UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.20549


___________________________________





FORM
10-Q/A


(Amendment
No. 1)





(Mark
One)





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





For the
quarterly period ended September 30, 2008





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





For the
transition period from _____________ to ___________


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


(Registrant’s
telephone number, including area code)





Indicate
by check mark whether the Registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes   x
    No    ̈





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 whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of  “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 a smaller reporting company)
            Smaller
      reporting company  x




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





Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes   x
    No    ̈




On
November 13, 2008, there were 38,591,945 shares of the Registrant’s common
stock, par value $0.0001 per share, issued and outstanding.








EXPLANATORY
NOTE





This
Amendment No. 1 on Form 10-Q/A (this “Amendment”) is filed by Mandalay Media,
Inc. (the “Registrant”) to amend the Registrant’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2008, as originally filed with the
Securities and Exchange Commission (the “Commission”) on November 14,
2008 (the “Form 10-Q”).  The purpose of this Amendment is to add
the unaudited interim financial statements for the quarter ended September
30, 2007 of Twistbox Entertainment, Inc., the Registrant’s wholly-owned
subsidiary and to add Item 2 Management’s Discussion and
Analysis of Financial Condition and Results of Operations as it relates to
these unaudited interim financial statements per request of the
Commission in a letter to the Registrant dated July 15, 2009. No other material
changes were made to the Form 10-Q.




Part I - Financial
Information




Item 1. Financial
Statements




Page(s)Consolidated
      Balance Sheets for the Successor as of September 30, 2008 (Unaudited) and
      March 31, 2008 (Audited)
                1Consolidated
      Statements of Operations (Unaudited) for the Successor’s three and six
      months  ended September 30, 2008 and September 30, 2007; and
      Predecessor’s three and six months ended September 30,
2007
                2Consolidated
      Statements of the Successor’s Stockholders’ Equity and Comprehensive Loss
      (Unaudited) for the six months ended September 30, 2008
                3Consolidated
      Statements of Cash Flows (Unaudited) for the Successor’s six months
      ended  September 30, 2008 and September 30, 2007; and
      Predecessor’s six months ended September 30, 2007
                4Notes
      to Unaudited Consolidated Financial Statements
                5-28
  
  (In
thousands, except share amounts)
 
 SuccessorSeptember
      30,
                                              
                                              
                                              March
      31,2008
                                              
                                              
                                              2008(Unaudited)ASSETSCurrent
      AssetsCash
      and cash equivalents
                                              
                                              $
                                              7,122
                                              
                                              
                                              $
                                              10,936Accounts
      receivable, net of allowances
                                              
                                              
                                              6,203
                                              
                                              
                                              
                                              6,162Prepaid
      expenses and other current assets
                                              
                                              
                                              648
                                              
                                              
                                              
                                              531Total
      current assets
                                              
                                              
                                              13,973
                                              
                                              
                                              
                                              17,629Property
      and equipment, net
                                              
                                              
                                              993
                                              
                                              
                                              
                                              1,037Other
      long-term assets
                                              
                                              
                                              206
                                              
                                              
                                              
                                              301Intangible
      assets, net
                                              
                                              
                                              19,303
                                              
                                              
                                              
                                              19,780Goodwill
                                              
                                              
                                              61,436
                                              
                                              
                                              
                                              61,377TOTAL
      ASSETS
                                              
                                              $
                                              95,911
                                              
                                              
                                              $
                                              100,124LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilitiesAccounts
      payable
                                              
                                              $
                                              4,325
                                              
                                              
                                              $
                                              2,399Accrued
      license fees
                                              
                                              
                                              2,813
                                              
                                              
                                              
                                              3,833Accrued
      compensation
                                              
                                              
                                              746
                                              
                                              
                                              
                                              688Current
      portion of long term debt
                                              
                                              
                                              254
                                              
                                              
                                              
                                              248Other
      current liabilities
                                              
                                              
                                              2,001
                                              
                                              
                                              
                                              2,087Total
      currrent liabilities
                                              
                                              
                                              10,139
                                              
                                              
                                              
                                              9,255Accrued
      license fees, long term portion
                                              
                                              
                                              668
                                              
                                              
                                              
                                              1,337Long
      term debt, net of current portion
                                              
                                              
                                              16,483
                                              
                                              
                                              
                                              16,483Total
      liabilities
                                              
                                              $
                                              27,290
                                              
                                              
                                              
                                              27,075Commitments
      and contingencies (Note 15)Stockholders
      equityPreferred
      stock, 1,000 shares authorized Series A Convertible Preferred Stock,
      100,000 shares; authorized at $0.0001 par value; 100,000 shares issued and
      outstanding
                                              
                                              
                                              100
                                              
                                              
                                              
                                              100Common
      stock, $0.0001 par value: 100,000,000 shares authorized; 32,449,449 issued
      and outstanding at September 30, 2008;  32,149,089 issued and
      outstanding at March 31, 2008;
                                              
                                              
                                              3
                                              
                                              
                                              
                                              3Additional
      paid-in capital
                                              
                                              
                                              78,220
                                              
                                              
                                              
                                              76,154Accumulated
      other comprehensive income/(loss)
                                              
                                              
                                              (55
                                              )
                                              
                                              
                                              61Accumulated
      deficit
                                              
                                              
                                              (9,647
                                              )
                                              
                                              
                                              (3,269
                                              )Total
      stockholders' equity
                                              
                                              
                                              68,621
                                              
                                              
                                              
                                              73,049TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                                              
                                              $
                                              95,911
                                              
                                              
                                              $
                                              100,124
  
  Mandalay
      Media, Inc. and Subsidiaries
              2Consolidated
      Statement of Operations (Unaudited)
 
 (In
thousands, except per share amounts)
 
 Successor
                                                                          
                                                                          
                                                                          Predecessor3
      Months Ended
                                                                          
                                                                          
                                                                          3
      Months Ended
                                                                          
                                                                          
                                                                          6
      Months Ended
                                                                          
                                                                          
                                                                          6
      Months Ended
                                                                          
                                                                          
                                                                          3
      Months Ended
                                                                          
                                                                          
                                                                          6
      Months EndedSeptember
      30
                                                                          
                                                                          
                                                                          September
      30
                                                                          
                                                                          
                                                                          September
      30
                                                                          
                                                                          
                                                                          September
      30
                                                                          
                                                                          
                                                                          September
      30
                                                                          
                                                                          
                                                                          September
      302008
                                                                          
                                                                          
                                                                          2007
                                                                          
                                                                          
                                                                          2008
                                                                          
                                                                          
                                                                          2007
                                                                          
                                                                          
                                                                          2007
                                                                          
                                                                          
                                                                          2007Revenues
                                                                          
                                                                          $
                                                                          5,003
                                                                          
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          10,349
                                                                          
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          3,356
                                                                          
                                                                          
                                                                          $
                                                                          7,064Cost
      of revenuesLicense
      fees
                                                                          
                                                                          
                                                                          1,785
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          3,934
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          1,549
                                                                          
                                                                          
                                                                          
                                                                          3,218Other
      direct cost of revenues
                                                                          
                                                                          
                                                                          102
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          204
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          100
                                                                          
                                                                          
                                                                          
                                                                          269Total
      cost of revenues
                                                                          
                                                                          
                                                                          1,887
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          4,138
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          1,649
                                                                          
                                                                          
                                                                          
                                                                          3,487Gross
      profit
                                                                          
                                                                          
                                                                          3,116
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          6,211
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          1,707
                                                                          
                                                                          
                                                                          
                                                                          3,577Operating
      expensesProduct
      development
                                                                          
                                                                          
                                                                          1,800
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          3,567
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          2,301
                                                                          
                                                                          
                                                                          
                                                                          4,792Sales
      and marketing
                                                                          
                                                                          
                                                                          1,004
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          2,283
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          1,202
                                                                          
                                                                          
                                                                          
                                                                          2,554General
      and administrative
                                                                          
                                                                          
                                                                          2,559
                                                                          
                                                                          
                                                                          
                                                                          544
                                                                          
                                                                          
                                                                          
                                                                          5,372
                                                                          
                                                                          
                                                                          
                                                                          911
                                                                          
                                                                          
                                                                          
                                                                          1,144
                                                                          
                                                                          
                                                                          
                                                                          2,320Amortization
      of intangible assets
                                                                          
                                                                          
                                                                          137
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          274
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          60
                                                                          
                                                                          
                                                                          
                                                                          90Total
      operating expenses
                                                                          
                                                                          
                                                                          5,500
                                                                          
                                                                          
                                                                          
                                                                          544
                                                                          
                                                                          
                                                                          
                                                                          11,496
                                                                          
                                                                          
                                                                          
                                                                          911
                                                                          
                                                                          
                                                                          
                                                                          4,707
                                                                          
                                                                          
                                                                          
                                                                          9,756Loss
      from operations
                                                                          
                                                                          
                                                                          (2,384
                                                                          )
                                                                          
                                                                          
                                                                          (544
                                                                          )
                                                                          
                                                                          
                                                                          (5,285
                                                                          )
                                                                          
                                                                          
                                                                          (911
                                                                          )
                                                                          
                                                                          
                                                                          (3,000
                                                                          )
                                                                          
                                                                          
                                                                          (6,179
                                                                          )Interest
      and other income/(expense)Interest
      income
                                                                          
                                                                          
                                                                          44
                                                                          
                                                                          
                                                                          
                                                                          89
                                                                          
                                                                          
                                                                          
                                                                          121
                                                                          
                                                                          
                                                                          
                                                                          165
                                                                          
                                                                          
                                                                          
                                                                          90
                                                                          
                                                                          
                                                                          
                                                                          100Interest
      (expense)
                                                                          
                                                                          
                                                                          (468
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (952
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (271
                                                                          )
                                                                          
                                                                          
                                                                          (326
                                                                          )Foreign
      exchange transaction gain (loss)
                                                                          
                                                                          
                                                                          (57
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          73
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          36
                                                                          
                                                                          
                                                                          
                                                                          104Other
      (expense)
                                                                          
                                                                          
                                                                          (102
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (187
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (50
                                                                          )
                                                                          
                                                                          
                                                                          (252
                                                                          )Interest
      and other income/(expense)
                                                                          
                                                                          
                                                                          (583
                                                                          )
                                                                          
                                                                          
                                                                          89
                                                                          
                                                                          
                                                                          
                                                                          (945
                                                                          )
                                                                          
                                                                          
                                                                          165
                                                                          
                                                                          
                                                                          
                                                                          (195
                                                                          )
                                                                          
                                                                          
                                                                          (374
                                                                          )Loss
      before income taxes
                                                                          
                                                                          
                                                                          (2,967
                                                                          )
                                                                          
                                                                          
                                                                          (455
                                                                          )
                                                                          
                                                                          
                                                                          (6,230
                                                                          )
                                                                          
                                                                          
                                                                          (746
                                                                          )
                                                                          
                                                                          
                                                                          (3,195
                                                                          )
                                                                          
                                                                          
                                                                          (6,553
                                                                          )Income
      tax provision
                                                                          
                                                                          
                                                                          (74
                                                                          )
                                                                          
                                                                          
                                                                          1
                                                                          
                                                                          
                                                                          
                                                                          (148
                                                                          )
                                                                          
                                                                          
                                                                          1
                                                                          
                                                                          
                                                                          
                                                                          (2
                                                                          )
                                                                          
                                                                          
                                                                          -Net
      Loss attributable to Common Shareholders
                                                                          
                                                                          $
                                                                          (3,041
                                                                          )
                                                                          
                                                                          $
                                                                          (454
                                                                          )
                                                                          
                                                                          $
                                                                          (6,378
                                                                          )
                                                                          
                                                                          $
                                                                          (745
                                                                          )
                                                                          
                                                                          $
                                                                          (3,197
                                                                          )
                                                                          
                                                                          $
                                                                          (6,553
                                                                          )Basic
      and Diluted net loss per common share
                                                                          
                                                                          $
                                                                          (0.09
                                                                          )
                                                                          
                                                                          $
                                                                          (0.02
                                                                          )
                                                                          
                                                                          $
                                                                          (0.20
                                                                          )
                                                                          
                                                                          $
                                                                          (0.04
                                                                          )
                                                                          
                                                                          $
                                                                          (0.41
                                                                          )
                                                                          
                                                                          $
                                                                          (0.84
                                                                          )Weighted
      average common shares outstanding, basic and diluted
                                                                          
                                                                          
                                                                          32,423
                                                                          
                                                                          
                                                                          
                                                                          20,480
                                                                          
                                                                          
                                                                          
                                                                          32,377
                                                                          
                                                                          
                                                                          
                                                                          18,588
                                                                          
                                                                          
                                                                          
                                                                          7,786
                                                                          
                                                                          
                                                                          
                                                                          7,786
  The
accompanying notes are an integral part of these consolidated financial
statements
  
  Mandalay
      Media, Inc. and Subsidiaries
              3Consolidated
      Statements of Stockholders’ Equity and Comprehensive Loss
                (Unaudited)
  (In
thousands, except share amounts)
 
 AccumulatedAdditional
                                          
                                          
                                          OtherCommon
      Stock
                                          
                                          
                                          Preferred
      Stock
                                          
                                          
                                          Paid-In
                                          
                                          
                                          Comprehensive
                                          
                                          
                                          Accumulated
                                          
                                          
                                          
                                          
                                          
                                          ComprehensiveSuccessor
                                          
                                          Shares
                                          
                                          
                                          Amount
                                          
                                          
                                          Shares
                                          
                                          
                                          Amount
                                          
                                          
                                          Capital
                                          
                                          
                                          Income/(Loss)
                                          
                                          
                                          Deficit
                                          
                                          
                                          Total
                                          
                                          
                                          LossBalance
      at March 31, 2008
                                          
                                          
                                          32,149,089
                                          
                                          
                                          $
                                          3
                                          
                                          
                                          
                                          100,000
                                          
                                          
                                          $
                                          100
                                          
                                          
                                          $
                                          76,154
                                          
                                          
                                          $
                                          61
                                          
                                          
                                          $
                                          (3,269
                                          )
                                          
                                          $
                                          73,049Net
      Loss
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          (3,337
                                          )
                                          
                                          
                                          (3,337
                                          )
                                          
                                          
                                          (3,337
                                          )Issuance
      of common stockin satisfaction of amount
    payable
                                          
                                          
                                          25,000
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          100
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          100Issuance
      of common stock on cashless exercise of warrants
                                          
                                          
                                          241,688
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          0Foreign
      currency translation gain/(loss)
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          (10
                                          )
                                          
                                          
                                          
                                          
                                          
                                          
                                          (10
                                          )
                                          
                                          
                                          (10
                                          )Deferred
      stock-based compensation
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          1,222
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          1,222Comprehensive
      loss
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (3,347
                                          )Balance
      at June 30, 2008
                                          
                                          
                                          32,415,777
                                          
                                          
                                          $
                                          3
                                          
                                          
                                          
                                          100,000
                                          
                                          
                                          $
                                          100
                                          
                                          
                                          $
                                          77,476
                                          
                                          
                                          $
                                          51
                                          
                                          
                                          $
                                          (6,606
                                          )
                                          
                                          $
                                          71,024Net
      Loss
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          (3,041
                                          )
                                          
                                          
                                          (3,041
                                          )
                                          
                                          
                                          (3,041
                                          )Issuance
      of common stock on cashless exercise of warrants
                                          
                                          
                                          33,672
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          0Foreign
      currency translation gain/(loss)
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          (106
                                          )
                                          
                                          
                                          
                                          
                                          
                                          
                                          (106
                                          )
                                          
                                          
                                          (106
                                          )Deferred
      stock-based compensation
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          744
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          744Comprehensive
      loss
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (3,147
                                          )Balance
      at September 30, 2008
                                          
                                          
                                          32,449,449
                                          
                                          
                                          $
                                          3
                                          
                                          
                                          
                                          100,000
                                          
                                          
                                          $
                                          100
                                          
                                          
                                          $
                                          78,220
                                          
                                          
                                          $
                                          (55
                                          )
                                          
                                          $
                                          (9,647
                                          )
                                          
                                          $
                                          68,621
  
 
  Mandalay
      Media, Inc. and Subsidiaries
              4Consolidated
      Statements of Cash Flows (Unaudited)
  (In
thousands)
 
 Successor
                          
                          
                          Predecessor6
      Months Ended
                          
                          
                          6
      Months Ended
                          
                          
                          6
      Months EndedSeptember
      30,
                          
                          
                          September
      30,
                          
                          
                          September
      30,2008
                          
                          
                          2007
                          
                          
                          2007Cash
      flows from operating activitiesNet
      loss
                          
                          $
                          (6,378
                          )
                          
                          $
                          (745
                          )
                          
                          $
                          (6,553
                          )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                          
                          
                          642
                          
                          
                          
                          -
                          
                          
                          
                          212Allowance
      for doubtful accounts
                          
                          
                          (45
                          )
                          
                          
                          -
                          
                          
                          
                          22Stock-based
      compensation
                          
                          
                          1,966
                          
                          
                          
                          -
                          
                          
                          
                          58(Increase)
      / decrease in assets:Accounts
      receivable
                          
                          
                          4
                          
                          
                          
                          -
                          
                          
                          
                          1,018Prepaid
      expenses and other
                          
                          
                          (22
                          )
                          
                          
                          (9
                          )
                          
                          
                          (987
                          )Increase
      / (decrease) in liabilities:Accounts
      payable
                          
                          
                          2,022
                          
                          
                          
                          223
                          
                          
                          
                          (163
                          )Accrued
      license fees
                          
                          
                          (1,020
                          )
                          
                          
                          -
                          
                          
                          
                          (2,169
                          )Accrued
      compensation
                          
                          
                          58
                          
                          
                          
                          -
                          
                          
                          
                          283Other
      liabilities
                          
                          
                          (750
                          )
                          
                          
                          -
                          
                          
                          
                          -Accrued
      expenses
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          813Net
      cash used in operating activities
                          
                          
                          (3,523
                          )
                          
                          
                          (531
                          )
                          
                          
                          (7,466
                          )Cash
      flows from investing activitiesPurchase
      of property and equipment
                          
                          
                          (120
                          )
                          
                          
                          -
                          
                          
                          
                          (261
                          )Transaction
      costs related to merger with Twistbox
                          
                          
                          (59
                          )
                          
                          
                          -Repayment
      of advance to related party
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          36Net
      cash used in investing activities
                          
                          
                          (179
                          )
                          
                          
                          -
                          
                          
                          
                          (225
                          )Cash
      flows from financing activitiesProceeds
      from the sale of common stock
                          
                          
                          -
                          
                          
                          
                          2,493Proceeds
      from the sale of preferred stock
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          3,000Proceeds
      from the issuance of debt, net of costs
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          16,480Repayment
      of debt
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (1,759
                          )Net
      cash provided by financing activities
                          
                          
                          -
                          
                          
                          
                          2,493
                          
                          
                          
                          17,721Effect
      of exchange rate changes on cash and cash equivalents
                          
                          
                          (112
                          )
                          
                          
                          -
                          
                          
                          
                          65Net
      increase/(decrease) in cash and cash equivalents
                          
                          
                          (3,814
                          )
                          
                          
                          1,962
                          
                          
                          
                          10,095Cash
      and cash equivalents, beginning of period
                          
                          
                          10,936
                          
                          
                          
                          5,418
                          
                          
                          
                          631Cash
      and cash equivalents, end of period
                          
                          $
                          7,122
                          
                          
                          $
                          7,380
                          
                          
                          $
                          10,726Supplemental
      disclosure of cash flow information:Interest
      paid
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          315Taxes
      paid
                          
                          
                          (148
                          )
                          
                          
                          -
                          
                          
                          
                          -
  
 
  Mandalay
      Media, Inc. and Subsidiaries
                    5Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 1.
              Organization
 
 Mandalay
Media, Inc. (the “Company”), formerly
Mediavest, Inc. (Mediavest), was originally incorporated in the state of
Delaware on November 6, 1998 under the name eB2B Commerce, Inc. On April 27,
2000, it merged into DynamicWeb Enterprises Inc., a New Jersey corporation, the
surviving company, and changed its name to eB2B Commerce, Inc. On April 13,
2005, the Company changed its name to Mediavest, Inc. (Mediavest). 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, Mediavest was
re-incorporated in the state of Delaware as Mandalay Media Inc.
(Mandalay).
 
 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, Mandalay completed a merger (the “Merger”) with Twistbox
Entertainment, Inc. (Twistbox) through an exchange of all outstanding capital
stock of Twistbox for 10,180 shares of common stock of the Company. In
connection with the Merger, the Company assumed of all the outstanding options
under Twistbox’s Stock Incentive Plan by the issuance of options to purchases
2,463 shares of common stock of the Company, including 2,145 vested and 319
unvested options.
 
 After the
Merger, Twistbox became a wholly-owned subsidiary of the Company, and the
company’s only active subsidiary.
 
 Twistbox
Entertainment Inc. (formerly known as The WAAT Corporation) is incorporated in
the State of Delaware.
 
 Twistbox
is considered the Predecessor entity and therefore, the accompanying
consolidated statements of operations and cash flows are presented for two
periods: Predecessor and Successor, which relate to the period preceding the
February 12, 2008 transaction and the period succeeding that date, respectively.
The Company refers to the operations of Mandalay Media, Inc.  and
subsidiaries for both the Predecessor and Successor periods.
 
 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.
  
  Mandalay
      Media, Inc. and Subsidiaries
                6Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
  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.
 
 2.
              Summary
      of Significant Accounting Policies
 
 Basis
of Presentation
 The
accompanying consolidated financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission regarding
interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company’s
Annual Report on Form 10-K/T, filed with the Securities and Exchange Commission.
In the opinion of management, the accompanying consolidated financial statements
contain all adjustments, consisting only of normal recurring adjustments, which
the Company believes are necessary for a fair statement of the Company’s
financial position as of September 30, 2008 and its results of operations for
Successor’s three months and the six months ended September 30, 2008 and 2007,
and the Predecessor’s three and six months ended September 30,
2007.  These consolidated financial statements are not necessarily
indicative of the results to be expected for the entire year. The consolidated
balance sheet presented as of September 30, 2008 has been derived from the
unaudited consolidated financial statements as of that date, and the
consolidated balance sheet presented as of March 31, 2008 has been derived from
the audited consolidated financial statements as of that date.
  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
 Twistbox’s
revenues are derived primarily by licensing material and software products 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.
Twistbox distributes its products primarily through mobile telecommunications
service providers (“carriers”), which market the product, images or games to end
users. License fees for perpetual and subscription licenses are usually billed
by the carrier 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 the others provide opt-in
renewal. In either case, subsequent billings for subscription licenses are
generally billed monthly. Twistbox 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.
  
  Mandalay
      Media, Inc. and Subsidiaries
              7Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
  Revenues
are recognized from our 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, Twistbox defines delivery as the download of the product, image
or game by the end user. Twistbox 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
Twistbox 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 Twistbox believes are reasonable, but it
is possible that actual results may differ from Twistbox’s estimates, and those
differences may be material. Twistbox’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 Twistbox receives the final carrier reports, to
the extent not received within a reasonable time frame following the end of each
month, Twistbox  records any differences between estimated revenues
and actual revenues in the reporting period when Twistbox determines the actual
amounts. Revenues earned from certain carriers may not be reasonably estimated.
If Twistbox is unable to reasonably estimate the amount of revenues to be
recognized in the current period, Twistbox recognizes revenues upon the receipt
of a carrier revenue report and when Twistbox’s portion of licensed revenues are
fixed or determinable and collection is probable. To monitor the reliability of
Twistbox’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 Twistbox deems a carrier not to be creditworthy, Twistbox
defers all revenues from the arrangement until Twistbox receives payment and all
other revenue recognition criteria have been met.
 
 In
accordance with Emerging Issues Task Force, or EITF Issue No. 99-19, Reporting Revenue Gross as a
Principal Versus Net as an Agent, Twistbox recognizes as revenues the
amount the carrier reports as payable upon the sale of Twistbox’s products,
images or games. Twistbox 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
      serviceinteraction
      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 Twistbox a fixed percentage of their revenues or a fixed fee
      for each game;
  
  Mandalay
      Media, Inc. and Subsidiaries
              8Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
  •
              carriers
      generally must approve the price of Twistbox’s content in advance of their
      sale to subscribers, and Twistbox’s more significant carriers generally
      have the ability to set the ultimate price charged to their subscribers;
      and
 •
              Twistbox
      has limited risks, including no inventory risk and limited credit
      risk
 
 While not
a significant portion of revenue, in some instances revenue is earned by
delivering a product or service directly to the end user of that product or
service. In those cases Twistbox 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 three months ended September 30, 2008 and September
30, 2007 consisted of 2,300 and 2,316 shares, respectively, and for the six
months ended September 30, 2008 and 2007 consisted of 3,695 and 1,627,
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. Total
comprehensive loss for the successor for the six and three months ended
September 30, 2008 was $6,494 and $3,147, respectively. Total comprehensive loss
for the predecessor for the six and three months ended September 30, 2007 was
$6,455 & $3,207, respectively.
 
 Cash
and Cash Equivalents
 The
Company considers all highly liquid short-term investments purchased with a
maturity of three months or less to be cash equivalents.
 
 Content
Provider Licenses
 
 Content
Provider License Fees and Minimum Guarantees
 The
Company’s royalty expenses consist of fees that it pays to branded content
owners for 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 our
balance sheet as prepaid royalties. These royalty-based obligations are expensed
to cost of revenues either at the applicable contractual rate related to that
revenue or over the estimated life of the prepaid royalties. Advanced license
payments that are not recoupable against future royalties are capitalized and
amortized over the lesser of the estimated life of the branded title or the term
of the license agreement.
  
  Mandalay
      Media, Inc. and Subsidiaries
              9Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
  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.
 
 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. Advertising expense for
the Successor was $139 and $64 for the three months ended September 30, 2008 and
2007, respectively and $563 and $64 for the six months ended September 30, 2008
and 2007, respectively.  Advertising expense for the Predecessor was
$69 for the three months ended September 30, 2007 and $76 for the six months
ended September 30, 2007.
  
 Mandalay
      Media, Inc. and Subsidiaries
              10Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
  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) for the Successor was ($106) for the
three months ended September 30, 2008 and ($116) for the six months ended
September 30, 2008.  The foreign currency translation adjustment
(loss) for the Predecessor was $(10) for the three months ended September 30,
2007 and $98 for the six months ended September 30, 2007.  The foreign
currency translation adjustment (loss) 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 retained earnings.
 
 Concentrations
of Credit Risk.
 Financial
instruments which potentially subject us to concentration of credit risk consist
principally of cash and cash equivalents, short-term investments, and accounts
receivable. We have placed cash and cash equivalents and short-term investments
with a single high credit-quality institution. As of September 30, 2008 we did
not have any long-term marketable securities. Most of our sales are made
directly to large national Mobile Phone Operators in the countries that we
operate. We have a significant level of business and resulting significant
accounts receivable balance with one operator and therefore have a high
concentration of credit risk with that operator. We perform ongoing credit
evaluations of our customers and maintain an allowance for potential credit
losses. As of September 30, 2008, approximately 27% of our gross accounts
receivable outstanding was with one major customer. This customer accounted for
45% of our gross sales in the three months ended September 30, 2008 and 40% in
the six months ended September 30, 2008.
 
 Property
and Equipment
 Property
and equipment is stated at cost.  Depreciation and amortization is
calculated using the straight-line method over the estimated useful lives of the
related assets. Estimated useful lives are 8 to 10 years for leasehold
improvements and 5 years for other assets.
  
  Mandalay
      Media, Inc. and Subsidiaries
              11Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 Goodwill
 In
accordance with Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible
Assets (“SFAS No. 142”), the Company’s goodwill is not amortized but is tested
for impairment
on an annual basis or whenever events or changes in circumstances indicate that
the carrying
amount of these assets may not be recoverable.
 
 Impairment
of Long-Lived Assets and 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.
 
 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.
  
 
 Mandalay
      Media, Inc. and Subsidiaries
              12Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 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.
 
 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. 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, and stock-based compensation expense.
 
 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.  Based on current conditions, the Company does not
expect the adoption of SFAS 160 to have a significant impact on its results of
operations or financial position.
  
 
 Mandalay
      Media, Inc. and Subsidiaries
              13Notes
      to Unaudited 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. The Company does not expect the adoption of SFAS 141R to have
a significant impact on its results of operations or financial
position.
  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.  We are currently evaluating the impact, if any, that FSP
142-3 will have on our consolidated financial statements.
 
 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.  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.
  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 reaching a positive
cash flow position or obtaining additional financing, while maintaining adequate
liquidity.
  Management
believes that actions undertaken to achieve this position provide the
opportunity for the Company to continue as a going concern. These actions
include the acquisition, debt restructuring and equity placements subsequent to
the period end as detailed in Note 15, as well as continued increases in
revenues by introducing new products and revenue streams, continued expansion
into new territories, reviewing additional financing options, reducing operating
costs and accretive acquisitions.
  
 
 Mandalay
      Media, Inc. and Subsidiaries
              14Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 4.
              Balance
      Sheet Components
  Accounts
Receivable
  September
      30,
                    
                    
                    March
      31,2008
                    
                    
                    2008Accounts
      receivable
                    
                    $
                    6,326
                    
                    
                    $
                    6,330Less:
      allowance for doubtful accounts
                    
                    
                    (123
                    )
                    
                    
                    (168
                    )$
                    6,203
                    
                    
                    $
                    6,162
  Accounts
receivable includes amounts billed and unbilled as of the respective balance
sheet dates.  During the three months ended September 30, 2008 $11 was
provided and $0 was written off against the allowance for the Successor. During
the six months ended September 30, 2008, $11 was provided and $56 was written
off against the allowance for the Successor.  For the three months
ended September 30, 2007 the Predecessor reserved $0 and $0 was written off
against the allowance.  For the six months ended September 30, 2007
the Predecessor reserved $22 and $0 was written off the against
allowance.
  Property
and Equipment
  September
      30,
                    
                    
                    March
      31,2008
                    
                    
                    2008Equipment
                    
                    $
                    758
                    
                    
                    $
                    654Equipment
      subject to capitalized lease
                    
                    
                    81
                    
                    
                    
                    71Furniture
      & fixtures
                    
                    
                    234
                    
                    
                    
                    228Leasehold
      improvements
                    
                    
                    140
                    
                    
                    
                    1401,213
                    
                    
                    
                    1,093Accumulated
      depreciation
                    
                    
                    (220
                    )
                    
                    
                    (56
                    )$
                    993
                    
                    
                    $
                    1,037
  Depreciation
expense for the Successor for the three months ended September 30, 2008 and 2007
was $86 and $0, respectively; and for the six months ended September 30, 2008
and 2007 was $164 and $0, respectively.
  Depreciation
expense for the Predecessor for the three months ended September 30, 2007 was
$26 and for the six months ended September 30, 2007 was $101.
  Capital
Lease
 Accumulated
depreciation associated with the equipment under capital lease noted above was
$10 and $72 at September 30, 2008 and March 31, 2008, respectively. The Company
has a commitment to pay $5 under these leases during the year ending September
30, 2009. These payments have a net present value of $5.
  
 
 Mandalay
      Media, Inc. and Subsidiaries
              15Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 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.
 
 The
following table summarizes options granted for the periods or as of the dates
indicated:
 
 Number
      of
                    
                    
                    Weighted
      AverageShares
                    
                    
                    Exercise PriceOutstanding
      at December 31, 2005GrantedCanceledExercisedOutstanding
      at December 31, 2006
                    
                    
                    -
                    
                    
                    
                    -Granted
                    
                    
                    1,600,000
                    
                    
                    $
                    2.64Canceled
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    -
                    
                    
                    
                    -Outstanding
      at December 31, 2007
                    
                    
                    1,600,000
                    
                    
                    $
                    2.64Granted
                    
                    
                    2,751,864
                    
                    
                    $
                    4.57Transferred
      in from Twistbox
                    
                    
                    2,462,090
                    
                    
                    $
                    0.64Canceled
                    
                    
                    (11,855
                    )
                    
                    $
                    0.81Outstanding
      at March 31, 2008
                    
                    
                    6,802,099
                    
                    
                    $
                    2.70Granted
                    
                    
                    1,860,558
                    
                    
                    $
                    2.67Canceled
                    
                    
                    (74,692
                    )
                    
                    $
                    0.48Exercised
                    
                    
                    (27,050
                    )
                    
                    $
                    0.48Outstanding
      at September 30, 2008
                    
                    
                    8,560,915
                    
                    
                    $
                    2.72Exercisable
      at September 30, 2008
                    
                    
                    4,418,144
                    
                    
                    $
                    2.02
 
 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
      GrantedThree
      Months Ended
                            
                            
                            
                            
                            
                            Options
      tranferredSeptember 30, 2008
                            
                            
                            Options Granted
                            
                            
                            from TwistboxExpected
      life (years)
                            
                            
                            4
                            
                            
                            4
      to 6
                            
                            
                            3
      to 7Risk-free
      interest rate
                            
                            
                            3.89
                            
                            
                            2.7%
      to 3.89
                            %
                            
                            2.03%
      to 5.03
                            %Expected
      volatility
                            
                            
                            75.20
                            %
                            
                            70%
      to 75.2
                            %
                            
                            70%
      to 75
                            %Expected
      dividend yield
                            
                            
                            0
                            %
                            
                            
                            0
                            %
                            
                            
                            0
                            %
  
 
 Mandalay
      Media, Inc. and Subsidiaries
              16Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 The
exercise price for options outstanding at September 30, 2008 was as
follows:
 
 WeightedAverage
                      
                      
                      
                      
                      
                      WeightedRemaining
                      
                      
                      Number
                      
                      
                      Average
                      
                      
                      AggregateRange
      of
                      
                      
                      Contractual
      Life
                      
                      
                      Outsanding
                      
                      
                      Exercise
                      
                      
                      IntrinsicExercise Price
                      
                      
                      (Years)
                      
                      
                      September 30, 2008
                      
                      
                      Price
                      
                      
                      Value$
                      0 -
      $1.00
                      
                      
                      
                      7.84
                      
                      
                      
                      2,359,053
                      
                      
                      $
                      0.64
                      
                      
                      $
                      4,149,322$
                      2.00
      - $3.00
                      
                      
                      
                      9.41
                      
                      
                      
                      3,450,000
                      
                      
                      $
                      2.66
                      
                      
                      $
                      -$
                      3.00
      - $4.00
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -$
                      4.00
      - $5.00
                      
                      
                      
                      9.40
                      
                      
                      
                      2,751,864
                      
                      
                      $
                      4.57
                      
                      
                      $
                      -8.97
                      
                      
                      
                      8,560,917
                      
                      
                      $
                      2.72
                      
                      
                      $
                      4,149,322
 
 The
exercise price for options exercisable at September 30, 2008 was as
follows:
 
 WeightedAverage
                      
                      
                      
                      
                      
                      WeightedRemaining
                      
                      
                      Options
                      
                      
                      Average
                      
                      
                      AggregateRange
      of
                      
                      
                      Contractual
      Life
                      
                      
                      Exercisable
                      
                      
                      Exercise
                      
                      
                      IntrinsicExercise Price
                      
                      
                      (Years)
                      
                      
                      September 30, 2008
                      
                      
                      Price
                      
                      
                      Value$
                      0 -
      $1.00
                      
                      
                      
                      7.80
                      
                      
                      
                      2,183,736
                      
                      
                      $
                      0.63
                      
                      
                      $
                      3,863,862$
                      2.00
      - $3.00
                      
                      
                      
                      9.32
                      
                      
                      
                      1,418,708
                      
                      
                      $
                      2.66
                      
                      
                      $
                      -$
                      3.00
      - $4.00
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -$
                      4.00
      - $5.00
                      
                      
                      
                      9.39
                      
                      
                      
                      815,700
                      
                      
                      $
                      4.61
                      
                      
                      $
                      -8.58
                      
                      
                      
                      4,418,144
                      
                      
                      $
                      2.02
                      
                      
                      
                      3,863,862
 
 Stock
option expense for the Successor was $744 and $64 for the three months ended
September 30, 2008 and 2007 respectively; and $1,966 and $64 for the six months
ended September 30, 2008 and 2007 respectively.  Stock option expense
for the Predecessor was $39 and $58 for the three and six months ended September
30, 2007.  Stock option expense is included primarily in general and
administrative expense.
 
 6.
              Acquisitions/Purchase
      Price Accounting
  Twistbox
Entertainment Inc. and related entities
 
 On
February 12, 2008, Mandalay 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 and the Company’s assumption of
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 2,145 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.
  
 
 Mandalay
      Media, Inc. and Subsidiaries
              17Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 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 15.
  The
purchase consideration was determined by an independent valuation 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 current
quarter, a further $59 of transaction costs have been recognized, with the
result that the purchase consideration has been increased to $67,538, with an
equivalent increase in Goodwill. The stock and options 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:
 
 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
  Goodwill
recognized in the above transaction amounted to $61,436. Goodwill in relation to
the acquisition of Twistbox is not expected to be deductible for income tax
purposes. The preliminary purchase price allocation, including the allocation of
goodwill, will continue to be updated as additional information becomes
available. Merger related restructuring reserves include reserves for employee
severance and for office relocation.
  
 
 Mandalay
      Media, Inc. and Subsidiaries
              18Notes
      to Unaudited 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 by Mandalay Media accounted for by the purchase method of accounting as
if it had occurred as at June 1, 2007 and as at April 1, 2007, the beginning of
the comparable three month and six month periods.  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.
 
 3
      months ended
                    
                    
                    6
      months endedSeptember 30, 2007
                    
                    
                    September 30, 2007Revenues
                    
                    $
                    3,356
                    
                    
                    $
                    7,064Cost
      of revenues
                    
                    
                    1,649
                    
                    
                    
                    3,487Gross
      profit/(loss)
                    
                    
                    1,707
                    
                    
                    
                    3,577Operating
      expenses net of interest income and other expense
                    
                    
                    5,595
                    
                    
                    
                    11,353Income
      tax expense
                    
                    
                    -
                    
                    
                    
                    -Net
      loss
                    
                    
                    (3,888
                    )
                    
                    
                    (7,776
                    )Basic
      and Diluted net loss per common share
                    
                    $
                    (0.19
                    )
                    
                    $
                    (0.42
                    )
 
 7.
              Other
      Intangible Assets
  September
      30,
                    
                    
                    March
      31,2008
                    
                    
                    2008Software
                    
                    $
                    1,611
                    
                    
                    $
                    1,611Trade
      Name / Trademark
                    
                    
                    13,030
                    
                    
                    
                    13,030Customer
      list
                    
                    
                    4,378
                    
                    
                    
                    4,378License
      agreements
                    
                    
                    886
                    
                    
                    
                    88619,905
                    
                    
                    
                    19,905Accumulated
      amortization
                    
                    
                    (602
                    )
                    
                    
                    (125
                    )$
                    19,303
                    
                    
                    $
                    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
three months ended September 30, 2008 and 2007, the Successor recorded
amortization expense in the amount of $102 and $0, respectively, in cost of
revenues; and amortization expense in the amount of $137 and $0 respectively in
operating expenses. During the six months ended September 30, 2008 and 2007 the
Successor recorded amortization expense in the amount of $204 and $0
respectively, in cost of revenues; and amortization expense in the amount of
$274 and $0, respectively, in operating expenses.
  
  
 Mandalay
      Media, Inc. and Subsidiaries
              19Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 During
the three months ended September 30, 2007, the Predecessor recorded amortization
expense in the amount of $6 in cost of revenues; and amortization expense in the
amount of $24 in operating expenses.  During the six months ended
September 30, 2007 the Predecessor recorded amortization expense in the amount
of $13 in cost of revenues; and amortization expense in the amount of $47 in
operating expenses.
 
 As of
September 30, 2008, the total expected future amortization related to intangible
assets was as follows:
 
 12 Months ended September
    30,2009
                    
                    
                    2010
                    
                    
                    2011
                    
                    
                    2012
                    
                    
                    2013
                    
                    
                    ThereafterSoftware
                    
                    $
                    230
                    
                    
                    $
                    230
                    
                    
                    $
                    230
                    
                    
                    $
                    230
                    
                    
                    $
                    230
                    
                    
                    $
                    315Customer
      List
                    
                    
                    547
                    
                    
                    
                    547
                    
                    
                    
                    547
                    
                    
                    
                    547
                    
                    
                    
                    547
                    
                    
                    
                    1,298License
      Agreements
                    
                    
                    177
                    
                    
                    
                    177
                    
                    
                    
                    177
                    
                    
                    
                    177
                    
                    
                    
                    65
                    
                    
                    
                    -$
                    954
                    
                    
                    $
                    954
                    
                    
                    $
                    954
                    
                    
                    $
                    954
                    
                    
                    $
                    842
                    
                    
                    $
                    1,613
 
 8.
              Debt
  September
      30,
                    
                    
                    March
      31,2008
                    
                    
                    2008Short
      Term DebtCapitalized
      lease liabilities, current portion
                    
                    $
                    6
                    
                    
                    $
                    20Senior
      secured note, accrued interest
                    
                    
                    248
                    
                    
                    
                    228$
                    254
                    
                    
                    $
                    248
 
 September
      30,
                    
                    
                    March
      31,2008
                    
                    
                    2008Long
      Term DebtSenior
      Secured Note, long term portion, net of discount
                    
                    $
                    16,483
                    
                    
                    $
                    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. The holder of the Note
was granted first lien over all of the Company’s assets. The Note carries
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 Mandalay 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 Senior Secured Note. Subsequent to
the period end, certain terms of the Senior Secured Note, including repayment
options and covenants, as well as the exercise price of the warrants were
changed, as described in Note 15.
  
 
 Mandalay
      Media, Inc. and Subsidiaries
              20Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 Minimum
future obligations, including interest, under the Senior Secured Note are
$18,975 during the year ended September 30, 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 (Agreement)
with Trinad Management for five years. Pursuant to the terms of the Agreement,
Trinad Management will provide certain management services, including, without
limitation, the sourcing, structuring and negotiation of a potential business
combination transaction involving the Company in exchange for a fee of $90 per
quarter, plus reimbursements of all expenses reasonably incurred in connection
with the provision of Agreement. The 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 three
months ended September 30, 2008 and 2007, the Company paid management fees under
the agreement of $90 and $90, respectively. For the six months ended September
30, 2008 and 2007, the Company paid management fees under the agreement of $180
and $180, respectively.
  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 $26 and $26 respectively for the three months ended September 30, 2008
and 2007; and $52 and $52 respectively for the six months ended September 30,
2008 and 2007.
  Twistbox
Entertainment, Inc.
 
 Lease of
Premises
 The
Company 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 $95 and $95 for the three months ended September
30, 2008 and 2007, respectively, and $190 and $190 for the six months ended
September 30, 2008 and 2007, respectively.
 
 The
Company is party to an oral agreement with a person affiliated with the Company
with respect to a lease of an apartment in London.  Amount paid in
connection with this lease was $18 and $18 for the three months ended September
30, 2008 and 2007, respectively, and $36 and $36 for the six months ended
September 30, 2008 and 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.
  
 
 Mandalay
      Media, Inc. and Subsidiaries
              21Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 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 August
3, 2006, the Company authorized an increase in their authorized shares of common
stock from 19,000 to 100,000 shares.
  On August
3, 2006, the Company authorized a 2.5 to 1 stock split of its common stock,
increasing its outstanding shares from 4,000 to 10,000. In connection with the
split, the Company transferred $6 from additional paid-in capital to common
stock. All share and per share amounts have been retroactively adjusted to
reflect the effect of the stock split.
 
 On August
3, 2006, the Company granted warrants to purchase 150 and 50 shares of common
stock of the Company to its president and a director, respectively. Each warrant
is exercisable at $2.50 per share, through August 1, 2008. The warrants were
valued at $111 using a Black-Scholes model assuming a risk free interest rate of
4.89%, expected life of two years, and expected volatility of
105.67%.
  On
September 14, 2006, October 12, 2006 and December 26, 2006, the Company sold
2,800, 3,400 and 530 units, respectively, at $1.00 per unit, for aggregate
proceeds of $ 6,057, net of offering costs of $673. Each unit consisted of one
share of common stock of the Company and one warrant. Each warrant is
exercisable to purchase one share of common stock of the Company at $2.00 per
share, through September, October and December 2008.
 
 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.
  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%.
  
 
 Mandalay
      Media, Inc. and Subsidiaries
              22Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 
 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%.
 
 Series
      A Preferred Stock
                    
                    
                    100Options
      under the Plan
                    
                    
                    7,000Warrants
      not under the Plan
                    
                    
                    100Warrants
      issued with units
                    
                    
                    6,20513,405
  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%.
  
 
 Mandalay
      Media, Inc. and Subsidiaries
              23Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 11.
              Employee
      Benefit Plans
  The
Company has an employee 401(k) savings plan (the “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
  As of
September 30, 2008, the Company had net operating loss (NOL) carry-forwards to
reduce future Federal income taxes of approximately $40,000, 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 acquisition described in Note 6 above, the Company has
recorded Goodwill, amounting to $61,436, which will not be amortized for book
purposes and is not deductible for tax purposes. The Company also recorded
intangibles which will have differing amortization for book and tax purposes.
Trademarks, amounting to $13,030, 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 $6,875, 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
September 30, 2008, realization of the Company's net deferred tax asset of
approximately $18,200 was not considered more likely than not and, accordingly,
a valuation allowance of $18,200 has been provided. During the three months
ended September 30, 2008, the valuation allowance increased by
$1,625.
  Management
has evaluated and concluded that there are no significant uncertain tax
positions requiring recognition in the Company’s financial statements as of
September 30, 2008.
  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 September 30, 2008, December 31, 2007 and December 31, 2006. The
Company will classify interest and penalties on any unrecognized tax benefits as
a component of the provision for income taxes.
  
 
 Mandalay
      Media, Inc. and Subsidiaries
              24Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 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 our sales for the three and six months ended September 30, 2008
and net property and equipment at September 30, 2008 for the
Successor:
 
 North
                      
                      
                      
                      
                      
                      South
                      
                      
                      OtherAmerica
                      
                      
                      Europe
                      
                      
                      America
                      
                      
                      Regions
                      
                      
                      ConsolidatedThree
      Months ended September 30, 2008Net
      sales to unaffiliated customers
                      
                      
                      460
                      
                      
                      
                      4,208
                      
                      
                      
                      167
                      
                      
                      
                      168
                      
                      
                      
                      5,003Six
      Months ended September 30, 2008Net
      sales to unaffiliated customers
                      
                      
                      1,671
                      
                      
                      
                      7,813
                      
                      
                      
                      352
                      
                      
                      
                      514
                      
                      
                      
                      10,349Property
      and equipment, net at September 30, 2008
                      
                      
                      833
                      
                      
                      
                      160
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      993
  Our
largest single customer accounted for 45% of our revenue in the three months
ended September 30, 2008; and 40% of our revenue in the six months ended
September 30, 2008.
 
 The
following information sets forth geographic information on our sales for the
three and six months ended September 30, 2007; and property and equipment at
September 30, 2007 for the Predecessor:
  North
              
              
              
              
              
              South
              
              
              OtherAmerica
              
              
              Europe
              
              
              America
              
              
              Regions
              
              
              ConsolidatedThree
      Months ended September 30, 2007Net
      sales to unaffiliated customers
              
              
              (2,745
              )
              
              
              5,874
              
              
              
              94
              
              
              
              133
              
              
              
              3,356Six
      Months ended September 30, 2007Net
      sales to unaffiliated customers
              
              
              483
              
              
              
              6,129
              
              
              
              171
              
              
              
              281
              
              
              
              7,064Property
      and equipment, net at September 30, 2007
              
              
              917
              
              
              
              23
              
              
              
              -
              
              
              
              196
              
              
              
              1,136
  Our
largest customer accounted for 57% of our gross sales for six months ended
September 30, 2007.
  
  Mandalay
      Media, Inc. and Subsidiaries
              25Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
  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
September 30, 2008:
 
 Year
      Ending September 302009
                            
                            $
                            3762010
                            
                            $
                            2722011
                            
                            $
                            18Total
      minimum lease payments
                            
                            $
                            666
  These
amounts do not reflect future escalations for real estate taxes and building
operating expenses.  Rental expense for the Successor amounted to $183
and $0 for the three months ended September 30, 2008 and 2007, respectively; and
$393 $0 for the six months ended September 30, 2008 and 2007,
respectively.  Rental expense for the Predecessor amount to $234 and
$480 for the three and six months ended September 30, 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 September 30, 2008 were as follows:
 
 MinimumGuaranteedYear Ending September 30
                    
                    Royalties2009
                    
                    
                    1,5972010
                    
                    
                    1,5602011
                    
                    
                    8102012
                    
                    
                    -Total
      minimum payments
                    
                    $
                    3,967
 
 Commitments
in the above table include guaranteed royalties to licensors that are included
as a liability in the Company’s consolidated balance sheet of $1,413 as of
September 30, 2008, because the Company has determined that recoupment is
unlikely.
 
 Other
Obligations
 As of
September 30, 2008, 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 at September 30, 2008.  Annual payments relating to these
commitments at September 30, 2008 are as follows:
  
 
 Mandalay
      Media, Inc. and Subsidiaries
              26Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 Year Ending September 30
                    
                    Commitments2009
                    
                    
                    2,9492010
                    
                    
                    2,1152011
                    
                    
                    8052012
                    
                    
                    -Total
      minimum payments
                    
                    $
                    5,869
  Litigation
 The
Company is subject to various claims and legal proceedings arising in the normal
course of business.  Based on the opinion of the Company’s legal
counsel, management believes that the ultimate liability, if any, in the
aggregate will not be material to the financial position or results of
operations of the Company for any future period; and no liability has been
accrued.
  15.
              Subsequent
      Events
  Acquisition
of AMV Holding Limited Group
  The
Company entered into a Stock Purchase Agreement on October 8, 2008, as amended
on October 23 (the “Agreement”), with Jonathan Cresswell (“Cresswell”),
Nathaniel MacLeitch (“MacLeitch,” and together with Cresswell, the “Founding
Sellers”) and certain shareholders of AMV Holding Limited, a United Kingdom
private limited company (“AMV”) signatories thereto (the “Non-Founding
Sellers”), pursuant to which the Company would acquire 100% of the issued and
outstanding share capital of AMV and 80% of the issued and outstanding share
capital of Fierce Media Limited, a United Kingdom private limited company
(“Fierce,” and together with AMV, the “Acquired Companies”) (the “Acquisition”,
and all of the Shares collectively “the “Shares”).
  The
Acquisition was consummated on October 23, 2008. 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 and non-assessable shares of Common
Stock (the “Stock Consideration”) (closing price of $2.20 per share on October
23, 2008); (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 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
Agreement.
  Prior to
closing, each outstanding option to purchase shares of capital stock of AMV (an
“AMV Option”) was either exercised in full or terminated. Of the Cash
Consideration payable to the Sellers, an amount equal to the exercise price of
the AMV Options being exercised was paid to AMV for consideration of such option
holder’s exercise of such AMV Options, and was deducted from the amount of Cash
Consideration otherwise payable to such option holder. Additionally, of the Cash
Consideration, an amount equal to the maximum taxation liability that would be
incurred with respect to the payment of the Purchase Price to any option Holder
under applicable tax laws (the “Tax Withholding”), was delivered to AMV to be
held in a separate account. The amount of the Tax Withholding was deducted from
the amount of the Cash Consideration otherwise payable to the applicable option
holder.
  
 
 Mandalay
      Media, Inc. and Subsidiaries
              27Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 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, as described below. AMV also agreed to guarantee the Company’s
repayment of the Note to the Sellers. At closing, each of the Sellers agreed to
not dispose of or transfer any of the shares of the Stock Consideration they own
for a period of one year following the closing.
  Debt
Restructuring
  In
connection with the Acquisition, 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. 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. 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.
  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”), as
described in Note 8. One warrant entitles 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 entitles 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.
  
 
 Mandalay
      Media, Inc. and Subsidiaries
              28Notes
      to Unaudited Consolidated Financial Statements(all numbers in thousands except per share
      amounts)
 
 Securities
Purchase Agreement
  On
October 23, 2008, the Company entered into a Securities Purchase Agreement with
certain investors identified therein (individually, an “Investor” and
collectively, the “Investors”), pursuant to which the Company agreed to sell to
the Investors 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. The Warrants have a five year term and an
exercise price of $2.67 per share.
  
  29
  Item 2.  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 Quarterly Report on Form
10-QA, 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” in our Transitional Report on Form 10-KT for the
Transition Period ended March 31, 2008. 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 sole operating and wholly-owned subsidiary, Twistbox
Entertainment, Inc. (“Twistbox”).
    Comparison
of the Three Months Ended September 30, 2008 (Successor) and the Three Months
Ended September 30, 2007 (Predecessor)
 
 Revenues
 
 Successor
                    
                    PredecessorThree Months Ended
                      September 30,2008
                    
                    2007(In thousands)Revenues
      by type:Games
                    
                    $
                    1,217
                    
                    
                    $
                    930Other
      content
                    
                    
                    3,786
                    
                    
                    
                    2,426Total
                    
                    $
                    5,003
                    
                    
                    
                    3,356
 
 Games
revenue includes both licensed and internally developed games for use on mobile
phones. The growth in games revenue largely reflects additional revenue
associated with management of a carrier platform for games in Germany, and
additional development projects out of our games studio in the quarter. Other
content includes a broad range of primarily licensed product delivered in the
form of WAP, Video, Wallpaper and Mobile TV. The increase in other content
revenue year over year relates to new revenue streams related to management of
carrier advertising platforms and addition aggregation, and the expansion of
direct to consumer activities in the US, as well as increased licensing
revenue.
  
    Cost
of Revenues
  Successor
                    
                    
                    PredecessorThree Months Ended
                      September 30,2008
                    
                    
                    2007(In thousands)Cost
      of Revenues:License
      Fees
                    
                    $
                    1,785
                    
                    
                    $
                    1,549Other
      direct cost of revenues
                    
                    
                    102
                    
                    
                    
                    100Total
      Cost of Revenues
                    
                    $
                    1,887
                    
                    
                    $
                    1,649Revenues
                    
                    
                    5,003
                    
                    
                    $
                    3,356Gross
      Margin
                    
                    
                    62.3
                    %
                    
                    
                    50.9
                    %
 
 License
fees represents costs payable to content providers for use of their intellectual
property in products sold. Other direct cost of revenues includes amortization
of the intangibles identified as part of the purchase price accounting and
attributed to cost of revenues. The increase in margin is the result of the
addition of higher margin revenue streams, particularly platform management and
licensing.
  Operating
Expenses
  Successor
                  
                  
                  PredecessorThree Months Ended
                    September 30,2008
                  
                  
                  2007(In thousands)Product
      Development Expenses
                  
                  $
                  1,800
                  
                  
                  $
                  2,301Sales
      and Marketing Expenses
                  
                  
                  1,004
                  
                  
                  
                  1,202General
      and Administrative Expenses
                  
                  
                  2,559
                  
                  
                  
                  1,144Amortization
      of Intangible Assets
                  
                  
                  137
                  
                  
                  
                  60
 
 Product
Development expenses include the costs to develop, edit and make content ready
for consumption on a mobile phone.  The decrease in expenses compared
to the second quarter of the prior year, are primarily the result of
restructuring during the year which resulted in a reduction in employees,
particularly in the product development areas.
 
 Sales and
Marketing Expenses represent the costs of sales and marketing personnel, and
advertising and marketing campaigns. A reduction in personnel costs was largely
offset by increased advertising expenses.
 
 General
and administrative expenses represent management and support personnel costs in
both Mandalay Media and Twistbox, and related expenses, as well as professional
and consulting costs incurred, and other costs such as stock based compensation,
depreciation and bad debt expenses.  The increase in expense over the
first quarter in the prior year is largely the result of stock option expense of
$1.2 million, and additional management expenses at the holding company
level.
  
  31
  Amortization
of intangibles in the current quarter represents amortization of the intangibles
identified as part of the purchase price accounting related to the Twistbox
acquisition and attributed to operating expenses. Amortization expenses in the
first quarter of the prior year represents the amortization predecessor
intangible assets related to prior acquisitions by Twistbox.
  Other
Expenses
 
 Successor
                    
                    PredecessorThree Months Ended
                      September 30,2008
                    
                    2007(In thousands)Interest
      and other income/(expense)
                    
                    $
                    (583
                    )
                    
                    $
                    (195
                    )
 Interest
and other income/(expense) includes interest income on invested funds, interest
expense related the Twistbox’s senior secured note, foreign exchange transaction
gains and losses, and depreciation expense. The increase year over year is a
result of an additional month of interest expense, since the secured note was
initiated in July 2007, and foreign exchange losses versus gains in the prior
period.
 
 Comparison
of the Six Months Ended September 30, 2008 and 2007
 
 Revenues
 
 Successor
                    
                    PredecessorSix Months Ended
                      September 30,2008
                    
                    2007(In thousands)Revenues
      by type:Games
                    
                    $
                    2,493
                    
                    
                    $
                    1,918Other
      content
                    
                    
                    7.856
                    
                    
                    
                    5,146Total
                    
                    $
                    10,349
                    
                    
                    
                    7,064
 
 Games
revenue includes both licensed and internally developed games for use on mobile
phones. The growth in games revenue largely reflects additional revenue
associated with management of a carrier platform for games in Germany, and
additional development projects out of our games studio in the quarter. Other
content includes a broad range of primarily licensed product delivered in the
form of WAP, Video, Wallpaper and Mobile TV. The increase in other content
revenue year over year relates to new revenue streams related to management of
carrier advertising platforms and addition aggregation, and the expansion of
direct to consumer activities in the US, as well as increased licensing
revenue.
  
  
 Cost
of Revenues
 
 Successor
                      
                      
                      PredecessorSix Months Ended
                        September 30,2008
                      
                      
                      2007(In thousands)Cost
      of Revenues:License
      Fees
                      
                      $
                      3,934
                      
                      
                      $
                      3,218Other
      direct cost of revenues
                      
                      
                      204
                      
                      
                      
                      269Total
      Cost of Revenues
                      
                      $
                      4,138
                      
                      
                      $
                      3,487Revenues
                      
                      
                      10,349
                      
                      
                      $
                      7,064Gross
      Margin
                      
                      
                      60.0
                      %
                      
                      
                      49.4
                      %
  License
fees represents costs payable to content providers for use of their intellectual
property in products sold. Other direct cost of revenues includes amortization
of the intangibles identified as part of the purchase price accounting and
attributed to cost of revenues. The increase in margin is the result of the
addition of higher margin revenue streams, particularly platform management and
licensing.
  Operating
Expenses
 
 Successor
                  
                  
                  PredecessorSix Months Ended
                    September 30,2008
                  
                  
                  2007(In thousands)Product
      Development Expenses
                  
                  $
                  3,567
                  
                  
                  $
                  4,792Sales
      and Marketing Expenses
                  
                  
                  2,283
                  
                  
                  
                  2,554General
      and Administrative Expenses
                  
                  
                  5,372
                  
                  
                  
                  2,320Amortization
      of Intangible Assets
                  
                  
                  274
                  
                  
                  
                  90
 
 Product
Development expenses include the costs to develop, edit and make content ready
for consumption on a mobile phone.  The decrease in expenses compared
to the first six months of the prior year, are primarily the result of
restructuring during the year which resulted in a reduction in employees,
particularly in the product development areas.
 
 Sales and
Marketing Expenses represent the costs of sales and marketing personnel, and
advertising and marketing campaigns. A reduction in personnel costs was partly
offset by increased advertising expenses.
 
 General
and administrative expenses represent management and support personnel costs in
both Mandalay Media and Twistbox, and related expenses, as well as professional
and consulting costs incurred, and other costs such as stock based compensation,
depreciation and bad debt expenses.  The increase in expense over the
first quarter in the prior year is largely the result of stock option expense of
$2.0 million, and additional management expenses at the holding company
level.
  
    Amortization
of intangibles in the current quarter represents amortization of the intangibles
identified as part of the purchase price accounting related to the Twistbox
acquisition and attributed to operating expenses. Amortization expenses in the
first half of the prior year represents the amortization of predecessor
intangible assets related to prior acquisitions by
Twistbox.
  Other
Expenses
 
 Successor
                    
                    PredecessorSix Months Ended
                      September 30,2008
                    
                    2007(In thousands)Interest
      and other income/(expense)
                    
                    $
                    (945
                    )
                    
                    $
                    (374
                    )
 Interest
and other income/(expense) includes interest income on invested funds, interest
expense related the Twistbox’s senior secured note, foreign exchange transaction
gains and losses, and depreciation expense. The increase year over year is a
result of an additional four months of interest expense, since the secured note
was initiated in July 2007.




34




Item 6.   Exhibits.




31.1
            
            Certification
      of Ray Schaaf, Principal Executive Officer, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002*31.2
            
            Certification
      of Russell Burke, Principal Financial Officer, pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002. *32.1
            
            Certification
      of Ray Schaaf, Principal Executive Officer, pursuant to 18 U.S.C. Section
      1350. *32.1
            
            Certification
      of Russell Burke, Principal Financial Officer, pursuant to 18 U.S.C.
      Section 1350. *


* Filed
herewith
















Signatures




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





Mandalay
      Media, Inc.Date:
              December
      3, 2009
              By:
              /s/ Ray SchaafRay
      SchaafPresident(Authorized
      Officer and Principal Executive
Officer)




Date:
              December
      3, 2009By:
              /s/ Russell BurkeRussell
      BurkeChief
      Financial Officer(Authorized
      Officer and Principal Financial
Officer)