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 June 30, 2009
 
 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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes    ̈   
     No   ̈
 
 Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of  “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
  Large
      Accelerated filer  ̈
              Accelerated
      filer  ̈Non-accelerated
      filer  ̈
                (do
      not check if a smaller reporting company)
              Smaller
      reporting company x
  Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    Yes    ̈
    No   x
 
 Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes   x
    No    ̈
 
 On August
14, 2009, there were 39,863,891 shares of the Registrant’s common stock, par
value $0.0001 per share, issued and outstanding.
 
 
 
 MANDALAY
MEDIA, INC.
 Table
of Contents
  PagePART I - FINANCIAL
    INFORMATIONItem
      1.
                      Financial
      StatementsConsolidated
      Balance Sheets as of June 30, 2009 (Unaudited) and March 31,
      2009
                      1Consolidated
      Statements of Operations (Unaudited) For the Three Month Periods Ended
      June 30, 2009 and 2008
                      2Consolidated
      Statements of Cash Flows (Unaudited) For the Three Month Periods June 30,
      2009 and 2008
                      3Notes
      to the Unaudited Consolidated Financial Statements
                      4Item
      2.
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      30Item
      3.
                      Quantitative
      and Qualitative Disclosures About Market Risk
                      35Item
      4T.
                      Controls
      and Procedures
                      35PART II - OTHER INFORMATIONItem
      1.
                      Legal
      Proceedings
                      36Item 1A.
                      Risk
      Factors
                      36Item
      2.
                      Unregistered
      Sales of Equity Securities and Use of Proceeds
                      36Item
      3.
                      Defaults
      Upon Senior Securities
                      36Item
      4.
                      Submission
      of Matters to a Vote of Security Holders
                      36Item
      5.
                      Other
      Information
                      36Item
      6.
                      Exhibits
                      37Signatures
                      38
 
 
  PART I -
FINANCIAL INFORMATION
  Item 1.   Financial
Statements.
  Mandalay Media,
      Inc. and Subsidiaries Consolidated
Balance Sheets





(In
      thousands, except share
amounts)
 June
      30,
                                                                                                                      
                                                                                                                      
                                                                                                                      March
      31,2009
                                                                                                                      
                                                                                                                      
                                                                                                                      2009(unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
                                                                                                                      
                                                                                                                      $
                                                                                                                      4,246
                                                                                                                      
                                                                                                                      
                                                                                                                      $
                                                                                                                      5,927Accounts
      receivable, net of allowances of $174 and $174,
    respectively
                                                                                                                      
                                                                                                                      
                                                                                                                      10,734
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      10,745Prepaid
      expenses and other current assets
                                                                                                                      
                                                                                                                      
                                                                                                                      1,154
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      1,334Total
      current assets
                                                                                                                      
                                                                                                                      
                                                                                                                      16,134
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      18,006Property
      and equipment, net
                                                                                                                      
                                                                                                                      
                                                                                                                      1,239
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      1,230Intangible
      assets, net
                                                                                                                      
                                                                                                                      
                                                                                                                      15,816
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      16,121Goodwill
                                                                                                                      
                                                                                                                      
                                                                                                                      55,833
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      55,833TOTAL
      ASSETS
                                                                                                                      
                                                                                                                      $
                                                                                                                      89,022
                                                                                                                      
                                                                                                                      
                                                                                                                      $
                                                                                                                      91,190LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable
                                                                                                                      
                                                                                                                      $
                                                                                                                      8,527
                                                                                                                      
                                                                                                                      
                                                                                                                      $
                                                                                                                      9,557Accrued
      license fees
                                                                                                                      
                                                                                                                      
                                                                                                                      2,921
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      2,795Accrued
      compensation
                                                                                                                      
                                                                                                                      
                                                                                                                      732
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      592Current
      portion of long term debt
                                                                                                                      
                                                                                                                      
                                                                                                                      -
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      23,296Other
      current liabilities
                                                                                                                      
                                                                                                                      
                                                                                                                      4,236
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      5,899Total
      currrent liabilities
                                                                                                                      
                                                                                                                      
                                                                                                                      16,416
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      42,139Long
      term debt, net of current portion
                                                                                                                      
                                                                                                                      
                                                                                                                      23,857
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      -Other
      long-term liabilities
                                                                                                                      
                                                                                                                      
                                                                                                                      -
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      27Total
      liabilities
                                                                                                                      
                                                                                                                      $
                                                                                                                      40,273
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      42,166Commitments
      and contingencies (Note 14)Stockholders'
      equityPreferred
      stockSeries
      A convertible preferred stockat
      $0.0001 par value; 100,000 shares authorized,issued and
      outstanding(liquidation
      preference of $1,000,000)
                                                                                                                      
                                                                                                                      
                                                                                                                      100
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      100Common
      stock, $0.0001 par value: 100,000,000 shares authorized;39,863,191
      issued and outstanding at June 30, 2009;39,653,125
      issued and outstanding at March 31, 2009
                                                                                                                      
                                                                                                                      
                                                                                                                      4
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      4Additional
      paid-in capital
                                                                                                                      
                                                                                                                      
                                                                                                                      94,401
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      93,918Accumulated
      other comprehensive income/(loss)
                                                                                                                      
                                                                                                                      
                                                                                                                      74
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      (129
                                                                                                                      )Accumulated
      deficit
                                                                                                                      
                                                                                                                      
                                                                                                                      (45,830
                                                                                                                      )
                                                                                                                      
                                                                                                                      
                                                                                                                      (44,869
                                                                                                                      )Total
      stockholders' equity
                                                                                                                      
                                                                                                                      
                                                                                                                      48,749
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      49,024TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                                                                      
                                                                                                                      $
                                                                                                                      89,022
                                                                                                                      
                                                                                                                      
                                                                                                                      $
                                                                                                                      91,190
 The
accompanying notes are an integral part of these consolidated financial
statements
  1
 Mandalay Media,
      Inc. and Subsidiaries Consolidated
Statements of Operations (Unaudited)
 
 (In
      thousands, except per share
amounts)
 3
      Months Ended
                                
                                
                                3
      Months EndedJune
      30
                                
                                
                                June
      302009
                                
                                
                                2008Net
      revenues
                                
                                $
                                10,083
                                
                                
                                $
                                5,347Cost
      of revenuesLicense
      fees
                                
                                
                                1,018
                                
                                
                                
                                2,150Other
      direct cost of revenues
                                
                                
                                1,837
                                
                                
                                
                                102Total
      cost of revenues
                                
                                
                                2,855
                                
                                
                                
                                2,252Gross
      profit
                                
                                
                                7,228
                                
                                
                                
                                3,095Operating
      expensesProduct
      development
                                
                                
                                1,422
                                
                                
                                
                                1,766Sales
      and marketing
                                
                                
                                3,381
                                
                                
                                
                                1,280General
      and administrative
                                
                                
                                2,388
                                
                                
                                
                                2,813Amortization
      of intangible assets
                                
                                
                                177
                                
                                
                                
                                137Total
      operating expenses
                                
                                
                                7,368
                                
                                
                                
                                5,996Loss
      from operations
                                
                                
                                (140
                                )
                                
                                
                                (2,901
                                )Interest
      and other income/(expense)Interest
      income
                                
                                
                                3
                                
                                
                                
                                76Interest
      expense
                                
                                
                                (669
                                )
                                
                                
                                (484
                                )Foreign
      exchange transaction gain loss
                                
                                
                                155
                                
                                
                                
                                131Other
      income / (expense)
                                
                                
                                (5
                                )
                                
                                
                                (86
                                )Interest
      and other income/(expense)
                                
                                
                                (516
                                )
                                
                                
                                (363
                                )Loss
      from operations before income taxes
                                
                                
                                (656
                                )
                                
                                
                                (3,264
                                )Income
      tax provision
                                
                                
                                (305
                                )
                                
                                
                                (73
                                )Net
      loss
                                
                                $
                                (961
                                )
                                
                                $
                                (3,337
                                )Comprehensive
      loss
                                
                                $
                                (758
                                )
                                
                                $
                                (3,337
                                )Basic
      and diluted net loss per common share
                                
                                $
                                (0.02
                                )
                                
                                $
                                (0.10
                                )Weighted
      average common shares outstanding,
                                
                                
                                39,808
                                
                                
                                
                                32,330basic
      and diluted
 The
accompanying notes are an integral part of these consolidated financial
statements
  2
  (In
      thousands)
 3
      Months Ended
                          
                          
                          3
      Months EndedJune
      30,
                          
                          
                          June
      30,2009
                          
                          
                          2008Cash
      flows from operating activitiesNet
      loss
                          
                          $
                          (961
                          )
                          
                          
                          (3,337
                          )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
      and amortization
                          
                          
                          425
                          
                          
                          
                          317Allowance
      for doubtful accounts
                          
                          
                          -
                          
                          
                          
                          (56
                          )Stock-based
      compensation
                          
                          
                          483
                          
                          
                          
                          1,222(Increase)
      / decrease in assets:Accounts
      receivable
                          
                          
                          4
                          
                          
                          
                          (268
                          )Prepaid
      expenses and other current assets
                          
                          
                          164
                          
                          
                          
                          (153
                          )Increase
      / (decrease) in liabilities:Accounts
      payable
                          
                          
                          (1,058
                          )
                          
                          
                          389Accrued
      license fees
                          
                          
                          106
                          
                          
                          
                          23Accrued
      compensation
                          
                          
                          124
                          
                          
                          
                          (99
                          )Other
      liabilities
                          
                          
                          (1,144
                          )
                          
                          
                          118Net
      cash used in operating activities
                          
                          
                          (1,857
                          )
                          
                          
                          (1,844
                          )Cash
      flows from investing activitiesPurchase
      of property and equipment
                          
                          
                          (129
                          )
                          
                          
                          (70
                          )Issuance
      of note receivable
                          
                          
                          -
                          
                          
                          
                          (2,025
                          )Net
      cash used in investing activities
                          
                          
                          (129
                          )
                          
                          
                          (2,095
                          )Effect
      of exchange rate changes on cash and cash equivalents
                          
                          
                          305
                          
                          
                          
                          (10
                          )Net
      decrease in cash and cash equivalents
                          
                          
                          (1,681
                          )
                          
                          
                          (3,949
                          )Cash
      and cash equivalents, beginning of period
                          
                          
                          5,927
                          
                          
                          
                          10,936Cash
      and cash equivalents, end of period
                          
                          $
                          4,246
                          
                          
                          
                          6,987Supplemental
      disclosure of cash flow information:Taxes
      paid
                          
                          
                          39
                          
                          
                          
                          (73
                          )
 The
accompanying notes are an integral part of these consolidated financial
statements
  3
  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. Through January 26, 2005, the Company and its former
subsidiaries were engaged in providing business-to-business transaction
management services designed to simplify trading between buyers and suppliers.
The Company was inactive from January 26, 2005 through its merger with Twistbox
Entertainment, Inc., February 12, 2009 (Note 6).  On September 14,
2008, Mandalay Media, Inc. was incorporated by Mediavest in the state of
Delaware.
 
 On
November 7, 2008, Mediavest merged into its wholly-owned, newly formed
subsidiary, Mandalay Media, with Mandalay Media as the surviving corporation.
Mandalay Media issued: (1) one new share of common stock in exchange for
each share of Mediavest’s outstanding common stock and (2) one new share of
preferred stock in exchange for each share of Mediavest’s outstanding
preferred stock as of November 7, 2008. Mandalay Media’s preferred and common
stock assumed the same status and par value as Mediavest’s and acceded to
all the rights, acquired all the assets and assumed all of the liabilities of
Mediavest.
 
 On
February 12, 2009, Mandalay Media completed a merger with Twistbox
Entertainment, Inc. (“Twistbox”) through an exchange of all outstanding capital
stock of Twistbox for 10,180 shares of common stock of the Company and the
Company’s assumption of all the outstanding options of Twistbox’s 2006 Stock
Incentive Plan by the issuance of options to purchases 2,463 shares of common
stock of the Company, including 2,145 vested and 319 unvested
options.
 
 After the
Merger, Twistbox became a wholly owned subsidiary of the Company, and the
company’s only active subsidiary.
 
 Twistbox
Entertainment Inc. (formerly known as The WAAT Corporation) is incorporated in
the State of Delaware.
 
 Twistbox
is 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.
 4
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 On
October 23, 2008 the Company completed an acquisition of 100% of the issued and
outstanding share capital of AMV Holding Limited, a United Kingdom private
limited company (“AMV”), and 80% of the issued and outstanding share capital of
Fierce Media Ltd. (“Fierce”).
 
 In
consideration for the shares, and subject to adjustment as set forth in the
Stock Purchase Agreement, the aggregate purchase price (the “Purchase Price”)
consisted of: (a) $5,375 in cash (the “Cash Consideration”); (b) 4,500 fully
paid shares of Common Stock (the “Stock Consideration”); (c) a secured
promissory note in the aggregate original principal amount of $5,375 (the “AMV
Note”); and (d) additional earn-out amounts, if any, if the Acquired Companies
achieve certain targeted earnings for each of the periods from October 1, 2008
to March 31, 2009, April 1, 2009 to March 31, 2010, and April 1, 2010 to
September 30, 2010, as determined in accordance with the Agreement. The Purchase
Price was subject to certain adjustments based on the working capital of AMV, to
be determined initially within 75 days of the closing, and subsequently within
60 days following June 30, 2009. Any such adjustment of the Purchase Price will
be made first by means of an adjustment to the principal sum due under the AMV
Note, as set forth in the Stock Purchase Agreement. An initial adjustment of
$443 was made subsequent to closing, and has been added to the AMV Note. The
initial period earn-out was recognized in the year ended March 31, 2009 and was
added to the amount of consideration for the acquisition, as described in Note
6.
 
 AMV is a
leading mobile media and marketing company delivering games and lifestyle
content directly to consumers in the United Kingdom, Australia, South Africa and
various other European countries. AMV markets its well established branded
services through a unique Customer Relationship Management (“CRM”) platform that
drives revenue through mobile internet, print and TV advertising. AMV is
headquartered in Marlow, outside of London in the United Kingdom.
   2.
                      Summary
      of Significant Accounting
Policies
 
 Basis
of Presentation
 The
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, filed with the Securities and Exchange Commission.
In the opinion of management, the accompanying consolidated financial statements
contain all adjustments, consisting only of normal recurring adjustments, which
the Company believes are necessary for a fair statement of the Company’s
financial position as of June 30, 2009 and its results of operations for the
three months ended June 30, 2009 and 2008, 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
March 31, 2009 has been derived from the audited consolidated financial
statements as of that date, and the consolidated balance sheet presented as of
June 30, 2009 has been derived from the unaudited consolidated financial
statements as of that date.
  Principles
of Consolidation
 5
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 The
consolidated financial statements include the accounts of the Company and our
wholly-owned subsidiaries. All material intercompany balances and transactions
have been eliminated in consolidation.
 
 Revenue
Recognition
 The
Company’s revenues are derived primarily by licensing material and software in
the form of products (Image Galleries, Wallpapers, video, WAP Site access,
Mobile TV) and mobile games. License arrangements with the end user can be on a
perpetual or subscription basis.
 
 A
perpetual license gives an end user the right to use the product, image or game
on the registered handset on a perpetual basis. A subscription license gives an
end user the right to use the product, image or game on the registered handset
for a limited period of time, ranging from a few days to as long as one
month.
 
 The
Company either markets and distributes its products directly to consumers, or
distributes products through mobile telecommunications service providers
(“carriers”), in which case the carrier markets the product, images or games to
end users. License fees for perpetual and subscription licenses are usually
billed upon download of the product, image or game by the end user. In the case
of subscriber licenses, many subscriber agreements provide for automatic renewal
until the subscriber opts-out, while others provide opt-in renewal. In either
case, subsequent billings for subscription licenses are generally billed
monthly. The Company applies the provisions of Statement of Position 97-2, Software Revenue Recognition,
as amended by Statement of Position 98-9, Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions, to all transactions.
 
 Revenues
are recognized from the Company’s products, images and games when persuasive
evidence of an arrangement exists, the product, image or game has been
delivered, the fee is fixed or determinable, and the collection of the resulting
receivable is probable. For both perpetual and subscription licenses, management
considers a  license agreement to be evidence of an arrangement with a
carrier or aggregator and a “clickwrap” agreement to be evidence of an
arrangement with an end user. For these licenses, the Company defines delivery
as the download of the product, image or game by the end user.
 
 The
Company estimates revenues from carriers in the current period when reasonable
estimates of these amounts can be made. Most carriers only provide detailed
sales transaction data on a one to two month lag. Estimated revenue is treated
as unbilled receivables until the detailed reporting is received and the
revenues can be billed. Some carriers provide reliable interim preliminary
reporting and others report sales data within a reasonable time frame following
the end of each month, both of which allow the Company to make reasonable
estimates of revenues and therefore to recognize revenues during the reporting
period when the end user licenses the product, image or game. Determination of
the appropriate amount of revenue recognized involves judgments and estimates
that the Company believes are reasonable, but it is possible that actual results
may differ from the Company’s estimates. The Company’s estimates for revenues
include consideration of factors such as preliminary sales data,
carrier-specific historical sales trends, volume of activity on company
monitored sites, seasonality, time elapsed from launch of services or product
lines, the age of games and the expected impact of newly launched games,
successful introduction of new handsets, growth of 3G subscribers by carrier,
promotions during the period and economic trends. When the Company receives the
final carrier reports, to the extent not received within a reasonable time frame
following the end of each month, the Company records any differences between
estimated revenues and actual revenues in the reporting period when the Company
determines the actual amounts. Revenues earned from certain carriers may not be
reasonably estimated. If the Company is unable to reasonably estimate the amount
of revenues to be recognized in the current period, the Company recognizes
revenues upon the receipt of a carrier revenue report and when the Company’s
portion of licensed revenues are fixed or determinable and collection is
probable. To monitor the reliability of the Company’s estimates, management,
where possible, reviews the revenues by country by carrier and by product line
on a regular basis to identify unusual trends such as differential adoption
rates by carriers or the introduction of new handsets. If the Company deems a
carrier not to be creditworthy, the Company defers all revenues from the
arrangement until the Company receives payment and all other revenue recognition
criteria have been met.
 6
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 In
accordance with Emerging Issues Task Force, or EITF Issue No. 99-19, Reporting Revenue Gross as a
Principal Versus Net as an Agent, the Company recognizes as revenues the
amount the carrier reports as payable upon the sale of the Company’s products,
images or games. The Company has evaluated its carrier agreements and has
determined that it is not the principal when selling its products, images or
games through carriers. Key indicators that it evaluated to reach this
determination include:
 
 •
                    wireless
      subscribers directly contract with the carriers, which have most of the
      service interaction and are generally viewed as the primary obligor by the
      subscribers;
 •
                    carriers
      generally have significant control over the types of content that they
      offer to their subscribers;
 •
                    carriers
      are directly responsible for billing and collecting fees from their
      subscribers, including the resolution of billing
  disputes;
 •
                    carriers
      generally pay the Company a fixed percentage of their revenues or a fixed
      fee for each game;
 •
                    carriers
      generally must approve the price of the Company’s content in advance of
      their sale to subscribers, and the Company’s more significant carriers
      generally have the ability to set the ultimate price charged to their
      subscribers; and
 •
                    The
      Company has limited risks, including no inventory risk and limited credit
      risk.
 
 For
direct to consumer business, revenue is earned by delivering a product or
service directly to the end user of that product or service. In those cases the
Company records as revenue the amount billed to that end user and recognizes the
revenue when persuasive evidence of an arrangement exists, the product, image or
game has been delivered, the fee is fixed or determinable, and the collection of
the resulting receivable is probable.
 
 Net
Loss per Common Share
 Basic
loss per common share is computed by dividing net loss attributable to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted net loss per share is computed by dividing net loss attributable
to common stockholders by the weighted average number of common shares
outstanding for the period plus dilutive common stock equivalents, using the
treasury stock method. Potentially dilutive shares from stock options and
warrants and the conversion of the Series A preferred stock for the periods
ended June 30, 2009 and June 30, 2008 consisted of 100 and 5,060
shares, respectively, and were not included in the computation of diluted loss
per share as they were anti-dilutive in each period.
 
 Comprehensive
Loss
 Comprehensive
loss consists of two components, net loss and other comprehensive loss. Other
comprehensive 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 loss. The Company’s other comprehensive loss currently
includes only foreign currency translation adjustments.
 7
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 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.
 
 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.
 8
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 Product
Development Costs
 The
Company charges costs related to research, design and development of products to product
development expense as incurred. The types of costs included in product
development expenses include salaries, contractor fees and allocated facilities
costs.
 
 Advertising
Expenses
 The
Company expenses the production costs of advertising, including direct response
advertising, the first time the advertising takes place. Direct response
advertising is expensed immediately since there is a very limited ongoing
return. Advertising expense was $2,339 and $424 in the three months ended June
30, 2009 and 2008, respectively. Advertising costs are expensed as
incurred.
 
 Restructuring
 The
Company accounts for costs associated with employee terminations and other exit
activities in accordance with Statement of Financial Accounting Standards No.
146, Accounting for Costs
Associated with Exit or Disposal Activities. The Company records employee
termination benefits as an operating expense when it communicates the benefit
arrangement to the employee and it requires no significant future services,
other than a minimum retention period, from the employee to earn the termination
benefits.
 
 
 Fair
Value of Financial Instruments
 As of
June 30, 2009 and March 31, 2009, the carrying value of cash and cash
equivalents, accounts receivable, prepaid expenses and other current assets,
accounts payable, accrued license fees, accrued compensation and other current
liabilities approximates fair value due to the short-term nature of such
instruments. The carrying value of current portion of long-term debt
approximates fair value as the related interest rates approximate rates
currently available to the Company.
 
 
 Foreign Currency
Translation.
 The
Company uses the United States dollar for financial reporting
purposes.  Assets and liabilities of foreign operations are translated
using current rates of exchange prevailing at the balance sheet date. Equity
accounts have been translated at their historical exchange rates when the
capital transaction occurred.  Statement of Operations amounts are
translated at average rates in effect for the reporting period. The foreign
currency translation adjustment gain/(loss) of $424 and ($10) in the periods
ended June 30, 2009 and 2008, respectively, 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.
 9
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 Concentrations
of Credit Risk.
 Financial
instruments which potentially subject us to concentration of credit risk consist
principally of cash and cash equivalents, and accounts receivable. We have
placed cash and cash equivalents with a single high credit-quality institution.
As of June 30, 2009, we did not have any long-term marketable securities. The
Company’s sales are made either directly to consumers, with the billings
performed by and the receivable due from industry aggregators; or directly to
the large national Mobile Phone Operators in the countries that we operate. We
have a significant level of business and resulting significant accounts
receivable balance with one operator and a small number of aggregators, and
therefore have a high concentration of credit risk with those entities. We
perform ongoing credit evaluations of our customers and maintain an allowance
for potential credit losses. As of June 30, 2009, our two largest customers
represented approximately 17% and 15% of our gross accounts receivable
outstanding.  These customers accounted for 12% and 19%, respectively,
of our gross sales in the three months ended June 30, 2009.  At June
30, 2008 our largest customer represented approximately 25% of our gross
accounts receivable outstanding; and this customer accounted for 40% of our
gross sales in the three months ended March 31, 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
and Indefinite Life Intangible Assets
 Goodwill
represents the excess of cost over fair value of net assets of businesses
acquired. In accordance with Statement of Financial Accounting Standards
No. 142 (“SFAS 142”) Goodwill and Other Intangible
Assets, the value assigned to goodwill and indefinite lived intangible
assets, including trademarks and tradenames, is not amortized to expense, but
rather they are evaluated at least on an annual basis to determine if there are
potential impairments. If the fair value of the reporting unit is less than its
carrying value, an impairment loss is recorded to the extent that the implied
fair value of the reporting unit goodwill is less than the carrying value. If
the fair value of an indefinite lived intangible (such as trademarks and trade
names) is less than its carrying amount, an impairment loss is recorded. Fair
value is determined based on discounted cash flows, market multiples or
appraised values, as appropriate. Discounted cash flow analysis requires
assumptions about the timing and amount of future cash inflows and outflows,
risk, the cost of capital, and terminal values. Each of these factors can
significantly affect the value of the intangible asset. The estimates of future
cash flows, based on reasonable and supportable assumptions and projections,
require management’s judgment. Any changes in key assumptions about the
Company’s businesses and their prospects, or changes in market conditions, could
result in an impairment charge. Some of the more significant estimates and
assumptions inherent in the intangible asset valuation process include: the
timing and amount of projected future cash flows; the discount rate selected to
measure the risks inherent in the future cash flows; and the assessment of the
asset’s life cycle and the competitive trends impacting the asset, including
consideration of any technical, legal or regulatory trends.
 
 In the
year ended March 31, 2009, the Company determined that there was an impairment
of goodwill, amounting to $27,844.  In performing the related
valuation analysis the Company used various valuation methodologies including
probability weighted discounted cash flows, comparable transaction analysis, and
market capitalization and comparable company multiple comparison. The impairment
is detailed in Note 6 below.
 10
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 Impairment of Long-Lived Assets and Finite Life
Intangibles
 
 Long-lived
assets, including purchased intangible assets with finite lives are amortized
using the straight-line method over their useful lives ranging from three to ten
years and are reviewed for impairment in accordance with Statement of Financial
Accounting Standards  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.
 
 In the
year ended March 31, 2009, the Company determined that there was an impairment
of intangible assets, amounting to $3,940.  In performing the related
valuation analysis the Company used various valuation methodologies including
probability weighted discounted cash flows, comparable transaction analysis, and
market capitalization and comparable company multiple comparison. The impairment
is detailed in Note 6 below.
 
 Intangible
assets subject to amortization primarily consist of customer lists, license
agreements and software that have been acquired.  The intangible asset
values assigned to the identified assets for each acquisition were generally
determined based upon the expected discounted aggregate cash flows to be derived
over the estimated useful life. The method of amortizing the intangible asset
values are based upon the Company’s historical experience.  The
Company reviews the recoverability of its finite-lived intangible assets for
recoverability whenever events or circumstances indicated that the carrying
amount of an asset may not be recoverable. Recoverability is assessed by
comparison to associated undiscounted cash flows.
 
 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,
2009. 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.
 11
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 Stock-based compensation.
 We have
applied Statement of Financial Accounting Standards  No. 123(R) Share-Based Payment (“SFAS
123R”) and accordingly, we record stock-based compensation expense for all of
our stock-based awards.
 
 Under
SFAS 123R, we estimate the fair value of stock options granted using the
Black-Scholes option pricing model. The fair value for awards that are expected
to vest is then amortized on a straight-line basis over the requisite service
period of the award, which is generally the option vesting term. The amount of
expense recognized represents the expense associated with the stock options we
expect to ultimately vest based upon an estimated rate of forfeitures; this rate
of forfeitures is updated as necessary and any adjustments needed to recognize
the fair value of options that actually vest or are forfeited are
recorded.
 
 The
Black-Scholes option pricing model, used to estimate the fair value of an award,
requires the input of subjective assumptions, including the expected volatility
of our common stock and an option’s expected life. As a result, the financial
statements include amounts that are based upon our best estimates and judgments
relating to the expenses recognized for stock-based compensation.
 
 Preferred
Stock
 The
Company applies the guidance enumerated in Statement of Financial Accounting
Standards No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity(“SFAS
150”), 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 April
2009, the Financial Accounting Standards Board (“FASB”) issued three related
FASB Staff Positions: (i) FSP FAS No. 115-2 and FAS No. 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments (“FSP FAS 115-2 and FAS 124-2”); (ii)
FSP FAS No. 107-1 and Accounting Principles Board Opinion (“APB”) No. 28-1,
Interim Disclosures about Fair
Value of Financial Instruments (“FSP FAS 107-1 and APB 28-1”), and; (iii)
FSP FAS No. 157-4, Determining
the Fair Value When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are Not
Orderly (“FSP FAS 157-4”), which are effective for interim and annual
reporting periods ending after June 15, 2009. FSP FAS 115-2 and FAS 124-2 amend
the other-than-temporary impairment guidance in generally accepted accounting
principles (“GAAP”) for debt securities to modify the requirement for
recognizing other-than-temporary impairments, change the existing impairment
model and modify the presentation and frequency of related disclosures. FSP FAS
107-1 and APB 28-1 require disclosures about fair value of financial instruments
for interim reporting periods as well as in annual financial statements. FSP FAS
157-4 provides additional guidance for estimating fair value in the current
economic environment and reemphasizes that the objective of a fair value
measurement remains an exit price. If we were to conclude that there has been a
significant decrease in the volume and level of activity of the asset or
liability in relation to normal market activities, quoted market values may not
be representative of fair value and we may conclude that a change in valuation
technique or the use of multiple valuation techniques may be appropriate in
accordance with SFAS No. 157. The impact of the adoption of these three
Staff Positions was not significant to our consolidated financial
statements.
 12
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 In
April 2009, the FASB issued FSP SFAS No. 141R-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies. FSP SFAS 141R-1 amends the guidance in SFAS 141R relating
to the initial recognition and measurement, subsequent measurement and
accounting and disclosures of assets and liabilities arising from contingencies
in a business combination. FSP SFAS 141R is effective for fiscal years beginning
after December 15, 2008. We adopted FSP SFAS 141R as of the beginning of
fiscal 2010. We will apply the requirements of FSP FAS 141R-1 prospectively to
any future acquisitions.
  In May
2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS
165”), which establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. The provisions of SFAS 165 are
effective for interim and annual reporting periods ending after June 15, 2009.
The impact of the adoption of SFAS 165 was not significant to our consolidated
financial statements.
  In June
2009, the FASB approved the FASB Accounting Standards
Codification (“Codification”), which launched on July 1, 2009, and will
be effective for financial statements for interim or annual reporting
periods ending after September 15, 2009.  The Codification is not
expected to change GAAP, but will combine all authoritative standards into a
comprehensive, topically organized online database.  After the
Codification launch on July 1, 2009 only one level of authoritative
GAAP exists, other than guidance issued by the SEC.  All other
accounting literature excluded from the Codification will be considered
non-authoritative.  We are currently evaluating the potential effect
on the 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.  One of the Company’s operating
subsidiaries, Twistbox, has sustained substantial operating losses since
commencement of operations.  The Company has also incurred negative cash
flows from operating activities and the majority of the Company’s assets are
intangible assets and goodwill, which have been subject to impairment in the
current year.
 13
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
  In
addition, Twistbox has a significant amount of debt, in the form of a secured
note, as detailed in Note 8. The Company has guaranteed 50% of this debt, and
the Company is subject to certain covenants. The debt and the operation of
covenants has been restructured subsequent to June 30, 2009, as described in
Note 15.
  The
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 reaching a positive cash flow position while maintaining
adequate liquidity.
  The
Company has undertaken a number of specific steps to achieve positive cashflow
in the future and to improve liquidity.  These actions include the debt
restructuring described in Note 15, and the Company has taken further action to
reduce its ongoing operating cost base, and has been in discussions with
unsecured creditors regarding restructuring of commitments. Other actions
include continued increases in revenues by introducing new products and revenue
streams, reductions in the cost of revenues, continued expansion into new
territories, reviewing additional financing options, and accretive acquisitions.
Management believes that actions undertaken as a whole provide the opportunity
for the Company to continue as a going concern, although this will be highly
dependent on the ability to restructure commitments, and to obtain additional
debt and/or equity placements.
 
  4.
                      Balance
      Sheet Components
  Accounts
Receivable
  June
      30,
                                  
                                  
                                  March
      31,2009
                                  
                                  
                                  2009(unaudited)Accounts
      receivable
                                  
                                  $
                                  10,908
                                  
                                  
                                  $
                                  10,919Less:
      allowance for doubtful accounts
                                  
                                  $
                                  (174
                                  )
                                  
                                  
                                  (174
                                  )$
                                  10,734
                                  
                                  
                                  $
                                  10,745
  Accounts
receivable includes amounts billed and unbilled as of the respective balance
sheet dates. The Company had no significant write-offs or recoveries during the
period ended June 30, 2009.
  Property
and Equipment
  June
      30,
                                
                                
                                March
      31,2009
                                
                                
                                2009(unaudited)Equipment
                                
                                $
                                1,295
                                
                                
                                $
                                1,192Furniture
      & fixtures
                                
                                
                                412
                                
                                
                                
                                386Leasehold
      improvements
                                
                                
                                140
                                
                                
                                
                                1401,847
                                
                                
                                
                                1,718Accumulated
      depreciation
                                
                                
                                (608
                                )
                                
                                
                                (488
                                )$
                                1,239
                                
                                
                                $
                                1,230
  Depreciation
expense for the periods ended June 30, 2009 and 2008 was $120 and $86
respectively.
 14
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 5.
                      Description
      of Stock Plans
  On
September 27, 2007, the stockholders of the Company adopted the 2007 Employee,
Director and Consultant Stock Plan (“Plan”). Under the Plan, the Company may
grant up to 3,000 shares or equivalents of common stock of the Company as
incentive stock options (ISO), non-qualified options (NQO), stock grants or
stock-based awards to employees, directors or consultants, except that ISO’s
shall only be issued to employees. Generally, ISO’s and NQO’s shall be issued at
prices not less than fair market value at the date of issuance, as defined, and
for terms ranging up to ten years, as defined. All other terms of grants shall
be determined by the board of directors of the Company, subject to the
Plan.
  On
February 12, 2009, 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, 2009, amended the Plan to increase the maximum number of shares of
the Company's common stock with respect to which stock rights may be granted in
any fiscal year to 1,100 shares. All other terms of the plan remain in full
force and effect.
 
 The
following table summarizes options granted for the periods or as of the dates
indicated:
 
 Number
      of
                                
                                
                                Weighted
      AverageShares
                                
                                
                                Exercise
      PriceOutstanding
      at December 31, 2006
                                
                                
                                -
                                
                                
                                
                                -Granted
                                
                                
                                1,600
                                
                                
                                $
                                2.64Canceled
                                
                                
                                -
                                
                                
                                
                                -Exercised
                                
                                
                                -
                                
                                
                                
                                -Outstanding
      at December 31, 2007
                                
                                
                                1,600
                                
                                
                                $
                                2.64Granted
                                
                                
                                2,752
                                
                                
                                $
                                4.57Transferred
      in from Twistbox
                                
                                
                                2,462
                                
                                
                                $
                                0.64Canceled
                                
                                
                                (12
                                )
                                
                                $
                                0.81Outstanding
      at March 31, 2008
                                
                                
                                6,802
                                
                                
                                $
                                2.70Granted
                                
                                
                                1,860
                                
                                
                                $
                                2.67Canceled
                                
                                
                                (1,702
                                )
                                
                                $
                                0.48Exercised
                                
                                
                                -
                                
                                
                                $
                                0.48Outstanding
      at March 31, 2009
                                
                                
                                6,960
                                
                                
                                $
                                2.52Granted
                                
                                
                                -
                                
                                
                                $
                                -Canceled
                                
                                
                                (5
                                )
                                
                                $
                                0.81Exercised
                                
                                
                                -
                                
                                
                                $
                                -Outstanding
      at June 30, 2009 (unaudited)
                                
                                
                                6,955Exercisable
      at June 30, 2009 (unaudited)
                                
                                
                                5,546
                                
                                
                                $
                                2.30
 
 The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average
assumptions:
 
 Options
      GrantedYear Ended
                                    
                                    
                                    
                                    Options
      TranferredMarch
      31, 2009
                                    
                                    Options
      Granted
                                    
                                    from
      TwistboxExpected
      life (years)
                                    6
                                    
                                    4
      to
      6
                                    
                                    3
      to 7Risk-free
      interest rate
                                    3.90%
      to 3.92%
                                    
                                    2.7%
      to 3.89%
                                    
                                    2.03%
      to 5.03%Expected
      volatility
                                    49.73%
      to 54.33%
                                    
                                    70%
      to 75.2%
                                    
                                    70%
      to 75%Expected
      dividend yield
                                    0%
                                    
                                    0%
                                    
                                    0%
 15
  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 June 30, 2009 was as
follows:
  WeightedAverage
                                    
                                    
                                    
                                    
                                    
                                    WeightedRemaining
                                    
                                    
                                    Number
                                    
                                    
                                    Average
                                    
                                    
                                    AggregateRange
      of
                                    
                                    
                                    Contractual
      Life
                                    
                                    
                                    Outsanding
                                    
                                    
                                    Exercise
                                    
                                    
                                    IntrinsicExercise
      Price
                                    
                                    
                                    (Years)
                                    
                                    
                                    June
      30, 2009
                                    
                                    
                                    Price
                                    
                                    
                                    Value$0-$1.00
                                    
                                    
                                    
                                    7.08
                                    
                                    
                                    
                                    2,272
                                    
                                    
                                    $
                                    0.64
                                    
                                    
                                    $
                                    617,560$2.00-$3.00
                                    
                                    
                                    
                                    8.74
                                    
                                    
                                    
                                    2,950
                                    
                                    
                                    $
                                    2.67
                                    
                                    
                                    $
                                    -$4.00-$5.00
                                    
                                    
                                    
                                    8.63
                                    
                                    
                                    
                                    1,733
                                    
                                    
                                    $
                                    4.75
                                    
                                    
                                    $
                                    -8.17
                                    
                                    
                                    
                                    6,955
                                    
                                    
                                    $
                                    2.52
                                    
                                    
                                    $
                                    617,560
  The
exercise price for options exercisable at June 30, 2008 was as
follows:
  WeightedAverage
                                
                                
                                
                                
                                
                                WeightedRemaining
                                
                                
                                Options
                                
                                
                                Average
                                
                                
                                AggregateRange
      of
                                
                                
                                Contractual
      Life
                                
                                
                                Exercisable
                                
                                
                                Exercise
                                
                                
                                IntrinsicExercise
      Price
                                
                                
                                (Years)
                                
                                
                                June
      30, 2009
                                
                                
                                Price
                                
                                
                                Value$0-$1.00
                                
                                
                                
                                7.06
                                
                                
                                
                                2,191
                                
                                
                                $
                                0.63
                                
                                
                                $
                                606,406$2.00-$3.00
                                
                                
                                
                                8.68
                                
                                
                                
                                2,197
                                
                                
                                $
                                2.66
                                
                                
                                $
                                -$4.00
      - $5.00
                                
                                
                                
                                8.63
                                
                                
                                
                                1,158
                                
                                
                                $
                                4.75
                                
                                
                                $
                                -8.03
                                
                                
                                
                                5,546
                                
                                
                                $
                                2.30
                                
                                
                                
                                606,406
 
 A summary
of the status of the Company’s nonvested shares as of June 30, 2009 pursuant to
the Company’s 2007 Employee, Director and Consultant Stock Plan, and changes
during the three months ended June 30, 2009 is presented below:
  Weighted
      AverageNumber
      of
                                  
                                  
                                  Grant
      DateNonvested shares
                                  
                                  Shares
                                  
                                  
                                  Fair ValueNonvested
      at March 31, 2009
                                  
                                  
                                  498,767
                                  
                                  
                                  $
                                  0.85Granted
                                  
                                  
                                  229,388
                                  
                                  
                                  $
                                  0.89Vested
                                  
                                  
                                  219,550
                                  
                                  
                                  $
                                  0.86Nonvested
      at March 31, 2009
                                  
                                  
                                  508,605
                                  
                                  
                                  $
                                  0.86Forfeited
                                  
                                  
                                  (81,333
                                  )
                                  
                                  $
                                  0.88
 
 As of
June 30, 2009, there was $438 of total unrecognized compensation cost related to
nonvested share-based compensation arrangements granted under the Plan. That
cost is expected to be recognized over a period of a further 11 months. The
total fair value of shares vested during the three months ended June 30, 2009,
was $190.
 16
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 Stock-based
compensation expense of  $500 and 1,222 for the three months ended
June 30, 2009 and 2008 respectively, is included primarily in general and
administrative expense.
 
 
 6.
                      Acquisitions/Purchase
      Price Accounting
  Twistbox
Entertainment, Inc. and related entities
 
 On
February 12, 2008, the Company completed an acquisition of Twistbox
Entertainment, Inc. (“Twistbox”) through an exchange of all outstanding capital
stock of Twistbox for 10,180 shares of common stock of the Company and the
Company’s assumption of all the outstanding options of Twistbox’s 2006 Stock
Incentive Plan by the issuance of options to purchase 2,463 shares of common
stock of the Company, including 2,145 vested and 318 unvested options. After the
Merger, Twistbox became a wholly-owned subsidiary of the Company.
  Twistbox
is a global publisher and distributor of branded entertainment content,
including images, video, TV programming and games, for Third Generation
(3G) mobile networks. It publishes and distributes its content globally and
has developed an intellectual property portfolio unique to its target
demographic that includes worldwide mobile rights to global brands and
content from leading film, television and lifestyle content publishing
companies. Twistbox has built a proprietary mobile publishing platform and
has leveraged its brand portfolio and platform to secure “direct”
distribution agreements with the largest mobile operators in the world.
These factors contributed to a purchase price in excess of the fair value
of net tangible and intangible assets acquired, and, as a result, the
Company recorded goodwill in connection with this transaction.
  In
connection with the Merger, the Company guaranteed up to $8,250 of principal
under an existing note of Twistbox in accordance with the terms, conditions and
limitations contained in the note. In connection with the guaranty, the Company
issued the lender two warrants, one to purchase 1,093 and the other to purchase
1,093 shares of common stock of the Company, exercisable at $7.55 per share, and
at $5.00 per share, (increasing to $7.55 per share, if not exercised in full by
February 12, 2009), respectively, through July 30, 2011. The warrants have been
included as part of the purchase consideration and have been valued using the
Black Scholes method, using the stock price at the merger date of $4.75 per
share discounted for certain restrictions, a volatility of 70%, and the exercise
price and the expected time to vest for each group. These warrants were
subsequently amended as described in Note 8.
  The
purchase consideration was determined to be $67,479, consisting of $66,025
attributed to the common stock and options exchanged and warrants issued, and
$1,454 in transaction costs.  During the year, a further $59 of
transaction costs were recognized, with the result that the purchase
consideration was increased to $67,538, with an equivalent increase in Goodwill.
The options and warrants were valued using the Black Scholes method, using the
stock price at the merger date of $4.75 per share, a volatility of 70%, and in
the case of options the exercise price and the expected time to vest for each
group. Under the purchase method of accounting, the Company allocated the total
purchase price of $67,538 to the net tangible and intangible assets acquired and
liabilities assumed based upon their respective estimated fair values as of the
acquisition date as follows:
 17
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 Cash
                                
                                $
                                6,679Accounts
      receivable
                                
                                
                                4,966Prepaid
      expenses and other current assets
                                
                                
                                1,138Property
      and equipment
                                
                                
                                1,062Other
      long-term assets
                                
                                
                                361Accounts
      Payable, accrued license fees and accruals
                                
                                
                                (6,882
                                )Other
      current liabilities
                                
                                
                                (814
                                )Accrued
      license fees, long term portion
                                
                                
                                (2,796
                                )Long
      term debt
                                
                                
                                (16,483
                                )Identified
      Intangibles
                                
                                
                                19,905Merger
      related restructuring reserves
                                
                                
                                (1,034
                                )Goodwill
                                
                                
                                61,436$
                                67,538
  The
Merger related restructuring reserves were subsequently reduced by $215,
increasing net assets acquired and consequentially reducing goodwill by that
amount. As a result, goodwill recognized in the above transaction amounted to
$61,221. Goodwill in relation to the acquisition of Twistbox is not expected to
be deductible for income tax purposes. Merger related restructuring reserves
include reserves for employee severance and for office relocation.
 
 AMV
Holding Limited group
 
 On
October 23, 2008, the Company completed an acquisition of 100% of AMV Holding
Limited, a United Kingdom private limited company (“AMV”) and 80% of Fierce
Media Limited. The acquisition was effective on October 1, 2008.
 
 Subject to adjustment as set forth in the Stock Purchase
Agreement, the aggregate purchase price (the “Purchase Price”) consisted of: (a)
$5,375 in cash (the “Cash Consideration”); (b) 4,500 fully paid and
non-assessable shares of Common Stock (the “Stock Consideration”); (c) a secured
promissory note in the aggregate original principal amount of $5,375 (the “AMV
Note”); and (d) additional earn-out amounts, if any, if the Acquired Companies
achieve certain targeted earnings for each of the periods from October 1, 2008
to March 31, 2009, April 1, 2009 to March 31, 2010, and April 1, 2010 to
September 30, 2010, as determined in accordance with the Stock Purchase
Agreement. The Purchase Price is subject to certain adjustments based on the
working capital of AMV, to be determined initially within 75 days of the
closing, and subsequently within 60 days following June 30, 2009. Any such
adjustment of the Purchase Price will be made first by means of an adjustment to
the principal sum due under the AMV Note, as set forth in the Stock Purchase
Agreement. The initial adjustment has been determined preliminarily as $443, to
be added to the AMV Note.
 
 Prior to
closing, each outstanding option to purchase shares of capital stock of AMV (an
“AMV Option”) was either exercised in full or terminated. The AMV Note 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 AMV 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 AMV 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 AMV Note, plus accrued
interest. If within nine months of the issuance date of the Note, the aggregate
principal sum then outstanding under the AMV Note plus accrued interest thereon
has not been prepaid, then on and after such date, interest shall accrue on the
unpaid principal balance of the AMV Note at a rate of 7% per annum.
Additionally, in connection with the AMV Note, AMV granted to the Sellers a
security interest in its assets. Such security interest is subordinate to the
security interest granted to ValueAct Small Cap Master Fund, L.P. (“ValueAct)
under the Senior Secured Note, issued by Twistbox Entertainment, Inc., a
wholly-owned subsidiary of the Company (“Twistbox”),  due January 30, 2010,
as amended on February 12, 2008 (the “ValueAct Note”), and as subsequently
amended on October 23, 2008. AMV also agreed to guarantee Mandalay Media’s
repayment of the AMV Note to the Sellers.
 18
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 The
Purchase Price was preliminarily estimated by the Company to be $23,030
consisting of $9,900 attributed to the Stock Consideration issued, $5,375 in
cash, $95 in stamp duty, $5,818 under the AMV Note referenced above (inclusive
of the working-capital adjustment), $1,098 as an estimate of the initial period
earn-out adjustment and $744 in transaction costs.  Any
further  adjustments required under the “working capital adjustment”
provision and any further adjustment under the “earn-out” provision of the Stock
Purchase Agreement have not yet been determined and therefore have not been
included in the preliminary calculation of the purchase price. The shares of the
Stock Consideration were valued using the closing stock price at the acquisition
date of $2.20 per share. Under the purchase method of accounting, the Company
allocated the total Purchase Price of $23,030 to the net tangible and intangible
assets acquired and liabilities assumed based upon their respective estimated
fair values as of the acquisition date as follows:
 
 Cash
      and cash equivalents
                              
                              $
                              3,380Accounts
      receivable, net of allowances
                              
                              
                              9,087Prepaid
      expenses and other current assets
                              
                              
                              16Property
      and equipment, net
                              
                              
                              406Accounts
      payable
                              
                              
                              (10,391
                              )Bank
      overdrafts
                              
                              
                              (1,902
                              )Other
      current liabilities
                              
                              
                              (1,262
                              )Other
      long term liabilities
                              
                              
                              (223
                              )Minority
      interests
                              
                              
                              95Identified
      intangibles
                              
                              
                              1,368Goodwill
                              
                              
                              22,456$
                              23,030
 
 Net
assets associated with Fierce Media Limited were insignificant. Goodwill
recognized in the above transaction is preliminarily estimated at $22,456. The
business acquired is not capital intensive and does not require significant
identifiable intangible assets – as a result the greater proportion of
consideration has been allocated to goodwill.  Goodwill in relation to
the acquisition of AMV is not expected to be deductible for US income tax
purposes. The preliminary purchase price allocation, including the allocation of
goodwill, will be updated as additional information becomes
available.
 
 
 Unaudited
Pro Forma Summary
 19
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 The
following pro forma consolidated amounts give effect to the acquisition of AMV
by the Company accounted for by the purchase method of accounting as if it had
occurred as at the beginning of each of the period.  The pro forma
consolidated results are not necessarily indicative of the operating results
that would have been achieved had the transaction been in effect as of the
beginning of the period presented and should not be construed as being
representative of future operating results.
 
 3
      months endedJune
      30,2008Revenues
                                                
                                                $
                                                16,531Cost
      of revenues
                                                
                                                
                                                7,564Gross
      profit/(loss)
                                                
                                                
                                                8,967Operating
      expenses net of interestincome
      and other expense
                                                
                                                
                                                10,373Income
      tax expense and minority interests
                                                
                                                
                                                (172
                                                )Net
      loss
                                                
                                                $
                                                (1,578
                                                )Basic
      and Diluted net loss per common share
                                                
                                                $
                                                (0.06
                                                )
  7.
                      Other
      Intangible Assets
  A
reconciliation of the changes to the Company's carrying amount of intangible
assets for the three months ended June 30, 2009 was as follows:
 
 Balance
      at March 31, 2009
                                  
                                  $
                                  16,121Amortization
                                  
                                  
                                  (305
                                  )Balance
      at June 30, 2009
                                  
                                  $
                                  15,816
 
 The
Company performed its annual review of the fair value of intangible assets in
the fourth quarter of fiscal 2009. As a result of the assessment, the Company
determined that its net book value exceeded the implied fair value; and recorded
an impairment charge of $3,940 to write down intangible assets.
 
 The
components of intangible assets as at June 30, 2009 and 2008 were as
follows:
 20
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 June
      30,
                              
                              
                              March
      31,2009
                              
                              
                              2009(unaudited)Software
                              
                              $
                              1,922
                              
                              
                              $
                              1,922Trade
      name / Trademark
                              
                              
                              9,824
                              
                              
                              
                              9,824Customer
      list
                              
                              
                              4,378
                              
                              
                              
                              4,378License
      agreements
                              
                              
                              886
                              
                              
                              
                              886Non-compete
      agreements
                              
                              
                              323
                              
                              
                              
                              32317,333
                              
                              
                              
                              17,333Accumulated
      amortization
                              
                              
                              (1,517
                              )
                              
                              
                              (1,212
                              )$
                              15,816
                              
                              
                              $
                              16,121
 
 The
Company has included amortization of acquired intangible assets directly
attributable to revenue-generating activities in cost of revenues. The Company
has included amortization of acquired intangible assets not directly
attributable to revenue-generating activities in operating expenses. During the
three months ended June 30, 2009 and 2008 the Company recorded amortization
expense in the amount of $128 and $102, respectively, in cost of revenues; and
amortization expense in the amount of $177 and $137 respectively in operating
expenses.
 
 As of
June 30, 2009, the total expected future amortization related to intangible
assets was as follows:
  12
      Months Ended June 30,2010
                              
                              
                              2011
                              
                              
                              2012
                              
                              
                              2013
                              
                              
                              2014
                              
                              
                              ThereafterSoftware
                              
                              $
                              334
                              
                              
                              $
                              334
                              
                              
                              $
                              256
                              
                              
                              $
                              230
                              
                              
                              $
                              230
                              
                              
                              $
                              142Customer
    List
                              
                              
                              547
                              
                              
                              
                              547
                              
                              
                              
                              547
                              
                              
                              
                              547
                              
                              
                              
                              547
                              
                              
                              
                              888License
      Agreements
                              
                              
                              177
                              
                              
                              
                              177
                              
                              
                              
                              177
                              
                              
                              
                              110
                              
                              
                              
                              -
                              
                              
                              
                              -Non-compete
      agreements
                              
                              
                              162
                              
                              
                              
                              40
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -$
                              1,220
                              
                              
                              $
                              1,098
                              
                              
                              $
                              980
                              
                              
                              $
                              887
                              
                              
                              $
                              777
                              
                              
                              $
                              1,030
  8.
                      Debt
  June
      30,
                            
                            
                            March
      31,2009
                            
                            
                            2009(unaudited)Short
      Term DebtSenior secured note, inclusive of
      accrued interest
                            
                            $
                            -
                            
                            
                            
                            17,351net of discount of $0 and $247,
      respectivelyDeferred purchase consideration
      inclusive of accrued interest
                            
                            
                            -
                            
                            
                            
                            5,945$
                            -
                            
                            
                            $
                            23,296
 21
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 June
      30,
                              
                              
                              March
      31,2009
                              
                              
                              2009(unaudited)Long
      Term DebtSenior
      secured note, inclusive of accrued interest,
                              
                              $
                              17,838
                              
                              
                              $
                              -net of discount of $173 and $0,
      respectivelyDeferred
      purchase consideration inclusive of accrued interest
                              
                              
                              6,019
                              
                              
                              
                              -$
                              23,857
                              
                              
                              $
                              -
  In July
2007, Twistbox entered into a debt financing agreement pursuant to the
ValueAct Note amounting to $16,500, payable at 30 months. The holder of the
ValueAct Note was granted first lien over all of the Company’s assets. The
ValueAct Note 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 Media and
Twistbox to maintain certain minimum cash balances. In connection with the
guaranty, the Company issued the lender warrants to purchase 1,093 and 1,093
shares of common stock of the Company, exercisable at $7.55 per share, and at
$5.00 per share, (increasing to $7.55 per share, if not exercised in full by
February 12, 2009), respectively, through July 30, 2011. These warrants replaced
warrants originally issued by Twistbox in conjunction with the ValueAct
Note.
  On
October 23, 2008, the Company, Twistbox and ValueAct entered into a Second
Amendment (the “Second Amendment”) to the ValueAct Note. Among other things, the
Second Amendment provides for a payment in kind election, whereby, in lieu of
making any cash payments to ValueAct on the following two interest payment
dates, Twistbox may elect that the amount of any interest due on such date be
added to the principal amount due under the ValueAct Note. That election was
made in connection with the first interest payment following the amendment. In
addition, ValueAct agreed to amend the ValueAct Note to modify the covenant
requiring that the Company and Twistbox maintain certain minimum combined cash
balances, during specified periods of time. Lastly, the Second Amendment
provides that an event of default may be triggered in the event the Company
fails to observe certain covenants as agreed to in the Second Amendment,
including a covenant that, until all principal and interest and any other
amounts due under the ValueAct Note are paid in full in cash, the Company: (i)
will not create, incur, assume or permit to exist certain indebtedness, except
for indebtedness in connection with a receivables facility as described in the
Second Amendment, which indebtedness would rank pari passu in right of payment
on the ValueAct Note, provided, that any receivables used to procure and
maintain such receivables facility shall not be subject to any lien of ValueAct
during the term of such receivables facility; and (ii) will not, and will not
permit any subsidiary to, without the prior consent of ValueAct, prepay any
indebtedness incurred in connection with the AMV Note, other than prepayments
with proceeds raised in an equity financing as permitted by the AMV Note.
Additionally, on October 23, 2008, in connection with the ValueAct Note, as
amended, AMV agreed to grant to ValueAct a security interest in its assets,
which ranks senior to the security interest granted to the Sellers. AMV also
agreed to guarantee Twistbox’s repayment of the ValueAct Note.
  As
described above, the Company had previously issued to ValueAct two warrants to
purchase shares of the Company’s common stock, $0.0001 par value per share (the
“Common Stock”). One warrant entitled ValueAct to purchase up to a total of
1,093 shares of Common Stock at an exercise price of $7.55 per share
(“$7.55 Warrant”). The other warrant entitled ValueAct to purchase up to a total
of 1,093 shares of Common Stock at an initial exercise price of $5.00 per
share (“$5.00 Warrant,” and together with the $7.55 Warrant, the “ValueAct
Warrants”). On October 23, 2008, the Company and ValueAct entered into an
allonge to each of the ValueAct Warrants. Among other things, the exercise price
of each of the ValueAct Warrants was amended to be $4.00 per share.
 22
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 Subsequent
to June 30, 2009 the Company and ValueAct entered into a further amendment to
the ValueAct Note and a further allonge to the $5.00 Warrant. In addition the
Company entered into an agreement which extended the maturity date of the
deferred purchase consideration. Both agreements aremore fully described in Note
15. As a result, the debt has been re-classified from short-term to
long-term.
 
 Minimum
future obligations, including interest, under the ValueAct Note are $20,536
during the year ended June 30, 2011 including repayment of the
principle.
 
 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 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 periods ended June 30, 2009 and 2008, the Company paid management fees
under the agreement of $90 and $90 respectively.
  In March 2008, the Company entered into a month to month lease
for office space with Trinad Management for rent of $9 per month. Rent expense
in connection with this lease was $26 and $26 respectively for the periods
ended June 30, 2009 and 2008.
  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 periods ended June 30, 2009
and 2008 respectively.
 
 10.
                      Capital
      Stock Transactions
 
 Preferred
Stock
 
 On
October 3, 2006, the Company designated a Series A Convertible Preferred Stock,
par value $.0001 per share (“Series A”). The Series A holders shall be entitled
to: (1) vote on an equal per share basis as common, (2) dividends on an
if-converted basis and (3) a liquidation preference equal to the greater of $10,
per share of Series A (subject to adjustment) or such amount that would have
been paid on an if-converted basis. Each Series A holder may treat as a
dissolution or winding up of the Company any of the following transactions: a
consolidation, merger, sale of substantially all the assets of the company,
issuance/sale of common stock of the Company constituting a majority of all
shares outstanding and a merger/business combination, each as
defined.
 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, was greater than the conversion price of $1.00 per
share.
 
 Common
Stock
 
 On August
3, 2006, the Company authorized an increase in their authorized shares of common
stock from 19,000 to 100,000 shares.
  On August
3, 2006, the Company authorized a 2.5 to 1 stock split of its common stock,
increasing its outstanding shares from 4,000 to 10,000. In connection with the
split, the Company transferred $6 from additional paid-in capital to common
stock. All share and per share amounts have been retroactively adjusted to
reflect the effect of the stock split.
 
 On August
3, 2006, the Company granted warrants to purchase 150 and 50 shares of common
stock of the Company to its president and a director, respectively. Each warrant
is exercisable at $2.50 per share, through August 1, 2009. The warrants were
valued at $111 using a Black-Scholes model assuming a risk free interest
rate of 4.89%, expected life of two years, and expected volatility of
105.67%.
  On
September 14, 2006, October 12, 2006 and December 26, 2006, the Company sold
2,800, 3,400 and 530 units, respectively, at $1.00 per unit,
for an aggregate proceeds of $ 6,057, net of offering costs of $673.
Each unit consisted of one share of common stock of the Company and one warrant.
Each warrant is exercisable to purchase one share of common stock of the Company
at $2.00 per share, through September, October and December 2009.
 
 On July
24, 2007, the Company sold 5,000 shares of the Company's common stock,
at $0.50 per share, for aggregate proceeds of $2,473, net of offering
costs of $27.
  In
September, October and December 2007, warrants to purchase 625 shares of common
stock were exercised in a cashless exchange for 239 shares of the Company’s
common stock based on the average closing price of the Company’s common stock
for the five days prior to the exercise date.
  On
November 7, 2007, the Company granted non-qualified stock options to purchase
500 shares of common stock of the Company to a director under the Plan. The
options have a ten year term and are exercisable at $2.65 per share, with
one-third of the options vesting immediately upon grant, one-third vesting on
the first anniversary of the date of grant and the one-third on the second
anniversary of the date of grant. The options were valued at $772 using a
Black-Scholes model assuming a risk free interest rate of 3.89%, expected life
of four years, and expected volatility of 75.2%.
 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 one-third on the
second anniversary of the date of grant. The options were valued at $160 using a
Black-Scholes model assuming a risk free interest rate of 3.89%, expected life
of four years, and expected volatility of 75.2%.
 
 Series
      A preferred stock
                              
                              
                              100Options
      under the Plan
                              
                              
                              7,000Warrants
      not under the Plan
                              
                              
                              100Warrants
      issued with units
                              
                              
                              6,20513,405
 
  On
February 12, 2008, the Company issued 10,180 shares of common stock in
connection with the merger with Twistbox. The Company also assumed all the
outstanding options of Twistbox’s 2006 Stock Incentive Plan by the issuance of
options to purchases 2,463 shares of common stock of the Company, including
2,144 vested and 319 unvested options; and the Company issued warrants to a
lender to Twistbox, to purchase 1,093 and 1,093 shares of common stock of the
Company, exercisable at $7.55 per share, and at $5.00 per share, (increasing to
$7.55 per share, if not exercised in full by February 12, 2009), respectively,
through July 30, 2011.
  On April
9, 2008 a former director of the company exercised warrants to purchase 50
shares of common stock in a cashless exchange for 25 shares of the Company’s
common stock.
  In April
and June 2008, warrants to purchase 350 shares of common stock were
exercised in a cashless exchange for 217 shares of the Company’s common stock
based on the average closing price of the Company’s common stock for the five
days prior to the exercise date.
 
 On June
18, 2008, the Company granted non-qualified stock options to purchase 1,500
shares of common stock of the Company to four directors under the Plan. The
options have a ten year term and are exercisable at a price of $2.75 per share,
with one-third of the options granted vesting immediately upon grant, one-third
vesting on the first anniversary of the date of grant and one-third on the
second anniversary of the date of grant. The options were valued at $2,403 using
a Black-Scholes model assuming a risk free interest rate of 3.89%, expected life
of four years, and expected volatility of 75.2%.
 
 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)
 On
October 23, 2008, the Company entered into a Securities Purchase Agreement with
certain investors, pursuant to which the Company agreed to sell in a private
offering an aggregate of 1,685 shares of Common Stock and warrants to purchase
843 shares of Common Stock (the “Warrants”), for gross proceeds to the Company
of $4,500. Offering costs were $146.  The Warrants have a five year
term and an exercise price of $2.67 per share.
 
 In
October 2008, warrants to purchase 2,300 shares of common stock were exercised
in a cashless exchange for 286 shares of the Company’s common stock based on the
average closing price of the Company’s common stock for the five days prior to
the exercise date.
 
 On March
16, 2009, the Company approved the issuance of an aggregate of 938,697 shares of
common stock pursuant to the Company’s 2007 Employee, Director and Consultant
Stock Plan at a purchase price of $0.0001 per share to certain executives of the
Company and subsidiary in connection with agreed salary reductions. Certain of
the shares granted are subject to forfeiture to the Company if such executive
terminates his position with the Company prior to one year from the grant date,
and such shares become fully vested one year from the grant date or upon the
occurrence of a change-in-control of the Company. All such shares granted to the
executives may not be sold or transferred for a period of one year from the
Grant Date.
 
 11.
                      Employee
      Benefit Plans
 
 The
Company has an employee 401(k) savings plan covering full-time eligible
employees.  These employees may contribute eligible compensation up to
the annual IRS limit. The Company does not make matching
contributions.
 
 12.
                      Income
      Taxes
 
 The
income tax provision for the quarter represents foreign withholding taxes paid
in jurisdictions outside of the US and income taxes currently payable in foreign
jurisdictions, primarily the United Kingdom based on revenue derived in that
territory. AMV Limited had taxable income in the quarter which is subject to
taxation in the United Kingdom. The effective tax rate used for calculation of
the UK tax provision in the quarter was 28% and the difference between the US
statutory rate of 35% and the effective rate of  (46%) primarily relates to
the taxes related to the Company’s UK operations
and the increase in the reserve for deferred tax assets for the US
operations.
  In the
United States, as of June 30, 2009, the Company had net operating loss (“NOL”)
carry-forwards to reduce future Federal income taxes of approximately $43,100,
expiring in various years ranging through 2027. The Company may have had
ownership changes, as defined by the Internal Revenue Service, which may subject
the NOL's to annual limitations which could reduce or defer the use of the NOL'
carry-forwards.
  In
connection with the acquisitions described in Note 6 above, the Company has
recorded goodwill and intangibles which will have differing amortization for
book and tax purposes. Goodwill and trademarks, amounting to $65,657 will not be
amortized for book purposes, but will be subject to amortization for tax
purposes, giving rise to a permanent difference. Other intangible assets,
amounting to $7,509 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
June 30, 2009, realization of the Company's net deferred tax asset of
approximately $19,270 was not considered more likely than not and, accordingly,
a valuation allowance of $19,270 has been provided. During the three months
ended June 30, 2009, the valuation allowance increased by $336.
 26
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 As of
June 30, 2009, there were no material changes to either the nature or the
amounts of the uncertain tax positions previously determined and disclosed as at
March 31, 2009.
  The
Company adopted the provisions of FIN 48 on January 1, 2009 and there was no
difference between the amounts of unrecognized tax benefits recognized in the
balance sheet prior to the adoption of FIN 48 and those after the adoption of
FIN 48. There were no unrecognized tax benefits not subject to valuation
allowance as at June 30, 2009, and March 31, 2009. The Company will classify
interest and penalties on any unrecognized tax benefits as a component of the
provision for income taxes.
  13.
                      Segment
      and Geographic information
  The
Company operates in one reportable segment in which it is a developer and
publisher of branded entertainment content for mobile phones. Revenues are
attributed to geographic areas based on the country in which the carrier’s
principal operations are located. The company attributes
its long-lived assets, which primarily consist of property and
equipment, to a country primarily based on the physical location of
the assets. Goodwill and intangibles are not included in this allocation. The
following information sets forth geographic information on our sales and
net property and equipment for the period ended June 30, 2009:
 
 North
                                
                                
                                
                                
                                
                                South
                                
                                
                                OtherAmerica
                                
                                
                                Europe
                                
                                
                                America
                                
                                
                                Regions
                                
                                
                                ConsolidatedThree
      Months ended June 30, 2009Net
      sales to unaffiliated customers
                                
                                $
                                1,912
                                
                                
                                $
                                6,810
                                
                                
                                $
                                95
                                
                                
                                $
                                1,266
                                
                                
                                $
                                10,083Three
      Months ended June 30, 2008Net
      sales to unaffiliated customers
                                
                                $
                                592
                                
                                
                                $
                                4,453
                                
                                
                                $
                                167
                                
                                
                                $
                                135
                                
                                
                                $
                                5,347Property
      and equipment, net at June 30, 2009
                                
                                $
                                663
                                
                                
                                $
                                566
                                
                                
                                $
                                -
                                
                                
                                $
                                10
                                
                                
                                $
                                1,239
  Our
largest single customer accounted for 19% of our revenue in the period ended
June 30, 2009.
  14.
                      Commitments
      and Contingencies
 
 Operating
Lease Obligations
  The
Company leases office facilities under noncancelable operating leases expiring
in various years through 2011.
 
 Following
is a summary of future minimum payments under initial terms of leases at June
30, 2009:
 27
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 Year Ending June 302010
                                  
                                  $
                                  2972011
                                  
                                  $
                                  96Total
      minimum lease payments
                                  
                                  $
                                  393
  These
amounts do not reflect future escalations for real estate taxes and building
operating expenses.  Rental expense amounted to $223 for the period
ended June 30, 2009.
  
 
 Minimum
Guaranteed Royalties
 The
Company has entered into license agreements with various owners of brands and
other intellectual property so that it could develop and publish branded
products for mobile handsets.
 
 Pursuant
to some of these agreements, the Company is required to pay minimum royalties
over the term of the agreements regardless of actual sales. Future minimum
royalty payments for those agreements
as of June 30, 2009 were as follows:
 
 MinimumGuaranteedYear Ending June 30
                                
                                Royalties2010
                                
                                $
                                1202011
                                
                                
                                120Total
      minimum payments
                                
                                $
                                240
 
 Commitments
in the above table include guaranteed royalties to licensors that are included
as a liability in the Company’s consolidated balance sheet of $240 as of June
30, 2009, because the Company has determined that recoupment is
unlikely.
 
 Other
Obligations
 As of
June 30, 2009, the Company was obligated for payments under various distribution
agreements, equipment lease agreements, employment contracts and the management
agreement described in Note 10 with initial terms greater than one year at June
30, 2009.  Annual payments relating to these commitments at June 30,
2009 are as follows:
  Year Ending June 30
                                
                                Commitments2010
                                
                                $
                                2,9532011
                                
                                
                                1,2092012
                                
                                
                                136Total
      minimum payments
                                
                                $
                                4,298
  Litigation
  Twistbox’s
wholly owned subsidiary WAAT Media Corp. (“WAAT”) and General Media
Communications, Inc. (“GMCI”) are parties to a content license
agreement dated May 30, 2006, whereby GMCI granted to WAAT certain
exclusive rights to exploit GMCI branded content via mobile devices.  GMCI
terminated the agreement on January 26, 2009 based on its claim that WAAT
failed to cure a material breach pertaining to the non-payment of a minimum
royalty guarantee installment in the amount of $485,000.  On or about March
16, 2009, GMCI filed a complaint seeking the balance of the minimum guarantee
payments due under the agreement in the approximate amount of $4,085,000. 
WAAT has counter-sued claiming GMCI is not entitled to the claimed amount and
that it has breached the agreement by, among other things, failing to promote,
market and advertise the mobile services as required under the agreement and by
fraudulently inducing WAAT to enter into the agreement based on GMCI’s
repeated assurances of its intention to reinvigorate its flagship
brand.  GMCI has filed a demurrer to the counter-claim.  WAAT intends
to vigorously defend against this action.  Principals of both parties
continue to communicate to find a mutually acceptable resolution. The Company
has accrued for its estimated liability in this matter.
 28
  Mandalay Media,
      Inc. and Subsidiaries
 Notes
to Unaudited Consolidated Financial Statements
 (all
numbers in thousands except per share amounts)
 The
Company is subject to various claims and legal proceedings arising in the normal
course of business.  Based on the opinion of the Company’s legal
counsel, management believes that the ultimate liability, if any in the
aggregate of other claims will not be material to the financial position or
results of operations of the Company for any future period; and no liability has
been accrued.
  15.
                      Subsequent
      Events
  Management
has evaluated subsequent events through August 14, 2009, the business date that
this Quarterly Report on the Form 10-Q was filed with the SEC.
  On August
14, 2009, the Company, Twistbox and ValueAct entered into a Third Amendment
(the “Third Amendment”) to the ValueAct Note. Among other things, the Third
Amendment provides for the due date to be extended to July 31, 2010, an interest
rate of 12.5% from the date of the agreement through maturity, an extension of
the payment in kind (“PIK”) election through to the interest payment otherwise
due in January 2010, and a reduction in the minimum cash covenant to $1 million
until January 31, 2010 and $4 million thereafter, subject to certain
conditions.
  As
described in Note 8 above, the Company had previously issued to ValueAct
warrants to purchase shares of the Company’s common stock. On August 14, 2009,
the Company and ValueAct entered into an allonge to the warrant to purchase
1,093 shares of Common Stock. The exercise price of the Warrant was amended from
$4.00 to $1.25 per share. The restructuring of the debt as it relates to
the re pricing of the warrants will result in a debt discount, which will
be amortized to maturity to interest expense.  The other provisions of the
debt restructuring will be analyzed in the second quarter for its financial
impact on the financial statements.
 
 In
addition, the Company and the sellers of AMV Limited entered into an agreement
which extended the maturity date of the AMV Note which represents deferred
purchase consideration in relation to the AMV Acquisition, until July 31, 2010.
The ValueAct Note and the AMV Note have been re-classified as long-term
debt.
  29
 Item 2.   Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
  The
following discussion should be read in conjunction with, and is qualified in its
entirety by, the Financial Statements and the Notes thereto included in this
report. This discussion contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Quarterly Report on Form
10-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 Annual Report on Form 10-K for the period
ended March 31, 2009. 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 Media”) through its operating and wholly-owned subsidiaries, Twistbox
Entertainment, Inc. (“Twistbox”) and AMV Holding Limited, a United Kingdom
private limited company (“AMV”).
  Historical
Operations of Mandalay Media, Inc.
  Mandalay
Media was originally incorporated in the State of Delaware on November 6,
1998 under the name eB2B Commerce, Inc. On April 27, 2000, Mandalay Media merged
into DynamicWeb Enterprises Inc., a New Jersey corporation, and changed its name
to eB2B Commerce, Inc. On April 13, 2005, Mandalay Media changed its name to
Mediavest, Inc. On November 7, 2007, through a
merger, the Company reincorporated in the State of Delaware under
the name Mandalay Media, Inc.
  On
October 27, 2004, and as amended on December 17, 2004, Mandalay Media filed a
plan for reorganization under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the Southern District of New York (the
“Plan of Reorganization”). Under the Plan of Reorganization, as completed on
January 26, 2005: (1) Mandalay Media’s net operating assets and liabilities were
transferred to the holders of the secured notes in satisfaction of the principal
and accrued interest thereon; (2) $400,000 were transferred to a liquidation
trust and used to pay administrative costs and certain preferred creditors; (3)
$100,000 were retained by Mandalay Media to fund the expenses of remaining
public; (4) 3.5% of the new common stock of Mandalay Media (140,000 shares) was
issued to the holders of record of Mandalay Media’s preferred stock in
settlement of their liquidation preferences; (5) 3.5% of the new common stock of
Mandalay Media (140,000 shares) was issued to common stockholders of record as
of January 26, 2005 in exchange for all of the outstanding shares of the common
stock of the company; and (6) 93% of the new common stock of Mandalay Media
(3,720,000 shares) was issued to the sponsor of the Plan of Reorganization in
exchange for $500,000 in cash. Through January 26, 2005, Mandalay Media 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
Media 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 Media (“Merger
Sub”), Twistbox Entertainment, Inc. (“Twistbox”), and Adi McAbian and Spark
Captial, L.P., as representatives of the stockholders of Twistbox, pursuant to
which Merger Sub would merge with and into Twistbox, with Twistbox as the
surviving corporation (the “Merger”). The Merger was completed on February 12,
2008.
  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 Media 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 Media, 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 Media 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
Media 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 Media also assumed all unvested Twistbox options. The
merger consideration consisted of an aggregate of up to 12,325,000 shares of
Mandalay Media common stock, which included the conversion of all shares of
Twistbox capital stock and the reservation of 2,144,700 shares of Mandalay Media
common stock required for assumption of the vested Twistbox options. Mandalay
Media reserved an additional 318,772 shares of Mandalay Media 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.
  30
 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 Media or any subsidiary of Twistbox or
Mandalay Media immediately prior to the Merger, was canceled and extinguished as
of the completion of the Merger without any conversion or payment in respect
thereof. Each share of common stock, $0.001 par value per share, of Merger Sub
issued and outstanding immediately prior to the Merger was converted upon
completion of the Merger into one validly issued, fully paid and non-assessable
share of common stock, $0.001 par value per share, of the surviving
corporation.
 
 As part
of the Merger, Mandalay Media agreed to guarantee up to $8,250,000 of
Twistbox’s outstanding debt to ValueAct SmallCap Master Fund L.P.
(“ValueAct”), with certain amendments. On July 30, 2007,
Twistbox had entered into a Securities Purchase Agreement by and among
Twistbox, the Subsidiary Guarantors (as defined therein) and
ValueAct, pursuant to which ValueAct purchased a note in the
amount of $16,500,000 (the “ValueAct Note”) and a warrant which entitled
ValueAct to purchase from Twistbox up to a total of 2,401,747 shares of
Twistbox’s common stock (the “Warrant”).  Twistbox and
ValueAct had also entered into a Guarantee and Security Agreement by
and among Twistbox, each of the subsidiaries of Twistbox, the Investors, as
defined therein, and ValueAct, as collateral agent, pursuant to which the
parties agreed that the ValueAct Note would be secured by substantially all of
the assets of Twistbox and its subsidiaries. In connection with the
Merger, the Warrant was terminated and we issued two warrants in
place thereof to ValueAct to purchase shares of our common stock. One of
such warrants entitles ValueAct to purchase up to a total of 1,092,622 shares
of our common stock at an exercise price of $7.55 per share. The other
warrant entitles ValueAct to purchase up to a total of 1,092,621 shares
of our common stock at an initial exercise price of $5.00 per share,
which, if not exercised in full by February 12, 2009, will be permanently
increased to an exercise price of $7.55 per share.  Both warrants
expire on July 30, 2011. The terms of the warrants were subsequently modified on
October 23, 2008, as set forth below. We also entered into a Guaranty with
ValueAct whereby Mandalay Media agreed to guarantee Twistbox’s payment to
ValueAct of up to $8,250,000 of principal under the Note in accordance with
the terms, conditions and limitations contained in the ValueAct Note. The
financial covenants of the ValueAct Note were also amended,  pursuant to
which Twistbox is required maintain a cash balance of not less than
$2,500,000 at all times and Mandalay Media is required to
maintain a cash balance of not less than $4,000,000 at all times. These
covenants were subsequently amended as set forth below.
  SUMMARY
OF THE AMV ACQUISITION
 
 On
October 23, 2008, Mandalay Media consummated the acquisition of 100% of the
issued and outstanding share capital of AMV Holding Limited, a United Kingdom
private limited company (“AMV”) and 80% of the issued and outstanding share
capital of Fierce Media Limited, United Kingdom private limited company
(collectively the “Shares”).  The acquisition of AMV is referred to
herein as the “AMV Acquisition”. The aggregate purchase price (subject to
adjustments as provided in the stock purchase agreement) for the Shares
consisted of (i) $5,375,000 in cash; (ii) 4,500,000 shares of common stock, par
value $0.0001 per share; (iii) a secured promissory note in the aggregate
principal amount of $5,375,000 (the “AMV Note”); and (iv) additional earn-out
amounts, if any, based on certain targeted earnings as set forth in the stock
purchase agreement.
  The AMV Note matures on January 30, 2010, and bears interest
at an initial rate of 5% per annum, subject to adjustment as provided therein.
In the event Mandalay Media completes an equity financing which results in gross
proceeds of over $6,000,000, Mandalay Media will prepay a portion of the Note in
an amount equal to one-third of the excess of the gross proceeds of such
financing over $6,000,000. In addition, if within nine months of the issuance
date of the AMV  Note, Mandalay Media completes a financing that
results in gross proceeds of over $15,000,000, then Mandalay Media shall prepay
the entire principal amount then outstanding under the AMV Note, plus accrued
interest. If within nine months of the issuance date of the AMV Note, the
aggregate principal sum then outstanding under the AMV Note plus accrued
interest thereon has not been prepaid, then on and after such date, interest
shall accrue on the unpaid principal balance of the AMV Note at a rate of 7% per
annum.
 
 In
addition, also on October 23, 2008, in connection with the AMV Acquisition,
Mandalay Media, 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 Media and Twistbox
maintain certain minimum combined cash balances and provides for certain
covenants with respect to the indebtedness of Mandalay Media 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 Media and ValueAct entered into an allonge to
each of those certain warrants issued to ValueAct in connection with the Merger,
which, among other things, amended the exercise price of each of the warrants to
$4.00 per share.
 
 On
October 23, 2008, Mandalay Media 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 Media of $4,500,000. The
warrants have a five year term and an exercise price of $2.67 per share. The
funds were held in an escrow account pursuant to an Escrow Agreement, dated
October 23, 2008 and were released to Mandalay Media on or about November 8,
2008.
 
 31
  The
Merger and the AMV Acquisition both included the issuance of common stock as all
or part of the consideration. Based on the trading price of the common stock as
of the acquisition dates, the total consideration was approximately $67.5
million for the Merger and approximately $22.2 million for the AMV Acquisition.
Subsequent to the Merger and the AMV Acquisition, the average trading price of
the Common Stock has decreased significantly. If the decrease in trading price
is deemed to “not be temporary in nature”, management expects that an impairment
of goodwill and other long lived intangible assets could occur by year end.
Other factors affecting management’s estimate of impairment include the current
profitability and expected future cash flows from the acquired
business.
  Comparison
of the Three Months Ended June 30, 2009 and 2008
 
 Revenues
 
 Three
      Months Ended June 30,2009
                                  
                                  
                                  2008unaudited
                                  
                                  
                                  unaudited(In
      thousands)Revenues
      by type:Games
                                  
                                  $
                                  1,302
                                  
                                  
                                  $
                                  1,276Other
      content
                                  
                                  
                                  8,781
                                  
                                  
                                  
                                  4,071Total
                                  
                                  $
                                  10,083
                                  
                                  
                                  $
                                  5,347
 Games
revenue was significantly enhanced by the expansion of the Play 4 Prizes
platform in the US during the quarter.  This was partially offset by a
challenging sales environment in overseas markets, especially Germany. Games
revenue includes both licensed and internally developed games for use on mobile
phones.
  The
increase in other content revenues over the first quarter of fiscal 2009 is
primarily due to the inclusion of revenues from AMV Holding which was acquired
in the third quarter of fiscal 2009.  Other content includes a broad
range of licensed and internally-developed product delivered in the form of WAP,
Video, Wallpaper and Mobile TV as well as interactive voice
services.
 
 
 Cost
of Revenues
 
 Three
      Months Ended June 30,2009
                                      
                                      
                                      2008unaudited
                                      
                                      
                                      unaudited(In
      thousands)Cost
      of revenues:License
      fees
                                      
                                      $
                                      1,018
                                      
                                      
                                      $
                                      2,150Other
      direct cost of revenues
                                      
                                      
                                      1,837
                                      
                                      
                                      
                                      102Total
      cost of revenues
                                      
                                      $
                                      2,855
                                      
                                      
                                      $
                                      2,252Revenues
                                      
                                      $
                                      10,083
                                      
                                      
                                      $
                                      5,347Gross
      margin
                                      
                                      
                                      71.7
                                      %
                                      
                                      
                                      57.9
                                      %
 
 License
fees represent costs payable to content providers for use of their intellectual
property in products sold. License fees have decreased as  a result of
reductions in the revenue share attributable to several licensed product
arrangements and a significant change in mix towards product for which the
rights have been acquired in perpetuity. Other direct cost of revenues includes
costs to deliver products, and amortization of the intangibles identified as
part of the purchase price accounting and attributed to cost of revenues. The
increase in other direct costs is largely attributable to AMV cost of revenues.
The improvement in margin is due the mix changes noted above and the impact of
AMV, which has higher margin sales, and adjustments related to settlement
agreementswhich certain content providers.
 
 32
 
 Operating
Expenses
 
 Three
      Months Ended June 30,2009
                            
                            
                            2008unaudited
                            
                            
                            unaudited(In
      thousands)Product
      development expenses
                            
                            $
                            1,422
                            
                            
                            $
                            1,766Sales
      and marketing expenses
                            
                            
                            3,381
                            
                            
                            
                            1,280General
      and administrative expenses
                            
                            
                            2,388
                            
                            
                            
                            2,813Amortization
      of intangible assets
                            
                            
                            177
                            
                            
                            
                            137
 Product
Development expenses include the costs to develop, edit and make content ready
for consumption on a mobile phone.  The decrease in expenses compared
to the first quarter of the prior year are primarily the result of restructuring
during the year which resulting in a reduction in employees, particularly in the
product development areas.
 
 Sales and
Marketing Expenses represent the costs of sales and marketing personnel, and
advertising and marketing campaigns – advertising has increased significantly
with the AMV Acquisition in October 2008 due to the “direct to consumer” nature
of that business, with a significant element of direct marketing required to
stimulate revenues. In addition a significant portion of AMV’s employee base are
classified as sales and marketing employees.
 
 General
and administrative expenses represent management and support personnel costs in
each  of the companies within the Company and related expenses,
as well as professional and consulting costs, and other costs such as stock
based compensation, depreciation and bad debt expenses.  The decrease
in expenses over the first quarter in the prior year is largely the result of
employee reductions and cost savings initiatives implemented during the course
of the year.
 
 Amortization
of intangibles represents amortization of the intangibles identified as part of
the purchase price accounting related to both acquisitions and attributed to
operating expenses.
 
 
 Other
Expenses
 
 Three
      Months Ended June 30,2009
                                                        
                                                        
                                                        2008unaudited
                                                        
                                                        
                                                        unaudited(In
      thousands)Interest
      and other income/(expense)
                                                        
                                                        $
                                                        (516
                                                        )
                                                        
                                                        $
                                                        (363
                                                        )
 Interest
and other income/(expense) includes interest income on invested funds, interest
expense related to the ValueAct and AMV Notes, foreign exchange transaction
gains, and other income/expense.  The increase in net expense compared
to the first quarter of the prior year  relates to increased interest
expense related to the increase in the balance due under the ValueAct Note, and
the addition of the AMV Note, which represents deferred purchase consideration
related to the AMV acquisition.
  Financial
Condition
 
 Assets
 
 Our current assets totaled $16.1
million and $18.0 million at June 30, 2009 and March 31, 2009, respectively.
Total assets were $89.0 million and $91.2 million at June 30, 2009 and March 31,
2009, respectively. The decrease in current assets is primarily due to the lower
cash balances. The decrease in total assets is primarily due to the amortization
of  intangibles assets.
 
 Liabilities
and Working Capital
 
 33
 At June 30, 2009, our total liabilities
were $40.3 million.  Our current liabilities totaled 16.4 million and
$42.1 million at June 30, 2009 and March 31, 2009, respectively. The change in
current liabilities was primarily related to the restructuring of the maturity
date of the ValueAct Note - i.e. the debt has been re-classified from current to
non-current.  The Company had negative working capital of $0.3 million
at June 30, 2009 and negative working capital of $24.1 million at March 31, 2009
as a result of the timing of maturity of the ValueAct Note.
  Liquidity
and Capital Resources
 
 Three
      Months Ended June 30,2009
                      
                      
                      2008unaudited
                      
                      
                      unaudited(In
      thousands)Consolidated
      Statement of Cash Flows Data:Capital
      expenditures
                      
                      $
                      129
                      
                      
                      $
                      70Cash
      flows used in operating activities
                      
                      
                      1,857
                      
                      
                      
                      1,844Cash
      flows used in investing activities
                      
                      
                      -
                      
                      
                      
                      2,025
 
 Twistbox
has incurred losses and negative annual cash flows since inception, although the
operating loss has narrowed significantly in the current quarter.  AMV
has generally experienced profits and strongly positive cash flows. 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
three months ended June 30, 2009, we used $1.9 million of net cash, flowing from
the loss of $1.0 million as well as decreases in accounts payable of $1.1
million and in other liabilities of $1.1 million, offset by non cash stock based
compensation and depreciation and amortization.  In the three months
ended June 30, 2008, we used $1.8 million of net cash in operating expenses.
This primarily related to the net loss of $3.4 million, an increase in a
receivables of $0.3 million, partially offset by non cash stock based
compensation and depreciation and amortization  included in the net
loss of $1.2 million and $0.3 million respectively, and increases in accounts
payable and other liabilities.
 
 Investing
Activities
 
 In the three months ended June 30,
2008, $2.1 million was used in investing activities, related to the bridge loan
provided to Green Screen Interactive Software Inc. as part of a potential
acquisition. The acquisition did not proceed and the loan was fully repaid with
interest on July 7, 2008.
 
 As of
June 30, 2009, the Company had approximately $4.2 million of cash. The Company
has restructured its debt, as described in Note 15 to the financial
statements.  Among other things, this provides for the due date to be
extended to July 31, 2009, an interest rate of 12.5% from the date of the
agreement through maturity, an extension of the payment in kind (“PIK”) election
through to the interest payment otherwise due In January 2010, and a reduction
in the minimum cash covenant to $1 million until January 31, 2010 and $4 million
thereafter, subject to certain conditions. In addition the Company and the
sellers of AMV Limited entered into an agreement which extended the maturity
date of the AMV Note, which represents deferred purchase consideration in
relation to the AMV acquisition, until July 31, 2010.
  The
Company’s cash requirements will be dependent on actions taken to improve
cashflow, including the debt restructuring and operational restructuring within
the subsidiaries. We may require additional cash resources due to changed
business conditions or other future developments, including any investments or
acquisitions we may decide to pursue. If these sources are insufficient to
satisfy our cash requirements, we may seek to sell additional debt securities or
additional equity securities or to obtain a credit facility. The sale of
convertible debt securities or additional equity securities could result in
additional dilution to our stockholders. The incurrence of increased
indebtedness would result in additional debt service obligations and could
result in additional operating and financial covenants that would restrict our
operations. In addition, there can be no assurance that any additional financing
will be available on acceptable terms, if at all.
 
 Debt
obligations include interest payments under the ValueAct Note, payable at the
end of the term, in July 2010, and interest payaments under the AMV Note,
payable at the end of the term, in July 2010. The ValueAct Note was amended
during fiscal 2009 such that the Company may elect to add interest to the
principal, with the full amount payable at the end of the term. The Company’s
operating lease obligations include noncancelable operating leases for the
Company’s office facilities in several locations, expiring in various years
through 2010. Twistbox has entered into license agreements with various owners
of brands and other intellectual property so that we could develop and publish
branded products for mobile handsets. Pursuant to some of these agreements, we
are required to pay minimum royalties over the term of the agreements regardless
of actual sales.
 
 34
  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.  As of June 30, 2009, our largest customer
represented approximately 25% of our gross accounts receivable
outstanding.
 
 Foreign
Currency Risk
  The
functional currencies of our United States and German operations are the United
States Dollar, or USD, and the Euro, respectively. A significant portion of our
business is conducted in currencies other than the USD or the Euro. Our revenues
are usually denominated in the functional currency of the carrier. Operating
expenses are usually in the local currency of the operating unit, which
mitigates a portion of the exposure related to currency fluctuations.
Intercompany transactions between our domestic and foreign operations are
denominated in either the USD or the Euro. At month-end, foreign
currency-denominated accounts receivable and intercompany balances are marked to
market and unrealized gains and losses are included in other income (expense),
net. Our foreign currency exchange gains and losses have been generated
primarily from fluctuations in the Euro and pound sterling versus the USD and in
the Euro versus the pound sterling. In the future, we may experience foreign
currency exchange losses on our accounts receivable and intercompany receivables
and payables. Foreign currency exchange losses could have a material adverse
effect on our business, operating results and financial condition.
 
 Inflation
  We do not
believe that inflation has had a material effect on our business, financial
condition or results of operations. If our costs were to become subject to
significant inflationary pressures, we might not be able to offset these higher
costs fully through price increases. Our inability or failure to do so could
harm our business, operating results and financial condition.
 
 Item
4T.  Controls and Procedures.
 
 Evaluation of Disclosure Controls and
Procedures
 
 Members
of our management, including our Principal Executive Officer, James Lefkowitz,
and Principal Financial Officer, Russell Burke, 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 June 30,
2009, the end of the period covered by this report. Based upon that evaluation,
Messrs. Lefkowitz and Burke 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.
 
 35
 Changes
in Controls and Procedures
  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 and 15(d)-15 that occurred during the first
quarter ended June 30, 2009 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.
 
 There
have been no material changes in our legal proceedings from those disclosed in
our Annual Report on Form 10-K for the year ended March 31, 2009, filed with the
Securities and Exchange Commission on July 14, 2009. From time to time, we are
subject to various claims, complaints and legal actions in the normal course of
business. 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
have been no material changes in our risk factors from those disclosed in our
Annual Report on Form 10-K for the year ended March 31, 2009, filed with the
Securities and Exchange Commission on July 14, 2009.
 
  Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
 On April
24, 2009, the Company granted certain senior executives 229,388 shares of the
Company’s common stock in exchange for them agreeing to reduce their salaries
from April 1, 2009 through April 30, 2010. 187,348 of the shares granted to such
senior executive are subject to forfeiture in the event that the senior
executive leaves the Company within one year from the date of grant, and become
fully vested one year from the date of grant or in the event of change of
control of the Company.  The securities were issued pursuant to the
exemption from registration permitted under Rule 506 of Regulation D promulgated
under the Securities Act of 1933, as amended.
 
 Issuer
Purchases of Equity Securities
 
 Period
                        
                        (a) Total Number of
                          Shares (or Units)
                          Purchased
                        
                        
                        (b) Average Price Paid
                          per Share (or Unit)
                        
                        
                        (c)
                          Total Number of
                          Shares (or Units)
                          Purchased as Part of
                          Publicly Announced
                          Plans or Programs
                        
                        
                        (d)
                          Maximum Number
                          (or Approximate
                          Dollar Value) of
                          Shares (or Units)
                          that May Yet Be
                          Purchased Under
                          the Plans or
                          ProgramsApril
      1, 2009 - April 30, 2009
                        
                        
                        19,332
                        (1)
                        
                        $
                        0.89
                        
                        
                        
                        -
                        
                        
                        
                        -May
      1, 2009 - May 31, 2009
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -June
      1, 2009 - June 30, 2009
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        -
                        
                        
                        
                        -
  (1) These
shares were repurchased by the Company in satisfaction of tax liability pursuant
to Rule 16b-3 of the Exchange Act.
 
  Item
3. Defaults Upon Senior Securities.
 
 None.
 
 
 Item 4. Submission of Matters to a Vote of Security
Holders.
 
 None.
  Item
5. Other Information.
 
 On August
14, 2009, Mandalay Media, Twistbox and ValueAct entered into a Third
Amendment to the ValueAct Note. Pursuant to the Third Amendment, the
maturity date was changed to July 31, 2010 and the interest rate of the Note
increased from 10% to 12.5%.  Additionally, the Third Amendment provides
that Twistbox may prepay the Note in whole or in part at any time without
penalty.  In the event of any such prepayment prior to January 31, 2010, in
an aggregate amount of not less than 50% of the then outstanding and unpaid
principal plus accrued interest under the Note, the balance of the Note shall be
payable on the earlier of July 31, 2015, or the date when such amount becomes
due and payable as a result of an event of default under the Note (the earlier
of such date, the “New Maturity Date”).  If Twistbox receives any net
proceeds from a debt financing (other than any proceeds from a Company
Receivables Facility as defined in the Note) not to exceed $9,000,000, at least
50% of such proceeds shall be paid by Twistbox to ValueAct to satisfy a portion
of the then-outstanding and unpaid principal plus accrued interest under the
Note; any indebtedness incurred by Twistbox in connection with such a prepayment
shall be excluded from Twistbox’s covenants, as set forth in the Note, not to
incur additional indebtedness.  If the Company receives any net proceeds
from an equity financing, at least 50% of such proceeds shall be paid to
ValueAct to satisfy a portion of the then-outstanding and unpaid principal plus
accrued interest under the Note, and the balance of the Note shall be payable on
the New Maturity Date.    In the event Twistbox or the Company
have made any prepayments in connection with a debt or equity financing, as
applicable, which payments are greater than or equal to $9,000,000 in the
aggregate, then the balance of the Note shall be payable on the New Maturity
Date.  Lastly, if certain of the earn-out payments set forth in that
certain Stock Purchase Agreement, by and among the Company, Jonathan Creswell,
Nathaniel MacLeitch and the shareholders of AMV Holdings Limited, dated as of
October 23, 2008, as amended, have been paid, the Company and Twistbox agreed to
maintain certain minimum combined cash balances. The foregoing description is
qualified in its entirety by reference to the Third Amendment, a copy of which
is attached hereto as Exhibit 4.1 and is incorporated by reference
herein.
 
 Also on
August 14, 2009, the Company and ValueAct entered into a Second Allonge to
Warrant to Purchase 1,092,621 Shares of Common Stock (the “Second Allonge”),
which amended that certain warrant to purchase 1,092,621 shares of the Company’s
common stock, issued to ValueAct on February 12, 2008, as amended (the “ValueAct
Warrant”), the terms of which were previously disclosed in those Current Reports
on Form 8-K filed with the Securities and Exchange Commission on February 12,
2008 and October 23, 2008, which are incorporated herein by reference. 
Pursuant to the Second Allonge, the exercise price of the ValueAct Warrant
decreased from $4.00 per share to the lesser of $1.25 per share, or the exercise
price per share for any warrant to purchase shares of the Company’s common stock
issued by the Company to certain other parties. The foregoing description is
qualified in its entirety by reference to the Second Allonge, a copy of which is
attached hereto as Exhibit 4.2 and incorporated by reference
herein.
  Also on
August 11, 2009, the Company and the sellers of AMV entered into an Amendment to
the AMV Note, which amended the maturity date of the AMV Note to July 31, 2010.
The foregoing description is qualified in its entirety by reference to the First
Amendment to the Promissory Note, a copy of which is attached hereto as Exhibit
10.1 and incorporated by reference herein.
 36
 Item 6.   Exhibits.
  4.1
                    Third
      Amendment to Senior Secured Note, by and among Mandalay Media, Inc.,
      Twistbox Entertainment, Inc. and ValueAct SmallCap Master Fund, L.P.,
      dated as of August 14, 2009. *4.2
                    Second
      Allonge to Warrant to Purchase 1,092,621 Shares of Common Stock, by and
      between Mandalay Media, Inc. and ValueAct SmallCap Master Fund, L.P.,
      dated as of August 14, 2009. *10.1
                    First
      Amendment to Promissory Note, dated August 14, 2009, issued by Mandalay
      Media, Inc. to Nathaniel MacLeitch, as the Sellers’ Representative.
      *31.1
                    Certification
      of James Lefkowitz, Principal Executive Officer, pursuant to Section 302
      of the Sarbanes-Oxley Act of 2002. *31.2
                    Certification
      of Russell Burke, Principal Financial Officer, pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002. *32.1
                    Certification
      of James Lefkowitz, Principal Executive Officer, pursuant to 18 U.S.C.
      Section 1350. *32.1
                    Certification
      of Russell Burke, Principal Financial Officer, pursuant to 18 U.S.C.
      Section 1350. *
 * Filed
herewith
  37
 
 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:
        August 14, 2009
                By:
                /s/
      James LefkowitzJames
      LefkowitzPresident(Authorized
      Officer and Principal Executive
Officer)
  Date:
        August 14, 2009By:
                /s/
      Russell BurkeRussell
      BurkeChief
      Financial Officer and Secretary(Authorized
      Officer and Principal Financial
Officer)
 
 
 38