UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-KT
 
(Mark One)
 
o
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended _________
or

x
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934 
 
For the transition period from January 1, 2008 to March 31, 2008.
 
Commission File Number 00-10039
 
MANDALAY MEDIA, INC.
 
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
22-2267658
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer Identification No.)

2121 Avenue of the Stars, Suite 2550, Los Angeles, CA
 
90067
(Address of Principal Executive Offices)
 
(Zip Code)

(310) 601-2500
(Issuer’s Telephone Number, Including Area Code)
 
Securities registered pursuant to Section 12(b) of the Act: None
 
Securities registered under Section 12(g) of the Exchange Act:
 
Common Stock, Par Value $0.0001 Per Share
(Title of Class)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  o         No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes   o     No  x
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   x        No  o
 
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of a “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)

 
o Large Accelerated Filer
o Accelerated Filer
 
o Non-accelerated Filer (do not check if smaller reporting company
x Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      
 
Yes  o          No   x
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) computed by reference to the price at which the common equity was last sold on the OTC Bulletin Board on June 30, 2007 was $11,490,000.
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act subsequent to the distribution of securities under a plan confirmed by a court. Yes   No  o
 
As of July 10, 2008, the registrant had 32,315,054 shares of its common stock, $0.0001 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
None

Mandalay Media, Inc.

ANNUAL REPORT ON FORM 10-KT
FOR THE TRANSITION PERIOD ENDED MARCH 31, 2008

TABLE OF CONTENTS
PART I
 
 
 
 
 
ITEM 1.
BUSINESS
2
 
 
 
ITEM 1A.
RISK FACTORS
6
     
ITEM 2.
PROPERTIES
19
   
ITEM 3.
LEGAL PROCEEDINGS
20
 
 
 
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
20
 
 
 
PART II
 
 
 
 
 
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
20
 
 
 
ITEM 6.
SELECTED FINANCIAL DATA
21
 
 
 
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
21
     
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
32
 
 
 
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
33
 
 
 
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
63
 
 
 
ITEM 9A(T).
CONTROLS AND PROCEDURES
63
 
 
 
ITEM 9B.
OTHER INFORMATION
64
 
 
 
PART III
 
 
 
 
 
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
64
 
 
 
ITEM 11.
EXECUTIVE COMPENSATION
68
 
 
 
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
70
 
 
 
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
72
 
 
 
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
74
 
 
 
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
75


PART I
 
ITEM 1. BUSINESS
 
Historical Operations of Mandalay Media, Inc.
 
Mandalay Media, Inc. (“Mandalay,” the “Registrant” or the “Company”) was originally incorporated in the State of Delaware on November 6, 1998 under the name eB2B Commerce, Inc. On April 27, 2000, the Company merged into DynamicWeb Enterprises Inc., a New Jersey corporation, and changed its name to eB2B Commerce, Inc. On April 13, 2005, the Company changed its name to Mediavest, Inc. On November 7, 2007, through a merger, the Company reincorporated in the State of Delaware under the name Mandalay Media, Inc.
 
On October 27, 2004, and as amended on December 17, 2004, eB2B Commerce, Inc., Mandalay’s predecessor (“eB2B”) 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) eB2B’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 eB2B to fund the expenses of remaining public; (4) 3.5% of the new common stock of eB2B (140,000 shares) was issued to the holders of record of eB2B’s preferred stock in settlement of their liquidation preferences; (5) 3.5% of the new common stock of eB2B (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 eB2B (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, eB2B and its subsidiaries were engaged in providing business-to-business transaction management services designed to simplify trading between buyers and suppliers.
 
Prior to February 12, 2008, Mandalay was a public shell company with no operations, and controlled by its significant stockholder, Trinad Capital Master Fund, L.P.
 
On February 12, 2008, Mandalay’s wholly-owned subsidiary, Twistbox Acquisition Inc., merged with and into Twistbox Entertainment, Inc. (“Twistbox”), with Twistbox as the surviving corporation, through an exchange of capital stock of Twistbox for common stock of Mandalay (the “Merger”). Effective as of the closing of the Merger, Twistbox became Mandalay’s wholly-owned subsidiary. As a result thereof, the historical and current business operations of Twistbox now comprise Mandalay’s principal business operations.

In connection with the Merger, on March 31, 2008, the Board of Directors (the “Board of Directors”) of Mandalay approved a change in the Company’s fiscal year end from December 31 to March 31 in order to conform to the fiscal year end of Twistbox. As a result of this change, this Form 10-KT is a transition report and includes financial information for the three month period ended March 31, 2008 (the “Transition Period”) and the twelve month periods ended December 31, 2007 and 2006. Subsequent to this report, our reports on Form 10-K will cover the year beginning April 1 and ending March 31 of the following year. The twelve-month period ended March 31, 2009 is hereinafter referred to as fiscal 2009.

Our Current Operations
 
Twistbox Entertainment, Inc. is a global publisher and distributor of branded entertainment content, including images, video, TV programming and games, for Third Generation (3G) mobile networks. Twistbox publishes and distributes its content in over 40 countries representing more than one billion subscribers. Operating since 2003, Twistbox has developed an intellectual property portfolio unique to its target demographic (18 to 35 year old) that includes worldwide exclusive (or territory exclusive) mobile rights to global brands and content from leading film, television and lifestyle content publishing companies. Twistbox has built a proprietary mobile publishing platform that includes: tools that automate handset portability for the distribution of images and video; a mobile games development suite that automates the porting of mobile games and applications to over 1,500 handsets; and a content standards and ratings system globally adopted by major wireless carriers to assist with the responsible deployment of age-verified content. Twistbox has leveraged its brand portfolio and platform to secure “direct” distribution agreements with the largest mobile operators in the world, including, among others, AT&T, Hutchinson 3G, O2, MTS, Orange, T-Mobile, Telefonica, Verizon and Vodafone. Twistbox has experienced annual revenue growth in excess of 50% over the past two years and expects to become one of the leading players in the rapidly-growing, multibillion-dollar mobile entertainment market.
 
Twistbox maintains a worldwide distribution agreement with Vodafone. Through this relationship, Twistbox serves as Vodafone’s exclusive supplier of late night content, a portion of which is age-verified. Additionally, Twistbox is one of the select few content aggregators for Vodafone. Twistbox aggregates content from leading entertainment companies and manages distribution of this content to Vodafone. Additionally, Twistbox maintains distribution agreements with other leading mobile network operators throughout the North American, European, and Asia-Pacific regions that include Verizon, Virgin Mobile, T-Mobile, Telefonica, Hutchinson 3G, Three, O2 and Orange.
  
Twistbox’s intellectual property encompasses over 75 worldwide exclusive or territory exclusive content licensing agreements that cover all of its key content genres including lifestyle, glamour, and celebrity news and gossip for U.S. Hispanic and Latin American markets, poker news and information, late night entertainment and casual games.
2

Twistbox currently has content live on more than 100 network operators in 40 countries. Through these relationships, Twistbox can currently reach over one billion mobile subscribers worldwide. Its existing content portfolio includes 300 WAP sites, 250 games and 66 mobile TV channels.
 
In addition to its content publishing business, Twistbox operates a rapidly growing suite of Premium Short Message Service (Premium SMS) services that include text and video chat and web2mobile marketing services of video, images and games that are promoted through on-line, magazine and TV affiliates. The Premium SMS infrastructure essentially allows end consumers of Twistbox content to pay for their content purchases directly from their mobile phone bills.
 
Twistbox’s end-users are the highly-mobile, digitally-aware 18 to 35 year old demographic. This group is a major consumer of digital entertainment services and commands significant amounts of disposable income. In addition, this group is very focused on consumer lifestyle brands and is much sought after by advertisers.
 
Revenue Model
 
Twistbox’s revenue model is based primarily on a per-download or, alternatively, subscription charge for video clips, games, WAP sites and other content.
 
In addition to its mobile content offerings, Twistbox has begun to leverage its distribution and traffic to generate revenues from WAP advertising where it manages mobile content portals on an exclusive basis.
 
Twistbox typically bills and receives payment directly through mobile operators and portals that form the majority of its customers. The network operators typically receive between 40% to 50% of the retail purchase price in the on-deck environment. The remainder, the net revenue, is shared with Twistbox’s content providers, with the licensor typically receiving between 20% to 50% of the net revenue.
 
Payment methods available to end-users include SMS reverse billing and prepayment as well as the more traditional credit and debit card channels. Twistbox typically receives payment directly from the mobile operators and portals that constitute the majority of its customers.
 
Development Process
 
Twistbox has an active content development program and has experience producing release-ready applications for the world’s leading wireless formats and platforms, including J2ME, BREW, DoJa, Windows Mobile, SMS and Symbian.
 
Twistbox intends to acquire additional third-party licenses and to develop new applications through relationships with outside developers and its in-house development staff. We believe that these efforts will assure that Twistbox has a steady stream of new content to offer its customers and end-users.
 
Twistbox Technology and Tools
 
Twistbox’s production activities currently address over 1,500 handsets, including models manufactured by Nokia, Motorola, Samsung and Sony Ericsson. Twistbox has created an automated handset abstraction tool that significantly reduces the time required to “port” a game across a significant number of these handsets.
 
Twistbox works with a number of languages, platforms, and formats, including J2ME, BREW, DoJa, and Symbian, and localizes its releases in the EFIGS languages (English, French, Italian, German and Spanish). It is actively involved in a number of technical initiatives aimed at enhancing its titles with value-added features, such as multi-player functionality, 3D graphics, and location-based features. The market for mobile entertainment should increase dramatically as mobile operators continue to roll out their next generation service offerings and we see increases in bandwidth drive acceptance of handsets and other connected devices offering improvements in data handling capability, graphics resolution and other features. Real-time, operating-system based, handsets (smart phones/PDA phones) were previously available but at high price points, reflecting the fact they were high-end devices. As prices decrease in the future, phones should continue to grow steadily in both penetration and power.
 
The availability of mobile content should hasten the adoption of the next generation of handsets and promote the increase in data traffic required by carriers for recovery of their investments in 3G licenses and infrastructure.
 
Twistbox’s proprietary portfolio of technology encompasses platforms and tools that enhance the delivery, management and quality of Twistbox’s programming.
 
Renux™
 
Renux™ is Twistbox’s carrier class content management, publishing and distribution platform developed internally for the development, integration, deployment and marketing of mobile programming. The system has been in operation for over five years and today supports over 300 WAP sites, more than 66 mobile TV channels and 250 games in 18 languages. The Renux™ content management system stores image and video content formatted for 1.5G to up to 3G devices, and incorporates a comprehensive metadata format that categorizes the content for handset recognition, programming, marketing and reporting. Twistbox maintains content hosting facilities in Los Angeles, Washington, D.C. and Frankfurt that support the distribution of content to mobile network operators.
3

RapidPort™
 
RapidPort™ is Twistbox’s software suite that enables the development and porting of mobile games and applications to over 1,000 different handsets from leading manufacturers including Nokia, Motorola, Samsung and Sony Ericsson. Twistbox has created an automated handset abstraction tool that significantly reduces the time required to “port” a game across a significant number of these handsets. The RapidPort™ development platform supports a broad number of wireless device formats including J2ME, BREW, DoJa and Symbian, and provides localization in over 18 languages. Twistbox Games has recently enhanced RapidPort™ to include new technology designed to enhance titles with value-added features, such as in-game advertising, multi-player and play for prizes functionality, 3D graphics and location-based services (LBS).
 
Nitro-CDP™
 
Nitro-CDP™ is an internally developed content download and delivery platform for mobile network operators, portals and content publishers. The Nitro-CDP™ platform allows for real-time content upload, editing, rating and deployment, and merchandising, while maintaining carrier-grade security, reliability and scalability. The platform enables mobile network operators to effectively manage millions of mobile download transactions across multiple channels and categories. Nitro-CDP™ also provides innovative cross-promotional tools, including purchase history-based up-sales and advertising, an individual “My Downloads” area for each consumer and peer-to-peer recommendations.
 
CMX Wrapper™
 
The CMX Wrapper™ technology, developed internally by Twistbox, enables mobile operators to integrate additional and complimentary functionality into existing mobile games and applications without the need to alter the original code or involve the original developer. This value-added functionality includes support for in-game promotions and billing, and “try before you buy” and “refer a friend” functionality.
 
Play for Prizes - Competition goes mobile ®
 
The Twistbox Games For-Prizes Network, currently deployed by major mobile operators across the U.S. such as AT&T Wireless and Verizon, offers several genres of games in which players compete in daily and weekly skill-based multiplayer tournaments to win prizes. Subscribers can compete in both daily head-to-head and weekly progressive tournaments. The Twistbox Games For-Prizes platform enables unique in-game promotions through carrier-specific campaigns in cooperation with sponsors and advertisers.
 
WAAT Media Wireless Content Standards Rating Matrix ©
 
First developed in 2003, and refined over the last several years, WAAT Media has developed a proprietary content standards matrix widely known as the “WAAT Media Wireless Content Standards Ratings Matrix©” (the “Ratings Matrix”). The Ratings Matrix has been filed with the Library of Congress’s Copyright Office. It is the globally-accepted content ratings system for age-verified mobile programming that encompasses language, violence and explicitness. The system is licensed on a royalty-free basis by the world’s leading mobile carriers and leading content providers and is the basis for the United Kingdom’s Code of Practice. The Ratings Matrix currently supports 33 ratings levels and incorporates a suite of content validation tools and industry best practices that takes into account country-by-country carrier programming requirements and local broadcast standards.
 
 Mobile Rights
 
Twistbox has major mobile publishing agreements with leading entertainment companies. Through such agreements, as well as its own portfolio of intellectual property, Twistbox has the wireless mobile rights to the following applications and brands that include but are not limited to:
 
Games
 
General Entertainment
 
Late Night
·  Taito
·  Sony
·   EA
·  i-Play
·  PopCap
·  Konami
·  Namco
 
·  Editorial Televisa
·  CardPlayer Magazine
·  Learning Annex
·   American Greetings
 
·  Playboy
·  Penthouse
·  Girls Gone Wild
·  Vivid
·  Portland TV
 
We believe that these widely recognized brands attract both mobile operators and end users. Twistbox intends to exploit the depth and breadth of its intellectual property in order to continue to grow its revenue and cash flow.
4

Content Development
 
Twistbox has experience producing release-ready entertainment applications for several wireless formats and platforms, including J2ME, BREW, WAP 2.0, Symbian and DoJa.
 
Twistbox intends to acquire additional third-party licenses and to develop new applications through relationships with third-party developers as well as its in-house development staff. We believe that these efforts will assure that it has a steady supply of new content to offer its customers.
 
In addition to mobile video clips, games, WAP sites, and other entertainment applications, Twistbox is currently focusing its development and licensing activities on complementary applications such as in game advertising, TV-SMS campaigns, play-for-prizes and multi-player games.
 
Distribution
 
Twistbox distributes its programming and services through on-deck relationships with mobile carriers and off-deck relationships with third-party aggregation, connectivity and billing providers.
 
On-Deck
 
Twistbox’s on-deck services include the programming and provisioning of games and games aggregation, images, videos and mobileTV content and portal management. Twistbox currently has on-deck agreements with more than 100 mobile operators including Vodafone, T-Mobile, Verizon, AT&T, Orange, O2, Virgin Mobile, Telefonica and MTS in over 40 countries. Through these on-deck agreements, Twistbox relies on the carriers for both marketing and billing. Twistbox currently reaches over one billion mobile subscribers worldwide through these relationships. Its currently deployed programming includes over 300 WAP sites, 250 games and 66 mobile TV channels.
 
Off-Deck
 
Twistbox has recently deployed off-deck services that include the programming and distribution of games, images, videos, chat services and mobile marketing campaigns. Twistbox manages the campaigns directly and maintains billing and connectivity agreements with leading service providers in each territory. In addition, Twistbox has built and implemented a “Web-to-Mobile” affiliate program that allows for the cross-marketing and sales of mobile content from Web storefronts of its various programming partners and their affiliates. To date, Twistbox’s content partners generate in excess of eight million on-line unique users per day.
 
Mobile Operators (Carriers)
 
Twistbox currently has a large number of distribution agreements with mobile operators and portals in Europe, the U.S., Japan and Latin America. Twistbox currently has distribution agreements with more than 100 single territory operators in 40 countries. Twistbox continues to sign new operators on a quarterly basis and, in the near term, intends to extend its distribution base into Eastern Europe and South America. The strength and coverage of these relationships is of paramount importance and the ability to support and service them is a vital component in route to the consumer. Twistbox’s distribution agreements with Vodafone account for approximately 48% of Twistbox’s current revenue.
 
Affiliates Program
 
Twistbox has also established an Affiliates Program to market and sell its content “off-deck,” that is, through a direct-to-consumer online portal that end users can access directly from their PCs or phones. We believe that this channel offers an attractive secondary outlet for consumers wishing to peruse and purchase content in an environment less limiting and restrictive than an operator’s “walled garden.”
 
Sales and Marketing
 
In order to sell to its target base of carrier and infrastructure customers, Twistbox has built a growing affiliate sales and marketing team that is localized on a country-by-country basis. In order to sell to its target base of carrier and infrastructure customers, Twistbox has built a growing affiliate sales and marketing team that is localized on a country-by-country basis. As of June 30, 2008, Twistbox had a workforce of approximately 164 employees.
 
Competition
 
While many mobile marketing companies sell a diversified portfolio of content from ring tones to wall papers and kids programming to adult, Twistbox has taken a more focused and disciplined approach. Twistbox focuses on programming and platforms where it can manage categories on an exclusive or semi-exclusive basis for a mobile operator. Target markets include Age Verified Programming, Play4Prizes or areas in which Twistbox has exclusive rights to the top one or two brands in a genre.
5

In the area of mature themed mobile entertainment, Twistbox is a leading provider of content and services. The industry trend has been for leading operators to focus on fewer partners and often assign a company to manage the category. We believe that its responsible reputation and the Ratings Matrix combined with its publishing platform and leading brands that maximize revenue, positions it to manage the age-verified category for operators globally.
 
Twistbox competes with a number of other companies in the mobile games publishing industry, including Arvato, Minick, Jamba, Buongiorno, Mobile Streams, Glu Mobile, Player X and Gameloft. Brands such as Playboy have sought to create their own direct distribution arrangements with network operators. To the extent that such firms continue to seek such relationships, they will compete directly with Twistbox in their respective content segments. While Twistbox competes with many of the leading publishers, its core business is providing services and platforms for operators and publishers to enhance revenues. In turn, through the management of an operator’s download platform, providing a cross carrier Play4Prizes infrastructure or facilitating in game advertising or billing, Twistbox has become a strategic value added partner to both the mobile operator and publishing communities.
 
Direct-to-consumer (D2C) Web portals may have an adverse impact on Twistbox’s business, as these portals may not strike distribution arrangements with Twistbox. Additionally, wireless device manufacturers such as Nokia, Sony Ericsson and Motorola may choose to pursue their own content strategies.
 
We believe that the principal competitive factors in the market for mobile games and other content include carrier relationships, access to compelling content, quality and reliability of content delivery, availability of talented content developers and skilled technical personnel, and financial stability.
 
Trademarks, Tradenames and Copyrights
 
Twistbox has used, registered and applied to register certain trademarks and service marks to distinguish its products, technologies and services from those of its competitors in the United States and in foreign countries. Twistbox also has a copyright known as the “WAAT Media Wireless Content Standards Ratings Matrix©”, which has been filed with the Library of Congress’s Copyright Office. We believe that these trademarks, tradenames and copyright are important to its business. The loss of some of Twistbox’s intellectual property might have a negative impact on its financial results and operations. We do not believe any of these technologies infringe on any intellectual property owned by third parties.  We do not license any patents.  We also own trademarks on “Charismatix”, “Delight Entertainment”, “Babe Shuffle”, “Babe Tris”, Bomb’s n Boobs”, “Erotrix”, “Competition Goes Mobile” and “Prize-21 for Prizes”.  We have pending before the USPTO and several international trademark offices an application to register the tradename “Twistbox Entertainment, Inc.”.  We own a registered copyright in the “Content Rating Matrix”.


Government and Regulations

As a provider of products and services to wireless carriers for the distribution of such products and the use of such services over their wireless networks, generally, we are instructed by the wireless carrier in each particular territory of the world on best practices consistent with local laws and regulations as respects our products and services.  We rely on the carriers’ understanding and knowledge of local laws and regulations.  Separately, we are familiar with and follow codes of practice which generally regulate the delivery of the kinds of products and services provided by Twistbox. 
 
ITEM 1A. RISK FACTORS
 
Cautionary Statements Regarding Forward-Looking Statements
 
Statements in this Transition Report on Form 10-KT under the captions “Description of Business,” “Management’s Discussion and Analysis or Plan of Operation,” and elsewhere in this Form 10-KT, as well as statements made in press releases and oral statements that may be made by us or any of our officers, directors or employees acting on our behalf that are not statements of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, including those described in this Form 10-KT under the caption “Risk Factors,” that could cause our actual results to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements. In addition to statements which explicitly describe such risks and uncertainties, readers are urged to consider statements with the terms “believes,” “belief,” “expects,” “plans,” “anticipates,” or “intends,” to be uncertain and forward-looking. All cautionary statements made in this Form 10-KT should be read as being applicable to all related forward-looking statements wherever they appear. Investors should consider the following risk factors as well as the risks described elsewhere in this Form 10-KT, including our consolidated financial statements and the notes to those statements.
 
Unless the context otherwise indicates, the use of the terms “we,” “our” or “us” refers to the business and operations of Mandalay Media, Inc. through its sole operating and wholly-owned subsidiary, Twistbox Entertainment, Inc.
 
 
6

Risks Related to Our Business
 
Twistbox has a history of net losses, may incur substantial net losses in the future and may not achieve profitability.  
 
We expect to continue to increase expenses as we implement initiatives designed to continue to grow our business, including, among other things, the development and marketing of new products and services, further international and domestic expansion, expansion of our infrastructure, development of systems and processes, acquisition of content, and general and administrative expenses associated with being a public company. If our revenues do not increase to offset these expected increases in operating expenses, we will continue to incur significant losses and will not become profitable. Our revenue growth in recent periods should not be considered indicative of our future performance. In fact, in future periods, our revenues could decline. Accordingly, we may not be able to achieve profitability in the future.
 
We have a limited operating history in an emerging market, which may make it difficult to evaluate our business.  
 
We have only a limited history of generating revenues, and the future revenue potential of our business in this emerging market is uncertain. As a result of our short operating history, we have limited financial data that can be used to evaluate our business. Any evaluation of our business and our prospects must be considered in light of our limited operating history and the risks and uncertainties encountered by companies in our stage of development. As an early stage company in the emerging mobile entertainment industry, we face increased risks, uncertainties, expenses and difficulties. To address these risks and uncertainties, we must do the following:

 
 
·
maintain our current, and develop new, wireless carrier relationships, in both the international and domestic markets;
 
 
 
 
·
maintain and expand our current, and develop new, relationships with third-party branded and non-branded content owners;
 
 
 
 
·
retain or improve our current revenue-sharing arrangements with carriers and third-party content owners;
 
 
 
 
·
maintain and enhance our own brands;
 
 
 
 
·
continue to develop new high-quality products and services that achieve significant market acceptance;
 
 
 
 
·
continue to port existing products to new mobile handsets;
 
 
 
 
·
continue to develop and upgrade our technology;
 
 
 
 
·
continue to enhance our information processing systems;
 
 
·
increase the number of end users of our products and services;
 
 
 
 
·
maintain and grow our non-carrier, or “off-deck,” distribution, including through our third-party direct-to-consumer distributors;
 
 
 
 
·
expand our development capacity in countries with lower costs;
 
 
 
 
·
execute our business and marketing strategies successfully;
 
 
 
 
·
respond to competitive developments; and
 
 
 
 
·
attract, integrate, retain and motivate qualified personnel.

We may be unable to accomplish one or more of these objectives, which could cause our business to suffer. In addition, accomplishing many of these efforts might be very expensive, which could adversely impact our operating results and financial condition.
 
Our financial results could vary significantly from quarter to quarter and are difficult to predict.  
 
Our revenues and operating results could vary significantly from quarter to quarter because of a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. In addition, we may not be able to predict our future revenues or results of operations. We base our current and future expense levels on our internal operating plans and sales forecasts, and our operating costs are to a large extent fixed. As a result, we may not be able to reduce our costs sufficiently to compensate for an unexpected shortfall in revenues, and even a small shortfall in revenues could disproportionately and adversely affect financial results for that quarter. Individual products and services, and carrier relationships, represent meaningful portions of our revenues and net loss in any quarter. We may incur significant or unanticipated expenses when licenses are renewed. In addition, some payments from carriers that we recognize as revenue on a cash basis may be delayed unpredictably.
7

In addition to other risk factors discussed in this section, factors that may contribute to the variability of our quarterly results include:
 

 
·
the number of new products and services released by us and our competitors;
 
 
 
 
·
the timing of release of new products and services by us and our competitors, particularly those that may represent a significant portion of revenues in a period;
 
 
 
 
·
the popularity of new products and services, and products and services released in prior periods;
 
 
 
 
·
changes in prominence of deck placement for our leading products and those of our competitors;
 
 
 
 
·
the expiration of existing content licenses;
 
 
 
 
·
the timing of charges related to impairments of goodwill, intangible assets, royalties and minimum guarantees;
 
 
 
 
·
changes in pricing policies by us, our competitors or our carriers and other distributors;
 
 
 
 
·
changes in the mix of original and licensed content, which have varying gross margins;
 
 
 
 
·
the timing of successful mobile handset launches;
 
 
 
 
·
the seasonality of our industry;
 
 
 
 
·
fluctuations in the size and rate of growth of overall consumer demand for mobile products and services and related content;
 
 
·
strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;
 
 
 
 
·
our success in entering new geographic markets;
 
 
 
 
·
foreign exchange fluctuations;
 
 
 
 
·
accounting rules governing recognition of revenue;
 
 
 
 
·
the timing of compensation expense associated with equity compensation grants; and
 
 
 
 
·
decisions by us to incur additional expenses, such as increases in marketing or research and development.

As a result of these and other factors, our operating results may not meet the expectations of investors or public market analysts who choose to follow our company. Failure to meet market expectations would likely result in decreases in the trading price of our common stock.
 
The markets in which we operate are highly competitive, and many of our competitors have significantly greater resources than we do.  
 
The development, distribution and sale of mobile products and services is a highly competitive business. We compete for end users primarily on the basis of “on-deck” or “off-deck” positioning, brand, quality and price. We compete for wireless carriers for “on-deck” placement based on these factors, as well as historical performance, technical know-how, perception of sales potential and relationships with licensors of brands and other intellectual property. We compete for content and brand licensors based on royalty and other economic terms, perceptions of development quality, porting abilities, speed of execution, distribution breadth and relationships with carriers. We also compete for experienced and talented employees.
 
Our primary competitors include Arvato, Minick, Jamba, Buongiorno, Mobile Streams, Glu Mobile, Player X and Gameloft. In the future, likely competitors include major media companies, traditional video game publishers, platform developers, content aggregators, mobile software providers and independent mobile game publishers. Carriers may also decide to develop, internally or through a managed third-party developer, and distribute their own products and services. If carriers enter the wireless market as publishers, they might refuse to distribute some or all of our products and services or might deny us access to all or part of their networks.
8

Some of our competitors’ and our potential competitors’ advantages over us, either globally or in particular geographic markets, include the following:
 
 
·
significantly greater revenues and financial resources;
 
 
 
 
·
stronger brand and consumer recognition regionally or worldwide;
 
 
 
 
·
the capacity to leverage their marketing expenditures across a broader portfolio of mobile and non-mobile products;
 
 
 
 
·
more substantial intellectual property of their own from which they can develop products and services without having to pay royalties;
 
 
 
 
·
pre-existing relationships with brand owners or carriers that afford them access to intellectual property while blocking the access of competitors to that same intellectual property;
 
 
 
 
·
greater resources to make acquisitions;
 
 
 
 
·
lower labor and development costs; and
 
 
 
 
·
broader global distribution and presence.
  
If we are unable to compete effectively or we are not as successful as our competitors in our target markets, our sales could decline, our margins could decline and we could lose market share, any of which would materially harm our business, operating results and financial condition.
 
Failure to renew our existing brand and content licenses on favorable terms or at all and to obtain additional licenses would impair our ability to introduce new products and services or to continue to offer our products and services based on third-party content.  
 
Revenues are derived from our products and services based on or incorporating brands or other intellectual property licensed from third parties. Any of our licensors could decide not to renew our existing license or not to license additional intellectual property and instead license to our competitors or develop and publish its own products or other applications, competing with us in the marketplace. Several of these licensors already provide intellectual property for other platforms, and may have significant experience and development resources available to them should they decide to compete with us rather than license to us.
 
We have both exclusive and non-exclusive licenses and both licenses that are global and licenses that are limited to specific geographies. Our licenses generally have terms that range from two to five years . We may be unable to renew these licenses or to renew them on terms favorable to us, and we may be unable to secure alternatives in a timely manner. Failure to maintain or renew our existing licenses or to obtain additional licenses would impair our ability to introduce new products and services or to continue to offer our current products or services, which would materially harm our business, operating results and financial condition. Some of our existing licenses impose, and licenses that we obtain in the future might impose, development, distribution and marketing obligations on us. If we breach our obligations, our licensors might have the right to terminate the license which would harm our business, operating results and financial condition.
 
Even if we are successful in gaining new licenses or extending existing licenses, we may fail to anticipate the entertainment preferences of our end users when making choices about which brands or other content to license. If the entertainment preferences of end users shift to content or brands owned or developed by companies with which we do not have relationships, we may be unable to establish and maintain successful relationships with these developers and owners, which would materially harm our business, operating results and financial condition. In addition, some rights are licensed from licensors that have or may develop financial difficulties, and may enter into bankruptcy protection under U.S. federal law or the laws of other countries. If any of our licensors files for bankruptcy, our licenses might be impaired or voided, which could materially harm our business, operating results and financial condition.
 
We currently rely on wireless carriers to market and distribute our products and services and thus to generate our revenues. The loss of or a change in any of these significant carrier relationships could cause us to lose access to their subscribers and thus materially reduce our revenues.  
 
Our future success is highly dependent upon maintaining successful relationships with the wireless carriers with which we currently work and establishing new carrier relationships in geographies where we have not yet established a significant presence. A significant portion of our revenue is derived from a very limited number of carriers. We expect that we will continue to generate a substantial majority of our revenues through distribution relationships with a limited number of carriers for the foreseeable future. Our failure to maintain our relationships with these carriers would materially reduce our revenues and thus harm our business, operating results and financial condition.
 
We have both exclusive and non-exclusive carrier agreements. Typically, carrier agreements have a term of one or two years with automatic renewal provisions upon expiration of the initial term, absent a contrary notice from either party. In addition, some carrier agreements provide that the carrier can terminate the agreement early and, in some instances, at any time without cause, which could give them the ability to renegotiate economic or other terms. The agreements generally do not obligate the carriers to market or distribute any of our products or services. In many of these agreements, we warrant that our products do not violate community standards, do not contain libelous content, do not contain material defects or viruses, and do not violate third-party intellectual property rights and we indemnify the carrier for any breach of a third party’s intellectual property. In addition, many of our agreements allow the carrier to set the retail price without adjustment to the negotiated revenue split. If one of these carriers sets the retail price below historic pricing models, the total revenues received from these carriers will be significantly reduced.
9

Many other factors outside our control could impair our ability to generate revenues through a given carrier, including the following:
 
 
·
the carrier’s preference for our competitors’ products and services rather than ours;
 
 
 
 
·
the carrier’s decision not to include or highlight our products and services on the deck of its mobile handsets;
 
 
 
 
·
the carrier’s decision to discontinue the sale of some or all of products and services;
 
 
 
 
·
the carrier’s decision to offer similar products and services to its subscribers without charge or at reduced prices;
 
 
 
 
·
the carrier’s decision to require market development funds from publishers like us;
 
 
 
 
·
the carrier’s decision to restrict or alter subscription or other terms for downloading our products and services;
 
 
 
 
·
a failure of the carrier’s merchandising, provisioning or billing systems;
 
 
 
 
·
the carrier’s decision to offer its own competing products and services;
 
 
 
 
·
the carrier’s decision to transition to different platforms and revenue models; and
 
 
 
 
·
consolidation among carriers.

If any of our carriers decides not to market or distribute our products and services or decides to terminate, not renew or modify the terms of its agreement with us or if there is consolidation among carriers generally, we may be unable to replace the affected agreement with acceptable alternatives, causing us to lose access to that carrier’s subscribers and the revenues they afford us, which could materially harm our business, operating results and financial condition.
 
End user tastes are continually changing and are often unpredictable; if we fail to develop and publish new products and services that achieve market acceptance, our sales would suffer.  
 
Our business depends on developing and publishing new products and services that wireless carriers distribute and end users will buy. We must continue to invest significant resources in licensing efforts, research and development, marketing and regional expansion to enhance our offering of new products and services, and we must make decisions about these matters well in advance of product release in order to implement them in a timely manner. Our success depends, in part, on unpredictable and volatile factors beyond our control, including end-user preferences, competing products and services and the availability of other entertainment activities. If our products and services are not responsive to the requirements of our carriers or the entertainment preferences of end users, or they are not brought to market in a timely and effective manner, our business, operating results and financial condition would be harmed. Even if our products and services are successfully introduced and initially adopted, a subsequent shift in our carriers or the entertainment preferences of end users could cause a decline in the popularity of our offerings that could materially reduce our revenues and harm our business, operating results and financial condition.
 
Inferior deck placement would likely adversely impact our revenues and thus our operating results and financial condition.  
 
Wireless carriers provide a limited selection of products that are accessible to their subscribers through a deck on their mobile handsets. The inherent limitation on the volume of products available on the deck is a function of the limited screen size of handsets and carriers’ perceptions of the depth of menus and numbers of choices end users will generally utilize. Carriers typically provide one or more top level menus highlighting products that are recent top sellers or are of particular interest to the subscriber, that the carrier believes will become top sellers or that the carrier otherwise chooses to feature, in addition to a link to a menu of additional products sorted by genre. We believe that deck placement on the top level or featured menu or toward the top of genre-specific or other menus, rather than lower down or in sub-menus, is likely to result in products achieving a greater degree of commercial success. If carriers choose to give our products less favorable deck placement, our products may be less successful than we anticipate, our revenues may decline and our business, operating results and financial condition may be materially harmed.
 
 If we are unsuccessful in establishing and increasing awareness of our brand and recognition of our products and services or if we incur excessive expenses promoting and maintaining our brand or our products and services, our potential revenues could be limited, our costs could increase and our operating results and financial condition could be harmed.
 
We believe that establishing and maintaining our brand is critical to retaining and expanding our existing relationships with wireless carriers and content licensors, as well as developing new relationships. Promotion of the company’s brands will depend on our success in providing high-quality products and services. Similarly, recognition of our products and services by end users will depend on our ability to develop engaging products and quality services to maintain existing, and attract new, business relationships and end users. However, our success will also depend, in part, on the services and efforts of third parties, over which we have little or no control. For instance, if our carriers fail to provide high levels of service, our end users’ ability to access our products and services may be interrupted, which may adversely affect our brand. If end users, branded content owners and carriers do not perceive our offerings as high-quality or if we introduce new products and services that are not favorably received by our end users and carriers, then we may be unsuccessful in building brand recognition and brand loyalty in the marketplace. In addition, globalizing and extending our brand and recognition of our products and services will be costly and will involve extensive management time to execute successfully. Further, the markets in which we operate are highly competitive and some of our competitors already have substantially more brand name recognition and greater marketing resources than we do. If we fail to increase brand awareness and consumer recognition of our products and services, our potential revenues could be limited, our costs could increase and our business, operating results and financial condition could suffer.
10

Our business and growth may suffer if we are unable to hire and retain key personnel, who are in high demand.  
 
We depend on the continued contributions of our domestic and international senior management and other key personnel. The loss of the services of any of our executive officers or other key employees could harm our business. All of our executive officers and key employees are under short term employment agreements which means, that their future employment with the company is uncertain. We do maintain a key-person life insurance policy on some of our officers or other employees, but the continuation of such insurance coverage is uncertain.
 
Our future success also depends on our ability to identify, attract and retain highly skilled technical, managerial, finance, marketing and creative personnel. We face intense competition for qualified individuals from numerous technology, marketing and mobile entertainment companies. In addition, competition for qualified personnel is particularly intense in the Los Angeles area, where our headquarters are located. Further, two of our principal overseas operations are based in the United Kingdom and Germany, areas that, similar to our headquarters region, have high costs of living and consequently high compensation standards and/or intense demand for qualified individuals which may require us to incur significant costs to attract them. We may be unable to attract and retain suitably qualified individuals who are capable of meeting our growing creative, operational and managerial requirements, or may be required to pay increased compensation in order to do so. If we are unable to attract and retain the qualified personnel we need to succeed, our business would suffer.
 
Volatility or lack of performance in our stock price may also affect our ability to attract and retain our key employees. Many of our senior management personnel and other key employees have become, or will soon become, vested in a substantial amount of stock or stock options. Employees may be more likely to leave us if the shares they own or the shares underlying their options have significantly appreciated in value relative to the original purchase prices of the shares or the exercise prices of the options, or if the exercise prices of the options that they hold are significantly above the market price of our common stock. If we are unable to retain our employees, our business, operating results and financial condition would be harmed.
 
Growth may place significant demands on our management and our infrastructure.
 
We operate in an emerging market and have experienced, and may continue to experience, growth in our business through internal growth and acquisitions. This growth has placed, and may continue to place, significant demands on our management and our operational and financial infrastructure. Continued growth could strain our ability to:
 
 
·
develop and improve our operational, financial and management controls;
 
 
 
 
·
enhance our reporting systems and procedures;
 
 
 
 
·
recruit, train and retain highly skilled personnel;
 
 
 
 
·
maintain our quality standards; and
 
 
 
 
·
maintain branded content owner, wireless carrier and end-user satisfaction.
 

Managing our growth will require significant expenditures and allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our organization as it grows, our business, operating results and financial condition would be harmed.
 
The acquisition of other companies, businesses or technologies could result in operating difficulties, dilution and other harmful consequences.  
 
We have made acquisitions and, although we have no present understandings, commitments or agreements to do so, we may pursue further acquisitions, any of which could be material to our business, operating results and financial condition. Future acquisitions could divert management’s time and focus from operating our business. In addition, integrating an acquired company, business or technology is risky and may result in unforeseen operating difficulties and expenditures. We may also raise additional capital for the acquisition of, or investment in, companies, technologies, products or assets that complement our business. Future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, including our common stock, or the incurrence of debt, contingent liabilities, amortization expenses or acquired in-process research and development expenses, any of which could harm our financial condition and operating results. Future acquisitions may also require us to obtain additional financing, which may not be available on favorable terms or at all.
 
International acquisitions involve risks related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries.
 
Some or all of these issues may result from our acquisition of the Germany based mobile games development and publishing company Charismatix Ltd & Co KG in May 2006 and the U.S. based mobile games studio from Infospace, Inc. in January 2007. If the anticipated benefits of these or future acquisitions do not materialize, we experience difficulties integrating Charismatix, the games studio or businesses acquired in the future, or other unanticipated problems arise, our business, operating results and financial condition may be harmed.
11

In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our earnings based on this impairment assessment process, which could harm our operating results.
 
We face added business, political, regulatory, operational, financial and economic risks as a result of our international operations and distribution, any of which could increase our costs and hinder our growth.  
 
We expect international sales to continue to be an important component of our revenues. Risks affecting our international operations include:
 
 
·
challenges caused by distance, language and cultural differences;
 
 
 
 
·
multiple and conflicting laws and regulations, including complications due to unexpected changes in these laws and regulations;
 
 
 
 
·
the burdens of complying with a wide variety of foreign laws and regulations;
 
 
 
 
·
higher costs associated with doing business internationally;
 
 
 
 
·
difficulties in staffing and managing international operations;
 
 
 
 
·
greater fluctuations in sales to end users and through carriers in developing countries, including longer payment cycles and greater difficulty collecting accounts receivable;
 
 
 
 
·
protectionist laws and business practices that favor local businesses in some countries;
 
 
 
 
·
foreign tax consequences;
 
 
·
foreign exchange controls that might prevent us from repatriating income earned in countries outside the United States;
 
 
 
 
·
price controls;
 
 
 
 
·
the servicing of regions by many different carriers;
 
 
 
 
·
imposition of public sector controls;
 
 
 
 
·
political, economic and social instability;
 
 
 
 
·
restrictions on the export or import of technology;
 
 
 
 
·
trade and tariff restrictions;
 
 
 
 
·
variations in tariffs, quotas, taxes and other market barriers; and
 
 
 
 
·
difficulties in enforcing intellectual property rights in countries other than the United States.

In addition, developing user interfaces that are compatible with other languages or cultures can be expensive. As a result, our ongoing international expansion efforts may be more costly than we expect. Further, expansion into developing countries subjects us to the effects of regional instability, civil unrest and hostilities, and could adversely affect us by disrupting communications and making travel more difficult. These risks could harm our international expansion efforts, which, in turn, could materially and adversely affect our business, operating results and financial condition.
 
If we fail to deliver our products and services at the same time as new mobile handset models are commercially introduced, our sales may suffer.  
 
Our business is dependent, in part, on the commercial introduction of new handset models with enhanced features, including larger, higher resolution color screens, improved audio quality, and greater processing power, memory, battery life and storage. We do not control the timing of these handset launches. Some new handsets are sold by carriers with certain products or other applications pre-loaded, and many end users who download our products or use our services do so after they purchase their new handsets to experience the new features of those handsets. Some handset manufacturers give us access to their handsets prior to commercial release. If one or more major handset manufacturers were to cease to provide us access to new handset models prior to commercial release, we might be unable to introduce compatible versions of our products and services for those handsets in coordination with their commercial release, and we might not be able to make compatible versions for a substantial period following their commercial release. If, because of launch delays, we miss the opportunity to sell products and services when new handsets are shipped or our end users upgrade to a new handset, or if we miss the key holiday selling period, either because the introduction of a new handset is delayed or we do not deploy our products and services in time for the holiday selling season, our revenues would likely decline and our business, operating results and financial condition would likely suffer.
12

Wireless carriers generally control the price charged for our products and services and the billing and collection for sales and could make decisions detrimental to us.  
 
Wireless carriers generally control the price charged for our products and services either by approving or establishing the price of the offering charged to their subscribers. Some of our carrier agreements also restrict our ability to change prices. In cases where carrier approval is required, approvals may not be granted in a timely manner or at all. A failure or delay in obtaining these approvals, the prices established by the carriers for our offerings, or changes in these prices could adversely affect market acceptance of our offerings. Similarly, for the significant minority of our carriers, when we make changes to a pricing plan (the wholesale price and the corresponding suggested retail price based on our negotiated revenue-sharing arrangement), adjustments to the actual retail price charged to end users may not be made in a timely manner or at all (even though our wholesale price was reduced). A failure or delay by these carriers in adjusting the retail price for our offerings, could adversely affect sales volume and our revenues for those offerings.
 
Carriers and other distributors also control billings and collections for our products and services, either directly or through third-party service providers. If our carriers or their third-party service providers cause material inaccuracies when providing billing and collection services to us, our revenues may be less than anticipated or may be subject to refund at the discretion of the carrier. This could harm our business, operating results and financial condition.
 

We may be unable to develop and introduce in a timely way new products or services, and our products and services may have defects, which could harm our brand.  
 
The planned timing and introduction of new products and services are subject to risks and uncertainties. Unexpected technical, operational, deployment, distribution or other problems could delay or prevent the introduction of new products and services, which could result in a loss of, or delay in, revenues or damage to our reputation and brand. If any of our products or services is introduced with defects, errors or failures, we could experience decreased sales, loss of end users, damage to our carrier relationships and damage to our reputation and brand. Our attractiveness to branded content licensors might also be reduced. In addition, new products and services may not achieve sufficient market acceptance to offset the costs of development, particularly when the introduction of a product or service is substantially later than a planned “day-and-date” launch, which could materially harm our business, operating results and financial condition.
 
If we fail to maintain and enhance our capabilities for porting our offerings to a broad array of mobile handsets, our attractiveness to wireless carriers and branded content owners will be impaired, and our sales could suffer.
 
Once developed, a product or application may be required to be ported to, or converted into separate versions for, more than 1,000 different handset models, many with different technological requirements. These include handsets with various combinations of underlying technologies, user interfaces, keypad layouts, screen resolutions, sound capabilities and other carrier-specific customizations. If we fail to maintain or enhance our porting capabilities, our sales could suffer, branded content owners might choose not to grant us licenses and carriers might choose not to give our products and services desirable deck placement or not to give our products and services placement on their decks at all.
 
Changes to our design and development processes to address new features or functions of handsets or networks might cause inefficiencies in our porting process or might result in more labor intensive porting processes. In addition, we anticipate that in the future we will be required to port existing and new products and applications to a broader array of handsets. If we utilize more labor intensive porting processes, our margins could be significantly reduced and it might take us longer to port our products and applications to an equivalent number of handsets. This, in turn, could harm our business, operating results and financial condition.
 
If we do not adequately protect our intellectual property rights, it may be possible for third parties to obtain and improperly use our intellectual property and our competitive position may be adversely affected.  
 
Our intellectual property is an essential element of our business. We rely on a combination of copyright, trademark, trade secret and other intellectual property laws and restrictions on disclosure to protect our intellectual property rights. To date, we have not sought patent protection. Consequently, we will not be able to protect our technologies from independent invention by third parties. Despite our efforts to protect our intellectual property rights, unauthorized parties may attempt to copy or otherwise to obtain and use our technology and software. Monitoring unauthorized use of our technology and software is difficult and costly, and we cannot be certain that the steps we have taken will prevent piracy and other unauthorized distribution and use of our technology and software, particularly internationally where the laws may not protect our intellectual property rights as fully as in the United States. In the future, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our management and resources.
13

In addition, although we require third parties to sign agreements not to disclose or improperly use our intellectual property, it may still be possible for third parties to obtain and improperly use our intellectual properties without our consent. This could harm our business, operating results and financial condition.
 
Third parties may sue us for intellectual property infringement, which, if successful, may disrupt our business and could require us to pay significant damage awards.  
 
Third parties may sue us for intellectual property infringement or initiate proceedings to invalidate our intellectual property, either of which, if successful, could disrupt the conduct of our business, cause us to pay significant damage awards or require us to pay licensing fees. In the event of a successful claim against us, we might be enjoined from using our licensed intellectual property, we might incur significant licensing fees and we might be forced to develop alternative technologies. Our failure or inability to develop non-infringing technology or software or to license the infringed or similar technology or software on a timely basis could force us to withdraw products and services from the market or prevent us from introducing new products and services. In addition, even if we are able to license the infringed or similar technology or software, license fees could be substantial and the terms of these licenses could be burdensome, which might adversely affect our operating results. We might also incur substantial expenses in defending against third-party infringement claims, regardless of their merit. Successful infringement or licensing claims against us might result in substantial monetary liabilities and might materially disrupt the conduct of our business.
 
Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement, damages caused by malicious software and other losses.  
 
In the ordinary course of our business, most of our agreements with carriers and other distributors include indemnification provisions. In these provisions, we agree to indemnify them for losses suffered or incurred in connection with our products and services, including as a result of intellectual property infringement and damages caused by viruses, worms and other malicious software. The term of these indemnity provisions is generally perpetual after execution of the corresponding license agreement, and the maximum potential amount of future payments we could be required to make under these indemnification provisions is generally unlimited. Large future indemnity payments could harm our business, operating results and financial condition.
 
As a result of a majority of our revenues currently being derived from a limited number of wireless carriers, if any one of these carriers were unable to fulfill its payment obligations, our financial condition and results of operations would suffer.  
 
If any of our primary carriers is unable to fulfill its payment obligations to us under our carrier agreements with them, our revenues could decline significantly and our financial condition will be harmed.
 
We may need to raise additional capital to grow our business, and we may not be able to raise capital on terms acceptable to us or at all.  
 
The operation of our business and our efforts to grow our business will further require significant cash outlays and commitments. If our cash, cash equivalents and short-term investments balances and any cash generated from operations are not sufficient to meet our cash requirements, we will need to seek additional capital, potentially through debt or equity financings, to fund our growth. We may not be able to raise needed cash on terms acceptable to us or at all. Financings, if available, may be on terms that are dilutive or potentially dilutive to our stockholders, and the prices at which new investors would be willing to purchase our securities may be lower than the fair market value of our common stock. The holders of new securities may also receive rights, preferences or privileges that are senior to those of existing holders of our common stock. If new sources of financing are required but are insufficient or unavailable, we would be required to modify our growth and operating plans to the extent of available funding, which would harm our ability to grow our business.
 
We face risks associated with currency exchange rate fluctuations.  
 
We currently transact a significant portion of our revenues in foreign currencies. Conducting business in currencies other than U.S. Dollars subjects us to fluctuations in currency exchange rates that could have a negative impact on our reported operating results. Fluctuations in the value of the U.S. Dollar relative to other currencies impact our revenues, cost of revenues and operating margins and result in foreign currency transaction gains and losses. To date, we have not engaged in exchange rate hedging activities. Even if we were to implement hedging strategies to mitigate this risk, these strategies might not eliminate our exposure to foreign exchange rate fluctuations and would involve costs and risks of their own, such as ongoing management time and expertise, external costs to implement the strategies and potential accounting implications.
 
Our business in countries with a history of corruption and transactions with foreign governments, including with government owned or controlled wireless carriers, increase the risks associated with our international activities.
 
As we operate and sell internationally, we are subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by the United States and other business entities for the purpose of obtaining or retaining business. We have operations, deal with carriers and make sales in countries known to experience corruption, particularly certain emerging countries in Eastern Europe and Latin America, and further international expansion may involve more of these countries. Our activities in these countries create the risk of unauthorized payments or offers of payments by one of our employees, consultants, sales agents or distributors that could be in violation of various laws including the FCPA, even though these parties are not always subject to our control. We have attempted to implement safeguards to discourage these practices by our employees, consultants, sales agents and distributors. However, our existing safeguards and any future improvements may prove to be less than effective, and our employees, consultants, sales agents or distributors may engage in conduct for which we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition.
14

Changes to financial accounting standards could make it more expensive to issue stock options to employees, which would increase compensation costs and might cause us to change our business practices.  
 
We prepare our financial statements to conform with accounting principles generally accepted in the United States. These accounting principles are subject to interpretation by the Financial Accounting Standards Board, or FASB, the Securities and Exchange Commission (“SEC” or the “Commission”) and various other bodies. A change in those principles could have a significant effect on our reported results and might affect our reporting of transactions completed before a change is announced. For example, we have used stock options as a fundamental component of our employee compensation packages. We believe that stock options directly motivate our employees to maximize long-term stockholder value and, through the use of vesting, encourage employees to remain in our employ. Several regulatory agencies and entities have made regulatory changes that could make it more difficult or expensive for us to grant stock options to employees. We may, as a result of these changes, incur increased compensation costs, change our equity compensation strategy or find it difficult to attract, retain and motivate employees, any of which could materially and adversely affect our business, operating results and financial condition.
 
We may be liable for the content we make available through our products and services with mature themes.
 
Because some of our products and services contain content with mature themes, we may be subject to obscenity or other legal claims by third parties. Our business, financial condition and operating results could be harmed if we were found liable for this content. Implementing measures to reduce our exposure to this liability may require us to take steps that would substantially limit the attractiveness of our products and services and/or its availability in various geographic areas, which would negatively impact our ability to generate revenue. Furthermore, our insurance may not adequately protect us against all of these types of claims.
 
Government regulation of our content with mature themes could restrict our ability to make some of our content available in certain jurisdictions.
 
Our business is regulated by governmental authorities in the countries in which we operate. Because of our international operations, we must comply with diverse and evolving regulations. The governments of some countries have sought to limit the influence of other cultures by restricting the distribution of products deemed to represent foreign or “immoral” influences. Regulation aimed at limiting minors’ access to content with mature themes could also increase our cost of operations and introduce technological challenges, such as by requiring development and implementation of age verification systems. As a result, government regulation of our adult content could have a material adverse effect on our business, financial condition or results of operations.
 
Negative publicity, lawsuits or boycotts by opponents of content with mature themes could adversely affect our operating performance and discourage investors from investing in our publicly traded securities.
 
We could become a target of negative publicity, lawsuits or boycotts by one or more advocacy groups who oppose the distribution of adult-oriented entertainment. These groups have mounted negative publicity campaigns, filed lawsuits and encouraged boycotts against companies whose businesses involve adult - oriented entertainment. To the extent our content with mature themes is viewed as adult-oriented entertainment, the costs of defending against any such negative publicity, lawsuits or boycotts could be significant, could hurt our finances and could discourage investors from investing in our publicly traded securities. To date, we have not been a target of any of these advocacy groups. As a provider of content with mature themes, we cannot assure you that we may not become a target in the future.
 
 Risks Relating to Our Industry
 
Wireless communications technologies are changing rapidly, and we may not be successful in working with these new technologies.  
 
Wireless network and mobile handset technologies are undergoing rapid innovation. New handsets with more advanced processors and supporting advanced programming languages continue to be introduced. In addition, networks that enable enhanced features are being developed and deployed. We have no control over the demand for, or success of, these products or technologies. If we fail to anticipate and adapt to these and other technological changes, the available channels for our products and services may be limited and our market share and our operating results may suffer. Our future success will depend on our ability to adapt to rapidly changing technologies and develop products and services to accommodate evolving industry standards with improved performance and reliability. In addition, the widespread adoption of networking or telecommunications technologies or other technological changes could require substantial expenditures to modify or adapt our products and services.
 
Technology changes in the wireless industry require us to anticipate, sometimes years in advance, which technologies we must implement and take advantage of in order to make our products and services, and other mobile entertainment products, competitive in the market. Therefore, we usually start our product development with a range of technical development goals that we hope to be able to achieve. We may not be able to achieve these goals, or our competition may be able to achieve them more quickly and effectively than we can. In either case, our products and services may be technologically inferior to those of our competitors, less appealing to end users, or both. If we cannot achieve our technology goals within our original development schedule, then we may delay their release until these technology goals can be achieved, which may delay or reduce our revenues, increase our development expenses and harm our reputation. Alternatively, we may increase the resources employed in research and development in an attempt either to preserve our product launch schedule or to keep up with our competition, which would increase our development expenses. In either case, our business, operating results and financial condition could be materially harmed.
15

The complexity of and incompatibilities among mobile handsets may require us to use additional resources for the development of our products and services.  
 
To reach large numbers of wireless subscribers, mobile entertainment publishers like us must support numerous mobile handsets and technologies. However, keeping pace with the rapid innovation of handset technologies together with the continuous introduction of new, and often incompatible, handset models by wireless carriers requires us to make significant investments in research and development, including personnel, technologies and equipment. In the future, we may be required to make substantial investments in our development if the number of different types of handset models continues to proliferate. In addition, as more advanced handsets are introduced that enable more complex, feature rich products and services, we anticipate that our development costs will increase, which could increase the risks associated with one or more of our products or services and could materially harm our operating results and financial condition.
 
If wireless subscribers do not continue to use their mobile handsets to access mobile entertainment and other applications, our business growth and future revenues may be adversely affected.  
 
We operate in a developing industry. Our success depends on growth in the number of wireless subscribers who use their handsets to access data services and, in particular, entertainment applications of the type we develop and distribute. New or different mobile entertainment applications developed by our current or future competitors may be preferred by subscribers to our offerings. In addition, other mobile platforms may become widespread, and end users may choose to switch to these platforms. If the market for our products and services does not continue to grow or we are unable to acquire new end users, our business growth and future revenues could be adversely affected. If end users switch their entertainment spending away from the kinds of offerings that we publish, or switch to platforms or distribution where we do not have comparative strengths, our revenues would likely decline and our business, operating results and financial condition would suffer.
 
Our industry is subject to risks generally associated with the entertainment industry, any of which could significantly harm our operating results.
 
Our business is subject to risks that are generally associated with the entertainment industry, many of which are beyond our control. These risks could negatively impact our operating results and include: the popularity, price and timing of release of our offerings and mobile handsets on which they are accessed; economic conditions that adversely affect discretionary consumer spending; changes in consumer demographics; the availability and popularity of other forms of entertainment; and critical reviews and public tastes and preferences, which may change rapidly and cannot necessarily be predicted.

A shift of technology platform by wireless carriers and mobile handset manufacturers could lengthen the development period for our offerings, increase our costs and cause our offerings to be of lower quality or to be published later than anticipated.  
 
Mobile handsets require multimedia capabilities enabled by technologies capable of running applications such as ours. Our development resources are concentrated in today’s most popular platforms, and we have experience developing applications for these platforms. If one or more of these technologies fall out of favor with handset manufacturers and wireless carriers and there is a rapid shift to a new technology where we do not have development experience or resources, the development period for our products and services may be lengthened, increasing our costs, and the resulting products and services may be of lower quality, and may be published later than anticipated. In such an event, our reputation, business, operating results and financial condition might suffer.
 
System or network failures could reduce our sales, increase costs or result in a loss of end users of our products and services.  
 
Mobile publishers rely on wireless carriers’ networks to deliver products and services to end users and on their or other third parties’ billing systems to track and account for the downloading of such offerings. In certain circumstances, mobile publishers may also rely on their own servers to deliver products on demand to end users through their carriers’ networks. In addition, certain products   require access over the mobile internet to our servers in order to enable certain features. Any failure of, or technical problem with, carriers’, third parties’ or our billing systems, delivery systems, information systems or communications networks could result in the inability of end users to download our products, prevent the completion of a billing transaction, or interfere with access to some aspects of our products. If any of these systems fails or if there is an interruption in the supply of power, an earthquake, fire, flood or other natural disaster, or an act of war or terrorism, end users might be unable to access our offerings. For example, from time to time, our carriers have experienced failures with their billing and delivery systems and communication networks, including gateway failures that reduced the provisioning capacity of their branded e-commerce system. Any failure of, or technical problem with, the carriers’, other third parties’ or our systems could cause us to lose end users or revenues or incur substantial repair costs and distract management from operating our business. This, in turn, could harm our business, operating results and financial condition.
 
Our business depends on the growth and maintenance of wireless communications infrastructure.  
 
Our success will depend on the continued growth and maintenance of wireless communications infrastructure in the United States and internationally. This includes deployment and maintenance of reliable next-generation digital networks with the speed, data capacity and security necessary to provide reliable wireless communications services. Wireless communications infrastructure may be unable to support the demands placed on it if the number of subscribers continues to increase, or if existing or future subscribers increase their bandwidth requirements. Wireless communications have experienced a variety of outages and other delays as a result of infrastructure and equipment failures, and could face outages and delays in the future. These outages and delays could reduce the level of wireless communications usage as well as our ability to distribute our products and services successfully. In addition, changes by a wireless carrier to network infrastructure may interfere with downloads and may cause end users to lose functionality. This could harm our business, operating results and financial condition.
16

Future mobile handsets may significantly reduce or eliminate wireless carriers’ control over delivery of our products and services and force us to rely further on alternative sales channels, which, if not successful, could require us to increase our sales and marketing expenses significantly.  
 
A growing number of handset models currently available allow wireless subscribers to browse the internet and, in some cases, download applications from sources other than through a carrier’s on-deck portal. In addition, the development of other application delivery mechanisms such as premium-SMS may enable subscribers to download applications without having to access a carrier’s on-deck portal. Increased use by subscribers of open operating system handsets or premium-SMS delivery systems will enable them to bypass the carriers’ on-deck portal and could reduce the market power of carriers. This could force us to rely further on alternative sales channels and could require us to increase our sales and marketing expenses significantly. Relying on placement of our products and services in the menus of off-deck distributors may result in lower revenues than might otherwise be anticipated. We may be unable to develop and promote our direct website distribution sufficiently to overcome the limitations and disadvantages of off-deck distribution channels. This could harm our business, operating results and financial condition.
  
Actual or perceived security vulnerabilities in mobile handsets or wireless networks could adversely affect our revenues.  
 
Maintaining the security of mobile handsets and wireless networks is critical for our business. There are individuals and groups who develop and deploy viruses, worms and other illicit code or malicious software programs that may attack wireless networks and handsets. Security experts have identified computer “worm” programs that target handsets running on certain operating systems. Although these worms have not been widely released and do not present an immediate risk to our business, we believe future threats could lead some end users to seek to reduce or delay future purchases of our products or reduce or delay the use of their handsets. Wireless carriers and handset manufacturers may also increase their expenditures on protecting their wireless networks and mobile phone products from attack, which could delay adoption of new handset models. Any of these activities could adversely affect our revenues and this could harm our business, operating results and financial condition.
 
Changes in government regulation of the media and wireless communications industries may adversely affect our business.  
 
It is possible that a number of laws and regulations may be adopted in the United States and elsewhere that could restrict the media and wireless communications industries, including laws and regulations regarding customer privacy, taxation, content suitability, copyright, distribution and antitrust. Furthermore, the growth and development of the market for electronic commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on companies such as ours conducting business through wireless carriers. We anticipate that regulation of our industry will increase and that we will be required to devote legal and other resources to address this regulation. Changes in current laws or regulations or the imposition of new laws and regulations in the United States or elsewhere regarding the media and wireless communications industries may lessen the growth of wireless communications services and may materially reduce our ability to increase or maintain sales of our products and services.
 
A number of studies have examined the health effects of mobile phone use, and the results of some of the studies have been interpreted as evidence that mobile phone use causes adverse health effects. The establishment of a link between the use of mobile phone services and health problems, or any media reports suggesting such a link, could increase government regulation of, and reduce demand for, mobile phones and, accordingly, the demand for our products and services, and this could harm our business, operating results and financial condition.
 
Risks Relating to Our Common Stock
 
There is a limited trading market for our common stock.
 
Although prices for our shares of common stock are quoted on the OTC Bulletin Board (under the symbol MNDL.OB), there is no established public trading market for our common stock, and no assurance can be given that a public trading market will develop or, if developed, that it will be sustained.
 
The liquidity of our common stock will be affected by its limited trading market.
 
Bid and ask prices for shares of our common stock are quoted on the OTC Bulletin Board under the symbol MNDL.OB. There is currently no broadly followed, established trading market for our common stock. While we are hopeful that, following the Merger, we will command the interest of a greater number of investors, an established trading market for our shares of common stock may never develop or be maintained. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders. The absence of an active trading market reduces the liquidity of our common stock. As a result of the lack of trading activity, the quoted price for our common stock on the OTC Bulletin Board is not necessarily a reliable indicator of its fair market value. Further, if we cease to be quoted, holders of our common stock would find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our common stock, and the market value of our common stock would likely decline.
17

If and when a trading market for our common stock develops, the market price of our common stock is likely to be highly volatile and subject to wide fluctuations, and you may be unable to resell your shares at or above the current price.
 
The market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including announcements of new products or services by our competitors. In addition, the market price of our common stock could be subject to wide fluctuations in response to a variety of factors, including:

 
·
quarterly variations in our revenues and operating expenses;
 
 
 
 
·
developments in the financial markets, and the worldwide or regional economies;
 
 
 
 
·
announcements of innovations or new products or services by us or our competitors;
 
 
 
 
·
fluctuations in merchant credit card interest rates;
 
 
 
 
·
significant sales of our common stock or other securities in the open market; and
 
 
 
 
·
changes in accounting principles.

In the past, stockholders have often instituted securities class action litigation after periods of volatility in the market price of a company’s securities. If a stockholder were to file any such class action suit against us, we would incur substantial legal fees and our management’s attention and resources would be diverted from operating our business to respond to the litigation, which could harm our business.
 
The sale of securities by us in any equity or debt financing could result in dilution to our existing stockholders and have a material adverse effect on our earnings.
 
Any sale of common stock by us in a future private placement offering could result in dilution to the existing stockholders as a direct result of our issuance of additional shares of our capital stock. In addition, our business strategy may include expansion through internal growth by acquiring complementary businesses, acquiring or licensing additional brands, or establishing strategic relationships with targeted customers and suppliers. In order to do so, or to finance the cost of our other activities, we may issue additional equity securities that could dilute our stockholders’ stock ownership. We may also assume additional debt and incur impairment losses related to goodwill and other tangible assets if we acquire another company, and this could negatively impact our earnings and results of operations.
 
If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our common stock, our stock price and trading volume could decline.
 
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If any of the analysts who cover us downgrade our common stock, our common stock price would likely decline. If analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our common stock price or trading volume to decline.
 
“Penny stock” rules may restrict the market for our common stock.  
 
Our common stock is subject to rules promulgated by the SEC relating to “penny stocks,” which apply to companies whose shares are not traded on a national stock exchange, trade at less than $5.00 per share, or who do not meet certain other financial requirements specified by the SEC. These rules require brokers who sell “penny stocks” to persons other than established customers and “accredited investors” to complete certain documentation, make suitability inquiries of investors, and provide investors with certain information concerning the risks of trading in such penny stocks. These rules may discourage or restrict the ability of brokers to sell our common stock and may affect the secondary market for our common stock. These rules could also hamper our ability to raise funds in the primary market for our common stock.
 
If we fail to maintain an effective system of internal controls, we might not be able to report our financial results accurately or prevent fraud; in that case, our stockholders could lose confidence in our financial reporting, which could negatively impact the price of our stock.  
 
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. In addition, Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, will require us to evaluate and report on our internal control over financial reporting and have our independent registered public accounting firm attest to our evaluation beginning with our Annual Report on Form 10-K for the year ending March 31, 2009. We are in the process of preparing and implementing an internal plan of action for compliance with Section 404 and strengthening and testing our system of internal controls to provide the basis for our report. The process of implementing our internal controls and complying with Section 404 will be expensive and time - consuming, and will require significant attention of management. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Even if we conclude, and our independent registered public accounting firm concurs, that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we or our independent registered public accounting firm discover a material weakness or a significant deficiency in our internal control, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our stock price. In addition, a delay in compliance with Section 404 could subject us to a variety of administrative sanctions, including ineligibility for short form resale registration, action by the SEC, and the inability of registered broker-dealers to make a market in our common stock, which could further reduce our stock price and harm our business.
18

We do not anticipate paying dividends.  
 
We have never paid cash or other dividends on our common stock. Payment of dividends on our common stock is within the discretion of our Board of Directors and will depend upon our earnings, our capital requirements and financial condition, and other factors deemed relevant by our Board of Directors. However, the earliest our Board of Directors would likely consider a dividend is if we begin to generate excess cash flow.
 
Our officers, directors and principal stockholders can exert significant influence over us and may make decisions that are not in the best interests of all stockholders.
 
Our officers, directors and principal stockholders (greater than 5% stockholders) collectively beneficially own approximately 71% of our outstanding common stock. As a result, this group will be able to affect the outcome of, or exert significant influence over, all matters requiring stockholder approval, including the election and removal of directors and any change in control. In particular, this concentration of ownership of our common stock could have the effect of delaying or preventing a change of control of us or otherwise discouraging or preventing a potential acquirer from attempting to obtain control of us. This, in turn, could have a negative effect on the market price of our common stock. It could also prevent our stockholders from realizing a premium over the market prices for their shares of common stock. Moreover, the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders, and, accordingly, this group could cause us to enter into transactions or agreements that we would not otherwise consider.
 
Maintaining and improving our financial controls and the requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified members for our Board of Directors.  
 
As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Sarbanes-Oxley Act. The requirements of these rules and regulations will increase our legal, accounting and financial compliance costs, will make some activities more difficult, time-consuming and costly and may also place undue strain on our personnel, systems and resources.
 
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. This can be difficult to do. For example, we depend on the reports of wireless carriers for information regarding the amount of sales of our products and services and to determine the amount of royalties we owe branded content licensors and the amount of our revenues. These reports may not be timely, and in the past they have contained, and in the future they may contain, errors.
 
In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we will need to expend significant resources and provide significant management oversight. We have a substantial effort ahead of us to implement appropriate processes, document our system of internal control over relevant processes, assess their design, remediate any deficiencies identified and test their operation. As a result, management’s attention may be diverted from other business concerns, which could harm our business, operating results and financial condition. These efforts will also involve substantial accounting-related costs.
 
The Sarbanes-Oxley Act will make it more difficult and more expensive for us to maintain directors’ and officers’ liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to maintain coverage. If we are unable to maintain adequate directors’ and officers’ insurance, our ability to recruit and retain qualified directors, and officers will be significantly curtailed.
 
ITEM 2.
PROPERTIES
 
The principal offices of the Registrant are the offices of Trinad Capital, L.P., located at 2121 Avenue of the Stars, Suite 2550, Los Angeles, California 90067. In March 2007, we entered into a month-to-month lease for such office space with Trinad Management, LLC (“Trinad Management”) for rent in the amount of $8,500 per month.
 
The principal offices of our sole operating subsidiary, Twistbox, are headquartered at 14242 Ventura Boulevard, 3rd Floor, Sherman Oaks, California 91423. On July 1, 2005, the WAAT Corp. (Twistbox’s predecessor-in-interest) entered into a lease for these premises with Berkshire Holdings, LLC at a base rent of $21,000 per month. The term of the lease expires on July 15, 2010. Twistbox also leases additional space on  a month to month basis at the same location for an additional $9,000 per month. The term of the lease expires on July 15, 2010. Twistbox also leases property  in Dortmund, Germany and Poland, where it has branch operations.
19

 
ITEM 3.
LEGAL PROCEEDINGS
 
As of the date of filing this Transition Report on Form 10-KT, we are not a party to any litigation that we believe would have a material adverse effect on us.
 
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
None.
 
PART II
 
ITEM 5.
 
Market Information
 
As of July 10, 2008, the closing price of our common stock was $2.75.
 
Our common stock is quoted on the OTC Bulletin Board under the symbol “MNDL.OB.” Any investor who purchases our common stock is not likely to find any liquid trading market for our common stock and there can be no assurance that any liquid trading market will develop.
 
The following table reflects the high and low closing quotations of our common stock for periods indicated. The quotations reflect last sale closing price on a daily basis and reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
 

 
 
High 
 
Low 
 
Three Months Ended March 31, 2008*
 
 
 
 
 
First quarter
 
$
6.50
 
$
2.40
 
 
Year Ended December 31, 2007
   
   
 
First quarter
 
$
2.50
 
$
1.75
 
Second quarter
 
$
3.00
 
$
1.90
 
Third quarter
 
$
4.00
 
$
2.25
 
Fourth quarter
 
$
4.50
 
$
2.30
 
 
Year Ended December 31, 2006
   
   
 
First quarter
 
$
N/A
 
$
N/A
 
Second quarter
 
$
5.75
 
$
0.40
 
Third quarter
 
$
2.05
 
$
1.25
 
Fourth quarter
 
$
2.05
 
$
2.00
 

_____________
*    We changed our fiscal year end to March 31, effective March 31, 2008. Accordingly, our fiscal period ended March 31, 2008 was comprised of only one fiscal quarter.

There has never been a public trading market for any of our securities other than our common stock.
 
Holders
 
As of July 10, 2008, there were 549 holders of record of our common stock. There were also an undetermined number of holders who hold their stock in nominee or “street” name.
 
Dividends
 
We have not declared cash dividends on our common stock since our inception and we do not anticipate paying any cash dividends in the foreseeable future.
 
20

Equity Compensation Plan Information  
 
The following table sets forth information concerning our equity compensation plans as of March 31, 2008.
 
Plan Category 
   
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a) 
   
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b) 
   
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c) 
 
                     
Equity compensation plans approved by security holders
   
4,351,864
 
$
3.86
   
2,698,136
 
 
             
Equity compensation plans not approved by security holders
   
0
   
0
   
0
 
 
             
Total
   
4,351,864
 
$
3.86
   
2,698,136
 

 
(1) The table above does not include options to purchase an aggregate of 2,463,472 shares of the Company’s common stock pursuant to the Twistbox 2006 Stock Incentive Plan, at a weighted average exercise price of $0.64, which were assumed by the Company in connection with the Merger.
 
 
RECENT SALES OF UNREGISTERED SECURITIES

On July 24, 2007, pursuant to a subscription agreement, we sold an aggregate of 5,000,000 shares of our common stock, at $0.50 per share, for an aggregate price of $2,500,000. The issuance of the shares was made in reliance on the exemption from registration pursuant to Section 4(2) of the Securities Act.
 
Pursuant to the Merger, we issued 10,180,292 shares of Mandalay common stock as part of the merger consideration in connection with the Merger. The issuance of the shares was made in reliance on the exemption from registration pursuant to Section 4(2) of the Securities Act.

On May 28, 2008, pursuant to a subscription agreement, we issued 25,000 shares of our common stock to Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (“Mintz Levin”) for an aggregate price of $100,000, of which we acknowledged receipt by a reduction in legal fees owed by us to Mintz Levin. The issuance of the shares was made in reliance on the exemption from registration pursuant to Section 4(2) of the Securities Act.
 

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

Not applicable as we are a smaller reporting company.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion should be read in conjunction with, and is qualified in its entirety by, the Financial Statements and the Notes thereto included in this report. This discussion contains certain forward-looking statements that involve substantial risks and uncertainties. When used in this Transition Report on Form 10-KT, the words “anticipate,” “believe,” “estimate,” “expect” and similar expressions, as they relate to our management or us, are intended to identify such forward-looking statements. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements as a result of a variety of factors including those set forth under “Risk Factors” beginning on page 6 and elsewhere in this filing. Historical operating results are not necessarily indicative of the trends in operating results for any future period.
 
Unless the context otherwise indicates, the use of the terms “we,” “our” or “us” refers to the business and operations of Mandalay Media, Inc. through its sole operating and wholly-owned subsidiary, Twistbox Entertainment, Inc.
 
Historical Operations of Mandalay Media, Inc.
 
Mandalay was originally incorporated in the State of Delaware on November 6, 1998 under the name eB2B Commerce, Inc. On April 27, 2000, Mandalay merged into DynamicWeb Enterprises Inc., a New Jersey corporation, and changed its name to eB2B Commerce, Inc. On April 13, 2005, Mandalay changed its name to Mediavest, Inc. On November 7, 2007, through a merger, the Company reincorporated in the State of Delaware under the name Mandalay Media, Inc.
21

On October 27, 2004, and as amended on December 17, 2004, Mandalay filed a plan for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the “Plan of Reorganization”). Under the Plan of Reorganization, as completed on January 26, 2005: (1) Mandalay’s net operating assets and liabilities were transferred to the holders of the secured notes in satisfaction of the principal and accrued interest thereon; (2) $400,000 were transferred to a liquidation trust and used to pay administrative costs and certain preferred creditors; (3) $100,000 were retained by Mandalay to fund the expenses of remaining public; (4) 3.5% of the new common stock of Mandalay (140,000 shares) was issued to the holders of record of Mandalay’s preferred stock in settlement of their liquidation preferences; (5) 3.5% of the new common stock of Mandalay (140,000 shares) was issued to common stockholders of record as of January 26, 2005 in exchange for all of the outstanding shares of the common stock of the company; and (6) 93% of the new common stock of Mandalay (3,720,000 shares) was issued to the sponsor of the Plan of Reorganization in exchange for $500,000 in cash. Through January 26, 2005, Mandalay and its subsidiaries were engaged in providing business-to-business transaction management services designed to simplify trading between buyers and suppliers.
 
Prior to February 12, 2008, Mandalay was a public shell company with no operations, and controlled by its significant stockholder, Trinad Capital Master Fund, L.P.
 
SUMMARY OF THE MERGER
 
Mandalay entered into an Agreement and Plan of Merger on December 31, 2007, as subsequently amended by the Amendment to Agreement and Plan of Merger dated February 12, 2008 (the “Merger Agreement”), with Twistbox Acquisition, Inc. (a Delaware corporation and a wholly-owned subsidiary of Mandalay (“Merger Sub”), Twistbox Entertainment, Inc. (“Twistbox”), and Adi McAbian and Spark Captial, L.P., as representatives of the stockholders of Twistbox, pursuant to which Merger Sub would merge with and into Twistbox, with Twistbox as the surviving corporation (the “Merger”). The Merger was completed on February 12, 2008.
 
Pursuant to the Merger Agreement, upon the completion of the Merger, each outstanding share of Twistbox common stock, $0.001 par value per share, on a fully-converted basis, with the conversion on a one-for-one basis of all issued and outstanding shares of the Series A Convertible Preferred Stock of Twistbox and the Series B Convertible Preferred Stock of Twistbox, each $0.01 par value per share (the “Twistbox Preferred Stock”), converted automatically into and became exchangeable for Mandalay common stock in accordance with certain exchange ratios set forth in the Merger Agreement. In addition, by virtue of the Merger, each outstanding Twistbox option to purchase Twistbox common stock issued pursuant to the Twistbox 2006 Stock Incentive Plan was assumed by Mandalay, subject to the same terms and conditions as were applicable under such plan immediately prior to the Merger, except that (a) the number of shares of Mandalay common stock issuable upon exercise of each Twistbox option was determined by multiplying the number of shares of Twistbox common stock that were subject to such Twistbox option immediately prior to the Merger by 0.72967 (the “Option Conversion Ratio”), rounded down to the nearest whole number; and (b) the per share exercise price for the shares of Mandalay common stock issuable upon exercise of each Twistbox option was determined by dividing the per share exercise price of Twistbox common stock subject to such Twistbox option, as in effect prior to the Merger, by the Option Conversion Ratio, subject to any adjustments required by the Internal Revenue Code. As part of the Merger, Mandalay also assumed all unvested Twistbox options. The merger consideration consisted of an aggregate of up to 12,325,000 shares of Mandalay common stock, which included the conversion of all shares of Twistbox capital stock and the reservation of 2,144,700 shares of Mandalay common stock required for assumption of the vested Twistbox options. Mandalay reserved an additional 318,772 shares of Mandalay common stock required for the assumption of the unvested Twistbox options. All warrants to purchase shares of Twistbox common stock outstanding at the time of the Merger were terminated on or before the effective time of the Merger.
 
Upon the completion of the Merger, all shares of the Twistbox capital stock were no longer outstanding and were automatically canceled and ceased to exist, and each holder of a certificate representing any such shares ceased to have any rights with respect thereto, except the right to receive the applicable merger consideration. Additionally, each share of the Twistbox capital stock held by Twistbox or owned by Merger Sub, Mandalay or any subsidiary of Twistbox or Mandalay immediately prior to the Merger, was canceled and extinguished as of the completion of the Merger without any conversion or payment in respect thereof. Each share of common stock, $0.001 par value per share, of Merger Sub issued and outstanding immediately prior to the Merger was converted upon completion of the Merger into one validly issued, fully paid and non-assessable share of common stock, $0.001 par value per share, of the surviving corporation.
 
As part of the Merger, Mandalay agreed to guarantee up to $8,250,000 of Twistbox’s outstanding debt to ValueAct SmallCap Master Fund L.P. (“ValueAct”), with certain amendments. On July 30, 2007, Twistbox had entered into a Securities Purchase Agreement by and among Twistbox, the Subsidiary Guarantors (as defined therein) and ValueAct,  pursuant to which ValueAct purchased a note in the amount of $16,500,000 (the “Note”) and a warrant which entitled ValueAct to purchase from Twistbox up to a total of 2,401,747 shares of Twistbox’s common stock (the “Warrant”).  In connection therewith, Twistbox and ValueAct had also entered into a Guarantee and Security Agreement by and among Twistbox, each of the subsidiaries of Twistbox, the Investors, as defined therein, and ValueAct, as collateral agent, pursuant to which the parties agreed that the Note would be secured by substantially all of the assets of Twistbox and its subsidiaries. In connection with the Merger, the Warrant was terminated and we issued two warrants in place thereof to ValueAct to purchase shares of our common stock. One of such warrants entitles ValueAct to purchase up to a total of 1,092,622 shares of  our common stock at an exercise price of $7.55 per share. The other warrant entitles ValueAct to purchase up to a total of 1,092,621 shares of  our common stock at an initial exercise price of $5.00 per share, which, if not exercised in full by February 12, 2009, will be permanently increased to an exercise price of $7.55 per share.  Both  warrants expire on July 30, 2011. We also entered into a Guaranty with ValueAct whereby Mandalay agreed to guarantee Twistbox’s payment to ValueAct of up to $8,250,000 of principal under the Note in accordance with the terms, conditions and limitations contained in the Note. The financial covenants of the Note were also amended,  pursuant to which Twistbox is required maintain a cash balance of not less than $2,500,000 at all times and Mandalay is required to maintain a cash balance of not less than $4,000,000 at all times. See “Notes to Consolidated Financial Statements -  Note 6.”
22

Effective as of the closing of the Merger, Ian Aaron and Adi McAbian were appointed to our Board of Directors.

In connection with the Merger, on March 31, 2008, the Board of Directors approved a change in the Company’s fiscal year end from December 31 to March 31 in Board of Directors order to conform to the fiscal year end of Twistbox.
 
Overview
 
As of February 12, 2008, our operations are currently those of our wholly-owned, sole operating subsidiary, Twistbox Entertainment, Inc. (“Twistbox”). Twistbox is a global publisher and distributor of branded entertainment content, including images, video, TV programming and games, for Third Generation (3G) mobile networks. Twistbox publishes and distributes its content in over 40 countries representing more than one billion subscribers. Operating since 2003, Twistbox has developed an intellectual property portfolio unique to its target demographic (18 to 35 year old) that includes worldwide exclusive (or territory exclusive) mobile rights to global brands and content from leading film, television and lifestyle content publishing companies. Twistbox has built a proprietary mobile publishing platform that includes: tools that automate handset portability for the distribution of images and video; a mobile games development suite that automates the porting of mobile games and applications to over 1,500 handsets; and a content standards and ratings system globally adopted by major wireless carriers to assist with the responsible deployment of age-verified content. Twistbox has leveraged its brand portfolio and platform to secure “direct” distribution agreements with the largest mobile operators in the world, including, among others, AT&T, Hutchinson 3G, O2, MTS, Orange, T-Mobile, Telefonica, Verizon and Vodafone. Twistbox has experienced annual revenue growth in excess of 50% over the past two years and expects to become one of the leading players in the rapidly-growing, multibillion-dollar mobile entertainment market.
 
Twistbox maintains a worldwide distribution agreement with Vodafone. Through this relationship, Twistbox serves as Vodafone’s exclusive supplier of late night content, a portion of which is age-verified. Additionally, Twistbox is one of the select few content aggregators for Vodafone. Twistbox aggregates content from leading entertainment companies and manages distribution of this content to Vodafone. Additionally, Twistbox maintains distribution agreements with other leading mobile network operators throughout the North American, European, and Asia-Pacific regions that include Verizon, Virgin Mobile, T-Mobile, Telefonica, Hutchinson 3G, Three, O2 and Orange.
 
Twistbox’s intellectual property encompasses over 75 worldwide exclusive or territory exclusive content licensing agreements that cover all of its key content genres including lifestyle, glamour, and celebrity news and gossip for U.S. Hispanic and Latin American markets, poker news and information, late night entertainment and casual games.
 
Twistbox currently has content live on more than 100 network operators in 40 countries. Through these relationships, Twistbox can currently reach over one billion mobile subscribers worldwide. Its existing content portfolio includes 300 WAP sites, 250 games and 66 mobile TV channels.
 
In addition to its content publishing business, Twistbox operates a rapidly growing suite of Premium Short Message Service (Premium SMS) services that include text and video chat and web2mobile marketing services of video, images and games that are promoted through on-line, magazine and TV affiliates. The Premium SMS infrastructure essentially allows end consumers of Twistbox content to pay for their content purchases directly from their mobile phone bills.
 
Twistbox’s end-users are the highly-mobile, digitally-aware 18 to 35 year old demographic. This group is a major consumer of digital entertainment services and commands significant amounts of disposable income. In addition, this group is very focused on consumer lifestyle brands and is much sought after by advertisers.

Comparison of the Year Ended December 31, 2006 and 2007

Operating Expenses
 
   
 Year Ended December 31,
 
   
 2007
 
2006
 
   
 (In thousands)
 
               
General and Administrative Expenses
 
$
2,521
 
$
553
 
 
Prior to the Merger, Mandalay was a public shell company with no operations, and as a result the only activity in both years represents expenses incurred in developing the company. In both years, General and Administrative expenses consisted primarily of consulting and professional fees, accounting and legal expenses and employee-related expenses, including stock based compensation. The increase in 2007 over 2006 is primarily the result of employing executive management for the Company, and a significant increase in legal and other professional fees, as the Company began to explore strategic alternatives.

Other Expenses
 
   
 Year Ended December 31,
 
   
 2007
 
2006
 
   
 (In thousands)
 
            
Interest and other income (expense)
 
$
317
 
$
 

Other Expenses in 2007 consisted entirely of interest income earned.

23

Comparison of the Three Months Ended March 31, 2008 and 2007

Revenues
 
   
 Three Months Ended March 31,
 
   
 2008
 
2007
 
   
 (In thousands)
 
Revenues by type:
          
            
Games 
 
$
598
 
$
 
Other content 
   
2,610
   
 
 Total
 
$
3,208
   
 

The Company had no operations in 2007 and consequently no revenues. Revenues in 2008 related to the post-acquisition revenues of Twistbox, which was acquired during the period. Games revenue includes both licensed and internally developed games for use on mobile phones. Other content includes a broad range of primarily licensed product delivered in the form of WAP, Video, Wallpaper and Mobile TV.

Cost of Revenues

   
 Three Months Ended March 31,
 
   
 2008
 
2007
 
   
 (In thousands)
 
Cost of Revenues:
          
            
License Fees 
 
$
1,539
 
$
 
Adjustment to impairment of guarantees 
   
(1,745
)
 
 
Other direct cost of revenues 
   
53
   
 
 Total Cost of Revenues
 
$
(153
)
$
 
 Revenues
   
3,208
 
$
 


The Company had no operations in 2007 and consequently no cost of revenues. Cost of revenues in 2008 related to the post-acquisition revenues of Twistbox, which was acquired during the period. License fees represent costs payable to content providers for use of their intellectual property in products sold. The adjustment to impairment of guarantees relates to the reassessment of the impairment reserve for guarantees payable under content provider contracts. The partial reversal is largely the result of a major content provider contract which was renegotiated during the period. Other direct cost of revenues includes amortization of the intangibles identified as part of the purchase price accounting and attributed to cost of revenues.
 
Operating Expenses
 
   
 Three Months Ended March 31,
 
   
 2008
 
2007
 
   
 (In thousands)
 
Product Development Expenses
 
$
946
 
$
 
Sales and Marketing Expenses
   
891
   
 
General and Administrative Expenses
   
1,467
   
264
 
Amortization of Intangible Assets
   
72
   
 

Prior to the Merger, Mandalay was a public shell company with no operations, and as a result the only activity in 2007 represents expenses incurred in developing the Company. In both years, General and Administrative expenses consisted primarily of consulting and professional fees, accounting and legal expenses and employee related expenses including stock based compensation. The increase in 2007 over 2006 is primarily the result of employing executive management for the company, a significant increase in legal and other professional fees, and the addition of Twistbox expenses subsequent to the merger. Product Development and Sales and Marketing Expenses represent the operating expenses of Twistbox post-acquisition. Amortization of Intangibles represents amortization of the intangibles identified as part of the purchase price accounting and attributed to operating expenses.
24

Other Expenses


   
 Three Months Ended March 31,
 
   
 2008
 
2007
 
   
 (In thousands)
 
Interest and other income (expense)
 
$
(267
)
$
 
 
Interest and other income (expense) includes interest income on invested funds, interest expense related the Twistbox’s senior secured note, foreign exchange transaction gains and losses, and depreciation expense.
 
Liquidity and Capital Resources
 
            
Three Months Ended
 
   
 Year Ended December 31,
 
March 31,
 
   
 2007
 
2006
 
2008
 
   
 (In thousands)
 
(In thousands)
 
Consolidated Statement of Cash Flows Data:
              
                
Capital expenditures 
   
   
   
(103
)
Cash flows used in operating activities 
   
(819
)
 
(418
)
 
(2,482
)
Cash flows (used in)/ provided by investing activities 
   
(141
)
 
   
6,152
 
Cash flows provided by financing activities 
   
2,473
   
6,157
   
 

Prior to the Merger, Mandalay was a public shell company with no operations. Twistbox has incurred losses and negative annual cash flows since inception. The primary sources of funding have historically been the issuance of common and preferred stock, and 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 years ended December 31, 2006 and 2007, operating expense consisted solely of employee compensation and other general and administrative expenses. In the period ended March 31, 2008, we used $2.5 million of net cash in operating expenses. This primarily related to an increase in receivables of $1.4 million and a decrease in accrued license fees of $2.0 million, partially offset by increases in accounts payable and other liabilities.
 
Investing Activities

In the year ended December 31, 2007, investing expenses consisted solely of prepaid acquisition costs. In the period ended March 31, 2008, investing activities provided $6.2 million of net cash, primarily related to cash acquired with the acquisition of Twistbox.

Financing Activities

Net cash provided by financing activities represented proceeds from the sales of common stock in the years ended December 31, 2006 and 2007 and preferred stock in the year ended December 31, 2006.

On August 3, 2006, we increased our authorized shares of common stock from 19,000,000 to 100,000,000 and authorized and effectuated a 2.5 to 1 stock split of our common stock to increase our outstanding shares from 4,000,000 to 10,000,000. All share and per share amounts have been retroactively adjusted to reflect the effect of the stock split.
 
On September 14, 2006, we sold 2,800,000 units; on October 12, 2006, we sold 3,400,000 units; and on December 26, 2006, we sold 530,000 units. Each unit sold, at a price per unit of $1.00, consisted of one share of our common stock and one warrant to purchase one share of our common stock. We realized net proceeds of $6,057,000 after the costs of the offering. The warrants are currently exercisable and have an exercise price of $2.00 per share and expire as follows: 2,800,000 warrants expire in September 2008; 3,400,000 warrants expire in October 2008; and 530,000 warrants expire in December 2008.
25

On October 12, 2006, we entered into a Series A Convertible Preferred Stock Purchase Agreement with Trinad Management, LLC (“Trinad Management”). Pursuant to the terms of the agreement, Trinad Management purchased 100,000 shares of our Series A Convertible Preferred Stock, par value $ 0.0001 per share (“Series A Preferred Stock”), for an aggregate purchase price of $100,000. Series A Preferred stockholders are entitled to convert, at their option, all or any shares of the Series A Preferred Stock into the number of fully paid and non-assessable shares of common stock equal to the number obtained by dividing the original purchase price of such Series A Preferred Stock, plus the amount of any accumulated but unpaid dividends as of the conversion date, by the original purchase price (subject to certain adjustments) in effect at the close of business on the conversion date. The fair value of the 100,000 shares of our common stock underlying the Series A Convertible Preferred Stock was $1.425 per share at the date of grant. Since the value was $0.425 lower than the fair value of our common stock on October 12, 2006, the $42,500 intrinsic value of the conversion option resulted in the reduction of stockholders’ equity for the recognition of a preferred stock dividend and an increase to additional paid-in capital.
 
On July 24, 2007, we entered into a Subscription Agreement with certain investors, pursuant to which such investors agreed to subscribe for an aggregate of 5,000,000 shares of our common stock. Each share of common stock was sold at the price of $0.50, for an aggregate purchase price of $2,500,000.
 
On November 7, 2007, we entered into non-qualified stock option agreements with certain of our directors and officers (the “Option Holders”) pursuant to our 2007 Employee, Director and Consultant Stock Plan (the “2007 Plan”), whereby we issued options (the “Options”) to purchase an aggregate of 1,500,000 shares of our common stock. The Option Holders included James Lefkowitz, President of the Company, Robert Zangrillo, a director of the Company, and Bruce Stein, a director of the Company and our Chief Executive Officer as of March 7, 2008, each of whom was granted an Option to purchase 500,000 shares in connection with services provided to the Company. The Options have a ten-year term and are exercisable at a price of $2.65 per share. On November 14, 2007, we entered into a non-qualified stock option agreement with Richard Spitz, a director of the Company, whereby we issued an option to purchase 100,000 shares of its common stock.  The options granted to Mr. Spitz have a ten-year term and are exercisable at a price of $2.50 per share. The Options for Messrs. Zangrillo, Stein and Spitz become exercisable over a two-year period, with one-third of the Options granted vesting immediately upon grant, an additional one-third vesting on the first anniversary thereafter and the remaining one-third on the second anniversary thereafter. The Options for Mr. Lefkowitz also become exercisable over a two-year period, with one-third of the Options granted vesting immediately upon grant, an additional one-third vesting on June 28, 2008 and the remainder vesting on June 28, 2009. The Options were granted pursuant to the exemption from registration permitted under Rule 506 of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”).
 
On January 2, 2008, we granted Mr. Stein additional options to purchase 50,000 shares of our common stock. The options have a ten-year term and are exercisable at a price of $4.65 per share. One-third of the options granted were immediately exercisable upon grant, an additional one-third will vest on November 7, 2008 and the remaining one-third will vest on November 7, 2009. The options were granted pursuant to the exemption from registration permitted under Rule 506 of Regulation D of the Securities Act.
 
As described above, pursuant to the Merger, we issued 10,180,292 shares of Mandalay common stock as part of the merger consideration in connection with the Merger. Such issuance was made pursuant to the exemption from registration permitted under Section 4(2) of the Securities Act.
 
In addition, also in connection with the Merger, on February 12, 2008, we entered into non-qualified stock option agreements with certain of our directors and officers under the 2007 Plan, as amended, whereby we issued options to purchase an aggregate of 1,700,000 shares of our common stock. Ian Aaron, Chief Executive Officer of Twistbox and a director of Mandalay, Russell Burke, Chief Financial Officer of Twistbox, David Mandell, Executive Vice-President, General Counsel and Corporate Secretary of Twistbox and Patrick Dodd, Senior Vice of Worldwide Sales and Marketing of Twistbox, each of whom received an option to purchase 600,000 shares, 350,000 shares, 450,000 shares and 300,000 shares, respectively, of our common stock. The options have a ten-year term and are exercisable at a price of $4.75 per share. The options become exercisable over a two-year period, with one-third of the options granted vesting immediately upon grant, an additional one-third vesting on the first anniversary of the date of grant, and the remaining one-third on the second anniversary of the date of grant. The options were granted pursuant to the exemption from registration permitted under Rule 506 of Regulation D of the Securities Act.
 
On March 7, 2008, the Company granted Mr. Stein options to purchase an aggregate of 1,001,864 shares of common stock, pursuant to the 2007 Plan, in connection with an amendment to his employment agreement. The options have a ten-year term and are exercisable at a price of $4.25 per share. The options vest as follows: options to purchase 233,830 shares will vest on March 7, 2009, options to purchase 233,830 shares will vest on March 7, 2010 and Options to purchase the remaining 534,204 shares will vest on March 7, 2011. The options were granted pursuant to the exemption from registration permitted under Rule 506 of Regulation D of the Securities Act.
 
As of March 31, 2008, Twistbox had approximately $10,936,000 of cash, and management believes it has sufficient cash to satisfy the Company’s monetary needs for the next twelve months. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these sources are insufficient to satisfy our cash requirements, we may seek to sell additional debt securities or additional equity securities or to obtain a credit facility. The sale of convertible debt securities or additional equity securities could result in additional dilution to our stockholders. The incurrence of increased indebtedness would result in additional debt service obligations and could result in additional operating and financial covenants that would restrict our operations. In addition, there can be no assurance that any additional financing will be available on acceptable terms, if at all.
26

Contractual Obligations
 
The following table is a summary of Twistbox’s contractual obligations as of March 31, 2008:
 
   
Payments due by period
 
       
Less than
         
   
Total
 
1 Year
 
1-3 Years
 
Thereafter
 
   
(In thousands)
 
Long-term debt obligations
 
$
19,470
 
$
1,595
 
$
17,875
 
$
 
Operating lease obligations
   
600
   
272
   
328
   
 
Guaranteed royalties
   
4,713
   
1,923
   
2,760
   
30
 
Capitalized leases and other obligations
   
6,947
   
2,845
   
3,937
   
165
 
 
Debt obligations include interest payments on the loan from ValueAct described above. Operating lease obligations represent noncancelable operating leases for Twistbox’s office facilities in several locations, expiring in various years through 2010. Twistbox has entered into license agreements with various owners of brands and other intellectual property so that we could develop and publish branded products for mobile handsets. Pursuant to some of these agreements, we are required to pay minimum royalties over the term of the agreements regardless of actual sales. Capitalized leases and other obligations include payments to various distribution providers, technical providers and employees for agreements with initial terms greater than one year at December 31, 2007.
 
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.
 
Revenues
 
The discussion herein regarding our future operations pertain to the results and operations of Twistbox, which became our wholly-owned and sole operating subsidiary as of February 12, 2008. Twistbox has historically generated and expects to continue to generate the vast majority of its revenues from mobile phone carriers that market and distribute its content. These carriers generally charge a one-time purchase fee or a monthly subscription fee on their subscribers’ phone bills when the subscribers download Twistbox’s content and games to their mobile phones. The carriers perform the billing and collection functions and generally remit to Twistbox a contractual percentage of their collected fee for each game. Twistbox recognizes as revenues the percentage of the fees due to it from the carrier. End users may also initiate the purchase of Twistbox’s content and games through various Internet portal sites or through other delivery mechanisms, with carriers or third parties being responsible for billing, collecting and remitting to Twistbox a portion of their fees. To date, Twistbox’s international revenues have been much more significant than its domestic revenues, although the domestic market is growing quickly.
 
We believe that improving quality and greater availability of 2.5 and 3G handsets is in turn encouraging consumer awareness and demand for high quality content on their mobile devices. At the same time, carriers and branded content owners are focusing on a small group of publishers that have the ability to provide high-quality mobile content consistently and port it rapidly and cost-effectively to a wide variety of handsets. Additionally, branded content owners are seeking publishers that have the ability to distribute content globally through relationships with most or all of the major carriers. We believe Twistbox has created the requisite development and porting technology and has achieved the scale to operate at this level. We also believe that leveraging carrier and content owner relationships will allow us to grow our revenues without corresponding percentage growth in our infrastructure and operating costs. Our revenue growth rate will depend significantly on continued growth in the mobile content market and our ability to leverage our distribution and content relationships, as well as to continue to expand. Our ability to attain profitability will be affected by the extent to which we must incur additional expenses to expand our sales, marketing, development, and general and administrative capabilities to grow our business. The largest component of our expenses is personnel costs. Personnel costs consist of salaries, benefits and incentive compensation, including bonuses and stock-based compensation, for our employees. Our operating expenses will continue to grow in absolute dollars, assuming our revenues continue to grow. As a percentage of revenues, we expect these expenses to decrease.
 
Many new mobile handset models are released in the fourth calendar quarter to coincide with the holiday shopping season. Because many end users download our content soon after they purchase new handsets, we may experience seasonal sales increases based on this key holiday selling period. However, due to the time between handset purchases and content purchases, much of this holiday impact may occur in our March quarter. For a variety of reasons, we may experience seasonal sales decreases during the summer, particularly in Europe, which is predominantly reflected in our September quarter. In addition to these possible seasonal patterns, our revenues may be impacted by new or changed carrier deals, and by changes in the manner that our major carrier partners marketing our content on their deck. Initial spikes in revenues as a result of successful launches or campaigns may create further aberrations in our revenue patterns.
27

Cost of Revenues
 
Twistbox’s cost of revenues historically, and our cost of revenues going forward, consists primarily of royalties that we pay to content owners from which we license brands and other intellectual property. In addition, certain other direct costs such as quality assurance (“QA”) platform services and use of short codes are included in cost of revenues. Our cost of revenues also includes noncash expenses—amortization of certain acquired intangible assets, and any impairment of guarantees. We generally do not pay advance royalties to licensors. Where we acquire rights in perpetuity or for a specific time period without revenue share or additional fees, we record the payments made to content owners as prepaid royalties on our balance sheet when payment is made to the licensor. We recognize royalties in cost of revenues based upon the revenues derived from the relevant game multiplied by the applicable royalty rate. If applicable, we will record an impairment of prepaid royalties or accrue for future guaranteed royalties that are in excess of anticipated recoupment. At each balance sheet date, we perform a detailed review of prepaid royalties and guarantees that considers multiple factors, including forecasted demand, anticipated share for specific content providers, development and launch plans, and current and anticipated sales levels. We expense the costs for development of our content prior to technological feasibility as we incur them throughout the development process, and we include these costs in product development expenses.
 
Gross Margin
 
Our gross margin going forward will be determined principally by the mix of content that we deliver. Our content and games based on licensed intellectual property require us to pay royalties to the licensor and the royalty rates in our licenses vary significantly. Our own in-house developed content and games, which are based on our own intellectual property, require no royalty payments to licensors. For late night business, branded content requires royalty payment to the licensors, generally on a revenue share basis, while for acquired content we amortize the cost against revenues, and this will generally result in a lower cost associated with it. There are multiple internal and external factors that affect the mix of revenues between games and late night content, and among licensed, developed and acquired content within those categories, including the overall number of licensed games and developed games available for sale during a particular period, the extent of our and our carriers’ marketing efforts for each type of content, and the deck placement of content on our carriers’ mobile handsets. We believe the success of any individual product or game during a particular period is affected by the recognizability of the title, its quality, its marketing and media exposure, its overall acceptance by end users and the availability of competitive games. In the case of Play for Prizes games, this is further impacted by its suitability to “tournament” play and the prizes available. For other content, we believe that success is driven by the carrier’s deck placement, the rating of the content, by quality and by brand recognition. If our product mix shifts more to licensed games or games with higher royalty rates, our gross margin would decline. For other content as we increase scale, we believe that we will have the opportunity to move the mix towards higher margin acquired product. Our gross margin is also affected by direct costs such as charges for mobile phone short codes, and QA, and by periodic charges for impairment of intangible assets and of prepaid royalties and guarantees. These charges can cause gross margin variations, particularly from quarter to quarter.
 
Operating Expenses
 
Our operating expenses going forward will primarily include product development expenses, sales and marketing expenses and general and administrative expenses. Our product development expenses consist primarily of salaries and benefits for employees working on creating, developing, editing, programming, porting, quality assurance, carrier certification and deployment of our content, on technologies related to interoperating with our various mobile phone carriers and on our internal platforms, payments to third parties for developing our content, and allocated facilities costs. We devote substantial resources to the development, supporting technologies, porting and quality assurance of our content. We believe that developing games internally through our own development studios allows us to increase operating margins, leverage the technology we have developed and better control game delivery. Games development may encompass development of a game from concept through deployment or adaptation or rebranding of an existing game. For acquired content, typically we will receive content from our licensors which must be edited for mobile phone users, combined with other appropriate content, and packaged for end consumers. The process is made more complex by the need to deliver content on multiple carriers platforms and across a large number of different handsets.
 
Sales and Marketing. Twistbox’s sales and marketing expenses historically, and our sales and marketing expenses going forward, will consist primarily of salaries, benefits and incentive compensation for sales, business development, project management and marketing personnel, expenses for advertising, trade shows, public relations and other promotional and marketing activities, expenses for general business development activities, travel and entertainment expenses and allocated facilities costs. We expect sales and marketing expenses to increase in absolute terms with the growth of our business and as we further promote our content and expand our carrier network.
  
General and Administrative. Twistbox’s general and administrative expenses historically, and our sales and marketing expenses going forward, will consist primarily of salaries and benefits for general and administrative personnel, consulting fees, legal, accounting and other professional fees, information technology costs and allocated facilities costs. We expect that general and administrative expenses will increase in absolute terms as we hire additional personnel and incur costs related to the anticipated growth of our business and our operation as a public company. We also expect that these expenses will increase because of the additional costs to comply with the Sarbanes-Oxley Act and related regulation, our efforts to expand our international operations and, in the near term, additional accounting costs related to our operation as a public company.
 
Amortization of Intangible Assets. We will record amortization of acquired intangible assets that are directly related to revenue-generating activities as part of our cost of revenues and amortization of the remaining acquired intangible assets, such as customer lists, as part of our operating expenses. We will record intangible assets on our balance sheet based upon their fair value at the time of the Merger. We determined the fair value of the intangible assets based on independent valuation. We will amortize the amortizable intangible assets using the straight-line method over their estimated useful lives of between five and eight years.  
28

Management Changes
 
On August 6, 2007, we increased the size of our Board of Directors to six members and appointed Peter Guber as Co-Chairman of the Board of Directors and a director of the Company and Paul Schaeffer as Vice-Chairman of the Board of Directors and a director of the Company. On November 7, 2007, we increased the size of the Board of Directors to eight members and appointed Robert Zangrillo and Bruce Stein as directors of the Company. On November 14, 2007, we increased the size of our Board of Directors to nine members and appointed Richard Spitz as a director at the Company. 
 
On February 12, 2008, we increased the size of our Board of Directors to eleven members and appointed Ian Aaron and Adi McAbian as directors of the Company.
 
On March 7, 2008, Bruce Stein was appointed as Chief Executive Officer of the Company.
 
On April 9, 2008, David Chazen resigned from our Board of Directors.
 
Estimates and Assumptions
 
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Critical Accounting Policies


Fiscal Year Change

On March 31, 2008, the Board of Directors approved a change in the Company’s fiscal year from December 31 to March 31, effective March 31, 2008. This Transitional Report includes information for the three month transitional period ended March 31, 2008 and for the twelve month periods ended December 31, 2007 and 2006. The unaudited financial information for the three month comparative period  ended March 31, 2007 is as follows:
 
   
3 months ended
 
   
March 31, 2007
 
       
Total revenues
 
$
 
Operating loss
   
(264
)
Net loss
   
(264
)
Basic and diluted net loss per common share
 
$
(0.02
)
Basic and diluted weighted average shares outstanding
 
$
16,730
 
 
Revenue Recognition

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

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

Revenues are recognized from our products, images and games when persuasive evidence of an arrangement exists, the product, image or game has been delivered, the fee is fixed or determinable, and the collection of the resulting receivable is probable. For both perpetual and subscription licenses, management considers a signed license agreement to be evidence of an arrangement with a carrier and a “clickwrap” agreement to be evidence of an arrangement with an end user. For these licenses, Twistbox defines delivery as the download of the product, image or game by the end user. Twistbox estimates revenues from carriers in the current period when reasonable estimates of these amounts can be made. Most carriers only provide detailed sales transaction data on a one to two month lag. Estimated revenue is treated as unbilled receivables until the detailed reporting is received and the revenues can be billed. Some carriers provide reliable interim preliminary reporting and others report sales data within a reasonable time frame following the end of each month, both of which allow Twistbox to make reasonable estimates of revenues and therefore to recognize revenues during the reporting period when the end user licenses the product, image or game. Determination of the appropriate amount of revenue recognized involves judgments and estimates that Twistbox believes are reasonable, but it is possible that actual results may differ from Twistbox’s estimates, and those differences may be material. Twistbox’s estimates for revenues include consideration of factors such as preliminary sales data, carrier-specific historical sales trends, volume of activity on company monitored sites, seasonality, time elapsed from launch of services or product lines, the age of games and the expected impact of newly launched games, successful introduction of new handsets, growth of 3G subscribers by carrier, promotions during the period and economic trends. When Twistbox receives the final carrier reports, to the extent not received within a reasonable time frame following the end of each month, Twistbox records any differences between estimated revenues and actual revenues in the reporting period when Twistbox determines the actual amounts. Revenues earned from certain carriers may not be reasonably estimated. If Twistbox is unable to reasonably estimate the amount of revenues to be recognized in the current period, Twistbox recognizes revenues upon the receipt of a carrier revenue report and when Twistbox’s portion of licensed revenues are fixed or determinable and collection is probable. To monitor the reliability of Twistbox’s estimates, management, where possible, reviews the revenues by country by carrier and by product line on a regular basis to identify unusual trends such as differential adoption rates by carriers or the introduction of new handsets. If Twistbox deems a carrier not to be creditworthy, Twistbox defers all revenues from the arrangement until Twistbox receives payment and all other revenue recognition criteria have been met.
29

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

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

·  
carriers generally have significant control over the types of content that they offer to their subscribers;

·  
carriers are directly responsible for billing and collecting fees from their subscribers, including the resolution of billing disputes;

·  
carriers generally pay Twistbox a fixed percentage of their revenues or a fixed fee for each game;
 
·  
carriers generally must approve the price of Twistbox’s content in advance of their sale to subscribers, and Twistbox’s more significant carriers generally have the ability to set the ultimate price charged to their subscribers; and

·  
Twistbox has limited risks, including no inventory risk and limited credit risk.

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

 Content Provider License Fees and Minimum Guarantees

Twistbox’s royalty expenses consist of fees that it pays to branded content owners for the use of their intellectual property in the development of Twistbox’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.

Twistbox’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, Twistbox 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, Twistbox records an impairment charge to cost of revenues and a liability in the period that impairment is indicated. During the period ended March 31, 2008 this evaluation has resulted in an adjustment to previously recorded charges and the associated liability due to the renegotiation of a significant content provider contract which changed the amount and duration of minimum guarantee payments that the company is obligated to pay. This resulted in a partial reversal of prior impairment charges amounting to $1,745 in the period. This reversal has been included in cost of revenues.
30

Stock-based compensation.

We have applied SFAS No. 123(R) Share-Based Payment (“FAS 123R”) and accordingly, we record stock-based compensation expense for all of our stock-based awards.

Under FAS 123R, we estimate the fair value of stock options granted using the Black-Scholes option pricing model. The fair value for awards that are expected to vest is then amortized on a straight-line basis over the requisite service period of the award, which is generally the option vesting term. The amount of expense recognized represents the expense associated with the stock options we expect to ultimately vest based upon an estimated rate of forfeitures; this rate of forfeitures is updated as necessary and any adjustments needed to recognize the fair value of options that actually vest or are forfeited are recorded.

The Black-Scholes option pricing model, used to estimate the fair value of an award, requires the input of subjective assumptions, including the expected volatility of our common stock and an option’s expected life. As a result, the financial statements include amounts that are based upon our best estimates and judgments relating to the expenses recognized for stock-based compensation.

Reclassification
 
   Certain amounts previously reported as deferred compensation resulting from share based compensation costs with future service periods have been reclassified to additional paid-in capital to conform with the March 31, 2008 presentation.

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

Impairment of Long-Lived Assets and Intangibles

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

Income Taxes
 
We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (“SFAS No. 109”), which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in its financial statements or tax returns. Under SFAS No. 109, the Company determines deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of assets and liabilities along with net operating losses, if it is more likely than not the tax benefits will be realized using the enacted tax rates in effect for the year in which it expects the differences to reverse. To the extent a deferred tax asset cannot be recognized, a valuation allowance is established if necessary.

We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement 109 (“FIN 48”) on January 1, 2008. FIN 48 did not impact the Company’s financial position or results of operations at the date of adoption. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. FIN 48 prescribes that a company should use a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax positions that meet the “more-likely-than-not” recognition threshold should be measured as the largest amount of the tax benefits, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement in the financial statements. We recognize interest and penalties related to income tax matters as a component of the provision for income taxes. We do not currently anticipate that the total amount of unrecognized tax benefits will significantly change within the next 12 months.
 
Recent Accounting Pronouncements
 
  In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (SFAS No. 160), which is an amendment of Accounting Research Bulletin (“ARB”) No. 51.  This statement clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements.  This statement changes the way the consolidated income statement is presented, thus requiring consolidated net income to be reported at amounts that include the amounts attributable to both parent and the noncontrolling interest.  This statement is effective for the fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  Based on current conditions, we do not expect the adoption of SFAS No. 160 to have a significant impact on our results of operations or financial position.
 
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (SFAS No. 141).  This statement replaces FASB Statement No. 141, “Business Combinations.” This statement retains the fundamental requirements in SFAS 141 that the acquisition method of accounting (which SFAS No. 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. This statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the statement. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We do not expect the adoption of SFAS No. 160 to have a significant impact on our results of operations or financial position.
31

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate and Credit Risk
 
Our current operations have exposure to interest rate risk that relates primarily to our investment portfolio. All of our current investments are classified as cash equivalents or short-term investments and carried at cost, which approximates market value. We do not currently use or plan to use derivative financial instruments in our investment portfolio. The risk associated with fluctuating interest rates is limited to our investment portfolio, and we do not believe that a 10% change in interest rates would have a significant impact on our interest income, operating results or liquidity.
 
Currently, our cash and cash equivalents are maintained by financial institutions in the United States, Germany, the United Kingdom, Poland, Russia, Argentina and Colombia, and our current deposits are likely in excess of insured limits. We believe that the financial institutions that hold our investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments. Our accounts receivable primarily relate to revenues earned from domestic and international Mobile phone carriers. We perform ongoing credit evaluations of our carriers’ financial condition but generally require no collateral from them. At March 31, 2008, our largest customer represented 36% of our gross accounts receivable.
 
Foreign Currency Risk
 
The functional currencies of our United States and German operations are the United States Dollar, or USD, and the Euro, respectively. A significant portion of our business is conducted in currencies other than the USD or the Euro. Our revenues are usually denominated in the functional currency of the carrier. Operating expenses are usually in the local currency of the operating unit, which mitigates a portion of the exposure related to currency fluctuations. Intercompany transactions between our domestic and foreign operations are denominated in either the USD or the Euro. At month-end, foreign currency-denominated accounts receivable and intercompany balances are marked to market and unrealized gains and losses are included in other income (expense), net. Our foreign currency exchange gains and losses have been generated primarily from fluctuations in the Euro and pound sterling versus the USD and in the Euro versus the pound sterling. In the future, we may experience foreign currency exchange losses on our accounts receivable and intercompany receivables and payables. Foreign currency exchange losses could have a material adverse effect on our business, operating results and financial condition.
 
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.
 
32

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 
Page(s)
   
Reports of Independent Registered Public Accounting Firms
34-36
   
Consolidated Balance Sheets as of March 31, 2008; December 31, 2007 and 2006
37
 
 
Consolidated Statements of Operations for the three months ended March 31, 2008;
 
and the years ended December 31, 2007 and 2006
38
 
 
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss
 
for the three months ended March 31, 2008; and the years ended December 31, 2007 and 2006
39
   
Consolidated Statements of Cash Flows for the three months ended March 31, 2008;
 
and the years ended December 31, 2007 and 2006
40
   
Notes to Consolidated Financial Statements
41-62
 
33


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

To the Board of Directors
Mandalay Media Inc. and Subsidiaries
Los Angeles, California

We have audited the accompanying consolidated balance sheet of Mandalay Media Inc. and Subsidiaries (the “Company”) as of March 31, 2008 and the related consolidated statements of operations, stockholders’ equity and comprehensive loss and cash flows for the three months then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mandalay Media Inc. and Subsidiaries as of March 31, 2008, and the results of its operations and its cash flows for the three months then ended in conformity with accounting principles generally accepted in the United States of America.
 
 
/s/ GROBSTEIN, HORWATH & COMPANY LLP

Sherman Oaks, California
July 8, 2008

34


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Mandalay Media, Inc. (Formerly Mediavest, Inc.)

We have audited the accompanying balance sheet of Mandalay Media, Inc. (formerly Mediavest, Inc.) as of December 31, 2007 and the related statements of operations, stockholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mandalay Media, Inc. (formerly Mediavest, Inc.) as of December 31, 2007 and the results of its operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 /s/ Raich Ende Malter & Co. LLP
  Raich Ende Malter & Co. LLP
 
New York, New York
April 11, 2008

35


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Mandalay Media, Inc. (Formerly Mediavest, Inc.)

We have audited the accompanying statements of operations, stockholders’ equity and cash flows of Mandalay Media, Inc. (formerly Mediavest, Inc.) for the year ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the results of its operations and cash flows of Mandalay Media, Inc. (formerly Mediavest, Inc.) for the year ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.

 
 
 
 
  
/s/Most & Company, LLP
 
Most & Company, LLP
 
 
New York, New York
March 26, 2007
 
36


Mandalay Media Inc. and Subsidiaries
Consolidated Balance Sheets
 

 
(In thousands, except share amounts)

   
March 31,
 
December 31,
 
December 31,
 
   
2008
 
2007
 
2006
 
               
ASSETS
                   
                     
Current Assets
                   
Cash and cash equivalents
 
$
10,936
 
$
7,255
 
$
5,742
 
Accounts receivable, net of allowances
   
6,162
   
-
   
-
 
Prepaid expenses and other current assets
   
531
   
141
   
-
 
                     
 Total current assets
   
17,629
   
7,396
   
5,742
 
                     
Property and equipment, net
   
1,037
   
-
   
-
 
Other long-term assets
   
301
   
-
   
-
 
Intangible assets, net
   
19,780
   
-
   
-
 
Goodwill
   
61,377
   
-
   
-
 
                     
 TOTAL ASSETS
 
$
100,124
 
$
7,396
 
$
5,742
 
                     
LIABILITIES AND STOCKHOLDERS EQUITY
                   
                     
Current liabilities
                   
Accounts payable
 
$
2,399
 
$
447
 
$
98
 
Accrued license fees
   
3,833
   
-
   
-
 
Accrued compensation
   
688
   
-
   
-
 
Current portion of long term debt
   
248
   
-
   
-
 
Other current liabilities
   
2,087
   
-
   
-
 
                     
 Total currrent liabilities
   
9,255
   
447
   
98
 
                     
Accrued license fees, long term portion
   
1,337
   
-
   
-
 
Long term debt, net of current portion
   
16,483
   
-
   
-
 
                     
 Total liabilities
   
27,075
   
447
   
98
 
                     
Commitments and contingencies (Note 15)
                   
                     
Stockholders equity
                   
Preferred stock, 1,000 shares authorized
                   
 Series A convertible Preferred Stock, 100,000 shares; authorized
                   
 at $0.0001 par value; 100,000 shares issued and outstanding
   
100
   
100
   
100
 
Common stock, $0.0001 par value: 100,000,000 shares authorized;
                   
 32,149,089 issued and outstanding at March 31, 2008;
                   
 21,968,797 issued and outstanding at December 31, 2007;
                   
 16,730,000 issued and outstanding at December 31, 2006
   
3
   
3
   
2
 
Additional paid-in capital
   
76,154
   
9,817
   
6,309
 
Accumulated other comprehensive income/(loss)
   
61
   
-
   
-
 
Accumulated deficit
   
(3,269
)
 
(2,971
)
 
(767
)
                     
 Total stockholders equity
   
73,049
   
6,949
   
5,644
 
                     
 TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
 
$
100,124
 
$
7,396
 
$
5,742
 
 
The accompanying notes are an integral part of these consolidated financial statements.
37


Mandalay Media Inc. and Subsidiaries
Consolidated Statement of Operations
 


(In thousands, except per share amounts)

   
3 Months Ended
         
   
March 31,
 
Year Ended December 31,
 
   
2008
 
2007
 
2006
 
               
Revenues
 
$
3,208
 
$
-
 
$
-
 
                     
Cost of revenues
                   
License fees
   
1,539
   
-
   
-
 
Adjustment to impairment of guarantees
   
(1,745
)
 
-
   
-
 
Other direct cost of revenues
   
53
   
-
   
-
 
                     
 Total cost of revenues
   
(153
)
 
-
   
-
 
                     
Gross profit
   
3,361
   
-
   
-
 
                     
Operating expenses
                   
Product development
   
946
   
-
   
-
 
Sales and marketing
   
891
   
-
   
-
 
General and administrative
   
1,467
   
2,521
   
553
 
Amortization of intangible assets
   
72
   
-
   
-
 
                     
 Total operating expenses
   
3,376
   
2,521
   
553
 
                     
Loss from operations
   
(15
)
 
(2,521
)
 
(553
)
                     
Interest and other income/(expense)
                   
Interest income
   
97
   
317
   
-
 
Interest (expense)
   
(310
)
 
-
   
-
 
Foreign exchange transaction gain (loss)
   
2
   
-
   
-
 
Other (expense)
   
(56
)
 
-
   
-
 
                     
 Interest and other income/(expense)
   
(267
)
 
317
   
-
 
                     
Loss before income taxes
   
(282
)
 
(2,204
)
 
(553
)
                     
Income tax provision
   
(16
)
 
-
   
-
 
                     
Net loss
   
(298
)
 
(2,204
)
 
(553
)
                     
Preferred Stock Dividends
   
-
   
-
   
(43
)
                     
Net Loss attributable to Common Shareholders
 
$
(298
)
$
(2,204
)
$
(596
)
                     
Basic and Diluted net loss per common share
 
$
(0.01
)
$
(0.12
)
$
(0.05
)
                     
Weighted average common shares outstanding,
   
21,628
   
18,997
   
11,599
 
basic and diluted
                   
 
The accompanying notes are an integral part of these consolidated financial statements.
38


Mandalay Media Inc. and Subsidiaries
Consolidated Statements of Stockholders Equity and Comprehensive Loss
 


(In thousands, except share amounts)

Three Months Ended March 31, 2008 and Fiscal Years Ended December, 2007 and 2006

                        
Accumulated
             
                   
Additional
 
Other
             
   
Common Stock  
 
Preferred Stock
 
Paid-In
 
Comprehensive
 
Accumulated
     
Comprehensive
 
   
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Income/(Loss)
 
Deficit
 
Total
 
Loss
 
                                       
                                       
Balance at December 31, 2005
   
10,000,000
 
$
1
   
-
 
$
-
   
99
   
-
 
$
(171
)
$
(71
)
$
   
                                                         
Net loss
                                       
(553
)
 
(553
)
 
(553
)
Issuance of common stock
   
6,730,000
   
1
               
6,056
               
6,057
       
Sale of preferred stock
               
100,000
   
100
                     
100
       
Preferred stock dividend
                           
43
         
(43
)
 
-
       
Warrants isued for
                                                       
 stock-based compensation
                           
111
               
111
       
                                                         
Comprehensive loss
                                                 
 
 
 
                                                         
Balance at December 31, 2006
   
16,730,000
 
 
2
   
100,000
 
 
100
 
 
6,309
 
 
-
 
 
(767
)
 
5,644
   
(553
)
                                                         
Net Loss
                                       
(2,204
)
 
(2,204
)
 
(2,204
)
Issuance of common stock
                                                       
 (net of offering costs of $27)
   
5,000,000
   
1
               
2,472
               
2,473
       
Cashless exercise of warrants
   
238,797
   
0
               
(0
)
             
-
   
-
 
Deferred stock-based compensation
                           
1,036
               
1,036
       
                                                         
Comprehensive loss
                                                         
 
 
 
                                                         
Balance at December 31, 2007
   
21,968,797
 
 
3
   
100,000
 
 
100
 
 
9,817
 
 
-
 
 
(2,971
)
 
6,949
   
(2,204
)
                                                         
Net Loss
                                       
(298
)
 
(298
)
 
(298
)
Issuance of common stock
                                                       
 in connection with the merger
   
10,180,292
   
0
               
48,356
               
48,356
       
Assumption of employee stock options
                                                       
 in connection with the merger
                           
11,019
               
11,019
       
Issuance of new employee stock options
                                                       
 in connection with the merger
                           
3,938