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 THE SECURITIES EXCHANGE ACT OF
      1934




For the
fiscal year ended March 31, 2009


or





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





Commission
File Number 00-10039




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.)





2121 Avenue of the Stars, Suite 2550, 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, 2008 was
$77,878,678.




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, 2009, the Issuer had 39,653,125 shares of its common stock,
$0.0001 par value per share, outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE







Mandalay
Media, Inc.





ANNUAL
REPORT ON FORM 10-K


FOR THE
PERIOD ENDED MARCH 31, 2009





TABLE
OF CONTENTS





PART I
                                
                                
                                
                                3ITEM
      1.
                                
                                BUSINESS
                                
                                3ITEM
      1A.
                                
                                RISK
      FACTORS
                                
                                8ITEM
      2.
                                
                                PROPERTIES
                                
                                23ITEM
      3.
                                
                                LEGAL
      PROCEEDINGS
                                
                                23ITEM
      4.
                                
                                SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                                
                                23PART II
                                
                                
                                
                                23ITEM
      5.
                                
                                MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
                                
                                23ITEM
      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
                                
                                39ITEM
      8.
                                
                                FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                                
                                39ITEM
      9.
                                
                                CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
                                
                                39ITEM
      9A(T).
                                
                                CONTROLS
      AND PROCEDURES
                                
                                40ITEM
      9B.
                                
                                OTHER
      INFORMATION
                                
                                40PART III
                                
                                
                                
                                40ITEM
      10.
                                
                                DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
                                
                                40ITEM
      11.
                                
                                EXECUTIVE
      COMPENSATION
                                
                                43ITEM
      12.
                                
                                SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                                
                                45ITEM
      13.
                                
                                CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
                                
                                48ITEM
      14.
                                
                                PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                                
                                49ITEM
      15.
                                
                                EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
                                
                                50


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 Mandalay Media, Inc.




Mandalay
Media, Inc, (“Mandalay” or the “Company” ) was originally incorporated in
the State of Delaware on November 6, 1998 under the name eB2B Commerce, Inc. On
April 27, 2000, Mandalay merged into DynamicWeb Enterprises Inc., a New Jersey
corporation, and changed its name to eB2B Commerce, Inc. On April 13, 2005,
Mandalay 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
October 27, 2004, and as amended on December 17, 2004, Mandalay 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) Mandalay’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 Mandalay to fund the expenses of remaining public; (4) 3.5% of the
new common stock of Mandalay (140,000 shares) was issued to the holders of
record of Mandalay’s preferred stock in settlement of their liquidation
preferences; (5) 3.5% of the new common stock of Mandalay (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 Mandalay (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, Mandalay 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, Mandalay 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, Mandalay 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 Mandalay (“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 Mandalay until the acquisition of AMV Holding Limited, a United Kingdom
private limited company (“AMV”) on October 23, 2008 as described
below.





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.


3




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 Goods Sold
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 handets offering improvements in data handling
capability, graphics resolution and other features.





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.




RapidPortTM




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).


4




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
WrapperTM




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.




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.


5




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, 2009, Twistbox had a
workforce of approximately 154 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.




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, Tradenames,
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, tradenames, 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, Mandalay 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.


6





Revenue
Model




AMV
operates a direct-to-consumer marketing model for distribution of its mobile
content portfolio, ranging from Java Games to Videos. AMV’s revenue model relies
on its efficient and effective management of marketing distribution channels
such as print advertising, mobile internet advertising (i.e., WAP affiliates,
Google Mobile, Yahoo, etc.), web advertising and traditional television
advertising.  It also utilizes its proprietary CRM platform for
sending promotions to its existing customer database. AMV relies on the margin
it generates from this marketing activity for the majority of its revenues.
Revenues are also derived from on-going billing relationships with consumers,
primarily via content subscription services.  In its interactive
division, revenues are derived from consumers’ usage of mobile chat, flirt and
dating services, through mobile-based billing aggregators.




Revenues
are generated from billing of consumers through mobile network charging, which
is typically via the use of Premium SMS, or WAP-based billing (e.g.,
Pay-For-It).




Development
Process




AMV’s customized proprietary mobile
platform enables AMV to serve all current content types including wallpapers,
ringtones, videos and games. The platform is regularly enhanced to process new
and larger formats of content, and to enable AMV to connect to new geographic
markets. Other key areas of development include new business models, system
adaptations to regulatory and commercial changes in-market and greater CRM
capabilities and efficiencies.





AMV is developing its mobile and
interactive platforms to support the next generation of mobile services which
will incorporate wider xHTML browsing support, more complex application handle,
for example, widgets and a complete end-to-end CRM solution to ensure the best
possible user experience. With these developments, AMV expects to further
optimize its revenue generating potential. Additionally, AMV is developing new
forms of social networking products and services to allow users to interact
using SMS text, WAP or WEB-based technologies within a unique branded
proposition.




AMV Technology and
Tools




AMV’s
proprietary portfolio of technology encompasses platforms and tools that enhance
the delivery, management and quality of AMV’s products and
services.





CRM Platform.AMV’s
internally developed Customer Relationship Management (CRM) platform captures
valuable subscriber data including subscriber opt-in preferences, carrier
specifications and handset models. The CRM platform helps manage key site
localization factors such as:




·
            Regional
      Regulations for CRM


·
            User
      Opt in Mechanic (Tick box / soft opt
in)


·
            Age
      Verification Status of Carrier


·
            Content
      restrictions in market





MobGainsTM


MobileGains
is an in-house mobile Internet advertising network enabling AMV to target new
customers via direct advertising relationships with major
publishers.  This platform allows end-to-end advertisement creation
and syndication to better target consumers’ tastes and thereby enhance
results.




Content
Development





AMV has developed its own
consumer facing mobile brands. These brands include BLiNG, PhoneBar and Game
Zone.  Having its own brands, AMV is able to market its content and
services through its own destinations without relying heavily on third party
brand licenses.  AMV markets a wide range of products and services
through its destinations including polyphonic tones, real tones, animations,
videos, wallpapers and games, as well as various chat and text
services.




Distribution




AMV
distributes its products and services through off-deck relationships with
third-party aggregation, connectivity and billing providers primarily servicing
end-users located in the United Kingdom, South Africa, Australia and
Sweden.





AMV
utilizes several marketing methods to drive traffic to these destinations and
AMV has focused aggressively on monetizing mobile search via major mobile search
engines such as Google and Yahoo, and mobile operators like Vodafone and
Orange.





Access
to, or discovery of, AMV’s products and services is generally
via:


7





·
            Search
      links via WAP advertising (e.g.
Google)


·
            Advertisements
      in print with a call-to-action to send MO keyword to a
      shortcode


·
            Advertisements
      in promotional broadcasts





Its
integrated CRM platform enables the use of mobile, print, television and on-line
advertising to maximize its return on investment.




Sales, Marketing and
Distribution




As of
March 31, 2009, AMV had a workforce of approximately 42 employees whose
responsibilities include all sales, marketing and content distribution
functions.




Competition




The
direct-to-consumer market is crowded with many competitors operating their own
mobile content offerings, including companies such as 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. There has been a trend in
certain key markets such as the United Kingdom and South Africa for the large
incumbent providers to be side-lined by smaller, more innovative and
niche-focused specialists, a trend from which AMV has largely benefited.
Nevertheless, the market remains very competitive and we see several
opportunities for consolidation particularly among the larger “incumbent”
providers.




Providers
whose marketing expertise extendsonly
to more traditional media such as print and television are beginning to see
their revenues adversely impacted as on-line and mobile distribution advertising
becomes the standard. As one of the earliest entrants in mobile internet
advertising, AMV has excelled in adapting its direct-to-consumer business model
to address new channels and audiences. Despite the competitive nature of the
business, AMV seed significant potential to expand its operations over the next
3-5 years as distribution of mobile internet advertising inventory becomes the
dominant advertising mode for direct-to-consumer mobile products and
services.  Based on industry predictions, it is widely accepted that
the mobile based search business will exceed traditional web based search (i.e.,
Google, Yahoo, etc.) within the next ten years.





Further
regulation by market regulators, government agencies and mobile network
operators that seek to restrict current marketing or billing practices (i.e.,
rules governing subscription-based services) will result in an ongoing challenge
faced by all companies in the direct-to-consumer mobile sector.




We
believe that the principal competitive advantages we have in the
direct-to-consumer market is our strength in the management of mobile internet
and web-based advertising distribution across multiple regions, building mobile
operator billing connectivity across all active markets, maintaining close
regulatory and carrier relationships, nurturing the mobile consumer and
providing a wide array of niche and targeted content with effective CRM to
optimize ongoing revenues. We are committed to remain at the forefront of new
technologies and services available for wireless device users, and making an
investment in future business models to ensure AMV continues to adapt and
grow.




Trademarks, Tradenames and
Copyrights





AMV has
established common law trademarks in Bling, MobiGains and MobileGains.





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 Mandalay Media, Inc.
(“Mandalay”) through its operating and wholly-owned subsidiaries, Twistbox
Entertainment, Inc. (“Twistbox”) and AMV Holding Limited, a United Kingdom
private limited company (“AMV”).


8




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;





·
            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.




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.


9




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;





·
            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:


10




·
            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;





·
            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.


11




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;





·
            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.


12




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.





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 significant impact on the
revenues generate in that market. Although most of AMV's 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 AMV’s revenue.  For example, in Australia, the
introduction of a strict double-opt-in process for consumers purchasing mobile
content is expected to flatten the domestic mobile content market by 70%.
Notwithstanding similar regulation in both of AMV's largest markets, the UK and
South Africa, to date there has been relatively little adverse impact on the
business.





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, AMV 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.




AMV’s
business is dependent upon billing aggregators that use premium short message
system (Premium SMS) technologies to deliver and bill for AMV’s products and
services. If AMV 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, AMV
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.




AMV’s
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 AMV has relied
on inaccurate information or advice, and engages in marketing, advertising or
promotional activities that are not permitted, AMV may be subject to penalties,
restricted from engaging in further activities or altogether prohibited from
offering its 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.


13





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, two of our principal overseas operations are
based in the United Kingdom and Germany, areas that, similar to our headquarters
region, have high costs 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.




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.


14




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;





·
            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.


15




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 will 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.





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.


16




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.




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.


17




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.


18




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.


19




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.




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.


20





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.




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.


21




“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 71.5% 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, 2010. 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
to provide the basis for our report. The process of implementing our internal
controls and complying with Section 404 will be expensive and time
consuming, and will require 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.





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 will
increase our legal, accounting and financial compliance costs, 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.


22





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.





ITEM
2. PROPERTIES




The
principal offices of Mandalay are the offices of Trinad Capital, L.P., located
at 2121 Avenue of the Stars, Suite 2550, 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.




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. Twistbox also leases
property in Dortmund, Germany and Poland, where it has branch
operations.





The
principal offices of our subsidiary AMV are headquartered at 65 High Street,
Marlow Bucks, SL7 1AB, United Kingdom. On December 26, 2008, AMV entered into a
lease for these premises with Palmers House at a base annual rent of £18,000.
The term of the lease expires on July 31, 2012; however, AMV may terminate the
lease on December 25, 2009 upon payment of £2,700.




ITEM
3. LEGAL PROCEEDINGS




From time
to time, we are subject to various claims, complaints and legal actions in the
normal course of business. 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.  GMCI has filed a demurrer to the counter-claim.  WAAT's
response is due by August 31, 2009. WAAT intends to vigorously defend
against this action.  Principals of both parties continue to communicate to
find a mutually acceptable resolution.





ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




None.




PART
II




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




Market
Information




As of
July 10, 2009, the closing price of our common stock was $0.55.




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 closing quotations of our common stock
for periods indicated. The quotations reflect last sale closing price on a daily
basis and reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.


23




High
                    
                    
                    LowYear
      Ended March 31, 2009First
      quarter
                    
                    $
                    6.00
                    
                    
                    $
                    2.00Second
      quarter
                    
                    $
                    2.90
                    
                    
                    $
                    1.50Third
      quarter
                    
                    $
                    2.39
                    
                    
                    $
                    0.60Fourth
      quarter
                    
                    $
                    1.75
                    
                    
                    $
                    0.51Three
      Months Ended March 31, 2008*First
      quarter
                    
                    $
                    6.50
                    
                    
                    $
                    2.40Year
      Ended December 31, 2007First
      quarter
                    
                    $
                    2.50
                    
                    
                    $
                    1.75Second
      quarter
                    
                    $
                    3.00
                    
                    
                    $
                    1.90Third
      quarter
                    
                    $
                    4.00
                    
                    
                    $
                    2.25Fourth
      quarter
                    
                    $
                    4.50
                    
                    
                    $
                    2.30





* We
changed our fiscal year end to March 31, effective March 31,
2008.


There has
never been a public trading market for any of our securities other than our
common stock.




Holders




As of
July 14, 2009, there were 528 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, 2009.




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
                
                
                6,960,000
                
                
                $
                2.52
                
                
                
                40,000Equity
      compensation plans not approved by security holders
                
                
                0
                
                
                
                0
                
                
                
                0Total
                
                
                6,960,000
                
                
                $
                2.52
                
                
                
                40,000






Unregistered
Sales of Equity Securities


None.


24





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, 2009- January 31, 2009
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -February
      1, 2009- February 28, 2009
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -March
      1, 2009- March 31, 2009
                      
                      62,011(1
                      )
                      
                      $
                      0.88
                      
                      
                      
                      -
                      
                      
                      
                      -




(1) These
shares were repurchased by the Company in satisfaction of tax liability pursuant
to Rule 16b-3 of the Exchange Act.




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 Mandalay Media, Inc.
(“Mandalay”) through its operating and wholly-owned subsidiaries, Twistbox
Entertainment, Inc. (“Twistbox”) and AMV Holding Limited, a United Kingdom
private limited company (“AMV”).




Historical
Operations of Mandalay Media, Inc.




Mandalay
was originally incorporated in the State of Delaware on November 6, 1998 under
the name eB2B Commerce, Inc. On April 27, 2000, Mandalay merged into DynamicWeb
Enterprises Inc., a New Jersey corporation, and changed its name to eB2B
Commerce, Inc. On April 13, 2005, Mandalay 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
October 27, 2004, and as amended on December 17, 2004, Mandalay 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) Mandalay’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 Mandalay to fund the expenses of remaining public; (4) 3.5% of the
new common stock of Mandalay (140,000 shares) was issued to the holders of
record of Mandalay’s preferred stock in settlement of their liquidation
preferences; (5) 3.5% of the new common stock of Mandalay (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 Mandalay (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, Mandalay 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, Mandalay was a public shell company with no operations, and
controlled by its significant stockholder, Trinad Capital Master Fund,
L.P.




SUMMARY
OF THE MERGER




Mandalay
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 Mandalay (“Merger Sub”),
Twistbox Entertainment, Inc. (“Twistbox”), and Adi McAbian and Spark Captial,
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.




25




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 Mandalay 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 Mandalay,
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
Mandalay 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 Mandalay 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, Mandalay also assumed all unvested Twistbox options. The merger
consideration consisted of an aggregate of up to 12,325,000 shares of Mandalay
common stock, which included the conversion of all shares of Twistbox capital
stock and the reservation of 2,144,700 shares of Mandalay common stock required
for assumption of the vested Twistbox options. Mandalay reserved an additional
318,772 shares of Mandalay 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, Mandalay or any subsidiary of Twistbox or
Mandalay 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, Mandalay 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. 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 entitles 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 entitles 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, will be permanently
increased to an exercise price of $7.55 per share.  Both warrants
expire on July 30, 2011. The terms of the warrants were subsequently modified on
October 23, 2008, as set forth below. We also entered into a Guaranty with
ValueAct whereby Mandalay 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. 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 Mandalay is required to maintain
a cash balance of not less than $4,000,000 at all times. These covenants were
subsequently amended as set forth below.




SUMMARY
OF THE AMV ACQUISITION





On
October 23, 2008, Mandalay 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.


26





The
AMV Note matures on January 30, 2010, and bears interest at an initial rate
of 5% per annum, subject to adjustment as provided therein. In the event
Mandalay completes an equity financing which results in gross proceeds of over
$6,000,000, Mandalay will prepay a portion of the Note in an amount equal to
one-third of the excess of the gross proceeds of such financing over $6,000,000.
In addition, if within nine months of the issuance date of the
AMV  Note, Mandalay completes a financing that results in gross
proceeds of over $15,000,000, then Mandalay shall prepay the entire principal
amount then outstanding under the AMV Note, plus accrued interest. If within
nine months of the issuance date of the AMV Note, the aggregate principal
sum then outstanding under the AMV Note plus accrued interest thereon has not
been prepaid, then on and after such date, interest shall accrue on the unpaid
principal balance of the AMV Note at a rate of 7% per annum.





In
addition, also on October 23, 2008, in connection with the AMV Acquisition,
Mandalay, Twistbox and ValueAct entered
into a Second Amendment to the ValueAct Note, which among other things, provides
for a payment in kind election at the option of Twistbox, modifies the
financial covenants set forth in the ValueAct Note to require that Mandalay
and Twistbox maintain certain minimum combined cash balances and provides for
certain covenants with respect to the indebtedness of Mandalay 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, Mandalay 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.





On
October 23, 2008, Mandalay entered into a Securities Purchase Agreement with
certain investors identified therein (the “Investors”), pursuant to which
Mandalay 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 Mandalay 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 Mandalay on or about November 8, 2008.





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 has 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 operations were those of our
wholly-owned subsidiary, Twistbox. 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.




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.




27




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.





Beginning
October 23, 2008, our operations included those of our wholly-owned subsidiary,
AMV Holding Limited (“AMV”).  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 television advertising.





AMV’s
direct-to-consumer “off-deck” distribution channels allow us to market AMV’s
products and services directly to end-users using a suite a premium short
message service (Premium SMS) codes.  The use of Premium SMS codes
allows end-users to pay for AMV products and services directly from their mobile
phone bills via a third party billing aggregator versus through the wireless
carrier’s billing infrastructure with which the end-user has his/her mobile
service.  Through this channel, AMV is not reliant upon the wireless
carrier’s “on-deck” portal for discovery and billing thereby giving AMV greater
flexibility to reach the end-user.  AMV’s strategy is to expand its
international distribution footprint using a defined set of criteria:
identifying territories that provide ease of access to market; established
mobile billing capabilities; a receptive market and audience to mobile content;
and the potential to establish long-term, profitable market
share.  AMV currently markets it products and services in the
following territories: the United Kingdom, Ireland, Australia, South Africa, The
Netherlands, Finland, Sweden, Austria, Switzerland and the Czech
Republic.  Launched in 2004, it is headquartered in the United
Kingdom.  In 2007, it was recognized as the United Kingdom’s fourth
fastest growing technology company by the Micosoft Tech Track
100.  AMV is comprised of three primary lines of business: (i) mobile
content services, such as wallpapers, animations, video, games and ringtones;
(ii) mobile interactive and community services such as text dating and adult
oriented text chatting; and (iii) voice interactive services such as virtual
chat, live infotainment services (e.g., horoscopes and psychic readings) and
adult oriented voice services.





AMV
develops its own consumer brands by extensively marketing its products and
services through a variety of media including traditional print, television,
internet and mobile internet advertising.   It is also expanding
its internet advertising activities through web affiliates, search and targeted
landing pages.  AMV also has established partnerships will several web
application protocol (WAP) advertising affiliates.  As carriers begin
to open their portals for advertising distribution, WAP advertising is becoming
a significant distribution channel for AMV advertising.  AMV is well
positioned to take advantage of the internet advertising inventory through the
use of mobile search and its WAP affiliate relationships.  AMV has
established such relationships with Google, Yahoo, Admob, Admoda, 4th Screen,
AdInfuse, and many others.  Google has recently confirmed that AMV is
one of its 10 largest mobile internet advertisers – globally.





All AMV
advertising is produced in-house using a team of highly skilled creative graphic
designers.  AMV is one of the largest print advertisers in the United
Kingdom and South Africa, and is considered a significant advertiser in several
other markets.  AMV has historically spent a significant amount of its
working capital on advertising and intends to continue do so in the foreseeable
future.





AMV
offers a complete suite of mobile entertainment products and
services.  In addition to its three primary lines of business, AMV has
significant experience in WAP site management — from content sourcing through
design, marketing and distribution.  AMV maintains a mobile internet
portal of over 200 different sites which are refreshed regularly and AMV is one
of the largest direct-to-consumer marketers of Java-based games through its Game
Zone and Games Demon brands.  AMV has secured a catalog of more than
2000 Java-based games.   AMV’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.


28





RESULTS
OF OPERATIONS





Year ended
                            
                            
                            3 months ended
                            
                            
                            12 months ended
                            
                            
                            Year endedMarch
      31,
                            
                            
                            March
      31,
                            
                            
                            March
      31,
                            
                            
                            December 31,2009
                            
                            
                            2008
                            
                            
                            2008
                            
                            
                            2007(unaudited)Revenues
                            
                            $
                            31,256
                            
                            
                            $
                            3,208
                            
                            
                            $
                            3,208
                            
                            
                            $
                            -Cost
      of revenues
                            
                            
                            11,150
                            
                            
                            
                            (153
                            )
                            
                            
                            (153
                            )
                            
                            
                            -Gross
      profit
                            
                            
                            20,106
                            
                            
                            
                            3,361
                            
                            
                            
                            3,361
                            
                            
                            
                            -SG&A
                            
                            
                            26,555
                            
                            
                            
                            3,304
                            
                            
                            
                            5,561
                            
                            
                            
                            2,521Amortization
      of intangible assets
                            
                            
                            628
                            
                            
                            
                            72
                            
                            
                            
                            72
                            
                            
                            
                            -Restructuring
      charges
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Impairment
      of goodwill
                            
                            
                            31,784
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Operating
      income (loss)
                            
                            
                            (38,861
                            )
                            
                            
                            (15
                            )
                            
                            
                            (2,272
                            )
                            
                            
                            (2,521
                            )Interest
      expense, net
                            
                            
                            (2,161
                            )
                            
                            
                            (213
                            )
                            
                            
                            104
                            
                            
                            
                            317Other
      expenses
                            
                            
                            (542
                            )
                            
                            
                            (54
                            )
                            
                            
                            (54
                            )
                            
                            
                            -(Loss)
      before income taxes
                            
                            
                            (41,564
                            )
                            
                            
                            (282
                            )
                            
                            
                            (2,222
                            )
                            
                            
                            (2,204
                            )Income
      taxes (benefit)
                            
                            
                            111
                            
                            
                            
                            (16
                            )
                            
                            
                            (16
                            )
                            
                            
                            -(Loss)
      from continuing operations
                            
                            
                            (41,453
                            )
                            
                            
                            (298
                            )
                            
                            
                            (2,238
                            )
                            
                            
                            (2,204
                            )(Loss)
      from discontinued operations, net of taxes
                            
                            
                            (147
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Net
      (loss)
                            
                            $
                            (41,600
                            )
                            
                            $
                            (298
                            )
                            
                            $
                            (2,238
                            )
                            
                            $
                            (2,204
                            )Basic
      and Diluted net loss per common share:Continuing
      operations
                            
                            $
                            (1.14
                            )
                            
                            $
                            (0.01
                            )
                            
                            $
                            (0.10
                            )
                            
                            $
                            (0.12
                            )Discontinued
      opeations
                            
                            $
                            (0.00
                            )
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -Net
      loss
                            
                            $
                            (1.15
                            )
                            
                            $
                            (0.01
                            )
                            
                            $
                            (0.10
                            )
                            
                            $
                            (0.12
                            )Basic
      and Diluted weighted average shares outstanding
                            
                            
                            36,264
                            
                            
                            
                            21,628
                            
                            
                            
                            21,628
                            
                            
                            
                            18,997





Comparison
of the Year Ended March 31, 2009 and the Year Ended March 31, 2008





Revenues





Year Ended March 31,2009
                    
                    
                    2008(unaudited)(In
      thousands)Revenues
      by type:Games
                    
                    $
                    5,736
                    
                    
                    $
                    598Other
      content
                    
                    
                    25,520
                    
                    
                    
                    2,610Total
                    
                    
                    31,256
                    
                    
                    
                    3,208





Games
revenue includes both licensed and internally developed games for use on mobile
phones. Other content includes a broad range of  products delivered in
the form of WAP, Video, Wallpaper and Mobile TV.  Revenues in fiscal
2008 includes the revenues of Twistbox subsequent to the Merger, while
revenues in fiscal 2009 include the full year of Twistbox and  the six
month period for AMV subsequent to the AMV Acquisition.


29




Cost
of Revenues





Year Ended March
      31,2009
                      
                      
                      2008(unaudited)(In
    thousands)Cost of
      Revenues:License
Fees
                      
                      $
                      7,387
                      
                      
                      $
                      1,539Impairment of
      guarantees
                      
                      
                      -
                      
                      
                      
                      (1,745
                      )Other direct cost of
      revenues
                      
                      
                      3,763
                      
                      
                      
                      53Total Cost of
      Revenues
                      
                      $
                      11,150
                      
                      
                      $
                      (153
                      )Revenues
                      
                      $
                      31,256
                      
                      
                      $
                      3,208Gross
Margin
                      
                      
                      64.3
                      %
                      
                      
                      N/A





License
fees represent costs payable to content providers for use of their intellectual
property in products sold. Other direct cost of revenues includes costs to
deliver products, and amortization of the intangibles identified as part of the
purchase price accounting and attributed to cost of revenues. Cost of Revenues
in fiscal 2008 includes the revenues of Twistbox subsequent to the Merger, while
cost of revenues in fiscal 2009 includes the full year of Twistbox and the
six month period for AMV subsequent to the AMV Acquisition. The impairment of
guarantees in fiscal 2008 represents an adjustment to the impairment charge in
the previous year, as the result of re-negotiation of a significant content
provider contract.





Operating
Expenses





Year Ended March
      31,2009
                      
                      
                      2008(unaudited)(In
    thousands)Product Development
      Expenses
                      
                      $
                      6,981
                      
                      
                      $
                      946Sales and Marketing
      Expenses
                      
                      
                      9,236
                      
                      
                      
                      891General and Administrative
      Expenses
                      
                      
                      10,338
                      
                      
                      
                      3,724Amortization of Intangible
      Assets
                      
                      
                      628
                      
                      
                      
                      72Impairment of goodwill and
      intangible assets
                      
                      
                      31,784
                      
                      
                      
                      -





Operating
expenses in fiscal 2008 includes the full year of general and administrative
expenses for Mandalay, and expenses for Twistbox subsequent to the February 2008
Merger; while operating expenses in fiscal 2009 includes the full year of
Mandalay and Twistbox and the six month period for AMV subsequent to the AMV
Acquisition.




Product
Development expenses include the costs to develop, edit and make content ready
for consumption on a mobile phone. Sales and Marketing Expenses represent the
costs of sales and marketing personnel, and advertising and marketing campaigns
– advertising has increased significantly with the AMV Acquisition in
October 2008 due to the “direct to consumer” nature of that business, with a
significant element of direct marketing required to stimulate
revenues.   The fiscal 2008 general and administrative expenses
represent primarily personnel, professional and consulting costs incurred by
Mandalay including stock based compensation, while the fiscal 2009 include the
full year of such expenses for Twistbox and the six month period for AMV
subsequent to the AMV Acquisition, including management and support personnel
costs in both companies and related expenses.




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.




30




Impairment
of goodwill and intangible assets represents the write down in value of goodwill
and intangible assets associated with the acquisitions of Twistbox and AMV. The
consideration in the Twistbox acquisitions was entirely stock-based, while the
AMV Acquisition was substantially stock-based, and both acquisitions generated
significant goodwill since they were not capital intensive
companies.  Subsequent to the acquisitions, 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 performed its annual impairment review for goodwill and
intangible assets in the fourth quarter of fiscal 2009. As a result of the
assessment, the Company determined that its net book value exceeded the implied
fair value; therefore, the Company recorded an impairment charge of $27,844 to
write down goodwill and $3,940 to write down intangibles assets. The intangible
asset impaired was the valuation associated with the Twistbox
trademark/tradename.




Other
Expenses




Year Ended March
      31,2009
                      
                      
                      2008(unaudited)(In
    thousands)Interest and other
      income/(expense)
                      
                      $
                      (2,703
                      )
                      
                      $
                      50Loss from discontinued operations,
      net of taxes
                      
                      $
                      (147
                      )
                      
                      $
                      -





Interest
and other expense in fiscal 2009 consists primarily of net interest expense of
$2 million related to the ValueAct Note, and $471,000 of foreign exchange
loss mainly due to adverse fluctuations during the year in the value of the Euro
and the British pound against the US dollar. In fiscal 2008, interest and other
income represents interest income on cash invested by Mandalay.





Comparison
of the Year Ended March 31, 2008 and the Year Ended December 31,
2007





Revenues





Year Ended
                    
                    
                    Year EndedMarch 31,
                    
                    
                    December
31,2008
                    
                    
                    2007(unaudited)(In
    thousands)Revenues by
      type:Games
                    
                    $
                    598
                    
                    
                    $
                    -Other
    content
                    
                    
                    2,610
                    
                    
                    
                    -Total
                    
                    $
                    3,208
                    
                    
                    
                    -





The Company had no operating activities that generated revenue
prior to the Merger, and therefore in the year ended December 31, 2007 revenue
was zero. Revenues in the year ended March 31, 2008 relate to the revenues of
Twistbox subsequent to the Merger. Games revenue includes both licensed and
internally developed games for use on mobile phones. Other content includes a
broad range of product delivered in the form of WAP, Video, Wallpaper and Mobile
TV.




31





Year Ended
                                        March 31,
                                      
                                      
                                      Year Ended
                                        December
31,2008
                                      
                                      
                                      2007(unaudited)(In
    thousands)Cost of
      Revenues:License
Fees
                                      
                                      $
                                      1,539
                                      
                                      
                                      $
                                      -Impairment of
      guarantees
                                      
                                      
                                      (1,745
                                      )
                                      
                                      
                                      -Other direct cost of
      revenues
                                      
                                      
                                      53
                                      
                                      
                                      
                                      -Total Cost of
      Revenues
                                      
                                      $
                                      (153
                                      )
                                      
                                      $
                                      -Revenues
                                      
                                      
                                      3,208
                                      
                                      
                                      $
                                      -Gross
Margin
                                      
                                      
                                      N/A
                                      
                                      
                                      
                                      N/A





The
Company had no operating activities that generated revenue , and therefore cost
of revenues, prior to the Merger, and therefore in the year ended December 31,
2007 cost of revenue was zero. Cost of revenues in the year ended March 31, 2008
relate to the revenues of Twistbox subsequent to the Merger. License fees
represent costs payable to content providers for use of their intellectual
property in products sold. Other direct cost of revenues includes costs to
deliver products, and amortization of the intangibles identified as part of the
purchase price accounting and attributed to cost of revenues. The impairment of
guarantees in fiscal 2008 represents an adjustment to the impairment charge in
the previous year, as the result of re-negotiation of a significant content
provider contract.




Operating
Expenses




YearEnded
                      March 31,
                    
                    
                    Year Ended
                      December
31,2008
                    
                    
                    2007(unaudited)(In
    thousands)Product Development
      Expenses
                    
                    $
                    946
                    
                    
                    $
                    -Sales and Marketing
      Expenses
                    
                    
                    891
                    
                    
                    
                    -General and Administrative
      Expenses
                    
                    
                    3,724
                    
                    
                    
                    2,521Amortization of Intangible
      Assets
                    
                    
                    72
                    
                    
                    
                    -





Operating
expenses in the year ended December 31, 2007 consist solely of the general and
administrative expenses incurred by Mandalay prior to the acquisition of
operating subsidiaries. Fiscal 2008 includes the full year of general and
administrative expenses for Mandalay, and expenses for Twistbox subsequent to
the Merger.




Product
Development expenses include the costs to develop, edit and make content ready
for consumption on a mobile phone. Sales and Marketing Expenses represent the
costs of sales and marketing personnel – in the case of Twistbox this is
primarily directed towards “selling in” product to the large mobile phone
carriers.  In the year ended December 31, 2007general and
administrative expenses represent primarily personnel, professional and
consulting costs incurred by Mandalay including stock based compensation, while
the fiscal 2008 expense includes Twistbox for the period subsequent to the
Merger, including management and support personnel costs and related
expenses.




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


32




Other
Expenses





YearEnded
                          March 31,
                        
                        
                        Year Ended
                          December
31,2008
                        
                        
                        2007(unaudited)(In
    thousands)Interest and other
      income/(expense)
                        
                        $
                        50
                        
                        
                        $
                        317





Interest
and other income/(expense) includes interest income on invested funds, interest
expense related to the ValueAct Note, and foreign exchange transaction gains and
losses.





Liquidity and Capital Resources





YearEnded
                    
                    
                    3Months
                    
                    
                    YearEndedMarch31,
                    
                    
                    March31,
                    
                    
                    December31,2009
                    
                    
                    2008
                    
                    
                    2007(In
      thousands)Consolidated Statement of Cash
      Flows Data:Capital
      expenditures
                    
                    
                    (219
                    )
                    
                    
                    (103
                    )
                    
                    
                    -Cash flows used in operating
      activities
                    
                    
                    (5,360
                    )
                    
                    
                    (2,482
                    )
                    
                    
                    (819
                    )Cash flows (used in)/ provided by
      investing activities
                    
                    
                    (3,773
                    )
                    
                    
                    6,152
                    
                    
                    
                    (141
                    )Cash flows (used in)/ provided by
      financing activities
                    
                    
                    4,300
                    
                    
                    
                    -
                    
                    
                    
                    2,473




Cash
flows in the periods presented were impacted by ongoing operating losses and the
acquisition of the two subsidiaries.


Twistbox
has incurred losses and negative cash flows since inception. The primary sources
of liquidity have historically been issuance of common and preferred stock, and
in the case of Twistbox, borrowings under credit facilities. 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 December 31, 2007, operating expenses consisted solely of employee
compensation and other general and administrative expenses. In the three months
ended March 31, 2008, we used $2.5 million of net cash in operating expenses.
This primarily related to the net loss of $0.3 million, decreases in accrued
license fees and other liabilities of  $2.0 million and $0.1 million
respectively, increases in accounts receivable of $1.4 million, partially offset
by an increase in accounts payable of $0.4 million and non cash stock based
compensation and depreciation and amortization included in the net loss
of  $0.3 million and $0.3 million respectively, and increases in other
liabilities.




In the
year ended March 31, 2009,  we used $5.4 million of net cash in
operating activities. This primarily related to the net loss of $41.4 million,
and decreases in accounts payable and other liabilities amounting to $4.6
million, an increase in prepaid expenses of $0.3 million, offset by the non cash
impairment of goodwill of $31.8 million, non cash stock based compensation and
depreciation and amortization included in the net loss of $3.1 million and $1.5
million respectively, as well as a decrease in accounts receivable of $4.5
million.




Investing
Activities





In the
year ended December 31, 2007, $141,000 was used in transaction costs leading up
to the Merger. The Merger occurred in the three months ended March 31, 2008 and
a net $6.2 million was provided through cash in the acquired subsidiary. In the
year ended March 31, 2009 a net $3.8 million was used in investing activities -
$6.9 million in cash consideration and transaction costs related to the AMV
Acquisition, $0.2 in equipment purchases, offset by $3.4 million of cash in the
acquired subsidiary.





Financing
Activities





Proceeds
from issuing common stock represented $2.5 million in the year ended December
31, 2007 and $4.3 million in the year ended March 31, 2009.


33


The accompanying consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles, which contemplates the continuation of the Company as a going
concern.  The Company’s operating subsidiary, Twistbox, has sustained
substantial operating losses since commencement of operations.  In
addition, the Company has incurred negative cash flows from operating activities
and the majority of the Company’s assets are intangible assets and
goodwill.





As of
March 31, 2009, the Company had approximately $5.9 million of cash, and the
Company is seeking to restructure its debt, in particular debt which becomes
payable within 12 months.  The Company’s cash requirements will be
dependent on that restructuring, as well as actions taken to improve cashflow.
As a result, 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.





Debt
obligations include interest payments under the ValueAct Note, payable at the
end of the term, in January 2010. As described above, the ValueAct Note was
amended during fiscal 2009 such that the Company may elect to add interest to
the principal, with the full amount payable at the end of the term. The
Company’s operating lease obligations include noncancelable operating leases for
the Company’s office facilities in several locations, expiring in various years
through 2010. Twistbox has entered into license agreements with various owners
of brands and other intellectual property so that we could 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.




34




On
November 7, 2007, we entered into non-qualified stock option agreements with
certain of our directors and officers pursuant to our 2007 Employee, Director
and Consultant Stock Plan, as amended (the “Plan”), whereby we issued options to
purchase an aggregate of 1,500,000 shares of our common stock. The directors and
officers included James Lefkowitz, President of the Company, Robert Zangrillo, a
former director of the Company, and Bruce Stein, a former director of the
Company and our former Chief Executive Officer as of March 7, 2008, each of whom
was granted an option to purchase 500,000 shares in connection with services
provided to the Company. The options have a ten-year term and are exercisable at
a price of $2.65 per share. On November 14, 2007, we entered into a
non-qualified stock option agreement with Richard Spitz, a director of the
Company, whereby we issued an option to purchase 100,000 shares of its common
stock.  The options granted to Mr. Spitz have a ten-year term and are
exercisable at a price of $2.50 per share. The options for Messrs. Zangrillo,
Stein and Spitz 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 thereafter and the remaining one-third on the second
anniversary thereafter. The options for Mr. Lefkowitz also become exercisable
over a two-year period, with one-third of the options granted vesting
immediately upon grant, an additional one-third vesting on June 28, 2008 and the
remainder vesting on June 28, 2009. The options were granted pursuant to the
exemption from registration permitted under Rule 506 of Regulation D of the
Securities Act of 1933, as amended (the “Securities Act”).




On
January 2, 2008, we granted Mr. Stein additional options to purchase 50,000
shares of our common stock. The options have a ten-year term and are exercisable
at a price of $4.65 per share. One-third of the options granted were immediately
exercisable upon grant, an additional one-third will vest on November 7, 2008
and the remaining one-third will vest on November 7, 2009. The options were
granted pursuant to the exemption from registration permitted under Rule 506 of
Regulation D of the Securities Act.




As
described above, pursuant to the Merger, we issued 10,180,292 shares of
Mandalay 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.




On March
7, 2008, the Company granted Mr. Stein options to purchase an aggregate of
1,001,864 shares of common stock, pursuant to the 2007 Plan, in connection with
an amendment to his employment agreement. The options have a ten-year term and
are exercisable at a price of $4.25 per share. The options vest as follows:
options to purchase 233,830 shares will vest on March 7, 2009, options to
purchase 233,830 shares will vest on March 7, 2010 and Options to purchase the
remaining 534,204 shares will vest on March 7, 2011. The options were granted
pursuant to the exemption from registration permitted under Rule 506 of
Regulation D of the Securities Act.





On April
9, 2008 a former director of the Company exercised warrants to purchase 50,000
shares of common stock in a cashless exchange for 25,000 shares of the Company’s
common stock.




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.





On
September 29, 2008, the Company granted non-qualified stock options to purchase
350,000 shares of common stock of the Company to two directors under the Plan.
The options have a ten year term and are exercisable at a price of $2.40 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 Mandalay 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 Mandalay on or about
November 8, 2008.




35





Also as
described above, in connection with the AMV Acquisition, on October 23, 2008,
Mandalay 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.





On March
16, 2009, certain executive officers of Mandalay, including, among others, Mr.
Lefkowitz, Mr. Burke and Mr. Aaronand other senior employees (the "Executives")
agreed to reduce their salaries for a period of one year, with the exception of
Mr. Aaron who agreed to reduce his salary from August 8, 2008 through February
12, 2010, in exchange for the issuance of shares (the “Shares”) of the Company's
common stock. The Board of Directors approved the issuance of the Shares
pursuant to the Plan at a purchase price of $0.0001 per share in connection with
such salary reductions. The Board of Directors authorized the issuance of an
aggregate of 938,697 Shares as of the date each such Executive agrees to the
salary reduction (the “Grant Date”). In connection therewith, on March 16, 2009,
the Board of Directors granted Mr. Lefkowitz 37,500 Shares, Mr. Burke 48,000
Shares and Mr. Aaron 504,218 Shares. The Shares granted to Mr. Lefkowitz
and Mr. Burke and 350,360 of the Shares granted to Mr. Aaron are
subject to forfeiture to the Company if such Executive terminates his position
with the Company prior to one year from the Grant Date, and such Shares become
fully vested one year from the Grant Date or upon the occurrence of a
change-in-control of the Company. The remainder of Mr. Aaron's shares were fully
vested on the Grant Date. All such Shares granted to the Executives may not be
sold or transferred for a period of one year from the Grant Date.





Revenues




The
discussion herein regarding our future operations pertain to the results and
operations of Twistbox and AMV. 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.





AMV
operates a direct-to-consumer marketing model for distribution of its mobile
content portfolio, ranging from Java Games to Videos. AMV’s revenue model relies
on its efficient and effective management of marketing distribution channels
such as print advertising, mobile internet advertising (i.e., WAP affiliates,
Google Mobile, Yahoo, etc.), web advertising and traditional television
advertising.  It also utilizes its proprietary CRM platform for
sending promotions to its existing customer database. AMV relies on the margin
it generates from this marketing activity for the majority of its revenues.
Revenues are also derived from on-going billing relationships with consumers,
primarily via content subscription services.  In its interactive
division, revenues are derived from consumers’ usage of mobile chat, flirt and
dating services, through mobile-based billing aggregators.  Revenues
are generated from billing of consumers through mobile network charging, which
is typically via the use of Premium SMS, or WAP-based billing (e.g.,
Pay-For-It).




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.




36





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.




AMV’s
cost of revenues consist of  license fees paid to content owners for
use of their intellectual property, and the costs of distributing content via
the mobile networks, which may be significant.




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.




37




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




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS No. 157”). This statement clarifies the definition of fair value,
establishes a framework for measuring fair value, and expands the disclosures on
fair value measurements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. The adoption of SFAS No. 157 is not
expected to have a material effect on our consolidated results of
operations or financial condition.




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Liabilities, including an amendment of FASB Statement No.
115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose, at specified
election dates, to measure many financial instruments and certain other items at
fair value that are not currently required to be measured at fair value.
Unrealized gains and losses shall be reported on items for which the fair value
option has been elected in earnings at each subsequent reporting date. SFAS No.
159 is effective for fiscal years beginning after November 15, 2007. Early
adoption is permitted as of the beginning of a fiscal year that begins on or
before November 15, 2007, provided the entity also elects to apply the
provisions of SFAS No. 157 “Fair Value Measurements”. We are currently assessing
the impact that SFAS No. 159 will have on our financial
statements.




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS No. 160”), which is an amendment of
Accounting Research Bulletin (“ARB”) No. 51.  This statement clarifies
that a noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements.  This statement changes the way the consolidated
income statement is presented, thus requiring consolidated net income to be
reported at amounts that include the amounts attributable to both parent and the
noncontrolling interest.  This statement is effective for the fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008.  Based on current conditions, we do not expect the
adoption of SFAS No. 160 to have a significant impact on our results of
operations or financial position.




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (SFAS No. 141).  This statement replaces FASB Statement
No. 141, “Business Combinations.” This statement retains the fundamental
requirements in SFAS 141 that the acquisition method of accounting (which
SFAS No. 141 called the purchase method) be used for all business combinations
and for an acquirer to be identified for each business combination. This
statement defines the acquirer as the entity that obtains control of one or more
businesses in the business combination and establishes the acquisition date as
the date that the acquirer achieves control. This statement requires an acquirer
to recognize the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at the acquisition date, measured at
their fair values as of that date, with limited exceptions specified in the
statement. This statement 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 do not expect the
adoption of SFAS No. 160 to have a significant impact on our results of
operations or financial position.




38





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an Amendment of FASB No. 133,” (“SFAS
161”). SFAS 161 is intended to improve transparency in financial reporting by
requiring enhanced disclosures of an entity’s derivative instruments and hedging
activities and their effects on the entity’s financial position, financial
performance, and cash flows. SFAS 161 applies to all derivative instruments
within the scope of SFAS No. 133, “Accounting for Derivative Instruments
and Hedging Activities” (“SFAS 133”). SFAS 161 also applies to non-derivative
hedging instruments and all hedged items designated and qualifying under SFAS
133. SFAS 161 is effective prospectively for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged. SFAS 161 encourages, but does not require,
comparative disclosures for periods prior to its initial adoption. The Company
does not expect the adoption of SFAS 161 to have a significant impact on its
results of operations or financial position.





In April
2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3, “Determination of
the Useful Life of Intangible Assets”.  FSP 142-3 amends the factors
an entity should consider in developing renewal or extension assumptions used in
determining the useful life of recognized intangible assets under FASB Statement
No. 142, “Goodwill and Other Intangible Assets”.  This new guidance
applies prospectively to intangible assets that are acquired individually or
with a group of other assets in business combinations and asset acquisitions.
FSP 142-3 is effective for financial statements issued for fiscal years and
interim periods beginning after December 15, 2008.  Early adoption is
prohibited.  The impact of the adoption of FSP FAS 142-3 on the
Company’s results of operations and financial position will depend on the nature
and extent of business combinations that it completes, if any, in or after
fiscal 2010.




’





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, Russia, 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, 2009, our two largest customers represented
approximately 19% and 13% of our gross accounts receivable
outstanding.




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








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





None.


39


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.
  Management's assessment of the
effectiveness of the Company's internal control over financial reporting as of
March 31, 2009 excluded AMV, which was acquired by the Company in October 2008.
AMV is a wholly-owned subsidiary of the Company whose total assets represented
less than 30% of the consolidated total and net revenues represented less than
40% of consolidated net revenues, respectively, of the Company as of and for the
year ended March 31, 2009. Companies are allowed to exclude acquisitions from
their assessment of internal control over financial reporting during the first
year of acquisition while integrating the acquired company under guidelines
established by the SEC.
 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, 2009 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, 2009 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, 2009.
 
 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
13, 2009:
 
 Name
                        
                        Age
                        
                        Position(s)James
      Lefkowitz
                        
                        50
                        
                        PresidentRussell
      Burke
                        
                        49
                        
                        Chief
      Financial Officer, and Senior Vice President and Chief Financial Officer
      of TwistboxIan
      Aaron
                        
                        49
                        
                        President
      and Chief Executive Officer of Twistbox, DirectorDavid
      Mandell
                        
                        48
                        
                        Executive
      Vice President, General Counsel and Corporate Secretary of
      TwistboxAdi
      McAbian
                        
                        35
                        
                        DirectorPeter
      Guber
                        
                        67
                        
                        Co-ChairmanRobert
      S. Ellin
                        
                        44
                        
                        Co-ChairmanBarry
      I. Regenstein
                        
                        52
                        
                        DirectorPaul
      Schaeffer
                        
                        61
                        
                        DirectorJay
      Wolf
                        
                        36
                        
                        DirectorRichard
      Spitz
                        
                        48
                        
                        Director
  40
  Biographical
information for our directors and executive officers are as
follows:
  James Lefkowitz.  Mr.
Lefkowitz has been our President since June 2007. He is a 20 year entertainment
industry veteran with a wide range of experience in law, business, finance, film
and television. Mr. Lefkowitz joined Mandalay 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).
 
 Ian Aaron.Mr.
Aaron has been a member of our Board of Directors since February 2008 and has
been the President and Chief Executive Officer of Twistbox since January 2006.
 He is responsible
for Twistbox’s general entertainment, games and late night business units. Mr.
Aaron has over 20 years of experience in the fields of international CATV,
telecom and mobile distribution and has served on the board of directors of a
number of international media and technology-based companies. Prior to joining
Twistbox, Mr. Aaron served as President of the TV Guide Television Group of
Gemstar - TV Guide International, Inc., a NASDAQ publicly traded company that
engages in the development, licensing, marketing, and distribution of products
and services for TV guidance and home entertainment needs of TV viewers
worldwide. From August 2000 to May 2003, Mr. Aaron served as President, Chief
Executive Officer and Director of TVN Entertainment, Inc., which is the largest
privately held digital content aggregation, management, distribution and
services company in the United States. From October 1994 to August 2000, Mr.
Aaron worked in a number of capacities, including as President and Director,
with SoftNet Systems, Inc., a broadband internet service provider that was
traded publicly on NASDAQ. Mr. Aaron received a B.S. in electrical engineering
and a B.S. in communications from the University of Illinois.
  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., a NASDAQ publicly traded company that
engages 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 adult 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.
 
 Adi McAbian.Mr.
McAbian has served on our Board of Directors since February 2008 and is a
co-founder and has been Managing Director of Twistbox since May 2003 . As the
Managing Director of Twistbox, Mr. McAbian is 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.
  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.
  41
  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.
  Barry I.
Regenstein.Mr. Regenstein has served on our Board of
Directors since February 2005. Mr. Regenstein is also the President and Chief
Financial Officer of Command Security Corporation. Trinad Capital Master Fund,
Ltd. is a significant shareholder of Command Security Corporation and Mr.
Regenstein has formerly served as a consultant for Trinad Capital Master Fund,
Ltd. Mr. Regenstein has over 28 years of experience with 23 years of such
experience in the aviation services industry. Mr. Regenstein was formerly Senior
Vice President and Chief Financial Officer of Globe Ground North America
(previously Hudson General Corporation), and previously served as the company’s
Controller and as a Vice President. Prior to joining Hudson General Corporation
in 1982, he had been with Coopers & Lybrand in Washington, D.C. since 1978.
Mr. Regenstein currently sits of the boards of ProLink Holdings
Corporation, Lateral Media, Inc., Zoo Entertainment, Inc. and Command
Security Corporation. Mr. Regenstein is a Certified Public Accountant and
received his Bachelor of Science in Accounting from the University of Maryland
and an M.S. in Taxation from Long Island University.
  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 the 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.
  Jay Wolf.Mr. Wolf
has served on our Board of Directors since February 2005.  Mr. Wolf is
a partner and co-founder of Trinad. Mr. Wolf has a broad range of investment and
operations experience that includes senior and subordinated debt lending,
private equity and venture capital investments, mergers and acquisitions and
public equity investments. Prior to his work at Trinad, Mr. Wolf served as EVP
of Corporate Development for Wolf Group Integrated Communications Ltd. where he
was responsible for the company’s acquisition program. Mr. Wolf worked at
Canadian Corporate Funding, Ltd., a Toronto-based merchant bank as an analyst in
the firm’s senior debt department and subsequently for Trillium Growth Capital,
the firm’s venture capital fund. Mr. Wolf is the Secretary of Zoo Entertainment,
Inc. and Lateral Media, Inc. and Chairman and Chief Executive Officer of Noble
Medical Technologies, Inc.  Mr. Wolf currently sits on the boards of
Noble Medical Technologies, Inc., Lateral Media, Inc., Zoo Entertainment, Inc.
ProLink Holdings Corporation, Xcorporeal, Inc. and Northstar Systems, Inc. Mr.
Wolf is also a member of the Board of Governors at Cedars-Sinai Hospital. Mr.
Wolf received his B.A from Dalhousie University.
  Richard Spitz.   Mr.
Spitz has served on our Board of Directors since November 2007. 
He is the head of Korn/Ferry International Global Technology Markets where
he is in charge of go-to market strategy across all subsectors and regions
within the technology market. Mr. Spitz has worked at Korn/Ferry International
since May 1996 where he has advised investors and companies on leadership
issues, talent management and senior executive recruitment. From August 1987
through May 1996, Mr. Spitz worked at Paul, Hastings, Janofsky and Walker. Mr.
Spitz has served on and advises private and public company boards as well as on
the Dean’s Special Task Force for New York University Law School. He also
currently serves on the Board of Advisors to the Harold Price Center for
Entrepreneurial Studies at the Anderson School of Business. Mr. Spitz received a
BS from California State University, Northridge, a J.D. from Tulane University
Law School and an L.L.M. from New York University Law School.
  42
  Audit
Committee
 
 As of
July 14, 2009, the Board of Directors had not established an audit committee. We
are exempt from the listing standards for audit committees under Rule
10A-3, Listing Standards Relating to Audit Committees, as promulgated under the
Exchange Act. However, for certain purposes of the rules and regulations of the
SEC, our Board of Directors is deemed to be our audit committee. Our Board of
Directors has determined that Paul Schaeffer is an “audit committee financial
expert” within the meaning of the rules and regulations of the SEC. We plan on
establishing an audit committee that complies with the standards of Rule 10A-3
in the next 12 months.
  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 our Transition Period ended March 31, 2008, 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
Eugen Barteska as to one transaction, one Form 4 was not timely filed by Guber
Family Trust as to one transaction, one Form 4 report was not timely filed by
Adi McAbian as to one transaction, one Form 4 report was not timely filed by Ian
Aaron as to one transaction, one Form 4 was not timely filed by Peter Guber as
to one transaction and one Form 4 report was not timely filed by Bruce Stein as
to one transaction.
  ITEM
11. EXECUTIVE COMPENSATION
 
 SUMMARY
COMPENSATION TABLE
  The
following table sets forth information concerning the total compensation paid
during our fiscal year ended March 31, 2009, our transition period ended March
31, 2008 and our fiscal year ended December 31, 2007 for our principal executive
officer and two most highly compensated executive officers:
  Name and Principal
                                                              Position
                                                            
                                                            Year
                                                            
                                                            Salary
                                                            
                                                            
                                                            Bonus
                                                            
                                                            
                                                            Stock
                                                              Awards
                                                            
                                                            
                                                            Option
                                                              Awards
                                                              (1)
                                                            
                                                            
                                                            All Other
                                                              Compensation
                                                            
                                                            
                                                            Total($)
                                                            
                                                            
                                                            ($)
                                                            
                                                            
                                                            ($)
                                                            
                                                            
                                                            ($)
                                                            
                                                            
                                                            ($)
                                                            
                                                            
                                                            ($)Bruce
      Stein,Former Chief Executive
      Officer(through January 12, 2009)
                                                            
                                                            Year
      ended March 31, 2009
                                                            
                                                            
                                                            277,083
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            690,388
                                                            
                                                            
                                                            
                                                            22,187
                                                            
                                                            
                                                            
                                                            989,658The
      Transition Period Ended March 31, 2008
                                                            
                                                            
                                                            68,974
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            158,821
                                                            
                                                            
                                                            
                                                            7,418
                                                            
                                                            
                                                            
                                                            235,213Year
      ended December 31, 2007
                                                            
                                                            
                                                            25,641
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            385,931
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            411,572James
      Lefkowitz, President
                                                            
                                                            Year
      ended March 31, 2009
                                                            
                                                            
                                                            245,313
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            3,842
                                                            
                                                            
                                                            
                                                            257,287
                                                            
                                                            
                                                            
                                                            21,626
                                                            
                                                            
                                                            
                                                            528,069The
      Transition Period Ended March 31, 2008
                                                            
                                                            
                                                            62,500
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            64,322
                                                            
                                                            
                                                            
                                                            3,391-
                                                            
                                                            
                                                            
                                                            130,213-Year
      ended December 31, 2007
                                                            
                                                            
                                                            126,923
                                                            
                                                            
                                                            
                                                            100,000
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            295,352
                                                            
                                                            
                                                            
                                                            4,730
                                                            
                                                            
                                                            
                                                            527,005Ian
      Aaron, Chief Executive
      Officer of Twistbox
                                                            
                                                            Year
      ended March 31, 2009
                                                            
                                                            
                                                            132,034
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            182,130
                                                            
                                                            
                                                            
                                                            482,076
                                                            
                                                            
                                                            
                                                            23,457
                                                            
                                                            
                                                            
                                                            819,697The
      Transition Period Ended March 31, 2008
                                                            
                                                            
                                                            40,385
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            467,950
                                                            
                                                            
                                                            
                                                            1,944
                                                            
                                                            
                                                            
                                                            510,278
  (1) This
amount was calculated using the provisions of FAS 123R. For a description of FAS
123R and the assumptions used in determining the value of the options, see
“Management’s Discussion and Analysis or Plan of Operation - Critical Accounting
Policies - Stock Based Compensation”.
 
 On June
28, 2007, James Lefkowitz was appointed our President pursuant to an employment
letter. Pursuant to such employment letter, his initial base salary was set at
$250,000 per year. Additionally, he received a signing bonus of $100,000 and is
eligible for bonus compensation at the discretion of the Board. In the event
that he is terminated without cause, meaning misconduct that harms the company,
conviction of a felony or a crime involving fraud or financial misconduct,
violation of our Code of Ethics, or violation of confidentiality obligations, he
is eligible for severance equal to one month of base pay (determined at the time
of termination) for each year of employment, up to a maximum of 12 months of
base pay. He is not eligible for severance if he resigns or is terminated for
cause.
 
 Our Board
of Directors granted Mr. Lefkowitz options to purchase 500,000 shares of our
common stock pursuant to the Plan on November 7, 2007 in connection with his
employment as President. The options have a 10-year term and are exercisable at
a price of $2.65 per share. One-third of the options were immediately
exercisable upon grant, an additional one-third become exercisable on June 28,
2008, and the remaining one-third become exercisable on June 28,
2009.
  On March
16, 2009, Mr. Lefkowitz agreed to reduce his salary for a period of one year in
exchange for 37,500 shares of common stock. The shares are subject to forfeiture
in the event that Mr. Lefkowitz leaves the Company within one year from the date
of grant and become fully vested one year from the date of grant or in the event
of change of control of the Company.
  On
January 17, 2006, Mr. Aaron was granted options to purchase 75,000 shares of
common stock of Twistbox, pursuant to the terms of the Twistbox 2006 Stock
Incentive Plan, at $0.35 per share in connection with his employment
agreement. The options have a term of 10 years. Upon consummation of the Merger,
all of the options held by Mr. Aaron, which pursuant to the Merger became
exercisable for 54,725 shares of Mandalay common stock, became immediately
exercisable.
  On
February 12, 2008, in connection with the closing of the Merger, Twistbox
entered into the Second Amendment to Employment Agreement (the “Second
Amendment”), an amendment to its existing letter employment agreement with Ian
Aaron for his service as Chief Executive Officer of Twistbox, dated as of May
16, 2006, as amended by that certain Amendment to Employment Agreement dated
December 30, 2007 and then in effect. Pursuant to such employment agreement, as
amended by the Second Amendment (the “Employment Agreement”), Mr. Aaron shall
serve in his role as CEO until February 12, 2011, such term to thereafter renew
upon mutual agreement of Twistbox and Mr. Aaron (to be determined on or about
August 12, 2010), unless earlier terminated pursuant to the Employment
Agreement. Mr. Aaron’s Employment Agreement provides that his base salary shall
be at the annual rate of $350,000 from February 12, 2008 through February 11,
2009, $367,500 from February 12, 2009 through February 11, 2010, and $385,875
from February 12, 2010 through February 12, 2011. He is eligible for an annual
cash bonus of up to 50% of base salary based upon the achievement of performance
goals set by Twistbox’s board of directors, a minimum of four weeks paid
vacation, reimbursement of certain expenses, an automobile allowance of $1,000
per month, and life insurance equal to two times base salary. During the term of
his employment and for 12 months thereafter, Mr. Aaron is prohibited from
competing with the company directly or indirectly by participating in any
business relating to Mobile Adult WAP, Adult MobileTV, Adult Off-Deck Services,
Mobile AVS Systems or Mobile Adult Advertising Services, soliciting customers,
or soliciting employees.
  43
  Upon
termination of Mr. Aaron’s employment as a result of disability or death, he is
entitled to receive all accrued but unpaid payments and benefits and any bonus
earned but unpaid. Upon termination of Mr. Aaron’s employment as a result of
cause, generally defined as willful misconduct having a material negative impact
on the company, indictment for, conviction of, or pleading guilty to a felony or
any crime involving fraud, dishonesty or moral turpitude, failure to perform
duties or follow legal direction of Board of Directors in good faith, or any
uncured other material breach of the Employment Agreement, he is entitled to
receive all accrued but unpaid payments and benefits excluding any bonus earned
but unpaid. In addition, if Mr. Aaron’s employment is terminated by us without
cause or by Mr. Aaron for good reason, which is defined as material diminution
in title, position, authority, duties or reporting requirements unless
incapacitated, mandatory relocation to a principal place of employment greater
than 15 miles from current location, or any other material breach of the
Employment Agreement, then he is entitled to receive all accrued but unpaid
payments and benefits and any bonus earned but unpaid, and (i) continued payment
of base salary for a period equal to six months following the termination, (ii)
a pro-rata bonus based on actual results achieved during the fiscal year of
termination, (iii) continued participation during the six month period following
termination in our group health plan, subject to certain conditions and
restrictions and (iv) immediate vesting of all outstanding stock options to
purchase our common stock.
  In
addition, pursuant to the Second Amendment, Mr. Aaron received options on
February 12, 2008 pursuant to the Plan to purchase 600,000 shares of our common
stock at an exercise price of equal to $4.75 per share. One-third of the options
vested on February 12, 2008, with the remaining amount vesting annually in equal
installments over a two-year period thereafter. All of such options accelerate
upon a change of control or sale of all or substantially all of the assets of
Mandalay.
  On March
16, 2009, Mr. Aaron agreed to reduce his salary from August 8, 2008 through
February 12, 2010 in exchange for 504,218 shares of
the Company’s common stock. 350,360 of the shares are subject to forfeiture in
the event that Mr. Lefkowitz leaves the Company within one year from the date of
grant and become fully vested one year from the date of grant or in the event of
change of control of the Company.
  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, 2009
  The
following table presents information regarding outstanding options held by
certain of our executive officers as of March 31, 2009.
 
 Name
                                  
                                  Number of
                                    Securities
                                    Underlying
                                    Unexercised
                                    Options
                                    (#)
                                    Exercisable
                                  
                                  
                                  Number of
                                    Securities
                                    Underlying
                                    Unexercised
                                    Options
                                    (#)
                                    Unexercisable
                                  
                                  
                                  Equity
                                    Incentive Plan
                                    Awards:
                                    Number of
                                    Securities
                                    Underlying
                                    Unexercised
                                    Unearned
                                    Options
                                    (#)
                                  
                                  
                                  Option
                                    Exercise Price
                                    ($)
                                  
                                  Option
                                    Expiration
                                    DateBruce
      Stein, Former Chief Executive Officer(1)
                                  
                                  
                                  333,333
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  2.65
                                  
                                  6/28/1733,333
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  4.65
                                  
                                  1/2/08James
      Lefkowitz, President (2)
                                  
                                  
                                  333,333
                                  
                                  
                                  
                                  166,667
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  2.65
                                  
                                  11/7/17Ian
      Aaron, Chief Executive
      Officer of Twistbox (3)
                                  
                                  
                                  54,725
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  .35
                                  
                                  1/17/16400,000
                                  
                                  
                                  
                                  200,000
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  4.75
                                  
                                  2/12/18
 (1)
              The
      Board of Directors granted Mr. Stein the options pursuant to the Plan on
      June 28, 2007 and January 2, 2008 in connection with his employment as
      President of the Company. The options have a 10 year term and are
      exercisable at a price of $2.65  and $4.65 per share,
      respectively. One-third of the options were immediately exercisable upon
      grant, an additional one-third became exercisable on the first anniversary
      of the grant date and the remaining one-third of the options become
      exercisable on the second anniversary of the grant date. At the time of
      his resignation on January 12, 2009 the remaining unvested options were
      cancelled.
 
 44
  (2)   The
Board of Directors granted Mr. Lefkowitz the options pursuant to the Plan on
November 7, 2007 in connection with his employment as President of the Company.
The options have a 10 year term and are exercisable at a price of $2.65 per
share. One-third of the options were immediately exercisable upon grant, an
additional one-third became exercisable on June 28, 2008 and the remaining
one-third of the options become exercisable on June 28, 2009.
 
 (3)  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 Mandalay 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 become exercisable on February 12, 2009 and the remaining
options become exercisable on February 12, 2010.
 
 DIRECTOR
COMPENSATION
  The
following table presents information regarding outstanding compensation paid to
our directors during the Transition Period.
  Name
                  
                  Fees Earned or
                    Paid in Cash
                    ($)
                  
                  
                  Option Awards(1)
                    ($)
                  
                  
                  All
                    Other
                    Compensation
                    ($)
                  
                  
                  Total ($)Paul
      Schaeffer
                  
                  $
                  3,750
                  
                  
                  
                  288,246
                  
                  
                  
                  -
                  
                  
                  $
                  291,996Richard
      Spitz
                  
                  $
                  3,750
                  
                  
                  
                  240,709
                  
                  
                  
                  -
                  
                  
                  $
                  244,459Peter
      Guber
                  
                  $
                  -
                  
                  
                  
                  480,411
                  
                  
                  
                  -
                  
                  
                  $
                  480,411Robert
      Ellin
                  
                  $
                  -
                  
                  
                  
                  480,411
                  
                  
                  
                  -
                  
                  
                  $
                  480,411Barry
      Regenstein
                  
                  $
                  -
                  
                  
                  
                  70,096
                  
                  
                  
                  -
                  
                  
                  $
                  70,096Jay
      Wolf
                  
                  $
                  -
                  
                  
                  
                  175,240
                  
                  
                  
                  -
                  
                  
                  $
                  175,240
  (1)This
amount was calculated using the provisions of FAS 123R. For a description of FAS
123R and the assumptions used in determining the value of the options, see
“Management’s Discussion and Analysis or Plan of Operation - Critical Accounting
Policies - Stock Based Compensation”.
  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 14, 2009, 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 current executive officers and directors
as a group. As of July 14, 2009, there were a total of 36,653,125
† shares of
common stock outstanding.
  45
  Number of SharesNameandAddress(1)
                                  
                                  Beneficially Owned(2)
                                  
                                  
                                  Percentage Owned(%)Trinad Capital Master Fund, Ltd.(2)
                                  
                                  
                                  10,267,223
                                  
                                  
                                  
                                  21.3
                                  %Robert S. Ellin(4)
                                  
                                  
                                  10,433,890
                                  
                                  
                                  
                                  21.7
                                  %Jay A. Wolf(5)
                                  
                                  
                                  10,350,556
                                  
                                  
                                  
                                  21.5
                                  %Lyrical Partners, L.P.(6)
                                  
                                  
                                  1,500,000
                                  
                                  
                                  
                                  3.1
                                  %David E. Smith(7)
                                  
                                  
                                  2,232,000
                                  
                                  
                                  
                                  4.6
                                  %Barry I. Regenstein(8)
                                  
                                  
                                  83,333
                                  
                                  
                                  
                                  
                                  *Peter Guber(9)
                                  
                                  
                                  6,080,791
                                  
                                  
                                  
                                  12.6
                                  %Paul Schaeffer(10)
                                  
                                  
                                  600,000
                                  
                                  
                                  
                                  1.2
                                  %Jim Lefkowitz(11)
                                  
                                  
                                  337,176
                                  
                                  
                                  
                                  
                                  *Richard Spitz(12)
                                  
                                  
                                  133,333
                                  
                                  
                                  
                                  
                                  *Ian Aaron(13)
                                  
                                  
                                  1,548,943
                                  
                                  
                                  
                                  3.2
                                  %Adi McAbian(14)
                                  
                                  
                                  966,813
                                  
                                  
                                  
                                  2.0
                                  %Spark Capital, L.P.(15)
                                  
                                  
                                  2,857,144
                                  
                                  
                                  
                                  5.9
                                  %ValueAct SmallCap Master Fund L.P.(16)
                                  
                                  
                                  3,027,940
                                  
                                  
                                  
                                  6.3
                                  %All
      directors and executive officers as a group (12
    individuals)
                                  
                                  
                                  34,413,310
                                  
                                  
                                  
                                  71.5
                                  %
  * Less
than one percent.
  † The Company and
its transfer agent have a 100,723 share discrepancy that it is in the process of
investigating. In the event that the transfer agent's records are correct, we
will adjust our numbers accordingly in future filings.
  (1)
Except as otherwise indicated, the address of each of the following persons is
c/o Mandalay Media, Inc., 2121 Avenue of the Stars, Suite 2550, 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, 2009, are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any other
person.
 
 (3)
Consists of 9,986,329 shares of common stock and 280,899 shares of common stock
issuable upon exercise of warrants 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, 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 Management is
an affiliate of, and provides investment management services to, Trinad Capital
Master Fund. The address of Trinad Capital Master Fund, Ltd. is 2121 Avenue of
the Stars, Suite 2550, Los Angeles, CA 90067.
 
 (4)
Consists of 9,986,329 shares of common stock and 280,899 shares of common
stock issuable upon exercise of warrants held by Trinad Capital Master Fund,
Ltd. and100,000 shares of common stock issuable upon conversion of 100,000
shares of Series A Convertible Preferred Stock held by Trinad Management; and
166,667 vested options held personally. Trinad Management is an affiliate of,
and provides investment management services to, Trinad Capital Master Fund.
Robert Ellin and Jay Wolf are the managing members of Trinad Management. As a
result, each may be deemed indirectly to beneficially own an aggregate of
9,400,000 shares of common stock. Mr. Ellin disclaims beneficial ownership of
these securities except to the extent of his pecuniary interest
therein.
 
 46
  (5)
Consists of 9,986,329 shares of common stock and 280,899 shares of common
stock issuable upon exercise of warrants held by Trinad Capital Master Fund and
100,000 shares of common stock issuable upon conversion of 100,000 shares of
Series A Convertible Preferred Stock held by Trinad Management; and 83,333
vested options held personally. Trinad Management is an affiliate of, and
provides investment management services to, Trinad Capital Master Fund. Robert
Ellin and Jay Wolf are the managing members of Trinad Management. As a result,
each may be deemed indirectly to beneficially own an aggregate of 9,400,000
shares of common stock. Mr. Wolf disclaims beneficial ownership of these
securities except to the extent of his pecuniary interest therein.
 
 (6)
Lyrical Multi-Manager Fund, LP beneficially owns 1,000,000 units  and
Lyrical Multi-Manager Offshore Fund Ltd. beneficially owns 500,000 units 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 1,500,000 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) David
E. Smith beneficially owns  2,232,000 shares of common stock of the
company. This information is based solely on a Schedule 13D filed by David E.
Smith with the Commission on November 27, 2006, which reported ownership as of
September 25, 2006. The address for Mr. Smith is 888 Linda Flora Drive, Los
Angeles, California 90049.
  (8)
Consists of a warrant to purchase 50,000 shares of our common stock and 33,333
shares of common stock underlying options.
 
 (9) 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.
 
 (10)
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.
 
 (11)
Consists of 3,842 shares of common stock and 333,333 shares of common stock
underlying options.
  (12)
Includes 133,333 shares of common stock underlying options.
  (13)
Includes 454,725 shares of common stock underlying options. The address for Mr.
Aaron is c/o Twistbox Entertainment, Inc., 14242 Ventura Blvd., 3 rd Floor,
Sherman Oaks, CA 91423.
 
 (14)
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.
 
 (15)
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.
 
 (16)
Represents 561,798 shares of common stock and 2,466,142 shares of common stock
underlying currently exercisable warrants. The address for ValueAct SmallCap
Master Fund, L.P. is c/o ValueAct Capital, 435 Pacific Avenue, 4th Floor, San
Francisco, CA 94133.
  47
  ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
  Mandalay
 
 On
September 14, 2006, we entered into a management agreement (the “Management
Agreement”) with Trinad Management, an affiliate 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, 2009 the Company
paid management fees under the agreement of $360,000;  for the three
months ended March 31, 2008, the Company paid management fees under the
agreement of $90,000; and for the year ended December 31, 2007 the Company paid
management fees under the agreement of $360,000.
 
 In March
2007, the Company entered into a month to month lease for office space with
Trinad Management for rent of $9,000  per month. Rent expense in
connection with this lease was $104,000; $26,000 and $104,000 respectively for
the year ended March 31, 2009; for the three months ended March 31, 2008; and
for the year ended December 31, 2007.
 
 In
addition, Trinad Capital Master Fund beneficially owns 9,400,000 shares of
Mandalay, which consists of 9,300,000 shares of Mandalay common stock and
100,000 shares of Mandalay Common Stock issuable upon conversion of 100,000
shares of Series A Convertible Preferred Stock held by Trinad Management. Robert
Ellin and Jay Wolf are the managing members of Trinad Management.
 
 Twistbox
 
 Twistbox
engages in various business relationships with its shareholders 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, an officer of Twistbox and
a common stockholder. Amounts paid in connection with this lease were $314,000
and $213,000 for the years ended March 31, 2007 and 2006
respectively.
 
 Twistbox
was party to an oral agreement with a person affiliated with Twistbox with
respect to a lease of an apartment in London.  Amounts paid in
connection with this lease was $48,000 ; $12,000 and $0 for the year ended March
31, 2009; for the three months ended March 31, 2008; and for the year ended
December 31, 2007, respectively.
  Loans
  As part
of the Merger, Mandalay 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 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 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 entitles 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 entitles 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, will be
permanently increased to an exercise price of $7.55 per share. 
Both warrants expire on July 30, 2011. We also entered into a Guaranty with
ValueAct whereby Mandalay 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 Note. The financial covenants of the
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 Mandalay 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.
 
 48
 
 On
October 23, 2008, in connection with the AMV Acquisition, Mandalay, Twistbox and
ValueAct entered into a Second Amendment to the ValueAct Note in the amount of
$16,500,000, which among other things, provides for a payment in kind election
at the option of Twistbox, modifies the financial covenants set forth in
the ValueAct Note to require that Mandalay and Twistbox maintain certain
minimum combined cash balances and provides for certain covenants with respect
to the indebtedness of Mandalay 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, Mandalay 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.
 
 Director
Independence
 
 Of
the 8 members on our Board of Directors, the following directors are
independent directors: Paul Schaeffer, Barry Regenstein and Richard Spitz. We
determined these directors are independent 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 ofGrobstein Horwath & Company LLP
(“Grobstein”)as the Company’s new independent
registered public accounting firm to provide audit services for the
Company.  We
have engagedGrobstein 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. Effective May 28, 2008, the Board approved the engagement ofGrobsteinas the Company’s new independent
registered public accounting firm to provide audit services for the
Company.
 
 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.
  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, the
Transition Period ended March 31, 2008 and for the  Year ended
December 31, 2007, respectively were:
  49
 
 YearEnded
                      March31,
                      2009
                    
                    
                    TransitionPeriod
                      EndedMarch31,
                      2008
                    
                    
                    YearEnded
                      December31,
                      2007Audit
      fees
                    
                    
                    400,436
                    
                    
                    $
                    23,749
                    
                    
                    $
                    70,085Audit
      related fees
                    
                    
                    3,695
                    
                    
                    
                    4,078
                    
                    
                    
                    -Tax
      fees
                    
                    
                    8,840
                    
                    
                    
                    -
                    
                    
                    
                    -All
      other fees
                    
                    
                    17,679
                    
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    $
                    430,650
                    
                    
                    $
                    27,827
                    
                    
                    $
                    70,085
  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.  
Auditservices 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 has pre-approved the retention of Singer for all audit
and audit-related services during fiscal 2009.
  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.
  50
 
 (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:
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:
  2.1
              Amended
      Disclosure Statement filed with the United States Bankruptcy Court for the
      Southern District of New York. 1
  2.2
              Amended
      Plan of Reorganization filed with the United States Bankruptcy Court for
      the Southern District of New York 1
  2.3
              Order
      Confirming Amended Plan of Reorganization issued by the United States
      Bankruptcy Court for the Southern District of New York. 1
  2.4
              Plan
      and Agreement of Merger, dated September 27, 2007, of Mandalay Media,
      Inc., a Delaware corporation, and Mediavest, Inc., a New Jersey
      corporation. 2
  2.5
              Certificate
      of Merger merging Mediavest, Inc., a New Jersey corporation, with and into
      Mandalay Media, Inc., a Delaware corporation, as filed with the Secretary
      of State of the State of Delaware. 2
  2.6
              Certificate
      of Merger merging Mediavest, Inc., a New Jersey corporation, with and into
      Mandalay Media, Inc., a Delaware corporation, as filed with the Secretary
      of State of the State of New Jersey. 2
  2.7
              Agreement
      and Plan of Merger, dated as of December 31, 2007, by and among Mandalay
      Media, Inc., Twistbox Acquisition, Inc., Twistbox Entertainment, Inc. and
      Adi McAbian and Spark Capital, L.P. 3
  2.8
              Amendment
      to Agreement and Plan of Merger, dated as of February 12, 2008, by and
      among Mandalay Media, Inc., Twistbox Acquisition, Inc., Twistbox
      Entertainment, Inc. and Adi McAbian and Spark Capital, L.P. 4
  3.1
              Certificate
      of Incorporation. 2
  3.2
              Bylaws.
      2
  4.1
              Form
      of Warrant to Purchase Common Stock dated September 14, 2006. 5
  4.2
              Form
      of Warrant to Purchase Common Stock dated October 12, 2006. 6
  4.3
              Form
      of Warrant to Purchase Common Stock dated December 26, 2006. 7
  4.4
              Form
      of Warrant Issued to David Chazen to Purchase Common Stock dated August 3,
      2006. 8
  4.5
              Senior
      Secured Note, dated July 30, 2007, by and between Twistbox and ValueAct
      SmallCap Master Fund, L.P. 4
  4.6
              Class
      A Warrant, dated July 30, 2007, issued to ValueAct SmallCap Master Fund,
      L.P. 4
  4.7
              Warrant
      dated February 12, 2008 issued to ValueAct SmallCap Master Fund, L.P.
      (fixed exercise price). 4
  4.8
              Warrant
      dated February 12, 2008 issued to ValueAct SmallCap Master Fund, L.P.
      (adjusting exercise price). 4
  4.9
              Amendment
      and Waiver to Senior Secured Note, dated February 12, 2008, by and between
      Twistbox and ValueAct SmallCap Master Fund, L.P. 4
 4.10
                Second
      Amendment, by and among Mandalay Media, Inc., Twistbox Entertainment, Inc.
      and ValueAct SmallCap Master Fund, L.P., dated October 23, 2008, to
      the Senior Secured Note, issued by Twistbox to ValueAct, due
      January 30, 2010, and as amended on February 12, 2008.9
 4.11
                  Allonge,
      dated October 23, 2008, to the Warrant dated February 12, 2008 issued to
      ValueAct.9
 4.12
                    Allonge,
      dated October 23, 2008, to the Warrant dated February 12, 2008 issued to
      ValueAct.9
 4.13
                      Form
      of Warrant issued to Investors, dated October 23, 2008.9
 
 10.1
              2007
      Employee, Director and Consultant Stock Plan. 2
  51
 
 10.1.1
              Form
      of Non-Qualified Stock Option Agreement. 2
  10.2
              Amendment
      to 2007 Employee, Director and Consultant Stock Plan. 4
  10.3
              Second
      Amendment to 2007 Employee, Director and Consultant Stock Plan. 1010.4
              Form
      of Restricted Stock Agreement.1110.5
              Twistbox
      2006 Stock Incentive Plan. 4
  10.6
              Form
      of Stock Option Agreement for Twistbox 2006 Stock Incentive Plan. 4
  10.7
              Loan
      Agreement with Trinad Capital Master Fund, Ltd., dated March 20, 2006.
      12
  10.8
              Form
      of Subscription Agreement between the Company and certain investors listed
      thereto dated September 14, 2006. 5
  10.9
              Form
      of Subscription Agreement between the Company and certain investors listed
      thereto dated October 12, 2006. 6
  10.10
              Series
      A Convertible Preferred Stock Purchase Agreement dated October 12, 2006
      between the Company and Trinad Management, LLC. 6
  10.11
              Form
      of Subscription Agreement between the Company and certain investors listed
      thereto dated December 26, 2006. 7
  10.12
              Form
      of Subscription Agreement between the Company and certain investors listed
      thereto. 13
  10.13
              Employment
      Letter, by and between the Company and James Lefkowitz, dated as of June
      28, 2007. 14
  10.14
              Salary
      Reduction Letter by and between Mandalay Media, Inc. and James Lefkowitz,
      dated March 16, 2009.11
  10.15
              Securities
      Purchase Agreement, dated July 30, 2007, by and among Twistbox
      Entertainment, Inc., the Subsidiary Guarantors and ValueAct SmallCap
      Master Fund, L.P. 4
  10.16
              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. 4
  10.17
              Control
      Agreement, dated July 30, 2007, by and among Twistbox Entertainment. Inc.
      and ValueAct SmallCap Master Fund, L.P. to East West Bank. 4
  10.18
              Trademark
      Security Agreement, dated July 30, 2007, by Twistbox, in favor of ValueAct
      SmallCap Master Fund, L.P. 4
  10.19
              Copyright
      Security Agreement, dated July 30, 2007, by Twistbox in favor of ValueAct
      SmallCap Master Fund, L.P. 4
  10.20
              Guaranty
      given as of February 12, 2008, by Mandalay Media, Inc. to ValueAct
      SmallCap Master Fund, L.P. 4
  10.21
              Termination
      Agreement, dated as of February 12, 2008, by and between Twistbox
      Entertainment, Inc. and ValueAct SmallCap Master Fund, L.P. 4
  10.22
              Waiver
      to Guarantee and Security Agreement, dated February 12, 2008, by and
      between Twistbox Entertainment, Inc. and ValueAct SmallCap Master Fund,
      L.P. 4
  10.23
              Standard
      Industrial/Commercial Multi-Tenant Lease, dated July 1, 2005, by and
      between Berkshire Holdings, LLC and The WAAT Corp. 4
  10.24
              Letter
      Agreement, dated May 16, 2006, between The WAAT Corp. and Adi McAbian.
      4
  10.25
              Amendment
      to Employment Agreement by and between Twistbox Entertainment, Inc. and
      Adi McAbian, dated as of December 31, 2007. 4
  10.26
              Second
      Amendment to Employment Agreement, dated February 12, 2008, by and between
      Twistbox Entertainment, Inc. and Adi McAbian. 4
  10.27
              Letter
      Agreement, dated May 16, 2006 between The WAAT Corp. and Ian Aaron. 4
  52
  10.28
              Salary
      Reduction Letter by and between Mandalay Media, Inc. and Ian Aaron, dated
      March 16, 2009.11
 
 10.29
              Amendment
      to Employment Agreement, by and between Twistbox Entertainment, Inc. and
      Ian Aaron, dated as of December 31, 2007. 4
  10.30
              Second
      Amendment to Employment Agreement by and between Twistbox Entertainment,
      Inc. and Ian Aaron, dated February 12, 2008. 4
  10.31
              Employment
      Agreement, dated May 9, 2006, between Charismatix and Eugen Barteska.
      4
  10.32
              Employment
      Agreement, dated June 5, 2006, between The WAAT Corp. and David Mandell.
      4
  10.33
              First
      Amendment to Employment Agreement, by and between Twistbox Entertainment,
      Inc. and David Mandell, dated February 12, 2008. 4
  10.34
              Employment
      Agreement, dated December 11, 2006 between Twistbox and Russell Burke.
      4
  10.35
              First
      Amendment to Employment Agreement by and between Twistbox Entertainment,
      Inc. and Russell Burke, dated February 12, 2008. 4
  10.36
              Directory
      Agreement, dated as of May 1, 2003, between Vodafone Global Content
      Services Limited and The WAAT Corporation. 4
  10.37
              Contract
      Acceptance Notice - Master Global Content Reseller Agreement by Vodafone
      Hungary Ltd. 4
  10.38
              Master
      Global Content Agency Agreement, effective as of December 17, 2004,
      between Vodafone Group Services Limited and The WAAT Media Corporation.
      4
  10.39
              Letter
      of Amendment, dated February 27, 2007, by and between WAAT Media
      Corporation and Vodafone UK Content Services Limited. 4
  10.40
              Content
      Schedule, dated December 17, 2004, by and between WAAT Media Corporation
      and Vodafone Group Services Limited. 4
  10.41
              Contract
      Acceptance Notice - Master Global Content Agency Agreement by Vodafone D2
      GmbH. 4
  10.42
              Contract
      Acceptance Notice - Master Global Content Agency Agreement by Vodafone
      Sverige AB. 4
  10.43
              Master
      Global Content Reseller Agreement, effective January 17, 2005, between
      Vodafone Group Services Limited and The WAAT Corporation. 4
  10.44
              Contract
      Acceptance Notice - Master Global Content Agency Agreement by Vodafone New
      Zealand Limited. 4
  10.45
              Contract
      Acceptance Notice - Master Global Content Agency Agreement by Vodafone
      España, S.A. 4
  10.46
              Contract
      Acceptance Notice - Master Global Content Reseller Agreement by Vodafone
      UK Content Services LTD. 4
  10.47
              Contract
      Acceptance Notice - Master Global Content Reseller Agreement by
      VODAFONE-PANAFON Hellenic Telecommunications Company S.A.4
  10.48
              Content
      Schedule, dated January 17, 2005, by and between WAAT Media Corporation
      and Vodafone Group Services Limited. 4
  10.49
              Contract
      Acceptance Notice - Master Global Content Agency Agreement by Belgacom
      Mobile NV. 4
  10.50
              Content
      Schedule, dated January 17, 2005, by and between WAAT Media Corporation
      and Vodafone Group Services Limited. 4
  10.51
              Contract
      Acceptance Notice - Master Global Content Agency Agreement by Swisscom
      Mobile. 4
  10.52
              Linking
      Agreement, dated November 1, 2006 between Vodafone Libertel NV and
      Twistbox Entertainment, Inc. 4
  10.53
              Agreement,
      dated as of March 23, 2007, between Twistbox Entertainment, Inc. and
      Vodafone Portugal - COMUNICAÇÕES PESSOAIS, S.A 4
  10.54
              Contract
      for Content Hosting and Services “Applications and Games Services,”
      effective August 27, 2007 between Vodafone D2 GmbH and Twistbox Games Ltd
      & Co. KG. 4
  53
 
 10.55
              Partner
      Agreement, dated August 27, 2007, by and between Vodafone D2 GmbH and
      Twistbox. 4
  10.56
              Letter
      of Amendment, dated February 25, 2006 by and between WAAT Media
      Corporation and Vodafone UK Content Services Limited. 4
  10.57
              Letter
      of Amendment, dated August 2007, by and between WAAT Media Corporation and
      Vodafone UK Content Services Limited. 4
  10.58
              Content
      Schedule, dated December 17, 2004, by and between WAAT Media Corporation
      and Vodafone Group Services Limited. 4
  10.59
              Consolidated
      financial statements of Twistbox Entertainment, Inc. for the fiscal years
      ended March 31, 2006 and March 31, 2007. 4
  10.60
              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. 1616.1
              Letter
      dated May 11, 2007 from Most & Company, LLP to the Securities and
      Exchange Commission. 17
  16.2
                      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.20
  31.1
              Certification
      of James Lefkowitz, Principal Executive Officer. *
  31.2
              Certification
      of  Russell Burke, Principal Financial Officer. *
  32.1
              Certification
      of James Lefkowitz, 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.
  54
 
 (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.
  (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.
  (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.
  55
  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.
 
 Mandalay
      Media, Inc.Dated:
      July 14, 2009By:
                    /s/
      James LefkowitzPresident
                      (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, 2009Robert
      S. Ellin/s/
      Peter Guber
                                          
                                          Co-Chairman
      of the Board
                                          
                                          July
      14, 2009Peter
      Guber/s/
      James Lefkowitz
                                          
                                          President
                                          
                                          July
      14, 2009James
      Lefkowtiz
                                          
                                          (Principal
      Executive Officer)/s/
      Russell Burke
                                          
                                          Chief
      Financial Officer
                                          
                                          July
      14, 2009Russell
      Burke
                                          
                                          (Principal
      Financial Officer)/s/
      Jay A. Wolf
                                          
                                          Director
                                          
                                          July
      14, 2009Jay
      A. WolfDirector
                                          
                                          July
      14, 2009Barry
      Regenstein/s/
      Paul Schaeffer
                                          
                                          Director
                                          
                                          July
      14, 2009Paul
      Schaeffer/s/
      Richard Spitz
                                          
                                          Director
                                          
                                          July
      14, 2009Richard
      Spitz/s/
      Ian Aaron
                                          
                                          President
      and Chief Executive Officer of Twistbox, Director
                                          
                                          July
      14, 2009Ian
      Aaron
  Director
                  
                  July
      14, 2009Adi
      McAbian




56


Page(s)
 
 Reports
      of Independent Registered Public Accounting Firms
              F-2Consolidated
      Balance Sheets as of March 31, 2009 and March 31, 2008
              F-5Consolidated
      Statements of Operations for the year ended March 31, 2009; the three
      monthsended
      March 31, 2008 and the year ended December 31, 2007
              F-6Consolidated
      Statements of Stockholders’ Equity and Comprehensive Loss
    forthe
      year ended March 31, 2009; the three months ended March 31, 2008;
      andthe
      year ended December 31, 2007
              F-7Consolidated
      Statements of Cash Flows for the year ended March 31,
2009;the
      three months ended March 31, 2008; and the year ended December 31,
      2007
              F-8Notes
      to Consolidated Financial Statements
              F-9-36
  F-1
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Mandalay Media, Inc. and
Subsidiaries
 
 We have audited the accompanying
consolidated balance sheet of Mandalay Media, Inc.and Subsidiaries
collectively,(the
“Company”) as of March 31, 2009, and the related consolidated statementsof operations, stockholders' equity,
and cash flowsfor the year then ended.These consolidated financial statements
are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audit.
 
 We conducted our audit 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 audit provides 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 the Company as of March 31, 2009, and the results of
its operations and its cash flows fortheyear ended March 31, 2009, in conformity
with generally accepted accounting principles in the United States of
America.
 
 The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going
concern.  As discussed in Note 3 to the consolidated financial
statements,certain factors
give rise to substantial doubtabout the Company's ability to continue
as a going concern.  Management's plans in regard to these matters are
also described in Note 3. The consolidated financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
 
 We were not engaged to examine
management's assessment of the effectiveness of the Company’s internal control
over financial reporting as of March 31, 2009, included in the Form 10-K annual
report and, accordingly, we do not express an opinion
thereon.
 
 
 SingerLewak LLP
 
 
 Los Angeles,
California
 July 14, 2009
 
 F-2
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Board of Directors
 Mandalay
Media Inc. and Subsidiaries
 Los
Angeles, California
 
 We have
audited the accompanying consolidated balance sheet of  Mandalay Media
Inc. and Subsidiaries  (the “Company”) as of March 31, 2008 and the
related consolidated statements of operations, stockholders’ equity and
comprehensive loss and cash flows for the three months then ended. These
consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
 
 We
conducted our audit 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
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides 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 Mandalay Media Inc.
and Subsidiaries as of March 31, 2008, and the results of its operations and its
cash flows for the three months then ended in conformity with accounting
principles generally accepted in the United States of America.
  /s/
GROBSTEIN, HORWATH & COMPANY LLP
 
 Sherman
Oaks, California
 July 8,
2008
  F-3
  REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
 
 To the
Board of Directors
 Mandalay
Media, Inc. (Formerly Mediavest, Inc.)
 
 We have
audited the accompanying balance sheet of Mandalay Media, Inc. (formerly
Mediavest, Inc.) as of December 31, 2007 and the related statements of
operations, stockholders’ equity and cash flows for the year then ended. 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 audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit 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 audit provides a
reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Mandalay Media, Inc. (formerly
Mediavest, Inc.) as of December 31, 2007 and the results of its operations and
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
 
 /s/ Raich Ende Malter & Co.
      LLPRaich Ende Malter
      & Co. LLP
 
 New York,
New York
 April 11,
2008
  F-4
 
 Mandalay
      Media Inc. and SubsidiariesConsolidated
      Balance Sheets
  (In
thousands, except share amounts)
 
 March
      31,
                                                                    
                                                                    
                                                                    March 31,2009
                                                                    
                                                                    
                                                                    2008ASSETSCurrent
    AssetsCash and cash
      equivalents
                                                                    
                                                                    $
                                                                    5,927
                                                                    
                                                                    
                                                                    $
                                                                    10,936Accounts receivable, net of
      allowances of $174 and $168 respectively
                                                                    
                                                                    
                                                                    10,745
                                                                    
                                                                    
                                                                    
                                                                    6,162Prepaid expenses and other current
      assets
                                                                    
                                                                    
                                                                    1,334
                                                                    
                                                                    
                                                                    
                                                                    531Total current
      assets
                                                                    
                                                                    
                                                                    18,006
                                                                    
                                                                    
                                                                    
                                                                    17,629Property and equipment,
      net
                                                                    
                                                                    
                                                                    1,230
                                                                    
                                                                    
                                                                    
                                                                    1,037Other long-term
      assets
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    301Intangible assets,
      net
                                                                    
                                                                    
                                                                    16,121
                                                                    
                                                                    
                                                                    
                                                                    19,780Goodwill
                                                                    
                                                                    
                                                                    55,833
                                                                    
                                                                    
                                                                    
                                                                    61,377TOTAL
ASSETS
                                                                    
                                                                    $
                                                                    91,190
                                                                    
                                                                    
                                                                    $
                                                                    100,124LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      liabilitiesAccounts
      payable
                                                                    
                                                                    $
                                                                    9,557
                                                                    
                                                                    
                                                                    $
                                                                    2,399Accrued license
      fees
                                                                    
                                                                    
                                                                    2,795
                                                                    
                                                                    
                                                                    
                                                                    3,833Accrued
      compensation
                                                                    
                                                                    
                                                                    592
                                                                    
                                                                    
                                                                    
                                                                    688Current portion of long term
      debt
                                                                    
                                                                    
                                                                    23,296
                                                                    
                                                                    
                                                                    
                                                                    248Other current
      liabilities
                                                                    
                                                                    
                                                                    5,899
                                                                    
                                                                    
                                                                    
                                                                    2,087Total currrent
      liabilities
                                                                    
                                                                    
                                                                    42,139
                                                                    
                                                                    
                                                                    
                                                                    9,255Accrued license fees, long term
      portion
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    1,337Long term debt, net of current
      portion
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    16,483Other long-term
      liabilities
                                                                    
                                                                    
                                                                    27
                                                                    
                                                                    
                                                                    
                                                                    -Total
      liabilities
                                                                    
                                                                    $
                                                                    42,166
                                                                    
                                                                    
                                                                    
                                                                    27,075Commitments and contingencies
      (Note 14)Stockholders'
      equityPreferred
    stockSeries A Convertible Preferred
      Stockat $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;39,653,125 issued and outstanding
      at March 31, 2009;32,149,089 issued and outstanding
      at March 31, 2008;
                                                                    
                                                                    
                                                                    4
                                                                    
                                                                    
                                                                    
                                                                    3Additional paid-in
      capital
                                                                    
                                                                    
                                                                    93,918
                                                                    
                                                                    
                                                                    
                                                                    76,154Accumulated other comprehensive
      income/(loss)
                                                                    
                                                                    
                                                                    (129
                                                                    )
                                                                    
                                                                    
                                                                    61Accumulated
      deficit
                                                                    
                                                                    
                                                                    (44,869
                                                                    )
                                                                    
                                                                    
                                                                    (3,269
                                                                    )Total stockholders'
      equity
                                                                    
                                                                    
                                                                    49,024
                                                                    
                                                                    
                                                                    
                                                                    73,049TOTAL LIABILITIES AND
      STOCKHOLDERS' EQUITY
                                                                    
                                                                    $
                                                                    91,190
                                                                    
                                                                    
                                                                    $
                                                                    100,124
  The
accompanying notes are an integral part of these consolidated financial
statements
  F-5
 
 Mandalay
      Media Inc. and SubsidiariesConsolidated
      Statement of Operations
 
 (In
thousands, except per share amounts)
 
 Year
      Ended
                                                                          
                                                                          
                                                                          3
      Months Ended
                                                                          
                                                                          
                                                                          Year
      EndedMarch
      31,
                                                                          
                                                                          
                                                                          March
      31,
                                                                          
                                                                          
                                                                          December
      31,2009
                                                                          
                                                                          
                                                                          2008
                                                                          
                                                                          
                                                                          2007Net
      Revenues
                                                                          
                                                                          $
                                                                          31,256
                                                                          
                                                                          
                                                                          $
                                                                          3,208
                                                                          
                                                                          
                                                                          $
                                                                          -Cost
      of revenuesLicense
      fees
                                                                          
                                                                          
                                                                          7,387
                                                                          
                                                                          
                                                                          
                                                                          1,539
                                                                          
                                                                          
                                                                          
                                                                          -Adjustment
      to impairment of guarantees
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (1,745
                                                                          )
                                                                          
                                                                          
                                                                          -Other
      direct cost of revenues
                                                                          
                                                                          
                                                                          3,763
                                                                          
                                                                          
                                                                          
                                                                          53
                                                                          
                                                                          
                                                                          
                                                                          -Total
      cost of revenues
                                                                          
                                                                          
                                                                          11,150
                                                                          
                                                                          
                                                                          
                                                                          (153
                                                                          )
                                                                          
                                                                          
                                                                          -Gross
      profit
                                                                          
                                                                          
                                                                          20,106
                                                                          
                                                                          
                                                                          
                                                                          3,361
                                                                          
                                                                          
                                                                          
                                                                          -Operating
      expensesProduct
      development
                                                                          
                                                                          
                                                                          6,981
                                                                          
                                                                          
                                                                          
                                                                          946
                                                                          
                                                                          
                                                                          
                                                                          -Sales
      and marketing
                                                                          
                                                                          
                                                                          9,236
                                                                          
                                                                          
                                                                          
                                                                          891
                                                                          
                                                                          
                                                                          
                                                                          -General
      and administrative
                                                                          
                                                                          
                                                                          10,338
                                                                          
                                                                          
                                                                          
                                                                          1,467
                                                                          
                                                                          
                                                                          
                                                                          2,521Amortization
      of intangible assets
                                                                          
                                                                          
                                                                          628
                                                                          
                                                                          
                                                                          
                                                                          72
                                                                          
                                                                          
                                                                          
                                                                          -Impairment
      of goodwill and intangible assets
                                                                          
                                                                          
                                                                          31,784
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Total
      operating expenses
                                                                          
                                                                          
                                                                          58,967
                                                                          
                                                                          
                                                                          
                                                                          3,376
                                                                          
                                                                          
                                                                          
                                                                          2,521Loss
      from continuing operations
                                                                          
                                                                          
                                                                          (38,861
                                                                          )
                                                                          
                                                                          
                                                                          (15
                                                                          )
                                                                          
                                                                          
                                                                          (2,521
                                                                          )Interest
      and other income/(expense)Interest
      income
                                                                          
                                                                          
                                                                          141
                                                                          
                                                                          
                                                                          
                                                                          97
                                                                          
                                                                          
                                                                          
                                                                          317Interest
      (expense)
                                                                          
                                                                          
                                                                          (2,302
                                                                          )
                                                                          
                                                                          
                                                                          (310
                                                                          )
                                                                          
                                                                          
                                                                          -Foreign
      exchange transaction gain (loss)
                                                                          
                                                                          
                                                                          (471
                                                                          )
                                                                          
                                                                          
                                                                          2
                                                                          
                                                                          
                                                                          
                                                                          -Other
      (expense)
                                                                          
                                                                          
                                                                          (71
                                                                          )
                                                                          
                                                                          
                                                                          (56
                                                                          )
                                                                          
                                                                          
                                                                          -Interest
      and other income/(expense)
                                                                          
                                                                          
                                                                          (2,703
                                                                          )
                                                                          
                                                                          
                                                                          (267
                                                                          )
                                                                          
                                                                          
                                                                          317Loss
      from continuing operations before income taxes
                                                                          
                                                                          
                                                                          (41,564
                                                                          )
                                                                          
                                                                          
                                                                          (282
                                                                          )
                                                                          
                                                                          
                                                                          (2,204
                                                                          )Income
      tax benefit / (provision)
                                                                          
                                                                          
                                                                          111
                                                                          
                                                                          
                                                                          
                                                                          (16
                                                                          )
                                                                          
                                                                          
                                                                          -Net
      loss from continuing operations net of taxes
                                                                          
                                                                          
                                                                          (41,453
                                                                          )
                                                                          
                                                                          
                                                                          (298
                                                                          )
                                                                          
                                                                          
                                                                          (2,204
                                                                          )Discontinued
      operations, net of taxes:Loss
      from discontinued operations, net of taxes
                                                                          
                                                                          
                                                                          (147
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Net
      loss
                                                                          
                                                                          $
                                                                          (41,600
                                                                          )
                                                                          
                                                                          $
                                                                          (298
                                                                          )
                                                                          
                                                                          $
                                                                          (2,204
                                                                          )Comprehensive
      loss
                                                                          
                                                                          $
                                                                          (41,790
                                                                          )
                                                                          
                                                                          $
                                                                          (298
                                                                          )
                                                                          
                                                                          $
                                                                          (2,204
                                                                          )Basic
      and Diluted net loss per common shareContinuing
      operations
                                                                          
                                                                          $
                                                                          (1.14
                                                                          )
                                                                          
                                                                          $
                                                                          (0.01
                                                                          )
                                                                          
                                                                          $
                                                                          (0.12
                                                                          )Discontinued
      opeations
                                                                          
                                                                          $
                                                                          (0.00
                                                                          )
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          (0.12
                                                                          )Net
      loss
                                                                          
                                                                          $
                                                                          (1.15
                                                                          )
                                                                          
                                                                          $
                                                                          (0.01
                                                                          )
                                                                          
                                                                          $
                                                                          (0.12
                                                                          )Weighted
      average common shares outstanding, basic
      and diluted
                                                                          
                                                                          
                                                                          36,264
                                                                          
                                                                          
                                                                          
                                                                          21,628
                                                                          
                                                                          
                                                                          
                                                                          18,997
  The
accompanying notes are an integral part of these consolidated financial
statements
  F-6
 
 Mandalay
      Media Inc. and SubsidiariesConsolidated
      Statements of Stockholders’ Equity
 
 (In
thousands, except share amounts)
 
 Year
Ended March 31, 2009; Three Months Ended March 31, 2008 and Year Ended December,
2007
 
 AccumulatedAdditional
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    OtherCommon
      Stock
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Preferred
      Stock
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Paid-In
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Comprehensive
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Accumulated
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    ComprehensiveShares
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Amount
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Shares
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Amount
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Capital
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Income/(Loss)
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Deficit
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Total
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    LossBalance
      at December 31, 2006
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    16,730,000
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    2
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    100,000
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    100
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    6,309
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (767
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    5,644Net
      Loss
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (2,204
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (2,204
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (2,204
                                                                                                                                                                    )Issuance
      of common stock(net
      of offering costs of $27)
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    5,000,000
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    1
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    2,472
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    2,473Cashless
      exercise of warrants
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    238,797
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (0
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -Deferred
      stock-based compensation
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    1,036
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    1,036Comprehensive
      loss
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (2,204
                                                                                                                                                                    )Balance
      at December 31, 2007
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    21,968,797
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    3
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    100,000
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    100
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    9,817
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (2,971
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    6,949Net
      Loss
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (298
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (298
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (298
                                                                                                                                                                    )Issuance
      of common stockin
      connection with the merger
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    10,180,292
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    48,356
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    48,356Assumption
      of employee stock optionsin
      connection with the merger
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    11,019
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    11,019Issuance
      of new employee stock optionsin
      connection with the merger
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    3,938
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    3,938Issuance
      of warrants to lenderin
      connection with the merger
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    2,711
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    2,711Foreign
      currency translation gain/(loss)
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    61
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    61
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    61Deferred
      stock-based compensation
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    313
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    313Comprehensive
      loss
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (237
                                                                                                                                                                    )Balance
      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 stockin
      satisfaction of payable
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    25,000
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    100
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    100Issuance
      of common stockon
      cashless exercise of warrants
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    241,688
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0Issuance
      of common stockon
      cashless exercise of warrants
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    38,000
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0Issuance
      of common stockrelated
      to acquisition
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    4,499,997
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    1
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    9,899
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    9,900Adjustment
      in valuation of warrantsin
      connection with the acquisition
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    377
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    377Issuance
      of common stockin
      satisfaction of payable
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    45,000
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    79
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    79Issuance
      of common stockon
      cashless exercise of warrants
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    285,500
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0Issuance
      of common stocknet
      of issuance costs
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    1,685,394
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    4,354
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    4,354Issuance
      of common stockas
      part of compensation
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    683,457
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    155
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    155Foreign
      currency translation gain/(loss)
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (190
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (190
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (190
                                                                                                                                                                    )Deferred
      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
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    49,024
  The
accompanying notes are an integral part of these consolidated financial
statements
  F-7
 
 Mandalay
      Media Inc. and SubsidiariesConsolidated
      Statements of Cash Flows
 
 (In
thousands)
 
 Year
      Ended
                                              
                                              
                                              3
      Months Ended
                                              
                                              
                                              Year
      EndedMarch
      31,
                                              
                                              
                                              March
      31,
                                              
                                              
                                              December
      31,2009
                                              
                                              
                                              2008
                                              
                                              
                                              2007Cash
      flows from operating activitiesNet
      loss
                                              
                                              $
                                              (41,600
                                              )
                                              
                                              $
                                              (298
                                              )
                                              
                                              $
                                              (2,204
                                              )Less:
      Loss from discontinued operations, net of taxes
                                              
                                              
                                              (147
                                              )Net
      loss from continuing operations, net of taxes
                                              
                                              
                                              (41,453
                                              )
                                              
                                              
                                              (298
                                              )
                                              
                                              
                                              (2,204
                                              )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
      and amortization
                                              
                                              
                                              1,518
                                              
                                              
                                              
                                              253
                                              
                                              
                                              
                                              -Allowance
      for doubtful accounts
                                              
                                              
                                              6
                                              
                                              
                                              
                                              168
                                              
                                              
                                              
                                              -Stock-based
      compensation
                                              
                                              
                                              2,955
                                              
                                              
                                              
                                              313
                                              
                                              
                                              
                                              1,036Impairment
      of goodwill and intangibles
                                              
                                              
                                              31,784(Increase)
      / decrease in assets:Accounts
      receivable
                                              
                                              
                                              4,489
                                              
                                              
                                              
                                              (1,364
                                              )
                                              
                                              
                                              -Prepaid
      expenses and other
                                              
                                              
                                              (312
                                              )
                                              
                                              
                                              (222
                                              )
                                              
                                              
                                              -Increase
      / (decrease) in liabilities:Accounts
      payable
                                              
                                              
                                              (3,280
                                              )
                                              
                                              
                                              352
                                              
                                              
                                              
                                              349Accrued
      license fees
                                              
                                              
                                              (1,039
                                              )
                                              
                                              
                                              (2,043
                                              )
                                              
                                              
                                              -Accrued
      compensation
                                              
                                              
                                              (96
                                              )
                                              
                                              
                                              (128
                                              )
                                              
                                              
                                              -Other
      liabilities
                                              
                                              
                                              68
                                              
                                              
                                              
                                              487
                                              
                                              
                                              
                                              -Net
      cash used in operating activities
                                              
                                              
                                              (5,360
                                              )
                                              
                                              
                                              (2,482
                                              )
                                              
                                              
                                              (819
                                              )Cash
      flows from investing activitiesPurchase
      of property and equipment
                                              
                                              
                                              (219
                                              )
                                              
                                              
                                              (103
                                              )
                                              
                                              
                                              -Transaction
      costs
                                              
                                              
                                              (802
                                              )
                                              
                                              
                                              (424
                                              )
                                              
                                              
                                              (141
                                              )Cash
      used in acquisition of subsidiary
                                              
                                              
                                              (6,132
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Cash
      acquired with acquisitionof subsidiary
                                              
                                              
                                              3,380
                                              
                                              
                                              
                                              6,679
                                              
                                              
                                              
                                              -Net
      cash used in investing activities
                                              
                                              
                                              (3,773
                                              )
                                              
                                              
                                              6,152
                                              
                                              
                                              
                                              (141
                                              )Cash
      flows from financing activitiesProceeds
      from the sale of common stock(net
      of issuance costs of $146)
                                              
                                              
                                              4,354
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              2,473Instalment
      payments related to prior acquisition
                                              
                                              
                                              (54
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Net
      cash provided by financing activities
                                              
                                              
                                              4,300
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              2,473Effect
      of exchange rate changes on cash and cash equivalents
                                              
                                              
                                              (176
                                              )
                                              
                                              
                                              11
                                              
                                              
                                              
                                              -Net
      increase/(decrease) in cash and cash equivalents
                                              
                                              
                                              (5,009
                                              )
                                              
                                              
                                              3,681
                                              
                                              
                                              
                                              1,513Cash
      and cash equivalents, beginning of period
                                              
                                              
                                              10,936
                                              
                                              
                                              
                                              7,255
                                              
                                              
                                              
                                              5,742Cash
      and cash equivalents, end of period
                                              
                                              $
                                              5,927
                                              
                                              
                                              $
                                              10,936
                                              
                                              
                                              $
                                              7,255Supplemental
      disclosure of cash flow information:Taxes
      paid
                                              
                                              
                                              561
                                              
                                              
                                              
                                              16
                                              
                                              
                                              
                                              -Noncash
      investing and financing activities:Acquisition
      of subsidiary
                                              
                                              
                                              16,047
                                              
                                              
                                              
                                              66,025
                                              
                                              
                                              
                                              -
  The
accompanying notes are an integral part of these consolidated financial
statements
  F-8
 
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all
      numbers in thousands except per share amounts)
 
 1.
              Organization
 
 Mandalay
Media, Inc. (the Company), formerly Mediavest, Inc., 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 6).  On September 14, 2007, the Company 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, with Mandalay as the surviving corporation. Mandalay
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’s preferred and common stock had the same
status and par value as the respective stock of Mediavest and Mandalay acceded
to all the rights, acquired all the assets and assumed all of the liabilities of
Mediavest.
 
 On
February 12, 2008, the Company 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 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 at that time.  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.
 
 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”).
  F-9
 
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all
      numbers in thousands except per share amounts)
 
 In
consideration for the shares, and subject to adjustment as set forth in the
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 “Note”); and (d) additional
earn-out amounts, if any, if the Acquired Companies achieve 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 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 will be made
first by means of an adjustment to the principal sum due under the Note, as set
forth in the Agreement. An initial adjustment of $443 was made subsequent to
closing, and has been added to the Note. The initial period earn-out has been
recognized in the current period and has been added to the amount of
consideration for the acquisition, as described in Note 6.
 
 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 (CRM) platform that
drives revenue through mobile internet, print and TV advertising. AMV is
headquartered in Marlow, outside of London in the United Kingdom.
 
 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. The financial statements for the period ended March 31, 2008 and as
at March 31, 2008 represent the results of the Company prior to the merger
described in Note 6, and consolidated results subsequent to the merger; and the
consolidated position of the group at the end of the period.
  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.
 
 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.
  F-10
 
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all
      numbers in thousands except per share amounts)
 
 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 Statement of Position 97-2, Software Revenue Recognition,
as amended by Statement of Position 98-9, Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions, 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 signed license agreement to be evidence of an arrangement with a
carrier 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-11
 
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all
      numbers in thousands except per share amounts)
 
 In
accordance with Emerging Issues Task Force, or EITF Issue No. 99-19, 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.
 
 Net
Income (Loss) per Common Share
 Basic
income (loss) per common share is computed by dividing net income (loss)
attributable to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted net income (loss) per share is
computed by dividing net income (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 for the year ended March 31, 2009, the three months ended
March 31, 2008 and the year ended December 31, 2007 consisted of 2,478;
4,415 and 1,592 shares, respectively, and were not included in the computation
of diluted loss per share as they were anti-dilutive in each
period.
 
 Comprehensive
Income/(Loss)
 Comprehensive
income/(loss) consists of two components, net income/(loss) and other
comprehensive income/(loss). Other comprehensive income/(loss) 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/(loss). The
Company’s other comprehensive income/(loss) 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.
  F-12
 
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all
      numbers in thousands except per share amounts)
 
 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 the use 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 the 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.
  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 Statement of Financial Accounting Standards
No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed(“SFAS No. 86”). SFAS
No. 86 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.
  F-13
 
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all
      numbers in thousands except per share amounts)
 
 Product
Development Costs
 The
Company charges costs related to research, design and development of products to product
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. Direct response
advertising is expensed immediately since there is a very limited ongoing
return. Advertising expense was $4,874; $226 and $0 in the year ended March 31,
2009, the three months ended March 31, 2008 and the year ended December 31,
2007, respectively. Advertising costs are expensed as incurred.
 
 Restructuring
 The
Company accounts for costs associated with employee terminations and other exit
activities in accordance with Statement of Financial Accounting Standards No.
146, 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.
 
 Fair
Value of Financial Instruments
 For
certain of the Company’s financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and other current
liabilities, the carrying amounts approximate their fair value due to their
relatively short maturity. Based on the borrowing rates available to the Company
for loans with similar terms, the carrying value of borrowings outstanding
approximates their fair value.
 
 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 ($190) in the year ended March 31,
2009; $61 in the three months ended March 31, 2008 and $0 in the year ended
December 31, 2007 has been reported as a component of comprehensive loss in the
consolidated statement of stockholders’ equity and comprehensive loss.
Translation gains or losses are shown as a separate component of accumulated
deficit. Other comprehensive income / (loss) amounted to ($190) in the year
ended March 31, 2009; $61 in the three months ended March 31, 2008 and $0 in the
year ended December 31, 2007.
 
 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.
As of March 31, 2008, we did not have any long-term marketable securities. The
Company’s sales are made either directly to consumers, with the billings
performed by and the receivable due from industry aggregators; or directly to
the 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,
2009, our two largest customers represented approximately 19% and 13% of our
gross accounts receivable outstanding.  These customers accounted for
5% and 19%, respectively, of our gross sales in the year ended March 31,
2009.  At March 31, 2008 our largest customer represented
approximately 36% of our gross accounts receivable outstanding; and this
customer accounted for 48% of our gross sales in the three months ended March
31, 2008.
  F-14
 
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all
      numbers in thousands except per share amounts)
 
 Property
and Equipment
 Property
and equipment is stated at cost.  Depreciation and amortization are
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 Statement of Financial Accounting Standards
No. 142 (“SFAS 142”) “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.
 
 The
Company has determined that there was an impairment of goodwill, amounting to
$31,784, as a result of completing its annual impairment analysis as of
March 31, 2009. 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 6
below.
 
 Impairment
of Long-Lived Assets and Finite Life Intangibles
 
 Long-lived
assets, including purchased intangible assets with finite lives are amortized
using the straight-line method over their useful lives ranging from three to ten
years and are reviewed for impairment in accordance with SFAS No. 144,
“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.
  F-15
 
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all
      numbers in thousands except per share amounts)
 
 Intangible
assets subject to amortization primarily consist of customer lists, license
agreements and software that have been acquired.  The intangible asset
values assigned to the identified assets for each acquisition were generally
determined based upon the expected discounted aggregate cash flows to be derived
over the estimated useful life. The method of amortizing the intangible asset
values are based upon the Company’s historical experience.  The
Company reviews the recoverability of its finite-lived intangible assets for
recoverability whenever events or circumstances indicated that the carrying
amount of an asset may not be recoverable. Recoverability is assessed by
comparison to associated undiscounted cash flows. The Company determined that
there were no impairments during the year ended March 31, 2009.
 
 Income
Taxes
 The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, “Accounting for Income Taxes”(“SFAS No. 109”), 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 SFAS No. 109, 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.
 
 We
adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes—An Interpretation of FASB Statement 109” (“FIN 48”)
on January 1, 2008. FIN 48 did not impact the Company’s financial position or
results of operations at the date of adoption. FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise’s financial
statements in accordance with Statement of Financial Accounting Standards
No. 109, “Accounting for Income Taxes”. FIN 48 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 SFAS No. 123(R) “Share-Based Payment” (“FAS 123R”) and accordingly, we
record stock-based compensation expense for all of our stock-based
awards.
 
 Under FAS
123R, 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.
  F-16
 
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all
      numbers in thousands except per share amounts)
 
 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 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 SFAS No. 150, “Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity,” and EITF Topic D-98, “Classification and Measurement of Redeemable
Securities,” 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
SFAS 150. The Company does not have any preferred shares subject to
mandatory redemption. All other issuances of preferred stock are subject to the
classification and measurement principles of EITF Topic D-98. 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, stock-based compensation expense, the application of purchase
accounting, the carrying value and recoverability of long-lived assets,
including goodwill, amortizable intangibles, the realizability of deferred tax
assets, and the fair value of equity instruments.
 
 Recent
Accounting Pronouncements
 In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling
Interests in Consolidated Financial Statements”, which is an amendment of
Accounting Research Bulletin (“ARB”) No. 51.  This statement clarifies
that a noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements.  This statement changes the way the consolidated
income statement is presented, thus requiring consolidated net income to be
reported at amounts that include the amounts attributable to both parent and the
noncontrolling interest.  This statement is effective for the fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008.  The adoption of SFAS 160 did not have a
significant impact on the Company’s Consolidated Financial
Statements.
  F-17
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
  In
December 2007, the FASB issued SFAS No. 141R (revised 2007), “Business
Combinations.”  This statement replaces FASB Statement No. 141,
“Business Combinations.” This statement retains the fundamental requirements in
SFAS 141 that the acquisition method of accounting (which SFAS 141 called
the purchase method) be used for all business combinations and for an acquirer
to be identified for each business combination. This statement defines the
acquirer as the entity that obtains control of one or more businesses in the
business combination and establishes the acquisition date as the date that the
acquirer achieves control. This statement requires an acquirer to recognize the
assets acquired, the liabilities assumed, and any non controlling interest in
the acquiree at the acquisition date, measured at their fair values as of that
date, with limited exceptions specified in the statement. This statement 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. In April 2009, the FASB issued FSP FAS 141(R)-1, which amends
the initial recognition and measurement, subsequent measurement and accounting,
and disclosure of assets and liabilities arising from contingencies in a
business combination. The impact of the adoption of SFAS No. 141(R) and FSP FAS
141(R)-1 on the Company’s results of operations and financial position will
depend on the nature and extent of business combinations that it completes, if
any, in or after fiscal 2010; however, it is expected to change the Company’s
accounting treatment for any business combinations completed after this
statement becomes effective.
  In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an Amendment of FASB No. 133,” (“SFAS
161”). SFAS 161 is intended to improve transparency in financial reporting by
requiring enhanced disclosures of an entity’s derivative instruments and hedging
activities and their effects on the entity’s financial position, financial
performance, and cash flows. SFAS 161 applies to all derivative instruments
within the scope of SFAS No. 133, “Accounting for Derivative Instruments
and Hedging Activities” (“SFAS 133”). SFAS 161 also applies to non-derivative
hedging instruments and all hedged items designated and qualifying under SFAS
133. SFAS 161 is effective prospectively for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged. SFAS 161 encourages, but does not require,
comparative disclosures for periods prior to its initial adoption. The Company
does not expect the adoption of SFAS 161 to have a significant impact on its
results of operations or financial position.
  In April
2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3, “Determination of
the Useful Life of Intangible Assets”.  FSP 142-3 amends the factors
an entity should consider in developing renewal or extension assumptions used in
determining the useful life of recognized intangible assets under FASB Statement
No. 142, “Goodwill and Other Intangible Assets”.  This new guidance
applies prospectively to intangible assets that are acquired individually or
with a group of other assets in business combinations and asset acquisitions.
FSP 142-3 is effective for financial statements issued for fiscal years and
interim periods beginning after December 15, 2008.  Early adoption is
prohibited.  The impact of the adoption of FSP FAS 142-3 on the
Company’s results of operations and financial position will depend on the nature
and extent of business combinations that it completes, if any, in or after
fiscal 2010.
 
 3.
                Liquidity
  The
accompanying consolidated financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplates continuation
of the Company as a going concern.  One of the Company’s operating
subsidiaries, Twistbox, has sustained substantial operating losses since
commencement of operations.  The Company has also incurred negative cash
flows from operating activities and the majority of the Company’s assets are
intangible assets and goodwill, which have been subject to impairment in the
current year.
  In
addition, Twistbox has a significant amount of debt, in the form of a Secured
Note, as detailed in Note 8, which becomes due within twelve months. The Company
has guaranteed 50% of this debt, and the group is subject to covenants including
a covenant to maintain a minimum cash balances of $4 million. The company was
not in breach of any covenants at March 31, 2009. There is a significant risk
that the minimum cash balance covenant will be breached as the result of paying
out the earn-out payment associated with the acquisition of AMV as more fully
described in Note 6. We have initiated discussions with the holder of the
Secured Note regarding a waiver for the covenant.
  F-18
 
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
  In view
of these matters, realization of a major portion of the assets in the
accompanying consolidated balance sheet is dependent upon continued operations
of the Company, which is in turn dependent on the Company restructuring its
financing arrangements, obtaining additional financing, and/or reaching
accommodations with the holder of the Secured Note, and reaching a positive cash
flow position while maintaining adequate liquidity.
  The
Company has undertaken a number of specific steps to achieve positive cashflow
in the future.  These actions include the acquisition consummated in the
current year along with the economic cost associated with the integration, and
debt restructuring and equity placements which occurred at the same time as the
acquisition. The Company has taken further action to reduce its ongoing
operating cost base, and has been in discussions with the holder of the Secured
Note and with unsecured creditors regarding restructuring of commitments. Other
actions include continued increases in revenues by introducing new products and
revenue streams, reductions in the cost of revenues, continued expansion into
new territories, reviewing additional financing options, and accretive
acquisitions. Management believes that actions undertaken as a whole provide the
opportunity for the Company to continue as a going concern, although this will
be highly dependent on the ability to restructure our financing
arrangements.
  4.
                Balance
      Sheet Components
  Accounts
Receivable
  March 31,
                    
                    
                    March 31,2009
                    
                    
                    2008Accounts
      receivable
                    
                    $
                    10,919
                    
                    
                    $
                    6,330Less:
      allowance for doubtful accounts
                    
                    
                    (174
                    )
                    
                    
                    (168
                    )$
                    10,745
                    
                    
                    $
                    6,162
  Accounts
receivable includes amounts billed and unbilled as of the respective balance
sheet dates. Unbilled receivables were $5,269 at March 31, 2009 and $983 at
March 31, 2008.  During the year ended March 31, 2009, $6 was provided
for and $0 was written off against the allowance. During the three months ended
March 31, 2008, $0 was provided for and $0 was written off against the
allowance. During the year ended December 31, 2007 $0 was provided for and
$0 was written off against the allowance.
  F-19
  Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
  Property
and Equipment
  March 31,
                    
                    
                    March 31,2009
                    
                    
                    2008Equipment
                    
                    $
                    1,192
                    
                    
                    $
                    654Equipment
      subject to capitalized lease
                    
                    
                    -
                    
                    
                    
                    71Furniture
      & fixtures
                    
                    
                    386
                    
                    
                    
                    228Leasehold
      improvements
                    
                    
                    140
                    
                    
                    
                    1401,718
                    
                    
                    
                    1,093Accumulated
      depreciation
                    
                    
                    (488
                    )
                    
                    
                    (56
                    )$
                    1,230
                    
                    
                    $
                    1,037
  Depreciation
expense for the year ended March 31, 2009 was $431; for the three months ended
March 31, 2008 was $56; and for the year ended December 31, 2007 was $0.
Depreciation expense is included in other expenses in the Consolidated
Statements of Operations.
  5.
                Description
      of Stock Plans
  On
September 27, 2007, the stockholders of the Company adopted the 2007 Employee,
Director and Consultant Stock Plan (the “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.
  F-20
  Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 The
following table summarizes options granted for the periods or as of the dates
indicated:
 
 Number of
                    
                    
                    Weighted AverageShares
                    
                    
                    Exercise PriceOutstanding
      at December 31, 2006
                    
                    
                    -
                    
                    
                    
                    -Granted
                    
                    
                    1,600
                    
                    
                    $
                    2.64Canceled
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    -
                    
                    
                    
                    -Outstanding
      at December 31, 2007
                    
                    
                    1,600
                    
                    
                    $
                    2.64Granted
                    
                    
                    2,752
                    
                    
                    $
                    4.57Transferred
      in from Twistbox
                    
                    
                    2,462
                    
                    
                    $
                    0.64Canceled
                    
                    
                    (12
                    )
                    
                    $
                    0.81Outstanding
      at March 31, 2008
                    
                    
                    6,802
                    
                    
                    $
                    2.70Granted
                    
                    
                    1,860
                    
                    
                    $
                    2.67Canceled
                    
                    
                    (1,702
                    )
                    
                    $
                    0.48Exercised
                    
                    
                    -
                    
                    
                    $
                    0.48Outstanding
      at March 31, 2009
                    
                    
                    6,960
                    
                    
                    $
                    2.52Exercisable
      at March 31, 2009
                    
                    
                    5,426
                    
                    
                    $
                    2.29
 
 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
                              %
 
 The
exercise price for options outstanding at March 31, 2009 was as
follows:
 
 Options outstandingWeightedAverage
                        
                        
                        
                        
                        
                        WeightedRemaining
                        
                        
                        Number
                        
                        
                        Average
                        
                        
                        AggregateRange of
                        
                        Contractual Life
                        
                        
                        Outsanding
                        
                        
                        Exercise
                        
                        
                        IntrinsicExercise Price
                        
                        (Years)
                        
                        
                        March 31, 2009
                        
                        
                        Price
                        
                        
                        Value$0
      - $1.00
                        
                        
                        7.33
                        
                        
                        
                        2,277
                        
                        
                        $
                        0.64
                        
                        
                        $
                        618,093$2.00
      - $3.00
                        
                        
                        8.99
                        
                        
                        
                        2,950
                        
                        
                        $
                        2.67
                        
                        
                        $
                        -$4.00
      - $5.00
                        
                        
                        8.88
                        
                        
                        
                        1,733
                        
                        
                        $
                        4.75
                        
                        
                        $
                        -8.42
                        
                        
                        
                        6,960
                        
                        
                        $
                        2.52
                        
                        
                        $
                        618,093
  F-21
 
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 The
exercise price for options exercisable at March 31, 2009 was as
follows:
 
 Options ExercisableWeightedAverage
                      
                      
                      
                      
                      
                      WeightedRemaining
                      
                      
                      Options
                      
                      
                      Average
                      
                      
                      AggregateRange of
                      
                      Contractual Life
                      
                      
                      Exercisable
                      
                      
                      Exercise
                      
                      
                      IntrinsicExercise Price
                      
                      (Years)
                      
                      
                      March 31, 2009
                      
                      
                      Price
                      
                      
                      Value$0
      - $1.00
                      
                      
                      7.31
                      
                      
                      
                      2,174
                      
                      
                      $
                      0.63
                      
                      
                      $
                      603,476$2.00
      - $3.00
                      
                      
                      8.94
                      
                      
                      
                      2,098
                      
                      
                      $
                      2.66
                      
                      
                      $
                      -$4.00
      - $5.00
                      
                      
                      8.88
                      
                      
                      
                      1,154
                      
                      
                      $
                      4.75
                      
                      
                      $
                      -8.27
                      
                      
                      
                      5,426
                      
                      
                      $
                      2.29
                      
                      
                      
                      603,476
  During
the year, the Company approved the issuance of an aggregate of 938,697 shares of
common stock pursuant to the Company’s 2007 Employee, Director and Consultant
Stock Plan at a purchase price of $0.0001 per share to certain executives of the
Company and subsidiary in connection with agreed salary reductions.
 
 A summary
of the status of the Company’s nonvested shares as of March 31, 2009, and
changes during the year ended March 31, 2009 is presented below:
 
 Weighted AverageGrant DateNonvested shares
                    
                    Shares (000s)
                    
                    
                    Fair ValueNonvested
      at March 31, 2008
                    
                    
                    -
                    
                    
                    $
                    -Granted
                    
                    
                    745,468
                    
                    
                    $
                    0.85Vested
                    
                    
                    246,702
                    
                    
                    $
                    0.85Nonvested
      at March 31, 2009
                    
                    
                    498,767
                    
                    
                    $
                    0.85Forfeited
                    
                    
                    (62,011
                    )
                    
                    $
                    0.88
 
 As of
March 31, 2009, there was $424 million of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the
Plan. That cost is expected to be recognized over a period of 11.5 months. The
total fair value of shares vested during the year ended March 31, 2009, was
$210.
 
 Stock-based
compensation expense of  $3,169 for the year ended March 31, 2009;
$313 for the three months ended March 31, 2008;  and $1,036 for the
year ended December 31, 2007, is included primarily in general and
administrative expense.
  F-22
 
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 6.
                Acquisitions/Purchase
      Price Accounting
  Twistbox
Entertainment, Inc. and related entities
 
 On
February 12, 2008, the Company completed an acquisition of Twistbox
Entertainment, Inc. (“Twistbox”) through an exchange of all outstanding capital
stock of Twistbox for 10,180 shares of common stock of the Company (the
“Merger”) and the Company’s assumption of all the outstanding options of
Twistbox’s 2006 Stock Incentive Plan by the issuance of options to purchase
2,463 shares of common stock of the Company, including 2,145 vested and 318
unvested options. After the Merger, Twistbox became a wholly-owned subsidiary of
the Company.
  Twistbox
is a global publisher and distributor of branded entertainment content,
including images, video, TV programming and games, for Third Generation
(3G) mobile networks. It publishes and distributes its content globally and
has developed an intellectual property portfolio unique to its target
demographic that includes worldwide mobile rights to global brands and
content from leading film, television and lifestyle content publishing
companies. Twistbox has built a proprietary mobile publishing platform and
has leveraged its brand portfolio and platform to secure “direct”
distribution agreements with the largest mobile operators in the world.
These factors contributed to a purchase price in excess of the fair value
of net tangible and intangible assets acquired, and, as a result, the
Company recorded goodwill in connection with this transaction.
  In
connection with the Merger, the Company guaranteed up to $8,250 of principal
under an existing note of Twistbox in accordance with the terms, conditions and
limitations contained in the note. In connection with the guaranty, the Company
issued the lender two warrants, one to purchase 1,093 and the other to purchase
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. The warrants have been
included as part of the purchase consideration and have been valued using the
Black Scholes method, using the stock price at the merger date of $4.75 per
share discounted for certain restrictions, a volatility of 70%, and the exercise
price and the expected time to vest for each group. These warrants were
subsequently amended as described in Note 8.
  The
purchase consideration was determined to be $67,479, consisting of $66,025
attributed to the common stock and options exchanged and warrants issued, and
$1,454 in transaction costs.  During the year, a further $59 of
transaction costs were recognized, with the result that the purchase
consideration was increased to $67,538, with an equivalent increase in Goodwill.
The options and warrants were valued using the Black Scholes method, using the
stock price at the merger date of $4.75 per share, a volatility of 70%, and in
the case of options the exercise price and the expected time to vest for each
group. Under the purchase method of accounting, the Company allocated the total
purchase price of $67,538 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:
  F-23
 
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 Cash
                    
                    $
                    6,679Accounts
      receivable
                    
                    
                    4,966Prepaid
      expenses and other current assets
                    
                    
                    1,138Property
      and equipment
                    
                    
                    1,062Other
      long-term assets
                    
                    
                    361Accounts
      Payable, accrued license fees and accruals
                    
                    
                    (6,882
                    )Other
      current liabilities
                    
                    
                    (814
                    )Accrued
      license fees, long term portion
                    
                    
                    (2,796
                    )Long
      term debt
                    
                    
                    (16,483
                    )Identified
      Intangibles
                    
                    
                    19,905Merger
      related restructuring reserves
                    
                    
                    (1,034
                    )Goodwill
                    
                    
                    61,436$
                    67,538
  The
Merger related restructuring reserves were subsequently reduced by $215,
increasing net assets acquired and consequentially reducing goodwill by that
amount. As a result, Goodwill recognized in the above transaction amounted to
$61,221. Goodwill in relation to the acquisition of Twistbox is not expected to
be deductible for income tax purposes. Merger related restructuring reserves
include reserves for employee severance and for office relocation.
 
 AMV
Holding Limited group
 
 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 “Note”); and (d) additional
earn-out amounts, if any, if the Acquired Companies achieve 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
is 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 will be
made first by means of an adjustment to the principal sum due under the Note, as
set forth in the Stock Purchase Agreement. The initial adjustment has been
determined preliminarily as $443, to be added to the secured promissory
note.
  F-24
 
 Mandalay
      Media Inc. and SubsidiariesNotes
      to 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 Note matures on
January 30, 2010, and bears interest at an initial rate of 5% per annum, subject
to adjustment as provided therein. In the event the Company completes an equity
financing that results in gross proceeds of over $6,000, the Company will prepay
a portion of the Note in an amount equal to one-third of the excess of the gross
proceeds of such financing over $6,000. In addition, if within nine months of
the issuance date of the Note, the Company completes a financing that results in
gross proceeds of over $15,000, then the Company shall prepay the entire
principal amount then outstanding under the Note, plus accrued interest. If
within nine months of the issuance date of the Note, the aggregate principal sum
then outstanding under the Note plus accrued interest thereon has not been
prepaid, then on and after such date, interest shall accrue on the unpaid
principal balance of the Note at a rate of 7% per annum. Additionally, in
connection with the Note, AMV granted to the Sellers a security interest in its
assets. Such security interest is subordinate to the security interest granted
to ValueAct Small Cap Master Fund, L.P. (“ValueAct) under the Senior Secured
Note, issued by Twistbox Entertainment, Inc., a wholly-owned subsidiary of
the Company (“Twistbox”),  due January 30, 2010, as amended on February 12,
2008 (the “ValueAct Note”), and as subsequently amended on October 23, 2008. AMV
also agreed to guarantee Mandalay’s repayment of the 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 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
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
                    
                    
                    1,368Goodwill
                    
                    
                    22,456$
                    23,030
 
 Net
assets associated with Fierce Media 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. The preliminary
purchase price allocation, including the allocation of goodwill, will be updated
as additional information becomes available.
  F-25
 
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 Unaudited
Pro Forma Summary
 The
following pro forma consolidated amounts give effect to the acquisition of
Twistbox and AMV by the Company accounted for by the purchase method of
accounting as if it had occurred as at the beginning of each of the periods
presented.  The pro forma consolidated results are not necessarily
indicative of the operating results that would have been achieved had the
transaction been in effect as of the beginning of the period presented and
should not be construed as being representative of future operating
results.
  Year ended
                    
                    
                    3 months ended
                    
                    
                    Year endedMarch 31,
                    
                    
                    March 31,
                    
                    
                    December 31,2009
                    
                    
                    2008
                    
                    
                    2007Revenues
                    
                    $
                    51,734
                    
                    
                    $
                    13,939
                    
                    
                    $
                    44,289Cost
      of revenues
                    
                    
                    18,654
                    
                    
                    
                    2,739
                    
                    
                    
                    23,887Gross
      profit/(loss)
                    
                    
                    33,080
                    
                    
                    
                    11,200
                    
                    
                    
                    20,402Operating
      expenses net of interest income and other expense
                    
                    
                    72,244
                    
                    
                    
                    11,643
                    
                    
                    
                    36,063Income
      tax expense and minority interests
                    
                    
                    (112
                    )
                    
                    
                    (153
                    )
                    
                    
                    (1,358
                    )Net
      loss from continuing operations, net of taxes
                    
                    
                    (39,276
                    )
                    
                    
                    (596
                    )
                    
                    
                    (17,019
                    )Income
      (loss) from discontinued operations, net of taxes
                    
                    
                    (147
                    )
                    
                    
                    -
                    
                    
                    
                    -Net
      loss
                    
                    $
                    (39,423
                    )
                    
                    $
                    (596
                    )
                    
                    $
                    (17,019
                    )Basic
      and Diluted net loss per common shareContinuing
      operations
                    
                    $
                    (1.08
                    )
                    
                    $
                    (0.02
                    )
                    
                    $
                    (0.65
                    )Discontinued
      opeations
                    
                    $
                    (0.00
                    )
                    
                    $
                    -
                    
                    
                    $
                    -Net
      loss
                    
                    $
                    (1.09
                    )
                    
                    $
                    (0.02
                    )
                    
                    $
                    (0.65
                    )
 
 7.
                Goodwill
      and Other Intangible Assets
  Goodwill
  A
reconciliation of the changes to the Company's carrying amount of goodwill for
fiscal 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
                    
                    $
                    55,833
 
 In
October 2008, goodwill was increased by $22,456 due to the acquisition of AMV
(Note 6). Both acquisitions described in Note 6 included the issuance of Company
stock as all or part of the consideration.  Based on the trading price of
the Company’s common stock as of the acquisition dates, the total consideration
was $67,538 for the Twistbox acquisition and $23,342 for the AMV
acquisition.  Subsequent to the acquisitions, 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. In addition, the Company performed its annual review of goodwill in the
fourth quarter of fiscal 2009. As a result of the assessment, the Company
determined that its net book value exceeded the implied fair value; therefore,
the Company recorded an impairment charge of $27,844 in fiscal 2009 to write
down goodwill. This impairment charge was recorded as “Impairment of goodwill
and intangible assets” in the Consolidated Statements of
Operations.
  F-26
 
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 Other
Intangible Assets
  A
reconciliation of the changes to the Company's carrying amount of intangible
assets for fiscal 2009 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
                      
                      $
                      16,121
 
 In
October 2008, intangible assets were increased by $1,368 due to the acquisition
of AMV (Note 6).  The Company performed its annual review of the fair
value of intangible assets in the fourth quarter of fiscal 2009. As a result of
the assessment, the Company determined that its net book value exceeded the
implied fair value; therefore, the Company recorded an impairment charge of
$3,940 in fiscal 2009 to write down intangible assets. This impairment charge
was recorded as “Impairment of Goodwill and intangible assets” in the
Consolidated Statements of Operations.
 
 The
components of intangible assets as at March 31, 2009 and 2008 were as
follows:
 
 March 31,
                    
                    
                    March 31,2009
                    
                    
                    2008Software
                    
                    $
                    1,922
                    
                    
                    $
                    1,611Trade
      Name / Trademark
                    
                    
                    9,824
                    
                    
                    
                    13,030Customer
      list
                    
                    
                    4,378
                    
                    
                    
                    4,378License
      agreements
                    
                    
                    886
                    
                    
                    
                    886Non-compete
      agreements
                    
                    
                    323
                    
                    
                    
                    -17,333
                    
                    
                    
                    19,905Accumulated
      amortization
                    
                    
                    (1,212
                    )
                    
                    
                    (125
                    )$
                    16,121
                    
                    
                    $
                    19,780
 
 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
year ended March 31, 2009; the three months ended March 31, 2008 and the year
ended December 31, 2007, the Company recorded amortization expense in the amount
of $459; $53 and $0, respectively, in cost of revenues; and amortization expense
in the amount of $628; $72 and $0 respectively in operating
expenses.
  F-27
  Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 As of
March 31, 2009, the total expected future amortization related to intangible
assets was as follows:
 
 12 Months ended March
      31,2010
                        
                        
                        2011
                        
                        
                        2012
                        
                        
                        2013
                        
                        
                        2014
                        
                        
                        ThereafterSoftware
                        
                        $
                        334
                        
                        
                        $
                        334
                        
                        
                        $
                        282
                        
                        
                        $
                        230
                        
                        
                        $
                        230
                        
                        
                        $
                        200Customer
      List
                        
                        
                        547
                        
                        
                        
                        547
                        
                        
                        
                        547
                        
                        
                        
                        547
                        
                        
                        
                        547
                        
                        
                        
                        1,023License
      Agreements
                        
                        
                        177
                        
                        
                        
                        177
                        
                        
                        
                        177
                        
                        
                        
                        154
                        
                        
                        
                        -
                        
                        
                        
                        -Non-compete
      agreements
                        
                        
                        162
                        
                        
                        
                        81
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -$
                        1,220
                        
                        
                        $
                        1,139
                        
                        
                        $
                        1,006
                        
                        
                        $
                        931
                        
                        
                        $
                        777
                        
                        
                        $
                        1,223
 
 8.
                Debt
  March 31,
              
              
              March 31,2009
              
              
              2008Short
      Term DebtCapitalized
      lease liabilities, current portion
              
              $
              -
              
              
              $
              20Senior
      secured note, inclusive of accrued interest,net of discount of
      $247 and $0, respectively
              
              
              17,598
              
              
              
              228Deferred
      purchase consideration inclusive of accrued interest
              
              
              5,945
              
              
              
              -$
              23,543
              
              
              $
              248
  March 31,
                                            
                                            
                                            March 31,2009
                                            
                                            
                                            2008Long
      Term DebtSenior
      Secured Note, long term portion, net of discount of $2
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            16,483
  In July
2007, Twistbox entered into a debt financing agreement in the form of a
senior secured note amounting to $16,500, payable at 30 months with ValueAct
Small Cap Master Fund L.P. (the “ValueAct Note”). 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 agreement included certain restrictive
covenants. In conjunction with the merger described in Note 6, the Company
guaranteed up to $8,250 of the principal; and the restrictive covenants were
modified, including a requirement for both the Company 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.
  F-28
  Mandalay
      Media Inc. and SubsidiariesNotes
      to 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 provides for a payment in kind election, whereby, in lieu of
making any cash payments to ValueAct on the following two interest payment
dates, Twistbox may 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
provides 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)
will 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 shall not be subject to any lien of ValueAct
during the term of such receivables facility; and (ii) will not, and will 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. 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, $0.0001 par value per share (the
“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.
  Minimum
future obligations, including interest, under the Senior Secured Note are
$19,101 during the year ended March 31, 2010 including repayment of the
principal. Capitalized lease assets are set out in Note 4. Future obligations
under capitalized leases are included as part of Other Obligations in Note
15.
 
 9.
                Related
      Party Transactions
  The
Company engages in various business relationships with shareholders and officers
and their related entities. The significant relationships are disclosed
below.
  Mandalay
Media, Inc.
  On
September 14, 2006, the Company entered into a management agreement (the
“Management Agreement”) with Trinad Management for five years. Pursuant to the
terms of the Management 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
Management 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 year ended March 31, 2009 the Company paid
management fees under the agreement of $360;  for the three months ended
March 31, 2008, the Company paid management fees under the agreement of $90; and
for the year ended December 31, 2007 the Company paid management fees under the
agreement of $360.
  F-29
  Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
  In March
2007, the Company entered into a month to month lease for office space with
Trinad Management for rent of $9 per month. Rent expense in connection with this
lease was $104; $26 and $104 respectively for the year ended March 31,
2009; for the three months ended March 31, 2008; and for the year ended December
31, 2007.
  Twistbox
Entertainment, Inc.
 
 Lease of
Premises
 Twistbox
leases its primary offices in Los Angeles from Berkshire Holdings, LLC, a
company with common ownership by officers of Twistbox. Amount paid in connection
with this lease was $380; $95 and $380 for the year ended March 31, 2009; for
the three months ended March 31, 2008; and for the year ended December 31, 2007,
respectively.
 
 Twistbox was
party to an oral agreement with a person affiliated with Twistbox with respect
to a lease of an apartment in London.  Amounts paid in connection with
this lease was $48 ; $12 and $0 for the year ended March 31, 2009; for the three
months ended March 31, 2008; and for the year ended December 31, 2007,
respectively.
 
 10.
              Capital
      Stock Transactions
 
 Preferred
Stock
 
 On
October 3, 2006, the Company designated a Series A Preferred Stock, par value
$.0001 per share (Series A). The Series A holders shall be entitled to: (1) vote
on an equal per share basis as holders of common stock; (2) dividends on an
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 if-converted basis. Each Series A holder may treat as a
dissolution or winding up of the Company any of the following transactions: a
consolidation, merger, sale of substantially all the assets of the company,
issuance/sale of common stock of the Company constituting a majority of all
shares outstanding and a merger/business combination, each as
defined.
 
 In
addition, the Series A holders may convert, at their discretion, all or any of
their Series A shares into the number of common shares equal to the number
calculated by dividing the original purchase price of such Series A Preferred,
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.
 
 On August
3, 2006, the Company sold 100 shares of the Series A to Trinad Management, LLC
(Trinad Management), an affiliate of Trinad Capital LP (Trinad Capital), one of
the Company’s principal shareholders, for an aggregate sale price of $100, $1.00
per share. The Company recognized a one time, non-cash deemed preferred dividend
of $43 because the fair value of our common stock at the time of the sale of
$1.425 per share, greater than the conversion price of $1.00 per
share.
 
 Common
Stock
 
 On July
24, 2007, the Company sold 5,000 shares of the Company's common stock,
at $0.50 per share, for aggregate proceeds of $2,473, net of offering
costs of $27.
  F-30
 
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 In
September, October and December 2007, warrants to purchase 625 shares of common
stock were exercised in a cashless exchange for 239 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
November 7, 2007, the Company granted non-qualified stock options to purchase
500 shares of common stock of the Company to a director under the Plan. The
options have a ten year term and are exercisable at $2.65 per share, with
one-third of the options vesting immediately upon grant, 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 valued at $772 using a
Black-Scholes model assuming a risk free interest rate of 3.89%, expected life
of four years, and expected volatility of 75.2%.
 
 On
November 14, 2007, the Company granted non-qualified stock options to purchase
100 shares of common stock of the Company to a director under the Plan. The
options have a ten year term and are exercisable at a price of $2.50 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. The options
were valued at $160 using a Black-Scholes model assuming a risk free interest
rate of 3.89%, expected life of four years, and expected volatility of
75.2%.
 
 On
February 12, 2008, the Company issued 10,180 shares of common stock in
connection with the merger with Twistbox. The Company also assumed all the
outstanding options of Twistbox’s 2006 Stock Incentive Plan by the issuance of
options to purchases 2,463 shares of common stock of the Company, including
2,144 vested and 319 unvested options; and the Company issued two warrants to a
lender to Twistbox, one to purchase 1,093 shares of common stock and the other
to purchase 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.
  On April
9, 2008 a former director of the Company exercised warrants to purchase 50
shares of common stock in a cashless exchange for 25 shares of the Company’s
common stock.
  In April
and June 2008, warrants to purchase 350 shares of common stock were exercised in
a cashless exchange for 217 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
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. The options
were valued at $2,403 using a Black-Scholes model assuming a risk free interest
rate of 3.89%, expected life of four years, and expected volatility of
75.2%.
 
 On
September 29, 2008, the Company granted non-qualified stock options to purchase
350 shares of common stock of the Company to two directors under the Plan. The
options have a ten year term and are exercisable at a price of $2.40 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. The options
were valued at $489 using a Black-Scholes model assuming a risk free interest
rate of 3.89%, expected life of four years, and expected volatility of
75.2%.
  F-31
  
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 On
October 23, 2008, the Company entered into a Securities Purchase Agreement with
certain investors, pursuant to which the Company agreed to sell in a private
offering an aggregate of 1,685 shares of Common Stock and warrants to purchase
843 shares of Common Stock (the “Warrants”), for gross proceeds to the Company
of $4,500. Offering costs were $146.  The Warrants have a five year
term and an exercise price of $2.67 per share.
 
 In
October 2008, warrants to purchase 2,300 shares of common stock were exercised
in a cashless exchange for 286 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 March
16, 2009, the Company approved the issuance of an aggregate of 938,697 shares of
common stock pursuant to the Company’s 2007 Employee, Director and Consultant
Stock Plan at a purchase price of $0.0001 per share to certain executives of the
Company and subsidiary in connection with agreed salary reductions. An aggregate
of 683,457 shares were granted prior to March 31, 2009. Certain of the shares
granted are subject to forfeiture to the Company if such executive terminates
his position with the Company prior to one year from the grant date, and such
shares become fully vested one year from the grant date or upon the occurrence
of a change-in-control of the Company. 184,691 of these shares were vested as of
March 31, 2009.  All such shares granted to the executives may not be sold
or transferred for a period of one year from the Grant Date.
 
 11.
              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.
 
 12.
              Income
      Taxes
 
 The
components of income tax benefit/(provision) were as follows:
 
 Year Ended
                        
                        
                        3 Months ended
                        
                        
                        Year EndedMarch 31,
                        
                        
                        March 31,
                        
                        
                        December 31,2009
                        
                        
                        2008
                        
                        
                        2007Statutory
      federal income tax rate
                        
                        $
                        (14,191
                        )
                        
                        $
                        (100
                        )
                        
                        $
                        (800
                        )State
      income taxes (benefit), net of federal taxes
                        
                        
                        (2,087
                        )
                        
                        
                        (15
                        )
                        
                        
                        (100
                        )Write
      down of goodwill and other permanent differences
                        
                        
                        12,057
                        
                        
                        
                        (219
                        )
                        
                        
                        -Difference
      in depreciation and amortization
                        
                        
                        171
                        
                        
                        
                        25
                        
                        
                        
                        -Stock-based
      compensation
                        
                        
                        1,154
                        
                        
                        
                        125
                        
                        
                        
                        400Net
      operating loss carryforward
                        
                        
                        2,785
                        
                        
                        
                        200
                        
                        
                        
                        500Income
      tax provision (benefit)
                        
                        $
                        (111
                        )
                        
                        $
                        16
                        
                        
                        $
                        -
  For the
year ended March 31, 2009, the three months ended March 31, 2008, and the year
ended December 31, 2007, the components of deferred tax expense consisted of the
following:
  F-32
 
 Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 Year Ended
                      
                      
                      3 Months ended
                      
                      
                      Year EndedMarch 31,
                      
                      
                      March 31,
                      
                      
                      December 31,2009
                      
                      
                      2008
                      
                      
                      2007Net
      operating loss
                      
                      
                      2,785
                      
                      
                      
                      200
                      
                      
                      
                      500Amortization
      of intangible assets
                      
                      
                      171
                      
                      
                      
                      25Stock-based
      compensation
                      
                      
                      1,154
                      
                      
                      
                      125
                      
                      
                      
                      4004,110
                      
                      
                      
                      350
                      
                      
                      
                      900Less
      valuation allowance
                      
                      
                      (4,110
                      )
                      
                      
                      (350
                      )
                      
                      
                      (900
                      )-
                      
                      
                      
                      -
                      
                      
                      
                      -
 
 Deferred
tax assets and liabilities consist of the following:
  2009
                      
                      
                      2008Deferred
      tax assets (liabilities):Net
      operating loss carry-forwards
                      
                      
                      16,985
                      
                      
                      
                      14,200Amortization
      of intangible assets
                      
                      
                      196
                      
                      
                      
                      25Stock-based
      compensation
                      
                      
                      1,679
                      
                      
                      
                      525Deferred
      tax assets, net
                      
                      
                      18,860
                      
                      
                      
                      14,750Valuation
      allowance
                      
                      
                      (18,860
                      )
                      
                      
                      (14,750
                      )Net
      deferred tax assets
                      
                      $
                      -
                      
                      
                      $
                      -
 
 In
accordance with SFAS 109 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, 2009, the Company had net operating loss (NOL) carry-forwards to
reduce future Federal income taxes of approximately $42,900, expiring in various
years ranging through 2027. The Company may have had ownership changes, as
defined by the Internal Revenue Service, which may subject the NOL's to annual
limitations which could reduce or defer the use of the NOL
carry-forwards.
  In
connection with the acquisitions described in Note 6 above, the Company has
recorded Goodwill, amounting to $55,833 after impairment, which will not be
amortized for book purposes and is not deductible for US tax purposes. The
Company also recorded intangibles which will have differing amortization for
book and tax purposes. Trademarks, amounting to $9,821 after impairment, will
not be amortized for book purposes, but will be subject to amortization for tax
purposes, giving rise to a permanent difference. Other intangible assets,
amounting to $7,506, will be amortized over a shorter period for book purposes
than tax purposes, giving rise to timing differences. These differences will
impact the Company’s NOL carry-forwards in the future.
  As of
March 31, 2009, realization of the Company's net deferred tax asset of
approximately $18,860 was not considered more likely than not and, accordingly,
a valuation allowance of $18,860 has been provided. During the year ended March
31, 2009, the valuation allowance increased by $4,110.
  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, 2009.
  F-33
  Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
  The
Company adopted the provisions of FIN 48 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 FIN 48 and those after the adoption of
FIN 48. There were no unrecognized tax benefits not subject to valuation
allowance as at March 31, 2009 and March 31, 2008. The Company recognized no
interest and penalties on income taxes in its statement of operations for the
year ended March 31, 2009; the three months ended March 31, 2008 or the year
ended December 31, 2007.  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.
  13.
              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 net property and
equipment as at March 31, 2009; and for revenues in the year ended March
31, 2009; the three months ended March 31, 2009 and the year ended:
 
 North
                      
                      
                      
                      
                      
                      South
                      
                      
                      OtherAmerica
                      
                      
                      Europe
                      
                      
                      America
                      
                      
                      Regions
                      
                      
                      ConsolidatedYear
      ended March 31, 2009Net
      sales to unaffiliated customers
                      
                      $
                      4,818
                      
                      
                      $
                      22,030
                      
                      
                      $
                      671
                      
                      
                      $
                      3,737
                      
                      
                      $
                      31,256Three
      Months ended March 31, 2008Net
      sales to unaffiliated customers
                      
                      $
                      398
                      
                      
                      $
                      2,553
                      
                      
                      $
                      147
                      
                      
                      $
                      110
                      
                      
                      $
                      3,208Property
      and equipment, net at March 31, 2009
                      
                      $
                      730
                      
                      
                      $
                      490
                      
                      
                      $
                      -
                      
                      
                      $
                      10
                      
                      
                      $
                      1,230
  Our three
largest customers accounted for 21%, 19% and 11% of our revenue in the year
ended March 31, 2009; and
48%, 0% and 0% of our revenue in the three months ended March 31,
2008.
  14.
              Commitments
      and Contingencies
 
 Operating
Lease Obligations
 The
Company leases office facilities under noncancelable operating leases expiring
in various years through 2011.
 
 Following
is a summary of future minimum payments under initial terms of leases at March
31, 2009:
 
 Year Ending March 312009
                        
                        $
                        3692010
                        
                        $
                        111Total
      minimum lease payments
                        
                        $
                        480
  F-34
  Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
  These
amounts do not reflect future escalations for real estate taxes and building
operating expenses.  Rental expense amounted to $867 for the year
ended March 31, 2009; $121 for the three months ended March 31, 2008; and $102
for the year ended December 31, 2007.
  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, 2009 were as follows:
 
 MinimumGuaranteedYear Ending March 31
                        
                        Royalties2009
                        
                        $
                        902010
                        
                        
                        1202011
                        
                        
                        60Total
      minimum payments
                        
                        $
                        270
  Other
Obligations
 As of
March 31, 2009, the Company was obligated for payments under various
distribution agreements, equipment lease agreements, employment contracts and
the management agreement described in Note 9 with initial terms greater than one
year.  Annual payments relating to these commitments at March 31, 2009
are as follows:
  Year Ending March 31
                      
                      Commitments2009
                      
                      $
                      2,7982010
                      
                      
                      2,0282011
                      
                      
                      226Total
      minimum payments
                      
                      $
                      5,052
  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 $485,000.  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 $4,085,000. 
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.  GMCI has filed a demurrer to the counter-claim.  WAAT's
response is due by August 31, 2009. 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-35
  Mandalay
      Media Inc. and SubsidiariesNotes
      to Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
  From time
to time, we are subject to various claims, complaints and legal actions in the
normal course of business. 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.
  15.
              Discontinued
      Operations
  Discontinued
operations consist of Fierce Media, a 80% subsidiary of AMV Holdings,
Limited.   In conjunction with the acquisition of the Company's
acquisition of AMV, the Company had the intention of discontinuing the Fierce
Media subsidiary. The assets of Fierce Media on October 23, 2008 (date of AMV
acquisition)  were less than ($150) and as such, were not segregated on the
balance sheets as assets held for sale.  On January 31, 2009, the Company
finalized the sale of Fierce Media to the 20% minority owner for a nominal
amount.   In March 2009, the Company evaluated the continued
costs of operating Fierce Media from October 23, 2008 to January 31,
2009  in accordance with the provisions of Statement of Financial
Accounting Standards No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (“SFAS No. 144”) and determined that the continued costs
of operating this subsidiary met the criteria required to account for the
operations as discontinued.
  The
Company recorded a pre tax charge of $147 related to the costs of operating
Fierce Media from the acquisition date to sale date.  These costs are
included in discontinued operations in the accompanying consolidated statement
of operations for the year ended March 31, 2009.
  F-36