**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C.  20549









**FORM
      10-Q**





(Mark
      One)





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





For
      the
      quarterly period ended September 30, 2008





o
            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 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 companyx




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





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





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





**MANDALAY
      MEDIA, INC.**


**Table
      of Contents**




**Page****PART
                I - FINANCIAL INFORMATION**Item
                1.
            Financial
                Statements
            3Consolidated
                Balance Sheets as of September 30, 2008 (Unaudited) and March 31,
                2008
            4Consolidated
                Statement of Operations (Unaudited) For the Three Month and the Six
                Month
                Periods Ended September 30, 2008 and 2007
            5Consolidated
              Statements
              of Stockholders’ Equity and Comprehensive Loss (Unaudited) for the Period
              Ended September 30, 2008
            6Consolidated
                Statements of Cash Flows (Unaudited) For the Three Month and the
                Six Month
                Periods Ended September 30, 2008 and 2007
            7Notes
                to Unaudited Consolidated Financial Statements
            8Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            31Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            37Item
                4T.
            Controls
                and Procedures
            38**PART
                II - OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            38Item 1A.
            Risk
                Factors
            38Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            38Item
                3.
            Defaults
                Upon Senior Securities
            38Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            39Item
                5.
            Other
                Information
            39Item
                6.
            Exhibits
            39Signatures
            40




2




**PART
      I - FINANCIAL INFORMATION**




**Item
      1.**  **Financial
      Statements.**




**Page(s)**Consolidated
                Balance Sheets as of September 30, 2008 (Unaudited) and March 31,
                2008
            
            
            4Consolidated
                Statements of Operations (Unaudited) for the three months and the
                six
                months ended September 30, 2008 and September 30, 2007
            
            
            5Consolidated
                Statements of Stockholders’ Equity and Comprehensive Loss (Unaudited) for
                the period ended September 30, 2008
            
            
            6Consolidated
                Statements of Cash Flows (Unaudited) for the six months ended September
                30, 2008 and September 30, 2007
            
            
            7Notes
                to Unaudited Consolidated Financial Statements
            
            
            8-30


3


**Mandalay
      Media Inc. and Subsidiaries**


**Consolidated
      Balance Sheets**





**(In
        thousands, except share amounts)**
 
 **September 30,**
              
              **March 31,****2008**
              
              **2008****(Unaudited)****ASSETS**Current
                  AssetsCash
                  and cash equivalents
              
              $
              7,122
              
              $
              10,936Accounts
                  receivable, net of allowances
              
              
              6,203
              
              
              6,162Prepaid
                  expenses and other current assets
              
              
              648
              
              
              531Total
                  current assets
              
              
              13,973
              
              
              17,629Property
                  and equipment, net
              
              
              993
              
              
              1,037Other
                  long-term assets
              
              
              206
              
              
              301Intangible
                  assets, net
              
              
              19,303
              
              
              19,780Goodwill
              
              
              61,436
              
              
              61,377**TOTAL
                  ASSETS**
              
              **$**
              **95,911**
              
              **$**
              **100,124****LIABILITIES
                  AND STOCKHOLDERS EQUITY**Current
                  liabilitiesAccounts
                  payable
              
              $
              4,325
              
              $
              2,399Accrued
                  license fees
              
              
              2,813
              
              
              3,833Accrued
                  compensation
              
              
              746
              
              
              688Current
                  portion of long term debt
              
              
              254
              
              
              248Other
                  current liabilities
              
              
              2,001
              
              
              2,087Total
                  currrent liabilities
              
              
              10,139
              
              
              9,255Accrued
                  license fees, long term portion
              
              
              668
              
              
              1,337Long
                  term debt, net of current portion
              
              
              16,483
              
              
              16,483Total
                  liabilities
              
              $
              27,290
              
              
              27,075Commitments
                  and contingencies (Note 15)Stockholders
                  equityPreferred
                  stock, 1,000 shares authorizedSeries
                  A Convertible Preferred Stock, 100,000 shares; authorized at $0.0001
                  par
                  value; 100,000 shares issued and outstanding
              
              
              100
              
              
              100Common
                  stock, $0.0001 par value: 100,000,000 shares authorized;32,449,449
                  issued and outstanding at September 30, 2008;
                32,149,089
                  issued and outstanding at March 31, 2008;
              
              
              3
              
              
              3Additional
                  paid-in capital
              
              
              78,220
              
              
              76,154Accumulated
                  other comprehensive income/(loss)
              
              
              (55
              )
              
              61Accumulated
                  deficit
              
              
              (9,647
              )
              
              (3,269
              )Total
                  stockholders' equity
              
              
              68,621
              
              
              73,049**TOTAL
                  LIABILITIES AND STOCKHOLDERS EQUITY**
              
              **$**
              **95,911**
              
              **$**
              **100,124**





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


4


**Mandalay
      Media Inc. and Subsidiaries**


**Consolidated
      Statement of Operations (Unaudited)**







**(In
        thousands, except per share amounts)**
 **3 Months Ended**
                
                **3 Months Ended**
                
                **6 Months Ended**
                
                **6 Months Ended****September 30,**
                
                **September 30,**
                
                **September 30,**
                
                **September 30,****2008**
                
                **2007**
                
                **2008**
                
                **2007**Revenues
                
                $
                5,003
                
                $
                -
                
                $
                10,349
                
                $
                -Cost
                    of revenuesLicense
                    fees
                
                
                1,785
                
                
                -
                
                
                3,934
                
                
                -Other
                    direct cost of revenues
                
                
                102
                
                
                -
                
                
                204
                
                
                -Total
                    cost of revenues
                
                
                1,887
                
                
                -
                
                
                4,138
                
                
                -Gross
                    profit
                
                
                3,116
                
                
                -
                
                
                6,211
                
                
                -Operating
                    expensesProduct
                    development
                
                
                1,800
                
                
                -
                
                
                3,567
                
                
                -Sales
                    and marketing
                
                
                1,004
                
                
                -
                
                
                2,283
                
                
                -General
                    and administrative
                
                
                2,559
                
                
                544
                
                
                5,372
                
                
                911Amortization
                    of intangible assets
                
                
                137
                
                
                -
                
                
                274
                
                
                -Total
                    operating expenses
                
                
                5,500
                
                
                544
                
                
                11,496
                
                
                911Loss
                    from operations
                
                
                (2,384
                )
                
                (544
                )
                
                (5,285
                )
                
                (911
                )Interest
                    and other income/(expense)Interest
                    income
                
                
                44
                
                
                89
                
                
                121
                
                
                165Interest
                    (expense)
                
                
                (468
                )
                
                -
                
                
                (952
                )
                
                -Foreign
                    exchange transaction gain (loss)
                
                
                (57
                )
                
                -
                
                
                73
                
                
                -Other
                    (expense)
                
                
                (102
                )
                
                -
                
                
                (187
                )
                
                -Interest
                    and other income/(expense)
                
                
                (583
                )
                
                89
                
                
                (945
                )
                
                165Loss
                    before income taxes
                
                
                (2,967
                )
                
                (455
                )
                
                (6,230
                )
                
                (746
                )Income
                    tax provision
                
                
                (74
                )
                
                1
                
                
                (148
                )
                
                1Net
                    Loss attributable to Common Shareholders
                
                $
                (3,041
                )
                $
                (454
                )
                $
                (6,378
                )
                $
                (745
                )Basic
                    and Diluted net loss per common share
                
                $
                (0.09
                )
                $
                (0.02
                )
                $
                (0.20
                )
                $
                (0.04
                )Weighted
                    average common shares outstanding, basic and diluted
                
                
                32,423
                
                
                20,480
                
                
                32,377
                
                
                18,588





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


5


**Mandalay
      Media Inc. and Subsidiaries**


**Consolidated
      Statements of Stockholders’ Equity and Comprehensive Loss**


**(Unaudited)**









**(In
        thousands, except share amounts)**
 **Additional**
                
                **Accumulated**
                  **Other****Common Stock**
                
                **Preferred Stock**
                
                **Paid-In**
                
                **Comprehensive**
                
                **Accumulated**
                
                
                
                **Comprehensive**Shares
                
                Amount
                
                Shares
                
                Amount
                
                **Capital**
                
                **Income/(Loss)**
                
                **Deficit**
                
                **Total**
                
                **Loss**Balance
                    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 stock in satisfaction of amount payable
                
                
                25,000
                
                
                0
                
                
                
                
                
                
                
                
                100
                
                
                
                
                
                
                
                
                100Issuance
                    of common stock on cashless exercise of warrants
                
                
                241,688
                
                
                0
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                0Foreign
                    currency translation gain/(loss)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (10
                )
                
                
                
                
                (10
                )
                
                (10
                )Deferred
                    stock-based compensation
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,222
                
                
                
                
                
                
                
                
                1,222Comprehensive
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                (3,347
                )Balance
                    at June 30, 2008
                
                
                32,415,777
                
                $
                3
                
                
                100,000
                
                $
                100
                
                $
                77,476
                
                $
                51
                
                $
                (6,606
                )
                $
                71,024Net
                    Loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (3,041
                )
                
                (3,041
                )
                
                (3,041
                )Issuance
                    of common stock on cashless exercise of warrants
                
                
                33,672
                
                
                0
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                0Foreign
                    currency translation gain/(loss)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (106
                )
                
                
                
                
                (106
                )
                
                (106
                )Deferred
                    stock-based compensation
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                744
                
                
                
                
                
                
                
                
                744Comprehensive
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                (3,147
                )Balance
                    at September 30, 2008
                
                
                32,449,449
                
                $
                3
                
                
                100,000
                
                $
                100
                
                $
                78,220
                
                $
                (55
                )
                $
                (9,647
                )
                $
                68,621





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


6


**Mandalay
      Media Inc. and Subsidiaries**


**Consolidated
      Statements of Cash Flows** **(Unaudited)**









**(In
        thousands)**


**6 Months Ended**
              
              **6 Months Ended****September 30,**
              
              **September 30,****2008**
              
              **2007****Cash
                  flows from operating activities**Net
                  loss
              
              $
              (6,378
              )
              $
              (745
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              642
              
              
              -Allowance
                  for doubtful accounts
              
              
              (45
              )
              
              -Stock-based
                  compensation
              
              
              1,966
              
              
              -(Increase)
                  / decrease in assets:Accounts
                  receivable
              
              
              4
              
              
              -Prepaid
                  expenses and other
              
              
              (22
              )
              
              (9
              )Increase
                  / (decrease) in liabilities:Accounts
                  payable
              
              
              2,022
              
              
              223Accrued
                  license fees
              
              
              (1,020
              )
              
              -Accrued
                  compensation
              
              
              58
              
              
              -Other
                  liabilities
              
              
              (750
              )
              
              -Net
                  cash used in operating activities
              
              
              (3,523
              )
              
              (531
              )**Cash
                  flows from investing activities**Purchase
                  of property and equipment
              
              
              (120
              )
              
              -Transaction
                  costs related to merger with Twistbox
              
              
              (59
              )Net
                  cash used in investing activities
              
              
              (179
              )
              
              -**Cash
                  flows from financing activities**Proceeds
                  from the sale of common stock
              
              
              -
              
              
              2,493Net
                  cash provided by financing activities
              
              
              -
              
              
              2,493Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              (112
              )
              
              -**Net
                  increase/(decrease) in cash and cash equivalents**
              
              
              (3,814
              )
              
              1,962**Cash
                  and cash equivalents, beginning of period**
              
              
              10,936
              
              
              5,418**Cash
                  and cash equivalents, end of period**
              
              $
              7,122
              
              $
              7,380**Supplemental
                  disclosure of cash flow information:**Taxes
                  paid
              
              
              (148
              )
              
              -


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


7


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**




**1.**
            **Organization**





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





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





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





After
      the
      Merger, Twistbox became a wholly-owned subsidiary of the Company, and the
      company’s only active subsidiary.





Twistbox
      Entertainment Inc. (formerly known as The WAAT Corporation) is incorporated
      in
      the State of Delaware.





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





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


8


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







**2.**
            **Summary
                of Significant Accounting
                Policies**





**Basis
      of Presentation**


The
      accompanying consolidated financial statements have been prepared pursuant
      to
      the rules and regulations of the Securities and Exchange Commission regarding
      interim financial reporting. Accordingly, they do not include all of the
      information and footnotes required by generally accepted accounting principles
      for complete financial statements and should be read in conjunction with the
      consolidated financial statements and notes thereto included in the Company’s
      Annual Report on Form 10-K/T, filed with the Securities and Exchange Commission.
      In the opinion of management, the accompanying consolidated financial statements
      contain all adjustments, consisting only of normal recurring adjustments, which
      the Company believes are necessary for a fair statement of the Company’s
      financial position as of September 30, 2008 and its results of operations for
      the three months and the six months ended September 30, 2008 and 2007,
      respectively. These consolidated financial statements are not necessarily
      indicative of the results to be expected for the entire year. The consolidated
      balance sheet presented as of September 30, 2008 has been derived from the
      unaudited consolidated financial statements as of that date, and the
      consolidated balance sheet presented as of March 31, 2008 has been derived
      from
      the audited consolidated financial statements as of that date.




**Principles
      of Consolidation**


The
      consolidated financial statements include the accounts of the Company and our
      wholly-owned subsidiaries. All material intercompany balances and transactions
      have been eliminated in consolidation.





**Revenue
      Recognition**


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





A
      perpetual license gives an end user the right to use the product, image or
      game
      on the registered handset on a perpetual basis. A subscription license gives
      an
      end user the right to use the product, image or game on the registered handset
      for a limited period of time, ranging from a few days to as long as one month.
      Twistbox distributes its products primarily through mobile telecommunications
      service providers (“carriers”), which market the product, images or games to end
      users. License fees for perpetual and subscription licenses are usually billed
      by the carrier upon download of the product, image or game by the end user.
      In
      the case of subscriber licenses, many subscriber agreements provide for
      automatic renewal until the subscriber opts-out, while the others provide opt-in
      renewal. In either case, subsequent billings for subscription licenses are
      generally billed monthly. Twistbox applies the provisions of Statement of
      Position 97-2, *Software
      Revenue Recognition* ,
      as
      amended by Statement of Position 98-9, Modification of SOP 97-2, *Software
      Revenue Recognition, With Respect to Certain Transactions* ,
      to all
      transactions.


9


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







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





In
      accordance with Emerging Issues Task Force, or EITF Issue No. 99-19, *Reporting
      Revenue Gross as a Principal Versus Net as an Agent* ,
      Twistbox recognizes as revenues the amount the carrier reports as payable upon
      the sale of Twistbox’s products, images or games. Twistbox has evaluated its
      carrier agreements and has determined that it is not the principal when selling
      its products, images or games through carriers. Key indicators that it evaluated
      to reach this determination include:


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


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


•
            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
                foreach
                game;


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


•
            Twistbox
                has limited risks, including no inventory risk and limited credit
                risk





While
      not
      a significant portion of revenue, in some instances revenue is earned by
      delivering a product or service directly to the end user of that product or
      service. In those cases Twistbox records as revenue the amount billed to that
      end user and recognizes the revenue when persuasive evidence of an arrangement
      exists, the product, image or game has been delivered, the fee is fixed or
      determinable, and the collection of the resulting receivable is
      probable.


10


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







**Net
      Income (Loss) per Common Share** ******





Basic
      income (loss) per common share is computed by dividing net income (loss)
      attributable to common stockholders by the weighted average number of common
      shares outstanding for the period. Diluted net income (loss) per share is
      computed by dividing net income (loss) attributable to common stockholders
      by
      the weighted average number of common shares outstanding for the period plus
      dilutive common stock equivalents, using the treasury stock method. Potentially
      dilutive shares from stock options and warrants and the conversion of the Series
      A preferred stock for the three months ended September 30, 2008 and September
      30, 2007 consisted of 2,300 and 2,316 shares, respectively, and for the six
      months ended September 30, 2008 and 2007 consisted of 3,695 and 1,627,
      respectively, and were not included in the computation of diluted loss per
      share
      as they were anti-dilutive in each period.





**Comprehensive
      Income/(Loss)**


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





**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.





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.


11


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







***Content
      Acquired***


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





**Software
      Development Costs**


The
      Company applies the principles of 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
      was
      $139 and $64 in the three months ended September 30, 2008 and 2007, respectively
      and $563 and $64 in the six months ended September 30, 2008 and 2007,
      respectively.





**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.


12


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







**Fair
      Value of Financial Instruments**


For
      certain of the Company’s financial instruments, including cash and cash
      equivalents, accounts receivable, accounts payable and other current
      liabilities, the carrying amounts approximate their fair value due to their
      relatively short maturity. Based on the borrowing rates available to the Company
      for loans with similar terms, the carrying value of borrowings outstanding
      approximates their fair value.





**Foreign
      Currency Translation** *.*


The
      Company uses the United States dollar for financial reporting purposes. Assets
      and liabilities of foreign operations are translated using current rates of
      exchange prevailing at the balance sheet date. Equity accounts have been
      translated at their historical exchange rates when the capital transaction
      occurred. Statement of Operations amounts are translated at average rates in
      effect for the reporting period. The foreign currency translation adjustment
      (loss) of ($106) in the three months ended September 30, 2008 and ($116) in
      the
      six months ended September 30, 2008 has been reported as a component of
      comprehensive loss in the consolidated statement of stockholders equity and
      comprehensive loss. Translation gains or losses are shown as a separate
      component of retained earnings.





**Concentrations
      of Credit Risk.**


Financial
      instruments which potentially subject us to concentration of credit risk consist
      principally of cash and cash equivalents, short-term investments, and accounts
      receivable. We have placed cash and cash equivalents and short-term investments
      with a single high credit-quality institution. As of September 30, 2008 we
      did
      not have any long-term marketable securities. Most of our sales are made
      directly to large national Mobile Phone Operators in the countries that we
      operate. We have a significant level of business and resulting significant
      accounts receivable balance with one operator and therefore have a high
      concentration of credit risk with that operator. We perform ongoing credit
      evaluations of our customers and maintain an allowance for potential credit
      losses. As of September 30, 2008, approximately 27% of our gross accounts
      receivable outstanding was with one major customer. This customer accounted
      for
      45% of our gross sales in the three months ended September 30, 2008 and 40%
      in
      the six months ended September 30, 2008.





**Property
      and Equipment**


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





**Goodwill**


In
      accordance with Statement of Financial Accounting Standards No. 142, Goodwill
      and Other Intangible
      Assets (“SFAS No. 142”), the Company’s goodwill is not amortized but is tested
      for impairment
      on an annual basis or whenever events or changes in circumstances indicate
      that
      the carrying
      amount of these assets may not be recoverable.





**Impairment
      of Long-Lived Assets and Intangibles**


Long-lived
      assets, including purchased intangible assets with finite lives are amortized
      using the straight-line method over their useful lives ranging from three to
      ten
      years and are reviewed for impairment in accordance with SFAS No. 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets,* whenever
      events or changes in circumstances indicate that the carrying amount of an
      asset
      may not be recoverable. Recoverability of assets to be held and used is measured
      by a comparison of the carrying amount of an asset to future undiscounted net
      cash flows expected to be generated by the asset. If such assets are considered
      to be impaired, the impairment to be recognized is measured by the amount by
      which the carrying amount of the assets exceeds the fair value of the assets.
      Assets to be disposed of are reported at the lower of the carrying amount or
      fair value less costs to sell.


13


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







**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.





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.


14


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







**Preferred
      Stock**





The
      Company applies the guidance enumerated in SFAS No. 150, “Accounting
      for Certain Financial Instruments with Characteristics of both Liabilities
      and
      Equity,” and EITF Topic D-98, “Classification and Measurement of Redeemable
      Securities,” when determining the classification and measurement of preferred
      stock. Preferred shares subject to mandatory redemption (if any) are classified
      as liability instruments and are measured at fair value in accordance with
      SFAS 150. All other issuances of preferred stock are subject to the
      classification and measurement principles of EITF Topic D-98. Accordingly,
      the
      Company classifies conditionally redeemable preferred shares (if any), which
      includes preferred shares that feature redemption rights that are either within
      the control of the holder or subject to redemption upon the occurrence of
      uncertain events not solely within the Company’s control, as temporary equity.
      At all other times, the Company classifies its preferred shares in stockholders’
equity.





**Use
      of Estimates**


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





**Recent
      Accounting Pronouncements**




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




In
      December 2007, the FASB issued SFAS No. 141R (revised 2007), “Business
      Combinations.”  This statement replaces FASB Statement No. 141,
“Business Combinations.” This statement retains the fundamental requirements in
      SFAS 141 that the acquisition method of accounting (which SFAS 141 called
      the purchase method) be used for all business combinations and for an acquirer
      to be identified for each business combination. This statement defines the
      acquirer as the entity that obtains control of one or more businesses in the
      business combination and establishes the acquisition date as the date that
      the
      acquirer achieves control. This statement requires an acquirer to recognize
      the
      assets acquired, the liabilities assumed, and any non controlling interest
      in
      the acquiree at the acquisition date, measured at their fair values as of that
      date, with limited exceptions specified in the statement. This statement applies
      prospectively to business combinations for which the acquisition date is on
      or
      after the beginning of the first annual reporting period beginning on or after
      December 15, 2008. The Company does not expect the adoption of SFAS 141R to
      have
      a significant impact on its results of operations or financial
      position.


15


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







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




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





**3.**
            **Liquidity**




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




In
      view
      of these matters, realization of a major portion of the assets in the
      accompanying consolidated balance sheet is dependent upon continued operations
      of the Company, which is in turn dependent on the Company reaching a positive
      cash flow position or obtaining additional financing, while maintaining adequate
      liquidity.




Management
      believes that actions undertaken to achieve this position provide the
      opportunity for the Company to continue as a going concern. These actions
      include the acquisition, debt restructuring and equity placements subsequent
      to
      the period end as detailed in Note 15, as well as continued increases in
      revenues by introducing new products and revenue streams, continued expansion
      into new territories, reviewing additional financing options, reducing operating
      costs and accretive acquisitions.


16








**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







**4.**
            **Balance
                Sheet Components**




***Accounts
      Receivable***


**September 30,**
                **2008**
                **(Unaudited)**
              
              **March 31,**
                **2008**Accounts
                  receivable
              
              $
              6,326
              
              $
              6,330Less:
                  allowance for doubtful accounts
              
              
              (123
              )
              
              (168
              )$
              6,203
              
              $
              6,162




Accounts
      receivable includes amounts billed and unbilled as of the respective balance
      sheet dates. During the three months ended September 30, 2008 $11 was provided
      and $0 was written off against the allowance. During the six months ended
      September 30, 2008, $11 was provided and $56 was written off against the
      allowance.




***Property
      and Equipment***


**September 30,**
                **2008**
                **(Unaudited)**
              
              **March 31,**
                **2008**Equipment
              
              $
              758
              
              $
              654Equipment
                  subject to capitalized lease
              
              
              81
              
              
              71Furniture
                  & fixtures
              
              
              234
              
              
              228Leasehold
                  improvements
              
              
              140
              
              
              1401,213
              
              
              1,093Accumulated
                  depreciation
              
              
              (220
              )
              
              (56
              )$
              993
              
              $
              1,037




Depreciation
      expense for the three months ended September 30, 2008 and 2007 was $86 and
      $0,
      respectively; and for the six months ended September 30, 2008 and 2007 was
      $164
      and $0, respectively.




***Capital
      Lease***


Accumulated
      depreciation associated with the equipment under capital lease noted above
      was
      $10 and $0 at September 30, 2008 and September 30, 2007, respectively. The
      Company has a commitment to pay $5 under these leases during the year ending
      September 30, 2009. These payments have a net present value of $5.





**5.**
            **Description
                of Stock Plans**




On
      September 27, 2007, the stockholders of the Company adopted the 2007 Employee,
      Director and Consultant Stock Plan (Plan). Under the Plan, the Company may
      grant
      up to 3,000 shares or equivalents of common stock of the Company as incentive
      stock options (ISO), non-qualified options (NQO), stock grants or stock-based
      awards to employees, directors or consultants, except that ISO’s shall only be
      issued to employees. Generally, ISO’s and NQO’s shall be issued at prices not
      less than fair market value at the date of issuance, as defined, and for terms
      ranging up to ten years, as defined. All other terms of grants shall be
      determined by the board of directors of the Company, subject to the Plan.


17


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







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
                Shares
              
              Weighted Average
                Exercise PriceOutstanding
                  at December 31, 2005GrantedCanceledExercisedOutstanding
                  at December 31, 2006
              
              
              -
              
              
              -Granted
              
              
              1,600,000
              
              $
              2.64Canceled
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -Outstanding
                  at December 31, 2007
              
              
              1,600,000
              
              $
              2.64Granted
              
              
              2,751,864
              
              $
              4.57Transferred
                  in from Twistbox
              
              
              2,462,090
              
              $
              0.64Canceled
              
              
              (11,855
              )
              $
              0.81Outstanding
                  at March 31, 2008
              
              
              6,802,099
              
              $
              2.70Granted
              
              
              1,860,558
              
              $
              2.67Canceled
              
              
              (74,692
              )
              $
              0.48Exercised
              
              
              (27,050
              )
              $
              0.48Outstanding
                  at September 30, 2008
              
              
              8,560,915
              
              $
              2.72Exercisable
                  at September 30, 2008
              
              
              4,418,144
              
              $
              2.02





The
      fair
      value for these options was estimated at the date of grant using a Black-Scholes
      option pricing model with the following weighted-average
      assumptions:


Options Granted
                Three Months Ended
                September 30, 2008
              
              Options Granted
              
              Options transferred
                from TwistboxExpected
                  life (years)
              
              
              4
              
              
              4to
                  6
              
              
              3to
                  7Risk-free
                  interest rate
              
              
              3.89
              
              
              2.7% to 3.89
              %
              
              2.03% to 5.03
              %Expected
                  volatility
              
              
              75.20
              %
              
              70%
                  to 75.2
              %
              
              70%
                  to 75
              %Expected
                  dividend yield
              
              
              0
              %
              
              0
              %
              
              0
              %


18


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







The
      exercise price for options outstanding at September 30, 2008 was as
      follows:


Range of
                Exercise Price
              
              Weighted
                Average
                Remaining
                Contractual Life
                (Years)
              
              Number
                Outsanding
                September 30, 2008
              
              Weighted
                Average
                Exercise
                Price
              
              Aggregate
                Intrinsic
                Value$0
                  - $1.00
              
              
              7.84
              
              
              2,359,053
              
              $
              0.64
              
              $
              4,149,322$2.00
                  - $3.00
              
              
              9.41
              
              
              3,450,000
              
              $
              2.66
              
              $
              -$3.00
                  - $4.00
              
              
              -
              
              
              -
              
              $
              -
              
              $
              -$4.00
                  - $5.00
              
              
              9.40
              
              
              2,751,864
              
              $
              4.57
              
              $
              -8.97
              
              
              8,560,917
              
              $
              2.72
              
              $
              4,149,322




The
      exercise price for options exercisable at September 30, 2008 was as
      follows:




Range of
              Exercise Price
            
            Weighted
              Average
              Remaining
              Contractual Life
              (Years)
            
            Options
              Exercisable
              September 30, 2008
            
            Weighted
              Average
              Exercise
              Price
            
            Aggregate
              Intrinsic
              Value$0
                - $1.00
            
            
            7.80
            
            
            2,183,736
            
            $
            0.63
            
            $
            3,863,862$2.00 - $3.00
            
            
            9.32
            
            
            1,418,708
            
            $
            2.66
            
            $
            -$3.00
                - $4.00
            
            
            -
            
            
            -
            
            $
            -
            
            $
            -$4.00
                - $5.00
            
            
            9.39
            
            
            815,700
            
            $
            4.61
            
            $
            -8.58
            
            
            4,418,144
            
            $
            2.02
            
            
            3,863,862




Stock
      option expense of $744 and $64 for the three months ended September 30, 2008
      and
      2007 respectively; and $1,966 and $64 for the six months ended September 30,
      2008 and 2007 respectively, is included primarily in general and administrative
      expense.





**6.**
            **Acquisitions/Purchase
                Price Accounting**




**Twistbox
      Entertainment Inc. and related entities**





On
      February 12, 2008, Mandalay completed an acquisition of Twistbox Entertainment,
      Inc. (Twistbox) through an exchange of all outstanding capital stock of Twistbox
      for 10,180 shares of common stock of the Company and the Company’s assumption of
      all the outstanding options of Twistbox’s 2006 Stock Incentive Plan by the
      issuance of options to purchase 2,463 shares of common stock of the Company,
      including 2,145 vested and 318 unvested options. After the Merger, Twistbox
      became a wholly-owned subsidiary of the Company.




Twistbox
      is a global publisher and distributor of branded entertainment content,
      including images, video, TV programming and games, for Third Generation (3G)
      mobile networks. It publishes and distributes its content globally and has
      developed an intellectual property portfolio unique to its target demographic
      that includes worldwide mobile rights to global brands and content from leading
      film, television and lifestyle content publishing companies. Twistbox has built
      a proprietary mobile publishing platform and has leveraged its brand portfolio
      and platform to secure “direct” distribution agreements with the largest mobile
      operators in the world. These factors contributed to a purchase price in excess
      of the fair value of net tangible and intangible assets acquired, and, as a
      result, the Company recorded goodwill in connection with this
      transaction.


19


**Mandalay
      Media Inc. and Subsidiaries**


**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 two warrants, one to purchase 1,093 and the other to purchase
      1,093 shares of common stock of the Company, exercisable at $7.55 per share,
      and
      at $5.00 per share, (increasing to $7.55 per share, if not exercised in full
      by
      February 12, 2009), respectively, through July 30, 2011. The warrants have
      been
      included as part of the purchase consideration and have been valued using the
      Black Scholes method, using the stock price at the merger date of $4.75 per
      share discounted for certain restrictions, a volatility of 70%, and the exercise
      price and the expected time to vest for each group. These warrants were
      subsequently amended as described in Note 15.




The
      purchase consideration was determined by an independent valuation to be $67,479,
      consisting of $66,025 attributed to the common stock and options exchanged
      and
      warrants issued, and $1,454 in transaction costs. During the current quarter,
      a
      further $59 of transaction costs have been recognized, with the result that
      the
      purchase consideration has been increased to $67,538, with an equivalent
      increase in Goodwill. The stock and options were valued using the Black Scholes
      method, using the stock price at the merger date of $4.75 per share, a
      volatility of 70%, and in the case of options the exercise price and the
      expected time to vest for each group. Under the purchase method of accounting,
      the Company allocated the total purchase price of $67,538 to the net tangible
      and intangible assets acquired and liabilities assumed based upon their
      respective estimated fair values as of the acquisition date as
      follows:


Cash
              
              $
              6,679Accounts
                  receivable
              
              
              4,966Prepaid
                  expenses and other current assets
              
              
              1,138Property
                  and equipment
              
              
              1,062Other
                  long-term assets
              
              
              361Accounts
                  Payable, accrued license fees and accruals
              
              
              (6,882
              )Other
                  current liabilities
              
              
              (814
              )Accrued
                  license fees, long term portion
              
              
              (2,796
              )Long
                  term debt
              
              
              (16,483
              )Identified
                  Intangibles
              
              
              19,905Merger
                  related restructuring reserves
              
              
              (1,034
              )Goodwill
              
              
              61,436$
              67,538




Goodwill
      recognized in the above transaction amounted to $61,436. Goodwill in relation
      to
      the acquisition of Twistbox is not expected to be deductible for income tax
      purposes. The preliminary purchase price allocation, including the allocation
      of
      goodwill, will continue to be updated as additional information becomes
      available. Merger related restructuring reserves include reserves for employee
      severance and for office relocation.


20


**Mandalay
      Media Inc. and Subsidiaries**


**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 June 1, 2007 and as at April 1, 2007, the beginning
      of
      the comparable three month and six month periods. The pro forma consolidated
      results are not necessarily indicative of the operating results that would
      have
      been achieved had the transaction been in effect as of the beginning of the
      period presented and should not be construed as being representative of future
      operating results.


**3 months ended**
                **September 30, 2007**
              
              **6 months ended**
                **September 30, 2007****(unaudited)**
              
              **(unaudited)**Revenues
              
              $
              3,356
              
              $
              7,064Cost
                  of revenues
              
              
              1,649
              
              
              3,487Gross
                  profit/(loss)
              
              
              1,707
              
              
              3,577Operating
                  expenses net of interestincome
                  and other expense
              
              
              5,595
              
              
              11,353Income
                  tax expense
              
              
              -
              
              
              -Net
                  loss
              
              
              (3,888
              )
              
              (7,776
              )Basic
                  and Diluted net loss per common share
              
              $
              (0.19
              )
              $
              (0.42
              )





**7.**
            **Other
                Intangible Assets**


**September 30,**
                **2008**
                **(Unaudited)**
              
              **March 31,**
                **2008**Software
              
              $
              1,611
              
              $
              1,611Trade
                  Name / Trademark
              
              
              13,030
              
              
              13,030Customer
                  list
              
              
              4,378
              
              
              4,378License
                  agreements
              
              
              886
              
              
              88619,905
              
              
              19,905Accumulated
                  amortization
              
              
              (602
              )
              
              (125
              )$
              19,303
              
              $
              19,780





The
      Company has included amortization of acquired intangible assets directly
      attributable to revenue-generating activities in cost of revenues. The Company
      has included amortization of acquired intangible assets not directly
      attributable to revenue-generating activities in operating expenses. During
      the
      three months ended September 30, 2008 and 2007, the Company recorded
      amortization expense in the amount of $102 and $0, respectively, in cost of
      revenues; and amortization expense in the amount of $137 and $0 respectively
      in
      operating expenses. During the six months ended September 30, 2008 and 2007
      the
      Company recorded amortization expense in the amount of $204 and $0,
      respectively, in cost of revenues; and amortization expense in the amount of
      $274 and $0, respectively, in operating expenses.


21


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







As
      of
      September 30, 2008, the total expected future amortization related to intangible
      assets was as follows:


12 Months ended September 30,2009
              
              2010
              
              2011
              
              2012
              
              2013
              
              ThereafterSoftware
              
              $
              230
              
              $
              230
              
              $
              230
              
              $
              230
              
              $
              230
              
              $
              315Customer
                  List
              
              
              547
              
              
              547
              
              
              547
              
              
              547
              
              
              547
              
              
              1,298License
                  Agreements
              
              
              177
              
              
              177
              
              
              177
              
              
              177
              
              
              65
              
              
              -$
              954
              
              $
              954
              
              $
              954
              
              $
              954
              
              $
              842
              
              $
              1,613




**8.**
            **Debt**


**September 30,**
                **2008**
                **(Unaudited)**
              
              **March 31,**
                **2008*****Short
                  Term Debt***Capitalized
                  lease liabilities, current portion
              
              $
              6
              
              $
              20Senior
                  secured note, accrued interest
              
              
              248
              
              
              228$
              254
              
              $
              248


**September 30,**
                **2008**
                **(Unaudited)**
              
              **March 31,**
                **2008*****Long
                  Term Debt***Senior
                  Secured Note, long term portion, net of discount
              
              $
              16,483
              
              $
              16,483





In
      July
      2007, Twistbox entered into a debt financing agreement in the form of a Senior
      Secured Note amounting to $16,500, payable at 30 months. The holder of the
      Note
      was granted first lien over all of the Company’s assets. The Note carries
      interest of 9% annually for the first year and 10% subsequently, with
      semi-annual interest only payments. The agreement included certain restrictive
      covenants. In conjunction with the merger described in Note 6, the Company
      guaranteed up to $8,250 of the principal; and the restrictive covenants were
      modified, including a requirement for both Mandalay and Twistbox to maintain
      certain minimum cash balances. In connection with the guaranty, the Company
      issued the lender warrants to purchase 1,093 and 1,093 shares of common stock
      of
      the Company, exercisable at $7.55 per share, and at $5.00 per share, (increasing
      to $7.55 per share, if not exercised in full by February 12, 2009),
      respectively, through July 30, 2011. These warrants replaced warrants originally
      issued by Twistbox in conjunction with the Senior Secured Note. Subsequent
      to
      the period end, certain terms of the Senior Secured Note, including repayment
      options and covenants, as well as the exercise price of the warrants were
      changed, as described in Note 15.




Minimum
      future obligations, including interest, under the Senior Secured Note are
      $18,975 during the year ended September 30, 2010 including repayment of the
      principal. Capitalized lease assets are set out in Note 4. Future obligations
      under capitalized leases are included as part of Other Obligations in Note
      15.


22


**Mandalay
      Media Inc. and Subsidiaries**


**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 September 30, 2008 and 2007, the Company paid management fees
      under
      the agreement of $90 and $90, respectively. For the six months ended September
      30, 2008 and 2007, the Company paid management fees under the agreement of
      $180
      and $180, respectively.




In
      March
      2007, the Company entered into a month to month lease for office space with
      Trinad Management for rent of $9 per month. Rent expense in connection with
      this
      lease was $26 and $26 respectively for the three months ended September 30,
      2008
      and 2007; and $52 and $52 respectively for the six months ended September 30,
      2008 and 2007.




***Twistbox
      Entertainment, Inc***





Lease
      of Premises


The
      Company leases its primary offices in Los Angeles from Berkshire Holdings,
      LLC,
      a company with common ownership by officers of Twistbox. Amount paid in
      connection with this lease was $95 and $95 for the three months ended September
      30, 2008 and 2007, respectively, and $190 and $190 for the six months ended
      September 30, 2008 and 2007, respectively.





The
      Company is party to an oral agreement with a person affiliated with the Company
      with respect to a lease of an apartment in London. Amount paid in connection
      with this lease was $18 and $18 for the three months ended September 30, 2008
      and 2007, respectively, and $36 and $36 for the six months ended September
      30,
      2008 and 2007, respectively.





**10.**
            **Capital
                Stock Transactions**





***Preferred
      Stock***





On
      October 3, 2006, the Company designated a Series A Preferred Stock, par value
      $.0001 per share (Series A). The Series A holders shall be entitled to: (1)
      vote
      on an equal per share basis as holders of common stock, (2) dividends on an
      if-converted basis and (3) a liquidation preference equal to the greater of
      $10,
      per share of Series A (subject to adjustment) or such amount that would have
      been paid on an if-converted basis. Each Series A holder may treat as a
      dissolution or winding up of the Company any of the following transactions:
      a
      consolidation, merger, sale of substantially all the assets of the company,
      issuance/sale of common stock of the Company constituting a majority of all
      shares outstanding and a merger/business combination, each as defined.


23


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







In
      addition, the Series A holders may convert, at their discretion, all or any
      of
      their Series A shares into the number of common shares equal to the number
      calculated by dividing the original purchase price of such Series A Preferred,
      plus the amount of any accumulated, but unpaid dividends, as of the conversion
      date, by the original purchase price (subject to certain adjustments) in effect
      at the close of business on the conversion date.





On
      August
      3, 2006, the Company sold 100 shares of the Series A to Trinad Management,
      LLC
      (Trinad Management), an affiliate of Trinad Capital LP (Trinad Capital), one
      of
      the Company’s principal shareholders, for an aggregate sale price of $100, $1.00
      per share. The Company recognized a one time, non-cash deemed preferred dividend
      of $43 because the fair value of our common stock at the time of the sale of
      $1.425 per share, greater than the conversion price of $1.00 per share.





***Common
      Stock***





On
      August
      3, 2006, the Company authorized an increase in their authorized shares of common
      stock from 19,000 to 100,000 shares.





On
      August
      3, 2006, the Company authorized a 2.5 to 1 stock split of its common stock,
      increasing its outstanding shares from 4,000 to 10,000. In connection with
      the
      split, the Company transferred $6 from additional paid-in capital to common
      stock. All share and per share amounts have been retroactively adjusted to
      reflect the effect of the stock split.





On
      August
      3, 2006, the Company granted warrants to purchase 150 and 50 shares of common
      stock of the Company to its president and a director, respectively. Each warrant
      is exercisable at $2.50 per share, through August 1, 2008. The warrants were
      valued at $111 using a Black-Scholes model assuming a risk free interest rate
      of
      4.89%, expected life of two years, and expected volatility of 105.67%.





On
      September 14, 2006, October 12, 2006 and December 26, 2006, the Company sold
      2,800, 3,400 and 530 units, respectively, at $1.00 per unit, for aggregate
      proceeds of $ 6,057, net of offering costs of $673. Each unit consisted of
      one
      share of common stock of the Company and one warrant. Each warrant is
      exercisable to purchase one share of common stock of the Company at $2.00 per
      share, through September, October and December 2008.





On
      July
      24, 2007, the Company sold 5,000 shares of the Company's common stock,
      at $0.50 per share, for aggregate proceeds of $2,473, net of offering
      costs of $27.





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





On
      November 7, 2007, the Company granted non-qualified stock options to purchase
      500 shares of common stock of the Company to a director under the Plan. The
      options have a ten year term and are exercisable at $2.65 per share, with
      one-third of the options vesting immediately upon grant, one-third vesting
      on
      the first anniversary of the date of grant and the remaining one-third on the
      second anniversary of the date of grant. The options were valued at $772 using
      a
      Black-Scholes model assuming a risk free interest rate of 3.89%, expected life
      of four years, and expected volatility of 75.2%.


24


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







On
      November 14, 2007, the Company granted non-qualified stock options to purchase
      100 shares of common stock of the Company to a director under the Plan. The
      options have a ten year term and are exercisable at a price of $2.50 per share,
      with one-third of the options granted vesting immediately upon grant, one-third
      vesting on the first anniversary of the date of grant and the remaining
      one-third vesting on the second anniversary of the date of grant. The options
      were valued at $160 using a Black-Scholes model assuming a risk free interest
      rate of 3.89%, expected life of four years, and expected volatility of 75.2%.




Series
                A Preferred Stock
            
            
            100Options
                under the Plan
            
            
            7,000Warrants
                not under the Plan
            
            
            100Warrants
                issued with units
            
            
            6,20513,405




On
      February 12, 2008, the Company issued 10,180 shares of common stock in
      connection with the merger with Twistbox. The Company also assumed all the
      outstanding options of Twistbox’s 2006 Stock Incentive Plan by the issuance of
      options to purchases 2,463 shares of common stock of the Company, including
      2,144 vested and 319 unvested options; and the Company issued two warrants
      to a
      lender to Twistbox, one to purchase 1,093 shares of common stock and the other
      to purchase 1,093 shares of common stock of the Company, exercisable at $7.55
      per share, and at $5.00 per share, (increasing to $7.55 per share, if not
      exercised in full by February 12, 2009), respectively, through July 30,
      2011.




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




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





On
      June
      18, 2008, the Company granted non-qualified stock options to purchase 1,500
      shares of common stock of the Company to four directors under the Plan. The
      options have a ten year term and are exercisable at a price of $2.75 per share,
      with one-third of the options granted vesting immediately upon grant, one-third
      vesting on the first anniversary of the date of grant and the remaining
      one-third vesting on the second anniversary of the date of grant. The options
      were valued at $2,403 using a Black-Scholes model assuming a risk free interest
      rate of 3.89%, expected life of four years, and expected volatility of
      75.2%.




On
      September 29, 2008, the Company granted non-qualified stock options to purchase
      350 shares of common stock of the Company to two directors under the Plan.
      The
      options have a ten year term and are exercisable at a price of $2.40 per share,
      with one-third of the options granted vesting immediately upon grant, one-third
      vesting on the first anniversary of the date of grant and the remaining
      one-third vesting on the second anniversary of the date of grant. The options
      were valued at $489 using a Black-Scholes model assuming a risk free interest
      rate of 3.89%, expected life of four years, and expected volatility of 75.2%.


25


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







**11.**
            **Employee
                Benefit Plans**





The
      Company has an employee 401(k) savings plan (the “Plan”) covering full-time
      eligible employees. These employees may contribute eligible compensation up
      to
      the annual IRS limit. The Company does not make matching
      contributions.





**12.**
            **Income
                Taxes**





As
      of
      September 30, 2008, the Company had net operating loss (NOL) carry-forwards
      to
      reduce future Federal income taxes of approximately $40,000, expiring in various
      years ranging through 2027. The Company may have had ownership changes, as
      defined by the Internal Revenue Service, which may subject the NOL's to annual
      limitations which could reduce or defer the use of the NOL carry-forwards.




In
      connection with the acquisition described in Note 6 above, the Company has
      recorded Goodwill, amounting to $61,436, which will not be amortized for book
      purposes and is not deductible for tax purposes. The Company also recorded
      intangibles which will have differing amortization for book and tax purposes.
      Trademarks, amounting to $13,030, will not be amortized for book purposes,
      but
      will be subject to amortization for tax purposes, giving rise to a permanent
      difference. Other intangible assets, amounting to $6,875, will be amortized
      over
      a shorter period for book purposes than tax purposes, giving rise to timing
      differences. These differences will impact the Company’s NOL carry-forwards in
      the future.




As
      of
      September 30, 2008, realization of the Company's net deferred tax asset of
      approximately $18,200 was not considered more likely than not and, accordingly,
      a valuation allowance of $18,200 has been provided. During the three months
      ended September 30, 2008, the valuation allowance increased by $1,625.




Management
      has evaluated and concluded that there are no significant uncertain tax
      positions requiring recognition in the Company’s financial statements as of
      September 30, 2008.




The
      Company adopted the provisions of FIN 48 on January 1, 2008 and there was no
      difference between the amounts of unrecognized tax benefits recognized in the
      balance sheet prior to the adoption of FIN 48 and those after the adoption
      of
      FIN 48. There were no unrecognized tax benefits not subject to valuation
      allowance as at September 30, 2008, December 31, 2007 and December 31, 2006.
      The
      Company will classify interest and penalties on any unrecognized tax benefits
      as
      a component of the provision for income taxes.


26


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







**13.**
            **Segment
                and Geographic information**




The
      Company operates in one reportable segment in which it is a developer and
      publisher of branded entertainment content for mobile phones. Revenues are
      attributed to geographic areas based on the country in which the carrier’s
      principal operations are located. The company attributes its long-lived assets,
      which primarily consist of property and equipment, to a country primarily based
      on the physical location of the assets. Goodwill and intangibles are not
      included in this allocation. The following information sets forth geographic
      information on our sales and net property and equipment for the period ended
      September 30, 2008:


North
                America
              
              Europe
              
              South
                America
              
              Other
                Regions
              
              ConsolidatedThree
                  Months ended September 30, 2008Net
                  sales to unaffiliated customers
              
              
              460
              
              
              4,208
              
              
              167
              
              
              168
              
              
              5,003Six
                  Months ended September 30, 2008Net
                  sales to unaffiliated customers
              
              
              1,671
              
              
              7,813
              
              
              352
              
              
              514
              
              
              10,350Property
                  and equipment, net at September 30, 2008
              
              
              833
              
              
              160
              
              
              -
              
              
              -
              
              
              993




Our
      largest single customer accounted for 45% of our revenue in the three months
      ended September 30, 2008; and 40% of our revenue in the six months ended
      September 30, 2008.




**14.**
            **Commitments
                and Contingencies**





**Operating
      Lease Obligations**


The
      Company leases office facilities under noncancelable operating leases expiring
      in various years through 2011.





Following
      is a summary of future minimum payments under initial terms of leases at
      September 30, 2008:


**Year
                  Ending September 30,**2009
              
              $
              3762010
              
              $
              2722011
              
              $
              18Total
                  minimum lease payments
              
              $
              666




These
      amounts do not reflect future escalations for real estate taxes and building
      operating expenses. Rental expense amounted to $183 for the three months ended
      September 30, 2008; and $393 for the six months ended September 30,
      2008.


27


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







**Minimum
      Guaranteed Royalties**


The
      Company has entered into license agreements with various owners of brands and
      other intellectual property so that it could develop and publish branded
      products for mobile handsets.





Pursuant
      to some of these agreements, the Company is required to pay minimum royalties
      over the term of the agreements regardless of actual sales. Future minimum
      royalty payments for those


agreements
      as of September 30, 2008 were as follows:


**Year Ending September 30,**
              
              **Minimum**
                **Guaranteed**
                **Royalties**2009
              
              
              1,5972010
              
              
              1,5602011
              
              
              8102012
              
              
              -Total
                  minimum payments
              
              $
              3,967





Commitments
      in the above table include guaranteed royalties to licensors that are included
      as a liability in the Company’s consolidated balance sheet of $1,413 as of
      September 30, 2008, because the Company has determined that recoupment is
      unlikely.





**Other
      Obligations**


As
      of
      September 30, 2008, the Company was obligated for payments under various
      distribution agreements, equipment lease agreements, employment contracts and
      the management agreement described in Note 9 with initial terms greater than
      one
      year at September 30, 2008. Annual payments relating to these commitments at
      September 30, 2008 are as follows:


**Year Ending September 30,**
              
              **Commitments**2009
              
              
              2,9492010
              
              
              2,1152011
              
              
              8052012
              
              
              -Total
                  minimum payments
              
              $
              5,869




**Litigation**


The
      Company is subject to various claims and legal proceedings arising in the normal
      course of business. Based on the opinion of the Company’s legal counsel,
      management believes that the ultimate liability, if any, in the aggregate will
      not be material to the financial position or results of operations of the
      Company for any future period; and no liability has been
      accrued.


28


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







**15.**
            **Subsequent
                Events**




*Acquisition
      of AMV Holding Limited Group*




The
      Company entered into a Stock Purchase Agreement on October 8, 2008, as amended
      on October 23, 2008 (the “Agreement”), with Jonathan Cresswell (“Cresswell”),
      Nathaniel MacLeitch (“MacLeitch,” and together with Cresswell, the “Founding
      Sellers”) and certain shareholders of AMV Holding Limited, a United Kingdom
      private limited company (“AMV”) signatories thereto (the “Non-Founding
      Sellers”), pursuant to which the Company would acquire 100% of the issued and
      outstanding share capital of AMV and 80% of the issued and outstanding share
      capital of Fierce Media Limited, a United Kingdom private limited company
      (“Fierce,” and together with AMV, the “Acquired Companies”) (the “Acquisition”,
      and all of the Shares collectively “the “Shares”).




The
      Acquisition was consummated on October 23, 2008. In consideration for the
      Shares, and subject to adjustment as set forth in the Agreement, the aggregate
      purchase price (the “Purchase Price”) consisted of: (a) $5,375 in cash (the
“Cash Consideration”); (b) 4,500 fully paid and non-assessable shares of Common
      Stock (the “Stock Consideration”) (closing price of $2.20 per share on October
      23, 2008); (c) a secured promissory note in the aggregate original principal
      amount of $5,375 (the “Note”); and (d) additional earn-out amounts, if any, if
      the Acquired Companies achieve certain targeted earnings for each of the periods
      from October 1, 2008 to March 31, 2009, April 1, 2009 to March 31, 2010, and
      April 1, 2010 to September 30, 2010, as determined in accordance with the
      Agreement. The Purchase Price is subject to certain adjustments based on the
      working capital of AMV, to be determined initially within 75 days of the
      closing, and subsequently within 60 days following June 30, 2009. Any such
      adjustment of the Purchase Price will be made first by means of an adjustment
      to
      the principal sum due under the Note, as set forth in the Agreement.




Prior
      to
      closing, each outstanding option to purchase shares of capital stock of AMV
      (an
“AMV Option”) was either exercised in full or terminated. Of the Cash
      Consideration payable to the Sellers, an amount equal to the exercise price
      of
      the AMV Options being exercised was paid to AMV for consideration of such option
      holder’s exercise of such AMV Options, and was deducted from the amount of Cash
      Consideration otherwise payable to such option holder. Additionally, of the
      Cash
      Consideration, an amount equal to the maximum taxation liability that would
      be
      incurred with respect to the payment of the Purchase Price to any option holder
      under applicable tax laws (the “Tax Withholding”), was delivered to AMV to be
      held in a separate account. The amount of the Tax Withholding was deducted
      from
      the amount of the Cash Consideration otherwise payable to the applicable option
      holder.




The
      Note
      matures on January 30, 2010, and bears interest at an initial rate of 5% per
      annum, subject to adjustment as provided therein. In the event the Company
      completes an equity financing that results in gross proceeds of over $6,000,
      the
      Company will prepay a portion of the Note in an amount equal to one-third of
      the
      excess of the gross proceeds of such financing over $6,000. In addition, if
      within nine months of the issuance date of the Note, the Company completes
      a
      financing that results in gross proceeds of over $15,000, then the Company
      shall
      prepay the entire principal amount then outstanding under the Note, plus accrued
      interest. If within nine months of the issuance date of the Note, the aggregate
      principal sum then outstanding under the Note plus accrued interest thereon
      has
      not been prepaid, then on and after such date, interest shall accrue on the
      unpaid principal balance of the Note at a rate of 7% per annum. Additionally,
      in
      connection with the Note, AMV granted to the Sellers a security interest in
      its
      assets. Such security interest is subordinate to the security interest granted
      to ValueAct, as described below. AMV also agreed to guarantee the Company’s
      repayment of the Note to the Sellers. At closing, each of the Sellers agreed
      to
      not dispose of or transfer any of the shares of the Stock Consideration they
      own
      for a period of one year following the closing.


29


**Mandalay
      Media Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**(all
      numbers in thousands except per share amounts)**







*Debt
      Restructuring*




In
      connection with the Acquisition, on October 23, 2008, the Company, Twistbox
      and
      ValueAct entered into a Second Amendment (the “Second Amendment”) to the
      ValueAct Note. Among other things, the Second Amendment provides for a payment
      in kind election, whereby, in lieu of making any cash payments to ValueAct
      on
      the following two interest payment dates, Twistbox may elect that the amount
      of
      any interest due on such date be added to the principal amount due under the
      ValueAct Note. In addition, ValueAct agreed to amend the ValueAct Note to modify
      the covenant requiring that the Company and Twistbox maintain certain minimum
      combined cash balances. Lastly, the Second Amendment provides that an event
      of
      default may be triggered in the event the Company fails to observe certain
      covenants as agreed to in the Second Amendment, including a covenant that,
      until
      all principal and interest and any other amounts due under the ValueAct Note
      are
      paid in full in cash, the Company: (i) will not create, incur, assume or permit
      to exist certain indebtedness, except for indebtedness in connection with a
      receivables facility as described in the Second Amendment, which indebtedness
      would rank pari passu in right of payment on the ValueAct Note, provided, that
      any receivables used to procure and maintain such receivables facility shall
      not
      be subject to any lien of ValueAct during the term of such receivables facility;
      and (ii) will not, and will not permit any subsidiary to, without the prior
      consent of ValueAct, prepay any indebtedness incurred in connection with the
      AMV
      Note, other than prepayments with proceeds raised in an equity financing as
      permitted by the AMV Note. Additionally, on October 23, 2008, in connection
      with
      the ValueAct Note, as amended, AMV agreed to grant to ValueAct a security
      interest in its assets, which ranks senior to the security interest granted
      to
      the Sellers. AMV also agreed to guarantee Twistbox’s repayment of the ValueAct
      Note.




The
      Company had previously issued to ValueAct two warrants to purchase shares of
      the
      Company’s common stock, $0.0001 par value per share (the “Common Stock”), as
      described in Note 8. One warrant entitles ValueAct to purchase up to a total
      of
      1,093 shares of Common Stock at an exercise price of $7.55 per share
      (“$7.55 Warrant”). The other warrant entitles ValueAct to purchase up to a total
      of 1,093 shares of Common Stock at an initial exercise price of $5.00 per
      share (“$5.00 Warrant,” and together with the $7.55 Warrant, the “ValueAct
      Warrants”). On October 23, 2008, the Company and ValueAct entered into an
      allonge to each of the ValueAct Warrants. Among other things, the exercise
      price
      of each of the ValueAct Warrants was amended to be $4.00 per share.




*Securities
      Purchase Agreement*




On
      October 23, 2008, the Company entered into a Securities Purchase Agreement
      with
      certain investors identified therein (individually, an “Investor” and
      collectively, the “Investors”), pursuant to which the Company agreed to sell to
      the Investors in a private offering an aggregate of 1,685 shares of Common
      Stock
      and warrants to purchase 843 shares of Common Stock (the “Warrants”), for gross
      proceeds to the Company of $4,500. The Warrants have a five year term and an
      exercise price of $2.67 per share.




30




**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-Q, 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”).




***Historical
      Operations of Mandalay Media, Inc.***




The
      Company was originally incorporated in the State of Delaware on November 6,
      1998
      under the name eB2B Commerce, Inc. On April 27, 2000, the Company merged into
      DynamicWeb Enterprises Inc., a New Jersey corporation, and changed its name
      to
      eB2B Commerce, Inc. On April 13, 2005, the Company changed its name to
      Mediavest, Inc. On November 7, 2007, through a
      merger, the Company reincorporated in the State of Delaware under
      the name Mandalay Media, Inc. On October 27, 2004, and as amended on December
      17, 2004, the Company filed a plan for reorganization under Chapter 11 of the
      United States Bankruptcy Code in the United States Bankruptcy Court for the
      Southern District of New York (the “Plan of Reorganization”). Under the Plan of
      Reorganization, as completed on January 26, 2005: (1) the Company’s net
      operating assets and liabilities were transferred to the holders of the secured
      notes in satisfaction of the principal and accrued interest thereon; (2)
      $400,000 were transferred to a liquidation trust and used to pay administrative
      costs and certain preferred creditors; (3) $100,000 were retained by the Company
      to fund the expenses of remaining public; (4) 3.5% of the new common stock
      of
      the Company (140,000 shares) was issued to the holders of record of the Company
      ‘s preferred stock in settlement of their liquidation preferences; (5) 3.5%
      of
      the new common stock of the Company (140,000 shares) was issued to common
      stockholders of record as of January 26, 2005 in exchange for all of the
      outstanding shares of the common stock of the Company; and (6) 93% of the new
      common stock of the Company (3,720,000 shares) was issued to the sponsor of
      the
      Plan of Reorganization in exchange for $500,000 in cash. Through January 26,
      2005, the Company and its subsidiaries were engaged in providing
      business-to-business transaction management services designed to simplify
      trading between buyers and suppliers.




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




**SUMMARY
      OF THE MERGER**




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




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




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


31


Effective
      as of the closing of the Merger, Ian Aaron and Adi McAbian were appointed to
      our
      Board of Directors (the “Board”).  In
      connection with the Merger, on March 31, 2008, the Board approved a change
      in
      the Company’s fiscal year end from December 31 to March 31 in Board of Directors
      order to conform to the fiscal year end of Twistbox. On July 15, 2008, the
      Company filed its Transitional Report on Form 10-KT for the Transition Period
      ended March 31, 2008.





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





On
      October 23, 2008, as discussed in our Current Report on Form 8-K filed with
      the
      Securities and Exchange Commission (“SEC”) on October 27, 2008, Mandalay and
      ValueAct entered into an allonge to each of the New Warrants, which, among
      other
      things, amended the exercise price of each of the New Warrants to $4.00 per
      share. In addition, also on October 23, 2008, in connection with the acquisition
      of AMV Holding Limited (“AMV”), Mandalay, Twistbox and ValueAct entered into a
      Second Amendment to the ValueAct Note (the “Second Amendment”), which among
      other things, provides for a payment in kind election at the option of
      Twistbox, modifies the financial covenants set forth in the ValueAct
      Note to require that Mandalay and Twistbox maintain certain minimum
      combined cash balances and provides for certain covenants with respect to the
      indebtedness of Mandalay and its subsidiaries.  Also on October 23, 2008,
      AMV granted  to  ValueAct a security interest in its
      assets to  secure the obligations under the ValueAct
      Note.




**Overview**




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




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




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




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




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


32





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





**Recent
      Events**





As
      previously disclosed in our Current Report on Form 8-K, filed with the SEC
      on
      October 27, 2008, on October 23, 2008, Mandalay consummated the acquisition
      of
      100% of the issued and outstanding share capital of AMV and 80% of the issued
      and outstanding share capital of Fierce Media Limited (collectively the
“Shares”). The aggregate purchase price (subject to adjustments as provided in
      the stock purchase agreement) for the Shares consisted of (i) $5,375,000 in
      cash; (ii) 4,500,000 shares of Common Stock; (iii) a secured promissory notes
      in
      the aggregate principal amount of $5,375,000; and (iv) additional earn-out
      amounts, if any, based on certain targeted earnings as set forth in the stock
      purchase agreement. In addition, also on October 23, 2008, in connection with
      the acquisition of AMV, Mandalay, Twistbox and ValueAct entered into a Second
      Amendment to the ValueAct Note, which among other things, provides for a payment
      in kind election at the option of Twistbox, modifies the financial
      covenants set forth in the ValueAct Note to require that Mandalay and
      Twistbox maintain certain minimum combined cash balances and provides for
      certain covenants with respect to the indebtedness of Mandalay and its
      subsidiaries.  Also on October 23, 2008, AMV granted  to
 ValueAct a security interest in its assets to  secure the
      obligations under the ValueAct Note. In addition, Mandalay and ValueAct
      entered into an allonge to each of the ValueAct Warrants, which, among other
      things, amended the exercise price of each of the warrants to $4.00 per share.





Also
      on
      October 23, 2008, Mandalay entered into a Securities Purchase Agreement with
      certain investors identified therein (the “Investors”), pursuant to which
      Mandalay Media agreed to sell to the Investors in a private offering an
      aggregate of 1,685,394 shares of Common Stock and warrants to purchase 842,697
      shares of Common Stock for gross proceeds to Mandalay of
      $4,500,000.




***Comparison
      of the Three Months Ended September 30, 2008 and 2007***


***Revenues***





**Three Months Ended****September 30,****2008**
            
            **2007****(In thousands)**Revenues
                by type:Games
            
            $
            1,217
            
            $
            -Other
                content
            
            
            3,786
            
            
            -Total
            
            $
            5,003
            
            
            -





The
      Company had no operations in 2007 and consequently no revenues. Revenues in
      the
      three months ended September 30, 2008 relate to the revenues of Twistbox. Games
      revenue includes both licensed and internally developed games for use on mobile
      phones. Other content includes a broad range of primarily licensed product
      delivered in the form of WAP, Video, Wallpaper and Mobile TV.




***Cost
      of Revenues***




**Three Months Ended****September 30,****2008**
            
            **2007****(In thousands)**Cost
                of Revenues:License
                Fees
            
            $
            1,785
            
            $
            -Other
                direct cost of revenues
            
            
            102
            
            
            -Total Cost of Revenues
            
            $
            1,887
            
            $
            -Revenues
            
            
            5,003
            
            $
            -Gross Margin
            
            
            62.3
            %
            
            N/A


33


The
      Company had no operations in 2007 and consequently no cost of revenues. Cost
      of
      revenues in the three months ended September 30, 2008 relate to the cost of
      revenues of Twistbox. License fees represent 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.




***Operating
      Expenses***




**Three Months Ended****September 30,****2008**
            
            **2007****(In thousands)**Product
                Development Expenses
            
            $
            1,800
            
            $
            -Sales
                and Marketing Expenses
            
            
            1,004
            
            
            -General
                and Administrative Expenses
            
            
            2,559
            
            
            544Amortization
                of Intangible Assets
            
            
            137
            
            
            -





Prior
      to
      the Merger, Mandalay was a public shell company with no operations; and as
      a
      result the only activity in the three months ended September 30, 2007 represents
      expenses incurred in developing the Company. In both years, General and
      Administrative expenses consists primarily of consulting and professional fees,
      accounting and legal expenses and employee related expenses including stock
      based compensation. The increase in 2008 over 2007 is primarily the result
      of
      stock based compensation to directors, employing executive management for the
      company, a significant increase in legal and other professional fees, and the
      addition of Twistbox expenses. Product Development and Sales and Marketing
      Expenses represent the operating expenses of Twistbox. Amortization of
      intangibles represents amortization of the intangibles identified as part of
      the
      purchase price accounting and attributed to operating expenses.




***Other
      Expenses***




**Three Months Ended****September 30,****2008**
            
            **2007****(In thousands)**Interest
                and other income/(expense)
            
            $
            (583
            )
            $
            89




Interest
      and other income/(expense) includes interest income on invested funds, interest
      expense related the Twistbox’s senior secured note, foreign exchange transaction
      gains and losses, and depreciation expense.





***Comparison
      of the Six Months Ended September 30, 2008 and 2007***





***Revenues***





**Six Months Ended September 30,****2008**
            
            **2007****(In thousands)**Revenues
                by type:Games
            
            $
            2,493
            
            $
            -Other
                content
            
            
            7.856
            
            
            -Total
            
            $
            10,349
            
            
            -


34


The
      Company had no operations in 2007 and consequently no revenues. Revenues in
      the
      six months ended September 30, 2008 relate to the revenues of Twistbox. Games
      revenue includes both licensed and internally developed games for use on mobile
      phones. Other content includes a broad range of primarily licensed product
      delivered in the form of WAP, Video, Wallpaper and Mobile TV.





***Cost
      of Revenues***




**Six Months Ended September 30,****2008**
            
            **2007****(In thousands)**Cost
                of Revenues:License
                Fees
            
            $
            3,934
            
            $
            -Other
                direct cost of revenues
            
            
            204
            
            
            -Total Cost of Revenues
            
            $
            4,138
            
            $
            -Revenues
            
            
            10,349
            
            $
            -Gross Margin
            
            
            60.0
            %
            
            N/A




The
      Company had no operations in 2007 and consequently no cost of revenues. Cost
      of
      revenues in the six months ended September 30, 2008 relate to the cost of
      revenues of Twistbox. License fees represent 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.




***Operating
      Expenses***




**Six Months Ended September 30,****2008**
            
            **2007****(In thousands)**Product
                Development Expenses
            
            $
            3,567
            
            $
            -Sales
                and Marketing Expenses
            
            
            2,283
            
            
            -General
                and Administrative Expenses
            
            
            5,372
            
            
            911Amortization
                of Intangible Assets
            
            
            274
            
            
            -





Prior
      to
      the Merger, Mandalay was a public shell company with no operations; and as
      a
      result the only activity in the six months ended September 30, 2007 represents
      expenses incurred in developing the Company. In both years, General and
      Administrative expenses consists primarily of consulting and professional fees,
      accounting and legal expenses and employee related expenses including stock
      based compensation. The increase in 2008 over 2007 is primarily the result
      of
      stock based compensation to directors, employing executive management for the
      company, a significant increase in legal and other professional fees, and the
      addition of Twistbox expenses. Product Development and Sales and Marketing
      Expenses represent the operating expenses of Twistbox. Amortization of
      intangibles represents amortization of the intangibles identified as part of
      the
      purchase price accounting and attributed to operating expenses.


35




***Other
      Expenses***




**Six Months Ended September 30,****2008**
            
            **2007****(In thousands)**Interest
                and other income/(expense)
            
            $
            (945
            )
            $
            165




Interest
      and other income/(expense) includes interest income on invested funds, interest
      expense related the Twistbox’s senior secured note, foreign exchange transaction
      gains and losses, and depreciation expense.





**Liquidity
      and Capital Resources**




**Six Months**
            
            **Six Months****Ended**
              **September 30,**
            
            **Ended**
              **September 30,****2008**
            
            **2007****(In thousands)**
            
            **(In thousands)****Consolidated
                Statement of Cash Flows Data:**Capital
                expenditures
            
            
            (120
            )
            
            -Cash
                flows used in operating activities
            
            
            (3,254
            )
            
            (531
            )Cash
                flows (used in)/ provided by investing activities
            
            
            (179
            )
            
            -Cash
                flows from financing activities
            
            
            -
            
            
            2,493




Prior
      to
      the Merger, Mandalay was a public shell company with no operations. Twistbox
      has
      incurred losses and negative annual cash flows since inception. The primary
      sources of liquidity have historically been issuance of common and preferred
      stock, in the case of Twistbox, borrowings under credit facilities with
      aggregate proceeds of $16.5 million. In the future, we anticipate that our
      primary sources of liquidity will be cash generated by our operating
      activities.





*Operating
      Activities*





In
      the
      six months ended September 30, 2007, operating expense consisted solely of
      employee compensation and other general and administrative expenses. In the
      six
      months ended September 30, 2008, we used $3.5 million of net cash in operating
      expenses. This primarily related to the net loss of $6.4 million, decreases
      in
      accrued license fees and other liabilities of $1.1 million and $0.7 million
      respectively, partially offset by an increase in accounts payable of $2.0
      million and non cash stock based compensation and depreciation and amortization
      included in the net loss of $2.0 million and $0.6 million respectively, and
      increases in accounts payable and other liabilities.




*Investing
      Activities*





In
      the
      six months ended September 30, 2008, $0.2 million was used in investing
      activities, primarily the purchase of plant and equipment.





*Financing
      Activities*





In
      the
      six months ended September 30, 2007, $2.5 Million was provided from the sale
      of
      common stock.





On
      September 29, 2008, the Company granted certain officers and directors options
      to purchase an aggregate of 350,000 shares of the Company’s common stock (the
“Options”), pursuant to the 2007 Employee, Director and Consultant Stock Plan,
      in consideration for their services to the Company and the Company’s Board. The
      Options have a ten-year term and are exercisable at a price of $2.40 per share.
      One-third of the Options were immediately exercisable upon grant, an additional
      one-third vest on the first anniversary of the date of grant and the remainder
      vest on the second anniversary of the date of grant. The Options were granted
      pursuant to the exemption from registration provided under Section 4(2) of
      the
      Securities Act of 1933, as amended (the “Act”).




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


36





As
      of
      September 30, 2008, the Company had approximately $7.1 million of cash, and
      management believes it has sufficient cash to satisfy the Company’s monetary
      needs for the next twelve months. We may, however, require additional cash
      resources due to changed business conditions or other future developments,
      including any investments or acquisitions we may decide to pursue. If these
      sources are insufficient to satisfy our cash requirements, we may seek to sell
      additional debt securities or additional equity securities or to obtain a credit
      facility. The sale of convertible debt securities or additional equity
      securities could result in additional dilution to our stockholders. The
      incurrence of increased indebtedness would result in additional debt service
      obligations and could result in additional operating and financial covenants
      that would restrict our operations. In addition, there can be no assurance
      that
      any additional financing will be available on acceptable terms, if at
      all.





**Contractual
      Obligations**




The
      following table is a summary of the Company’s contractual obligations as of
      September 30, 2008:




**Payments due by period****Less than****Total**
            
            **1 Year**
            
            **1-3 Years**
            
            **Thereafter****(In thousands)**Long-term
                debt obligations
            
            $
            18,975
            
            $
            1,650
            
            $
            17,325
            
            $
            -Operating
                lease obligations
            
            
            666
            
            
            376
            
            
            290
            
            
            -Guaranteed
                royalties
            
            
            3,967
            
            
            1,597
            
            
            2,370
            
            
            -Capitalized
                leases and other obligations
            
            
            5,869
            
            
            2,949
            
            
            2,920
            
            
            -




Debt
      obligations include interest payments under the ValueAct Note, payable at the
      six-monthly intervals. As described above, subsequent to September 30, 2008,
      the
      ValueAct Note was amended such that the Company may elect to add interest to
      the
      principal, with the full amount payable at the end of the term. Operating lease
      obligations represent noncancelable operating leases for the Company’s office
      facilities in several locations, expiring in various years through 2010.
      Twistbox has entered into license agreements with various owners of brands
      and
      other intellectual property so that we could develop and publish branded
      products for mobile handsets. Pursuant to some of these agreements, we are
      required to pay minimum royalties over the term of the agreements regardless
      of
      actual sales. Capitalized leases and other obligations include payments to
      various distribution providers, technical providers and employees for agreements
      with initial terms greater than one year at September 30, 2008.





**Off-Balance
      Sheet Arrangements**




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




**Item
      3.**  **Quantitative
      and Qualitative Disclosures About Market Risk.**





***Interest
      Rate and Credit Risk***




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




Currently,
      our cash and cash equivalents are maintained by financial institutions in
      the United States, Germany, the United Kingdom, Poland, Russia, Argentina and
      Colombia, and our current deposits are likely in excess of insured limits.
      We
      believe that the financial institutions that hold our investments are
      financially sound and, accordingly, minimal credit risk exists with respect
      to
      these investments. Our accounts receivable primarily relate to revenues earned
      from domestic and international Mobile phone carriers. We perform ongoing credit
      evaluations of our carriers’ financial condition but generally require no
      collateral from them. At September 30, 2008, our largest customer
      represented 27% of our gross accounts receivable.





***Foreign
      Currency Risk***




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


37


***Inflation***




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





**Item
      4T. Controls and Procedures.**





***Evaluation
      of Disclosure Controls and Procedures***





Members
      of our management, including our Chief Executive Officer, Bruce Stein, and
      Chief
      Financial Officer, Jay A. Wolf, have evaluated the effectiveness of our
      disclosure controls and procedures, as defined by the Securities Exchange Act
      of
      1934 (the “Exchange Act”) Rules 13a-15(e) or 15d-15(e), as of September 30,
      2008, the end of the period covered by this report. Based upon that evaluation,
      Messrs. Stein and Wolf concluded that our disclosure controls and procedures
      are
      adequate and effective to ensure that material information relating to use
      was
      made known to them by others within those entities, particularly during the
      period for which this Quarterly Report on Form 10-Q was prepared.





***Management’s
      Report on Internal Control Over Financial Reporting***





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
      under the Exchange Act. Our internal controls over financial reporting are
      designed to provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external purposes
      in
      accordance with generally accepted accounting principles.





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





Our
      management assessed the effectiveness of our internal controls over financial
      reporting as of September 30, 2008. Based on our assessment, we have concluded
      that our internal controls over financial reporting were effective as of
      September 30, 2008.





There
      were no changes in our internal control over financial reporting or in other
      factors identified in connection with the evaluation required by paragraph
      (d)
      of Exchange Act Rules 13(a)-15 or 15(d)-15 that occurred during the second
      quarter ended September 30, 2008 that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.




**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings.**





As
      of the
      date of filing this Quarterly Report on Form 10-Q, we are not a party to any
      litigation that we believe would have a material adverse effect on
      us.




**Item
      1A. Risk Factors.**





There
      are
      no material updates to the risk factors previously disclosed in our Form 10-KT
      for the Transition Period ended March 31, 2008.




**Item
      2. Unregistered Sales of Equity Securities and Use of Proceeds.**





On
      September 29, 2008, the Company granted certain officers and directors options
      to purchase an aggregate of 350,000 shares of the Company’s Options, pursuant to
      the 2007 Employee, Director and Consultant Stock Plan, in consideration for
      their services to the Company and the Company’s Board. The Options have a
      ten-year term and are exercisable at a price of $2.40 per share. One-third
      of
      the Options were immediately exercisable upon grant, an additional one-third
      vest on the first anniversary of the date of grant and the remainder vest on
      the
      second anniversary of the date of grant. The Options were granted pursuant
      to
      the exemption from registration provided under Section 4(2) the
      Act.




**Item
      3. Defaults Upon Senior Securities.**





None.


38


**Item
      4. Submission of Matters to a Vote of Security Holders.**





None.




**Item
      5. Other Information.**





None.





**Item
      6.**  **Exhibits.**




31.1
            Certification
                of Bruce Stein, Chief Executive Officer, pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.*31.2
            Certification
                of Jay A. Wolf, Chief Financial Officer, pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.*32.1
            Certification
                of Bruce Stein, Principal Executive Officer, pursuant to 18 U.S.C.
                Section
                1350.*32.1
            Certification
                of Jay A. Wolf, Principal Financial Officer, pursuant to 18 U.S.C.
                Section
                1350.*


*
      Filed
      herewith


39


**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:November
                14, 2008
            By:
            /s/
                Bruce
                SteinBruce
                SteinChief
                Executive Officer(Authorized
                Officer and Principal Executive
                Officer)




Date:November
                14, 2008By:
            /s/
                Jay A. WolfJay
                A. WolfChief
                Financial Officer(Authorized
                Officer and Principal Financial
                Officer)


40