x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
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)
|
Large
Accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
(do
not check if a smaller reporting company)
|
Smaller
reporting company x
|
Page(s)
|
|
Consolidated
Balance Sheets for the Successor as of September 30, 2008 (Unaudited) and
March 31, 2008 (Audited)
|
1
|
Consolidated
Statements of Operations (Unaudited) for the Successor’s three and six
months ended September 30, 2008 and September 30, 2007; and
Predecessor’s three and six months ended September 30,
2007
|
2
|
Consolidated
Statements of the Successor’s Stockholders’ Equity and Comprehensive Loss
(Unaudited) for the six months ended September 30, 2008
|
3
|
Consolidated
Statements of Cash Flows (Unaudited) for the Successor’s six months
ended September 30, 2008 and September 30, 2007; and
Predecessor’s six months ended September 30, 2007
|
4
|
Notes
to Unaudited Consolidated Financial Statements
|
5-28
|
Successor
|
||||||||
September
30,
|
March
31,
|
|||||||
2008
|
2008
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$ | 7,122 | $ | 10,936 | ||||
Accounts
receivable, net of allowances
|
6,203 | 6,162 | ||||||
Prepaid
expenses and other current assets
|
648 | 531 | ||||||
Total
current assets
|
13,973 | 17,629 | ||||||
Property
and equipment, net
|
993 | 1,037 | ||||||
Other
long-term assets
|
206 | 301 | ||||||
Intangible
assets, net
|
19,303 | 19,780 | ||||||
Goodwill
|
61,436 | 61,377 | ||||||
TOTAL
ASSETS
|
$ | 95,911 | $ | 100,124 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable
|
$ | 4,325 | $ | 2,399 | ||||
Accrued
license fees
|
2,813 | 3,833 | ||||||
Accrued
compensation
|
746 | 688 | ||||||
Current
portion of long term debt
|
254 | 248 | ||||||
Other
current liabilities
|
2,001 | 2,087 | ||||||
Total
currrent liabilities
|
10,139 | 9,255 | ||||||
Accrued
license fees, long term portion
|
668 | 1,337 | ||||||
Long
term debt, net of current portion
|
16,483 | 16,483 | ||||||
Total
liabilities
|
$ | 27,290 | 27,075 | |||||
Commitments
and contingencies (Note 15)
|
||||||||
Stockholders
equity
|
||||||||
Preferred
stock, 1,000 shares authorized Series A Convertible Preferred Stock,
100,000 shares; authorized at $0.0001 par value; 100,000 shares issued and
outstanding
|
100 | 100 | ||||||
Common
stock, $0.0001 par value: 100,000,000 shares authorized; 32,449,449 issued
and outstanding at September 30, 2008; 32,149,089 issued and
outstanding at March 31, 2008;
|
3 | 3 | ||||||
Additional
paid-in capital
|
78,220 | 76,154 | ||||||
Accumulated
other comprehensive income/(loss)
|
(55 | ) | 61 | |||||
Accumulated
deficit
|
(9,647 | ) | (3,269 | ) | ||||
Total
stockholders' equity
|
68,621 | 73,049 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 95,911 | $ | 100,124 |
Mandalay
Media, Inc. and Subsidiaries
|
2
|
Consolidated
Statement of Operations (Unaudited)
|
|
|
Successor
|
Predecessor
|
|||||||||||||||||||||||
3
Months Ended
|
3
Months Ended
|
6
Months Ended
|
6
Months Ended
|
3
Months Ended
|
6
Months Ended
|
|||||||||||||||||||
September
30
|
September
30
|
September
30
|
September
30
|
September
30
|
September
30
|
|||||||||||||||||||
2008
|
2007
|
2008
|
2007
|
2007
|
2007
|
|||||||||||||||||||
Revenues
|
$ | 5,003 | $ | - | $ | 10,349 | $ | - | $ | 3,356 | $ | 7,064 | ||||||||||||
Cost
of revenues
|
||||||||||||||||||||||||
License
fees
|
1,785 | - | 3,934 | - | 1,549 | 3,218 | ||||||||||||||||||
Other
direct cost of revenues
|
102 | - | 204 | - | 100 | 269 | ||||||||||||||||||
Total
cost of revenues
|
1,887 | - | 4,138 | - | 1,649 | 3,487 | ||||||||||||||||||
Gross
profit
|
3,116 | - | 6,211 | - | 1,707 | 3,577 | ||||||||||||||||||
Operating
expenses
|
||||||||||||||||||||||||
Product
development
|
1,800 | - | 3,567 | - | 2,301 | 4,792 | ||||||||||||||||||
Sales
and marketing
|
1,004 | - | 2,283 | - | 1,202 | 2,554 | ||||||||||||||||||
General
and administrative
|
2,559 | 544 | 5,372 | 911 | 1,144 | 2,320 | ||||||||||||||||||
Amortization
of intangible assets
|
137 | - | 274 | - | 60 | 90 | ||||||||||||||||||
Total
operating expenses
|
5,500 | 544 | 11,496 | 911 | 4,707 | 9,756 | ||||||||||||||||||
Loss
from operations
|
(2,384 | ) | (544 | ) | (5,285 | ) | (911 | ) | (3,000 | ) | (6,179 | ) | ||||||||||||
Interest
and other income/(expense)
|
||||||||||||||||||||||||
Interest
income
|
44 | 89 | 121 | 165 | 90 | 100 | ||||||||||||||||||
Interest
(expense)
|
(468 | ) | - | (952 | ) | - | (271 | ) | (326 | ) | ||||||||||||||
Foreign
exchange transaction gain (loss)
|
(57 | ) | - | 73 | - | 36 | 104 | |||||||||||||||||
Other
(expense)
|
(102 | ) | - | (187 | ) | - | (50 | ) | (252 | ) | ||||||||||||||
Interest
and other income/(expense)
|
(583 | ) | 89 | (945 | ) | 165 | (195 | ) | (374 | ) | ||||||||||||||
Loss
before income taxes
|
(2,967 | ) | (455 | ) | (6,230 | ) | (746 | ) | (3,195 | ) | (6,553 | ) | ||||||||||||
Income
tax provision
|
(74 | ) | 1 | (148 | ) | 1 | (2 | ) | - | |||||||||||||||
Net
Loss attributable to Common Shareholders
|
$ | (3,041 | ) | $ | (454 | ) | $ | (6,378 | ) | $ | (745 | ) | $ | (3,197 | ) | $ | (6,553 | ) | ||||||
Basic
and Diluted net loss per common share
|
$ | (0.09 | ) | $ | (0.02 | ) | $ | (0.20 | ) | $ | (0.04 | ) | $ | (0.41 | ) | $ | (0.84 | ) | ||||||
Weighted
average common shares outstanding, basic and diluted
|
32,423 | 20,480 | 32,377 | 18,588 | 7,786 | 7,786 |
Mandalay
Media, Inc. and Subsidiaries
|
3
|
Consolidated
Statements of Stockholders’ Equity and Comprehensive Loss
(Unaudited)
|
|
|
Accumulated
|
||||||||||||||||||||||||||||||||||||
Additional
|
Other
|
|||||||||||||||||||||||||||||||||||
Common
Stock
|
Preferred
Stock
|
Paid-In
|
Comprehensive
|
Accumulated
|
Comprehensive
|
|||||||||||||||||||||||||||||||
Successor
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Income/(Loss)
|
Deficit
|
Total
|
Loss
|
|||||||||||||||||||||||||||
Balance
at March 31, 2008
|
32,149,089 | $ | 3 | 100,000 | $ | 100 | $ | 76,154 | $ | 61 | $ | (3,269 | ) | $ | 73,049 | |||||||||||||||||||||
Net
Loss
|
(3,337 | ) | (3,337 | ) | (3,337 | ) | ||||||||||||||||||||||||||||||
Issuance
of common stock in satisfaction of amount
payable
|
25,000 | 0 | 100 | 100 | ||||||||||||||||||||||||||||||||
Issuance
of common stock on cashless exercise of warrants
|
241,688 | 0 | 0 | |||||||||||||||||||||||||||||||||
Foreign
currency translation gain/(loss)
|
(10 | ) | (10 | ) | (10 | ) | ||||||||||||||||||||||||||||||
Deferred
stock-based compensation
|
1,222 | 1,222 | ||||||||||||||||||||||||||||||||||
Comprehensive
loss
|
$ | (3,347 | ) | |||||||||||||||||||||||||||||||||
Balance
at June 30, 2008
|
32,415,777 | $ | 3 | 100,000 | $ | 100 | $ | 77,476 | $ | 51 | $ | (6,606 | ) | $ | 71,024 | |||||||||||||||||||||
Net
Loss
|
(3,041 | ) | (3,041 | ) | (3,041 | ) | ||||||||||||||||||||||||||||||
Issuance
of common stock on cashless exercise of warrants
|
33,672 | 0 | 0 | |||||||||||||||||||||||||||||||||
Foreign
currency translation gain/(loss)
|
(106 | ) | (106 | ) | (106 | ) | ||||||||||||||||||||||||||||||
Deferred
stock-based compensation
|
744 | 744 | ||||||||||||||||||||||||||||||||||
Comprehensive
loss
|
$ | (3,147 | ) | |||||||||||||||||||||||||||||||||
Balance
at September 30, 2008
|
32,449,449 | $ | 3 | 100,000 | $ | 100 | $ | 78,220 | $ | (55 | ) | $ | (9,647 | ) | $ | 68,621 |
Mandalay
Media, Inc. and Subsidiaries
|
4
|
Consolidated
Statements of Cash Flows (Unaudited)
|
|
|
Successor
|
Predecessor
|
|||||||||||
6
Months Ended
|
6
Months Ended
|
6
Months Ended
|
||||||||||
September
30,
|
September
30,
|
September
30,
|
||||||||||
2008
|
2007
|
2007
|
||||||||||
Cash
flows from operating activities
|
||||||||||||
Net
loss
|
$ | (6,378 | ) | $ | (745 | ) | $ | (6,553 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Depreciation
and amortization
|
642 | - | 212 | |||||||||
Allowance
for doubtful accounts
|
(45 | ) | - | 22 | ||||||||
Stock-based
compensation
|
1,966 | - | 58 | |||||||||
(Increase)
/ decrease in assets:
|
||||||||||||
Accounts
receivable
|
4 | - | 1,018 | |||||||||
Prepaid
expenses and other
|
(22 | ) | (9 | ) | (987 | ) | ||||||
Increase
/ (decrease) in liabilities:
|
||||||||||||
Accounts
payable
|
2,022 | 223 | (163 | ) | ||||||||
Accrued
license fees
|
(1,020 | ) | - | (2,169 | ) | |||||||
Accrued
compensation
|
58 | - | 283 | |||||||||
Other
liabilities
|
(750 | ) | - | - | ||||||||
Accrued
expenses
|
813 | |||||||||||
Net
cash used in operating activities
|
(3,523 | ) | (531 | ) | (7,466 | ) | ||||||
Cash
flows from investing activities
|
||||||||||||
Purchase
of property and equipment
|
(120 | ) | - | (261 | ) | |||||||
Transaction
costs related to merger with Twistbox
|
(59 | ) | - | |||||||||
Repayment
of advance to related party
|
36 | |||||||||||
Net
cash used in investing activities
|
(179 | ) | - | (225 | ) | |||||||
Cash
flows from financing activities
|
||||||||||||
Proceeds
from the sale of common stock
|
- | 2,493 | ||||||||||
Proceeds
from the sale of preferred stock
|
- | - | 3,000 | |||||||||
Proceeds
from the issuance of debt, net of costs
|
16,480 | |||||||||||
Repayment
of debt
|
- | - | (1,759 | ) | ||||||||
Net
cash provided by financing activities
|
- | 2,493 | 17,721 | |||||||||
Effect
of exchange rate changes on cash and cash equivalents
|
(112 | ) | - | 65 | ||||||||
Net
increase/(decrease) in cash and cash equivalents
|
(3,814 | ) | 1,962 | 10,095 | ||||||||
Cash
and cash equivalents, beginning of period
|
10,936 | 5,418 | 631 | |||||||||
Cash
and cash equivalents, end of period
|
$ | 7,122 | $ | 7,380 | $ | 10,726 | ||||||
Supplemental
disclosure of cash flow information:
|
||||||||||||
Interest
paid
|
- | - | 315 | |||||||||
Taxes
paid
|
(148 | ) | - | - |
Mandalay
Media, Inc. and Subsidiaries
|
5
|
Notes
to Unaudited Consolidated Financial Statements
|
|
(all numbers in thousands except per share
amounts)
|
1.
|
Organization
|
Mandalay
Media, Inc. and Subsidiaries
|
6
|
Notes
to Unaudited Consolidated Financial Statements
|
|
(all numbers in thousands except per share
amounts)
|
2.
|
Summary
of Significant Accounting Policies
|
Mandalay
Media, Inc. and Subsidiaries
|
7
|
Notes
to Unaudited Consolidated Financial Statements
|
|
(all numbers in thousands except per share
amounts)
|
|
•
|
wireless
subscribers directly contract with the carriers, which have most of the
service interaction
and are generally viewed as the primary obligor by the
subscribers;
|
|
•
|
carriers
generally have significant control over the types of content that they
offer to their subscribers;
|
|
•
|
carriers
are directly responsible for billing and collecting fees from their
subscribers, including the resolution of billing
disputes;
|
|
•
|
carriers
generally pay Twistbox a fixed percentage of their revenues or a fixed fee
for each game;
|
Mandalay
Media, Inc. and Subsidiaries
|
8
|
Notes
to Unaudited Consolidated Financial Statements
|
|
(all numbers in thousands except per share
amounts)
|
|
•
|
carriers
generally must approve the price of Twistbox’s content in advance of their
sale to subscribers, and Twistbox’s more significant carriers generally
have the ability to set the ultimate price charged to their subscribers;
and
|
|
•
|
Twistbox
has limited risks, including no inventory risk and limited credit
risk
|
Mandalay
Media, Inc. and Subsidiaries
|
9
|
Notes
to Unaudited Consolidated Financial Statements
|
|
(all numbers in thousands except per share
amounts)
|
Mandalay
Media, Inc. and Subsidiaries
|
10
|
Notes
to Unaudited Consolidated Financial Statements
|
|
(all numbers in thousands except per share
amounts)
|
Mandalay
Media, Inc. and Subsidiaries
|
11
|
Notes
to Unaudited Consolidated Financial Statements
|
|
(all numbers in thousands except per share
amounts)
|
Mandalay
Media, Inc. and Subsidiaries
|
12
|
Notes
to Unaudited Consolidated Financial Statements
|
|
(all numbers in thousands except per share
amounts)
|
Mandalay
Media, Inc. and Subsidiaries
|
13
|
Notes
to Unaudited Consolidated Financial Statements
|
|
(all numbers in thousands except per share
amounts)
|
3.
|
Liquidity
|
Mandalay
Media, Inc. and Subsidiaries
|
14
|
Notes
to Unaudited Consolidated Financial Statements
|
|
(all numbers in thousands except per share
amounts)
|
4.
|
Balance
Sheet Components
|
September
30,
|
March
31,
|
|||||||
2008
|
2008
|
|||||||
Accounts
receivable
|
$ | 6,326 | $ | 6,330 | ||||
Less:
allowance for doubtful accounts
|
(123 | ) | (168 | ) | ||||
$ | 6,203 | $ | 6,162 |
September
30,
|
March
31,
|
|||||||
2008
|
2008
|
|||||||
Equipment
|
$ | 758 | $ | 654 | ||||
Equipment
subject to capitalized lease
|
81 | 71 | ||||||
Furniture
& fixtures
|
234 | 228 | ||||||
Leasehold
improvements
|
140 | 140 | ||||||
1,213 | 1,093 | |||||||
Accumulated
depreciation
|
(220 | ) | (56 | ) | ||||
$ | 993 | $ | 1,037 |
Mandalay
Media, Inc. and Subsidiaries
|
15
|
Notes
to Unaudited Consolidated Financial Statements
|
|
(all numbers in thousands except per share
amounts)
|
5.
|
Description
of Stock Plans
|
Number
of
|
Weighted
Average
|
|||||||
Shares
|
Exercise Price
|
|||||||
Outstanding
at December 31, 2005
|
||||||||
Granted
|
||||||||
Canceled
|
||||||||
Exercised
|
||||||||
Outstanding
at December 31, 2006
|
- | - | ||||||
Granted
|
1,600,000 | $ | 2.64 | |||||
Canceled
|
- | - | ||||||
Exercised
|
- | - | ||||||
Outstanding
at December 31, 2007
|
1,600,000 | $ | 2.64 | |||||
Granted
|
2,751,864 | $ | 4.57 | |||||
Transferred
in from Twistbox
|
2,462,090 | $ | 0.64 | |||||
Canceled
|
(11,855 | ) | $ | 0.81 | ||||
Outstanding
at March 31, 2008
|
6,802,099 | $ | 2.70 | |||||
Granted
|
1,860,558 | $ | 2.67 | |||||
Canceled
|
(74,692 | ) | $ | 0.48 | ||||
Exercised
|
(27,050 | ) | $ | 0.48 | ||||
Outstanding
at September 30, 2008
|
8,560,915 | $ | 2.72 | |||||
Exercisable
at September 30, 2008
|
4,418,144 | $ | 2.02 |
Options
Granted
|
||||||||||||
Three
Months Ended
|
Options
tranferred
|
|||||||||||
September 30, 2008
|
Options Granted
|
from Twistbox
|
||||||||||
Expected
life (years)
|
4 |
4
to 6
|
3
to 7
|
|||||||||
Risk-free
interest rate
|
3.89 |
2.7%
to 3.89
|
% |
2.03%
to 5.03
|
% | |||||||
Expected
volatility
|
75.20 | % |
70%
to 75.2
|
% |
70%
to 75
|
% | ||||||
Expected
dividend yield
|
0 | % | 0 | % | 0 | % |
Mandalay
Media, Inc. and Subsidiaries
|
16
|
Notes
to Unaudited Consolidated Financial Statements
|
|
(all numbers in thousands except per share
amounts)
|
Weighted
|
|||||||||||||||||||
Average
|
Weighted
|
||||||||||||||||||
Remaining
|
Number
|
Average
|
Aggregate
|
||||||||||||||||
Range
of
|
Contractual
Life
|
Outsanding
|
Exercise
|
Intrinsic
|
|||||||||||||||
Exercise Price
|
(Years)
|
September 30, 2008
|
Price
|
Value
|
|||||||||||||||
$ | 0 - $1.00 | 7.84 | 2,359,053 | $ | 0.64 | $ | 4,149,322 | ||||||||||||
$ | 2.00 - $3.00 | 9.41 | 3,450,000 | $ | 2.66 | $ | - | ||||||||||||
$ | 3.00 - $4.00 | - | - | $ | - | $ | - | ||||||||||||
$ | 4.00 - $5.00 | 9.40 | 2,751,864 | $ | 4.57 | $ | - | ||||||||||||
8.97 | 8,560,917 | $ | 2.72 | $ | 4,149,322 |
Weighted
|
|||||||||||||||||||
Average
|
Weighted
|
||||||||||||||||||
Remaining
|
Options
|
Average
|
Aggregate
|
||||||||||||||||
Range
of
|
Contractual
Life
|
Exercisable
|
Exercise
|
Intrinsic
|
|||||||||||||||
Exercise Price
|
(Years)
|
September 30, 2008
|
Price
|
Value
|
|||||||||||||||
$ | 0 - $1.00 | 7.80 | 2,183,736 | $ | 0.63 | $ | 3,863,862 | ||||||||||||
$ | 2.00 - $3.00 | 9.32 | 1,418,708 | $ | 2.66 | $ | - | ||||||||||||
$ | 3.00 - $4.00 | - | - | $ | - | $ | - | ||||||||||||
$ | 4.00 - $5.00 | 9.39 | 815,700 | $ | 4.61 | $ | - | ||||||||||||
8.58 | 4,418,144 | $ | 2.02 | 3,863,862 |
6.
|
Acquisitions/Purchase
Price Accounting
|
Mandalay
Media, Inc. and Subsidiaries
|
17
|
Notes
to Unaudited Consolidated Financial Statements
|
|
(all numbers in thousands except per share
amounts)
|
Cash
|
$ | 6,679 | ||
Accounts
receivable
|
4,966 | |||
Prepaid
expenses and other current assets
|
1,138 | |||
Property
and equipment
|
1,062 | |||
Other
long-term assets
|
361 | |||
Accounts
Payable, accrued license fees and accruals
|
(6,882 | ) | ||
Other
current liabilities
|
(814 | ) | ||
Accrued
license fees, long term portion
|
(2,796 | ) | ||
Long
term debt
|
(16,483 | ) | ||
Identified
Intangibles
|
19,905 | |||
Merger
related restructuring reserves
|
(1,034 | ) | ||
Goodwill
|
61,436 | |||
$ | 67,538 |
Mandalay
Media, Inc. and Subsidiaries
|
18
|
Notes
to Unaudited Consolidated Financial Statements
|
|
(all numbers in thousands except per share
amounts)
|
3
months ended
|
6
months ended
|
|||||||
September 30, 2007
|
September 30, 2007
|
|||||||
Revenues
|
$ | 3,356 | $ | 7,064 | ||||
Cost
of revenues
|
1,649 | 3,487 | ||||||
Gross
profit/(loss)
|
1,707 | 3,577 | ||||||
Operating
expenses net of interest income and other expense
|
5,595 | 11,353 | ||||||
Income
tax expense
|
- | - | ||||||
Net
loss
|
(3,888 | ) | (7,776 | ) | ||||
Basic
and Diluted net loss per common share
|
$ | (0.19 | ) | $ | (0.42 | ) |
7.
|
Other
Intangible Assets
|
September
30,
|
March
31,
|
|||||||
2008
|
2008
|
|||||||
Software
|
$ | 1,611 | $ | 1,611 | ||||
Trade
Name / Trademark
|
13,030 | 13,030 | ||||||
Customer
list
|
4,378 | 4,378 | ||||||
License
agreements
|
886 | 886 | ||||||
19,905 | 19,905 | |||||||
Accumulated
amortization
|
(602 | ) | (125 | ) | ||||
$ | 19,303 | $ | 19,780 |
Mandalay
Media, Inc. and Subsidiaries
|
19
|
Notes
to Unaudited Consolidated Financial Statements
|
|
(all numbers in thousands except per share
amounts)
|
12 Months ended September
30,
|
||||||||||||||||||||||||
2009
|
2010
|
2011
|
2012
|
2013
|
Thereafter
|
|||||||||||||||||||
Software
|
$ | 230 | $ | 230 | $ | 230 | $ | 230 | $ | 230 | $ | 315 | ||||||||||||
Customer
List
|
547 | 547 | 547 | 547 | 547 | 1,298 | ||||||||||||||||||
License
Agreements
|
177 | 177 | 177 | 177 | 65 | - | ||||||||||||||||||
$ | 954 | $ | 954 | $ | 954 | $ | 954 | $ | 842 | $ | 1,613 |
8.
|
Debt
|
September
30,
|
March
31,
|
|||||||
2008
|
2008
|
|||||||
Short
Term Debt
|
||||||||
Capitalized
lease liabilities, current portion
|
$ | 6 | $ | 20 | ||||
Senior
secured note, accrued interest
|
248 | 228 | ||||||
$ | 254 | $ | 248 |
September
30,
|
March
31,
|
|||||||