewCo”), acquired the operating subsidiaries of AMV in exchange for the
release of approximately $23 million of secured indebtedness, which included a
release of all amounts due and payable under the AMV Note and all of the amounts
due and payable under the ValueAct Note except for $3.5 million in principal. In
addition, all intercompany balances at that date were cancelled, and ValueAct’s
stock and warrants in the Company were cancelled. In addition, approximately
3,541 shares in the Company held by two of the AMV Sellers were acquired by the
Company.
  The
Company has not yet finalized all of the component parts of the
transaction.
  In
accordance with FASB ASC 205-20, Discontinued Operations, the
assets, liabilities and operating results related to AMV have been segregated
and reported as discontinued operations in the accompanying consolidated
financial statements.
  The
following amounts represent the operations of the discontinued unit and have
been segregated from continuing operations and reported as discontinued
operations as of March 31, 2010 and 2009:
  Year ended
                    
                    
                    Year endedMarch 31,
                    
                    
                    March 31,2010
                    
                    
                    2009Revenues
                    
                    
                    24,739
                    
                    
                    
                    11,562Cost
      of revenues
                    
                    
                    8,558
                    
                    
                    
                    3,564Gross
      profit
                    
                    
                    16,181
                    
                    
                    
                    7,998Operating
      expenses and other expenses
                    
                    
                    13,574
                    
                    
                    
                    6,208Income
      from discontinued operations
                    
                    
                    2,607
                    
                    
                    
                    1,790Income
      tax provision
                    
                    
                    (903
                    )
                    
                    
                    408Income
      from discontinued operations, net of tax
                    
                    
                    1,704
                    
                    
                    
                    2,198
  F-24
  NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
  The
following is a summary of assets and liabilities of the discontinued operations
as of March 31, 2010 and 2009:
  March 31,
                    
                    
                    March 31,2010
                    
                    
                    2009AssetsCash
                    
                    
                    1,251
                    
                    
                    
                    2,587Accounts
      receivable, net
                    
                    
                    5,694
                    
                    
                    
                    4,782Other
      current assets
                    
                    
                    432
                    
                    
                    
                    261Property
      and equipment, net
                    
                    
                    668
                    
                    
                    
                    369Goodwill
      and intangibles
                    
                    
                    15,955
                    
                    
                    
                    16,220Total
      Assets
                    
                    
                    24,000
                    
                    
                    
                    24,219LiabilitiesAccounts
      payable and accrued expenses
                    
                    
                    4,625
                    
                    
                    
                    6,574Total
      Liabilities
                    
                    
                    4,625
                    
                    
                    
                    6,574
 
 Goodwill
 
 A
reconciliation of the changes to the Company's carrying amount of goodwill for
the years ended March 31, 2010 and 2009 was as follows:
 
 Balance
      at March 31, 2008
                        
                        $
                        61,377Goodwill
      acquired during the period
                        
                        
                        22,456Adjustments
      made to goodwill
                        
                        
                        (156
                        )Goodwill
      impairment
                        
                        
                        (27,844
                        )Balance
      at March 31, 2009
                        
                        $
                        55,833Goodwill
      attributable to discontinued operations
                        
                        
                        (14,984
                        )Goodwill
      impairment
                        
                        
                        (32,694
                        )Balance
      at March 30, 2010
                        
                        $
                        8,155
 
 The
Company performed its annual review of the fair value of goodwill in the fourth
quarter of fiscal 2010. Fair value is defined under ASC 820, Fair Value
Measurements and Disclosures as, “The price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date”. The Company considered a number of
valuation approaches and methods and applied the most appropriate methods from
the income, and market approaches to derive an opinion of value. Under the
income approach, the Company utilized the discounted cash flow method, and under
the market approach, consideration was given to the guideline public company
method, the merger and acquisition method, and the market capitalization
method.
 
 As a
result of the assessment, the Company determined that its net book value
exceeded the implied fair value; and recorded an impairment charge of $32,694 to
write down goodwill. The impairment charge is included “Impairment of goodwill
and intangible assets” within operating expenses in the statements of
operations.
  F-25
 
 NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 8.
                Other
      Intangible Assets
  A
reconciliation of the changes to the Company's carrying amount of intangible
assets for the year ended March 31, 2010 was as follows:
 
 Balance
      at March 31, 2008
                      
                      $
                      19,780Intangibles
      acquired during the period
                      
                      
                      1,368Amortization
                      
                      
                      (1,087
                      )Impairment
      charge
                      
                      
                      (3,940
                      )Balance
      at March 31, 2009
                      
                      $
                      16,121Amortization
                      
                      
                      (1,219
                      )Intangibles
      attributable to discontinued operations
                      
                      
                      (971
                      )Impairment
      of intangibles
                      
                      
                      (5,736
                      )Balance
      at March 31, 2010
                      
                      $
                      8,195
 
 The
Company performed its annual review of the fair value of intangible assets in
the fourth quarter of fiscal 2010. The Company separately considered a number of
valuation methodologies for each intangible asset group. As a result of the
assessment, the Company determined that its net book value exceeded the implied
fair value; and recorded an impairment charge of $5,736 to write down intangible
assets. The impairment charge is included “Impairment of goodwill and intangible
assets” within operating expenses in the statements of operations.
 
 The
components of intangible assets as at March 31, 2010 and 2009 were as
follows:
  March 31,
                        
                        
                        March 31,2010
                        
                        
                        2009Software
                        
                        $
                        1,611
                        
                        
                        $
                        1,611Trade
      name / Trademark
                        
                        
                        6,491
                        
                        
                        
                        9,090Customer
      list
                        
                        
                        1,548
                        
                        
                        
                        4,378License
      agreements
                        
                        
                        579
                        
                        
                        
                        88610,229
                        
                        
                        
                        15,965Accumulated
      amortization
                        
                        
                        (2,034
                        )
                        
                        
                        (1,080
                        )Net
      Intangible Assets of continuing operations
                        
                        $
                        8,195
                        
                        
                        $
                        14,885Net
      Intangible Assets of discontinued operations
                        
                        $
                        971
                        
                        
                        $
                        1,236
 
 The
Company has included amortization of acquired intangible assets directly
attributable to revenue-generating activities in cost of revenues. The Company
has included amortization of acquired intangible assets not directly
attributable to revenue-generating activities in operating expenses. During the
years ended March 31, 2010 and 2009, the Company recorded amortization expense
for continuing operations  in the amount of $407 and $407,
respectively, in cost of revenues; and amortization expense in the amount of
$547 and $547 respectively, in operating expenses. During the years ended March
31, 2010 and 2009 the Company recorded amortization expense for discontinued
operations in the amount of $104 and $52, respectively, in cost of revenues; and
amortization expense in the amount of $162 and $80, respectively, in operating
expenses.
  F-26
 
 NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 As of
March 31, 2010, the total expected future amortization related to intangible
assets for continuing operations was as follows:
 
 12 Months Ended March 31,2011
                    
                    
                    2012
                    
                    
                    2013
                    
                    
                    2014
                    
                    
                    2014
                    
                    
                    ThereafterSoftware
                    
                    $
                    236
                    
                    
                    $
                    236
                    
                    
                    $
                    236
                    
                    
                    $
                    236
                    
                    
                    $
                    177
                    
                    
                    $
                    -Customer
      List
                    
                    
                    66
                    
                    
                    
                    66
                    
                    
                    
                    66
                    
                    
                    
                    66
                    
                    
                    
                    66
                    
                    
                    
                    52License
      Agreements
                    
                    
                    73
                    
                    
                    
                    73
                    
                    
                    
                    55
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -$
                    375
                    
                    
                    $
                    375
                    
                    
                    $
                    357
                    
                    
                    $
                    302
                    
                    
                    $
                    243
                    
                    
                    $
                    52
  9.
                Debt
  March 31,
                    
                    
                    March 31,2010
                    
                    
                    2009Short
      Term DebtSenior
      secured note, inclusive of accrued interest net of discount of $40
      and $250, respectively
                    
                    $
                    19,749
                    
                    
                    
                    17,351Deferred
      purchase consideration inclusive of accrued interest
                    
                    
                    6,333
                    
                    
                    
                    5,945$
                    26,082
                    
                    
                    $
                    23,296
 
 In July
2007 Twistbox entered into a debt financing agreement pursuant to the ValueAct
Note amounting to $16,500, payable at 30 months. The holder of the ValueAct Note
was granted first lien over all of the Company’s assets. The ValueAct Note
carried interest of 9% annually for the first year and 10% subsequently, with
semi-annual interest only payments. The debt-financing agreement included
certain restrictive covenants. In conjunction with the Merger described in Note
7, the Company guaranteed up to $8,250 of the principal; and the restrictive
covenants were modified, including a requirement for both Mandalay Media and
Twistbox to maintain certain minimum cash balances. In connection with the
guaranty, the Company issued the lender warrants to purchase 1,093 and 1,093
shares of common stock of the Company, exercisable at $7.55 per share, and at
$5.00 per share, (increasing to $7.55 per share, if not exercised in full by
February 12, 2009), respectively, through July 30, 2011. These warrants replaced
warrants originally issued by Twistbox in conjunction with the ValueAct
Note.
  On
October 23, 2008 in conjunction with the acquisition of AMV, as described in
Note 7, the Company entered into a secured promissory note in the aggregate
original principal amount of $5,375 (the “AMV Note”). With accrued interest, the
balance of this note was $6,333 at March 31, 2010 and $5,945 at March 31,
2009.
  F-27
  NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 On
October 23, 2008, the Company, Twistbox and ValueAct entered into a Second
Amendment (the “Second Amendment”) to the ValueAct Note. Among other things, the
Second Amendment provided for a payment in kind election, whereby, in lieu of
making any cash payments to ValueAct on the following two interest payment
dates, Twistbox had the option to elect that the amount of any interest due on
such date be added to the principal amount due under the ValueAct Note. That
election was made in connection with the first interest payment following the
amendment. In addition, ValueAct agreed to amend the ValueAct Note to modify the
covenant requiring that the Company and Twistbox maintain certain minimum
combined cash balances, during specified periods of time. Lastly, the Second
Amendment provided that an event of default may be triggered in the event the
Company fails to observe certain covenants as agreed to in the Second Amendment,
including a covenant that, until all principal and interest and any other
amounts due under the ValueAct Note are paid in full in cash, the Company: (i)
would not create, incur, assume or permit to exist certain indebtedness, except
for indebtedness in connection with a receivables facility as described in the
Second Amendment, which indebtedness would rank pari passu in right of payment
on the ValueAct Note, provided, that any receivables used to procure and
maintain such receivables facility would not be subject to any lien of ValueAct
during the term of such receivables facility; and (ii) would not, and would not
permit any subsidiary to, without the prior consent of ValueAct, prepay any
indebtedness incurred in connection with the AMV Note, other than prepayments
with proceeds raised in an equity financing as permitted by the AMV Note.
Additionally, on October 23, 2008, in connection with the ValueAct Note, as
amended, AMV agreed to grant to ValueAct a security interest in its assets,
which ranks senior to the security interest granted to the sellers of AMV. AMV
also agreed to guarantee Twistbox’s repayment of the ValueAct Note.
  As
described above, the Company had previously issued to ValueAct two warrants to
purchase shares of the Company’s common stock. One warrant entitled ValueAct to
purchase up to a total of 1,093 shares of common stock at an exercise price
of $7.55 per share (“$7.55 Warrant”). The other warrant entitled ValueAct to
purchase up to a total of 1,093 shares of common stock at an initial
exercise price of $5.00 per share (“$5.00 Warrant,” and together with the $7.55
Warrant, the “ValueAct Warrants”). On October 23, 2008, the Company and ValueAct
entered into an allonge to each of the ValueAct Warrants. Among other things,
the exercise price of each of the ValueAct Warrants was amended to be $4.00 per
share. The price change resulted is an adjustment to the valuation of the
warrants and therefore to the debt discount which is amortized over the life of
the term of the debt.
 
 On August
14, 2009, the Company, Twistbox and ValueAct entered into a Third Amendment (the
“Third Amendment”) to the ValueAct Note. Among other things, the Third Amendment
provided for the due date to be extended to July 31, 2010, an interest rate of
12.5% from the date of the agreement through maturity, an extension of the
payment in kind (“PIK”) election through to the interest payment otherwise due
in January 2010, and a reduction in the minimum cash covenant to $1 million
until January 31, 2010 and $4 million thereafter, subject to certain conditions.
There were no other significant changes.
  As
described above, the Company had previously issued to ValueAct warrants to
purchase shares of the Company’s common stock. On August 14, 2009, the Company
and ValueAct entered into an allonge to the warrant to purchase 1,093 shares of
common stock. The exercise price of the Warrant was amended from $4.00 to $1.25
per share, and the termination date of the warrants was amended to July 14,
2010. The impact of the price change of the warrants is immaterial to the
consolidated financial statements.
 
 In
addition the Company and the sellers of AMV entered into an agreement which
extended the maturity date of the AMV Note which represented deferred purchase
consideration in relation to the AMV acquisition, until July 31,
2010.
  F-28
 
 NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 On
January 25, 2010, the Company, Twistbox and ValueAct entered into a Waiver to
Senior Secured Note (the “Waiver”), pursuant to which ValueAct agreed to waive
certain provisions of the ValueAct Note. Pursuant to the Waiver, subject to
Twistbox’s compliance with certain conditions set forth in Section 2 of the
Waiver (the “Conditions”), certain rights to prepay the ValueAct Note were
extended from January 31, 2010 to March 1, 2010. In addition, subject to
Twistbox’s compliance with the Conditions, the timing obligation of the Company
and Twistbox to comply with the cash covenant set forth in the ValueAct Note was
extended to March 1, 2010 and the minimum cash balance which Twistbox and the
Company was required to maintain was increased to $1,600.
  On
February 25, 2010, Twistbox received a letter (the “Notice”) from ValueAct
alleging certain events of default with respect to the ValueAct Note. The Notice
claimed that an event of default had occurred and was continuing under the
ValueAct Note as a result of certain alleged defaults. In the Notice, ValueAct
reserved its rights and remedies under the loan documents relating to the
ValueAct Note. The Notice did not state that ValueAct had elected for the unpaid
principal and accrued interest under the ValueAct Note to become due and
payable. The Notice claimed that the Waiver, which among other things, had
extended certain rights of Twistbox to prepay amounts under the ValueAct Note
from January 31, 2010 to March 1, 2010 in order to extend the maturity of
remaining amounts due under the ValueAct Note and extended the time period for
the Company and Twistbox to comply with the $4,000 minimum cash balance covenant
set forth in the ValueAct Note to March 1, 2010, had ceased to be effective as a
result of the alleged failure of the Company to comply with the conditions set
forth in the Waiver. Under the ValueAct Note, upon the occurrence of an event of
default, ValueAct, by written notice to Twistbox, may declare the unpaid
principal amount of the ValueAct Note, plus accrued but unpaid interest thereon,
to be immediately due and payable. Commencing after the occurrence of an event
of default and so long as the default is continuing, the interest rate
applicable under the ValueAct Note is to increase an additional 2% per annum. If
an event of default had been determined to have occurred and continuing, and
ValueAct had declared the unpaid principal amount of the ValueAct Note, plus
accrued but unpaid interest thereon, to be immediately due and payable, it may
also have exercised its rights pursuant to the Guaranty and Security Agreement
and the Debenture to foreclose on the assets of Twistbox and AMV. The
Company believed that the events described in the Notice did not constitute
defaults or if such events do constitute defaults, and that Twistbox was
entitled to requisite cure periods which ValueAct had failed to observe and that
ValueAct had not properly exercised its rights under the ValueAct
Note.
  On May
10, 2010, Twistbox received from ValueAct a Notice of Event of Default and
Acceleration (“Acceleration Notice”) in which ValueAct stated that an event of
default occurred under the ValueAct Note as a result of Twistbox’s and the
Company’s failure to comply with the cash balance covenant under the ValueAct
Note and, therefore, ValueAct had accelerated all outstanding amounts payable by
Twistbox under the ValueAct Note.  In connection with the Acceleration
Notice, ValueAct instituted an administration proceeding in the United Kingdom
against AMV.  The Company continued to dispute the timeliness of
ValueAct’s claim and contended that the commencement of the administration in
the United Kingdom may have been unfounded.
  As
described in Note 16, in connection with the disposal of AMV subsequent to March
31, 2010, all amounts due and payable under the AMV Note were released, and the
ValueAct Note was amended and restated in its entirety and reduced to $3.5
million (the “Amended ValueAct Note”).
  F-29
 
 NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 In
addition, for purposes of capitalizing the Company, the Company sold and issued
$2,500 of Senior Secured Convertible Notes due June 21, 2013 of the Company (the
“New Senior Secured Notes”) to certain of the Company’s significant
stockholders.  The New Senior Secured Notes have a three year term and
bear interest at a rate of 10% per annum payable in arrears semi-annually.
Notwithstanding the foregoing, at any time on or prior to the 18th month
following the original issue date of the New Senior Secured Notes, the Company
may, at its option, in lieu of making any cash payment of interest, elect that
the amount of any interest due and payable on any interest payment date on or
prior to the 18th month following the original issue date of the New Senior
Secured Notes be added to the principal due under the New Senior Secured Notes.
The accrued and unpaid principal and interest due on the New Senior Secured
Notes are convertible at any time at the election of the holder into shares of
common stock of the Company at a conversion price of $0.15 per share, subject to
adjustment. The New Senior Secured Notes are secured by a first lien on
substantially all of the assets of the Company and its subsidiaries pursuant to
the terms of that certain Guarantee and Security Agreement, dated as of June 21,
2010, among Twistbox, the Company, each of the subsidiaries thereof party
thereto, the investors party thereto and Trinad Management. The Amended ValueAct
Note is subordinated to the New Senior Secured Notes pursuant to the terms of
that certain Subordination Agreement, dated as of June 21, 2010, by and between
Trinad Fund, and ValueAct, and each of the Company and Twistbox.
  Each
purchaser of a New Senior Secured Note also received a warrant (“Warrant”) to
purchase shares of common stock of the Company at an exercise price of $0.25 per
share, subject to adjustment.  For each $50,000 of New Senior Secured
Notes purchased, the purchaser received a Warrant to purchase 166,667 shares of
common stock of the Company.  Each Warrant has a five year
term.
  At March
31, 2010, minimum future obligations through July 31, 2010, including interest,
under the ValueAct Note were $20,557 including repayment of the
principal.
 
 10.
              Related
      Party Transactions
  The
Company engages in various business relationships with shareholders and officers
and their related entities. The significant relationships are disclosed
below.
  On
September 14, 2006, the Company entered into a management agreement
(“Agreement”) with Trinad Management for five years. Pursuant to the terms of
the Agreement, Trinad Management will provide certain management services,
including, without limitation, the sourcing, structuring and negotiation of a
potential business combination transaction involving the Company in exchange for
a fee of $90 per quarter, plus reimbursements of all expenses reasonably
incurred in connection with the provision of Agreement. The Agreement expires on
September 14, 2011. Either party may terminate with prior written notice.
However, if the Company terminates, it shall pay a termination fee of $1,000.
For the years ended March 31, 2010 and 2009, the Company incurred management
fees under the agreement of $360 and $360 respectively. In March 2008, the
Company entered into a month to month lease for office space with Trinad
Management for rent of $9 per month, subsequently reduced to $5 per
month.  Rent expense in connection with this lease was $99 and $104
respectively for the years ended March 31, 2010 and 2009.
 
 11.
              Capital
      Stock Transactions
 
 Preferred
Stock
  There are
100 shares of Series A Convertible Preferred Stock authorized, issued and
outstanding. The stock has a par value of $0.0001 per share. The Series A
holders shall be entitled to: (1) vote on an equal per share basis as common,
(2) dividends on an as if-converted basis and (3) a liquidation preference equal
to the greater of $10 per share of Series A (subject to adjustment) or such
amount that would have been paid on an as if-converted basis. The holder of the
preferred stock has agreed not to exercise certain rights until such time as the
Amended ValueAct Note has been repaid in cash in full.
  F-30
 
 NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 Common
Stock
 
 In
September 2009, the Company granted warrants to purchase 1,200 shares of common
stock of the Company to a vendor. The warrants are exercisable at $1.25 per
share, through September 23, 2014 and were valued at $134 at the time of
issue.
 
 12.
              Employee
      Benefit Plans
 
 The
Company has an employee 401(k) savings plan covering full-time eligible
employees.  These employees may contribute eligible compensation up to
the annual IRS limit. The Company does not make matching
contributions.
 
 13.
              Income
      Taxes
 
 The
difference between taxes at actual rates and the federal statutory rate was as
follows:
  Year Ended
                              
                              
                              Year EndedMarch 31,
                              
                              
                              March 31,2010
                              
                              
                              2009Statutory
      Federal Income Taxes
                              
                              
                              (14,920
                              )
                              
                              
                              (14,191
                              )State
      income taxes, net of federal benefit
                              
                              
                              (645
                              )
                              
                              
                              (2,087
                              )Write
      down of goodwill and other perm difference
                              
                              
                              11,157
                              
                              
                              
                              12,057Foreign
      Expense
                              
                              
                              903
                              
                              
                              
                              -Increase
      in Valuation Allowance
                              
                              
                              4,713
                              
                              
                              
                              4,110Income
      tax provision (benefit)
                              
                              
                              1,208
                              
                              
                              
                              (111
                              )Less
      discontinued Operations
                              
                              
                              (903
                              )
                              
                              
                              269Income
      tax provision (benefit) for Continuing Ops
                              
                              
                              305
                              
                              
                              
                              158
   F-31
 
 NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 Deferred
tax assets and liabilities consist of the following:
 March 31,
                            
                            
                            March
      31,2010
                            
                            
                            20009Net
      Operating Loss Carryforward
                            
                            
                            22,352
                            
                            
                            16,985Amortization
      of Intangible Asset
                            
                            
                            (3,259
                            )
                            
                            196Stock-based
      compensation
                            
                            
                            2,602
                            
                            
                            1,679Credit
      Carryforwards
                            
                            
                            553
                            
                            
                            -Other
                            
                            
                            107
                            
                            
                            -Deferred
      State Tax
                            
                            
                            22,355
                            
                            
                            18,860Valuation
      Allowance
                            
                            
                            (22,355
                            )
                            
                            (18,860
                            )Net
      Deferred Tax Asset
                            
                            
                            -
                            
                            
                            -
 
 In
accordance with ASC 740 and based on all available evidence on a jurisdictional
basis, the Company believes that, it is more likely than not that its deferred
tax assets will not be utilized, and has recorded a full valuation allowance
against its net deferred tax assets in each jurisdiction.
 
 As of
March 31, 2010, the Company had net operating loss (NOL) carry-forwards to
reduce future Federal income taxes of approximately $56,000, expiring in various
years ranging through 2029. Utilization of the NOLs may be subject to a
substantial annual limitation due to ownership change limitations that may have
occurred or that could occur in the future, as required by Section 382 of the
Internal Revenue Code of 1986, as amended (the "Code"), as well as similar state
limitations.  These ownership changes may limit the amount of NOLs
that can be utilized annually to offset future taxable income and tax,
respectively.  In general, an "ownership change" as defined by Section
382 of the Code, results from a transaction of series of transactions over a
three-year period resulting in an ownership change of more than 50 percentage
points of the outstanding stock by a company by certain stockholders or public
groups.
  As of
March 31, 2010, realization of the Company's net deferred tax asset of
approximately $22,353 was not considered more likely than not and, accordingly,
a valuation allowance of $22,253 has been provided. During the year ended March
31, 2010, the valuation allowance increased by $3,495.
  Management
has evaluated and concluded that there are no significant uncertain tax
positions requiring recognition in the Company’s financial statements as of
March 31, 2010.
  ASC 740
requires the consideration of a valuation allowance to reflect the likelihood of
realization of deferred tax assets.  Significant management judgment
is required in determining any valuation allowance recorded against deferred tax
assets. The Company adopted the provisions of ASC 740 on January 1, 2008 and
there was no difference between the amounts of unrecognized tax benefits
recognized in the balance sheet prior to the adoption of ASC 740 and those after
the adoption of ASC 740. There were no unrecognized tax benefits not subject to
valuation allowance as at March 31, 2010 and March 31, 2009. The Company
recognized no interest and penalties on income taxes in its statement of
operations for the year ended March 31, 2010; or the year ended March 31,
2009.  Management believes that with few exceptions, the Company is no
longer subject to income tax examinations by tax authorities for years before
March 31, 2004.
  F-32
 
 NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 14.
              Segment
      and Geographic information
  The
Company operates in one reportable segment in which it is a developer and
publisher of branded entertainment content for mobile phones. Revenues are
attributed to geographic areas based on the country in which the carrier’s
principal operations are located. The Company attributes its long-lived assets,
which primarily consist of property and equipment, to a country primarily based
on the physical location of the assets. Goodwill and intangibles are not
included in this allocation. The following information sets forth geographic
information on our sales and net property and equipment for the period ended
March 31, 2010:
 
 North
                        
                        
                        
                        
                        
                        OtherAmerica
                        
                        
                        Europe
                        
                        
                        Regions
                        
                        
                        ConsolidatedTwelve
      Months ended March 31, 2010Net
      sales to unaffiliated customers
                        
                        
                        2,497
                        
                        
                        
                        11,276
                        
                        
                        
                        264
                        
                        
                        $
                        14,037Twelve
      Months ended March 31, 2009Net
      sales to unaffiliated customers
                        
                        
                        4,818
                        
                        
                        
                        13,663
                        
                        
                        
                        1,583
                        
                        
                        $
                        20,064Property
      and equipment, net at March 31, 2010
                        
                        
                        528
                        
                        
                        
                        73
                        
                        
                        
                        2
                        
                        
                        $
                        603
  Our
largest customers accounted for 44% of gross revenues in the year ended March
31, 2010; and 33%  in the year ended March 31, 2010.
  15.
              Commitments
      and Contingencies
 
 Operating
Lease Obligations
 The
Company leases office facilities under noncancelable operating leases expiring
in various years through 2012.
 
 Following
is a summary of future minimum payments under initial terms of leases at March
31, 2010:
 
 Year Ending March 31,2011
                            
                            
                            $
                            1462012
                            
                            
                            
                            102013
      and thereafter
                            
                            
                            
                            -Total
      minimum lease payments
                            
                            $
                            156
  These
amounts do not reflect future escalations for real estate taxes and building
operating expenses.  Rental expense for continuing operations amounted
to $851 and $666 respectivly for the years ended March 31, 2010
and  2009.
  F-33
 
 NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 Minimum
Guaranteed Royalties
  The
Company has entered into license agreements with various owners of brands and
other intellectual property so that it could develop and publish branded
products for mobile handsets.
 
 Pursuant
to some of these agreements, the Company is required to pay minimum royalties
over the term of the agreements regardless of actual sales. Future minimum
royalty payments for those
 agreements
as of March 31, 2010 were as follows:
 
 MinimumGuaranteedYear Ending March 31,
                              
                              
                              Royalties2011
                              
                              
                              $
                              1202012
                              
                              
                              
                              30Total
      minimum payments
                              
                              $
                              150
 
 Commitments
in the above table include guaranteed royalties to licensors that are included
as a liability in the Company’s consolidated balance sheet of $150 at March 31,
2010, because the Company has determined that recoupment is
unlikely.
 
 Other
Obligations
 As of
March 31, 2010, the Company was obligated for payments under various
distribution agreements, equipment lease agreements, employment contracts and
the management agreement described in Note 10 with initial terms greater than
one year at March 31, 2010.  Annual payments relating to these
commitments at March 31, 2010 are as follows:
  YearEndingMarch31,
                            
                            
                            Commitments2011
                            
                            
                            $
                            2,3052012
                            
                            
                            
                            1782013
                            
                            
                            
                            2Total
      minimum payments
                            
                            $
                            2,485
  Litigation
  Twistbox’s
wholly owned subsidiary, WAAT Media Corp. (“WAAT”) and General Media
Communications, Inc. (“GMCI”) are parties to a content license
agreement dated May 30, 2006, whereby GMCI granted to WAAT certain
exclusive rights to exploit GMCI branded content via mobile devices.  GMCI
terminated the agreement on January 26, 2009 based on its claim that WAAT
failed to cure a material breach pertaining to the non-payment of a minimum
royalty guarantee installment in the amount of $485.  On or about March 16,
2009, GMCI filed a complaint seeking the balance of the minimum guarantee
payments due under the agreement in the approximate amount of $4,085.  WAAT
has counter-sued claiming GMCI is not entitled to the claimed amount and that it
has breached the agreement by, among other things, failing to promote, market
and advertise the mobile services as required under the agreement and by
fraudulently inducing WAAT to enter into the agreement based on GMCI’s
repeated assurances of its intention to reinvigorate its flagship
brand.  GMCI has filed a demurrer to the counter-claim.  WAAT
subsequently filed an amended counter-claim. WAAT intends to vigorously defend
against this action.  Principals of both parties continue to communicate to
find a mutually acceptable resolution. The Company has accrued for its estimated
liability in this matter.
  F-34
  NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
  The
Company is subject to various claims and legal proceedings arising in the normal
course of business.  Based on the opinion of the Company’s legal
counsel, management believes that the ultimate liability, if any in the
aggregate of other claims will not be material to the financial position or
results of operations of the Company for any future period; and no liability has
been accrued.
  16.
              Subsequent
      Events
  Management
has evaluated subsequent events through July 14, 2010, the business date that
this Report on the Form 10-K was filed with the SEC.
  As
previously disclosed, on May 10, 2010, Twistbox received from ValueAct a Notice
of Event of Default and Acceleration (“Notice”). In the Notice, ValueAct stated
that an event of default occurred under the ValueAct Note, as a result of
Twistbox’s and the Company’s failure to comply with the cash balance covenant
under the ValueAct Note and, therefore, ValueAct accelerated all outstanding
amounts payable by Twistbox under the ValueAct Note. The ValueAct Note was
secured by, among other things, the assets of AMV, a wholly owned subsidiary of
the Company, which was also a guarantor of the Note.  In connection
with the Notice, ValueAct instituted an administration proceeding in the United
Kingdom against AMV.
  On June
21, 2010, the Company signed and closed the transactions contemplated by a
binding agreement (the “Agreement”) with ValueAct,  Jonathan Cresswell
(“Cresswell”), Nathaniel MacLeitch (including in his capacity as Trustee for the
AMV Founders under the AMV Note (each as defined below) (“MacLeitch”), Robert
Ellin (“Ellin”), Trinad Management, LLC (“Trinad Management”) and Trinad Capital
Master Fund, Ltd. (“Trinad Fund” and together with Ellin and Trinad Management,
the “Trinad Affiliates”) and the Guber Family Trust (“Guber” and, together with
the Trinad Affiliates, the “Lead Participating Investors”) with regard to the
(i) partial satisfaction of the ValueAct Note, and (ii) satisfaction of the AMV
Note.
  Sale
of AMV
  Pursuant
to the Agreement, ValueAct and the AMV Founders, acting through a newly formed
company (“NewCo”), acquired the operating subsidiaries of AMV (the “Assets”) in
exchange for the release of approximately $23,300 of secured indebtedness (the
“Sale”), comprising of a release of all amounts due and payable under the AMV
Note and all of the amounts due and payable under the ValueAct Note except for
$3,500 in principal. The Company retained all assets and liabilities of Twistbox
and the Company other than the Assets.
  In
connection with the Sale and the other transactions contemplated by the
Agreement and the transaction documents set forth in the Agreement (the
“Restructure”), (i) the ValueAct Note (as amended and restated, the “Amended VAC
Note”), (ii) that certain Guarantee and Security Agreement, dated as of June 30,
2007, by and among the Company, the subsidiary guarantors party thereto, the
investors party thereto and ValueAct and (iii) that certain Guaranty, given as
of February 12, 2008, by the Company to ValueAct (as amended and restated, the “
Amended and Restated Guaranty”), were amended and restated in their
entirety.
  F-35
   NeuMedia,
      Inc. and SubsidiariesNotes
      to Audited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
  New
Senior Secured Notes
  In
addition, for purposes of capitalizing the Company, the Company sold and issued
$2,500 of Senior Secured Convertible Notes due June 21, 2013 of the Company (the
“New Senior Secured Notes”) to the Lead Participating Investors.  The
New Senior Secured Notes have a three year term and bear interest at a rate of
10% per annum payable in arrears semi-annually. Notwithstanding the foregoing,
at any time on or prior to the 18th month following the original issue date of
the New Senior Secured Notes, the Company may, at its option, in lieu of making
any cash payment of interest, elect that the amount of any interest due and
payable on any interest payment date on or prior to the 18th month following the
original issue date of the New Senior Secured Notes be added to the principal
due under the New Senior Secured Notes. The accrued and unpaid principal and
interest due on the New Senior Secured Notes are convertible at any time at the
election of the holder into shares of common stock of the Company at a
conversion price of $0.15 per share, subject to adjustment. The New Senior
Secured Notes are secured by a first lien on substantially all of the assets of
the Company and its subsidiaries pursuant to the terms of that certain Guarantee
and Security Agreement, dated as of June 21, 2010, among Twistbox, the Company,
each of the subsidiaries thereof party thereto, the investors party thereto and
Trinad Management. The Amended ValueAct Note is subordinated to the New Senior
Secured Notes pursuant to the terms of that certain Subordination Agreement,
dated as of June 21, 2010, by and between Trinad Fund, and ValueAct, and each of
the Company and Twistbox.
  Each
purchaser of a New Senior Secured Note also received a warrant (“Warrant”) to
purchase shares of common stock of the Company at an exercise price of $0.25 per
share, subject to adjustment.  For each $50 of New Senior Secured
Notes purchased, the purchaser received a Warrant to purchase 166,667 shares of
common stock of the Company.  Each Warrant has a five year
term.
  The New
Senior Secured Notes and Warrants were sold and issued in a transaction exempt
from registration under the Securities Act of 1933, as amended (the “ Securities
Act ”), pursuant to Section 4(2) of the Securities Act.
  Under the
Agreement, certain significant stockholders of the Company have the right to
purchase up to an aggregate $600 of the New Senior Secured
Notes.
  F-36