SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549


Form
10-K


(Mark One)x
              
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For
the fiscal year ended December 31, 2008




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


For
the transition period from ____________ to _______________





Commission
file number 001-12555


New
Motion, Inc.


(name of
small business issuer in its charter)


doing
business as









Delaware
                      
                      06-1390025State
      or other jurisdiction of
                        incorporation
      or organization
                      
                      (I.
      R. S. Employer Identification
No.)




469
7th
Avenue 10th
Floor


New
York, NY 10018


(Address
of principal executive offices and zip code)


(212)716-1977


(Registrant’s
telephone number, including area code)





Securities
registered pursuant to Section 12(b) of the Act:


Title of
each
class                                                          Name
of each exchange on which registered


Common
Stock, $0.01 par
value                                   The
NASDAQ Global Market





Securities
registered under Section 12(g) of the Exchange Act:


Common
Stock, $0.01 par value




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 Section 15(d) of the 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 Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K 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
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.




Large
      accelerated filer   ̈
              Accelerated
      filer    ̈Non-accelerated
      filer    ̈ (Do not check if
      a smaller reporting company)
              Smaller reporting company   
      x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act)


Yes
o No x





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates, computed using the closing price of $4.16, as of June 30, 2008,
was $63,997,556.





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 Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes x No
o





As of
March 19, 2009, the issuer had 20,720,962 shares of common stock issued and
outstanding (which number excludes 2,381,318 shares issued and held in
treasury).




DOCUMENTS
INCORPORATED BY REFERENCE





Portions
of the Registrant's Proxy Statement to be filed with the Securities and Exchange
Commission are incorporated by reference into Part III, Items 10, 11, 12, 13 and
14 of this Form 10-K.









TABLE
OF CONTENTS




PART IItem
      1
                        
                        Business
                        
                        2Item
      1A
                        
                        Risk
      Factors
                        
                        10Item
      1B
                        
                        Unresolved
      Staff Comments
                        
                        18Item  2
                        
                        Properties
                        
                        18Item
      3
                        
                        Legal
      Proceedings
                        
                        18Item
      4
                        
                        Submission
      of Matters to a Vote of Security Holders
                        
                        18PART IIItem
      5
                        
                        Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                        
                        19Item
      6
                        
                        Selected
      Financial Data
                        
                        21Item
      7
                        
                        Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                        
                        21Item
      7A
                        
                        Quantitative
      and Qualitative Disclosures about Market Risk
                        
                        32Item
      8
                        
                        Financial
      Statements and Supplementary Data
                        
                        33Item
      9
                        
                        Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                        
                        34Item
      9A(T)
                        
                        Controls
      and Procedures
                        
                        34Item
      9B
                        
                        Other
      Information
                        
                        34PART IIIItem
      10
                        
                        Directors,
      Executive Officers and Corporate Governance
                        
                        35Item
      11
                        
                        Executive
      Compensation
                        
                        35Item
      12
                        
                        Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                        
                        35Item
      13
                        
                        Certain
      Relationships and Related Transactions, and Director
      Independence
                        
                        35Item
      14
                        
                        Principal
      Accounting Fees and Services
                        
                        35PART IVItem
      15
                        
                        Exhibits,
      Financial Statement Schedules
                        
                        36







Part
I





SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS




This
report, including the sections entitled “Risk Factors,” “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and “Business,”
contains “forward-looking statements” that include information relating to
future events, future financial performance, strategies, expectations,
competitive environment, regulation and availability of resources of New Motion,
Inc. (“New Motion,” “Atrinsic” or the “Company”). These forward-looking
statements include, without limitation, statements regarding: proposed new
services; the Company’s expectations concerning litigation, regulatory
developments or other matters; statements concerning projections, predictions,
expectations, estimates or forecasts for the Company’s business, financial and
operating results and future economic performance; statements of management’s
goals and objectives; and other similar expressions concerning matters that are
not historical facts. Words such as “may,” “will,” “should,” “could,” “would,”
“predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,”
“intends,” “plans,” “believes” and “estimates,” and similar expressions, as well
as statements in future tense, identify forward-looking statements.




Forward-looking
statements should not be read as a guarantee of future performance or results,
and will not necessarily be accurate indications of the times at, or by which,
that performance or those results will be achieved. Forward-looking statements
are based on information available at the time they are made and/or management’s
good faith belief as of that time with respect to future events, and are subject
to risks and uncertainties that could cause actual performance or results to
differ materially from those expressed in or suggested by the forward-looking
statements. Important factors that could cause these differences include, but
are not limited to:




·
            our limited operating
      history


·
            our reliance on wireless carriers
      and aggregators to facilitate billing and
    collections;


·
            the highly competitive market in
      which we operate;


·
            our ability to develop new
      applications and services;


·
            protection of our intellectual
      property rights;


·
            hiring and retaining key
      employees;


·
            successful completion, and
      integration of, historical and potential
    acquisitions;


·
            increased costs and requirements
      as a public company;


·
            other factors discussed under the
      headings “Risk Factors,” “Management’s Discussion and Analysis of
      Financial Condition and Results of Operations” and
      “Business”.




Forward-looking
statements speak only as of the date they are made. You should not put undue
reliance on any forward-looking statements. We assume no obligation to update
forward-looking statements to reflect actual results, changes in assumptions or
changes in other factors affecting forward-looking information, except to the
extent required by applicable securities laws. If we do update one or more
forward-looking statements, no inference should be drawn that we will make
additional updates with respect to those or other forward-looking
statements.


1


ITEM
1. BUSINESS




With
respect to this discussion, the terms “we,” “us,” “our,” “New Motion”, and the
“Company” refer to New Motion, Inc., a Delaware corporation and its wholly-owned
subsidiaries, including New Motion Mobile, Inc. and Traffix, Inc. (“Traffix”),
also Delaware corporations.




A
Note Concerning Presentation




This
Annual Report on Form 10-K contains information concerning New Motion, Inc. as
it pertains to the period covered by this report – for the two years ended
December 31, 2008 and 2007. As a result of the acquisitions of Traffix, Inc., a
Delaware corporation (“Traffix”), and Ringtone.com LLC (“Ringtone”), a Minnesota
limited liability company, by New Motion, Inc. on February 4, 2008 and June 30,
2008 respectively, (explained herein), this Annual Report on Form 10-K also
contains information concerning the combination of New Motion, Traffix and
Ringtone, as of the date of this Annual Report.




Background
and History of New Motion




New
Motion, formerly known as MPLC, Inc., and prior to MPLC, Inc. as The Millbrook
Press, Inc. was incorporated under the laws of the State of Delaware in 1994.
Until 2004, the Company was a publisher of children’s nonfiction books for the
school and library market and the consumer market under various imprints. As a
result of market factors, and after an unsuccessful attempt to restructure its
obligations out of court, on February 6, 2004, the Company filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code with the United
States Bankruptcy Court for the District of Connecticut (the “Bankruptcy
Court”). After filing for bankruptcy, the Company sold its imprints and
remaining inventory and by July 31, 2004, had paid all secured creditors 100% of
amounts owed. At that point in time, the Company was a “shell” company with
nominal assets and no material operations. Beginning in January 2005, after the
Bankruptcy Court’s approval, all pre-petition unsecured creditors had been paid
100% of the amounts owed (or agreed) and all post petition administrative claims
submitted had been paid. In December 2005, $0.464 per eligible share was
available for distribution and was distributed to stockholders of record as of
October 31, 2005. The bankruptcy proceedings were concluded in January 2006 and
no additional claims were permitted to be filed after that date.




New
Motion Mobile, Inc. (our wholly-owned subsidiary) was formed in March 2005 and
subsequently acquired the business of Ringtone Channel, an Australian aggregator
of ringtones in June 2005. Ringtone Channel was originally incorporated on
February 23, 2004. In 2004, Ringtone Channel began to sell ringtones
internationally and then launched its first ringtone subscription service in the
U.S. in February 2005. In August 2005, New Motion Mobile launched its first
successful text message campaign incorporating music trivia. As of December 31,
2007, the Company’s Australian entity was dissolved.




On
October 24, 2006, the Company and certain stockholders entered into a Common
Stock Purchase Agreement with Trinad Capital Master Fund, Ltd. (“Trinad”),
pursuant to which we agreed to redeem 23,448,870 shares of our common stock
from existing stockholders and sell an aggregate of 69,750,000 shares
of our common stock, representing 93% of our issued and outstanding shares
of common stock, to Trinad in a private placement transaction for aggregate
gross proceeds of $750,000.




In
February 2007, we completed an exchange transaction (the
“Exchange”) pursuant to which New Motion Mobile became our wholly-owned
subsidiary. In connection with the Exchange, we raised gross proceeds of
approximately $20 million in equity financing through the sale of our Series A
Preferred Stock, Series B Preferred Stock and Series D Preferred
Stock.




After
receiving the requisite approval of our stockholders, on May 2, 2007, we filed a
certificate of amendment to our restated certificate of incorporation with the
Delaware Secretary of State to, among other things, change our corporate name to
New Motion, Inc. from MPLC, Inc., and effect a 1-for-300 reverse split. In
connection with these corporate actions, we also changed our ticker symbol to
“NWMO.”




On
February 4, 2008, we completed a merger with Traffix, Inc., a Delaware
corporation.  Pursuant to the merger, Traffix became our wholly owned
subsidiary.Traffix
is a leading interactive media and marketing company that provides complete
end-to-end marketing solutions for its clients who seek to increase sales and
customer contact deploying the numerous facets of online marketing Traffix
offers. Following
the consummation of our merger with Traffix, Traffix stockholders owned
approximately 45% of our capital stock, on a fully-diluted
basis.  Also upon the closing of our transaction with Traffix, we
commenced trading on The NASDAQ Global Market under the symbol
“NWMO.”


2




On June
30 2008, New Motion entered into an Asset Purchase Agreement  (“APA”)
with Ringtone.com, LLC (“Ringtone”) and W3i Holdings LLC (“W3i”) pursuant to
which the Company acquired certain assets from Ringtone.com, including but not
limited to short codes, subscriber database, covenant not to compete , working
capital, and certain domain names. In consideration for the assets and certain
liabilities assumed, the Company at the closing paid to Ringtone.com
approximately $7 million in cash. In addition, the Company delivered to
Ringtone.com a convertible promissory note (the “Note”) in the aggregate
principal amount of $1.75 million, which accrues interest at a rate of 10% per
annum. As the effective conversion price was significantly greater than the fair
value of the Company's stock at the commitment date, no value was assigned to
the conversion feature upon issuance. The Note is payable on the earlier to
occur of either (i) July 1, 2009, or (ii) 5 days after the Company gives written
notice to Ringtone.com of its intent to prepay the Note (the “Maturity
Date”).  The Note is optionally convertible by Ringtone.com on the
Maturity Date into the Company’s common stock at a conversion price of $5.42 per
share.  This payment of principal and interest on the Note is subject
to certain recoupment provisions contained in the Note and APA.




On July
30, 2008, we entered into a Joint Venture Agreement to launch online and mobile
marketing services and offer our mobile products in the Indian market. Under the
agreement, we own 19% of the Joint Venture and are required to pay up to
$325,000 in return for Compulsory Convertible Debentures which can be converted
to common stock at any time, at our sole discretion. Amounts paid under the
agreement as of December 31, 2008 were $125,000.




On
October 30, 2008, we acquired a 36% minority interest in The Billing Resource,
LLC (“TBR”). TBR provides alternative billing services to us and unrelated third
parties. We contributed $2.2 million to TBR upon its formation and are committed
to provide an additional $1.0 million of working capital to TBR to support its
near-term growth.




On
December 2, 2008, we entered into a Marketing Services and Content Agreement
with Central Internet Corporation which operates the website www.shopit.com
(Hereinafter referred to as “Shopit”).  Under the agreement, we are
required to perform certain marketing and administrative services for Shopit and
distribute proprietary and third party advertisements through Shopit.com and its
social media advertising network. The agreement provides Shopit with a revenue
share of all leads monetized by the Company. As part of the agreement, we are
required to make periodic advance payments totaling $1.025 million through March
2009. The advances, which are secured under separate agreement, are recoverable
on a dollar for dollar basis against future revenues. As of December 31, 2008,
we had advanced $425,000 to Shopit pursuant to the terms of the
agreement.




The
Business of New Motion




New
Motion, Inc., doing business as Atrinsic, is one of the leading digital
advertising and marketing services company in the United States. Atrinsic is
organized as a single segment with two principal offerings: (1)
Transactional  services - offering full service online marketing and
distribution services which are targeted and measurable online campaigns and
programs for marketing partners, corporate advertisers, or their agencies,
generating qualified customer leads, online responses and activities, or
increased brand recognition, and (2) Subscription  services - offering
our portfolio of proprietary subscription based content applications direct to
consumers distributed on a mobile internet or PC internet billed in three ways:
to a mobile phone number, landline phone number , or, a credit
card.




Atrinsic
brings together the power of the Internet, the latest in mobile technology, and
traditional marketing/advertising methodologies, creating a fully integrated
multi platform vehicle for the advanced generation of qualified leads monetized
by the sale and distribution of subscription content, brand-based distribution
and pay-for-performance advertising. Atrinsic’s service’s content is organized
into four strategic content groups - digital music, casual games, interactive
contests, and communities/lifestyles. The Atrinsic brands include GatorArcade, a
premium online and mobile gaming site, Ringtone.com, a mobile music download
service, and iMatchUp, one of the first integrated web-mobile dating services.
Feature-rich Transactional advertising services include a mobile ad network,
extensive search capabilities, email marketing, one of the largest and growing
publisher networks, and proprietary subscription  content. Services
are provided on a variety of pricing models including cost per action, fixed
fee, or commission based arrangements.


3




Transactional
Service - Full Service Online Marketing and Lead Generation




Our
online marketing and distribution assets provide customers with a full range of
marketing alternatives, which includes our wholly owned content network,
affiliate marketing services, search engine marketing and optimization and list
management – for both email and mobile mediums.




Proprietary
Content Network: We own and operate a variety of Internet websites
featuring specialized content across four principal content categories:
interactive contests; casual games; communities and lifestyles; and digital
music. Traffic is directed to these proprietary websites through advertisements
on third-party Internet media (e.g., search engines, email and banner
advertisements) and through cross-marketing within Atrinsic’s own network.
Visitors to a content network website are ultimately directed to the valuable
and unique content which they are registering for, but during this registration
process, users are given the opportunity to sign-up or submit their contact
information, for other offers and for various products and
services.




Each of
the content sites is designed for a specific consumer interest category that we
match with client advertising/promotions that are expected to appeal to such
interest category. The advertisements are served across all of the network using
internally developed technology that serves ads to websites using an algorithm
that takes into account a number of factors, including information supplied by
the visitor upon registration, and by taking into account the price paid to
Atrinsic by the client for the advertisement (the higher the price the earlier
the offer or advertisement is displayed to the user).




Affiliate
Marketing: Our affiliate marketing service comprises an online
marketplace of more than 5,600 independent publishers who distribute internal
and third party offers. The affiliate marketing group manages the online
marketing mix for clients on a pay for performance basis via display
advertisements and lead generation across a diverse set of industry verticals.
This online marketplace allows publishers and advertisers to incorporate
numerous unique and exclusive deals and customized promotions. We also provide
affiliate partners with detailed tracking capabilities and significant
multi-level customer support services.




Search
Engine Marketing: We offer search engine marketing services, as well as
search engine optimization, giving clients access to organic search engine
results, which is one of the most popular mediums on which to advertise
websites. We develop and manage search engine marketing campaigns for our third
party advertising clients, as well as for our own proprietary websites,
promotions and offers. Using proprietary technology, we build, manage and
analyze the effectiveness of hundreds of thousands of pay per click keywords in
real time across each of the major search engines, like Google, Yahoo and MSN.
We also perform search engine optimization services, for which advertising
clients are billed a monthly retainer fee.




List
Management (Email and Mobile): Our list management services include
targeted access to both email addresses and mobile phone numbers. Through online
registrations, we capture email and cell phone addresses on free and paid for
websites, which allows us to aggregate a large amount of email and mobile data.
In addition to utilizing these lists for internal direct to consumer offers, we
serve clients through our list management business. We rent and manage our
proprietary, profiled databases. Programs can be implemented either through our
numerous web properties, through email marketing, or to mobile phones. We, as a
result of our regular operations, are constantly adding to our databases of
unique mobile phone records and online registrations and cell phone submissions,
in the process creating a substantial set of email and mobile lists that can be
marketed to clients or utilized for internal marketing programs.




New
Motion Subscription Based Services - Direct to Consumer Product




We have a
diverse portfolio of products and sites promoted as “direct to consumer” and
centered around four key areas: interactive contests; casual games; communities
and lifestyles; and digital music. We are focused on selectively increasing our
services portfolio with high-quality, innovative applications. This growing
portfolio of mobile subscription and Internet media services is based primarily
on internally generated content, augmented by licensed identifiable content,
such as games, ringtones, wallpapers and images from third parties to whom we
pay a licensing fee, generally on a per-download basis. The monthly end user
subscription fees for our wireless subscription products and services generally
range from $3.99 to $9.99.




Communities
and Lifestyles Whether it is cooking, dating, or astrology, we build the
spaces where relationships happen. Our communities are themed social networking
destinations, designed to connect people to other people with similar
interests. This category has users who self-select themselves in, so targeting
is easy and advertiser return on investment is high.


4




Digital
Music Everybody’s favorite tune has a home in Atrinsic’s digital music
sector. One of the first formats to make the transition from web to phone, we
started early on to gather one of the biggest music libraries in the digital
space. All music is fully licensed and legal for download. Across this category,
our products offer a selection of more than 35 genres and more than 30,000
songs. For our private label customers, our music library is
customizable.




Casual
Games Our casual gaming portfolio is expansive and growing, capturing
most every demographic and interest area, and offering multiple marketing
solutions. In addition to brand-building opportunities, our casual gaming
destinations can deliver traffic to third-party sites through our search, data,
email and publisher network. We also provide the option of flexible
configurations and alternative packaging of the casual game portfolio in myriad
combinations to suit the needs of publisher partners, to target niche markets,
and, of course, to serve our own gaming audience.




Interactive
Contests Our interactive contest and sweepstakes sites encourage an
engaged, repeat audience ideal for both advertising programs and lead
generation. As a result of the feature-rich relationship with participants,
advertisers have many ways to reach out and touch subscribers and users,
including through product placement through prize system and proprietary stores.
The sites feature sweepstakes, games, loyalty programs, discount online stores,
and extras like downloadable ringtones and wallpapers.




Our
direct to consumer business, regardless of the product or service sold, is
primarily a subscription based business. We frequently monitor a range of key
metrics that have a direct impact on our ability to retain existing subscribers
and our efficiency in acquiring new subscribers. Management regularly monitors
the Long Term Value (“LTV”) of those subscribers taking into consideration cost
per acquisition, churn rate of existing subscribers, churn rate of recurring
subscribers, average revenue per user, billability of new subscribers,
billability of existing subscribers and refund rates among others. Our ability
to receive information on a daily, weekly, and monthly basis in order to
calculate our operational metrics is critical to successfully running our
business.




The
Mobile Content Market




The
wireless market has emerged as a result of the rapid growth and significant
technological advancement in the wireless communications industry. Wireless
carriers are delivering new handsets to new and existing subscribers which have
the capability to download rich media content. Due to the increase in advanced
mobile phones with the capabilities to handle rich media downloads, the
potential market for mobile services will increase significantly in the coming
years.




We
believe that the growth in the wireless market has been positively influenced by
a number of key factors and trends that we expect to continue in the near
future, including:




·   Growth
in Wireless Subscribers. In 2005, the number of global wireless subscribers
surpassed two billion and subscriber growth is expected to continue as wireless
communications increase in emerging markets, including China and India.
According to ITFacts Mobile Usage, which information is available publicly, the
number of global wireless subscribers will grow from approximately 2 billion in
2005 to 2.3 billion in 2009. The North American wireless subscriber base
currently exceeds 219 million. New handset delivery and adoption is expected to
continue to accelerate in the U.S. market as current and new subscribers embrace
newer mobile technology and media.




·   Deployment
of Advanced Wireless Networks. Wireless carriers are deploying high-speed,
next-generation digital networks to enhance wireless voice and data
transmission. These advanced networks have enabled the provisioning and billing
of data applications and have increased the ability of wireless subscribers to
quickly download large amounts of data, including games, music and
video.




·   Availability
of Mobile Phones with Multimedia Capabilities. Annual mobile phone sales are
expected to grow from 520 million units in 2003 to over one billion units in
2009, according to publicly available research conducted by Gartner Inc. In
recent years, the mobile phone has evolved from a voice-only device to a
personal data and voice communications device that enables access to wireless
content and data services. Mobile phone manufacturers are competing for
consumers by designing next-generation mobile phones with enhanced features
including built-in digital cameras, color screens, music and data connectivity.
Manufacturers are also embedding application environments such as BREW, Java,
Symbian, iPhone and Android into mobile phones to enable multimedia
applications, including gaming. We believe the availability of these
next-generation mobile phones is driving demand for wireless subscription
applications taking advantage of these advanced multimedia
capabilities.  According to data released by NPD Group, 23% of all
mobile phones sold in the United States in the 4th quarter
of 2008, were Smartphones compared to 12% in the fourth quarter of
2007.


5




·   Off
Portal Direct to Consumer Market Dynamics. Prior to November 2004, all U.S.
carriers maintained a “walled garden” approach that prevented any direct to
consumer off portal sites from succeeding, while in Europe and Asia, a large
percentage of mobile subscription revenue came from off deck direct to consumer
portals. Witnessing the huge success of direct to consumer portals in those
geographies, specific U.S. carriers opened the walled garden in late 2004 and
early 2005. By allowing premium SMS billing to direct-to-consumer off portal
sites, the carriers opened up a potential multi-billion dollar industry
opportunity.




·   Demand
for Wireless Entertainment. Wireless carriers and other off-deck content
providers are increasingly launching and promoting wireless subscription
applications to differentiate their services and increase average revenue per
user. The delivery of games, ringtones, images and other subscription content to
subscribers enables wireless carriers to leverage both the increasing installed
base of next-generation mobile phones and their investment in high-bandwidth
wireless networks. Consumers are downloading and paying for wireless
subscription content offered by the carriers and off-deck providers. According
to eMarketer, the mobile content market is expected to grow from $1.5 billion in
revenue in 2007 to $37.5 billion by 2010, representing a compound annual growth
rate of 62%.




·   Growth
in Our Core Market – North America. According to IDC, the wireless
messaging market is forecast to grow from 54.6 billion messages in 2004 to 387.9
billion messages exchanged in 2009, and Juniper Research expects the North
American user base to increase steadily with a compounded growth rate of around
28%, which is roughly twice that of Europe. Even though Asia and Europe are
expected to remain the largest market for mobile entertainment, the North
American market will represent the highest growth potential. According to
Juniper Research, North America will represent a total of 12% of the mobile
subscription industry in 2006 and growing to 19% in 2009.




Mobile
Subscription and Internet Media Competitive Landscape




The
development, distribution and sale of wireless subscription applications is a
highly competitive business. In this market, we compete primarily on the basis
of marketing acquisition costs, brand strength, and carrier and distribution
breadth. We are also subject to intense competition in the online advertising
and Internet media market. Within these markets, we compete on the basis of
employing traditional direct marketing disciplines, such as continuously
analyzing marketing results and measuring advertising cost effectiveness, and
applying it to the online marketing world.




The
wireless subscription and online marketing markets are highly competitive and
characterized by frequent product introductions, evolving platforms and new
technologies. As demand for these services continues to increase, we expect new
competitors to enter the market and existing competitors to allocate more
resources to develop and market to customers. As a result, we expect competition
to intensify.




The
current and potential competition in the markets in which we operate includes
major media companies, traditional publishing companies, wireless carriers,
wireless software providers, Internet affiliate and network companies. Larger,
more established companies are increasingly focused on developing and
distributing products and services that directly compete with us.




Currently
some of our competitors in the mobile subscription market are Buongiorno,
Playphone, Dada Mobile, Acotel, Glu Mobile, Cellfish (Lagadere), Jamster (Fox),
Hands on Mobile and Thumbplay.




In the
online advertising and network market, competitors include Azoogle, Value Click,
Miva, Kowabunga! (Think Partnership), Right Media, Aptimus, iCrossing, 360i,
Omnicom, iProspect, Publicis(Formerly Digitas), and, Blue Lithium. We believe
that our extensive experience in Internet marketing, our existing subscriber
base and our range of products and services enable us to compete effectively
against all current and potential new entrants.


6




Distribution
Channels




We
currently distribute the majority of our subscription products and services
directly to consumers, or “offdeck,” which is independent of the carriers,
primarily through the Internet. We bill and collect revenues for our products
and services through third-party aggregators who are connected to the majority
of U.S. wireless carriers and their customers. We have agreements through
multiple aggregators who have direct access to U.S. carriers for billing. Our
customers download products or subscribe to services on their mobile phones and
are billed monthly through their wireless carrier. Both the carriers and the
aggregators retain fees for their services before amounts are remitted to us.
Our aggregator agreements are not exclusive and generally have a limited term of
one or two years, with evergreen or automatic renewal provisions upon expiration
of the initial term. The agreements generally do not obligate the carriers or
aggregators to market or distribute any of our products and services. In
addition, any party can terminate these agreements early and, in some instances,
without cause.




We have
agreements to distribute our subscription products in North America through a
number of aggregators who have access to the majority of U.S. and Canadian based
wireless carriers, whose networks serve approximately 215 million subscribers.
These wireless carriers include Cingular / AT&T Wireless, Nextel, Sprint
PCS, T-Mobile, Verizon Wireless and Alltel. In addition to agreements with
aggregators, we also have an agreement in place with AT&T Wireless to
distribute and bill for our products directly to subscribers on their
network.




For the
year ended December 31, 2008, we billed approximately 13% of our revenue through
aggregation services provided by one Aggregator with no more than 8% billed
through a second Aggregator. For the year ended December 31, 2007, we billed
approximately 87 % of our revenue through aggregation services provided by one
Aggregator with no more than 1% of our revenue billed through a second
Aggregator.




Technology
Platform




Our web
properties utilize proprietary technologies to generate real-time response-based
marketing results for our advertising clients. Our proprietary technology
continually analyzes marketing results to gauge whether campaigns are generating
adequate results for the client, whether the media is being utilized
cost-efficiently, and to determine whether new and different copy is yielding
better overall results. We also employ other proprietary tools which allow us to
monitor and analyze, in real time, our marketing and media costs associated with
various campaigns. The technology measures, in real time, effective buys on a
per campaign basis which allows us to adjust marketing efforts immediately
towards the most effective campaigns and mediums. These tools allow us to be
more efficient and effective in our media buys. We believe we have a low cost
per acquisition rate, due in large part due to these technologies.




Employees




As of
December 31, 2008, New Motion has 206 employees and full-time consultants in the
United States and Canada. We have never had a work stoppage and none of our
employees are represented by a labor organization or under any collective
bargaining arrangements. We consider our employee relations to be
good.




Government
Regulation




As a
direct-to-consumer marketing company we are subject to a variety of Federal,
State and Local laws and regulations designed to protect consumers that govern
certain of our marketing practices. Also, since our products and services are
accessible on mobile phones and the Internet, we are exposed to legal and
regulatory developments affecting the Internet and telecommunications services
in general.




There is
substantial uncertainty as to the applicability to the Internet of existing laws
governing issues such as property ownership, copyrights and other intellectual
property issues, taxation, defamation, obscenity and privacy. The vast majority
of these laws were adopted prior to the advent of the Internet and, as a result,
did not contemplate the unique issues of the Internet. In addition, there have
been various regulations and court cases relating to companies’ online business
activities, including in the areas of data protection, trademark, copyright,
fraud, indecency, obscenity and defamation. Future developments in the law might
decrease the growth of the Internet, impose taxes or other costly technical
requirements, create uncertainty in the market or in some other manner have an
adverse effect on the Internet. These developments could, in turn, have a
material adverse effect on our business, prospects, financial condition and
results of operations.




Due to
the increasing popularity and use of the Internet, a number of laws and
regulations have been adopted at the international, federal, state and local
levels with respect to the Internet. Many of these laws cover issues such as
privacy, freedom of expression, pricing, online products and services, taxation,
advertising, intellectual property, information security and the convergence of
traditional telecommunications services with Internet communications. Moreover,
a number of laws and regulations have been proposed and are currently being
considered by Federal, State, Local and foreign legislatures with respect to
these issues. The nature of any new laws and regulations and the manner in which
existing and new laws and regulations may be interpreted and enforced cannot be
fully determined.


7




We
provide many of our services through carriers’ networks. These networks are
subject to regulation by the U.S. Federal Communications Commission (“FCC”),
state public utility commissions and foreign governmental authorities. However,
in the Company’s capacity of providing services via the Internet, it is
generally not subject to direct regulation by the FCC.




Federal
legislation was signed into law, effective January 1, 2004, substantially
pre-empting existing and pending state email marketing legislation. The CAN-SPAM
Act of 2003 (“CAN-SPAM”) requires that certain “opt-out” procedures, including,
but not limited to, a functioning return e-mail address, be included in
commercial e-mail marketing. CAN-SPAM prohibits the sending of e-mail containing
false, deceptive or misleading subject lines, routing information, headers
and/or return address information; however, CAN-SPAM does not permit consumers
to file suit against e-mail marketers for violations of CAN-SPAM. We believe
that this may benefit us, as individuals will be more limited in their ability
to file frivolous suits against us. If any subsequent federal regulations are
enacted, including, but not limited to, those implementing regulations
promulgated by the FCC that limit our ability to market our products and
services, such regulations could potentially have a material adverse impact in
our future fiscal period net revenue growth, and, therefore, our profitability
and cash flows could be adversely affected.




In
contrast to CAN-SPAM, most state deceptive marketing statutes contain private
rights of action. Such private right of action lawsuits may have an adverse
impact in future fiscal period net revenue growth, as individuals may be more
inclined to file frivolous state deceptive marketing suits against
us.




In August
2004, under its rule-making authority, the FCC adopted rules prohibiting sending
of unsolicited commercial e-mails to wireless phones and pagers. To assist in
compliance with the rules, the FCC published on February 7, 2005 a list of mail
domain names associated with wireless devices. Senders were given thirty (30)
days to come into compliance. Thereafter, it became illegal to send unsolicited
commercial e-mail to a domain address on the list unless the subscriber gave
prior express authorization. The effect of these rules is to create a ‘double
opt-in’ requirement for each sender of mail (advertiser and publisher). The
practical consequence of these requirements on senders of commercial e-mail is
that conducting compliant campaigns will necessitate the suppression of the
domains listed in the FCC's list of wireless domains. Additionally, since domain
suppression is now required as a practical matter by law, any campaigns that
have domain suppression lists will have those lists included with the regular
e-mail suppression lists. Our publishers will be required to suppress the domain
lists associated with each campaign in the same manner that they already
suppress the e-mail address lists. Although these regulations do not have a
material adverse impact on our current operations, there can be no assurance
that they will not have a material adverse impact on our future
operations.




Under its
rule-making authority, in May 2005, the Department of Justice adopted rules that
amend the record keeping and inspection requirements for producers of sexually
explicit performances. Codified in 18 U.S.C. 2257 of the federal criminal code,
Section 2257, as amended, went into effect on June 23, 2005 and requires a class
referred to as “secondary producers” to comply with the record keeping and
inspection requirements that apply to primary producers. On June 16, 2005, The
Free Speech Coalition, Inc. brought an action challenging, among other things,
the extent to which webmasters and/or web sites fall under the definition of
secondary producers under the new Section 2257 regulations. In a ruling issued
December 28, 2005, the U.S. District Court rejected the establishment of a class
of secondary producers that would have to comply with the recordkeeping and
inspection requirements of Section 2257 and reaffirmed the decision in Sundance
Associates v. Reno, which held that primary producers would be limited to those
persons involved in the “hiring, contracting for, managing, or otherwise
arranging for the participating of the depicted performer.” Secondary producers
will likely still have to comply with the labeling requirements of Section 2257,
which require that secondary producers obtain from the primary producer a letter
or other correspondence indicating who the custodian of records is, where such
records are kept and the date of production of the material. The ruling in this
proceeding is limited to current or future members of The Free Speech Coalition,
Inc. There is the risk that the definition of secondary producers may be
reinstated and/or more broadly interpreted in the future. At this juncture,
Section 2257 has had no material effect on our net revenue growth, profitability
and cash flows.


8


The
states of Michigan and Utah have passed Child Protection Registry laws that bar
the transmission of commercial e-mail to registered state residents under the
age of eighteen (collectively, the “Statutes”). The Statutes contain provisions
for fines and jail time for violators, and create a private right of action for
aggrieved parties. Under the Statutes, state residents may register any e-mail
address, fax number, wireless contact information or instant message identifier
assigned to the account of a minor or one to which a minor has access. Unlike
other e-mail marketing statutes, there are no opt-in or pre-existing business
relationship exceptions. The Statutes provide that once an address of a state
resident is on the registry for thirty (30) days, commercial emailers are
prohibited from sending to that address anything containing an advertisement, or
even a link to an advertisement, for a product or service that a minor is
legally prohibited from accessing. Such products and/or services include, but
are not limited to, alcohol, tobacco, gambling, firearms, automotive, financial,
prescription drug and adult material. This prohibition remains in force even if
the e-mail or other communication is otherwise solicited. The Free Speech
Coalition, Inc. has brought an action that challenges certain aspects of the
Utah Child Protection Registry law; no decision on this proceeding has yet been
rendered. We await the results of this action. To the extent we market these
types of products and/or services; we have blocked sending such e-mail to
Michigan and Utah residents. State action was initiated in 2005 and early 2006
in the respective legislative bodies in the states of Illinois, Connecticut,
Georgia, Hawaii, Iowa and Wisconsin in order to pursue the enactment of
legislation similar to the Statutes that will create state-level e-mail
registries for minors. None of the proposed legislation has been enacted as of
yet. We await the results of the respective legislative processes associated
with these proposed child email registry laws. Depending on the outcome, and to
the extent we market these types of products and/or services, we may have to
block sending such e-mail to Illinois, Connecticut, Georgia, Hawaii and/or
Iowa.




Federal
legislation was signed into law, effective December 1, 2006, that makes changes
to the Federal Rules of Civil Procedure (“Rules”) affecting the storing,
retention and production of electronically stored information (“ESI”) in
connection with discovery pursuant to litigation. As a result of the changes to
the Rules, attorneys will be required to advise their adversaries, during
litigation, of the details of their clients’ ESI retention and management
systems and, in many instances, produce ESI including, but not limited to,
e-mails. As a result of these changes to the Rules, companies should: (i)
identify the various forms of ESI generated in the course of business, and where
such ESI is stored; (ii) implement systems and technology capable of storing and
retrieving such ESI, as necessary; and (iii) adopt a clear ESI document
retention program and adhere to same at all times. The requirements imposed by
the changes to the Rules as detailed above could require us to change our
ESI-related programs at some additional cost. In addition, any subsequent
litigation could result in substantially higher costs as a result of the need to
produce greater quantities of ESI, which could have a material adverse impact on
profitability and cash flows.




Legislation
has been passed in a number of states that are intended to regulate “spyware”
and, to a limited extent, the use of “cookies.” Of particular significance is
the Revised Utah Spyware Control Act (the “Utah Act”) that bars a person or
company from using a context-based trigger mechanism to display an advertisement
that partially or wholly covers paid advertising or other content on a website
in a way that interferes with the user's ability to view the website. The Utah
Act also requires purveyors of pop-up advertising to ask whether a user is a
resident of the state of Utah before downloading spyware software onto the
user's computer and further allows a trademark owner to sue any person or
company who displays a pop-up advertisement in violation of a specific trademark
protection which is set forth in the Utah Act. The State of Alaska has enacted
similar legislation that bars the same means of delivering advertisements as the
Utah Act, and requires similar verification of residency prior to downloading
spyware or “adware” software onto the user's computer. In practice, we do not
provide or use spyware in our marketing, but if more restrictive legislation is
adopted, we may be required to develop new technology and/or methods to provide
our services or discontinue services in some jurisdictions altogether.
Additionally, there is a risk that state courts will broadly interpret the term
spyware to include legitimate ad-serving software and/or cookie technology that
we currently provide or use.




At the
federal level, competing bills are pending which are also intended to regulate
spyware and, to a limited extent, the use of cookies. Spyware has not been
precisely defined in existing and pending legislation, but is generally
considered to include software which is installed on consumers’ computers and
designed to track consumers’ activities and collect and possibly disseminate
information, including personally identifiable information, about those
consumers without their knowledge and consent. As stated above, Atrinsic does
not provide or use spyware in its marketing practices, but there is the risk
that the definition of spyware may be broadly interpreted to include legitimate
ad-serving software and/or cookie technology that is currently provided or used
by us. Anti-spyware legislation has (1) generally included a limited exemption
for the use of cookies; and (2) focused on providing consumers with notification
and the option to accept or decline the installation of spyware software.
However, there can be no assurance that future legislation will not incorporate
more burdensome standards by which the use of cookies will not be exempted and
software downloading onto consumers’ computers will not be more strictly
enforced. If more restrictive legislation is adopted, we may be required to
develop new technology and/or methods to provide our services or discontinue
services in some jurisdictions altogether.


9


Legislation
has also been passed at the state level and competing bills are pending at the
federal level which are intended to require that businesses and institutions
provide notice to consumers of any potential theft or loss of sensitive consumer
information then in possession of the applicable business or institution. At the
state level, laws that recently took effect in the states of Arizona, Colorado,
Hawaii, Idaho, Indiana, Kansas, Nebraska, Utah, Vermont and Wisconsin require
companies, governmental agencies and private organizations to notify individuals
in cases where their confidential information has been exposed to possible data
thieves (the “New State Laws”). Upon taking effect on April 1, 2006, April 10,
2006, June 27, 2006, July 1, 2006, September 1, 2006, December 31, 2006 and
January 1, 2007, as applicable, the New State Laws make customer notification
mandatory in the event that personally identifiable information (including, but
not limited to, social security numbers, driver's license numbers or bank and
financial account numbers) has been accessed improperly by third parties. The
New State Laws are in addition to similar laws previously in effect in at least
twenty-four (24) other states including the states of Arkansas, California,
Connecticut, Delaware, Florida, Georgia, Illinois, Louisiana, Maine, Michigan,
Minnesota, Montana, Nevada, New Hampshire, New Jersey, New York, North Carolina
North Dakota, Ohio, Pennsylvania, Rhode Island, Tennessee, Texas and Washington
that all require consumer notification where confidential or sensitive
information has been improperly accessed, lost or stolen (together with the New
State Laws, the “Information Security Laws”). The Information Security Laws also
impose obligations on companies that collect, store and transmit sensitive
information to use secure socket and/or encryption technologies, as applicable,
when performing the aforementioned tasks. To the extent that we collect such
personally identifiable information, the Information Security Laws may increase
our costs to protect such information.




At the
Federal level, the FCC, pursuant to its enforcement authority, filed a complaint
against BJ’s Wholesale Club, Inc. (“BJ's”) for violation of the FCC Act in
connection with the theft of consumer credit/debit card information which was
then in BJ’s possession. The FCC alleged that BJ’s failure to secure customers'
sensitive information was an unfair practice under the FCC Act because it caused
substantial injury that was not reasonably avoidable by consumers and not
outweighed by offsetting benefits to consumers or competition. BJ’s agreed to a
settlement that requires BJ’s to establish and maintain a comprehensive
information security program that includes administrative, technical and
physical safeguards. Although we do not anticipate that this interpretation of
the FCC Act, nor the Information Security Laws requiring notice of theft or loss
of sensitive consumer information, will have a material adverse impact on our
current operations, we could potentially be subject to regulatory proceedings
for past and current practices in connection with the storage and security of
sensitive consumer information and notice of such sensitive consumer
information's theft or loss. In addition, we may be required to make changes in
our future practices relating to the storage, security and provision of notice
in connection with sensitive consumer information.




At
present, the laws and regulations governing the Internet remain largely
unsettled, even in areas where there has been legislative and/or regulatory
action. It is uncertain as to how long it will take to determine the extent to
which existing laws, including, but not limited to, those relating to
intellectual property, advertising, sweepstakes and privacy, apply to the
Internet and Internet marketing. Recently, growing public concern regarding
privacy and the collection, distribution and use of Internet user information
has led to increased Federal and state scrutiny, as well as regulatory activity
concerning data collection, record keeping, storage, security, notification of
data theft, and associated use practices. The application of existing laws or
the adoption or modification of laws or regulations in the future, together with
increased regulatory scrutiny, could materially and adversely affect our
business, prospects, results of operations and financial condition and could
potentially expose us and/or our clients to fines, litigation, cease and desist
orders and civil and criminal liability.




ITEM
1A. RISK FACTORS




Investing
in our common stock involves a high degree of risk. You should carefully
consider the following risk factors and all other information contained in this
report before purchasing our common stock. The risks and uncertainties described
below are not the only ones facing us. Additional risks and uncertainties that
management is unaware of, or that it currently deems immaterial, also may become
important factors that affect us. If any of the following risks occur, our
business, financial condition, cash flows and/or results of operations could be
materially and adversely affected. In that case, the trading price of our common
stock could decline, and stockholders are at risk of losing some or all of the
money invested in purchasing our common stock.




We
have a limited operating history in an emerging market, which may make it
difficult to evaluate our business.




Our
wholly-owned subsidiary, New Motion Mobile, commenced offering subscription
products and services directly to consumers in 2005.  In addition, our
merger with Traffix, which is responsible for generating the majority of our
Transactional revenues, was completed at the beginning of
2008.  Accordingly, we have a limited history of generating revenues,
and our future revenue and income generating potential is uncertain and unproven
based on our limited operating history. As a result of our short operating
history, we have limited financial data that can be used to develop trends and
other historical based evaluation methods to project and forecast our business.
Any evaluation of our business and the potential prospects derived from such
evaluation must be considered in light of our limited operating history and
discounted accordingly. Evaluations of our current business model and our future
prospects must address the risks and uncertainties encountered by companies in
early stages of development, that possess limited operating history, and that
are conducting business in new and emerging markets.


10




The
following is a list of some of the risks and uncertainties that exist in our
operating, and competitive marketing environment. To be successful, we believe
that we must:




·
            Maintain
      and develop new wireless carrier and billing aggregator relationships upon
      which our business currently
depends;


·
            Maintain
      a compliance based control system to render our products and services
      compliant with carrier and aggregator demands, as well as marketing
      practices imposed by private marketing rule makers, such as the Mobile
      Marketing Association (MMA), and to conform with the stringent marketing
      demands as imposed by various States’ Attorney
  Generals;


·
            Respond
      effectively to competitive pressures in order to maintain our market
      position;


·
            Increase
      brand awareness and consumer recognition to secure continued
      growth;


·
            Attract
      and retain qualified management and employees for the expansion of the
      operating platform;


·
            Continue
      to upgrade our technology to process increased usage and remain
      competitive with message delivery;


·
            Continue
      to upgrade our information processing systems to assess marketing results
      and customer satisfaction ;


·
            Continue
      to develop and source high-quality mobile content that achieves
      significant market acceptance;


·
            Maintain
      and grow our off-deck distribution (“off-deck” refers primarily to
      services delivered through the Internet, which are independent of the
      carriers own product and service offers), including such distribution
      through our web sites and third-party direct-to-consumer
      distributors;


·
            Execute
      our business and marketing strategies
  successfully.





If we are
unable to address these risks, and respond accordingly, our operating results
may not meet our publicly forecasted expectations, and/or the expectations as
derived by our investors, which could cause the price of our common stock to
decline.




Our
business relies on wireless carriers and aggregators to facilitate billing and
collections in connection with our subscription products sold and services
rendered. The loss of, or a material change in, any of these relationships could
materially and adversely affect our business, operating results and financial
condition.




During
the year ended December 31, 2008, we generated a significant portion of our
revenues from the sale of our products and services directly to consumers which
are billed through wireless aggregators and carriers. We expect that we will
continue to bill a significant portion of our revenues through a limited number
of aggregators for the foreseeable future, although these aggregators may vary
from period to period. In a risk diversification and cost saving effort, we have
established a direct billing relationship with a carrier that mitigates a
portion of our revenue generation risk as it relates to aggregator dependence;
conversely this risk is replaced with internal performance risk regarding our
ability to successfully process billable messages directly with the
carrier.




Our
aggregator agreements are not exclusive and generally have a limited term of
less than three years with automatic renewal provisions upon expiration in the
majority of the agreements. These agreements set out the terms of our
relationships with the carriers, and provide that either party to the contract
can terminate such agreement prior to its expiration, and in some instances,
terminate without cause.




Many
other factors exist that are outside of our control and could impair our
carrier relationships, including:




·
            a
      carrier’s decision to suspend delivery of our products and services to its
      customer base;


·
            a
      carrier’s decision to offer its own competing subscription applications,
      products and services;


·
            a
      carrier’s decision to offer similar subscription applications, products
      and services to its subscribers for price points less than our offered
      price points, or for free;


·
            a
      network encountering technical problems that disrupt the delivery of, or
      billing for, our applications;


11





·
            the
      potential for concentrations of credit risk embedded in the amounts
      receivable from the aggregator should any one, or group if aggregators
      encounter financial difficulties, directly or indirectly, as a result of
      the current period of slower economic growth currently affecting the
      United States; or


·
            a
      carrier’s decision to increase the fees it charges to market and
      distribute our applications, thereby increasing its own revenue and
      decreasing our share of revenue.




If one or
more of these wireless carriers decides to suspend the offering of off-deck
applications, we may be unable to replace such revenue source with an acceptable
alternative, within an acceptable time frame. This could cause us to lose the
capability to derive revenue from those subscribers, which could materially harm
our business, operating results and financial condition.




We
depend on third-party internet and telecommunications providers, over whom we
have no control, for the conduct of our subscription business and transactional
business. Interruptions in or the discontinuance of the services provided by one
of the providers could have an adverse effect on revenue; and securing alternate
sources of these services could significantly increase expenses and cause
significant interruption to both our transactional and subscription
businesses.




We depend
heavily on several third-party providers of Internet and related
telecommunication services, including hosting and co-location facilities, in
conducting our business. These companies may not continue to provide services to
us without disruptions in service, at the current cost or at all. The costs
associated with any transition to a new service provider would be substantial,
requiring the reengineering of computer systems and telecommunications
infrastructure to accommodate a new service provider to allow for a rapid
replacement and return to normal network operations. This process would be both
expensive and time-consuming. In addition, failure of the Internet and related
telecommunications providers to provide the data communications capacity in the
time frame required by us could cause interruptions in the services we provide
across all of our business activities. In addition to service interruptions
arising from third-party service providers, unanticipated problems affecting our
proprietary internal computer and telecommunications systems have the potential
to occur in future fiscal periods, and could cause interruptions in the delivery
of services, causing a loss of revenue and related gross margins, and the
potential loss of customers, all of which could materially and adversely affect
our business, results of operations and financial condition.




If
advertising on the internet loses its appeal, our revenue could
decline.




Companies
doing business on the Internet must compete with traditional advertising media,
including television, radio, cable and print, for a share of advertisers' total
marketing budgets. Potential customers may be reluctant to devote a significant
portion of their marketing budget to Internet advertising or digital marketing
if they perceive the Internet to be trending towards a limited or ineffective
marketing medium. Any shift in marketing budgets away from Internet advertising
spending or digital marketing solutions, could directly, materially and
adversely affect our transactional business, as well as our subscription
business, with both having a materially negative impact on our results of
operations and financial condition.




During 2008, all of
our revenue was generated, directly or indirectly, through the Internet in part
by delivering advertisements that generate leads, impressions, click-throughs,
and other actions to our advertiser customers' websites as well as confirmation
and management of mobile services.  This business model may not
continue to be effective in the future for the following reasons:




·
            click
      and conversion rates may decline as the number of advertisements and ad
      formats on the Web increases, making it less likely that a user will click
      on our advertisement;


·
            the
      installation of "filter" software programs by web users which prevent
      advertisements from appearing on their computer screens or in their email
      boxes may reduce click throughs;


·
            companies
      may be reluctant or slow to adopt online advertising that replaces, limits
      or competes with their existing direct marketing
  efforts;


·
            companies
      may prefer other forms of Internet advertising we do not offer, including
      certain forms of search engine
placements;


·
              companies
      may reject or discontinue the use of certain forms of online promotions
      that may conflict with their brand objectives;·
              companies
      may not utilize online advertising due to concerns of "click-fraud",
      particularly related to search engine
  placements;


12




·
            regulatory
      actions may negatively impact certain business practices that we currently
      rely on to generate a portion of our revenue and profitability;
      and


·
            perceived
      lead quality.




If the
number of companies who purchase online advertising from us does not continue to
grow, we may experience difficulty in attracting publishers, and our revenue
could decline.




Our
revenue could decline if we fail to effectively monetize our content and our
growth could be impeded if we fail to acquire or develop new
content




Our
success depends in part on our ability to effectively manage our existing
content. The Web publishers and email list owners that list their unsold leads,
data or offers with us are not bound by long-term contracts that ensure us a
consistent supply of same. In addition, Web publishers or email list owners can
change the amount of content they make available to us at any time. If a Web
publisher or email list owner decides not to make content from its websites,
newsletters or email lists available to us, we may not be able to replace this
content with content from other Web publishers or email list owners that have
comparable traffic patterns and user demographics quickly enough to fulfill our
advertisers' requests. This would result in lost revenue.




If
we fail to compete effectively against other internet advertising companies, we
could lose customers or advertising inventory and our revenue and results of
operations could decline.




The
Internet advertising markets are characterized by rapidly changing technologies,
evolving industry standards, frequent new product and service introductions, and
changing customer demands. The introduction of new products and services
embodying new technologies and the emergence of new industry standards and
practices could render our existing products and services obsolete and
unmarketable or require unanticipated technology or other investments. Our
failure to adapt successfully to these changes could harm our business, results
of operations and financial condition.




If
we are unable to successfully keep pace with the rapid technological changes
that may occur in the wireless communication, internet and e-commerce arenas, we
could lose customers or advertising inventory and our revenue and results of
operations could decline.




To remain
competitive, we must continually monitor, enhance and improve the
responsiveness, functionality and features of our services, offered both in our
subscription and transactional activities. Wireless network and mobile phone
technologies, the Internet and the online commerce industry in general are
characterized by rapid innovation and technological change, changes in user and
customer requirements and preferences, frequent new product and service
introductions requiring new technologies to facilitate commercial delivery, as
well as the emergence of new industry standards and practices that could render
existing technologies, systems, business methods and/or our products and
services obsolete or unmarketable in future fiscal periods. Our success in our
business activities will depend, in part, on our ability to license or
internally develop leading technologies that address the increasingly
sophisticated and varied needs of prospective consumers, and respond to
technological advances and emerging industry standards and practices on a
timely-cost-effective basis. Website and other proprietary technology
development entails significant technical and business risks, including the
significant cost and time to complete development, the successful implementation
of the application once developed, and time period for which the application
will be useful prior to obsolescence. There can be no assurance that we will use
internally developed or acquired new technologies effectively or adapt existing
websites and operational systems to customer requirements or emerging industry
standards. If we are unable, for technical, legal, financial or other reasons,
to adopt and implement new technologies on a timely basis in response to
changing market conditions or customer requirements, our business, prospects,
financial condition and results of operations could be materially adversely
affected.


13




We
could be subject to legal claims, government enforcement actions, and be held
accountable for our or our customers' failure to comply with federal, state and
foreign laws, regulations or policies, all of which could materially harm
our business.




As a direct-to-consumer
marketing company, we are subject to a variety of federal, state and local laws
and regulations designed to protect consumers that govern certain of aspects of
our business.  For instance,recent growing public concern
regarding privacy and the collection, distribution and use of information about
Internet users has led to increased federal, state and foreign scrutiny and
legislative and regulatory activity concerning data collection and use
practices.. Any failure by us to comply with applicable federal, state and
foreign laws and the requirements of regulatory authorities may result in, among
other things, indemnification liability to our customers and the advertising
agencies we work with, administrative enforcement actions and fines, class
action lawsuits, cease and desist orders, and civil and criminal
liability.




Our
customers are also subject to various federal and state laws concerning the
collection and use of information regarding individuals. These laws include the
Children's Online Privacy Protection Act, the Federal CAN-SPAM Act of 2003, as
well as other laws that govern the collection and use of consumer credit
information. We cannot assure you that our customers are currently in
compliance, or will remain in compliance, with these laws and their own privacy
policies. We may be held liable if our customers use our technologies in a
manner that is not in compliance with these laws or their own stated privacy
policies, which would have an adverse impact on our operations.




Our
success depends on our ability to continue forming relationships with other
Internet and interactive media content, service and product
providers.




The
Internet includes an ever-increasing number of businesses that offer and market
consumer products and services. These entities offer advertising space on their
websites, as well as profit sharing arrangements for joint effort marketing
programs. We expect that with the increasing number of entrants into the
Internet commerce arena, advertising costs and joint effort marketing programs
will become extremely competitive. This competitive environment might limit, or
possibly prevent us from obtaining profit generating advertising or reduce our
margins on such advertising, and reduce our ability to enter into joint
marketing programs in the future. If we fail to continue establishing new, and
maintain and expand existing, profitable advertising and joint marketing
arrangements, we may suffer substantial adverse consequences to our financial
condition and results of operations. Additionally, we, as a result of our
acquisition of Traffix, now have a significant economic dependence on the major
search engine companies that conduct business on the Internet; such search
engine companies maintain ever changing rules regarding scoring and indexing
their customers marketing search terms. If we cannot effectively monitor the
ever changing scoring and indexing criteria, and affectively adjust our search
term applications to conform to such scoring and indexing, we could suffer a
material decline in our search term generated acquisitions, correspondingly
reducing our ability to fulfill our clients marketing needs. This would have an
adverse impact on our company’s revenues and profitability.




The
demand for a portion of our transactional services may decline due to the
proliferation of “spam” and the expanded commercial adoption of software
designed to prevent its delivery.




Our
business may be adversely affected by the proliferation of "spam" or unwanted
internet solicitations. In response to the proliferation of spam, Internet
Service Providers ("ISP's") have been adopting technologies, and individual
computer users are installing software on their computers that are designed to
prevent the delivery of certain Internet advertising, including legitimate
solicitations such as those delivered by us. We cannot assure you that the
number of ISP's and individual computer users who employ these or other similar
technologies and software will not increase, thereby diminishing the efficacy of
our transactional, as well as our subscription service activities. In the case
that one or more of these technologies, or software applications, realize
continued and/or widely increased adoption, demand for our services could
decline in response.




We
have no intention to pay dividends on our equity securities.




Our
recently acquired subsidiary, Traffix, had paid dividend of $0.08 per share on
its common stock for its last 18 fiscal quarters prior to the acquisition. It is
our current and long-term intention that we will use all cash flows to fund
operations and maintain excess cash requirements for the possibility of
potential future acquisitions.  We may also use our cash to repurchase
shares pursuant to our share repurchase program discussed elsewhere in this
report. Future dividend declarations, if any, will result from our reversal of
our current intentions, and would depend on our performance, the level of our
then current and retained earnings and other pertinent factors relating to our
financial position. Prior dividend declarations should not be considered as an
indication for the potential for any future dividend
declarations.


14




We
face intense competition in the marketing of our subscription services and the
products of our transaction based clients.




In both
our subscription services and transaction services, we compete primarily on the
basis of marketing acquisition cost, brand awareness, consumer penetration and
carrier and distribution depth and breadth.  We consider our primary
subscription business competitors to be Buongiorno, Playphone, Dada Mobile,
Acotel, Glu Mobile, Cellfish (Lagadere), Jamster (Fox), Hands on Mobile and
Thumbplay. In our transactional business, we consider Azoogle, Value Click,
Miva, Kowabunga! (Think Partnership), Right Media, iCrossing, 360i, iProspect,
Publicis (Formerly Digitas), Omnicom, Aptimus and Blue Lithium to be our primary
competitors. In the future, likely competitors may include other major media
companies, traditional video game publishers, wireless carriers, content
aggregators, wireless software providers and other pure-play wireless
subscription publishers, and Internet affiliate and network
companies.




If we are
not as successful as our competitors in executing on our strategy in targeting
new markets, increasing customer penetration in existing markets, executing on
marquee brand alignment, and/or effectively executing on business level
accretive acquisition identification and successful closing and post acquisition
integration, our sales could decline, our margins could be negatively impacted
and we could lose market share, any and all of which could materially harm our
business prospects, and potentially have a negative impact on our share
price.




If
we do not successfully execute our international strategy, our revenue, results
of operations and the growth of our business could be harmed.




Our
planned international expansion and the integration of international operations
present unique challenges and risks to our company, and require management
attention. Our foreign operations subject us to foreign currency exchange rate
risks and we currently do not utilize hedging instruments to mitigate foreign
currency exchange rate risks.




Our
continued international expansion will subject us to additional foreign currency
exchange rate risks and will require additional management attention and
resources. We cannot assure you that we will be successful in our international
expansion and operations efforts. Our international operations and expansion
subject us to other inherent risks, including, but not limited to: the
impact of recessions in economies outside of the United States; changes in
and differences between regulatory requirements between countries; U.S. and
foreign export restrictions, including export controls relating to encryption
technologies; reduced protection for and enforcement of intellectual property
rights in some countries; potentially adverse tax consequences;
difficulties and costs of staffing and managing foreign operations; political
and economic instability; tariffs and other trade barriers; and seasonal
reductions in business activity.




Our
failure to address these risks adequately could materially and adversely affect
our business, revenue, results of operations and financial
condition.




System
failures could significantly disrupt our operations, which could cause us to
lose customers or content.




Our
success depends on the continuing and uninterrupted performance of our systems.
Sustained or repeated system failures that interrupt our ability to provide
services to customers, including failures affecting our ability to deliver
advertisements quickly and accurately and to process visitors' responses to
advertisements, and, validate mobile subscriptions, would reduce significantly
the attractiveness of our solutions to advertisers and Web publishers. Our
business, results of operations and financial condition could also be materially
and adversely affected by any systems damage or failure that impacts data
integrity or interrupts or delays our operations. Our computer systems are
vulnerable to damage from a variety of sources, including telecommunications
failures, power outages, malicious or accidental human acts, and natural
disasters. We operate a data center in Canada and have a co-location agreement
with a service provider to support our operations. Therefore, any of the above
factors affecting any of these areas could substantially harm our business.
Moreover, despite network security measures, our servers are potentially
vulnerable to physical or electronic break-ins, computer viruses and similar
disruptive problems in part because we cannot control the maintenance and
operation of our third-party data centers. Despite the precautions taken,
unanticipated problems affecting our systems could cause interruptions in the
delivery of our solutions in the future and our ability to provide a record of
past transactions. Our data centers and systems incorporate varying degrees of
redundancy. All data centers and systems may not automatically switch over to
their redundant counterpart. Our insurance policies may not adequately
compensate us for any losses that may occur due to any failures in
our systems.


15




We
are dependent on our key personnel for managing our business affairs. The loss
of their services could materially and adversely affect the conduct and the
continuation of our business.




We are
and will be highly dependent upon the efforts of the members of our management
team, particularly those of our Chief Executive Officer, Burton Katz, our
President, Andrew Stollman, our Executive Vice President, Corporate Development,
Raymond Musci and our Chief Financial Officer, Andrew Zaref. The loss of the
services of Messrs. Katz, Stollman, Musci or Zaref may impede the execution of
our business strategy and the achievement of our business objectives. We can
give you no assurance that we will be able to attract and retain the qualified
personnel necessary for the development of our business. Our failure to recruit
key personnel or our failure to adequately train, motivate and supervise our
existing or future personnel will adversely affect our operations.




Decreased
effectiveness of equity compensation could adversely affect our ability to
attract and retain employees and harm our business.




We have
historically used stock options as a key component of our employee compensation
program in order to align employees' interests with the interests of our
stockholders, encourage employee retention, and provide competitive compensation
packages. Volatility or lack of positive performance in our stock price may
adversely affect our ability to retain key employees, many of whom have been
granted stock options, or to attract additional highly-qualified personnel. As
of December 31, 2008, a majority of our outstanding employee stock options
have exercise prices in excess of the stock price on that date. To the extent
this continues to occur, our ability to retain employees may be adversely
affected. Moreover, applicable NASDAQ listing standards relating to obtaining
stockholder approval of equity compensation plans could make it more difficult
or expensive for us to grant stock options or other stock-based awards to
employees in the future. As a result, we may incur increased compensation costs,
change our equity compensation strategy or find it difficult to attract, retain
and motivate employees, any of which could materially, adversely affect
our business.




We
have been named as a defendant in litigation, either directly, or indirectly,
with the outcome of such litigation being unpredictable; a materially adverse
decision in any such matter could have a material adverse affect on our
financial position and results of operations.




As
described below and as described under the heading "Legal Proceedings" in our
periodic reports filed pursuant to the Securities Exchange Act of 1934, from
time to time we are named as a defendant in litigation matters. The defense of
these claims may divert financial and management resources that would otherwise
be used to benefit our operations. Although we believe that we have meritorious
defenses to the claims made in each and all of the litigation matters to which
we have been a named party, whether directly or indirectly, and intend to
contest each lawsuit vigorously, no assurances can be given that the results of
these matters will be favorable to us. A materially adverse resolution of any of
these lawsuits could have a material adverse affect on our financial position
and results of operations.




In 2007,
the Office of the Attorney General of the State of Florida commenced an
investigation of the advertising and business practices of the third party
wireless content industry including the Company and its acquired entities,
namely Traffix, Inc. On February 12, 2009, the Company approached the Florida
Attorney General to volunteer its compliance and cooperate with the ongoing
investigation, and contribute to the remediation and educational initiatives of
the Florida Attorney General.  In connection with this matter, at
December 31, 2008 the Company estimates that total costs approximate $1.125
million which is included Accrued Expenses in the Consolidated Balance
Sheet.




The
Company is also named in two Class Action Lawsuits (in Florida and California)
involving allegations concerning the Company's marketing practices associated
with some of its services billed and delivered via wireless carriers. The
Company is disputing the allegations and is vigorously defending itself in these
matters. In one of these matters the Company has received a Summary Judgment on
its Motion to Dismiss related to a number of the allegations made in the
original complaint. The Company has accrued for the related costs in the amount
of $275,000 in connection with these matters which are included in Accrued
Expenses in the Consolidated Balance Sheet.


16




On
February 2, 2009 the Company filed a complaint against Mobile Messenger PTY LTD
and its subsidiary Mobile Messenger Americas, Inc. (“Mobile Messenger”) to
recover monies owed the Company in connection with transaction activity incurred
in the ordinary and normal course and also included declaritory relief
concerning demands made by Mobile Messenger's for indemnification in Mobile
Messenger's settlement in it’s Florida Class Action Matter which it settled in
late 2008  (“Grey vs. Mobile Messenger”).  Mobile Messenger,
a party also involved in the Florida Attorney General investigation described
herein, brought upon the Company a cross complaint seeking injunctive relief,
indemnification, damages exceeding $17 million, and recoupment of attorneys
fees.  The Settlement in Gray vs. Mobile Messenger was represented by
KamberEdelson, LLC, which now represents Mobile Messenger in the action against
the Company on a contingency basis. The same firm represents the Plaintiffs in
the Florida Class Action filed against the Company, as well as another
plaintiff, an internet marketing company based in NY, in a commercial dispute
over payments for marketing services and potential damages concerning that
company's marketing practices. The Company disputes the allegations and intends
to vigorously defend itself in these matters considering, among other things,
the specific facts surrounding the underlying claims against the Company are
without merit.  The Company will also seek to limit any participation
in any settlement to recoup legal fees citing an apparent conflict of interest
in that the attorney representing Mobile Messenger (Kamber Edelson, LLC,) whom
is also representing numerous other parties taking action in the aforementioned
and other related matters.




We
recorded a significant amount of goodwill and other intangible assets in
connection with our merger with Traffix and the acquisition of the assets of
Ringtone.com, which may result in significant future charges against earnings if
the goodwill and other intangible assets become impaired.




In
accounting for the merger with Traffix and the acquisition of the assets of
Ringtone.com, we allocated and recorded a large portion of the purchase price
paid in the merger to goodwill and other intangible assets. Under SFAS No.142,
we must assess, at least annually and potentially more frequently, whether the
value of goodwill and other intangible assets has been impaired. Any reduction
or impairment of the value of goodwill or other intangible assets, such as the
charge that was taken in the fourth quarter of 2008, could materially adversely
affect New Motion’s results of operations in future periods.




We
may incur liabilities to tax authorities in excess of amounts that have been
accrued which may adversely impact our results of operations and financial
condition.




As more
fully described in note 11 "Income Taxes" to our consolidated financial
statements contained in this annual report on Form 10-K, we have recorded
significant income tax liabilities. The preparation of our consolidated
financial statements requires estimates of the amount of income tax that will
become payable in each of the jurisdictions in which we operate. We may be
challenged by the taxing authorities in these jurisdictions and, in the event
that we are not able to successfully defend our position, we may incur
significant additional income tax liabilities and related interest and penalties
which may have an adverse impact on our results of operations and financial
condition.




We
may be impacted by the affects of the current slowdown of the United States
economy.




Our
performance is subject to worldwide economic conditions and their impact on
levels of consumer spending.   Consumer spending recently has
deteriorated significantly as a result of the current economic situation in the
United States and may remain depressed, or be subject to further deterioration
for the foreseeable future.  Purchases of our subscription based
services as well as our transactional services tend to decline in periods of
recession or uncertainty regarding future economic prospects, as disposable
income declines. Many factors affect the level of spending for our products and
services, including, among others: prevailing economic conditions, levels of
employment, salaries and wage rates, energy costs, interest rates, the
availability of consumer credit, taxation and consumer confidence in future
economic conditions. During periods of recession or economic
uncertainty, we may not be able to maintain or increase our sales to
existing customers, make sales to new customers or maintain or increase our
international operations on a profitable basis. As a result, our operating
results may be adversely and materially affected by downward trends in the
United States or global economy, including the current recession in the
United States.




The
requirements of the Sarbanes-Oxley act, including section 404, are burdensome,
and our failure to comply with them could have a material adverse affect on the
company’s business and stock price.






17




ITEM
1B UNRESOLVED STAFF COMMENTS




Not applicable




ITEM
2. PROPERTIES




New
Motion’s corporate headquarters at December 31, 2008 were located at 469 7th Avenue,
New York, NY.




The
following table details the various properties leased and owned by us after our
merger with Traffix.




Location
                                      
                                      Leased/
                                        Owned
                                      
                                      Square
                                        Feet
                                      
                                      
                                      ExpirationDieppe,
      New Brunswick, Canada
                                      
                                      Owned
                                      
                                      
                                      17,000
                                      
                                      
                                      
                                      N/A469
      7th Avenue, New York, NY
                                      
                                      Leased
                                      
                                      
                                      12,400
                                      
                                      
                                      9/30/20181
      Blue Hill Plaza, Pearl River, NY
                                      
                                      Leased
                                      
                                      
                                      14,220
                                      
                                      
                                      11/15/201142
      Corporate Park, Irvine, CA
                                      
                                      Leased
                                      
                                      
                                      12,466
                                      
                                      
                                      1/31/2010




The space
above is adequate for our current needs and suitable additional or substitute
space will be available to accommodate the foreseeable expansion of our
operations. Our owned property in Dieppe, Canada is not subject to a mortgage or
any liens. Atrinsic’s telephone number is (212) 716-1977.




ITEM
3. LEGAL PROCEEDINGS.




We are
subject to certain legal proceedings and claims arising in connection with our
business.  In the opinion of management, there are currently no claims
that will have a material adverse effect on our consolidated financial position,
results of operations or cash flows.




We are not involved in any legal
proceedings that require disclosure in this report.




ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




None




18




Part
II




ITEM 5. MARKET FOR
REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERSAND ISSUER PURCHASES OF
EQUITY SECURITIES




Our
common stock is quoted on The NASDAQ Global Market under the symbol “NWMO.”
Prior to our acquisition of Traffix which occurred on February 4, 2008, our
common stock was quoted on the Over-The-Counter Bulletin Board under the symbol
NWMO, and prior to May, 2007, our common stock was quoted on the
Over-The-Counter Bulletin Board under the symbol “MPNC.” The following table
sets forth, for the periods indicated, the high and low sales prices (or high
and low bid quotations with respect to the periods during which our common stock
was traded on the Over-The-Counter Bulletin Board as determined from quotations
on the Over-The-Counter Bulletin Board) for our common stock, as well as the
total number of shares of common stock traded during the periods
indicated.  With respect to the Over-The-Counter market quotations
referenced above, such quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions. The
quotations have been adjusted to reflect a 1-for-300 reverse stock split of our
common stock which took effect on May 2, 2007.




AverageDailyHigh
                          
                          
                          Low
                          
                          
                          VolumeYear
      Ended December 31, 2008:First
      Quarter
                          
                          $
                          14.00
                          
                          
                          $
                          4.10
                          
                          
                          
                          44,166Second
      Quarter
                          
                          $
                          5.08
                          
                          
                          $
                          3.92
                          
                          
                          
                          82,617Third
      Quarter
                          
                          $
                          4.30
                          
                          
                          $
                          3.09
                          
                          
                          
                          39,769Fourth
      Quarter
                          
                          $
                          3.00
                          
                          
                          $
                          1.06
                          
                          
                          
                          42,630Year
      Ended December 31, 2007:First
      Quarter(1)
                          
                          $
                          114.00
                          
                          
                          $
                          15.00
                          
                          
                          
                          60Second
      Quarter
                          
                          $
                          39.00
                          
                          
                          $
                          4.00
                          
                          
                          
                          3,720Third
      Quarter
                          
                          $
                          18.00
                          
                          
                          $
                          13.00
                          
                          
                          
                          1,060Fourth
      Quarter
                          
                          $
                          19.90
                          
                          
                          $
                          10.00
                          
                          
                          
                          740




(1)
On February 12, 2007, pursuant to the closing of an Exchange Transaction, New
Motion (then called MPLC, Inc) acquired all of the outstanding voting securities
of New Motion Mobile, Inc. (then called New Motion), which became MPLC’s wholly
owned subsidiary.




As of
March 12, 2009, there were approximately 146 record holders of common stock. As
of March 12, 2009, the closing sales price of our common stock as reported on
the NASDAQ Global Market was $1.19 per share. Our transfer agent is American
Stock Transfer & Trust Company and their phone number is (718)
921-8275.




Dividend
Policy




We do not
anticipate paying any dividends on our common stock for the foreseeable future.
We intend to retain our future earnings to re-invest in our ongoing business.
The declaration of cash dividends in the future will be determined by our board
of directors based upon our earnings, financial condition, capital requirements
and other relevant factors.




Recent
Sales of Unregistered Securities




During
the 2008 fiscal year, other than as disclosed in our Quarterly Reports on Form
10-Q or on Form 8-K, as filed with the Securities and Exchange Commission, we
did not sell unregistered securities.




19




Common
Stock Repurchases




On April
8, 2008, the Company’s Board of Directors authorized management to repurchase up
to $10 million of common stock through May 31, 2009. The amount and timing of
specific repurchases are subject to market conditions, applicable legal
requirements, and other factors, including management’s discretion. Repurchases
may be made through privately negotiated transactions or in the open market. The
Board of Directors of the Company may modify, extend, or terminate the share
repurchase program at any time, and there is no guarantee of the exact number of
shares that will be repurchased under the program. Repurchases will be funded
from available working capital, and subject to other limitations.




During
the year ended December 31, 2008, we repurchased an aggregate of 1,908,926
shares of our common stock at a cost of $4.05 million, at an average of $2.12
per share.




Issuer Purchases of Equity
      Securities(a) Total Number
                                  Of Shares
                                  Purchased
                                
                                
                                (b) Average Price
                                  Paid per Share
                                
                                
                                (c) Total Number
                                  of Shares
                                  Purchased as Part
                                  Of Publicly
                                  announced Plans
                                  or Programs
                                
                                
                                (d) Approximate
                                  Dollar Value of
                                  Shares That May
                                  Yet Be Purchased
                                  Under Plans Or
                                  ProgramsBeginning
      balance April 8 , 2008
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                10,000,000(April
      8, 2008 to
                                  June
      30, 2008)
                                
                                
                                232,300
                                
                                
                                $
                                4.51
                                
                                
                                
                                232,300
                                
                                
                                $
                                8,953,282(July
      1, 2008 to
                                  September
      30, 2008)
                                
                                
                                387,072
                                
                                
                                $
                                3.96
                                
                                
                                
                                387,072
                                
                                
                                $
                                7,419,060(October
      1, 2008 to
                                  October
      31, 2008)
                                
                                
                                248,100
                                
                                
                                $
                                2.34
                                
                                
                                
                                248,100
                                
                                
                                $
                                6,838,506(November
      1, 2008 to
                                  November
      30, 2008)
                                
                                
                                791,954
                                
                                
                                $
                                0.63
                                
                                
                                
                                791,954
                                
                                
                                $
                                6,338,506(December
      1, 2008 to
                                  December
      31, 2008)
                                
                                
                                249,500
                                
                                
                                $
                                1.57
                                
                                
                                
                                249,500
                                
                                
                                $
                                5,946,791Total
                                
                                
                                1,908,926
                                
                                
                                
                                
                                
                                
                                
                                1,908,926




20




ITEM
6. SELECTED FINANCIAL DATA




The
following table sets forth certain information regarding our results of
operations and financial position and is qualified in its entirety by the
Consolidated Financial Statements and notes thereto, which appear elsewhere
herein.




(In
      thousands except per share data)
                    
                    2008
                    
                    
                    2007OPERATING
      RESULTS FOR YEAR ENDED DECEMBER 31:Net
      Revenue
                    
                    $
                    113,884
                    
                    
                    $
                    36,982Operating
      and Corporate Costs, Excluding Depreciation and Amortization, Goodwill
      Impairment, Stock based compensation
                    
                    
                    109,042
                    
                    
                    
                    40,015Goodwill
      Impairment
                    
                    
                    114,783
                    
                    
                    
                    -Depreciation
      and Amortization
                    
                    
                    5,867
                    
                    
                    
                    1,349Stock
      based Compensation
                    
                    
                    1,282
                    
                    
                    
                    1,117Operating
      (Loss) Income
                    
                    
                    (117,090
                    )
                    
                    
                    (5,499
                    )Net
      (Loss) Income
                    
                    $
                    (115,766
                    )
                    
                    $
                    (4,149
                    )(Loss)
      Income Per Basic ShareCommon
      stock
                    
                    $
                    (5.43
                    )
                    
                    $
                    (0.37
                    )(Loss)
      Income Per Diluted ShareCommon
      stock
                    
                    $
                    (5.43
                    )
                    
                    $
                    (0.37
                    )


BALANCE
      SHEET DATA AT DECEMBER 31:(In thousands except per share
      data)
                          
                          2008
                          
                          
                          2007Cash
      and cash equivalents
                          
                          
                          20,410
                          
                          
                          
                          1,112Working
      Capital
                          
                          
                          23,683
                          
                          
                          
                          14,041Property
      and Equipment
                          
                          
                          3,525
                          
                          
                          
                          860Goodwill
      and Intangibles
                          
                          
                          23,583
                          
                          
                          
                          599Total
      Shareholders’ Equity (Deficit)
                          
                          
                          54,389
                          
                          
                          
                          16,582





ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS




Cautionary
Statement




The
following discussion and analysis should be read together with the Consolidated
Financial Statements of New Motion, Inc. and the “Notes to Consolidated
Financial Statements” included elsewhere in this report.  This
discussion summarizes the significant factors affecting the consolidated
operating results, financial condition and liquidity and cash flows of New
Motion, Inc. for the fiscal years ended December 31, 2008 and 2007. Except for
historical information, the matters discussed in this Management’s Discussion
and Analysis of Financial Condition and Results of Operations are
forward-looking statements that involve risks and uncertainties and are based
upon judgments concerning various factors that are beyond our
control.




Executive
Overview




New
Motion, Inc., doing business as Atrinsic, is one of the leading digital
advertising and marketing services company in the United States. Atrinsic is
organized as a single segment with two principal offerings: (1) Transactional
services - offering full service online marketing and distribution services
which are targeted and measurable online campaigns and programs for marketing
partners, corporate advertisers, or their agencies, generating qualified
customer leads, online responses and activities, or increased brand recognition,
and (2) Subscription  services - offering our portfolio of
subscription  based content applications direct to users working with
wireless carriers and other distributors.




21




Atrinsic
brings together the power of the Internet, the latest in mobile technology, and
traditional marketing/advertising methodologies, creating a fully integrated
multi platform vehicle for the advanced generation of qualified leads monetized
by the sale and distribution of subscription content, brand-based distribution
and pay-for-performance advertising. Atrinsic’s service’s content is organized
into four strategic content groups - digital music, casual games, interactive
contests, and communities/lifestyles. The Atrinsic brands include GatorArcade, a
premium online and mobile gaming site, Ringtone.com, a mobile music download
service, and iMatchUp, one of the first integrated web-mobile dating services.
Feature-rich Transactional advertising services include a mobile ad network,
extensive search capabilities, email marketing, one of the largest and growing
publisher networks, and proprietary subscription  content. Services
are provided on a variety of pricing models including cost per action, fixed
fee, or commission based arrangements.




New
Motion, Inc. is operating under the trade name of Atrinsic and is in the process
of formally changing its name. Our goal is to optimize revenues from each of our
qualified leads, regardless of the nature of the services we provide to such
parties. Over an extended period of time our ability to generate incremental
revenues relies on our ability to increase the size and scope of our media, our
ability to target campaigns, and our ability to convert qualified leads into
appropriate revenue generating opportunities.




In
managing our business, we internally develop programming or partner with online
content providers to match users with our service offerings, and those of our
advertising clients. Our continued success and prospects for growth are
dependent on our ability to acquire content in a cost effective manner. Our
results may also be impacted by overall economic conditions, trends in the
online marketing and telecommunications industry, competition, and risks
inherent in our customer database, including customer attrition.




There are
a variety of factors that influence our revenues on a periodic basis including
but not limited to: (1) economic conditions and the relative strengths and
weakness of the U.S. economy; (2) client spending patterns and their overall
demand for our service offerings; (3) increases or decreases in our portfolio of
service offerings; and (4) competitive and alternative programs and advertising
mediums.




Similar
to other media based companies, our ability to specifically isolate the relative
historical aggregate impact of price and volume regarding our revenue is not
practical as the majority of our services are sold and managed on an order by
order basis and our revenues are greatly impacted by our decisions regarding
qualified lead monetization. Factors impacting the pricing of our services
include, but are not limited to: (1) the dollar value, length and breadth of the
order; (2) the quality of the desired action; (3) the quantity of actions or
services requested by our clients; and (4) the level of customization required
by our clients.




The
principal components of operating expenses are labor, media and media related
expenses (including affiliate compensation, content development and licensing
fees), marketing and promotional expenses (including sales commissions and
customer acquisition and retention expenses) and corporate general and
administrative expenses. We consider our operating cost structure to be
predominantly variable in nature over a short time horizon, and as a result, we
are immediately able to make modifications to our cost structure to what we
believe to be increases or decreases in revenue and market trends. This factor
is important in monitoring our performance in periods when revenues are
increasing or decreasing. In periods where revenues are increasing as a result
of improved market conditions, we will make every effort to best utilize
existing resources, but there can be no guarantee that we will be able to
increase revenues without incurring additional marketing or operating costs and
expenses. Conversely, in a period of declining market conditions we are
immediately able to reduce certain operating expenses and preserve operating
income. Furthermore, if we perceive a decline in market conditions to be
temporary, we may choose to maintain or increase operating expenses for the
future maximization of operating results.




STRATEGIC
INITIATIVES




Our
business strategy involves increasing our overall scale and profitability by
offering a large number of diversified products through a unique distribution
network in the most cost effective manner possible. To achieve this goal, we are
pursuing the following objectives.




Achieve
Cross Media Benefits. One of our strategic objectives is to leverage the
cross media benefit derived primarily from the combination of New Motion and
Traffix which was consummated on February 4, 2008. Our premium-billed
subscriptions allow us to integrate and to leverage online and mobile
distribution channels to deliver compelling media and entertainment. The
advantage of the fixed Internet is that from a marketing expense standpoint, the
cost of customer acquisitions is generally determinable. In addition, the
Internet is full of free content that is advertisement supported. The Internet
also allows for the delivery of rich media over broadband. The advantage of
mobile media is that it already has a well established customer activation and
customer retention capability and is accessible and portable for those using it
to access content. Our cross media strategy seamlessly enables our subscriber to
realize true convergence. Atrinsic enables subscribers to interact with our
content at work, at home or on a remote basis.




22




Vertically
Integrate and Expand Distribution Channels. We own a large library of
wholly owned content, proprietary premium billed services, and our own media and
distribution. By allocating a large proportion of the qualified leads acquired
by our subscription properties to our owned marketing and distribution networks,
we expect to generate cost savings through the elimination of third-party
margins. These cost savings are expected to result in lower customer acquisition
costs throughout our business. We also expect to continue to enhance our
distribution channels by expanding existing channels to market and sell our
products and services online and explore alternative marketing mediums. We also
expect, with limited modification, to market and sell our existing online-only
content directly to wireless customers. Finally, we expect to continue to drive
a portion of our consumer traffic directly to our proprietary products and
services without the use of third-party media outlets and media
publishers.




Multiple
Revenue Streams and Advertiser Network. Our merger with Traffix has
allowed for a reduction in customer concentration and more diversification of
the combined company’s revenue streams. We will continue to generate recurring
revenue streams from a subscription -based model, which is targeted at end user
mobile subscribers. We will also have the traditional revenue streams inherent
in our online performance-based model, which is targeted to publishers and
advertisers. Further revenue diversification is expected to result from our
larger distribution reach, and our ability to generate ad revenue across the
combined company’s portfolio of web properties.




Publish
High-Quality, Branded Subscription Content. We believe that publishing a
diversified portfolio of the highest quality, most innovative applications is
critical to our business. We intend to continue to develop innovative and
sought-after content and intend to continue to devote significant resources to
the development of high-quality, innovative products, services and Internet
storefronts. The U.S. consumer’s propensity to use the fixed Internet to
acquire, redeem and use mobile subscription products is unique. In this regard,
we aim to provide complementary services between these two high-growth media
channels. We also expect to continue to create Atrinsic-branded applications,
products and services, which typically generate higher margins. In order to
enhance the Atrinsic brand, and our product brands, we plan to continue
building brands through product and service quality, subscriber, customer and
carrier support, advertising campaigns, public relations and other marketing
efforts.




Results
of Operations for the year ended December 31, 2008 compared to the year ended
December 31, 2007.




Revenues
presented by type of activity are as follows for the year ended December
31:




For
      the Year
                        December
      31
                      
                      
                      Change
                        Inc.(Dec.)
                      
                      
                      Change
                        Inc.(Dec.)2008
                      
                      
                      2007
                      
                      
                      $
                      
                      
                      
                      %Subscription
                      
                      $
                      44,196
                      
                      
                      $
                      36,982
                      
                      
                      $
                      7,214
                      
                      
                      
                      20
                      %Transactional
                      
                      $
                      69,688
                      
                      
                      $
                      -
                      
                      
                      $
                      69,688
                      
                      
                      
                      100
                      %Total
      Revenues (1)
                      
                      $
                      113,884
                      
                      
                      $
                      36,982
                      
                      
                      $
                      76,902
                      
                      
                      
                      208
                      %




(1)
            As
      described above, the Company currently aggregates revenues based on the
      type of user activity monetized. The company’s objective is to optimize
      total revenues from the user experiences. Accordingly, this factor should
      be considered in evaluating the relative revenues generated from our
      Subscription and Transactional
Services.





Revenues
increased approximately by $76.9 million, or 208%, to $113.9 million for the
year ended December 31, 2008, compared to $37.0 million for the year ended
December 31, 2007. Subscription based revenue increased by approximately $7.2
million, or 20%, to $44.2 million for the year ended December 31, 2008, compared
to $37.0 million for the year ended December 31, 2007. The increase in
subscription service revenue was principally attributable to an increase in the
average number of billable subscribers added during the period and our purchase
of Ringtone.com, coupled with our efforts to improve subscriber retention.
Although we ended 2008 with approximately 501,000 subscribers as compared to
approximately 840,000 subscribers at the end of 2007, during 2008 the average
number of monthly billable subscribers was higher than in 2007 and the number of
subscribers increased disproportionally at the end of 2007. The number of
subscribers is largely, but not precisely, correlated to the periodic reported
revenues as a result of inter-period volatility and the circumstance that
subscribers are billed on a monthly basis.




23




Transactional
revenues increased by $69.7 million or 100% in 2008. The increase is
attributable to the service offerings acquired in connection with our
acquisition of Traffix, Inc which took place in February 4, 2008.




Operating
Expenses




For
      the Year
                                December
      31,
                              
                              
                              Change
                                Inc.(Dec.)
                              
                              
                              Change
                                Inc.(Dec.)2008
                              
                              
                              2007
                              
                              
                              $
                              
                              
                              %Operating
      ExpensesCost
      of Media – 3rdparty
                              
                              $
                              74,541
                              
                              
                              $
                              29,054
                              
                              
                              
                              45,487
                              
                              
                              
                              157
                              %Product
      and distribution
                              
                              
                              9,749
                              
                              
                              
                              3,149
                              
                              
                              
                              6,600
                              
                              
                              
                              210
                              %Selling
      and marketing
                              
                              
                              9,974
                              
                              
                              
                              1,521
                              
                              
                              
                              8,453
                              
                              
                              
                              556
                              %General
      and administrative and other operating
                              
                              
                              16,060
                              
                              
                              
                              7,408
                              
                              
                              
                              8,652
                              
                              
                              
                              117
                              %Depreciation
      and Amortization
                              
                              
                              5,867
                              
                              
                              
                              1,349
                              
                              
                              
                              4,518
                              
                              
                              
                              335
                              %Impairment
      of goodwill
                              
                              
                              114,783
                              
                              
                              
                              -
                              
                              
                              
                              114,783
                              
                              
                              
                              100
                              %Total
      Operating Expenses
                              
                              $
                              230,974
                              
                              
                              $
                              42,481
                              
                              
                              $
                              188,493
                              
                              
                              
                              444
                              %




Cost
of Media




Cost of
Media increased by $45.5 million to $74.5 million in 2008 from $29 million in
2007. For 2008, Cost of Media – 3rd party
includes media purchased for monetization of both transactional and subscription
revenues. The increase was principally attributed to the media necessary to
source the revenue acquired with the acquisition of Traffix, Inc. which took
place February 4, 2008.




Product and
Distribution




Product
and distribution increased by $6.6 million to $9.7 million for the year ended
December 31, 2008 compared to $3.1 million for the year ended December 31, 2007.
The increase was principally attributed to the acquisition of Traffix, Inc.
which took place February 4, 2008. Product and distribution expenses are costs
necessary to develop and maintain proprietary content, support and maintain our
websites and user data, technology platforms which drives both transactional and
subscription based revenue. Included in product and distribution cost is stock
compensation expense of $6,593 and $288,443 for 2008 and 2007
respectively.




Selling
and marketing




Selling
and marketing expense increased by $8.4 million to $9.9 million in 2008 as
compared to $1.5 million for the year ended December 31, 2007. The increase is
primarily due to an increase in fixed and variable labor, principally attributed
to the acquisition of Traffix, Inc. which took place February 4, 2008. In
addition, the company incurred approximately $2.2 million of bad debt expense in
2008 and none in 2007.




General,
Administrative and Other Operating




General
and administrative expenses increased by approximately $8.7 million to $16.1
million for the year ended December 31, 2008 compared to $7.4 million for the
year ended December, 31, 2007. The increase is primarily due to an increase in
labor and related costs necessary to support core operations, professional and
consulting fees, facilities and related costs principally attributable to the
growth the company experienced as of result of the acquisition of Traffix, Inc.
Management has taken action to achieve approximately $4.0 million of
efficiencies resulting from the acquisition of Traffix, however the Company
continues to make appropriate and modest investments in labor, facilities,
technology infrastructure, and utilization of third party professional service
providers to support its continued growth, business development and corporate
governance initiatives. Included in general and administrative expense is stock
compensation expense of $1.3 million and $828,045 for 2008 and 2007
respectively.




24




Depreciation
and amortization




Depreciation
and amortization expense increased $4.5 million to $5.9 million for the year
ended December 31, 2008 compared to $1.3 million for the year ended December 31,
2007 principally as the result of the amortization of intangible assets and
depreciation of fixed assets acquired in connection with the acquisition of the
Traffix, Inc. and Ringtone.com.




Impairment
of Goodwill




In
connection with its annual goodwill impairment testing for the year ended
December 31, 2008, the Company determined there was impairment and recorded a
non-cash charge of $114.8 million. The goodwill impairment, the majority of
which is not deductible for income tax purposes, is primarily due to our
declining market price and reduced valuation multiples. Such negative factors
are reflected in our stock price and market capitalization.




Income
(Loss) from Operations




Operating
loss increased to approximately $117.0 million for the year ended December 31,
2008, compared to an operating loss of $5.5 million for the year ended December
31, 2007. This increase was principally attributable to the $114.8 million
charge for the impairment of goodwill taken during the fourth quarter of 2008.
Excluding the charge for impairment, the operating loss for the year ended
December 31, 2008 decreased $3.2 million to ($2.3) million compared to an
operating loss of ($5.5) million for the year ended December 31, 2007.
Management has taken action to gain approximately $4.0 million of efficiencies
resulting from the acquisition of Traffix, however the Company continues to make
appropriate and modest investments in labor, facilities, technology
infrastructure, and utilization of 3rd party
professional service providers to support its continued growth, business
development and corporate governance initiatives.




Interest
income and dividends




Interest
and dividend income increased $284,000 to $748,000 for the year ended December
31, 2008, compared to $464,000 for the year ended December 31, 2007. The
increase is primarily due to interest income earned on higher cash balances
maintained throughout 2008, offset by lower rates, and interest and dividends
earned on marketable securities.




Interest
expense




Interest
expense increased $125,000 to $147,000 for the year ended December 31, 2008,
compared to $22,000 for the year ended December 31, 2007. The increase is
primarily attributable to interest expense of $90,000 on the note payable
associated with the purchase of the assets of Ringtone .com.




Other
Income (Expense)




Other
expense increased $141,000 to $153,000 for the year ended December 31, 2008,
compared to $12,000 for the year ended December 31, 2007. The increase is
primarily attributable to loss on the sale of marketable securities of
$174,000.




Income
Taxes




Income
tax benefit for the year ended December 31, 2008 was $852,000 and reflects an
effective tax rate of 0.73%, which was computed taking into consideration the
non-deductible impairment charge noted above, the effects of the merger
with Traffix, Inc. which occurred on February 4, 2008,  and includes the
result of changes in the weighted average statutory rate attributable to the
addition of certain local jurisdictions resulting from the merger, and certain
adjustments realized in connection with the finalization of tax
returns.




Minority
interest




Minority
interest represents the income allocable to the non-controlling interests and
net income attributable to the shareholders of the Company for its interest in
MECC. Minority interest for the year ended December 31, 2008 was $24,000
compared to ($283,000) for the year ended December 31, 2007.




25




Net
Loss




Net loss
increased by $111.6 million to $115.8 million for the year ended December 31,
2008 as compared to a net loss of $4.1 million for the year ended December 31,
2007. The increase is as described above.




Liquidity
and Capital Resources




The
Company continually projects anticipated cash requirements, which may include
share repurchases, business combinations, capital expenditures, principal and
interest payments on its outstanding and future indebtedness, and working
capital requirements. Funding requirements have been financed through business
combinations, cash flow from operations, issuance of preferred stock,
option exercises and issuance of long-term debt. As of December 31, 2008, the
Company had cash and cash equivalents of approximately $20.4 million, marketable
securities of approximately $4.2
million (including Auction Rated Securities of $4.0 million that was redeemed
and converted to cash at par plus interest in January 2009) and a working
capital balance of approximately $23.7 million. The Company generated
approximately $4.4 million from operations for the year ended December 31, 2008
and expects to generate cash flows from operating activities prospectively,
which, contingent on prospective operating performance, may require reductions
in discretionary variable costs and other realignments to permanently reduce
fixed operating costs.




In
conjunction with the Company’s objective of enhancing shareholder value, the
Company’s Board of Directors authorized a share repurchase program. Under this
share repurchase program, the Company purchased 1,908,926 shares of the
Company’s common stock for an aggregate price of approximately $4.05 million
during the Fiscal 2008.




The
Company believes that its existing cash and cash equivalents and anticipated
cash flows from our operating activities will be sufficient to fund minimum
working capital and capital expenditure needs for at least the next twelve
months. The extent of the Company’s future capital requirements will depend on
many factors, including its results of operations. If the Company’s cash flows
from operations is less than anticipated or its working capital requirements or
capital expenditures are greater than expectations, or if the Company expands
its business by acquiring or investing in additional products or technologies,
it may need to secure additional debt or equity financing. The Company is
continually evaluating various financing strategies to be used to expand its
business and fund future growth. There can be no assurance that additional debt
or equity financing will be available on acceptable terms, it at all. The
potential inability to obtain additional debt or equity financing, if required,
could have a material adverse effect on the Company’s operations.




In
connection with its investments as further described in footnote 14, the Company
is obligated to fund investments totaling approximately $1.6 million in 2009.
Furthermore, management anticipates the risk adjusted return is sufficiently in
excess of the contributed capital obligations, as of this date.  There
is however, no guarantee of the anticipated returns. In addition, management has
taken considerable actions to secure its interest in achieving such a
return.




Significant
Estimates and Accounting Policies




Principles of
Consolidation




The
consolidated financial statements include the accounts of all majority and
wholly-owned subsidiaries and significant intercompany balances and transactions
have been eliminated.




The
equity method is used to account for investments in entities in which we have an
ownership of less than 50% and have significant influence over the operating and
financial policies of the affiliate. For investments in entities for which the
company has a less than 50 percent ownership interest, but has certain
participatory rights, the investee is consolidated.




Use
of Estimates




The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses as well
as the disclosure of contingent assets and liabilities. Management continually
evaluates its estimates and judgments including those related to allowances for
doubtful accounts and the associated allowances for returns and chargebacks,
useful lives of property, plant and equipment and intangible assets, fair value
of stock options granted, forfeiture rate of equity based compensation grants,
probable losses associated with pre-acquisition contingencies, income taxes and
other contingencies. Management bases its estimates and judgments on historical
experience and other factors that are believed to be reasonable in the
circumstances. Actual results may differ from those estimates. Macroeconomic
conditions may directly, or indirectly through our business partners and
vendors, impact our financial performance and available resources. Such
conditions may, in turn, impact the aforementioned estimates and
assumptions.




26




Accounts
Receivable and Related Allowances




The
Company maintains allowances for doubtful accounts for estimated losses which
may result from the inability of its customers to make required payments. The
Company bases its allowances on the likelihood of recoverability of
accounts receivable by customer, based on past experience, the age of the
accounts receivable balance, the credit quality of the Company’s customers, and,
taking into account current collection trends. If specific customer
circumstances change or industry trends worsen beyond the Company’s estimates,
the Company would be required to increase its allowances for doubtful accounts.
Alternatively, if trends improve beyond the Company’s estimates, the Company
would be required to decrease its allowance for doubtful accounts. The Company’s
estimates are reviewed periodically, and adjustments are reflected through bad
debt expense in the period they become known. Changes in the Company’s bad debt
experience can materially affect its results of operations.


The
Company also makes estimates for refunds, chargebacks or credits, and provides
for these probable uncollectible amounts through a deferral and reduction of
recorded revenues in the period for which the sale occurs based on analyses of
previous rates and trends.




Due to
the payment terms of the carriers requiring in excess of 60 days from the date
of billing or sale, at its sole discretion, the Company can elect to use trade
discounts in order to facilitate quicker payment. This discount or fee allows
for payments of approximately 80% of the prior month’s billings 15 to 20 days
after the end of the month. The Company records revenue net of that fee, if
incurred, which is 3.5% to 5% of the associated revenue.




Goodwill
and Intangible Assets


Goodwill
represents the excess of cost over fair value of net assets of businesses
acquired. In accordance with Statement of Financial Accounting Standards
No. 142 (“SFAS 142”) “Goodwill and Other Intangible Assets”, the value
assigned to goodwill and indefinite lived intangible assets is not amortized to
expense, but rather it is evaluated at least on an annual basis to determine if
there is a potential impairment. If the fair value of the reporting unit is less
than its carrying value, an impairment loss is recorded to the extent that the
implied fair value of the reporting unit goodwill is less than the carrying
value. If the fair value of an indefinite lived intangible is less than its
carrying amount, an impairment loss is recorded. Fair value is determined based
on discounted cash flows, market multiples or appraised values as appropriate.
Discounted cash flow analysis requires assumptions about the timing and amount
of future cash inflows and outflows, risk, the cost of capital, and terminal
values. Each of these factors can significantly affect the value of the
intangible asset. The estimates of future cash flows, based on reasonable and
supportable assumptions and projections, require management’s judgment. Any
changes in key assumptions about the Company’s businesses and their prospects,
or changes in market conditions, could result in an impairment charge. Some of
the more significant estimates and assumptions inherent in the intangible asset
valuation process include: the timing and amount of projected future cash flows;
the discount rate selected to measure the risks inherent in the future cash
flows; and the assessment of the asset’s life cycle and the competitive trends
impacting the asset, including consideration of any technical, legal or
regulatory trends.




The
Company has determined that there was an impairment of goodwill as a result of
completing its annual impairment analysis as of December 31, 2008. In
performing the related valuation analysis the company used various valuation
methodologies including probability weighted discounted cash flows, comparable
transaction analysis, and market capitalization and comparable company multiple
comparison. The results of this review and impact of the impairment are more
fully described in Note 6 - “Goodwill and Intangible
Assets”.




Intangible
assets subject to amortization primarily consist of customer lists, trade names
and trademarks, and restrictive covenants that were acquired.  The
intangible asset values assigned to the identified assets for each acquisition
were generally determined based upon the expected discounted aggregate cash
flows to be derived over the estimated useful life. The method of amortizing the
intangible asset values reflects, based upon the Company’s historical
experience, an accelerated rate of attrition in the subscriber database based
over the expected life of the underlying subscriber database after considering
turnover.  Accordingly, the Company amortizes the value assigned to
subscriber database based on the actual depletion of the acquired subscriber
database. The Company reviews the recoverability of its finite-lived intangible
assets for recoverability whenever events or circumstances indicated that the
carrying amount of an asset may not be recoverable. Recoverability is assessed
by comparison to associated undiscounted cash flows.




27




Stock-Based
Compensation




The
Company records stock based compensation in accordance with Financial Accounting
Standard Board Statement of Financial Accounting Standards No. 123 (revised
2004). In estimating the grant date fair value at stock option awards, we use
certain assumptions and estimates to derive fair value, such as expected term,
rate of risk free returns and volatility. If different assumptions and estimates
were used, the amounts charged to compensation expense would be
different.


Revenue
Recognition




The
Company monetizes a portion of its user activities through subscription based
sources by providing on-going monthly access to and usage of premium products
and services.  In general, customers are billed at standard rates, at
the beginning of the month, and revenues are recognized upon receipt of
information confirming an arrangement. The Company estimates a provision for
refunds and credits which is recorded as a reduction to revenues. In determining
the estimate for refunds and credits, the Company relies upon historical data,
contract information and other factors. The estimated provision for refunds can
vary from actual results.




The
Company effectuates this type of revenues through a carrier or distributors who
are paid a transaction fee for their services.  In accordance with
Emerging Issues Task Force (“EITF” No 99-19) “Reporting Revenues Gross as
Principal Versus Net as an Agent”, the Company recognizes as revenues the net
amount received from the carrier or distributor, net of their
fee.  Revenues are deferred if the probability of collection is not
reasonably assured.




The
Company monetizes a portion of its user activities through transactional based
services generated primarily from (a) fees earned, primarily on a CPC basis,
from search syndication services; (b) commission fees earned for the Company's
search engine marketing ("SEM") services; (c) commission fees earned from
marketing service arrangements associated with our affiliate marketing partners;
and (d) other fees for marketing services including data and list management
services, which can be either periodic or transactional. Commission fee revenue
is recognized in the period that the Company's advertiser customer generates a
sale or other agreed-upon action on the Company's affiliate marketing networks
or as a result of the Company's SEM services, provided that no significant
Company obligations remain, collection of the resulting receivable is reasonably
assured, and the fees are fixed or determinable. All transaction services
revenues are recognized on a gross basis in accordance with the provisions of
EITF 99-19, due to the fact that the Company is the primary obligor to its
customer, and publisher expenses that are directly related to a
revenue-generating event are recorded as a component of 3rd part Media
Cost.




Income
Taxes




The
Company uses the asset and liability method of financial accounting and
reporting for income taxes required by Statement of Financial Accounting
Standards No. 109 (“SFAS 109”), “Accounting for Income Taxes”. Under SFAS
109, deferred income taxes reflect the tax impact of temporary differences
between the amount of assets and liabilities recognized for financial reporting
purposes and the amounts recognized for tax purposes.




Effective
January 1, 2007, the Company adopted FIN No. 48, “Accounting for
Uncertainty in Income Taxes” which resulted in no material adjustment in the
liability for unrecognized tax benefits. The Company classifies interest expense
and penalties related to unrecognized tax benefits as income tax expense. FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS No. 109 and
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. The evaluation of a tax position in accordance with this
Interpretation is a two-step process. The first step is recognition, in which
the enterprise determines whether it is more likely than not that a tax position
will be sustained upon examination, including resolution of any related appeals
or litigation processes, based on the technical merits of the position. The
second step is measurement. A tax position that meets the more-likely-than-not
recognition threshold is measured to determine the amount of benefit to
recognize in the financial statements.




28




The
Company and its subsidiaries file income tax returns in the U.S and Canada. The
Company is subject to U.S., Australian (prior years filing) and Canadian federal
and state examinations. The statute of limitations for 2007 and 2008 in all
jurisdictions remains open and are subject to examination by tax
authorities.




Contractual
Obligations and Off-Balance Sheet Arrangements




At
December 31, 2008, the Company did not have any relationships with
unconsolidated entities or financial partnerships, 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. As such, the Company is not
exposed to any financing, liquidity, market or credit risk that could arise if
it had engaged in such relationships.




The
following table shows the Company’s future commitments for future minimum lease
payments required under operating leases that have remaining non cancellable
lease terms in excess of one year, future commitments under investment and
marketing agreements, future commitments under employment agreements, and note
and interest payable as of December 31, 2008:





Operating
                      Leases
                    
                    
                    Employment
                      Agreements
                    
                    
                    Investments&
                      Marketing
                      Advances
                    
                    
                    Noteand
                      Interest
                      payable
                    
                    
                    Total
                      Obligations2009
                    
                    $
                    1,502
                    
                    
                    $
                    1,333
                    
                    
                    $
                    1,570
                    
                    
                    $
                    1,925
                    
                    
                    $
                    6,3302010
                    
                    
                    1,246
                    
                    
                    
                    1,250
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    2,4962011
                    
                    
                    1,184
                    
                    
                    
                    271
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    1,4552012
      and thereafter
                    
                    
                    5,912
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    5,912$
                    9,844
                    
                    
                    $
                    2,854
                    
                    
                    $
                    1,570
                    
                    
                    $
                    1,925
                    
                    
                    $
                    16,193




In
certain situations, the Company does have minimum fee obligations assuming the
counterparty performs the required level of services. We feel that the level of
business activity under normal and ordinary circumstances exceeds the minimum
thresholds. Therefore, the amounts are not included in the table
above.




Recent
Accounting Pronouncements




In
June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities.” EITF 03-6-1 gives guidance as to the circumstances
when unvested share-based payment awards should be included in the computation
of EPS. EITF 03-6-1 is effective for fiscal years beginning after
December 15, 2008. We are currently assessing the impact of EITF 03-6-1 on
our consolidated financial statements.




In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162
("SFAS 162"), The Hierarchy of Generally Accepted Accounting
Principles.This
statement identifies the sources of accounting principles and the framework for
selecting the principles used in preparation of financial statements of
nongovernmental entities that are presented in conformity with U.S. GAAP.
This statement is effective November 15, 2008. The Company will adopt
SFAS 162 as required, and its adoption is not expected to have an impact on
the consolidated financial statements.




In
April 2008, the FASB issued FASB Staff Position No. FSP 142-3,
“Determining the Useful Life of Intangible Assets” FSP 142-3 amends the factors
to be considered in determining the useful life of intangible assets. Its intent
is to improve the consistency between the useful life of an intangible asset and
the period of expected cash flows used to measure its fair value. FSP 142-3 is
effective for fiscal years beginning after December 15, 2008. We are
currently assessing the impact of FSP 142-3 on our consolidated financial
statements.




29




In March
2008, the FASB issued SFAS No. 161, “Disclosure about Derivative Instruments and
Hedging Activities,” an amendment of FASB Statement No. 133. SFAS No. 161
changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under Statement No. 133 and its
related interpretations and (c) how derivative instruments and related hedged
items affect an entity’s financial position, financial performance and cash
flows. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early
application encouraged. The Company is currently evaluating the impact SFAS No.
161 may have its consolidated financial statements.




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements,” which we refer to as SFAS No. 160. SFAS No.
160 establishes requirements for ownership interests in subsidiaries held by
parties other than us (minority interests) be clearly identified and disclosed
in the consolidated statement of financial position within equity, but separate
from the parent's equity. Any changes in the parent's ownership interests are
required to be accounted for in a consistent manner as equity transactions and
any noncontrolling equity investments in deconsolidated subsidiaries must be
measured initially at fair value. SFAS No. 160 is effective, on a prospective
basis, for fiscal years beginning after December 15, 2008; however, presentation
and disclosure requirements must be retrospectively applied to comparative
financial statements. The Company will adopt SFAS No. 160 in our fiscal year
ending December 31, 2009. However, the Company is currently evaluating the
impact of SFAS No. 160 may have its consolidated financial
statements.




On
February 12, 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 157-2,
“Effective Date of SFAS No. 157,” which defers the effective date of SFAS 157
for nonfinancial assets and liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis. This
FSP delayed the implementation of SFAS 157 for the Company’s accounting of
goodwill, acquired intangibles, and other nonfinancial assets and liabilities
that are measured at the lower of cost or market until January 1,
2009.




In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS
141R”). SFAS 141R establishes the principles and requirements for how an
acquirer: (i) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed and any non-controlling
interest in the acquiree; (ii) recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase; and (iii) determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. SFAS 141R
is to be applied prospectively to business combinations consummated on or after
the beginning of the first annual reporting period on or after December 15,
2008, with early adoption prohibited. We are currently evaluating the impact
SFAS 141R will have on adoption on our accounting for future acquisitions.
Previously, any release of valuation allowances for certain deferred tax assets
would serve to reduce goodwill, whereas under the new standard any release of
the valuation allowance related to acquisitions currently or in prior periods
will serve to reduce our income tax provision in the period in which the reserve
is released. Additionally, under SFAS 141R transaction-related expenses, which
were previously capitalized, will be expensed as incurred.




In
February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS 159”), which gives companies the option
to measure eligible financial assets, financial liabilities and firm commitments
at fair value (i.e., the fair value option), on an instrument-by-instrument
basis, that are otherwise not permitted to be accounted for at fair value under
other accounting standards. The election to use the fair value option is
available when an entity first recognizes a financial asset or liability or upon
entering into a firm commitment. Subsequent changes in fair value must be
recorded in earnings. SFAS 159 is effective for financial statements issued for
fiscal year beginning after November 15, 2007. The Company elected not to adopt
the provisions of SFAS 159 for its financial instruments that are not required
to be measured at fair value.




Acquisitions




On
February 4, 2008, New Motion completed its merger with Traffix, Inc.
(“Traffix”); a performance based online marketing company, pursuant to a merger
agreement entered into by the companies on September 26, 2007. As a result of
the closing of the transaction, Traffix became a wholly owned subsidiary of New
Motion. Immediately following the consummation of the merger, Traffix
stockholders owned approximately 45% of the capital stock of New Motion, on a
fully-diluted basis. Each issued and outstanding share of Traffix common stock
was converted into the right to receive approximately 0.676 shares of New Motion
common stock based on the capitalization of both companies on the closing date
of the merger. Effective the date of the close of the merger, New Motion
commenced trading on The NASDAQ Global Market under the symbol
“NWMO.”




30




On June
30, 2008, New Motion entered into an Asset Purchase Agreement with Ringtone.com,
LLC, a Minnesota limited liability company and W3i Holdings LLC, a Minnesota
limited liability company and the sole member of Ringtone.com. In consideration
for the assets, the Company at the closing paid to Ringtone.com $7 million in
cash. In addition, the Company delivered to Ringtone.com a convertible
promissory note (the “Note”) in the aggregate principal amount of $1.75 million,
which accrues interest at a rate of 10% per annum (provided that from and after
an event of default, the Note will bear interest at a rate of 15% per
annum).




See Note
4 to the consolidated financial statements for a more detailed description
of the Traffix and Ringtone.com acquisitions.




Pro Forma Financial
Data




As more
fully described in Note 4 to the consolidated financial statements, New Motion
acquired all of the outstanding common shares of Traffix in accordance with the
merger agreement as well as certain assets and liabilities of Ringtone.com, LLC
in accordance with the asset purchase agreement. The following unaudited pro
forma results of operations are based on the historical statements of operations
of New Motion,  Traffix and Ringtone.com, LLC, after giving effect to
the acquisition of Traffix by New Motion, using the purchase method of
accounting and applying the assumptions and adjustments described in the related
discussion below.




The pro
forma combined statement of operations for the year ended December 31, 2008 is
presented as if the acquisitions of Traffix and Ringtone.com had occurred on
January 1, 2008. You should read this information in conjunction with the
accompanying notes to the consolidated financial statements included
herewith.




The pro
forma information presented is for illustrative purposes only and is not
necessarily indicative of the financial position or results of operations that
would have been realized if the acquisitions had been completed on the dates
indicated, nor is it indicative of future operating results or financial
position.




Financial
statements of New Motion issued after the acquisitions reflects only the
operations of Traffix and Ringtone.com after the acquisitions and have not been
restated retroactively to reflect the historical financial position or results
of operations of Traffix and Ringtone.com.




Traffix
and Ringtone results of operations are derived from the unaudited management
accounts of Traffix and Ringtone for the period from January 1, 2008 to February
3, 2008 and the period from January 1, 2008 to June 30, 2008,
respectively.


UNAUDITED
PRO FORMA RESULTS OF OPERATIONS
 For
The Year Ended December 31, 2008
 (Dollars
in thousands, except per share data)
  New Motion
                  
                  
                  Traffix
                  
                  
                  Acquisition
                    Adjustments
                  
                  
                  Total
                    Traffix
                  
                  
                  Ringtone
                  
                  
                  Acquisition
                    Adjustments
                  
                  
                  Total
                    Ringtone
                  
                  
                  Combined
                    Pro
      FormaNet revenue-Subscription
                  
                  $
                  44,196
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  7,278
                  
                  
                  $
                  (310
                  )(g)
                  
                  $
                  6,968
                  
                  
                  $
                  51,164Net revenue-Transactional
                  
                  
                  69,688
                  
                  
                  
                  10,637
                  
                  
                  
                  (3,068
                  )(a)
                  
                  
                  7,569
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  77,257TOTAL
      REVENUE
                  
                  
                  113,884
                  
                  
                  
                  10,637
                  
                  
                  
                  (3,068
                  )
                  
                  
                  7,569
                  
                  
                  
                  7,278
                  
                  
                  
                  (310
                  )
                  
                  
                  6,968
                  
                  
                  
                  128,421EXPENSESCost
      of revenues-third party
                  
                  
                  74,541
                  
                  
                  
                  7,441
                  
                  
                  
                  (310
                  )(b)
                  
                  
                  7,131
                  
                  
                  
                  5,675
                  
                  
                  
                  (1,107
                  )(h)
                  
                  
                  4,568
                  
                  
                  
                  86,240Product
      and  distribution
                  
                  
                  9,749
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  9,749Selling
      and marketing
                  
                  
                  9,974
                  
                  
                  
                  266
                  
                  
                  
                  (1,961
                  )(c)
                  
                  
                  (1,695
                  )
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,279General
      and administrative
                  
                  
                  16,060
                  
                  
                  
                  1,596
                  
                  
                  
                  (560
                  )(d)
                  
                  
                  1,036
                  
                  
                  
                  669
                  
                  
                  
                  -
                  
                  
                  
                  669
                  
                  
                  
                  17,765Depreciation
      and amortization
                  
                  
                  5,867
                  
                  
                  
                  96
                  
                  
                  
                  275
                  (e)
                  
                  
                  371
                  
                  
                  
                  54
                  
                  
                  
                  14
                  (e)
                  
                  
                  68
                  
                  
                  
                  6,306Impairment
      of goodwill
                  
                  
                  114,783
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  114,783230,974
                  
                  
                  
                  9,399
                  
                  
                  
                  (2,556
                  )
                  
                  
                  6,843
                  
                  
                  
                  6,398
                  
                  
                  
                  (1,093
                  )
                  
                  
                  5,305
                  
                  
                  
                  243,122(LOSS)
      FROM OPERATIONS
                  
                  
                  (117,090
                  )
                  
                  
                  1,238
                  
                  
                  
                  (512
                  )
                  
                  
                  726
                  
                  
                  
                  880
                  
                  
                  
                  783
                  
                  
                  
                  1,663
                  
                  
                  
                  (114,701
                  )OTHER
      EXPENSE (INCOME)Interest
      income and dividends
                  
                  
                  (748
                  )
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (748
                  )Interest
      expense
                  
                  
                  147
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  147Other
      income/expenses
                  
                  
                  153
                  
                  
                  
                  
                  
                  
                  
                  28
                  
                  
                  
                  28
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  181(LOSS)
      INCOME BEFORE PROVISION FOR INCOME TAXES
                  
                  $
                  (116,642
                  )
                  
                  $
                  1,238
                  
                  
                  $
                  (540
                  )
                  
                  $
                  698
                  
                  
                  $
                  880
                  
                  
                  $
                  783
                  
                  
                  $
                  1,663
                  
                  
                  $
                  (114,281
                  )INCOME
      TAXES
                  
                  
                  (852
                  )
                  
                  
                  551
                  
                  
                  
                  (551
                  )(f)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (852
                  )-(LOSS)
      INCOME BEFORE MINORITY INTEREST
                  
                  
                  (115,790
                  )
                  
                  
                  687
                  
                  
                  
                  11
                  
                  
                  
                  698
                  
                  
                  
                  880
                  
                  
                  
                  783
                  
                  
                  
                  1,663
                  
                  
                  
                  (113,429
                  )MINORITY
      INTEREST, NET OF PROVISION FOR INCOME
                  
                  
                  (24
                  )
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (24
                  )-NET
      INCOME
                  
                  $
                  (115,766
                  )
                  
                  $
                  687
                  
                  
                  $
                  11
                  
                  
                  $
                  698
                  
                  
                  $
                  880
                  
                  
                  $
                  783
                  
                  
                  $
                  1,663
                  
                  
                  $
                  (113,405
                  )





31




Pro
Forma Adjustments




The
following pro forma adjustments are included in the unaudited pro forma
consolidated statement of operations:




(a) 
        Adjustments to sales:To
      eliminate Traffix sales made to New Motion
                              
                              $
                              (1,961
                              )To
      eliminate Traffix sales made to Ringtone
                              
                              $
                              (1,107
                              )(b)   
      Adjustments to cost of revenue-third party:To
      eliminate Traffix expense paid to Ringtone
                              
                              $
                              (310
                              )(c)   
      Adjustments to sales and marketing:To
      eliminate New Motion expense paid to Traffix
                              
                              $
                              (1,961
                              )(d)  
      Adjustments to general and administrative:To
      adjust for various acquisition cost related to the merger of
      Traffix
                              
                              $
                              (560
                              )(e)
         Adjustments to depreciation and amortization:To
      record additional amortization related to intangibles recorded
      in
                              
                              $
                              14purchase
      accounting to reflect such amounts from January 1, 2008 to
the
                                  respective
      date of acquisition.
                              
                              $
                              275(f)   
      Adjustments to income taxes:To
      eliminate Traffix tax expense which is now reflected in New
      Motion
                              
                              $
                              (551
                              )(g)  
      Adjustments to sales:To
      eliminate Ringtone sales made to Traffix
                              
                              $
                              (310
                              )(h)   Adjustments to cost of revenue-third
      party:To
      eliminate Ringtone expense paid to Traffix
                              
                              $
                              (1,107
                              )




ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Not
applicable.




32




ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS




Reports
      of Independent Registered Public Accounting Firms
                
                
                F-1Consolidated
      Balance Sheets
                
                
                F-3Consolidated
      Statements of Operations
                
                
                F-4Consolidated
      Statements of Comprehensive Income (Loss)
                
                
                F-5Consolidated
      Statement of Stockholders’ Equity
                
                
                F-6Consolidated
      Statements of Cash Flows
                
                
                F-7Notes
      to the Consolidated Financial Statements
                
                
                F-8 –
      F-28




33




Report
of Independent Registered Public Accounting Firm





The Board
of Directors and Stockholders


New
Motion, Inc.:




We have
audited the accompanying consolidated balance sheet of New Motion, Inc.
and subsidiaries as of December 31, 2008 and the related consolidated
statements of operations, stockholders’ equity, comprehensive loss, and cash
flows for the year ended December 31, 2008.  These consolidated
financial statements are the responsibility of the New Motion, Inc.’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 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 New Motion, Inc.
and subsidiaries as of December 31, 2008 and the results of their
operations and their cash flows for the year then ended  in conformity
with U.S. generally accepted accounting principles.





/s/ KPMG
LLP





New York,
New York


March 26,
2009




F-1




Report
of Independent Registered Public Accounting Firm




To the
Board of Directors and Stockholders of New Motion, Inc.




We have
audited the accompanying consolidated balance sheet of New Motion, Inc.
and consolidated variable interest entity as of December 31, 2007, and
the related consolidated statements of operations, comprehensive income (loss),
stockholders’ equity, and cash flows for the year ended December 31, 2007. 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 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 financial statements, 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 New Motion, Inc.
and consolidated variable interest entity as of December 31, 2007, and the
results of their operations and their cash flows for the year ended December 31,
2007, in conformity with accounting principles generally accepted in the United
States of America.




/s/
      Windes & McClaughryWindes
      & McClaughry Accountancy CorporationIrvine,
      CaliforniaMarch
      26, 2008




F-2




NEW
MOTION, INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 Years
Ended December 31,
 (Dollars
in thousands, except per share data)


2008
                                  
                                  
                                  2007ASSETSCurrent
      AssetsCash
      and cash equivalents
                                  
                                  $
                                  20,410
                                  
                                  
                                  $
                                  1,112Marketable
      securities
                                  
                                  
                                  4,245
                                  
                                  
                                  
                                  9,338Accounts
      receivable, net of allowance for doubtful accounts of $2,938 and
      $565
                                  
                                  
                                  16,790
                                  
                                  
                                  
                                  8,389Income
      tax receivable
                                  
                                  
                                  2,666
                                  
                                  
                                  
                                  -Prepaid
      expenses and other current assets
                                  
                                  
                                  3,686
                                  
                                  
                                  
                                  2,278Total
      Currents Assets
                                  
                                  
                                  47,797
                                  
                                  
                                  
                                  21,117PROPERTY
      AND EQUIPMENT, net of accumulated depreciation of $1,435 and
      $294
                                  
                                  
                                  3,525
                                  
                                  
                                  
                                  860GOODWILL
                                  
                                  
                                  11,075
                                  
                                  
                                  
                                  -INTANGIBLES
      ASSETS, net of accumulated amortization of $5,683 and $941
                                  
                                  
                                  12,508
                                  
                                  
                                  
                                  599INVESTMENTS
      AND OTHER ADVANCES
                                  
                                  
                                  2,519
                                  
                                  
                                  
                                  -DEPOSITS
      AND OTHER ASSETS
                                  
                                  
                                  1,339
                                  
                                  
                                  
                                  1,387TOTAL
      ASSETS
                                  
                                  $
                                  78,763
                                  
                                  
                                  $
                                  23,963LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      LiabilitiesAccounts
      payable
                                  
                                  $
                                  7,194
                                  
                                  
                                  $
                                  3,257Accrued
      expenses
                                  
                                  
                                  12,340
                                  
                                  
                                  
                                  3,720Short-term
      note payable
                                  
                                  
                                  1,858
                                  
                                  
                                  
                                  -Merger
      related accrual
                                  
                                  
                                  1,601
                                  
                                  
                                  
                                  -Deferred
      revenue
                                  
                                  
                                  152
                                  
                                  
                                  
                                  -Other
      current liabilities
                                  
                                  
                                  969
                                  
                                  
                                  
                                  99Total
      Current Liabilities
                                  
                                  
                                  24,114
                                  
                                  
                                  
                                  7,076Long
      Term note payable
                                  
                                  
                                  -
                                  
                                  
                                  
                                  22MINORITY
      INTERESTS
                                  
                                  
                                  260
                                  
                                  
                                  
                                  283COMMITMENTS
      AND CONTINGENCIES(See Note
      14)
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -STOCKHOLDERS'
      EQUITYCommon
      stock - par value $.01, 100,000,000 authorized, 22,992,280 and 12,021,184
      shares issued at 2008 and 2007, respectively; and, 21,083,354 and
      12,021,184 shares outstanding at 2008 and 2007,
    respectively.
                                  
                                  
                                  230
                                  
                                  
                                  
                                  120Additional
      paid-in capital
                                  
                                  
                                  177,347
                                  
                                  
                                  
                                  19,583Accumulated
      other comprehensive loss
                                  
                                  
                                  (286
                                  )
                                  
                                  
                                  (38
                                  )Common
      stock, held in treasury, at cost, 1,908,926 shares
                                  
                                  
                                  (4,053
                                  )
                                  
                                  
                                  -Accumulated
      deficit
                                  
                                  
                                  (118,849
                                  )
                                  
                                  
                                  (3,083
                                  )Total
      Stockholders' Equity
                                  
                                  
                                  54,389
                                  
                                  
                                  
                                  16,582TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                  
                                  $
                                  78,763
                                  
                                  
                                  $
                                  23,963







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




F-3


NEW
MOTION, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 Years
Ended December 31,
 (Dollars
in thousands, except per share data)


2008
                      
                      
                      2007Subscription
                      
                      $
                      44,196
                      
                      
                      $
                      36,982Transactional
                      
                      
                      69,688
                      
                      
                      
                      -NET
      REVENUES
                      
                      
                      113,884
                      
                      
                      
                      36,982OPERATING
      EXPENSESCost
      of revenues-third party
                      
                      
                      74,541
                      
                      
                      
                      29,054Product
      and distribution
                      
                      
                      9,749
                      
                      
                      
                      3,149Selling
      and marketing
                      
                      
                      9,974
                      
                      
                      
                      1,521General
      and administrative and other operating
                      
                      
                      16,060
                      
                      
                      
                      7,408Depreciation
      and amortization
                      
                      
                      5,867
                      
                      
                      
                      1,349Impairment
      of goodwill
                      
                      
                      114,783
                      
                      
                      
                      -230,974
                      
                      
                      
                      42,481LOSS
      FROM OPERATIONS
                      
                      
                      (117,090
                      )
                      
                      
                      (5,499
                      )OTHER
      (INCOME) EXPENSEInterest
      income and dividends
                      
                      
                      (748
                      )
                      
                      
                      (464
                      )Interest
      expense
                      
                      
                      147
                      
                      
                      
                      22Other
      expense
                      
                      
                      153
                      
                      
                      
                      12(448
                      )
                      
                      
                      (430
                      )LOSS
      BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST
                      
                      
                      (116,642
                      )
                      
                      
                      (5,069
                      )INCOME
      TAXES
                      
                      
                      (852
                      )
                      
                      
                      (1,203
                      )LOSS
      BEFORE MINORITY INTEREST
                      
                      
                      (115,790
                      )
                      
                      
                      (3,866
                      )MINORITY
      INTEREST
                      
                      
                      (24
                      )
                      
                      
                      283NET
      LOSS
                      
                      $
                      (115,766
                      )
                      
                      $
                      (4,149
                      )LOSS
      PER SHAREBasic
                      
                      $
                      (5.43
                      )
                      
                      $
                      (0.37
                      )Diluted
                      
                      $
                      (5.43
                      )
                      
                      $
                      (0.37
                      )WEIGHTED
      AVERAGE SHARES OUTSTANDING:Basic
                      
                      
                      21,320,638
                      
                      
                      
                      11,331,260Diluted
                      
                      
                      21,320,638
                      
                      
                      
                      11,331,260





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





F-4




NEW
MOTION, INC. AND SUBSIDIARY
 CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
 Years
Ended December 31,
 (Dollars
in thousands, except per share data)


2008
                      
                      
                      2007NET
      LOSS
                      
                      $
                      (115,766
                      )
                      
                      $
                      (4,149
                      )OTHER
      COMPREHENSIVE LOSS, NET OF TAX:Unrealized
      gain (loss) on available-for-sale securities
                      
                      
                      38
                      
                      
                      
                      (38
                      )Net
      Currency translation adjustment
                      
                      
                      (286
                      )
                      
                      
                      -COMPREHENSIVE
      LOSS
                      
                      $
                      (116,014
                      )
                      
                      $
                      (4,187
                      )




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





F-5





NEW
MOTION, INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY


Two
Years Ended December 31,


(Dollars
in thousands, except per share data)





Retained
                                                                                                    
                                                                                                    
                                                                                                    AccumulatedAdditional
                                                                                                    
                                                                                                    
                                                                                                    Earnings
                                                                                                    
                                                                                                    
                                                                                                    Other
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    TotalComprehensive
                                                                                                    
                                                                                                    
                                                                                                    Series
      A
                                                                                                    
                                                                                                    
                                                                                                    Series
      B
                                                                                                    
                                                                                                    
                                                                                                    Series
      D
                                                                                                    
                                                                                                    
                                                                                                    Common
      Stock
                                                                                                    
                                                                                                    
                                                                                                    Paid-In
                                                                                                    
                                                                                                    
                                                                                                    (Accumulate
                                                                                                    
                                                                                                    
                                                                                                    Comprehensive
                                                                                                    
                                                                                                    
                                                                                                    Treasury
      Stock
                                                                                                    
                                                                                                    
                                                                                                    shareholders'Loss
                                                                                                    
                                                                                                    
                                                                                                    Shares
                                                                                                    
                                                                                                    
                                                                                                    Amount
                                                                                                    
                                                                                                    
                                                                                                    Shares
                                                                                                    
                                                                                                    
                                                                                                    Amount
                                                                                                    
                                                                                                    
                                                                                                    Shares
                                                                                                    
                                                                                                    
                                                                                                    Amount
                                                                                                    
                                                                                                    
                                                                                                    Shares
                                                                                                    
                                                                                                    
                                                                                                    Amount
                                                                                                    
                                                                                                    
                                                                                                    Capital
                                                                                                    
                                                                                                    
                                                                                                    Deficit)
                                                                                                    
                                                                                                    
                                                                                                    Income
      (Loss)
                                                                                                    
                                                                                                    
                                                                                                    Shares
                                                                                                    
                                                                                                    
                                                                                                    Amount
                                                                                                    
                                                                                                    
                                                                                                    EquityBalance
      at January 1, 2007
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    7,263,688
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    73
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    84
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    1,066
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    1,223Comprehensive
      IncomeNet
      loss
                                                                                                    
                                                                                                    
                                                                                                    (4,149
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (4,149
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (4,149
                                                                                                    )Unrealized
      loss on investments, net of tax benefits of $24
                                                                                                    
                                                                                                    
                                                                                                    (38
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (38
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (38
                                                                                                    )(4,187
                                                                                                    )Financing
      costs related to reverse acquisition of MPLC
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (682
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (682
                                                                                                    )Issuance
      of Series A Preferred (See Note 11)
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    3,500
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    3,500MPLC
      Common Exchange (See Note 11)
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    250,000
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    3
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (3
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -Issuance
      of Series B Preferred (See Note 11)
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    650
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    6,500
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    6,500Issuance
      of Series D Preferred(See Note
      11)
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    8,333
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    9,999
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    10,000Equity
      issuance costs related to issuance of preferred stock
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (1,566
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (1,566
                                                                                                    )Value
      of warrants issued (See Note 13)
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    57
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    57Reverse
      Split and conversion (See Note 11)
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (1
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (650
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (8,333
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (1
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    4,166,658
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    42
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (41
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -Conversion
      of IVG Note (See Note 4)
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    172,572
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    592
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    593Issuance
      of shares for odd lot rounding after Reverse Split (See Note
      11)
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    112,578
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (1
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -Exercise
      of stock options
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    55,688
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    27
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    27Stock-based
      compensation expense
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,117
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,117Balance
      at December 31, 2007
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    12,021,184
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    120
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    19,583
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    (3,083
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    (38
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    16,582Net
      loss
                                                                                                    
                                                                                                    
                                                                                                    (115,766
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (115,766
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (115,766
                                                                                                    )Unrealized
      loss on investments, net of tax benefits of $24
                                                                                                    
                                                                                                    
                                                                                                    38
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    38
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    38Foreign
      currency translation
                                                                                                      adjustment
                                                                                                    
                                                                                                    
                                                                                                    (286
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (287
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (287
                                                                                                    )(116,015
                                                                                                    )Comprehensive
      income
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -Stock
      based compensation expense
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,282
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,282Exercise
      of stock options
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    561,738
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    6
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    337
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    343Excess
      tax benefit on share-based compensation
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,017
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,017Purchase
      of common stock, at cost (Note 10)
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,908,926
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (4,053
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (4,053
                                                                                                    )Common
      Stock issued in connection with business combinations (Note
      10)
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    10,409,358
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    104
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    155,128
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    155,232Balance
      at December 31, 2008
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    22,992,280
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    230
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    177,347
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    (118,849
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    (287
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    1,908,926
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    (4,053
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    54,389




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


F-6


NEW
MOTION, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 Years
Ended December 31,
 (Dollars
in thousands, except per share data)
 
 2008
                                                                
                                                                
                                                                2007Cash
      Flows From Operating ActivitiesNet
      loss
                                                                
                                                                $
                                                                (115,766
                                                                )
                                                                
                                                                $
                                                                (4,149
                                                                )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Allowance
      for doubtful accounts
                                                                
                                                                
                                                                2,152
                                                                
                                                                
                                                                
                                                                (698
                                                                )Depreciation
      and amortization
                                                                
                                                                
                                                                5,867
                                                                
                                                                
                                                                
                                                                1,349Impairment
      of goodwill
                                                                
                                                                
                                                                114,783
                                                                
                                                                
                                                                
                                                                -Stock-based
      compensation expense
                                                                
                                                                
                                                                1,282
                                                                
                                                                
                                                                
                                                                1,117Excess
      tax benefit from share-based compensation
                                                                
                                                                
                                                                (1,017
                                                                )
                                                                
                                                                
                                                                -Net
      losses on sale of marketable securities
                                                                
                                                                
                                                                175
                                                                
                                                                
                                                                
                                                                -Deferred
      income taxes
                                                                
                                                                
                                                                (2,345
                                                                )
                                                                
                                                                
                                                                (1,149
                                                                )Minority
      interest in net loss on consolidated joint venture
                                                                
                                                                
                                                                (24
                                                                )
                                                                
                                                                
                                                                283Changes
      in operating assets and liabilities of business, net of
      acquisitions:Accounts
      receivable
                                                                
                                                                
                                                                4,532
                                                                
                                                                
                                                                
                                                                (4,164
                                                                )Prepaid
      income tax
                                                                
                                                                
                                                                (2,464
                                                                )
                                                                
                                                                
                                                                (202
                                                                )Prepaid
      expenses and other current assets
                                                                
                                                                
                                                                1,152
                                                                
                                                                
                                                                
                                                                (880
                                                                )Accounts
      payable
                                                                
                                                                
                                                                (3,205
                                                                )
                                                                
                                                                
                                                                387Other,
      principally accrued expenses
                                                                
                                                                
                                                                (767
                                                                )
                                                                
                                                                
                                                                2,896Net
      cash provided by (used in) operating activities
                                                                
                                                                
                                                                4,355
                                                                
                                                                
                                                                
                                                                (5,210
                                                                )Cash
      Flows From Investing ActivitiesPurchases
      of securities
                                                                
                                                                
                                                                (6,577
                                                                )
                                                                
                                                                
                                                                (16,000
                                                                )Proceeds
      from sales of securities
                                                                
                                                                
                                                                24,708
                                                                
                                                                
                                                                
                                                                6,600Cash
      acquired in business combinations
                                                                
                                                                
                                                                11,212
                                                                
                                                                
                                                                
                                                                -Cash
      paid for business combinations
                                                                
                                                                
                                                                (7,030
                                                                )
                                                                
                                                                
                                                                (2,018
                                                                )Capital
      expenditures
                                                                
                                                                
                                                                (2,029
                                                                )
                                                                
                                                                
                                                                (266
                                                                )Cash
      paid for investments and other advances
                                                                
                                                                
                                                                (2,519
                                                                )
                                                                
                                                                
                                                                -Net
      cash provided by (used in) investing activities
                                                                
                                                                
                                                                17,765
                                                                
                                                                
                                                                
                                                                (11,684
                                                                )Cash
      Flows From Financing ActivitiesRepayments
      of notes payable
                                                                
                                                                
                                                                (111
                                                                )
                                                                
                                                                
                                                                (597
                                                                )Expenditures
      for equity financing
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (469
                                                                )Issuance
      of warrants
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                57Issuance
      of stock
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                18,461Line
      of credit
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                10Excess
      tax benefit on share-based compensation
                                                                
                                                                
                                                                1,017
                                                                
                                                                
                                                                
                                                                -Purchase
      of common stock held in treasury
                                                                
                                                                
                                                                (4,053
                                                                )
                                                                
                                                                
                                                                -Proceeds
      from exercise of options
                                                                
                                                                
                                                                343
                                                                
                                                                
                                                                
                                                                -Net
      cash (used in) provided by financing activities
                                                                
                                                                
                                                                (2,804
                                                                )
                                                                
                                                                
                                                                17,462Effect
      of exchange rate changes on cash and cash equivalents
                                                                
                                                                
                                                                (18
                                                                )
                                                                
                                                                
                                                                -Net
      Increase In Cash and Cash Equivalents
                                                                
                                                                
                                                                19,298
                                                                
                                                                
                                                                
                                                                568Cash
      and Cash Equivalents at Beginning of Year
                                                                
                                                                
                                                                1,112
                                                                
                                                                
                                                                
                                                                544Cash
      and Cash Equivalents at End of Year
                                                                
                                                                $
                                                                20,410
                                                                
                                                                
                                                                $
                                                                1,112SUPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCash
      paid for interest
                                                                
                                                                $
                                                                (35
                                                                )
                                                                
                                                                $
                                                                (22
                                                                )Cash
      (paid) refunded for taxes
                                                                
                                                                $
                                                                (2,620
                                                                )
                                                                
                                                                $
                                                                145Non-Cash
      financing and investing disclosureAcquisition
      of intangibles assets by issuance of note payable
                                                                
                                                                $
                                                                1,750
                                                                
                                                                
                                                                $
                                                                (580
                                                                )Acquisition
      of equipment by issuance of note payable
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                (708
                                                                )Extinguishment
      of note payable and accrued interest upon conversion of note into common
      stock
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                593Common
      stock issued in connection with business combination
                                                                
                                                                $
                                                                155,232
                                                                
                                                                
                                                                
                                                                -
 
 The
accompanying notes are an integral part of these consolidated
statements.
  F-7
  NOTE
1 – Nature of Operations
  New
Motion, Inc. (“New Motion” or the “Company”), doing business as Atrinsic, is a
leading integrated media and marketing services company that drives growing
audiences from its content network and third party distribution channels to
acquire high value customers for advertisers and its proprietary products. The
Company provides two principal offerings: (1) Transactional services - offering
full service online marketing and distribution services which are targeted and
measurable online campaigns and programs for marketing partners, corporate
advertisers, or their agencies, generating qualified customer leads, online
responses and activities, or increased brand recognition, and (2) Subscription
services - offering our portfolio of subscription  based content
applications direct to users working with wireless carriers and other
distributors.
  NOTE
2 - Summary of Significant Accounting Policies
  Principles of
Consolidation
  The
consolidated financial statements include the accounts of all majority and
wholly-owned subsidiaries and significant intercompany balances and transactions
have been eliminated.
  The
equity method is used to account for investments in entities in which we have an
ownership of less than 50% and have significant influence over the operating and
financial policies of the affiliate. For investments in entities for which the
company has a less than 50 percent ownership interest, but has certain
participatory rights, the investee is consolidated.
  Use
of Estimates
  The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses as well
as the disclosure of contingent assets and liabilities. Management continually
evaluates its estimates and judgments including those related to allowances for
doubtful accounts and the associated allowances for returns and chargebacks,
useful lives of property, plant and equipment and intangible assets, fair value
of stock options granted, forfeiture rate of equity based compensation grants,
probable losses associated with pre-acquisition contingencies, income taxes and
other contingencies. Management bases its estimates and judgments on historical
experience and other factors that are believed to be reasonable in the
circumstances. Actual results may differ from those estimates. Macroeconomic
conditions may directly, or indirectly through our business partners and
vendors, impact our financial performance and available resources. Such
conditions may, in turn, impact the aforementioned estimates and
assumptions.
  Segment
Reporting
  The
Company has determined it operates in one operating segment. Operating segments
are components of an enterprise for which separate financial information is
available and is evaluated regularly by the Company in deciding how to allocate
resources and in assessing performance. The business model is centered around
the monetization of user activities either online, mobile, or other. The Company
monetizes that activity on either a subscription basis (i.e. Subscription
Services) or on a transactional basis (i.e. Network) largely at the discretion
of the Chief Operating Decision Maker, however, discrete financial information
by source of monetization is not available.
  Foreign
Currency Translation
  The
Company has a wholly owned subsidiary based in Canada which is included in the
Company’s consolidated financial statements. The subsidiary’s financials are
reported in Canadian dollars and translated in accordance with FASB 52. Assets
and liabilities for these foreign operations are translated at the exchange rate
in effect at the balance sheet date, and income and expenses are translated at
average exchange rates prevailing during the period. Gains and losses from these
translations are credited or charged to foreign currency translation included in
Accumulated Other Comprehensive Income in Shareholders’ Equity.
  F-8
  Cash
and Cash Equivalents
  The
Company considers all highly liquid instruments purchased with a maturity of
less than three months to be cash equivalents. The carrying amount of cash
equivalents approximates fair value because of the short maturity of these
instruments.
  Accounts
Receivable and Related Allowances
  The
Company maintains allowances for doubtful accounts for estimated losses which
may result from the inability of its customers to make required payments. The
Company bases its allowances on the likelihood of recoverability of
accounts receivable by customer, based on past experience, the age of the
accounts receivable balance, the credit quality of the Company’s customers, and,
taking into account current collection trends. If specific customer
circumstances change or industry trends worsen beyond the Company’s estimates,
the Company would be required to increase its allowances for doubtful accounts.
Alternatively, if trends improve beyond the Company’s estimates, the Company
would be required to decrease its allowance for doubtful accounts. The Company’s
estimates are reviewed periodically, and adjustments are reflected through bad
debt expense in the period they become known. Changes in the Company’s bad debt
experience can materially affect its results of operations.
 The
Company also makes estimates for refunds, chargebacks or credits, and provides
for these probable uncollectible amounts through a deferral and reduction of
recorded revenues in the period in which the sale occurred based on analyses of
previous rates and trends.
  Due to
the payment terms of the carriers requiring in excess of 60 days from the date
of billing or sale, at its sole discretion, the Company can elect to use trade
discounts in order to facilitate quicker payment. This discount or fee allows
for payments of approximately 80% of the prior month’s billings 15 to 20 days
after the end of the month. The Company records revenue net of that fee, if
incurred, which is 3.5% to 5% of the associated revenue.
  Goodwill
and Intangible Assets
 Goodwill
represents the excess of cost over fair value of net assets of businesses
acquired. In accordance with Statement of Financial Accounting Standards
No. 142 (“SFAS 142”) “Goodwill and Other Intangible Assets”, the value
assigned to goodwill and indefinite lived intangible assets is not amortized to
expense, but rather it is evaluated at least on an annual basis to determine if
there is a potential impairment. If the fair value of the reporting unit is less
than its carrying value, an impairment loss is recorded to the extent that the
implied fair value of the reporting unit goodwill is less than the carrying
value. If the fair value of an indefinite lived intangible is less than its
carrying amount, an impairment loss is recorded. Fair value is determined based
on discounted cash flows, market multiples or appraised values as appropriate.
Discounted cash flow analysis requires assumptions about the timing and amount
of future cash inflows and outflows, risk, the cost of capital, and terminal
values. Each of these factors can significantly affect the value of the
intangible asset. The estimates of future cash flows, based on reasonable and
supportable assumptions and projections, require management’s judgment. Any
changes in key assumptions about the Company’s businesses and their prospects,
or changes in market conditions, could result in an impairment charge. Some of
the more significant estimates and assumptions inherent in the intangible asset
valuation process include: the timing and amount of projected future cash flows;
the discount rate selected to measure the risks inherent in the future cash
flows; and the assessment of the asset’s life cycle and the competitive trends
impacting the asset, including consideration of any technical, legal or
regulatory trends.
  The
Company has determined that there was an impairment of goodwill as a result of
completing its annual impairment analysis as of December 31, 2008. The
results of this review and impact of the impairment are more fully described in
Note 6 - “Goodwill and Intangible Assets”.
  Intangible
assets subject to amortization primarily consist of customer lists, trade names
and trademarks, and restrictive covenants that were acquired.  The
intangible asset values assigned to the identified assets for each acquisition
were generally determined based upon the expected discounted aggregate cash
flows to be derived over the estimated useful life. The method of amortizing the
intangible asset values reflects, based upon the Company’s historical
experience, an accelerated rate of attrition in the subscriber database based
over the expected life of the underlying subscriber database after considering
turnover.  Accordingly, the Company amortizes the value assigned to
subscriber database based on the actual depletion of the acquired subscriber
database. The Company reviews the recoverability of its finite-lived intangible
assets for recoverability whenever events or circumstances indicated that the
carrying amount of an asset may not be recoverable. Recoverability is assessed
by comparison to associated undiscounted cash flows.
  F-9
  Stock-Based
Compensation
  The
Company records stock based compensation in accordance with Financial Accounting
Standard Board Statement of Financial Accounting Standards No. 123 (revised
2004). In estimating the grant date fair value at stock option awards, we use
certain assumptions and estimates to derive fair value, such as expected term,
rate of risk free returns and volatility. If different assumptions and estimates
were used, the amounts charged to compensation expense would be
different.
 Revenue
Recognition
  The
Company monetizes a portion of its user activities through subscription based
sources by providing on-going monthly access to and usage of premium products
and services.  In general, customers are billed at standard rates, at
the beginning of the month, and revenues are recognized upon receipt of
information confirming an arrangement. The Company estimates a provision for
refunds, chargebacks, or credits which are recorded as a reduction to revenues.
In determining the estimate for refunds and credits, the Company relies upon
historical data, contract information and other factors. The estimated provision
for refunds can vary from actual results.
  The
Company effectuates this type of revenues through a carrier or distributors who
are paid a transaction fee for their services. In accordance with Emerging
Issues Task Force (“EITF” No 99-19) “Reporting Revenues Gross as Principal
Versus Net as an Agent”, the Company recognizes as revenues the net amount
received from the carrier or distributor, net of their fee.  Revenues
are deferred if the probability of collection is not reasonably
assured.
  The
Company monetizes a portion of its user activities through transactional based
services generated primarily from (a) fees earned, primarily on a cost per click
(“CPC”) basis, from search syndication services; (b) commission fees earned for
the Company's search engine marketing ("SEM") services; (c) commission fees
earned from marketing service arrangements associated with our affiliate
marketing partners; and (d) other fees for marketing services including data and
list management services, which can be either periodic or transactional.
Commission fee revenue is recognized in the period that the Company's advertiser
customer generates a sale or other agreed-upon action on the Company's affiliate
marketing networks or as a result of the Company's SEM services, provided that
no significant Company obligations remain, collection of the resulting
receivable is reasonably assured, and the fees are fixed or determinable. All
transaction services revenues are recognized on a gross basis in accordance with
the provisions of EITF 99-19, due to the fact that the Company is the
primary obligor to its customer, and publisher expenses that are directly
related to a revenue-generating event are recorded as a component of 3rd part
Media Cost.
  Accumulated
Other Comprehensive Income (Loss)
  Comprehensive
income (loss) consists of two components, net income (loss) and other
comprehensive income (loss). Other comprehensive income (loss) refers to
revenue, expenses, gains and losses that under generally accepted accounting
principles in the United States, or GAAP, are recorded as an element of
shareholders’ equity but are excluded from net income (loss).  The
Company’s other comprehensive income (loss) consists of foreign currency
translation adjustments from those subsidiaries not using the US dollar as their
functional currency and unrealized gains and losses on marketable securities
categorized as available for sale.
  Income
Taxes
  The
Company uses the asset and liability method of financial accounting and
reporting for income taxes required by Statement of Financial Accounting
Standards No. 109 (“SFAS 109”), “Accounting for Income Taxes”. Under SFAS
109, deferred income taxes reflect the tax impact of temporary differences
between the amount of assets and liabilities recognized for financial reporting
purposes and the amounts recognized for tax purposes.
  Effective
January 1, 2007, the Company adopted FIN No. 48, “Accounting for
Uncertainty in Income Taxes” which resulted in no material adjustment in the
liability for unrecognized tax benefits. The Company classifies interest expense
and penalties related to unrecognized tax benefits as income tax expense. FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS No. 109 and
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. The evaluation of a tax position in accordance with this
Interpretation is a two-step process. The first step is recognition, in which
the enterprise determines whether it is more likely than not that a tax position
will be sustained upon examination, including resolution of any related appeals
or litigation processes, based on the technical merits of the position. The
second step is measurement. A tax position that meets the more-likely-than-not
recognition threshold is measured to determine the largest amount of benefit
that is more likely than not to be sustained.
  F-10
  The
Company and its subsidiaries file income tax returns in the U.S and Canada. The
Company is subject to U.S., Australian (prior year filings) Canadian and State
tax examinations. The statute of limitations for 2007 and 2008 in all
jurisdictions remains open and are subject to examination by tax
authorities.
  Reclassification
  Certain
amounts reported in prior years have been reclassified to conform to the current
year presentation.
  NOTE
3 - Marketable Securities
  As of
December 31, 2008 and 2007, the Company held certain assets that are required to
be measured at fair value on a recurring basis. These included the Company’s
investments in marketable securities consisting of U.S. governmental agency,
U.S. municipal agency, corporate obligations and auction-rate securities. In
accordance with the SFAS No. 115, “Accounting for Certain Investments in Debt
and Equity Securities”, our Marketable Securities are considered
available-for-sale, based on our intentions to hold the related investment
securities for varying and indefinite periods of time, pursuant to maturity
dates, market conditions and other factors. The Company has not changed its
investment intentions. Available for sale securities are carried at fair value,
with unrealized gains or losses, net of tax, recorded in a separate component of
stockholders’ equity within other accumulated comprehensive income.
  Included
in Marketable securities on the balance sheet at December 31, 2008 and 2007 are
auction-rate security instruments (ARS) with a par value of $4.0 million and
$6.5 million, respectively.
  Marketable
      Securities Rollforward2008
                            
                            
                            2007Beginning
      Balance, January 1,
                            
                            $
                            9,338
                            
                            
                            $
                            -Gains/(losses),
      realized
                            
                            
                            (175
                            )
                            
                            
                            (0
                            )Gains/(losses),
      unrealized
                            
                            
                            62
                            
                            
                            
                            (62
                            )Purchases
      & (sales), net
                            
                            
                            (18,131
                            )
                            
                            
                            9,400Acquired
                            
                            
                            13,151
                            
                            
                            
                            -Ending
      Balance, December 31,
                            
                            $
                            4,245
                            
                            
                            $
                            9,338
 
 For
purposes of SFAS 157 the ARS are classified as Level III and the certificates of
deposit are classified as Level I assets.
  December
      31,
                                  2008
                                
                                
                                Level
      I
                                
                                
                                Level
      II
                                
                                
                                Level
      IIIAuction-rate
      Securities
                                
                                $
                                4,000
                                
                                
                                $
                                -
                                
                                
                                $
                                
                                
                                
                                $
                                4,000Other
      available-for-sale securities
                                
                                
                                245
                                
                                
                                
                                245Total
      Assets Measured at Fair Value
                                
                                $
                                4,245
                                
                                
                                $
                                245
                                
                                
                                $
                                -
                                
                                
                                $
                                4,000
  In January 2009 the remaining ARS of
$4.0 million was redeemed and converted to cash at par plus
interest.
  NOTE
4 – Business Combinations
  The
Company consummated two business combinations during the year ended
December 31, 2008 for total consideration of approximately $166.2 million.
As a result of these acquisitions, the Company recorded $125.9 million of
goodwill and $16.7 million of other long lived intangible assets.  The
results of operations of the acquired entities have been included in the
consolidated results presented herein as of their date of acquisition. The
purchase price allocations for these acquisitions are preliminary for up to 12
months after the acquisition date and subject to revision as more detailed
analyses are completed and additional information about fair value of assets and
liabilities becomes available. Any change in the estimated fair value of the net
assets of the acquired companies will change the amount of the purchase price
allocable to goodwill. Acquired intangibles are generally amortized on a
straight line basis over their estimated useful lives.
  F-11
  During
the fourth quarter of 2008, the Company finalized its valuation analysis of the
assets, liabilities assumed, and identifiable intangible assets acquired in
connection with the Traffix acquisition and revised its estimates concerning
certain elements of acquired assets, liabilities assumed and intangible assets
acquired. As a result, the Company reallocated its preliminary purchase price
allocations which resulted in the reclassification of approximately $24.4
million from indefinite lived intangible assets to goodwill. Included in the
reallocation is the corresponding impact of the reclassification of deferred
taxes. In connection with its annual impairment testing for the year ended
December 31, 2008, the Company determined there was an impairment and recorded a
goodwill impairment charge of $114.8 million. See Note 6.
  Acquisition
of Traffix, Inc.
  On
February 4, 2008, New Motion, Inc. completed its merger with Traffix, a
performance based online marketing company, pursuant to a merger agreement
entered into by the companies on September 26, 2007. As a result of the closing
of the transaction, Traffix became a wholly owned subsidiary of New
Motion.  Immediately following the consummation of the merger, Traffix
stockholders owned approximately 45% of the capital stock of New Motion, on a
fully diluted basis.
  The
application of purchase accounting under SFAS No. 141 resulted in the
transaction being valued at $155.2 million based upon the average closing price
of $14.18 of our common stock on The NASDAQ Global Select Market for the two
days prior to, including, and two days subsequent to the public announcement of
the Merger on September 26, 2007.
  On that
basis, the table below shows the value of the consideration paid in connection
with the Merger:
  Fair
      value of common stock issued to Traffix stockholders
                          
                          $
                          147,553Fair
      value of converted stock options
                          
                          
                          7,679Acquisition
      costs
                          
                          
                          2,082Total
                          
                          $
                          157,314
  The table
below summarizes the fair value of the Traffix, Inc. assets acquired and
liabilities assumed as of the acquisition date.
  Acquired
      Assets:Currents
      Assets
                              
                              $
                              37,518Property
      & equipment
                              
                              
                              1,684Non
      amortizable intangible assets
                              
                              
                              5,323Amortizable
      intangible assets
                              
                              
                              6,198Goodwill
                              
                              
                              125,399$
                              176,122Assumed
      Liabilities:Current
      liabilities
                              
                              $
                              18,581Deferred
      income taxes
                              
                              
                              22718,808Total
      Consideration
                              
                              $
                              157,314
 
 As of the
acquisition date we recorded a merger related accrual totaling approximately
$4.4 million of cost recognized as liabilities assumed in the Merger. Included
in the $4.4 million is $3.6 million of costs recognized under EITF No. 95-3,
Recognition of Liabilities in Connection with a Purchase Business Combination.
As of December 31, 2008, the merger related accrual balance was approximately
$1.6 million.
  F-12
  Acquisition
of Ringtone.com
  On June
30 2008, New Motion entered into an Asset Purchase Agreement  (“APA”)
with Ringtone.com, LLC (“Ringtone”) and W3i Holdings LLC (“W3i”) pursuant to
which the Company acquired certain assets from Ringtone.com, including but not
limited to short codes, subscriber database, covenant not to compete , working
capital, and certain domain names. In consideration for the assets and certain
liabilities assumed, the Company at the closing paid to Ringtone.com
approximately $7 million in cash. In addition, the Company delivered to
Ringtone.com a convertible promissory note (the “Note”) in the aggregate
principal amount of $1.75 million, which accrues interest at a rate of 10% per
annum. As the effective conversion price was significantly greater than the fair
value of the Company's stock at the commitment date, no value was assigned to
the conversion feature upon issuance. The Note is payable on the earlier to
occur of either (i) July 1, 2009, or (ii) 5 days after the Company gives written
notice to Ringtone.com of its intent to prepay the Note (the “Maturity
Date”).  The Note is optionally convertible by Ringtone.com on the
Maturity Date into the Company’s common stock at a conversion price of $5.42 per
share.  This payment of principal and interest on the Note is subject
to certain recoupment provisions contained in the Note and APA.
  The table
below shows the value of the consideration paid in connection with the Asset
Purchase:
  Cash
      Paid
                          
                          $
                          6,250Promissory
      Note
                          
                          
                          1,750Net
      working capital
                          
                          
                          791Acquisition
      cost
                          
                          
                          98Purchase
      price
                          
                          $
                          8,889
 
 The table
below summarizes the fair value of the Ringtone assets acquired and liabilities
assumed as of the acquisition date.
  Acquired
      Assets:Currents
      Assets
                                          
                                          $
                                          3,795Software
                                          
                                          
                                          270Non
      amortizable intangible assets
                                          
                                          
                                          1,174Amortizable
      intangible assets
                                          
                                          
                                          3,956Goodwill
                                          
                                          
                                          458$
                                          9,655Assumed
      Liabilities:Current
      liabilities
                                          
                                          
                                          766766Total
      Consideration
                                          
                                          $
                                          8,889
  Purchase
of Mobliss Assets and IVG Note
  On
January 19, 2007, the Company advanced $0.5 million related to a Convertible
Promissory note issued on this date which for goods and valuable consideration
received the Company promises to pay to Index Visual & Games Ltd (IVG) up to
a maximum sum of $2.32 million related to an Asset Purchase Agreement (APA)
dated November 17, 2006, between IVG (Buyer) and Mobliss, Inc (Seller) to
purchase all assets included in the Mobliss billing system and various carrier
contract listed in the agreement. Whereby concurrently with the delivery of such
assets purchased under this agreement IVG (the buyer) agreed to immediately sell
and deliver such assets to New Motion which both parties to the APA agree is the
intended third party beneficiary of this agreement. On January 26, 2007, the
Company increased the principal amount of this note by $0.58 million to $1.08
million. On February 26, 2007 the Company repaid $0.5 million of this note. In
accordance with the terms of the note, on June 15, 2007 IVG converted the
remaining outstanding principal and accrued interest into 172,572 shares of
common stock at a conversion price of $3.44, the fair market value of the
Company's stock on the date of issuance of this note.
  F-13
  Mobile
Entertainment Channel Corporation
  Concurrent
with the signing of the Convertible Promissory Note described in the previous
paragraph, the Company also entered into a Heads of Agreement with IVG. This
joint venture will manage and service the asset acquired under the APA described
above and engage in content development and licensing activities in North
America. The joint venture, Mobile Entertainment Channel Corporation (MECC), is
a Nevada corporation in which New Motion owns 49% and IVG owns 51%. Both parties
shall each receive 50% of the amount of any dividends or other distributions
made by the joint venture. The joint venture is to be managed by a three-member
board, with each party designating one member and both parties mutually
designating the third member of the board. The results of MECC are consolidated
within the financial statements under FIN 46(R) and represents less than 1%
and 3% of total assets, and less than 1% and 7% of net income for the years
ended 2008 and 2007 respectively. The Company has reflected the appropriate
minority interest in the consolidated financial statements.
  In
accordance with the Heads of Agreement, New Motion is required to pay a fee for
management services rendered by the joint venture equal to 10% of the revenue
generated from the asset acquired related to the APA described above, up to the
purchase price of $1.08 million. The Company made advance payments of $0.5
million on March 12, 2007 and September 4, 2007 which are non refundable. The
joint venture made a distribution to each shareholder of $100,000 in August,
2008. The remaining management fee of $80,000 is currently recorded as a
miscellaneous receivable on MECC books while the company and IVG are evaluating
the services and content to be offered by MECC.
  Katazo
  On April
1, 2007, New Motion entered into an LOI with Opera Telecom USA (“Opera”) to
purchase the following identified and specified assets (the “Katazo Assets”) :
(1) the domain name www.katazo.com , (2)
website html code and graphics, (3) access to a content management system, (4) a
subscriber list, and (5) prepaid short codes. The Company purchased the assets
for $970,000 in cash. The closing of the asset purchase occurred on May 25,
2007. In accordance with APB Opinion No. 16, “Business Combinations” and EITF
98-3, “Determining Whether a Nonmonetary Transaction Involves Receipt of
Productive Assets or of a Business,” New Motion has determined that the purchase
of assets was not a purchase of a business. New Motion has also evaluated the
specified assets and, in accordance with SFAS 142, “Goodwill and Other
intangible Assets,” has allocated the cost of the acquisition to the individual
assets based on their relative fair values, without any goodwill. New Motion is
actively operating the acquired Katazo Assets and maintaining the respective
websites, and is continuing to generate revenue from these assets.
  NOTE
5 - Property and Equipment
  Property
and equipment consists of the following:
  Useful
      Life
                                  
                                  
                                  December
      31,
                                  
                                  
                                  December
      31,in
      years
                                  
                                  
                                  2008
                                  
                                  
                                  2007Computers
      and software applications
                                  
                                  
                                  3
                                  
                                  
                                  $
                                  2,335
                                  
                                  
                                  $
                                  1,019Leasehold
      improvements
                                  
                                  
                                  Lease
      term
                                  
                                  
                                  
                                  1,626
                                  
                                  
                                  
                                  -Building
                                  
                                  
                                  40
                                  
                                  
                                  
                                  655
                                  
                                  
                                  
                                  -Furniture
      and fixtures
                                  
                                  
                                  7
                                  
                                  
                                  
                                  344
                                  
                                  
                                  
                                  135Gross
      PP&E
                                  
                                  
                                  
                                  
                                  
                                  
                                  4,960
                                  
                                  
                                  
                                  1,154Less:
      accumulated depreciation
                                  
                                  
                                  
                                  
                                  
                                  
                                  (1,435
                                  )
                                  
                                  
                                  (294
                                  )Net
      PP&E
                                  
                                  
                                  
                                  
                                  
                                  $
                                  3,525
                                  
                                  
                                  $
                                  860
  Depreciation
expense for the years ended December 31, 2008 and 2007 totaled $1.1million and
$300,000 respectively and is recorded on a straight line basis. In connection
with improvements made during 2008 to the Company’s facility located at 469
7th
Avenue, New York, the Company capitalized $0.65M within other liabilities on the
Company’s consolidated balance sheet, which amount will be amortized to
operating expenses over the ten year term of the lease.  As an
inducement for the Company to enter into the lease, the landlord at the location
agreed to reimburse the Company for the cost of such improvements, and therefore
the Company has recorded a receivable of $650,000 within other assets on its
consolidated balance sheet.
  F-14
  NOTE
6– Goodwill and Intangible Assets
  In
connection with its annual goodwill impairment testing for the year ended
December 31, 2008, the Company determined there was impairment and recorded a
non-cash goodwill impairment charge of $114.8 million.  The goodwill
impairment, which is not deductible for income tax purposes, is primarily due to
reduced valuation multiples, which is reflected in our stock price and market
capitalization.
  The
impairment charge reflects the amount by which the carrying amount of goodwill
exceeded the residual value remaining after ascribing fair values to the
Company’s tangible and intangible assets. In performing the related valuation
analysis the company used various valuation methodologies including probability
weighted discounted cash flows, comparable transaction analysis, and market
capitalization and comparable company multiple comparison to determine whether
goodwill was impaired.
  The
implied fair value of goodwill is determined in the same manner as the amount of
goodwill recognized in a business combination. As a result, the Company
allocated the fair value of the single reporting unit to all of the assets and
liabilities of the Company as if the reporting unit had been acquired in the
business combination and fair value of the reporting unit was the price paid to
acquire the reporting unit. The excess of the fair value of the reporting unit
over the amounts assigned to its assets and liabilities is the implied fair
value of the goodwill.
  The gross
carrying value of goodwill and intangibles as well as the accumulated
amortization of the intangibles are as follows:
  2007
                                                
                                                
                                                2008Useful
                                                  Life
                                                  (inyears)
                                                
                                                
                                                Gross
                                                  Carrying
                                                  Value
                                                
                                                
                                                Impairment/
                                                  Accumulated
                                                  Amortization
                                                
                                                
                                                Net
                                                  Carrying
                                                  Value
                                                
                                                
                                                Gross
                                                  Carrying
                                                  Value
                                                
                                                
                                                Traffix
                                                  Acquisition
                                                
                                                
                                                Ringtone
                                                  Acquisition
                                                
                                                
                                                Impairment/
                                                  Accumulated
                                                  Amortization
                                                
                                                
                                                Net
                                                  Carrying
                                                  ValueUnamortized
      intangible assets:Goodwill
                                                
                                                
                                                
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                125,399
                                                
                                                
                                                $
                                                458
                                                
                                                
                                                $
                                                (114,783
                                                )
                                                
                                                $
                                                11,075Other
      unamortized identifiable intangible assets:Trademarks
                                                
                                                
                                                
                                                
                                                
                                                
                                                11
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                11
                                                
                                                
                                                
                                                11
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                11Trademarks
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                5,323
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                5,323Domain
      Name
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                1,174
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                1,174Other
      amortized identifiable intangible assets:
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                --
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                -Acquired
      Software Technology
                                                
                                                
                                                3
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                2,431
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (743
                                                )
                                                
                                                
                                                1,688Domain
      Name
                                                
                                                
                                                3
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                550
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (168
                                                )
                                                
                                                
                                                382Licensing
                                                
                                                
                                                2
                                                
                                                
                                                
                                                580
                                                
                                                
                                                
                                                (556
                                                )
                                                
                                                
                                                24
                                                
                                                
                                                
                                                580
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (580
                                                )
                                                
                                                
                                                -Trade
      names
                                                
                                                
                                                9
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                1,320
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (134
                                                )
                                                
                                                
                                                1,186Customer
      list
                                                
                                                
                                                1.5
                                                
                                                
                                                
                                                949
                                                
                                                
                                                
                                                (385
                                                )
                                                
                                                
                                                564
                                                
                                                
                                                
                                                949
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (949
                                                )
                                                
                                                
                                                -Customer
      list
                                                
                                                
                                                3
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                669
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (205
                                                )
                                                
                                                
                                                464Subscriber
      Database
                                                
                                                
                                                1
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                3,956
                                                
                                                
                                                
                                                (2,679
                                                )
                                                
                                                
                                                1,277Restrictive
      Covenants
                                                
                                                
                                                5
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                1,228
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (225
                                                )
                                                
                                                
                                                1,003Total
      identifiable intangible assets
                                                
                                                
                                                
                                                
                                                
                                                $
                                                1,540
                                                
                                                
                                                $
                                                (941
                                                )
                                                
                                                $
                                                599
                                                
                                                
                                                $
                                                1,540
                                                
                                                
                                                $
                                                11,521
                                                
                                                
                                                $
                                                5,130
                                                
                                                
                                                $
                                                (5,683
                                                )
                                                
                                                $
                                                12,508
  Amortization
expense for the year ended December 31, 2008 and 2007 was $4.7 million and $0.9
million respectively. Expected annual amortization expense related to
amortizable intangibles for fiscal year 2009, 2010, 2011, 2012, 2013, and
thereafter are $2.9 million, $1.6 million, $493,531, $392,122, and $619,166
respectively.
  NOTE
7 - Investments and other Advances
  Marketing
Services Agreement with Central Internet Corporation d/b/a
Shopit.com
  On
December 2, 2008 the Company entered into a Marketing Services and Content
Agreement with Central Internet Corporation which operates the website www.shopit.com
(Hereinafter referred to as “Shopit”).  Under the agreement the
Company is required to perform certain marketing and administrative services for
Shopit and distribute proprietary and third party advertisements through
Shopit.com and its social media advertising network. The agreement provides
Shopit with a revenue share of all leads monetized by the Company. As part of
the agreement, the Company is required to make periodic advance payments
totaling $1.025 million through March 2009. The advances, which are secured
under separate agreement, are recoverable on a dollar for dollar basis against
future revenues and the Company has taken action to obtain further security in
the assets of Shopit. As of December 31, 2008 the Company had made $425,000 in
advance payments under the agreement which is recorded on balance sheet in other
assets.
  F-15
  Joint
Venture with Visionaire and Mango Networks
  On July
30, 2008, the Company entered into a Joint Venture Agreement to launch online
and mobile marketing services and offer the Company’s mobile products in the
Indian market.  Under the agreement, the Company owns 19% of the Joint
Venture and is required to pay up to $325,000 in return for Compulsory
Convertible Debentures which can be converted to common stock at any time, at
the Company’s sole discretion. Under the agreement, the Company is entitled to
one of three seats on the Board of Directors. The company is accounting for the
investment under the Cost Method. Amounts paid under the agreement as of
December 31, 2008 were $125,000.
  Investment
in The Billing Resource, LLC
  On
October 30, 2008, the Company acquired a 36% interest in The Billing Resource,
LLC (“TBR”). TBR provides alternative billing services to the Company and
unrelated third parties. The Company contributed $2.2 million on formation and
has committed to provide an additional $1.0 million of working capital to
support near term growth.  In addition, the Company has an operating
agreement with TBR whereby TBR provides billing services to the Company and its
customers.  The agreement was transacted in the normal course of
business and negotiated on an arm’s length basis.
  The
Company recorded its investment in TBR under the equity method of accounting and
as such would present its equity in earnings and losses in TBR within its
quarterly and year end reported results.  At the time of this report,
financial statements of TBR were not available.  The Company believes
the operating results of TBR for the period from October 31 to December 31, 2008
are de
minimis.
  NOTE
8 - Note Payable
  In
connection with the acquisition Ringtone.com, the Company delivered a
convertible promissory note (the “Note”) with the aggregate principal amount of
$1.75 million, which accrues interest at a rate of 10% per annum. The Note is
payable on the earlier to occur of either (i) July 1, 2009, or (ii) 5 days after
the Company gives written notice to Ringtone.com of its intent to prepay the
Note (the “Maturity Date”). The Note is optionally convertible by Ringtone.com
on the Maturity Date into the Company’s common stock at a conversion price of
$5.42 per share. As the effective conversion price was significantly greater
than the fair value of the Company’s stock at the commitment date, no value was
assigned to the conversion feature upon issuance. The payment of principal and
interest on the Note is subject to certain recoupment provisions contained in
the Note and in the APA (See Note 4).
  New
Motion has a fully amortizable note payable due to Oracle for hardware and
software purchases made on February 28, 2007 (“Oracle Note”). The term of the
note is two years and interest charged there under is approximately 8% per
annum. As of December 31, 2008 and 2007, the principal balance of the Oracle
note payable was approximately $0.02 million and $0.1 million respectively. In
accordance with the terms of the Oracle Note, New Motion makes regular quarterly
payments of principal and interest.
  NOTE
9 - Concentration of Business
and Credit Risk
  New
Motion is currently utilizing several billing partners in order to provide
content and subsequent billings to the end user. These billing partners, or
aggregators, act as a billing interface between New Motion and the mobile phone
carriers that ultimately bill New Motion’s end user subscribers. These partner
companies have not had long operating histories in the U.S. or operations with
traditional business models. These companies face a greater business risk in the
marketplace, due to a constant evolving business environment that stems from the
infancy of the U.S. mobile content industry.
  In
addition, as a result of the acquisition of Traffix, Inc., the Company also has
customers other than aggregators that represent significant amounts of revenues
and accounts receivable.
  F-16
  The
following table reflects the concentration of revenues and accounts receivable
with these billing aggregators and a certain significant customer:
  For the
      YearsEnded
      December 31,2008
                                        
                                        
                                        2007RevenuesBilling
      Aggregator A
                                        
                                        
                                        13
                                        %
                                        
                                        
                                        87
                                        %Customer
      B
                                        
                                        
                                        13
                                        %
                                        
                                        
                                        0
                                        %Billing
      Aggregator C
                                        
                                        
                                        8
                                        %
                                        
                                        
                                        1
                                        %Other
      Customers & Aggregators
                                        
                                        
                                        66
                                        %
                                        
                                        
                                        12
                                        %For the
      YearsEnded
      December 31,2008
                                        
                                        
                                        2007Accounts
      ReceivableBilling
      Aggregator C
                                        
                                        
                                        22
                                        %
                                        
                                        
                                        0
                                        %Billing
      Aggregator A
                                        
                                        
                                        18
                                        %
                                        
                                        
                                        81
                                        %Customer B
                                        
                                        
                                        7
                                        %
                                        
                                        
                                        0
                                        %Other
      Customers & Aggregators
                                        
                                        
                                        53
                                        %
                                        
                                        
                                        19
                                        %
 
 NOTE
10 - Stockholders' Equity
  In April,
2008, the Company’s Board of Directors authorized a stock repurchase program
allowing it to purchase up to $10 million of its outstanding shares of common
stock, depending on market conditions, share prices, and other factors.
Repurchases may take place in the open market or in privately negotiated
transactions and may be made under a Rule 10b5-1 plan.
  During
the year ended December 31, 2008, the Company repurchased 1,908,926 shares of
its common stock at an average purchase price of $2.12 per share. Total cash
consideration for the repurchased stock was $4.05 Million.
  There is
no guarantee as to the exact number of shares that will be repurchased by the
Company, and the Company may discontinue repurchases at any time that
management under the direction of the Company’s Board of Directors determines
additional repurchases are not warranted. The amounts authorized by the
Company’s Board of Directors exclude broker commissions.
  On
February 4, 2008, New Motion completed the transactions contemplated by that
certain Agreement and Plan of Merger executed on September 26, 2007 (the “Merger
Agreement”) by and among New Motion, NM Merger Sub, Inc., a Delaware corporation
and wholly owned subsidiary of New Motion (“Merger Sub”) and Traffix, Inc., a
Delaware corporation (“Traffix”) (the “Merger Agreement”) pursuant to which
Merger Sub merged with and into Traffix (the “Merger”). As a result of the
Merger, Traffix became a wholly-owned subsidiary of New Motion. In consideration
for the Merger, shareholders of Traffix received approximately 0.676 shares of
common stock of New Motion for each share of Traffix common stock. In the
aggregate, New Motion issued approximately 10,409,358 shares of New Motion stock
to Traffix shareholders.
  On
January 31, 2007, New Motion Mobile entered into an exchange agreement with MPLC
(now called New Motion, Inc.) and Trinad Capital Master Fund, Ltd. The closing
of the Exchange occurred on February 12, 2007. At the closing, MPLC acquired all
of the outstanding shares of the capital stock of New Motion Mobile. In exchange
for the stock, MPLC issued to New Motion Mobile’s stockholders 500,000 shares of
MPLC’s Series C Convertible Preferred Stock, par value $0.10 per share (the
“Series C Preferred Stock”), which was subsequently converted into 7,263,688
shares of MPLC’s common stock on May 2, 2007. After the Exchange, the
stockholders of MPLC immediately prior to the Exchange owned 250,000
post-Reverse Split common shares of the Company.
  F-17
  On May 2,
2007 MPLC filed an amendment to its restated certificate of incorporation with
the Secretary of State of the State of Delaware, to change its corporate name to
New Motion, Inc. from MPLC, Inc., to increase the authorized shares of common
stock from 75 million to 100 million and to effect a 1-for-300 reverse stock
split (the “Reverse Split”). These matters were approved by the requisite vote
of the stockholders of the Company on March 15, 2007. As such, for comparative
purposes, the 7,263,688 shares of outstanding common stock of the combined
entity, after recapitalization and the 1-for-300 Reverse Split, has been
retroactively applied to January 1, 2006 and consistently applied throughout all
periods presented.
  In
conjunction with the exchange transaction, New Motion issued one share of its
Series A Preferred Stock on January 19, 2007, 650 shares of its Series B
Preferred Stock on February 12, 2007 and 8,333 shares of its Series D Preferred
Stock on March 6, 2007 for aggregate gross proceeds to New Motion of
approximately $20 million. Upon effectiveness of the Reverse Split, on May 2,
2007, the one share of Series A Preferred Stock automatically converted into
1,200,000 shares of common stock, the 650 shares of Series B Preferred Stock
automatically converted into 1,300,000 shares of common stock and the 8,333
shares of Series D Preferred Stock automatically converted into 1,666,658 shares
of common stock. The effects of the Reverse Split and of the conversion of all
classes of preferred stock into common shares of New Motion have been
retroactively applied to the financing transactions.
  Pursuant
to a registration rights agreement entered into on February 28, 2007, New Motion
was required to file a registration statement with the SEC to register the
common stock issued in connection with the conversion of the Series D Preferred
Stock. New Motion was subject to payment of liquidated damages of one percent of
the Series D aggregate purchase price if the registration statement is not filed
within 75 days of the Series D financing, which closed on March 6, 2007, the
date New Motion received the cash proceeds of the Series D financing. The
Company did not incur any liability under the agreement and it is not probable
that it had any liability pursuant to the liquidated damages clause in the
agreement.
  NOTE
11 – Provision (Benefit) for Income Taxes
  The
provision (benefit) for income taxes consists of the following components for
the periods ended as follows:
  For
      the Year EndedDecember
      31,2008
                                    
                                    
                                    2007Current:Federal
                                    
                                    
                                    504
                                    
                                    
                                    
                                    (135
                                    )State
                                    
                                    
                                    591
                                    
                                    
                                    
                                    80Foreign
                                    
                                    
                                    398
                                    
                                    
                                    
                                    -Total
      Current
                                    
                                    
                                    1,493
                                    
                                    
                                    
                                    (55
                                    )Deferred:Federal
                                    
                                    
                                    (1,644
                                    )
                                    
                                    
                                    (846
                                    )State
                                    
                                    
                                    (736
                                    )
                                    
                                    
                                    (302
                                    )Foreign
                                    
                                    
                                    35
                                    
                                    
                                    
                                    -Total
      Deferred
                                    
                                    
                                    (2,345
                                    )
                                    
                                    
                                    (1,148
                                    )Total
      Income Tax (Benefit) Provision
                                    
                                    
                                    (852
                                    )
                                    
                                    
                                    (1,203
                                    )
 
 Deferred
tax assets and liabilities reflect the effect of tax losses, credits, and the
future tax effect of temporary differences between consolidated financial
statements carrying amounts of existing assets and liabilities and their
respective tax bases and are measured using enacted tax rates that apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.
  F-18
  The
income tax effects of significant items comprising the Company's deferred income
tax liabilities are as follows:
  For
      the Year Ended
                                                  December 31,2008
                                                
                                                
                                                2007Deferred
      Tax Assets:Allowance  for
      Doubtful Accounts
                                                
                                                
                                                1,194
                                                
                                                
                                                
                                                225Compensation
      Expense – NSOs
                                                
                                                
                                                768
                                                
                                                
                                                
                                                369Accrued
      Expenses
                                                
                                                
                                                315
                                                
                                                
                                                
                                                24Intangible  Assets
                                                
                                                
                                                4,641
                                                
                                                
                                                
                                                402Net
      Operating  Loss Carryforward
                                                
                                                
                                                186
                                                
                                                
                                                
                                                121Foreign
      Tax Credit
                                                
                                                
                                                144
                                                
                                                
                                                
                                                -AMT
      Credit
                                                
                                                
                                                39
                                                
                                                
                                                
                                                -Unrealized  Loss
      on Available-For-Sale Securities
                                                
                                                
                                                -
                                                
                                                
                                                
                                                25Total
      Deferred Tax Assets
                                                
                                                
                                                7,287
                                                
                                                
                                                
                                                1,166Deferred
      Tax Liabilities:Prepaid
      Expenses
                                                
                                                
                                                (335
                                                )
                                                
                                                
                                                (91
                                                )Fixed
      Assets
                                                
                                                
                                                (397
                                                )
                                                
                                                
                                                (17
                                                )Intangible  Assets
                                                
                                                
                                                (4,259
                                                )
                                                
                                                
                                                -Other
                                                
                                                
                                                (157
                                                )
                                                
                                                
                                                (300
                                                )Total
      Deferred Tax Liabilities
                                                
                                                
                                                (5,148
                                                )
                                                
                                                
                                                (408
                                                )Net
      Deferred Tax Assets
                                                
                                                
                                                2,139
                                                
                                                
                                                
                                                758
 
 The net
deferred tax assets are included in our balance sheet in prepaid expenses and
other current assets ($1.4million) and deposits and other assets ($0.8
million).
  As of
December 31, 2008 the Company had state tax loss carry forwards of approximately
$3.2 million and a foreign tax credit carry forward of $144,000. The state net
operating loss carryforward will expire in 2019.The foreign tax credit
carryforward will expire through 2017. SFAS No. 109 requires that a valuation
allowance be established when it is more likely than not that all or a portion
of a deferred tax asset will not be realized. In making this assessment,
management considers the level of historical taxable income, scheduled reversal
of deferred tax liabilities, tax planning strategies, and projected future
taxable income. Management believes it is more likely than not that the
projected taxable income together with the tax effects of the deferred tax
attributes will be sufficient to fully recover the remaining deferred tax
assets.
  The
Company has $2.7 million recorded as an income tax receivable on its
consolidated balance sheet as of December 31, 2008. All income tax receivables
reported in the consolidated financial statements represent overpayments or
other valid refunds due to the Company on or before the balance sheet
date.
  A
reconciliation of the Company’s income tax provision as compared to the tax
provision for continuing operations is calculated by applying the statutory
federal tax rate at 34% to the income from continuing operations before income
taxes for the periods:
  For
      the Year Ended December 31,2008
                                                            
                                                            
                                                            2007Computed expected income tax expense at statutory
      rate
                                                            
                                                            
                                                            (39,658
                                                            )
                                                            
                                                            
                                                            -34.00
                                                            %
                                                            
                                                            
                                                            (1,723
                                                            )
                                                            
                                                            
                                                            -34.00
                                                            %Non
      deductible goodwill
                                                            
                                                            
                                                            39,026
                                                            
                                                            
                                                            
                                                            33.46
                                                            %
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            0.00
                                                            %Permanent
      differences
                                                            
                                                            
                                                            258
                                                            
                                                            
                                                            
                                                            0.22
                                                            %
                                                            
                                                            
                                                            87
                                                            
                                                            
                                                            
                                                            1.72
                                                            %State
      taxes, net of federal benefit
                                                            
                                                            
                                                            (198
                                                            )
                                                            
                                                            
                                                            -0.17
                                                            %
                                                            
                                                            
                                                            (192
                                                            )
                                                            
                                                            
                                                            -3.79
                                                            %Change in valuation allowance
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (27
                                                            )
                                                            
                                                            
                                                            -0.53
                                                            %Other,
      net
                                                            
                                                            
                                                            (280
                                                            )
                                                            
                                                            
                                                            -0.24
                                                            %
                                                            
                                                            
                                                            652
                                                            
                                                            
                                                            
                                                            12.88
                                                            %(852
                                                            )
                                                            
                                                            
                                                            -0.73
                                                            %
                                                            
                                                            
                                                            (1,203
                                                            )
                                                            
                                                            
                                                            -23.72
                                                            %
  F-19
 
 The
Company’s income tax receivable has been increased by the excess tax
benefits from employee stock options.  The Company received an income
tax deduction calculated as the difference between the fair market value of the
stock issued at the time of the exercise and the option price, tax effected. The
excess tax benefit from employee stock options was approximately $1.0 million
and $0 for the years ended December 31, 2008 and 2007, respectively, and were
reflected as an increase to common stock in the consolidated statement of
stockholders equity.
  FIN
48 Disclosures
  There are
no tax benefits included in the balance of unrecognized tax benefits at December
31, 2008 and 2007 that would result in adjustments to other tax accounts,
primarily deferred taxes.
  The
Company recognizes interest accrued related to unrecognized tax benefits and
penalties as income tax expense. There were no accrued penalties or interest for
the years ended December 31, 2008 and 2007 related to uncertain tax
benefits.
  The
Company is subject to taxation in the US Federal, State and many foreign
jurisdictions. The Company’s tax years for 2006 and 2007 are subject to
examination by the tax authorities.  In addition, the tax returns for
certain acquired entities are also subject to examination. As of December 31,
2008, the total liability for uncertain tax liabilities recorded in our balance
sheet in Merger Related accruals is $531,000. Management believes that an
adequate provision has been made for any adjustments that may result from tax
examinations.  The outcome of tax examinations however, cannot be
predicted with certainty. If any issues addressed in the Company’s tax audits
are resolved in a manner not consistent with management’s expectations, the
Company could be required to adjust its provision for income tax, or goodwill,
to the extent such adjustments relate to acquired entities.  Although
the timing or the resolution and/or closure of the audits is highly uncertain,
the Company does not believe that its unrecognized tax benefit will materially
change in the next twelve months
  A
year-over-year reconciliation of our liability for uncertain tax positions is as
follows:
 
 2008
                              
                              
                              2007Balance
      at beginning of the year
                              
                              $
                              -
                              
                              
                              $
                              -Additions
                              
                              
                              531,000
                              
                              
                              
                              -Reductions
                              
                              
                              -
                              
                              
                              
                              -Balance
      at end of the year
                              
                              $
                              531,000
                              
                              
                              $
                              -
  NOTE
12– Earnings (Loss) Per Share
  Basic
earnings per share (“EPS”) is computed by dividing reported earnings by the
weighted average number of shares of common stock outstanding for the period.
Diluted EPS includes the effect, if any, of the potential issuance of additional
shares of common stock as a result of the exercise or conversion of dilutive
securities, using the treasury stock method. Potential dilutive securities for
the Company include outstanding stock options, warrants and convertible
debt
  The
computational components of basic and diluted earnings per share are as
follows:
  For
      the Year EndedDecember
      31,2008
                                        
                                        
                                        2007EPS
      Denominator:Basic
      weighted average shares
                                        
                                        
                                        21,320,638
                                        
                                        
                                        
                                        11,331,260Effect
      of dilutive securities
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Diluted
      weighted average shares
                                        
                                        
                                        21,320,638
                                        
                                        
                                        
                                        11,331,260EPS
      Numerator (effect on net income):Net
      Loss
                                        
                                        $
                                        (115,766
                                        )
                                        
                                        $
                                        (4,149
                                        )Effect
      of dilutive securities
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Diluted
      earnings
                                        
                                        $
                                        (115,766
                                        )
                                        
                                        $
                                        (4,149
                                        )Earnings
      per share:Basic
      weighted average earnings
                                        
                                        $
                                        (5.43
                                        )
                                        
                                        $
                                        (0.37
                                        )Effect of dilutive securities
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Diluted
      weighted average earnings
                                        
                                        $
                                        (5.43
                                        )
                                        
                                        $
                                        (0.37
                                        )
  F-20
  Common
stock underlying outstanding options, convertible securities and warrants were
not included in the computation of diluted earnings per share for the years
ended December 31, 2008 and 2007, because their inclusion would be anti dilutive
when applied to the Company’s net loss per share. For the year ended December
31, 2007, the Company’s weighted average shares outstanding includes the effects
of (i) 1,200,000 common shares as of January 19, 2007, after the conversion of
the Series A Preferred Stock, (ii) 1,300,000 common shares as of February 12,
2007, after the conversion of the Series B Preferred Stock, (iii) 250,000 common
shares which were issued and outstanding shares of MPLC immediately prior to the
Exchange as of February 12, 2007, (iv) 1,666,658 common shares as of March 6,
2007, after the conversion of the Series D Preferred Stock, (v) 172,572 common
shares as of June 15, 2007, after the conversion of the IVG Note, (vi) 112,578
common shares issued for odd lot rounding in connection with the Reverse Split
and (vii) 55,688 common shares issued pursuant to the exercise of an option
grant as of September 27, 2007.
  Financial
instruments, which may be exchanged for equity securities are excluded in
periods in which they are anti-dilutive. The following shares were excluded from
the calculation of diluted earnings per share:
  Anti
Diluted EPS Disclosure
  December
      31, 2008
                              
                              
                              December
      31, 2007Convertible
      note payable
                              
                              
                              322,878
                              
                              
                              
                              20,465Options
                              
                              
                              2,883,372
                              
                              
                              
                              1,131,683Warrants
                              
                              
                              314,443
                              
                              
                              
                              314,443
 
 The per
share exercise prices of the options excluded were $0.48-$10.92 in 2008 and
$20.50-$38.34 in 2007. The per share exercise prices of the warrants excluded
were $3.44 - $5.50 in 2008 and 2007.
 See notes
8 and 13 for further information about the convertible note payable and the
options and warrants.
 NOTE
13– Stock Based Compensation
  2005
Plan
  In 2005,
New Motion established the Stock Incentive Plan, (the “2005 Plan”), for eligible
employees and other directors and consultants. Under the 2005 Plan, officers,
employees and non-employees may be granted options to purchase New Motion’s
common stock at no less than 100% of the market price at the date the option is
granted. Since New Motion’s stock was not publicly traded, the market price at
the date of grant was historically determined by third party valuation.
Incentive stock options granted to date typically vest at the rate of 33% on the
anniversary of the vesting commencement date, and 1/24th of the remaining shares
on the last day of each month thereafter until fully vested. The options expire
ten years from the date of grant subject to cancellation upon termination of
employment or in the event of certain transactions, such as a merger of New
Motion. The options granted under the 2005 Plan were assumed by MPLC in the
Exchange and, at that time of the Exchange, the MPLC’s board of directors
adopted a resolution to not grant any further equity awards under the 2005
Plan.
  2007
Plan
  On
February 16, 2007, New Motion’s board of directors approved the 2007 Stock
Incentive Plan (the “2007 Plan”). On March 15, 2007, New Motion received, by
written consent of holders of a majority of all classes of its common and
preferred stock and the consent of the holders of a majority of New Motion’s
common stock and preferred stock voting together and as a single class, approval
of the 2007 Plan. Under the 2007 Plan, officers, employees and non-employees may
be granted options to purchase New Motion’s common stock at no less than 100% of
the market price at the date the option is granted. Stock options and restricted
stock granted under the 2007 Plan typically vest at the rate of 33% on the
anniversary of the vesting commencement date, and 1/24th of the remaining shares
on the last day of each month thereafter until fully vested. The options expire
ten years from the date of grant subject to cancellation upon termination of
employment or in the event of certain transactions, such as a merger of New
Motion.
  Stock
based compensation is expensed using the straight line attribution method and
reflects the application of an annual forfeiture rate.
  F-21
  Option
Valuation
  To value
awards granted, the Company uses the Black-Scholes option pricing model. The
Company determines the assumptions in this pricing model at the grant date. For
options granted prior to January 1, 2006, New Motion used the minimum value
method for volatility, as permitted by SFAS No. 123, resulting in 0% volatility.
For options granted or modified after January 1, 2006, New Motion bases expected
volatility on the historical volatility of a peer group of publicly traded
entities. New Motion has limited history with its stock option grants, during
which time there has been limited stock option exercise and forfeiture activity
on which to base expected maturity. Management estimates that on average,
options will be outstanding for approximately 7 years. New Motion bases the
risk-free rate for the expected term of the option on the U.S. Treasury Constant
Maturity rate as of the grant date.
  The fair
value of each option award during the year ended December 31, 2008 was estimated
on the date of grant using a Black-Scholes valuation model that used the
assumptions noted in the following table:
  2008
                                
                                2007Strike
      Price
                                
                                $4.16 - $10.92
                                
                                $6 - $14Expected life
                                
                                5.6 years
                                
                                5.6 yearsRisk free interest rate
                                
                                3.0% to 3.5%
                                
                                4.4% - 4.8%Volatility
                                
                                58.0%
                                
                                61.2% - 66.3%Fair market value per share
                                
                                $2.23 - $4.57
                                
                                $3.75 - $7.83
  Stock Options
 Stock
option activity under the 2005 Plan and 2007 Plan was as follows (amounts
presented on a post-Reverse Split basis):
  Weighted-
                                          
                                          
                                          EstimatedAverage
                                          
                                          
                                          AggregateNumber
      of
                                          
                                          
                                          Exercise
                                          
                                          
                                          IntrinsicShares
                                          
                                          
                                          Price
                                          
                                          
                                          ValueOutstanding
      at January 1, 2007
                                          
                                          
                                          1,349,594
                                          
                                          
                                          $
                                          0.51
                                          
                                          
                                          $
                                          15,740Granted
                                          
                                          
                                          468,700
                                          
                                          
                                          $
                                          6.47Exercised
                                          
                                          
                                          (55,688
                                          )
                                          
                                          $
                                          0.48Forfeited
      or cancelled
                                          
                                          
                                          (616,929
                                          )
                                          
                                          $
                                          0.53Outstanding
      at December 31, 2007
                                          
                                          
                                          1,145,677
                                          
                                          
                                          $
                                          2.94
                                          
                                          
                                          $
                                          12,671Vested
      or expected to vest at December 31. 2007
                                          
                                          
                                          1,088,393
                                          
                                          
                                          $
                                          2.94
                                          
                                          
                                          $
                                          12,038Exercisable
      at December 31, 2007
                                          
                                          
                                          687,834
                                          
                                          
                                          $
                                          1.32
                                          
                                          
                                          $
                                          8,722Outstanding
      at January 1, 2008
                                          
                                          
                                          1,145,677
                                          
                                          
                                          $
                                          2.94
                                          
                                          
                                          $
                                          12,671Traffix
      options converted to NWMO
                                          
                                          
                                          1,508,069
                                          
                                          
                                          $
                                          8.37Granted
                                          
                                          
                                          325,000
                                          
                                          
                                          $
                                          10.72Exercised
                                          
                                          
                                          (561,737
                                          )
                                          
                                          $
                                          0.61Forfeited
      or cancelled
                                          
                                          
                                          (506,821
                                          )
                                          
                                          $
                                          8.25Outstanding
      at December 31, 2008
                                          
                                          
                                          1,910,188
                                          
                                          
                                          $
                                          7.82
                                          
                                          
                                          $
                                          82Vested
      or expected to vest at December 31, 2008
                                          
                                          
                                          1,491,075
                                          
                                          
                                          $
                                          7.35
                                          
                                          
                                          $
                                          95Exercisable
      at December 31, 2008
                                          
                                          
                                          121,682
                                          
                                          
                                          $
                                          0.48
                                          
                                          
                                          $
                                          82
  For the
year ended December 31, 2008 and 2007, the company received $344,000 and $27,000
in proceeds from option exercises.
  Grants
Outside of Plan
  In 2008,
the Company issued options to purchase 500,000 shares of the Company’s common
stock to executives of the Company. These options were issued outside of the
Plan due to a limitation in the number of shares available under the
Plan.
  F-22
  Awards
granted outside the Plan are valued in the same manner as options granted under
the Plan, including the methods of deciding upon the assumptions used in the
Black-Scholes valuation. The fair value of the option award outside the Plan was
estimated on the date of grant using a Black Scholes valuation model that used
the assumptions noted in the following table:
  Stock
option activity outside the Plan was as follows:
  Number
      of
                                        Shares
                                      
                                      
                                      Weighted-
                                        Average
                                        Exercise
                                        Price
                                      
                                      
                                      Estimated
                                        Aggregate
                                        Intrinsic
                                        ValueOutstanding
      at January 1, 2007
                                      
                                      
                                      363,184
                                      
                                      
                                      $
                                      2.34
                                      
                                      
                                      $
                                      4,468Granted
                                      
                                      
                                      -
                                      
                                      
                                      $
                                      -Exercised
                                      
                                      
                                      -
                                      
                                      
                                      $
                                      -Forfeited
      or cancelled
                                      
                                      
                                      -
                                      
                                      
                                      $
                                      -Outstanding
      at December 31, 2007
                                      
                                      
                                      363,184
                                      
                                      
                                      $
                                      2.34
                                      
                                      
                                      $
                                      4,468Vested
      or expected to vest at December 31, 2007
                                      
                                      
                                      363,184
                                      
                                      
                                      $
                                      2.34
                                      
                                      
                                      $
                                      4,468Exercisable
      at December 31, 2007
                                      
                                      
                                      161,415
                                      
                                      
                                      $
                                      2.34
                                      
                                      
                                      $
                                      1,882Outstanding
      at January 1, 2008
                                      
                                      
                                      363,184
                                      
                                      
                                      $
                                      2.34Granted
                                      
                                      
                                      500,000
                                      
                                      
                                      $
                                      8.22Exercised
                                      
                                      
                                      -Forfeited
      or cancelled
                                      
                                      
                                      -Outstanding
      at December 31, 2008
                                      
                                      
                                      863,184
                                      
                                      
                                      $
                                      5.74
                                      
                                      
                                      $
                                      -Vested
      or expected to vest at December 31, 2008
                                      
                                      
                                      363,184
                                      
                                      
                                      $
                                      2.34
                                      
                                      
                                      $
                                      -Exercisable
      at December 31, 2008
                                      
                                      
                                      -
                                      
                                      
                                      $
                                      2.34
                                      
                                      
                                      $
                                      -
  Summary
Option Information
  The
following table summarizes information concerning currently outstanding and
exercisable stock options as of December 31, 2008:
  Range
      of
                                Exercise
                                Prices
                              
                              
                              Options
                                Outstanding
                              
                              
                              Weighted
                                Average
                                Remaining
                                Life
      (years )
                              
                              
                              Weighted
                                Average
                                Exercise
                                Price
                              
                              
                              Options
                                Exercisable
                              
                              
                              Weighted
                                Average
                                Exercise
                                Price2005Plan:$
                              0.48
                              
                              
                              
                              121,682
                              
                              
                              
                              7.2
                              
                              
                              $
                              0.48
                              
                              
                              
                              121,682
                              
                              
                              $
                              0.48$
                              2.34
                              
                              
                              
                              1,076
                              
                              
                              
                              7.6
                              
                              
                              $
                              2.34
                              
                              
                              
                              1,076
                              
                              
                              $
                              2.342007Plan:$
                              6.00
                              
                              
                              
                              406,200
                              
                              
                              
                              8.1
                              
                              
                              $
                              6.00
                              
                              
                              
                              287,087
                              
                              
                              $
                              6.00$
                              10.92
                              
                              
                              
                              325,000
                              
                              
                              
                              9.1
                              
                              
                              $
                              11.16
                              
                              
                              
                              25,000
                              
                              
                              $
                              14.00Outside
      of Plans :$
                              2.34
                              
                              
                              
                              363,184
                              
                              
                              
                              7.7
                              
                              
                              $
                              2.34
                              
                              
                              
                              363,184
                              
                              
                              $
                              2.34$
                              4.16
                              
                              
                              
                              200,000
                              
                              
                              
                              9.5
                              
                              
                              $
                              4.16
                              
                              
                              
                              -
                              
                              
                              
                              -$
                              10.92
                              
                              
                              
                              300,000
                              
                              
                              
                              9.1
                              
                              
                              $
                              10.92
                              
                              
                              
                              -
                              
                              
                              
                              -
  F-23
  Restricted
Stock
  The
following table summarizes restricted stock activity for the years ended
December 31, 2008 and 2007.
  Weighted
      Avg.
                                            Grant
      DateNumber
      of
                                          
                                          
                                          Fair
      ValueShares
                                          
                                          
                                          Per
      ShareOutstanding
      at January 1, 2007
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          -Granted
                                          
                                          
                                          75,000
                                          
                                          
                                          
                                          16.40Exercised
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Forfeited
      or cancelled
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Outstanding
      at December 31, 2007
                                          
                                          
                                          75,000
                                          
                                          
                                          $
                                          16.40Vested
      or expected to vest at December 31. 2007
                                          
                                          
                                          -Exercisable
      at December 31, 2007
                                          
                                          
                                          -Outstanding
      at January 1, 2008
                                          
                                          
                                          75,000
                                          
                                          
                                          $
                                          16.40Granted
                                          
                                          
                                          132,005
                                          
                                          
                                          
                                          8.33Exercised
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Forfeited
      or cancelled
                                          
                                          
                                          (97,005
                                          )
                                          
                                          
                                          14.57Outstanding
      at December 31, 2008
                                          
                                          
                                          110,000
                                          
                                          
                                          $
                                          8.33Vested
      or expected to vest at December 31, 2008
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          -Exercisable
      at December 31, 2008
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          -
  Future
amortization of the fair value of options and restricted stock outstanding as of
December 31, 2008, including options outside of the 2005 and 2007 Plans, is
shown in the following table:
  Fair
      Value to(in
      thousands)
                            
                            Be
      Amortized2009
                            
                            $
                            1,6412010
                            
                            
                            1,2912011
                            
                            
                            167$
                            3,099
  Total
non-cash equity based compensation expense included in the consolidated
Statement of Operations for the years ended December 31, 2008 and 2007 was $1.35
million and $1.12 million, respectively, as follows:
  2008
                                        
                                        
                                        2007Product
      and distribution
                                        
                                        $
                                        7
                                        
                                        
                                        $
                                        288Selling
      and marketing
                                        
                                        
                                        3
                                        
                                        
                                        
                                        -General
      and administrative and other operating
                                        
                                        
                                        1,272
                                        
                                        
                                        
                                        829$
                                        1,282
                                        
                                        
                                        $
                                        1,117
  For the
year ended December 31, 2008 and 2007 compensation expense relating to options
was recorded net of a forfeiture rate of approximately 20% and 5% respectively.
No stock-based compensation costs were capitalized as part of the cost of an
asset for any of the periods presented. Additionally, SFAS No. 123(R) requires
that the tax benefit from the tax deduction related to share-based compensation
that is in excess of recognized compensation costs be reported as a financing
cash flow rather than an operating cash flow.
  F-24


Warrants
  In 2006,
the Company issued Secured Convertible Notes to Scott Walker and SGE, a
corporation owned by Allan Legator, the Company’s then Chief Financial Officer.
These Secured Convertible Notes were repaid in full with interest in September
2006. Pursuant to the terms of the Secured Convertible Notes, on January 26,
2007, Scott Walker was granted a right to receive a warrant to purchase, on a
post-Reverse Split basis, 14,382 shares of common stock at an exercise price of
$3.44 per share and SGE was granted a right to receive a warrant to purchase, on
a post-Reverse Split basis, 9,152 shares of common stock at an exercise price of
$3.44 per share. In connection with the Series A, B and D Preferred Stock
financings, a placement agent was paid a cash fee equal to 7.5% of the gross
proceeds from the financing and five year warrants to purchase 290,909 shares of
common stock at an average exercise price of $5.50 per share (post-Reverse
Split), which was equivalent to the average per share valuation of the Company
for the Series A, B and D Preferred Stock financings.
  The fair
values of the warrants were between $2.42 and $4.31 and were estimated on the
date of grant using a Black-Scholes valuation model. To calculate the fair
value, volatility of 86%, interest rate of 5% and expected life of 5 years was
used. The warrants issued during the year ended December 31, 2007 are fully
vested and exercisable on the date of grant. The Company did not have any
warrant activity prior to January 1, 2007.
  The
following table summarizes information concerning currently outstanding and
exercisable common stock warrants as of December 31, 2008:
 
 Weighted
                                    
                                    
                                    Weighted
                                    
                                    
                                    
                                    
                                    
                                    WeightedRange of
                                    
                                    
                                    
                                    
                                    Average
                                    
                                    
                                    Average
                                    
                                    
                                    
                                    
                                    
                                    AverageExercise
                                    
                                    Warrants
                                    
                                    
                                    Remaining
                                    
                                    
                                    Exercise
                                    
                                    
                                    Warrants
                                    
                                    
                                    ExercisePrices
                                    
                                    Outstanding
                                    
                                    
                                    Life (years)
                                    
                                    
                                    Price
                                    
                                    
                                    Exercisable
                                    
                                    
                                    Price$            3.44
                                    
                                    
                                    23,534
                                    
                                    
                                    
                                    3.1
                                    
                                    
                                    $
                                    3.44
                                    
                                    
                                    
                                    23,534
                                    
                                    
                                    $
                                    3.44$            5.50
                                    
                                    
                                    290,909
                                    
                                    
                                    
                                    3.2
                                    
                                    
                                    $
                                    5.50
                                    
                                    
                                    
                                    290,909
                                    
                                    
                                    $
                                    5.50
  NOTE
14 - Commitments and Contingencies
 
 Contingencies,
Asserted and Unasserted Claims
  In 2007,
the Office of the Attorney General of the State of Florida commenced an
investigation of the advertising and business practices of the third party
wireless content industry including the Company and its acquired entities,
namely Traffix, Inc. On February 12, 2009, the Company approached the Florida
Attorney General to volunteer its compliance and cooperate with the ongoing
investigation, and contribute to the remediation and educational initiatives of
the Florida Attorney General.  In connection with this matter, at
December 31, 2008 the Company estimates that total costs will approximate $1.125
million which is included Accrued Expenses in the Consolidated Balance Sheet
through purchase accounting.
  The
Company is also named in two Class Action Lawsuits (in Florida and California)
involving allegations concerning the Company's marketing practices associated
with some of its services billed and delivered via wireless carriers. The
Company is disputing the allegations and is vigorously defending itself in these
matters. In one of these matters the Company has received a Summary Judgment on
its Motion to Dismiss related to a number of the allegations made in the
original complaint. The Company has accrued for the related costs through
purchase accounting in the amount of $0.275 million in connection with these
matters which are included in Accrued Expenses in the Consolidated Balance
Sheet.
  F-25
  On
February 2, 2009 the Company filed a complaint against Mobile Messenger PTY LTD
and its subsidiary Mobile Messenger Americas, Inc. (“Mobile Messenger”) to
recover monies owed the Company in connection with transaction activity incurred
in the ordinary and normal course and also included declaritory relief
concerning demands made by Mobile Messenger's for indemnification in Mobile
Messenger's settlement in its Florida Class Action Matter which it settled in
late 2008  (“Grey vs. Mobile Messenger”).  Mobile Messenger,
a party also involved in the Florida Attorney General investigation described
herein, brought upon the Company a cross complaint seeking injunctive relief,
indemnification, damages exceeding $17 million, and recoupment of attorney’s
fees.  The Settlement in Gray vs. Mobile Messenger was represented by
KamberEdelson, LLC, which now represents Mobile Messenger in the action against
the Company on a contingency basis. The same firm represents the Plaintiffs in
the Florida Class Action filed against the Company, as well as another
plaintiff, an internet marketing company based in NY, in a commercial dispute
over payments for marketing services and potential damages concerning that
company's marketing practices. The Company disputes the allegations and intends
to vigorously defend itself in these matters considering, among other things,
the specific facts surrounding the underlying claims against the Company are
without merit.  The Company will also seek to limit any participation
in any settlement to recoup legal fees citing an apparent conflict of interest
in that the attorney representing Mobile Messenger (Kamber Edelson, LLC,) whom
is also representing numerous other parties taking action in the aforementioned
and other related matters.
  In the
ordinary course of business, the Company is involved in various disputes, which
are routine and incidental to the business and the industry in which it
operates. In the opinion of management the results of such disputes will not
have a significant adverse effect on the financial position or the results of
operations of the Company except as otherwise disclosed.
  The
following table shows the Company’s future commitments for future minimum lease
payments required under operating leases that have remaining non cancellable
lease terms in excess of one year, future commitments under investment and
marketing agreements, and, future commitments under employment agreements, as of
December 31, 2008:
 
 Operating
                              Leases
                            
                            
                            Employment
                              Agreements
                            
                            
                            Investments &
                              Marketing
                              Advances
                            
                            
                            Note and
                              Interest
                              payable2009
                            
                            $
                            1,502
                            
                            
                            $
                            1,333
                            
                            
                            $
                            1,570
                            
                            
                            $
                            1,9252010
                            
                            
                            1,246
                            
                            
                            
                            1,250
                            
                            
                            
                            -
                            
                            
                            
                            -2011
                            
                            
                            1,184
                            
                            
                            
                            271
                            
                            
                            
                            -
                            
                            
                            
                            -2012
      and thereafter
                            
                            
                            5,912
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -$
                            9,844
                            
                            
                            $
                            2,854
                            
                            
                            $
                            1,570
                            
                            
                            $
                            1,925
 
 In
certain situations, the Company does have minimum fee obligations assuming the
counterparty performs the required level of services.  We feel that
the level of business activity under normal and ordinary circumstances exceeds
the minimum thresholds. Therefore, the amounts are not included in the table
above.
  NOTE
15 - Employee Benefit Plan
  The
Company’s employee benefit plan covers all eligible employees with and includes
a savings plan under Section 401(k) of the Internal Revenue Code. The savings
plan allows participants to make pretax contributions up to 90% of their
earnings, with the Company contributing an additional 35% of up to six percent
of an employee’s compensation. During the year ended December 31, 2008 and 2007,
the Company contributed approximately $27,000 and 32,000 to the
plan.
  NOTE
16 – Geographic Data
  Geographic
information about the Company’s long-lived assets is presented below. Revenues
were exclusively generated in the United States.
  Years Ended December 31,2008
                                
                                
                                2007Canada
                                
                                $
                                1,245
                                
                                
                                $
                                -United
      States
                                
                                
                                14,789
                                
                                
                                
                                1,459$
                                16,034
                                
                                
                                $
                                1,459
  F-26
  NOTE
17 – Recent Accounting Pronouncements
  In
June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities.” EITF 03-6-1 gives guidance as to the circumstances
when unvested share-based payment awards should be included in the computation
of EPS. EITF 03-6-1 is effective for fiscal years beginning after
December 15, 2008. We are currently assessing the impact of EITF 03-6-1 on
our consolidated financial statements.
  In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162
("SFAS 162"), The Hierarchy of Generally Accepted Accounting
Principles.This
statement identifies the sources of accounting principles and the framework for
selecting the principles used in preparation of financial statements of
nongovernmental entities that are presented in conformity with U.S. GAAP.
This statement is effective November 15, 2008. The Company will adopt
SFAS 162 as required, and its adoption is not expected to have an impact on
the consolidated financial statements.
  In
April 2008, the FASB issued FASB Staff Position No. FSP 142-3,
“Determining the Useful Life of Intangible Assets” FSP 142-3 amends the factors
to be considered in determining the useful life of intangible assets. Its intent
is to improve the consistency between the useful life of an intangible asset and
the period of expected cash flows used to measure its fair value. FSP 142-3 is
effective for fiscal years beginning after December 15, 2008. We are
currently assessing the impact of FSP 142-3 on our consolidated financial
statements.
  In March
2008, the FASB issued SFAS No. 161, “Disclosure about Derivative Instruments and
Hedging Activities,” an amendment of FASB Statement No. 133. SFAS No. 161
changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under Statement No. 133 and its
related interpretations and (c) how derivative instruments and related hedged
items affect an entity’s financial position, financial performance and cash
flows. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early
application encouraged. The Company is currently evaluating the impact SFAS No.
161 may have its consolidated financial statements.
  In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements,” which we refer to as SFAS No. 160. SFAS No.
160 establishes requirements for ownership interests in subsidiaries held by
parties other than us (minority interests) be clearly identified and disclosed
in the consolidated statement of financial position within equity, but separate
from the parent's equity. Any changes in the parent's ownership interests are
required to be accounted for in a consistent manner as equity transactions and
any noncontrolling equity investments in deconsolidated subsidiaries must be
measured initially at fair value. SFAS No. 160 is effective, on a prospective
basis, for fiscal years beginning after December 15, 2008; however, presentation
and disclosure requirements must be retrospectively applied to comparative
financial statements. The Company will adopt SFAS No. 160 in our fiscal year
ending December 31, 2009. However, the Company is currently evaluating the
impact of SFAS No. 160 may have its consolidated financial
statements.
  On
February 12, 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 157-2,
“Effective Date of SFAS No. 157,” which defers the effective date of SFAS 157
for nonfinancial assets and liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis. This
FSP delayed the implementation of SFAS 157 for the Company’s accounting of
goodwill, acquired intangibles, and other nonfinancial assets and liabilities
that are measured at the lower of cost or market until January 1,
2009.
  In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS
141R”). SFAS 141R establishes the principles and requirements for how an
acquirer: (i) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed and any non-controlling
interest in the acquiree; (ii) recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase; and (iii) determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. SFAS 141R
is to be applied prospectively to business combinations consummated on or after
the beginning of the first annual reporting period on or after December 15,
2008, with early adoption prohibited. We are currently evaluating the impact
SFAS 141R will have on adoption on our accounting for future acquisitions.
Previously, any release of valuation allowances for certain deferred tax assets
would serve to reduce goodwill, whereas under the new standard any release of
the valuation allowance related to acquisitions currently or in prior periods
will serve to reduce our income tax provision in the period in which the reserve
is released. Additionally, under SFAS 141R transaction-related expenses, which
were previously capitalized, will be expensed as incurred.
  F-27
  In
February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS 159”), which gives companies the option
to measure eligible financial assets, financial liabilities and firm commitments
at fair value (i.e., the fair value option), on an instrument-by-instrument
basis, that are otherwise not permitted to be accounted for at fair value under
other accounting standards. The election to use the fair value option is
available when an entity first recognizes a financial asset or liability or upon
entering into a firm commitment. Subsequent changes in fair value must be
recorded in earnings. SFAS 159 is effective for financial statements issued for
fiscal year beginning after November 15, 2007. The Company elected not to adopt
the provisions of SFAS 159 for its financial instruments that are not required
to be measured at fair value.
  NOTE
18– Valuation and Qualifying Accounts
  The
following table provides information regarding the Company’s allowance for
doubtful accounts and deferred tax valuation allowance.
  Write-offs/Balance
                                              
                                              
                                              Charged to
                                              
                                              
                                              Payments/
                                              
                                              
                                              BalanceDescription
                                              
                                              January 1,
                                              
                                              
                                              Expenses
                                              
                                              
                                              Other
                                              
                                              
                                              December 31,2007Allowance
      for doubtful accounts
                                              
                                              
                                              1,263
                                              
                                              
                                              
                                              
                                              
                                              $
                                              (698
                                              )
                                              
                                              $
                                              565Deferred
      tax assets — valuation allowance
                                              
                                              $
                                              27
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (27
                                              )
                                              
                                              $
                                              -2008Allowance
      for doubtful accounts
                                              
                                              $
                                              565
                                              
                                              
                                              
                                              2,141
                                              
                                              
                                              
                                              232
                                              
                                              
                                              $
                                              2,938Deferred
      tax assets — valuation allowance
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
  F-28
  ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES.
  None
  ITEM
9A(T) CONTROLS AND PROCEDURES
  Evaluation
of Disclosure Controls and Procedures
  Members
of the our management, including our Chief Executive Officer, Burton Katz, and
Chief Financial Officer, Andrew Zaref, have evaluated the effectiveness of our
disclosure controls and procedures, as defined by paragraph (e) of Exchange Act
Rules 13a-15 or 15d-15, as of December 31, 2008, the end of the period covered
by this report.  Based upon that evaluation, Messrs. Katz and Zaref
concluded that our disclosure controls and procedures were effective as of
December 31, 2008.
  Management’s
Report on Internal Control over Financial Reporting
  Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934, as amended.  Our internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.  Our internal control over financial reporting
includes those policies and procedures that:
  (i)           pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets;
  (ii)           provide
reasonable assurance that transactions are recorded as necessary to permit the
preparation of financial statements in accordance with U.S. generally accepted
accounting principles, and that our receipts and expenditures are being made
only in accordance with authorizations of management and directors;
and
  (iii)           provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition our assets that could have a material effect on
our financial statements.
  Because of inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. In addition, projections of any evaluation of effectiveness to
future periods are subject to risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
  Our management assessed the
effectiveness of our internal control over financial reporting as of December
31, 2008.  In making this assessment, we used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
in Internal Control-Integrated Framework.  Based on our assessment and
those criteria, we have concluded that our internal control over financial
reporting was effective as of December 31, 2008.
  This
annual report does not include an attestation report by our registered public
accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only our management report in
this annual report.
  Changes
in Internal Control over Financial Reporting
  There
were no changes in our internal control over financial reporting or in other
factors identified in connection with the evaluation required by paragraph (d)
of Exchange Act Rules 13a-15 or 15d-15 that occurred during the fourth quarter
ended December 31, 2008 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
  ITEM
9B. OTHER INFORMATION
  None.
  34
  Part
III
  ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND
CORPORATE GOVERNANCE
  The
information required by this item will be included in an amendment to this
report on form 10-K or a proxy statement which shall be filed with the
Securities and Exchange Commission no later than April 29, 2009.
  ITEM
11. EXECUTIVE COMPENSATION
  The
information required by this item will be included in an amendment to this
report on form 10-K or a proxy statement which shall be filed with the
Securities and Exchange Commission no later than April 29, 2009.
  ITEM 12.
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
  The
information required by this item will be included in an amendment to this
report on form 10-K or a proxy statement which shall be filed with the
Securities and Exchange Commission no later than April 29, 2009.
  ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
  The
information required by this item will be included in an amendment to this
report on form 10-K or a proxy statement which shall be filed with the
Securities and Exchange Commission no later than April 29, 2009.
  ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  On
January 30, 2009, we appointed KPMG, LLP as our new independent registered
public accounting firm following the resignation of McGladrey and Pullen LLP,
our former auditors, on January 21, 2009.  We originally engaged
McGladrey & Pullen LLP as our independent registered public accountant on
May 7, 2008.  Prior to their resignation, McGladrey and Pullen LLP had
not commenced any procedures with regard to the December 31, 2008 audit nor did
they report on our consolidated financial statements during their
engagement.
  Prior to
May 7, 2008, Windes & McClaughry was engaged as our principal independent
accounting firm and reported on our December 31, 2007 consolidation financial
statements.  Prior to February 12, 2007, our principal auditors were
Carlin, Charron & Rosen, LLP.
  The
following table sets forth fees billed to us by our auditors, KPMG, LLP during
fiscal year ending December 31, 2008, and Windes & McClaughry during fiscal
year ending December 31, 2007 for: services rendered for the audit of our annual
financial statements and the review of our quarterly financial statements,
services by our auditors that are reasonably related to the performance of the
audit or review of our financial statements and that are not reported as Audit
Fees, services rendered in connection with tax compliance, tax advice and tax
planning, and all other fees for services rendered.
 
 (In thousands)
                          
                          December 31, 2008
                          
                          
                          December 31, 2007Audit
      related Fees
                          
                          $
                          285
                          
                          
                          $
                          280Tax
      Fees
                          
                          
                          -
                          
                          
                          
                          126All
      Other Fees
                          
                          
                          
                          
                          
                          
                          103Total
                          
                          $
                          285
                          
                          
                          $
                          509
 
 Our audit
committee was directly responsible for interviewing and retaining our
independent accountants, considering the accounting firms’ independence and
effectiveness, and pre-approving the engagement fees and other compensation to
be paid to, and the services to be conducted by, the independent accountants
mentioned above. The audit committee pre-approved 100% of the services described
above.
  35
 
 Part
IV
  ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
  (a)
              Documents
      filed as part of this report
  1.
              Financial
      Statements.
  See Index
to Financial Statements in Item 8 of this Annual Report on Form 10-K, which is
incorporated herein by reference.
  2.
              Financial Statement
      Schedules.
  All
financial statement schedules are omitted because the information in
inapplicable or presented in the Notes to Financial Statements.
  a.
              Exhibits.  See
      Item 15(b) below.
  (b) Exhibits.  We
have filed, or incorporated into this Form 10-K by reference, the exhibits
listed on the accompanying Index to Exhibits immediately following the signature
page of this Form 10-K.
  (c)
              Financial
      Statement Schedule.  See Item 15(a)
  above.
  36
 
 SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
 
 New
      Motion, Inc./s/
      Andrew ZarefBy: Andrew Zaref
                  Its: Chief Financial Officer (Principal Financial and Accounting
      Officer)Date: March 26, 2009
  POWER
OF ATTORNEY
  The
undersigned directors and officers of New Motion, Inc. do hereby constitute and
appoint Burton Katz and Andrew Zaref, and each of them, with full power of
substitution and resubstitution, as their true and lawful attorneys and agents,
to do any and all acts and things in our name and behalf in our capacities as
directors and officers and to execute any and all instruments for us and in our
names in the capacities indicated below, which said attorney and agent, may deem
necessary or advisable to enable said corporation to comply with the Securities
Exchange Act of 1934, as amended and any rules, regulations and requirements of
the Securities and Exchange Commission, in connection with this Annual Report on
Form 10-K, including specifically but without limitation, power and authority to
sign for us or any of us in our names in the capacities indicated below, any and
all amendments hereto, and we do hereby ratify and confirm all that said
attorneys and agents, or either of them, shall do or cause to be done by virtue
hereof.
  In
accordance with the Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
  Name
                
                Title
                
                Date/s/ Burton Katz
                
                Chief
      Executive Officer and
                
                March
      26, 2009Burton
      Katz
                
                Director(Principal Executive Officer)/s/ Andrew Zaref
                
                Chief
      Financial Officer and
                
                March
      26, 2009Andrew
      Zaref
                
                Secretary(Principal Financial andAccounting
      Officer)/s/ Ray Musci
                
                Director
                
                March
      26, 2009Raymond
      MusciDirectorLawrence
      Burstein/s/ Robert Ellin
                
                Director
                
                March
      26, 2009Robert
      S. Ellin/s/ Jeffrey Schwartz
                
                Director
                
                March
      26, 2009Jeffrey
      Schwartz
  S-1
  /s/ Jerome Chazen
                
                Director
                
                March
      26, 2009Jerome
      Chazen/s/ Mark Dyne
                
                Director
                
                March
      26, 2009Mark
      Dyne
  S-2
 
 EXHIBIT
INDEX
  ExhibitNo.
                  
                  Title2.1
                  
                  Exchange
      Agreement dated January 31, 2007, among MPLC, Inc., New Motion, Inc., the
      Stockholders of New Motion, Inc. and Trinad Capital Master Fund, Ltd.
      Incorporated by reference to the Registrant’s Current Report on Form 8-K
      (File No. 000-51353) filed with the Commission on February 1,
      2007.
                  **2.2
                  
                  Plan
      of Reorganization dated January 25, 2005. Incorporated by reference to
      Exhibit 2.1 to the Registrant’s Form 10-SB (File No. 000-51353) filed with
      the Commission on June 10, 2005.2.3
                  
                  Order
      Confirming Plan of Reorganization dated January 25, 2005. Incorporated by
      reference to Exhibit 2.2 to the Registrant’s Form 10-SB (File No.
      000-51353) filed with the Commission on June 10, 2005.2.4
                  
                  Agreement
      and Plan of Merger dated September 26, 2007 by and between the Registrant,
      Traffix, Inc., and NM Merger Sub. Incorporated by reference to Exhibit 2.1
      of the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed
      with the Commission on September 27, 2007.2.5
                  
                  Amendment
      to Agreement and Plan of Merger dated October 12, 2007. Incorporated by
      reference to the Registrant’s Current Report on Form 8-K (File No.
      000-51353) filed with the Commission on October 19, 2007.2.6
                  
                  Asset
      Purchase Agreement entered into on June 30, 2008, by and among New Motion,
      Inc. Ringtone.com, LLC and W3i Holdings, LLC.  Incorporated by
      reference to the Registrant’s Current Report on Form 8-K (File No.
      001-12555) filed with the Commission on July 7, 2008.**3.1
                  
                  Restated
      Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to
      the Registrant’s Form 10-SB (File No. 000-51353) filed with the Commission
      on June 10, 2005.3.2
                  
                  Certificate
      of Amendment to the Restated Certificate of Incorporation, dated October
      12, 2004. Incorporated by reference to Exhibit 3.2 to the Registrant’s
      Form 10-SB (File No. 000-51353) filed with the Commission on June 10,
      2005.3.3
                  
                  Certificate
      of Amendment to the Restated Certificate of Incorporation, dated April 8,
      2005. Incorporated by reference to Exhibit 3.3 to the Registrant’s Form
      10-SB (File No. 000-51353) filed with the Commission on June 10,
      2005.3.4
                  
                  Certificate
      of Amendment to the Restated Certificate of Incorporation, dated May 2,
      2007. Incorporated by reference to Exhibit 3.1 to the Registrant’s Current
      Report on Form 8-K (File No. 000-51353) filed with the Commission on May
      7, 2007.3.5
                  
                  Bylaws.
      Incorporated by reference to Exhibit 3.4 to the Registrant’s Form 10-SB
      (File No. 000-51353) filed with the Commission on June 10,
      2005.3.6
                  
                  Form
      of certificate for shares of common stock of New Motion, Inc. Incorporated
      by reference to Exhibit 99.1 of the Registrant’s Registration Statement of
      Form SB-2/A (File No. 333-143025) filed with the Commission on July 23,
      2007.4.1
                  
                  Series
      A Convertible Preferred Stock Registration Rights Agreement. Incorporated
      by reference to Exhibit 99.2 to the Registrant’s Current Report on Form
      8-K (File No. 000-51353) filed with the Commission on January 26,
      2007.4.2
                  
                  Series
      D Convertible Preferred Stock Registration Rights Agreement. Incorporated
      by reference to Exhibit 10.2 to the Registrant’s Current Report on Form
      8-K (File No. 000-51353) filed with the Commission on March 6,
      2007.
  EX-1
  4.3
                
                2005
      Stock Incentive Plan. Incorporated by reference to Exhibit 4.3 to the
      Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with
      the Commission on February 13, 2007.4.4
                
                2007
      Stock Incentive Plan. Incorporated by reference to Exhibit 4.9 to the
      Registrant’s Current Report on Form 10-QSB (File 000-51353) filed with the
      Commission on May 15, 2007.4.5
                
                Form
      of Stock Option Agreement. Incorporated by reference to Exhibit 4.4 to the
      Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with
      the Commission on February 13, 2007.
  10.1
                
                Series
      A Convertible Preferred Stock Purchase Agreement dated January 24, 2007,
      between the Registrant and Trinad Capital Master Fund, Ltd. Incorporated
      by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
      8-K (File No. 000-51353) filed with the Commission on January 26,
      2007.10.2
                
                Series
      B Convertible Preferred Stock Purchase Agreement dated January 30, 2007,
      among the Registrant, Watchung Road Associates, L.P., Lyrical Opportunity
      Partners II LP, Lyrical Opportunity Partners II Ltd. and Destar LLC.
      Incorporated by reference to Exhibit 99.1 to the Registrant’s Current
      Report on Form 8-K (File No. 000-51353) filed with the Commission on
      February 13, 2007.10.3
                
                Series
      D Convertible Preferred Stock Purchase Agreement dated February 28, 2007,
      between the Registrant and various purchasers. Incorporated by reference
      to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No.
      000-51353) filed with the Commission on March 6, 2007.10.4
                
                Voting
      Agreement dated February 21, 2007 among Trinad Capital Master Fund,
      Raymond Musci, MPLC Holdings, LLC, Europlay Capital Advisors, LLC and
      Scott Walker. Incorporated by reference to Exhibit 10.34 to the
      Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with
      the Commission on March 6, 2007.10.5
                
                Master
      SMS Services Agreement dated April 19, 2005, between New Motion, Inc. and
      Mobile Messenger Pty Ltd. Incorporated by reference to Exhibit 10.1 to the
      Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with
      the Commission on February 13, 2007.10.6
                
                Addendum
      dated April 28, 2005 to Master SMS Services Agreement dated April 19,
      2005, between New Motion, Inc. and Mobile Messenger Pty Ltd. Incorporated
      by reference to Exhibit 10.2 to the Registrant’s Current Report on Form
      8-K (File No. 000-51353) filed with the Commission on February 13,
      2007.10.7
                
                Amendment
      to Mobile Gateway Agreement dated July 1, 2005, between New Motion, Inc.
      and Mobile Messenger Australia Pty Ltd. This amendment is an addendum to
      the Master SMS Services Agreement dated April 19, 2005, between New
      Motion, Inc. and Mobile Messenger Pty Ltd. Incorporated by reference to
      Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No.
      000-51353) filed with the Commission on February 13, 2007.10.8
                
                Standard
      Multi-Tenant Office Lease dated July 6, 2005, between New Motion, Inc. and
      Dolphinshire, L.P. Incorporated by reference to Exhibit 10.4 to the
      Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with
      the Commission on February 13, 2007.10.9
                
                Software
      Development and Consulting Agreement dated July 19, 2005, between New
      Motion, Inc. and e4site, Inc. d/b/a Visionaire. Incorporated by reference
      to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (File No.
      000-51353) filed with the Commission on February 13, 2007.10.10
                
                Executive
      Employment Agreement dated March 8, 2007, between MPLC, Inc. and Scott
      Walker. Incorporated by reference to Exhibit 10.1 to the Registrants
      Current Report on Form 8-K (File No. 000-51353) filed with the Commission
      on March 14, 2007.*10.11
                
                Employment
      Agreement by and between Susan Swenson and New Motion dated August 20,
      2007. Incorporated by reference to Exhibit 10.16 to the Registration
      Statement on Form S-4 (File No. 333-147131) filed with the Commission on
      November 2, 2007.*10.12
                
                US
      Premium Master Service Agreement dated January 17, 2006, between New
      Motion, Inc. and Mobile Messenger Americas Pty Ltd. Incorporated by
      reference to Exhibit 10.18 to the Registrants Current Report on Form 8-K
      (File No. 000-51353) filed with the Commission on February 13,
      2007.
  EX-2
  10.13
                
                Addendum
      dated January 17, 2006 to US Premium Master Service Agreement dated
      January 17, 2006, between New Motion, Inc. and Mobile Messenger Americas
      Pty Ltd. Incorporated by reference to Exhibit 10.19 to the Registrants
      Current Report on Form 8-K (File No. 000-51353) filed with the Commission
      on February 13, 2007.10.14
                
                Addendum
      dated January 18, 2006 to US Premium Master Service Agreement dated
      January 17, 2006, between New Motion, Inc. and Mobile Messenger Americas
      Pty Ltd. Incorporated by reference to Exhibit 10.20 to the Registrants
      Current Report on Form 8-K (File No. 000-51353) filed with the Commission
      on February 13, 2007.10.15
                
                Asset
      Purchase Agreement dated January 19, 2007, between New Motion, Inc. and
      Index Visual & Games Ltd. Incorporated by reference to Exhibit 10.28
      to the Registrants Current Report on Form 8-K (File No. 3400-51353) filed
      with the Commission on February 13, 2007.10.16
                
                Secured
      Convertible Promissory Note issued on January 19, 2007 by New Motion in
      favor of Index Visual & Games Ltd. Incorporated by reference to
      Exhibit 10.29 to the Registrants Current Report on Form 8-K (File No.
      000-51353) filed with the Commission on February 13, 2007.10.17
                
                Messaging
      Agreement dated November 17, 2003, between Mobliss, Inc. and Cingular
      Wireless LLC, assigned to New Motion, Inc. on January 19, 2007.
      Incorporated by reference to Exhibit 10.30 to the Registrants Current
      Report on Form 8-K (File No. 000-51353) filed with the Commission on
      February 13, 2007.10.18
                
                SMS
      Connectivity Agreement dated January 8, 2004, between Mobliss, Inc. and
      Cingular Wireless LLC, assigned to New Motion, Inc. on January 19, 2007.
      Incorporated by reference to Exhibit 10.31 to the Registrants Current
      Report on Form 8-K (File No. 000-51353) filed with the Commission on
      February 13, 2007.10.19
                
                Heads
      of Agreement dated January 19, 2007, between New Motion, Inc. and Index
      Visual & Games Ltd. Incorporated by reference to Exhibit 10.32 to the
      Registrants Current Report on Form 8-K (File No. 000-51353) filed with the
      Commission on February 13, 2007.10.20
                
                Lease
      Agreement dated April 14, 2008, between MED 469 LLC, Rector 469, LLC and
      TPP 469 LLC and Traffix, Inc.10.21
                
                First
      Lease Modification Agreement dated as of May 14, 2008 between MED 469 LLC,
      Rector 469, LLC and TPP 469 LLC and Traffix, Inc.10.22
                
                Employment
      Agreement dated as of February 1, 2008, by and between New Motion, Inc.
      and Andrew Stollman.  Incorporated by reference to the
      Registrant’s Current Report on Form 10-Q (File No. 001-12555) filed with
      the Commission on May 20, 2008. *10.23
                
                Employment
      Agreement dated as of February 1, 2008, by and between New Motion, Inc.
      and Burton Katz.  Incorporated by reference to the Registrant’s
      Current Report on Form 10-Q (File No. 001-12555) filed with the Commission
      on May 20, 2008. *10.24
                
                Consulting
      Agreement dated as of January 31, 2008 by and between New Motion, Inc. and
      Jeffrey Schwartz. Incorporated by reference to the Registrant’s
      Current Report on Form 10-Q (File No. 001-12555) filed with the Commission
      on May 20, 2008.10.25
                
                Master
      Services Agreement effective as of January 1, 2008 by and between New
      Motion, Inc. and Motricity, Inc.  Incorporated by reference to
      the Registrant’s Current Report on Form 10-Q (File No. 001-12555) filed
      with the Commission on May 20, 2008.  Certain portions of this
      agreement have been omitted and filed separately with the Securities and
      Exchange Commission pursuant to a request for an order granting
      confidential treatment pursuant to Rule 24b-2 of the Rules and Regulations
      of the Commission under the Securities Exchange Act of
    1934.10.26
                
                Form
      of Convertible Promissory Note Issued to Ringtone.com. Incorporated by
      reference to the Registrant’s Current Report on Form 8-K (File No.
      001-12555) filed with the Commission on July 7, 2008.
  EX-3
  10.27
                
                Employment
      Agreement by and between Andrew Zaref and New Motion, Inc. dated July 14,
      2008.  Incorporated by reference to the Registrant’s Current
      Report on Form 8-K (File No. 001-12555) filed with the Commission on July
      17, 2008. *14.1
                
                Code
      of Ethics. Incorporated by reference to Exhibit 14.1 to the Registrants
      Current Report on Form 8-K (file No. 000-51353) filed with the Commission
      on August 24, 2007.21.1
                
                Subsidiaries
      of the registrant23.1
                
                Consent
      of Independent Registered Public Accounting Firm.23.2
                
                Consent
      of Independent Registered Public Accounting Firm.24.1
                
                Power
      of Attorney (included on signature page)31.1
                
                Certification
      of Principal Executive Officer pursuant to Securities Exchange Act Rules
      13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
                
                Certification
      of Principal Financial Officer pursuant to Securities Exchange Act Rules
      13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
                
                Certification
      of Principal Executive Officer and Principal Financial Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant to section 906 of the
      Sarbanes-Oxley Act of 2002.
 
 * Each a
management contract or compensatory plan or arrangement required to be filed as
an exhibit to this annual report on Form 10-K.
 **
Pursuant to Item 601(b) (2) of Regulation S-K, the schedules to these agreements
have been omitted. The Registrant undertakes to supplementally furnish a copy of
the omitted schedules to the Securities and Exchange Commission upon
request.
  EX-4