UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-K/A
(Amendment No. 1)

(Mark One)

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

For the fiscal year ended March 31, 2009
or

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

Commission file number   00-10039

MANDALAY MEDIA, INC.
(Exact name of Registrant as Specified in Its Charter)

Delaware
22-2267658
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
   
2121 Avenue of the Stars, Suite 2550, Los Angeles, CA
90067
(Address of principal executive offices)
(Zip Code)

(310) 601-2500
(Registrant’s telephone number, including area code)

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   o         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. [o]

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)

¨ Large Accelerated Filer
¨ Accelerated Filer
   
¨ 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 computed by reference to the price at which the common equity was last sold on the OTC Bulletin Board on September 30, 2008 was $77,878,678.
 
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  x     No  o
 
As of July 14, 2009, the Issuer had 39,653,125 shares of its common stock, $0.0001 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
None.

 
 
 
 
EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (this “Amendment”) is filed by Mandalay Media, Inc. (the “Registrant”) to amend the Registrant’s Annual Report on Form 10-K for the fiscal year ended March 31, 2009, as originally filed with the Securities and Exchange Commission (the “Commission”) on July 14, 2009 (the “Form 10-K”).  The purpose of this Amendment is to add the audited financial statements for the period from April 1, 2007 through February 12, 2008 of Twistbox Entertainment, Inc., the Registrant’s wholly-owned subsidiary and to amend and restate Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations to include discussion related to the audited financial statements for the period from April 1, 2007 through February 12, 2008 per request of the Commission in a letter to the Registrant dated July 15, 2009. The Registrant is also amending and restating Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities to correct information that was inadvertently set forth in the Table captioned Equity Compensation Plan Information that should have been included in a footnote. No other material changes were made to the Form 10-K.
 
 
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUTY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 
 
Market Information
 
As of July 10, 2009, the closing price of our common stock was $0.55.
 
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.

 
2
 
 
   
High
    
Low
  
             
Year Ended March 31, 2009
            
First quarter
   $ 6.00     $ 2.00  
Second quarter
   $ 2.90     $ 1.50  
Third quarter
   $ 2.39     $ 0.60  
Fourth quarter
   $ 1.75     $ 0.51  
                 
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  
 
*     We changed our fiscal year end to March 31, effective March 31, 2008.

    There has never been a public trading market for any of our securities other than our common stock.
 
Holders
 
As of July 14, 2009, there were 528 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.
 
Equity Compensation Plan Information  
 
The following table sets forth information concerning our equity compensation plans as of March 31, 2009.
 
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
     3,000,000     $ 3.86       0  
                         
Equity compensation plans not approved by security holders
     1,683,333       2.68       1,377,970  
                         
Total
     4,683,333     $ 3.44       1,377,970  
 
(1) The table above does not include to purchase an aggregated of 2,227,017 shares of the Company’s common stock pursuant to the Twistbox 2006 Stock Incentive Plan, at a weight average exercise price of $0.64, which were assumed by the Company in connection with the merger.
 
Unregistered Sales of Equity Securities
None.

 
3
 

Issuer Purchases of Equity Securities

 
 
 
 
 
 
 
Period
  
 
 
 
 
(a) Total Number of 
Shares (or Units) 
Purchased
    
 
 
 
 
 
(b) Average Price Paid 
per Share (or Unit)
    
 
(c)
Total Number of 
Shares (or Units) 
Purchased as Part of 
Publicly Announced 
Plans or Programs
    
(d)
Maximum Number 
(or Approximate 
Dollar Value) of 
Shares (or Units) 
that May Yet Be 
Purchased Under 
the Plans or 
Programs
  
January 1, 2009- January 31, 2009
  
 -
      -      -      -  
February 1, 2009- February 28, 2009
     -       -       -       -  
March 1, 2009- March 31, 2009
  
62,011(1
 )    $ 0.88       -       -  
 
(1) These shares were repurchased by the Company in satisfaction of tax liability pursuant to Rule 16b-3 of the Exchange Act.
 
 
4
 
 
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 Annual Report on Form 10-K/A, 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 8 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” “us” or the “Company” refer to the business and operations of Mandalay Media, Inc. (“Mandalay”) through its operating and wholly-owned subsidiaries, Twistbox Entertainment, Inc. (“Twistbox”) and AMV Holding Limited, a United Kingdom private limited company (“AMV”).
 
Historical Operations of Mandalay Media, Inc.
 
Mandalay 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.
 
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.
 

 
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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 “ValueAct Note”) and a warrant which entitled ValueAct to purchase from Twistbox up to a total of 2,401,747 shares of Twistbox’s common stock (the “Warrant”).  Twistbox and ValueAct had also entered into a Guarantee and Security Agreement by and among Twistbox, each of the subsidiaries of Twistbox, the Investors, as defined therein, and ValueAct, as collateral agent, pursuant to which the parties agreed that the ValueAct Note would be secured by substantially all of the assets of Twistbox and its subsidiaries. In connection with the Merger, the Warrant was terminated and we issued two warrants in place thereof to ValueAct to purchase shares of our common stock. One of such warrants entitles ValueAct to purchase up to a total of 1,092,622 shares of our common stock at an exercise price of $7.55 per share. The other warrant entitles ValueAct to purchase up to a total of 1,092,621 shares of our common stock at an initial exercise price of $5.00 per share, which, if not exercised in full by February 12, 2009, will be permanently increased to an exercise price of $7.55 per share.  Both warrants expire on July 30, 2011. The terms of the warrants were subsequently modified on October 23, 2008, as set forth below. We also entered into a Guaranty with ValueAct whereby Mandalay agreed to guarantee Twistbox’s payment to ValueAct of up to $8,250,000 of principal under the Note in accordance with the terms, conditions and limitations contained in the ValueAct Note. The financial covenants of the ValueAct Note were also amended,  pursuant to which Twistbox is required maintain a cash balance of not less than $2,500,000 at all times and Mandalay is required to maintain a cash balance of not less than $4,000,000 at all times. These covenants were subsequently amended as set forth below.

 
6
 

SUMMARY OF THE AMV ACQUISITION

On October 23, 2008, Mandalay consummated the acquisition of 100% of the issued and outstanding share capital of AMV Holding Limited, a United Kingdom private limited company (“AMV”) and 80% of the issued and outstanding share capital of Fierce Media Limited, United Kingdom private limited company (collectively the “Shares”).  The acquisition of AMV is referred to herein as the “AMV Acquisition”. The aggregate purchase price (subject to adjustments as provided in the stock purchase agreement) for the Shares consisted of (i) $5,375,000 in cash; (ii) 4,500,000 shares of common stock, par value $0.0001 per share; (iii) a secured promissory note in the aggregate principal amount of $5,375,000 (the “AMV Note”); and (iv) additional earn-out amounts, if any, based on certain targeted earnings as set forth in the stock purchase agreement.

The AMV Note matures on January 30, 2010, and bears interest at an initial rate of 5% per annum, subject to adjustment as provided therein. In the event Mandalay completes an equity financing which results in gross proceeds of over $6,000,000, Mandalay will prepay a portion of the Note in an amount equal to one-third of the excess of the gross proceeds of such financing over $6,000,000. In addition, if within nine months of the issuance date of the AMV  Note, Mandalay completes a financing that results in gross proceeds of over $15,000,000, then Mandalay shall prepay the entire principal amount then outstanding under the AMV Note, plus accrued interest. If within nine months of the issuance date of the AMV Note, the aggregate principal sum then outstanding under the AMV Note plus accrued interest thereon has not been prepaid, then on and after such date, interest shall accrue on the unpaid principal balance of the AMV Note at a rate of 7% per annum.

In addition, also on October 23, 2008, in connection with the AMV Acquisition, Mandalay, Twistbox and ValueAct  entered into a Second Amendment to the ValueAct Note, which among other things, provides for a payment in kind election at the option of Twistbox, modifies the financial covenants set forth in the ValueAct Note to require that Mandalay and Twistbox maintain certain minimum combined cash balances and provides for certain covenants with respect to the indebtedness of Mandalay and its subsidiaries.  Also on October 23, 2008, AMV granted to ValueAct a security interest in its assets to secure the obligations under the ValueAct Note. In addition, Mandalay and ValueAct entered into an allonge to each of those certain warrants issued to ValueAct in connection with the Merger, which, among other things, amended the exercise price of each of the warrants to $4.00 per share.

On October 23, 2008, Mandalay entered into a Securities Purchase Agreement with certain investors identified therein (the “Investors”), pursuant to which Mandalay agreed to sell to the Investors in a private offering an aggregate of 1,685,394 shares of Common Stock and warrants to purchase 842,697 shares of common stock for gross proceeds to Mandalay of $4,500,000. The warrants have a five year term and an exercise price of $2.67 per share. The funds were held in an escrow account pursuant to an Escrow Agreement, dated October 23, 2008 and were released to Mandalay on or about November 8, 2008.

The Merger and the AMV Acquisition both included the issuance of common stock as all or part of the consideration. Based on the trading price of the common stock as of the acquisition dates, the total consideration was approximately $67.5 million for the Merger and approximately $22.2 million for the AMV Acquisition. Subsequent to the Merger and the AMV Acquisition, the average trading price of the Common Stock has decreased significantly. If the decrease in trading price is deemed to “not be temporary in nature”, management expects that an impairment of goodwill and other long lived intangible assets could occur by year end. Other factors affecting management’s estimate of impairment include the current profitability and expected future cash flows from the acquired business.

Overview
 
From February 12, 2008 to October 23, 2008, our operations were those of our wholly-owned subsidiary, Twistbox. Twistbox is a global publisher and distributor of branded entertainment content, including images, video, TV programming and games, for Third Generation (3G) mobile networks. Twistbox publishes and distributes its content in over 40 countries representing more than one billion subscribers. Operating since 2003, Twistbox has developed an intellectual property portfolio unique to its target demographic (18 to 35 year old) that includes worldwide exclusive (or territory exclusive) mobile rights to global brands and content from leading film, television and lifestyle content publishing companies. Twistbox has built a proprietary mobile publishing platform that includes: tools that automate handset portability for the distribution of images and video; a mobile games development suite that automates the porting of mobile games and applications to over 1,500 handsets; and a content standards and ratings system globally adopted by major wireless carriers to assist with the responsible deployment of age-verified content. Twistbox has leveraged its brand portfolio and platform to secure “direct” distribution agreements with the largest mobile operators in the world, including, among others, AT&T, Hutchison 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.

 
7
 
 
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, Hutchison 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.

Beginning October 23, 2008, our operations included those of our wholly-owned subsidiary, AMV Holding Limited (“AMV”).  AMV is a mobile media and marketing company delivering games and lifestyle content directly to consumers in the United Kingdom, Australia, South Africa and various other European countries. AMV markets its well established branded services including Bling , Phonebar and GameZone through a unique Customer Relationship Management (CRM) platform that drives revenue through mobile internet, print and television advertising.

AMV’s direct-to-consumer “off-deck” distribution channels allow us to market AMV’s products and services directly to end-users using a suite a premium short message service (Premium SMS) codes.  The use of Premium SMS codes allows end-users to pay for AMV products and services directly from their mobile phone bills via a third party billing aggregator versus through the wireless carrier’s billing infrastructure with which the end-user has his/her mobile service.  Through this channel, AMV is not reliant upon the wireless carrier’s “on-deck” portal for discovery and billing thereby giving AMV greater flexibility to reach the end-user.  AMV’s strategy is to expand its international distribution footprint using a defined set of criteria: identifying territories that provide ease of access to market; established mobile billing capabilities; a receptive market and audience to mobile content; and the potential to establish long-term, profitable market share.  AMV currently markets it products and services in the following territories: the United Kingdom, Ireland, Australia, South Africa, The Netherlands, Finland, Sweden, Austria, Switzerland and the Czech Republic.  Launched in 2004, it is headquartered in the United Kingdom.  In 2007, it was recognized as the United Kingdom’s fourth fastest growing technology company by the Micosoft Tech Track 100.  AMV is comprised of three primary lines of business: (i) mobile content services, such as wallpapers, animations, video, games and ringtones; (ii) mobile interactive and community services such as text dating and adult oriented text chatting; and (iii) voice interactive services such as virtual chat, live infotainment services (e.g., horoscopes and psychic readings) and adult oriented voice services.

 
8
 

AMV develops its own consumer brands by extensively marketing its products and services through a variety of media including traditional print, television, internet and mobile internet advertising.   It is also expanding its internet advertising activities through web affiliates, search and targeted landing pages.  AMV also has established partnerships with several web application protocol (WAP) advertising affiliates.  As carriers begin to open their portals for advertising distribution, WAP advertising is becoming a significant distribution channel for AMV advertising.  AMV is well positioned to take advantage of the internet advertising inventory through the use of mobile search and its WAP affiliate relationships.  AMV has established such relationships with Google, Yahoo, Admob, Admoda, 4 th Screen, AdInfuse, and many others.  Google has recently confirmed that AMV is one of its 10 largest mobile internet advertisers – globally.

All AMV advertising is produced in-house using a team of highly skilled creative graphic designers.  AMV is one of the largest print advertisers in the United Kingdom and South Africa, and is considered a significant advertiser in several other markets.  AMV has historically spent a significant amount of its working capital on advertising and intends to continue do so in the foreseeable future.

AMV offers a complete suite of mobile entertainment products and services.  In addition to its three primary lines of business, AMV has significant experience in WAP site management — from content sourcing through design, marketing and distribution.  AMV maintains a mobile internet portal of over 200 different sites which are refreshed regularly and AMV is one of the largest direct-to-consumer marketers of Java-based games through its Game Zone and Games Demon brands.  AMV has secured a catalog of more than 2000 Java-based games.   AMV’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.

 
9
 
 
RESULTS OF OPERATIONS
 
(in thousands, except per share amounts)
 
   
Successor
            
Predecessor
  
   
Year ended
    
Year ended
  
3 months ended
  
3 months ended
    
Period April 1, 2007-
  
   
March 31,
    
December 31,
  
March 31,
  
March 31,
    
February 12,
  
   
2009
    
2007
  
2008
  
2007
    
2008
  
                   
(unaudited)
        
                             
Revenues
   $ 31,256     $ -   $
3,208
   $ -     $ 12,282  
Cost of revenues
     11,150       -    
(153
 )   -       5,517  
                                     
Gross profit
     20,106       -    
3,361
     -       6,765  
SG&A
     26,555       2,521    
3,304
     (264 )     14,591  
Amortization of intangible assets
     628       -    
72
     -       119  
Restructuring charges
     -       -    
-
     -       -  
Impairment of goodwill and intangible assets
     31,784       -    
-
     -       -  
                                     
Operating income (loss)
     (38,861 )     (2,521 )  
(15
 )   264       (7,945 )
Interest expense, net
     (2,161 )     317    
(213
 )   -       (859 )
Other expenses
     (542 )     -    
(54
 )   -       (23 )
                                     
(Loss) / income before income taxes
     (41,564 )     (2,204 )  
(282
 )   264       (8,827 )
Income (taxes) / benefit
     111       -    
(16
 )   -       (56 )
                                     
(Loss) / income from continuing operations
     (41,453 )     (2,204 )  
(298
 )   264       (8,883 )
(Loss) from discontinued operations, net of taxes
     (147 )     -    
-
     -       -  
                                     
Net (loss) / income
   $ (41,600 )   $ (2,204 ) $
(298
 ) $ 264     $ (8,883 )
                                     
                                     
Basic and Diluted net loss per common share:
                  
 
                
Continuing operations
   $ (1.14 )   $ (0.12 ) $
(0.01
 ) $ 0.02     $ (1.14 )
Discontinued operations
   $ (0.00 )   $ -   $
-
   $ -     $ -  
Net loss
   $ (1.15 )   $ (0.12 ) $
(0.01
 ) $ 0.02     $ (1.14 )
Basic and Diluted weighted average shares outstanding
     36,264       18,997    
21,628
     16,730       7,786  

Comparison of the Year Ended March 31, 2009 (Successor) and the Period April 1, 2007 – February 12, 2008 (Predecessor)  

The following compares the successor period, Year Ended March 31, 2009 to the predecessor period April 1, 2007 – February 12, 2008.

Revenues

   
Successor
    
Predecessor
  
   
Year Ended
    
Period April 1, 2007-
  
   
March 31,
    
February 12,
  
   
2009
    
2008
  
             
   
(In thousands)
  
Revenues by type:
            
                 
Games
   $ 5,736     $ 3,246  
Other content
     25,520       9,036  
Total
   $ 31,256     $ 12,282  

Games revenue includes both licensed and internally developed games for use on mobile phones. The growth in games revenue largely reflects incremental revenue related to the rollout of the Play for Prizes platform, additional games development projects in both the US and Germany, and revenue related to the management of carrier platforms in Europe. Other content includes a broad range of primarily licensed product delivered in the form of WAP, Video, Wallpaper and Mobile TV. The increase in other content revenues is primarily due to the inclusion of revenues from AMV Holding which was acquired in the third quarter of fiscal 2009, the expansion of direct to consumer business in the US, and incremental revenue related to the management of advertising platforms for carriers.

10
 
Cost of Revenues

   
Successor
    
Predecessor
  
   
Year Ended
    
Period April 1, 2007-
  
   
March 31,
    
February 12,
  
   
2009
    
2008
  
             
   
(In thousands)
  
Cost of Revenues:
            
             
License Fees
   $ 7,387     $ 5,491  
Other direct cost of revenues
     3,763       26  
Total Cost of Revenues
   $ 11,150     $ 5,517  
                 
Revenues
   $ 31,256     $ 12,282  
                 
Gross Margin
     64.3 %     55.1 %

License fees represents costs payable to content providers for use of their intellectual property in products sold. The increase in expenses is proportionate to the increase in the related revenue. Other direct cost of revenues in the current period includes costs to deliver products, and amortization of the intangibles identified as part of the purchase price accounting and attributed to cost of revenues. The increase in other direct costs is largely attributable to AMV cost of revenues. The increase in margin is the result of the addition of higher margin revenue streams, particularly platform management and licensing, and also a change in mix towards non-branded and lower royalty-cost revenue with higher margins.

Operating Expenses

   
Successor
    
Predecessor
  
   
Year Ended
    
Period April 1, 2007-
  
   
March 31,
    
February 12,
  
   
2009
    
2008
  
             
   
(In thousands)
  
             
Product Development Expenses
   $ 6,981     $ 6,897  
                 
Sales and Marketing Expenses
     9,236       3,905  
                 
General and Administrative Expenses
     10,338       3,789  
                 
Amortization of Intangible Assets
     628       119  
                 
Impairment of goodwill and intangible assets
     31,784       -  

Product Development expenses include the costs to develop, edit and make content ready for consumption on a mobile phone.

Sales and Marketing Expenses represent the costs of sales and marketing personnel, and advertising and marketing campaigns – advertising has increased significantly with the AMV Acquisition in October 2008 due to the “direct to consumer” nature of that business, with a significant element of direct marketing required to stimulate revenues. In addition, a significant portion of AMV’s employee base is classified as sales and marketing employees.

General and administrative expenses represent management and support personnel costs in both Mandalay Media and Twistbox, and related expenses, as well as professional and consulting costs incurred, and other costs such as stock based compensation, depreciation and bad debt expenses.  The increase in expense is the result of stock option expense of $2.8 million, and additional legal and management expenses at the holding company level.

 
11
 

Amortization of intangibles for the successor in the year ended March 31, 2009 represents amortization of the intangibles identified as part of the purchase price accounting related to the Twistbox and AMV acquisitions and attributed to operating expenses. Amortization expenses for the predecessor in the priod April 1, 2007 to February 12,  2008 represents the amortization of predecessor intangible assets related to prior acquisitions by Twistbox.

Impairment of goodwill and intangible assets represents the write down in value of goodwill and intangible assets associated with the acquisitions of Twistbox and AMV. The consideration in the Twistbox acquisitions was entirely stock-based, while the AMV Acquisition was substantially stock-based, and both acquisitions generated significant goodwill since they were not capital intensive companies.  Subsequent to the acquisitions, the Company experienced a significant and continued decline in the market value of its common stock, which resulted in the Company’s market capitalization falling below its net book value. The Company performed its annual impairment review for goodwill and intangible assets in the fourth quarter of fiscal 2009. As a result of the assessment, the Company determined that its net book value exceeded the implied fair value; therefore, the Company recorded an impairment charge of $27,844 to write down goodwill and $3,940 to write down intangibles assets. The intangible asset impaired was the valuation associated with the Twistbox trademark/tradename.
 
Other Expenses
 
   
Successor
    
Predecessor
  
   
Year Ended
    
Period April 1, 2007-
  
   
March 31,
    
February 12,
  
   
2009
    
2008
  
             
   
(In thousands)
  
             
Interest and other income/(expense)
   $ (2,703 )   $ (882 )
                 
Loss from discontinued operations, net of taxes
   $ (147 )   $ -  

Interest and other income/(expense) includes interest income on invested funds, interest expense related to the ValueAct Note, foreign exchange transaction gains and losses, and depreciation expense. The higher expense relates to higher interest expense under the ValueAct Note which was initiated in July 2007, and foreign exchange losses incurred in the successor period due to adverse fluctuations during the year in the value of the Euro and the British pound against the US dollar, versus gains in the predecessor period.


Liquidity and Capital Resources

   
Successor
    
Predecessor
  
   
Year Ended
    
Period April 1, 2007-
  
   
March 31,
    
February 12,
  
   
2009
    
2008
  
   
(In thousands)
  
             
Consolidated Statement of Cash Flows Data:
            
                 
Capital expenditures
     (219 )     (307 )
Cash flows used in operating activities
     (5,360 )     (11,296 )
Cash flows (used in)/ provided by investing activities
     (3,773 )     100  
Cash flows (used in)/ provided by financing activities
     4,300       17,463  

Cash flows in the periods presented were impacted by ongoing operating losses and the acquisition of the two subsidiaries.

 
12
 

Twistbox has incurred losses and negative cash flows since inception. The primary sources of liquidity have historically been issuance of common and preferred stock, and in the case of Twistbox, borrowings under credit facilities. In the future, we anticipate that our primary sources of liquidity will be cash generated by our operating activities.

Operating Activities

In the year ended March 31, 2009, we used $5.4 million of net cash in operating activities. This primarily related to the net loss of $41.4 million, and decreases in accounts payable and other liabilities amounting to $4.6 million, an increase in prepaid expenses of $0.3 million, offset by the non cash impairment of goodwill of $31.8 million, non cash stock based compensation and depreciation and amortization included in the net loss of $3.1 million and $1.5 million respectively, as well as a decrease in accounts receivable of $4.5 million.

In the period April 1, 2007 – February 12, 2008, the predecessor used $11.3 million of net cash in operating activities. This primarily related to the net loss of $8.9 million, and decreases on accrued license fees and other liabilities of $2.6 million and increases in accounts receivable and prepaid assets, offset by non-cash items included in the net loss related to stock compensation and depreciation and amortization.
 
Investing Activities

In the year ended March 31, 2009, a net $3.8 million was used in investing activities - $6.9 million in cash consideration and transaction costs related to the AMV Acquisition, $0.2 in equipment purchases, offset by $3.4 million of cash in the acquired subsidiary. The predecessor used $0.3 million in investing activities, primarily related to capital investments.

Financing Activities

Proceeds from issuing common stock represented $4.3 million in the year ended March 31, 2009. For the predecessor, $17.5 was provided by financing activities, consisting of $3 million from the sale of B-1 preferred stock, $16.5 million proceeds from the ValueAct Note, offset by $2 million repayment of debt in the period.

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

As of March 31, 2009, the Company had approximately $5.9 million of cash, and the Company is seeking to restructure its debt, in particular debt which becomes payable within 12 months.  The Company’s cash requirements will be dependent on that restructuring, as well as actions taken to improve cashflow. As a result, we may require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these sources are insufficient to satisfy our cash requirements, we may seek to sell additional debt securities or additional equity securities or to obtain a credit facility. The sale of convertible debt securities or additional equity securities could result in additional dilution to our stockholders. The incurrence of increased indebtedness would result in additional debt service obligations and could result in additional operating and financial covenants that would restrict our operations. In addition, there can be no assurance that any additional financing will be available on acceptable terms, if at all.

Debt obligations include interest payments under the ValueAct Note, payable at the end of the term, in January 2010. As described above, the ValueAct Note was amended during fiscal 2009 such that the Company may elect to add interest to the principal, with the full amount payable at the end of the term. The Company’s operating lease obligations include noncancelable operating leases for the Company’s office facilities in several locations, expiring in various years through 2010. Twistbox has entered into license agreements with various owners of brands and other intellectual property so that we could develop and publish branded products for mobile handsets. Pursuant to some of these agreements, we are required to pay minimum royalties over the term of the agreements regardless of actual sales.

 
13
 

Comparison of the Three Months Ended March 31, 2008 and 2007  
 
   
Three Months Ended 
March 31,
  
   
2008
    
2007
  
   
(In thousands)
  
             
Revenues:
   $ 3,208     $ -  
                 
Cost of revenues
     (153 )     -  
                 
SG&A 
     3,304       (264 )
                 
Amortization of intangible assets
     72       -  
                 
 Interest and other expense
     267       -  

Prior to the acquisition of Twistbox, Mandalay Media was a public shell company with no operations, and as a result the only activity in the three months ended March 31, 2007 represents expenses incurred in developing the company.

Revenues in 2008 related to the post-acquisition revenues of Twistbox, which was acquired during the period. Cost of revenues in 2008 related to the post-acquisition revenues of Twistbox, which was acquired during the period. This includes license fees, representing costs payable to content providers for use of their intellectual property in products sold. Cost of revenues was a negative amount in this period due to an adjustment to impairment of guarantees, related to the reassessment of the impairment reserve for guarantees payable under content provider contracts. The partial reversal was largely the result of a major content provider contract which was renegotiated during the period.

SG&A includes General and Administrative expenses, Product Development and Sales and Marketing Expenses. General and Administrative expenses consisted primarily of consulting and professional fees, accounting and legal expenses and employee related expenses including stock based compensation. G&A Expenses increased in 2007 over 2006, 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.

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.
 
 
14
 
 
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.

Stock Sales and Liquidity
 
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 have an exercise price of $2.00 per share and expire as follows: 2,800,000 warrants expired in September 2008, 3,400,000 warrants expired in October 2008, and 530,000 warrants expired in December 2008.
 
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.

In September, October and December 2007, warrants to purchase 625,000 shares of common stock were exercised in a cashless exchange for 239,000 shares of the Company’s common stock based on the average closing price of the Company’s common stock for the five days prior to the exercise date.
 
On November 7, 2007, we entered into non-qualified stock option agreements with certain of our directors and officers pursuant to our 2007 Employee, Director and Consultant Stock Plan, as amended (the “Plan”), whereby we issued options to purchase an aggregate of 1,500,000 shares of our common stock. The directors and officers included James Lefkowitz, President of the Company, Robert Zangrillo, a former director of the Company, and Bruce Stein, a former director of the Company and our former 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”).
 
 
15
 

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 Plan whereby we issued options to purchase an aggregate of 1,700,000 shares of our common stock to Ian Aaron, Chief Executive Officer of Twistbox and a director of the Company, Russell Burke, Chief Financial Officer of Twistbox and the Company, 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.

On April 9, 2008 a former director of the Company exercised warrants to purchase 50,000 shares of common stock in a cashless exchange for 25,000 shares of the Company’s common stock.
 
In April and June 2008, warrants to purchase 350,000 shares of common stock were exercised in a cashless exchange for 217,000 shares of the Company’s common stock based on the average closing price of the Company’s common stock for the five days prior to the exercise date.

On June 18, 2008, the Company granted non-qualified stock options to purchase 1,500,000 shares of common stock of the Company to four directors under the Plan. The options have a ten year term and are exercisable at a price of $2.75 per share, with one-third of the options granted vesting immediately upon grant, one-third vesting on the first anniversary of the date of grant and the remaining one-third vesting on the second anniversary of the date of grant.

On September 29, 2008, the Company granted non-qualified stock options to purchase 350,000 shares of common stock of the Company to two directors under the Plan. The options have a ten year term and are exercisable at a price of $2.40 per share, with one-third of the options granted vesting immediately upon grant, one-third vesting on the first anniversary of the date of grant and the remaining one-third vesting on the second anniversary of the date of grant.

 
16
 

As described above, pursuant to the AMV Acquisition, on October 23, 2008, we entered into a Securities Purchase Agreement with certain investors identified therein, pursuant to which Mandalay agreed to sell to the Investors in a private offering an aggregate of 1,685,394 shares of common stock and warrants to purchase 842,697 shares of common stock for gross proceeds to the Company of $4,500,000. The warrants have a five year term and an exercise price of $2.67 per share. The funds were held in an escrow account pursuant to an Escrow Agreement, dated October 23, 2008 and were released to Mandalay on or about November 8, 2008.

Also as described above, in connection with the AMV Acquisition, on October 23, 2008, Mandalay and ValueAct entered into an allonge to each of those certain warrants issued to ValueAct in connection with the Merger, which, among other things, amended the exercise price of each of the warrants to $4.00 per share.

In October 2008, warrants to purchase 2,300,000 shares of common stock were exercised in a cashless exchange for 286,000 shares of the Company’s common stock based on the average closing price of the Company’s common stock for the five days prior to the exercise date.

On March 16, 2009, certain executive officers of Mandalay, including, among others, Mr. Lefkowitz, Mr. Burke and Mr. Aaron and other senior employees (the "Executives") agreed to reduce their salaries for a period of one year, with the exception of Mr. Aaron who agreed to reduce his salary from August 8, 2008 through February 12, 2010, in exchange for the issuance of shares (the “Shares”) of the Company's common stock. The Board of Directors approved the issuance of the Shares pursuant to the Plan at a purchase price of $0.0001 per share in connection with such salary reductions. The Board of Directors authorized the issuance of an aggregate of 938,697 Shares as of the date each such Executive agrees to the salary reduction (the “Grant Date”). In connection therewith, on March 16, 2009, the Board of Directors granted Mr. Lefkowitz 37,500 Shares, Mr. Burke 48,000 Shares and Mr. Aaron 504,218 Shares. The Shares granted to Mr. Lefkowitz and Mr. Burke and 350,360 of the Shares granted to Mr. Aaron are subject to forfeiture to the Company if such Executive terminates his position with the Company prior to one year from the Grant Date, and such Shares become fully vested one year from the Grant Date or upon the occurrence of a change-in-control of the Company. The remainder of Mr. Aaron's shares were fully vested on the Grant Date. All such Shares granted to the Executives may not be sold or transferred for a period of one year from the Grant Date.

Revenues
 
The discussion herein regarding our future operations pertain to the results and operations of Twistbox and AMV. 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 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 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.

AMV operates a direct-to-consumer marketing model for distribution of its mobile content portfolio, ranging from Java Games to Videos. AMV’s revenue model relies on its efficient and effective management of marketing distribution channels such as print advertising, mobile internet advertising (i.e., WAP affiliates, Google Mobile, Yahoo, etc.), web advertising and traditional television advertising.  It also utilizes its proprietary CRM platform for sending promotions to its existing customer database. AMV relies on the margin it generates from this marketing activity for the majority of its revenues. Revenues are also derived from on-going billing relationships with consumers, primarily via content subscription services.  In its interactive division, revenues are derived from consumers’ usage of mobile chat, flirt and dating services, through mobile-based billing aggregators.  Revenues are generated from billing of consumers through mobile network charging, which is typically via the use of Premium SMS, or WAP-based billing (e.g., Pay-For-It).
 

 
17
 

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 market 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.

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”) 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.
 
AMV’s cost of revenues consist of  license fees paid to content owners for use of their intellectual property, and the costs of distributing content via the mobile networks, which may be significant.
 

 
18
 

Gross Margin
 
Our gross margin going forward will be determined principally by the mix of content that we deliver, and the costs of distribution. Our 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 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 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 .   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 .  Our general and administrative expenses historically, and 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 and platform, as part of our operating expenses. We will record intangible assets on our balance sheet based upon their fair value at the time they are acquired. We will determine the fair value of the intangible assets using a contribution approach. We will amortize the amortizable intangible assets using the straight-line method over their estimated useful lives of three to five years.

 
19
 

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.
 
Income Taxes
 
We provide for deferred income taxes using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and the tax effect of net operating loss carry-forwards. A valuation allowance has been provided as it is more likely than not that the deferred assets will not be realized.
 
Recent Accounting Pronouncements
 
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). This statement clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 157 is not expected to have a material effect on our consolidated results of operations or financial condition.
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities, including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose, at specified election dates, to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. Unrealized gains and losses shall be reported on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157 “Fair Value Measurements”. We are currently assessing the impact that SFAS No. 159 will have on our financial statements.
 
            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.

 
20
 
 
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB No. 133,” (“SFAS 161”). SFAS 161 is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance, and cash flows. SFAS 161 applies to all derivative instruments within the scope of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). SFAS 161 also applies to non-derivative hedging instruments and all hedged items designated and qualifying under SFAS 133. SFAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS 161 encourages, but does not require, comparative disclosures for periods prior to its initial adoption. The Company does not expect the adoption of SFAS 161 to have a significant impact on its results of operations or financial position.

In April 2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3, “Determination of the Useful Life of Intangible Assets”.  FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, “Goodwill and Other Intangible Assets”.  This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008.  Early adoption is prohibited.  The impact of the adoption of FSP FAS 142-3 on the Company’s results of operations and financial position will depend on the nature and extent of business combinations that it completes, if any, in or after fiscal 2010.
 
Other recently issued accounting pronouncements are not expected to have a significant impact on the company’s results of operations or financial position.

 
21
 
 
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
  (1)  The following documents are filed as part of this Annual Report on Form 10-K.
 
  (3)  Exhibits: The following documents are filed as exhibits to this Annual Report  on Form 10-K/A:
 
31.1
Certification of Ray Schaaf, Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2
Certification of Russell Burke, Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1
Certification of Ray Schaaf, Principal Executive Officer, pursuant to 18 U.S.C. Section 1350. *
32.1
Certification of Russell Burke, Principal Financial Officer, pursuant to 18 U.S.C. Section 1350. *
* Filed herewith

 
22
 
 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
Mandalay Media, Inc.
Dated: December 3, 2009
  
 
By:
/s/ Ray Schaaf
   
Ray Schaaf
President
(Principal Executive Officer)
 
Pursuant to the requirements of the Exchange Act, this Report has been signed below by the following persons in the capacities and on the dates indicated.  

Signatures
  
Title
  
Date
         
/s/ Robert S. Ellin
  
Co- Chairman of the Board
  
December 3, 2009
Robert S. Ellin
        
         
/s/ Peter Guber
  
Co-Chairman of the Board
  
December 3, 2009
Peter Guber
        
         
/s/ Ray Schaaf
  
President, Director
  
December 3, 2009
Ray Schaaf
  
 (Principal Executive Officer)
    
         
/s/ Russell Burke
  
Chief Financial Officer
  
December 3, 2009
Russell Burke
  
(Principal Financial Officer)
    
         
/s/ Paul Schaeffer
  
Director
  
December 3, 2009
Paul Schaeffer
        
         
/s/ Richard Spitz
  
Director
  
December 3, 2009
Richard Spitz
        
         
         
Director
  
December 3, 2009
Adi McAbian
        
         
/s/ Keith McCurdy   Director  
December 3, 2009
Keith McCurdy        
 
23
 
   
Page(s)
     
Reports of Independent Registered Public Accounting Firms
  
1-2
     
Consolidated Balance Sheets for the Successor as of March 31, 2009 and March 31, 2008
  
3
     
Consolidated Statements of Operations for the Successor for the year ended March 31, 2009,  year ended December 31, 2007, three months ended March 31, 2008 and 2007; and Predecessor’s period from April 1, 2007 through February 12, 2008
  
4
     
Consolidated Statements of the Successor’s Stockholders’ Equity and Comprehensive Loss for  the year ended March 31, 2009
  
5
     
Consolidated Statements of Cash Flows for the Successor’s year ended March 31, 2009, the year ended December 31, 2008, the three months ended March 31, 2008 and 2007, and  the Predecessor’s period from April 1, 2007 through February 12, 2008
  
6
     
Notes to Consolidated Financial Statements
  
7-35

 
 

Report of Independent Registered Public Accounting Firm

Twistbox Entertainment, Inc. and Subsidiaries
Los Angeles, California

We have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows for the period April 1, 2007 through February 12, 2008 of Twistbox Entertainment, Inc. and Subsidiaries.   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 the Company's operations and its cash flows for the period April 1, 2007 through February 12, 2008, in conformity with U.S. generally accepted accounting principles.

/s/Crowe Horwath LLP.
Crowe Horwath LLP.
 
Sherman Oaks, California
November 30, 2009
 
 
 
 
 
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, 2007. 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 Mandalay Media, Inc.’s operations and cash flows for the year ended December 31, 2007, 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
 
 
 

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 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

 
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
 
To the Board of Directors
Mandalay Media, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of Mandalay Media, Inc. and Subsidiaries (collectively,  the “Company”) as of March 31, 2009, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended . These consolidated 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.  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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2009, and the results of its operations and its cash flows for the year ended March 31, 2009, in conformity with generally accepted accounting principles in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 3 to the consolidated financial statements, certain factors give rise to substantial doubt about the Company's ability to continue as a going concern.  Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We were not engaged to examine management's assessment of the effectiveness of the Company’s internal control over financial reporting as of March 31, 2009, included in the Form 10-K annual report and, accordingly, we do not express an opinion thereon.

SingerLewak LLP

Los Angeles, California
July 14, 2009
 
 
 
 
Mandalay Media, Inc. and Subsidiaries
3
Consolidated Balance Sheets
  
  
  
 
(In thousands, except share amounts)

   
Successor
  
   
March 31,
    
March 31,
  
   
2009
    
2008
  
             
ASSETS
            
             
Current Assets
            
Cash and cash equivalents
   $ 5,927     $ 10,936  
Accounts receivable, net of allowances of $174 and $168 respectively
     10,745       6,162  
Prepaid expenses and other current assets
     1,334       531  
Total current assets
     18,006       17,629  
Property and equipment, net
     1,230       1,037  
Other long-term assets
     -       301  
Intangible assets, net
     16,121       19,780  
Goodwill
     55,833       61,377  
TOTAL ASSETS
   $ 91,190     $ 100,124  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
                 
Current liabilities
                
Accounts payable
   $ 9,557     $ 2,399  
Accrued license fees
     2,795       3,833  
Accrued compensation
     592       688  
Current portion of long term debt
     23,296       248  
Other current liabilities
     5,899       2,087  
Total current liabilities
     42,139       9,255  
Accrued license fees, long term portion
     -       1,337  
Long term debt, net of current portion
     -       16,483  
Other long-term liabilities
     27       -  
Total liabilities
   $ 42,166       27,075  
                 
Commitments and contingencies (Note 14)
                
                 
Stockholders' equity
                
Preferred stock
                
Series A Convertible Preferred Stock at $0.0001 par value; 100,000 shares authorized, issued and outstanding (liquidation preference of $1,000,000)
     100       100  
Common stock, $0.0001 par value: 100,000,000 shares authorized;
                
39,653,125 issued and outstanding at March 31, 2009;
                
32,149,089 issued and outstanding at March 31, 2008;
     4       3  
Additional paid-in capital
     93,918       76,154  
Accumulated other comprehensive income/(loss)
     (129 )     61  
Accumulated deficit
     (44,869 )     (3,269 )
Total stockholders' equity
     49,024       73,049  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
   $ 91,190     $ 100,124  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
Mandalay Media, Inc. and Subsidiaries
4
Consolidated Statement of Operations
  
  
  
 
(In thousands, except per share amounts)

   
Successor
    
Predecessor
  
   
Year Ended March
31,
2009
    
Year Ended
December
31, 2007
    
3 Months Ended
March 31,
2008
    
3 Months Ended
March 31,
2007
    
Period From
April 1, 2007 Through
February 12, 2008
  
                     
(unaudited)
        
                               
Net Revenues
   $ 31,256     $ -     $ 3,208     $ -     $ 12,282  
                                         
Cost of revenues
                                        
License fees
     7,387       -       1,539       -       5,491  
Adjustment to impairment of guarantees
     -       -       (1,745 )     -       -  
Other direct cost of revenues
     3,763       -       53       -       26  
Total cost of revenues
     11,150       -       (153 )     -       5,517  
Gross profit
     20,106       -       3,361       -       6,765  
                                         
Operating expenses
                                        
Product development
     6,981       -       946       -       6,897  
Sales and marketing
     9,236       -       891       -       3,905  
General and administrative
     10,338       2,521       1,467       (264 )     3,789  
Amortization of intangible assets
     628       -       72       -       119  
Impairment of goodwill and intangible assets
     31,784       -       -       -       -  
Total operating expenses
     58,967       2,521       3,376       (264 )     14,710  
(loss) / income from continuing operations
     (38,861 )     (2,521 )     (15 )     264       (7,945 )
                                         
Interest and other income/(expense)
                                        
Interest income
     141       317       97       -       214  
Interest (expense)
     (2,302 )     -       (310 )     -       (1,073 )
Foreign exchange transaction gain (loss)
     (471 )     -       2       -       170  
Other (expense)
     (71 )     -       (56 )     -       (193 )
Interest and other income/(expense)
     (2,703 )     317       (267 )     -       (882 )
Net (loss) / income from continuing operations before income taxes
     (41,564 )     (2,204 )     (282 )     264       (8,827 )
Income tax benefit / (provision)
     111       -       (16 )     -       (56 )
Net (loss) / income from continuing operations net of taxes
     (41,453 )     (2,204 )     (298 )     264       (8,883 )
                                         
Discontinued operations, net of taxes:
                                        
Loss from discontinued operations, net of taxes
     (147 )     -       -       -       -  
                                         
Net (loss) / income
   $ (41,600 )   $ (2,204 )   $ (298 )   $ 264     $ (8,883 )
                                         
Comprehensive (loss) / income
   $ (41,790 )   $ (2,204 )   $ (237 )   $ 264     $ (8,762 )
                                         
Basic and Diluted net loss per common share
                                        
Continuing operations
   $ (1.14 )   $ (0.12 )   $ (0.01 )   $ 0.02     $ (1.14 )
Discontinued operations
   $ (0.00 )   $ -     $ -     $ -     $ -  
Net (loss) / income
   $ (1.15 )   $ (0.12 )   $ (0.01 )   $ 0.02     $ (1.14 )
                                         
Weighted average common shares outstanding, basic and diluted
     36,264       18,997       21,628       16,730       7,786  
       
The accompanying notes are an integral part of these consolidated financial statements
 
 
 
Mandalay Media, Inc. and Subsidiaries
5
Consolidated Statements of Stockholders’ Equity
  
       
   
 
(In thousands)
 
Year Ended March 31, 2009; Three Months Ended March 31, 2008 and Year Ended December 31, 2007
  
                                 
Accumulated
                    
                           
Additional
    
Other
          
Total
        
   
Common Stock
    
Preferred Stock
    
Paid-In
    
Comprehensive
    
Accumulated
    
Stockholders'
    
Comprehensive
  
Successor
  
Shares
    
Amount
    
Shares
    
Amount
    
Capital
    
Income/(Loss)
    
Deficit
    
Equity
    
Loss
  
                                                       
Balance at December 31, 2006
     16,730,000     $ 2       100,000     $ 100     $ 6,309     $ -     $ (767 )   $ 5,644