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 June 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 August
13, 2008, there were 32,415,777 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 June 30, 2008, as originally filed with the Securities and
Exchange Commission (the “Commission”) on August 14, 2008 (the “Form
10-Q”).  The purpose of this Amendment is to add the unaudited interim
financial statements for the quarter ended June 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
statementsper 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 June 30, 2008 (Unaudited)
      andMarch
      31, 2008 (Audited)
                              1Consolidated
      Statements of Operations (Unaudited) for the Successor’s three months
      endedJune
      30, 2008 and June 30, 2007; and Predecessor’s three months ended June 30,
      2007
                              2Consolidated
      Statements of the Successor’s Stockholders’ Equity and Comprehensive Loss
      (Unaudited)for
      the three months ended June 30, 2008
                              3Consolidated
      Statements of Cash Flows (Unaudited) for the Successor’s three months
      endedJune
      30, 2008 and June 30, 2007; and Predecessor’s three months ended June 30,
      2007
                              4Notes
      to Unaudited Consolidated Financial Statements
                              5-25
 
 
 
 (In
thousands, except share amounts)
 
 SuccessorJune
      30,
                                                                                                    
                                                                                                    
                                                                                                    March
      31,2008
                                                                                                    
                                                                                                    
                                                                                                    2008(Unaudited)ASSETSCurrent
      AssetsCash
      and cash equivalents
                                                                                                    
                                                                                                    $
                                                                                                    6,987
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    10,936Accounts
      receivable, net of allowances
                                                                                                    
                                                                                                    
                                                                                                    6,486
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    6,162Note
      Receivable
                                                                                                    
                                                                                                    
                                                                                                    2,025
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -Prepaid
      expenses and other current assets
                                                                                                    
                                                                                                    
                                                                                                    775
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    531Total
      current assets
                                                                                                    
                                                                                                    
                                                                                                    16,273
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    17,629Property
      and equipment, net
                                                                                                    
                                                                                                    
                                                                                                    1,029
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,037Other
      long-term assets
                                                                                                    
                                                                                                    
                                                                                                    210
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    301Intangible
      assets, net
                                                                                                    
                                                                                                    
                                                                                                    19,541
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    19,780Goodwill
                                                                                                    
                                                                                                    
                                                                                                    61,377
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    61,377TOTAL
      ASSETS
                                                                                                    
                                                                                                    $
                                                                                                    98,430
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    100,124LIABILITIES
      AND STOCKHOLDERS’
      EQUITYCurrent
      liabilitiesAccounts
      payable
                                                                                                    
                                                                                                    $
                                                                                                    2,688
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    2,399Accrued
      license fees
                                                                                                    
                                                                                                    
                                                                                                    3,856
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    3,833Accrued
      compensation
                                                                                                    
                                                                                                    
                                                                                                    589
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    688Current
      portion of long term debt
                                                                                                    
                                                                                                    
                                                                                                    631
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    248Other
      current liabilities
                                                                                                    
                                                                                                    
                                                                                                    2,126
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,087Total
      currrent liabilities
                                                                                                    
                                                                                                    
                                                                                                    9,890
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    9,255Accrued
      license fees, long term portion
                                                                                                    
                                                                                                    
                                                                                                    1,033
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,337Long
      term debt, net of current portion
                                                                                                    
                                                                                                    
                                                                                                    16,483
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    16,483Total
      liabilities
                                                                                                    
                                                                                                    $
                                                                                                    27,406
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    27,075Commitments
      and contingencies (Note 15)Stockholders
      equityPreferred
      stock, 1,000 shares authorizedSeries
      A Convertible Preferred Stock, 100,000 shares; authorizedat
      $0.0001 par value; 100,000 shares issued and outstanding
                                                                                                    
                                                                                                    
                                                                                                    100
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    100Common
      stock, $0.0001 par value: 100,000,000 shares authorized;32,415,777
      issued and outstanding at June 30, 2008;32,149,089
      issued and outstanding at March 31, 2008;
                                                                                                    
                                                                                                    
                                                                                                    3
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    3Additional
      paid-in capital
                                                                                                    
                                                                                                    
                                                                                                    77,476
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    76,154Accumulated
      other comprehensive income/(loss)
                                                                                                    
                                                                                                    
                                                                                                    51
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    61Accumulated
      deficit
                                                                                                    
                                                                                                    
                                                                                                    (6,606
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (3,269
                                                                                                    )Total
      stockholders' equity
                                                                                                    
                                                                                                    
                                                                                                    71,024
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    73,049TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                                                                                                    
                                                                                                    $
                                                                                                    98,430
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    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
                                                                                
                                                                                
                                                                                3 Months EndedJune 30
                                                                                
                                                                                
                                                                                June 30
                                                                                
                                                                                
                                                                                June 302008
                                                                                
                                                                                
                                                                                2007
                                                                                
                                                                                
                                                                                2007Revenues
                                                                                
                                                                                $
                                                                                5,347
                                                                                
                                                                                
                                                                                $
                                                                                -
                                                                                
                                                                                
                                                                                $
                                                                                3,708Cost
      of revenuesLicense
      fees
                                                                                
                                                                                
                                                                                2,150
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                1,669Other
      direct cost of revenues
                                                                                
                                                                                
                                                                                102
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                169Total
      cost of revenues
                                                                                
                                                                                
                                                                                2,252
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                1,838Gross
      profit
                                                                                
                                                                                
                                                                                3,095
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                1,870Operating
      expensesProduct
      development
                                                                                
                                                                                
                                                                                1,766
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                2,491Sales
      and marketing
                                                                                
                                                                                
                                                                                1,280
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                1,352General
      and administrative
                                                                                
                                                                                
                                                                                2,813
                                                                                
                                                                                
                                                                                
                                                                                264
                                                                                
                                                                                
                                                                                
                                                                                1,176Amortization
      of intangible assets
                                                                                
                                                                                
                                                                                137
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                30Total
      operating expenses
                                                                                
                                                                                
                                                                                5,996
                                                                                
                                                                                
                                                                                
                                                                                264
                                                                                
                                                                                
                                                                                
                                                                                5,049Loss
      from operations
                                                                                
                                                                                
                                                                                (2,901
                                                                                )
                                                                                
                                                                                
                                                                                (264
                                                                                )
                                                                                
                                                                                
                                                                                (3,179
                                                                                )Interest
      and other income/(expense)Interest
      income
                                                                                
                                                                                
                                                                                76
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                10Interest
      (expense)
                                                                                
                                                                                
                                                                                (484
                                                                                )
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                (55
                                                                                )Foreign
      exchange transaction gain (loss)
                                                                                
                                                                                
                                                                                131
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                68Other
      (expense)
                                                                                
                                                                                
                                                                                (86
                                                                                )
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                (202
                                                                                )Interest
      and other income/(expense)
                                                                                
                                                                                
                                                                                (363
                                                                                )
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                (179
                                                                                )Loss
      before income taxes
                                                                                
                                                                                
                                                                                (3,264
                                                                                )
                                                                                
                                                                                
                                                                                (264
                                                                                )
                                                                                
                                                                                
                                                                                (3,358
                                                                                )Income
      tax provision
                                                                                
                                                                                
                                                                                (73
                                                                                )
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                2Net
      loss
                                                                                
                                                                                $
                                                                                (3,337
                                                                                )
                                                                                
                                                                                $
                                                                                (264
                                                                                )
                                                                                
                                                                                $
                                                                                (3,356
                                                                                )Preferred
      Stock Dividends
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                -Net
      Loss attributable to Common Shareholders
                                                                                
                                                                                $
                                                                                (3,337
                                                                                )
                                                                                
                                                                                $
                                                                                (264
                                                                                )
                                                                                
                                                                                $
                                                                                (3,356
                                                                                )Basic
      and Diluted net loss per common share
                                                                                
                                                                                $
                                                                                (0.10
                                                                                )
                                                                                
                                                                                $
                                                                                (0.02
                                                                                )
                                                                                
                                                                                $
                                                                                (0.43
                                                                                )Weighted average
      common shares outstanding,
                                                                                  basic
      and diluted
                                                                                
                                                                                
                                                                                32,330
                                                                                
                                                                                
                                                                                
                                                                                16,730
                                                                                
                                                                                
                                                                                
                                                                                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)
 
  Three
Months Ended June 30, 2008
 
 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 stockon
      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
                                                                                          )
                                                                                          
                                                                                          $
                                                                                          71,024
  The
accompanying notes are an integral part of these consolidated financial
statements
  
 Mandalay
      Media, Inc. and Subsidiaries
                  4Consolidated
      Statements of Cash Flows (Unaudited)
 (In
thousands)
 Successor
                                              
                                              
                                              Predecessor3 Months Ended
                                              
                                              
                                              3 Months Ended
                                              
                                              
                                              3 Months EndedJune 30,
                                              
                                              
                                              June 30,
                                              
                                              
                                              June 30,2008
                                              
                                              
                                              2007
                                              
                                              
                                              2007Cash flows
      from operating activitiesNet
      loss
                                              
                                              $
                                              (3,337
                                              )
                                              
                                              $
                                              (264
                                              )
                                              
                                              $
                                              (3,356
                                              )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
      and amortization
                                              
                                              
                                              317
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              105Provision
      for doubtful accounts
                                              
                                              
                                              (56
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              22Stock-based
      compensation
                                              
                                              
                                              1,222
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              19(Increase)
      / decrease in assets:Accounts
      receivable
                                              
                                              
                                              (268
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              132Prepaid
      expenses and other
                                              
                                              
                                              (153
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              2Increase
      / (decrease) in liabilities:Accounts
      payable
                                              
                                              
                                              389
                                              
                                              
                                              
                                              (60
                                              )
                                              
                                              
                                              712Accrued
      license fees
                                              
                                              
                                              23
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (747
                                              )Accrued
      compensation
                                              
                                              
                                              (99
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              401Other
      liabilities
                                              
                                              
                                              118
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (351
                                              )Net
      cash used in operating activities
                                              
                                              
                                              (1,844
                                              )
                                              
                                              
                                              (324
                                              )
                                              
                                              
                                              (3,061
                                              )Cash
      flows from investing activitiesPurchase
      of property and equipment
                                              
                                              
                                              (70
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (145
                                              )Issuance
      of Note Receivable
                                              
                                              
                                              (2,025
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Repayment
      of notes receivable
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              13Net
      cash used in investing activities
                                              
                                              
                                              (2,095
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (132
                                              )Cash
      flows from financing activitiesProceeds
      from the sale of preferred stock
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              3,000Repayment
      of short-term debt
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              335-
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              -Net
      cash provided by financing activities
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              3,335Effect
      of exchange rate changes on cash and cash equivalents
                                              
                                              
                                              (10
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              53Net
      increase/(decrease) in cash and cash equivalents
                                              
                                              
                                              (3,949
                                              )
                                              
                                              
                                              (324
                                              )
                                              
                                              
                                              195Cash
      and cash equivalents, beginning of period
                                              
                                              
                                              10,936
                                              
                                              
                                              
                                              5,742
                                              
                                              
                                              
                                              631Cash
      and cash equivalents, end of period
                                              
                                              $
                                              6,987
                                              
                                              
                                              $
                                              5,418
                                              
                                              
                                              $
                                              826Supplemental
      disclosure of cash flow information:Interest
      paid
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              55Taxes
      paid
                                              
                                              
                                              (73
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
  The
accompanying notes are an integral part of these consolidated financial
statements
 
  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 through its merger with Twistbox Entertainment, Inc., February 12, 2008
(Note 6).  On September 14, 2007, Mandalay Media, Inc. (Mandalay) was
incorporated by Mediavest in the state of Delaware.
 
 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 assumed the
same status and par value as Mediavest’s and 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 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 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 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, cash flows and stockholders’ equity 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 June 30, 2008 and its results of operations for the
Successor’s three months ended June 30, 2008 and 2007, and the Predecessor’s
three months ended June 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 June 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
      service interaction and are generally viewed as the primary obligor by the
      subscribers;
 ·
                      carriers
      generally have significant control over the types of content that they
      offer to their subscribers;
 ·
                      carriers
      are directly responsible for billing and collecting fees from their
      subscribers, including the resolution of billing
  disputes;
 ·
                      carriers
      generally pay 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
      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;
  While not
a significant portion of revenue, in some instances revenue is earned by
delivering a product or service direct 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 periods ended June 30, 2008 and June 30, 2007
consisted of 5,060 and  671 shares, respectively, and were not
included in the computation of diluted loss per share as they were anti-dilutive
in each period.
 
 Comprehensive
Income/(Loss)
 Comprehensive
income/(loss) consists of two components, net income/(loss) and other
comprehensive income/(loss). Other comprehensive income/(loss) refers to gains
and losses that under generally accepted accounting principles are recorded as
an element of stockholders’ equity but are excluded from net income/(loss). The
Company’s other comprehensive income/(loss) currently includes only foreign
currency translation adjustments. Total
comprehensive loss for the successor for the three months ended June 30, 2008
was $3,347. Total comprehensive loss for the predecessor for the three months
ended June 30, 2007 was $3,464.
 
 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 $424 and $40 for the periods ended June 30, 2008 and 2007,
respectively.  Advertising expense for the Predecessor was $7 for the
three months ended June 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  ($10)
during the three month ended June 30, 2008.  The foreign currency
translation adjustment (loss) for the Predecessor was $108 during the three
month ended June 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 June 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 June 30, 2008,
approximately 25% of our gross accounts receivable outstanding was with one
major customer. This customer accounted for 40% of our gross sales in the period
ended June 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.
 
 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.
 
 
  Mandalay
      Media, Inc. and Subsidiaries
                11Notes
      to Unaudited Consolidated Financial Statements (all
numbers in thousands except per share amounts)
 
 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.
 
 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.
 
 
 
 Mandalay
      Media, Inc. and Subsidiaries
                12
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 
 The
Black-Scholes option pricing model, used to estimate the fair value of an award,
requires the input of subjective assumptions, including the expected volatility
of our common stock and an option’s expected life. As a result, the financial
statements include amounts that are based upon our best estimates and judgments
relating to the expenses recognized for stock-based compensation.
 
 Preferred
Stock
 
 The
Company applies the guidance enumerated in SFAS No. 150, “Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity,” and EITF Topic D-98, “Classification and Measurement of Redeemable
Securities,” when determining the classification and measurement of preferred
stock. Preferred shares subject to mandatory redemption (if any) are classified
as liability instruments and are measured at fair value in accordance with
SFAS 150. 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 FASB issued 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.
  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 noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date,
with limited exceptions specified in the statement. This statement applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company does not expect the adoption of SFAS 141R to have
a significant impact on its results of operations or financial
position.
 
 
 
 Mandalay
      Media, Inc. and Subsidiaries
                13
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“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 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
                14
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 4.
                  Balance
      Sheet Components
  Accounts
Receivable
  June
      30,
                                  
                                  
                                  March
      31,2008
                                  
                                  
                                  2008Accounts
      receivable
                                  
                                  $
                                  6,598
                                  
                                  
                                  $
                                  6,330Less:
      allowance for doubtful accounts
                                  
                                  
                                  (112
                                  )
                                  
                                  
                                  (168
                                  )$
                                  6,486
                                  
                                  
                                  $
                                  6,162
  Accounts
receivable includes amounts billed and unbilled as of the respective balance
sheet dates. The Successor had no significant write-offs or recoveries during
the period ended June 30, 2008.  The Predecessor reserved $22 for the
three months ended June 30, 2007 and $0 was written off against the
allowance.
  Note
Receivable
  June
      30,
                          
                          
                          March
      31,2008
                          
                          
                          2008Loan
      secured by Note inclusive of interest (refer Note 15)
                          
                          $
                          2,025
                          
                          
                          $
                          -
  Property
and Equipment
  June
      30,
                                  
                                  
                                  March
      31,2008
                                  
                                  
                                  2007Equipment
                                  
                                  $
                                  708
                                  
                                  
                                  $
                                  654Equipment
      subject to capitalized lease
                                  
                                  
                                  81
                                  
                                  
                                  
                                  71Furniture
      & fixtures
                                  
                                  
                                  234
                                  
                                  
                                  
                                  228Leasehold
      improvements
                                  
                                  
                                  140
                                  
                                  
                                  
                                  1401,163
                                  
                                  
                                  
                                  1,093Accumulated
      depreciation
                                  
                                  
                                  (134
                                  )
                                  
                                  
                                  (56
                                  )$
                                  1,029
                                  
                                  
                                  $
                                  1,037
  Depreciation
expense for the Successor for the three months ended June 30, 2008 and 2007 was
$86 and $75 respectively.  Depreciation expense for the Predecessor
for the three months ended June 30, 2007 was $75.
  Capital
Lease
 Accumulated
depreciation associated with the equipment under capital lease noted above was
$7 and $72 at June 30, 2008 and March 31, 2008, respectively. The Company has a
commitment to pay $12 under these leases during the year ending June 30, 2009.
These payments have a net present value of $11.
 
 
 
 Mandalay
      Media, Inc. and Subsidiaries
                15
 Notes
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
                                    
                                    
                                    1,500,000
                                    
                                    
                                    $
                                    2.75Canceled
                                    
                                    
                                    -
                                    
                                    
                                    $
                                    -Exercised
                                    
                                    
                                    (2,189
                                    )
                                    
                                    $
                                    0.48Outstanding
      at June 30, 2008
                                    
                                    
                                    8,299,910
                                    
                                    
                                    $
                                    2.71Exercisable
      at June 30, 2008
                                    
                                    
                                    4,325,711
                                    
                                    
                                    $
                                    2.10
 
 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 tranferredJune 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
                                  %
 
 
 
 Mandalay
      Media, Inc. and Subsidiaries
                16
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 The
exercise price for options outstanding at June 30, 2008 was as
follows:
 
 WeightedAverage
                                          
                                          
                                          
                                          
                                          
                                          WeightedRemaining
                                          
                                          
                                          Number
                                          
                                          
                                          Average
                                          
                                          
                                          AggregateRange
      of
                                          
                                          Contractual
      Life
                                          
                                          
                                          Outsanding
                                          
                                          
                                          Exercise
                                          
                                          
                                          IntrinsicExercise
      Price
                                          
                                          (Years)
                                          
                                          
                                          June
      30, 2008
                                          
                                          
                                          Price
                                          
                                          
                                          Value$0
      - $1.00
                                          
                                          
                                          8.07
                                          
                                          
                                          
                                          2,448,047
                                          
                                          
                                          $
                                          0.64
                                          
                                          
                                          $
                                          5,536,245$2.00
      - $3.00
                                          
                                          
                                          9.60
                                          
                                          
                                          
                                          3,100,000
                                          
                                          
                                          $
                                          2.69
                                          
                                          
                                          $
                                          640,000$3.00
      - $4.00
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -$4.00
      - $5.00
                                          
                                          
                                          9.65
                                          
                                          
                                          
                                          2,751,864
                                          
                                          
                                          $
                                          4.57
                                          
                                          
                                          $
                                          -9.17
                                          
                                          
                                          
                                          8,299,911
                                          
                                          
                                          
                                          2.71
                                          
                                          
                                          $
                                          6,176,245
 
 The
exercise price for options exercisable at June 30, 2007 was as
follows:
 
 WeightedAverage
                                    
                                    
                                    
                                    
                                    
                                    WeightedRemaining
                                    
                                    
                                    Options
                                    
                                    
                                    Average
                                    
                                    
                                    AggregateRange
      of
                                    
                                    Contractual
      Life
                                    
                                    
                                    exercisable
                                    
                                    
                                    Exercise
                                    
                                    
                                    IntrinsicExercise
      Price
                                    
                                    (Years)
                                    
                                    
                                    at
      June 30, 2008
                                    
                                    
                                    Price
                                    
                                    
                                    Value$0
      - $1.00
                                    
                                    
                                    8.02
                                    
                                    
                                    
                                    2,206,502
                                    
                                    
                                    $
                                    0.63
                                    
                                    
                                    $
                                    5,018,365$2.00
      - $3.00
                                    
                                    
                                    9.56
                                    
                                    
                                    
                                    1,111,762
                                    
                                    
                                    $
                                    2.69
                                    
                                    
                                    $
                                    232,291$3.00
      - $4.00
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -$4.00
      - $5.00
                                    
                                    
                                    9.63
                                    
                                    
                                    
                                    1,007,447
                                    
                                    
                                    $
                                    4.70
                                    
                                    
                                    $
                                    -8.79
                                    
                                    
                                    
                                    4,325,711
                                    
                                    
                                    
                                    2.10
                                    
                                    
                                    
                                    5,250,656
 
 Stock
option expense for the Successor was $1,222 and $0 for the three months ended
June 30, 2008 and 2007, respectively.  Stock option expense for the
Predecessor was $19 for three months ended June 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 a 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 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
                17
 Notes
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 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. 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.
  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.  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
$67,479 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
                            
                            
                            61,377$
                            67,479
  Goodwill
recognized in the above transaction amounted to $61,377. 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 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
                18
 Notes
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 April 1, 2007, the beginning of the comparable three
month period.  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 endedJune 30, 2007Revenues
                                  
                                  $
                                  3,708Cost
      of revenues
                                  
                                  
                                  1,838Gross
      profit/(loss)
                                  
                                  
                                  1,870Operating
      expenses net of interestincome
      and other expense
                                  
                                  
                                  4,870Income
      tax expense
                                  
                                  
                                  (2
                                  )Net
      loss
                                  
                                  
                                  (3,356
                                  )Basic
      and Diluted net loss per common share
                                  
                                  $
                                  (0.43
                                  )
 
 7.
                  Other
      Intangible Assets
  June 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
                                  
                                  
                                  (364
                                  )
                                  
                                  
                                  (125
                                  )$
                                  19,541
                                  
                                  
                                  $
                                  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 June 30, 2008 and 2007 the Successor recorded amortization
expense in the amount of $53 and $0, respectively in cost of revenues; and
amortization expense in the amount of $72 and $0, respectively in operating
expenses.  The Predecessor recorded $7 in cost of revenues and $23 in
operating expenses for the three months ended June 30, 2007.
 
 
 
 Mandalay
      Media, Inc. and Subsidiaries
                19
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 
 As of
June 30, 2008, the total expected future amortization related to intangible
assets was as follows:
 
 12 Months ended June 30,2009
                          
                          
                          2010
                          
                          
                          2011
                          
                          
                          2012
                          
                          
                          2013
                          
                          
                          ThereafterSoftware
                          
                          $
                          230
                          
                          
                          $
                          230
                          
                          
                          $
                          230
                          
                          
                          $
                          230
                          
                          
                          $
                          230
                          
                          
                          $
                          373Customer
      List
                          
                          
                          547
                          
                          
                          
                          547
                          
                          
                          
                          547
                          
                          
                          
                          547
                          
                          
                          
                          547
                          
                          
                          
                          1,435License
      Agreements
                          
                          
                          177
                          
                          
                          
                          177
                          
                          
                          
                          177
                          
                          
                          
                          177
                          
                          
                          
                          110
                          
                          
                          
                          -$
                          954
                          
                          
                          $
                          954
                          
                          
                          $
                          954
                          
                          
                          $
                          954
                          
                          
                          $
                          887
                          
                          
                          $
                          1,808
  8.
                  Debt
 
 June 30,
                                            
                                            
                                            March 31,2008
                                            
                                            
                                            2008Short
      Term DebtCapitalized
      lease liabilities, current portion
                                            
                                            $
                                            12
                                            
                                            
                                            $
                                            20Senior
      Secured Note, accrued interest
                                            
                                            
                                            619
                                            
                                            
                                            
                                            228$
                                            631
                                            
                                            
                                            $
                                            248June 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.
  Minimum
future obligations, including interest, under the Senior Secured Note are $1,636
for the year ended June 30, 2009 and $17,463 during the year ended June 30, 2010
including repayment of the principle. Capitalized lease assets are set out in
Note 4. Future obligations under capitalized leases are included as part of
Other Obligations in Note 15.
 
 
 
 Mandalay
      Media, Inc. and Subsidiaries
                20
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 
 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 June 30, 2008 and 2007, the Company paid management fees under the
agreement of $90 and $90 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 June 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 June 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 June 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 common, (2) dividends on an if-converted basis
and (3) a liquidation preference equal to the greater of $10, per share of
Series A (subject to adjustment) or such amount that would have been paid on an
if-converted basis. Each Series A holder may treat as a dissolution or winding
up of the Company any of the following transactions: a consolidation, merger,
sale of substantially all the assets of the company, issuance/sale of common
stock of the Company constituting a majority of all shares outstanding and a
merger/business combination, each as defined.
 
 In
addition, the Series A holders may convert, at their discretion, all or any of
their Series A shares into the number of common shares equal to the number
calculated by dividing the original purchase price of such Series A Preferred,
plus the amount of any accumulated, but unpaid dividends, as of the conversion
date, by the original purchase price (subject to certain adjustments) in effect
at the close of business on the conversion date.
 
 
 
 Mandalay
      Media, Inc. and Subsidiaries
                21
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 
 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, was 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 an 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 one-third on the second
anniversary of the date of grant. The options were valued at $772 using a
Black-Scholes model assuming a risk free interest rate of 3.89%, expected life
of four years, and expected volatility of 75.2%.
 
 On
November 14, 2007, the Company granted non-qualified stock options to purchase
100 shares of common stock of the Company to a director under the Plan. The
options have a ten year term and are exercisable at a price of $2.50 per share,
with one-third of the options granted vesting immediately upon grant, one-third
vesting on the first anniversary of the date of grant and one-third 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%.
 
 
 
 Mandalay
      Media, Inc. and Subsidiaries
                22
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 
 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 warrants to a
lender to Twistbox, 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.
  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 one-third 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%.
 
 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
June 30, 2008, the Company had net operating loss (NOL) carry-forwards to reduce
future Federal income taxes of approximately $39,200, 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 merger described in Note 6 above, the Company has recorded
goodwill and intangibles which will have differing amortization for book and tax
purposes. Goodwill and trademarks, amounting to $74,407 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.
 
 
 
 Mandalay
      Media, Inc. and Subsidiaries
                23
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 
 As of
June 30, 2008, realization of the Company's net deferred tax asset of
approximately $16,575 was not considered more likely than not and, accordingly,
a valuation allowance of $16,575 has been provided. During the three months
ended June 30, 2008, the valuation allowance increased by $1,825.
  Management
has evaluated and concluded that there are no significant uncertain tax
positions requiring recognition in the Company’s financial statements as of June
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 June 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.
  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 months ended June 30, 2008 and net
property and equipment at June 30, 2008 for the Successor:
 
 North
                        
                        
                        
                        
                        
                        South
                        
                        
                        OtherAmerica
                        
                        
                        Europe
                        
                        
                        America
                        
                        
                        Regions
                        
                        
                        ConsolidatedThree
      Months ended June 30, 2008Net
      sales to unaffiliated customers
                        
                        
                        592
                        
                        
                        
                        4,453
                        
                        
                        
                        167
                        
                        
                        
                        134
                        
                        
                        
                        5,347Property
      and equipment, net
                        
                        
                        858
                        
                        
                        
                        170
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,029
  Our
largest single customer accounted for 40% of our revenue for the three months
ended June 30, 2008.
 
 The
following information sets forth geographic information on our sales for the
three months ended June 30, 2007; and property and equipment at June 30, 2007
for the Predecessor:
 
 North
                        
                        
                        
                        
                        
                        South
                        
                        
                        OtherAmerica
                        
                        
                        Europe
                        
                        
                        America
                        
                        
                        Regions
                        
                        
                        ConsolidatedThree
      Months ended June 30, 2007Net
      sales to unaffiliated customers
                        
                        
                        3,228
                        
                        
                        
                        255
                        
                        
                        
                        77
                        
                        
                        
                        148
                        
                        
                        
                        3,708Property
      and equipment, net
                        
                        
                        936
                        
                        
                        
                        24
                        
                        
                        
                        -
                        
                        
                        
                        137
                        
                        
                        
                        1,097
 
 Our
largest customer accounted for 59% of our gross sales for three months ended
June 30, 2007.
 
 
 
 Mandalay
      Media, Inc. and Subsidiaries
                24
 Notes
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 June
30, 2008:
 
 Year
      Ending June 30,2009
                                
                                $
                                2692010
                                
                                
                                2522011
                                
                                
                                11Total
      minimum payments
                                
                                $
                                532
  These
amounts do not reflect future escalations for real estate taxes and building
operating expenses.  Rental expense for the Successor amounted to $210
and $0 for the three months ended June 30, 2008 and 2007,
respectively.  Rental expense for the Predecessor amounted to $246 for
the three months ended June 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 June 30, 2008 were as follows:
 
 MinimumGuaranteedYear
      Ending June 30,
                                    
                                    Royalties2009
                                    
                                    $
                                    1,7602010
                                    
                                    
                                    1,5602011
                                    
                                    
                                    1,2002012
                                    
                                    
                                    -Total
      minimum payments
                                    
                                    $
                                    4,520
 
 Commitments
in the above table include guaranteed royalties to licensors that are included
as a liability in the Company’s consolidated balance sheet of $1,965 as of June
30, 2008, because the Company has determined that recoupment is
unlikely.
 
 Other
Obligations
 As of
June 30, 2008, the Company was obligated for payments under various distribution
agreements, equipment lease agreements, employment contracts and the management
agreement described in Note 10 with initial terms greater than one year at June
30, 2008.  Annual payments relating to these commitments at June 30,
2008 are as follows:
  
  Mandalay
      Media, Inc. and Subsidiaries
                25 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
  Year
      Ending June 30
                                  
                                  Commitments2009
                                  
                                  
                                  3,1322010
                                  
                                  
                                  2,3742011
                                  
                                  
                                  1,1272012
                                  
                                  
                                  75Total
      minimum payments
                                  
                                  $
                                  6,708
  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
  On May
16, 2008, the Company signed a letter of intent to purchase video gaming company
Green Screen Interactive Software, Inc. (“Green Screen”).  In
connection with the potential acquisition, the Company also provided a bridge
loan of $2,000 to Green Screen on May 16, 2008 by purchasing a Convertible
Secured Promissory Note in the aggregate principal amount of $2,000 (the “Note”)
from Green Screen. The letter of intent expired without execution of a
definitive acquisition agreement, and has therefore been terminated. The entire
Note, plus interest ($2,028), was repaid on July 7, 2008.
 
 
    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”).
  This
discussion is included to compare the financial results of our successor to the
financial results of our predecessor.
 
 Comparison of the Three Months Ended June 30,
2008 (Successor) and Three Months Ended June 30,
2007(Predecessor)
 
 Revenues
 
 Successor     
      Predecessor
                              Three Months
                              Ended June 30,2008
                            
                            
                            2007(In
      thousands)Revenues
      by type:Games
                            
                            $
                            1,276
                            
                            
                            $
                            988Other
      content
                            
                            
                            4,071
                            
                            
                            
                            2,720Total
                            
                            $
                            5,347
                            
                            
                            $
                            3,708
 
 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. 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 the launch of a new revenue stream related to
management of carrier advertising platforms, and the expansion of direct to
consumer activities in the US, as well as increased licensing
revenue.
 
 
    Cost of Revenues
  Successor     
      Predecessor
                                      Three Months
                                      Ended June 30,2008
                                    
                                    2007(In
      thousands)Cost
      of Revenues:License
      Fees
                                    
                                    $
                                    2,150
                                    
                                    
                                    $
                                    1,669Other
      direct cost of revenues
                                    
                                    
                                    102
                                    
                                    
                                    
                                    169Total
      Cost of Revenues
                                    
                                    $
                                    2,252
                                    
                                    
                                    $
                                    1,838Revenues
                                    
                                    
                                    5,347
                                    
                                    
                                    $
                                    3,708Gross
      Margin
                                    
                                    
                                    57.9
                                    %
                                    
                                    
                                    50.4
                                    %
  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     
      Predecessor
                      Three Months
                      Ended June 30,2008
                    
                    2007(In
      thousands)Product
      Development Expenses
                    
                    $
                    1,766
                    
                    
                    $
                    2,491Sales
      and Marketing Expenses
                    
                    
                    1,280
                    
                    
                    
                    1,352General
      and Administrative Expenses
                    
                    
                    2,813
                    
                    
                    
                    1,176Amortization
      of Intangible Assets
                    
                    
                    137
                    
                    
                    
                    30
 
 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 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
$1.2million, 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 Twistox
acquisition and attributed to operating expenses. Amortisation expenses in the
first quarter of the prior year represents the amortization predecessor
intangible assets related to prior acquisitions by Twistbox.
  Other Expenses
  Successor     
      Predecessor
                      Three Months
                      Ended June 30,2008
                    
                    
                    2007(In
      thousands)Interest
      and other income/(expense)
                    
                    $
                    (363
                    )
                    
                    $
                    (179
                    )
  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. The increase year over year is a result of higher interest
expense, since the secured note was initiated in July 2007.
  Successor
                        Three
                        Months
                      
                      
                      Predecessor
                        Three
                        MonthsEnded
                        June 30,
                      
                      
                      Ended
                        June 30,2008
                      
                      
                      2007(In
                        thousands)
                      
                      
                      (In
                        thousands)Consolidated
      Statement of Cash Flows Data:Capital
      expenditures
                      
                      
                      (70
                      )
                      
                      
                      (145
                      )Cash
      flows used in operating activities
                      
                      
                      (1,844
                      )
                      
                      
                      (3,080
                      )Cash
      flows (used in)/ provided by investing activities
                      
                      
                      (2,095
                      )
                      
                      
                      32Cash
      flows (used in)/provided by financing activities
                      
                      
                      -
                      
                      
                      
                      3,335
   The
primary sources of liquidity have historically been issuance of common and
preferred stock, and in the case of the predecessor entity,Twistbox, borrowings
under credit facilities with aggregate proceeds of $16.5 million. In the future,
we anticipate that our primary sources of liquidity will be cash generated by
our operating activities.
 
 
    Operating
Activities
 
 In the
three months ended June 30, 2007 we used $3.1 million of net cash in operating
expenses, primarily driven by the net loss for the period of $3.4 million offset
by non-cash deprecation and bad debt expense and changes in working capital
amounts. In the three months ended June 30, 2008, we used $1.8 million of net
cash in operating expenses. This primarily related to the net loss of $3.4
million, an increase in a receivables of $0.3 million, partially offset by non
cash stock based compensation and depreciation and amortization included in the
net loss of $1.2million and $0.3 million respectively, and increases in accounts
payable and other liabilities.
  Investing
Activities
 
 In the
three months ended June 30, 2007, $32,000 was provided by investing activities,
the result of the proceeds of sale of repayment of advances to third parties. In
the three months ended June 30, 2008, $2.1 million was used in investing
activities, related to the bridge loan provided to Green Screen Interactive
Software Inc. as part of a potential acquisition. The acquisition did not
proceed and the loan was fully repaid with interest on July 7,
2008.
 
 Financing
Activities
 
 In the
three months ended June 30, 2007, $3.3 million was provided by financing
activities, the result of the proceeds on sale of Series B-1 preferred stock by
the predessor entity, Twistbox, as well as the repayment of short term debt to
that entity.
  
 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)