**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**


**Form
      10-KSB**


(Mark
                One)x
            
            **ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**


**For
      the fiscal year ended December 31, 2007**


o
            
            **TRANSITION
                REPORT UNDER 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


Logo of New Motion, Inc.


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


**42
      Corporate Park, Suite 250**


**Irvine,
      CA 92606**


(Address
      of principal executive offices and zip code)


**(949)
      777-3700**


(Issuer’s
      telephone number)





Securities
      registered under Section 12(b) of the Exchange Act: Common Stock, $0.01 par
      value


Securities
      registered under Section 12(g) of the Exchange Act: Common Stock, $0.01 par
      value




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 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 last 90 days. Yes x No o




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will 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-KSB or any
      amendment to this Form 10-KSB. o




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




Yes o No x




The
      issuer’s revenues for the fiscal year ended December 31, 2007 were:
      $36,982,000.




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates, computed using an average of the closing bid and ask price
      of
      $4.20, as of March 20, 2007, was $53,523,000.




Check
      whether the issuer has filed all documents and reports required to be filed
      by
      Section 12, 13, or 15(d) of the Exchange Act after the distribution of
      securities under a plan confirmed by a court. Yes x No o




As
      of
      March 20, 2008, the issuer had 22,505,542 shares of common stock issued and
      outstanding.




Transitional
      Small Business Disclosure Format (Check one): Yes o No x












**TABLE
      OF CONTENTS**




PART
                IItem
                1
            Description
                of Business
            
            2Item
                2
            Description
                of Property
            
            15Item
                3
            Legal
                Proceedings
            
            15Item
                4
            Submission
                of Matters to a Vote of Security Holders
            
            15PART
                IIItem
                5
            Market
                for Common Equity and Related Stockholder Matters and Small Business
                Issuer Purchases of Equity Securities
            
            16Item
                6
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            17Item
                7
            Financial
                Statements
            
            42Item
                8
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            43Item
              8A(T)
            Controls
                and Procedures
            
            43Item
                8B
            Other
                Information
            
            44PART IIIItem
                9
            Directors,
                Executive Officers, Promoters, Control Persons and Corporate Governance;
                Compliance with Section 16(a) of the Exchange Act
            
            45Item
                10
            Executive
                Compensation
            
            45Item
                11
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            45Item
                12
            Certain
                Relationships and Related Transactions, and Director
                Independence
            
            45Item
                13
            Exhibits
            
            45Item
                14
            Principal
                Accountant Fees and Services
            
            45





i




**Part
      I**





**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





This
      report, including the sections entitled “Cautionary Statements and Risk
      Factors,” “Management’s Discussion and Analysis” and “Description of 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;
                and


·
            other
                factors discussed under the headings “Risk Factors,” “Management’s
                Discussion and Analysis” and “Description of
                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





**ITEM
      1. DESCRIPTION OF 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-KSB contains information concerning New Motion, Inc.
      as
      it pertains to the period covered by this report – for the two years ended
      December 31, 2007. As a result of the acquisition of Traffix, Inc., a Delaware
      corporation (“Traffix”), by New Motion, Inc. on February 4, 2008 (explained
      herein), this Annual Report on Form 10-KSB also contains information concerning
      the combination of New Motion and Traffix, as of the date of this Annual Report.
      To assist the reader where practicable, when reference is made to New Motion,
      it
      pertains to the Company’s activities for the period covered by this including
      pro forma information Annual Report on Form 10-KSB and when reference is
      made to Atrinsic, it pertains to the current activities of the combination
      of
      New Motion and Traffix.





2





**Overview
      of New Motion**





We
      are a
      digital entertainment company headquartered in Irvine, California. We provide
      a
      wide range of digital entertainment products and services, using the power
      of
      the Internet, the latest in mobile technology, and traditional
      marketing/advertising methodologies. Our product and service portfolio includes
      contests, games, ringtones, screensavers and wallpapers, trivia applications,
      fan clubs and voting services, blogs and information services.





Our
      business is focused on services in the following categories — digital music,
      casual games, interactive contests and communities and lifestyles. These service
      lines consist of a broad array of properties, including Bid4Prizes, a low-bid
      mobile auction game and GatorArcade, a premium online and mobile gaming site.
      Other brands include iMatchup, a mobile dating service and MP3Giveaway, a
      digital music site. We focus on selectively increasing our application portfolio
      with high-quality, innovative applications. Our growing portfolio of
      applications and services are based primarily on internally generated content,
      such as Bid4Prizes and GatorArcade. Internally generated content is
      responsible for the majority of our revenue. We also license some
      identifiable content, such as ringtones, wallpapers and images from third
      parties to whom we generally pay a licensing fee on a per-download basis. We
      generate revenue on a subscription basis. The monthly end user subscription
      fees
      for our wireless entertainment products and services generally range from $3.99
      to $9.99.





**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 was formed in March 2005 and subsequently acquired the business
      of
      RingtonChannel, an Australian aggregator of ringtones in June 2005.
      RingtoneChannel was originally incorporated on February 23, 2004. In 2004,
      RingtoneChannel began to sell ringtones internationally and then launched its
      first ringtone subscription service in the U.S. in February 2005. In August
      2005, we launched our first successful text message campaign incorporating
      music
      trivia. In March 2006, we partnered with GoldPocket Wireless, a leading provider
      of mobile technology solutions for media and entertainment companies, to enhance
      the proficiency and performance of our mobile service offerings.





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.





On
      January 19, 2007, we entered into an agreement with Index Visual & Games,
      Ltd. (“IVG”) to purchase certain specified assets of Mobliss, a provider of
      proprietary applications, delivery systems, and platforms for wireless devices.
      In return for these assets, New Motion Mobile issued to IVG a convertible
      promissory note (the “IVG Note”). Mobliss has direct networking and billing
      connectivity with carriers for executing large-scale SMS campaigns and
      distributing mobile content to a wide array of mobile devices across multiple
      carrier networks in the U.S. and Canada. The primary strategic objective of
      this
      purchase was to allow us to more efficiently manage our business and
      operations by enabling us to directly bill and collect from mobile
      carriers, thus eliminating the fees associated with using third party billing
      processors and expediting the collection of open carrier receivables. This
      purchase is expected to enable us to better serve our customers and
      end users by expediting the time in which we react to changes in the
      marketplace. During the fourth quarter of 2007, we allocated a
      proportion of Cingular / AT&T new subscriber message traffic onto the
      acquired assets and developed technology, and we expect to continue to
      allocate Cingular / AT&T traffic, at a manageable rate, through this
      system.




3





Also
      on
      January 19, 2007, we entered into an agreement with IVG to create an
      Asian-themed mobile entertainment portal, the first major endeavor of its kind
      in the North American off-deck arena (“off-deck”
      refers primarily to services delivered through the Internet, which are
      independent of the carriers own product and service offers).This new
      direct-to-consumer service provides us with an opportunity to tap into a new
      market with Asian-themed content, delivering sophisticated mobile products.
      The
      joint venture was registered under the name The Mobile Entertainment Channel
      Corporation (“MECC”) and was established to assist us in expanding our service
      offerings by partnering with IVG, a leading global player in the interactive
      games and mobile space. As of the end of 2007, we were evaluating services
      and
      content to be offered by MECC.





In
      February 2007, we completed an exchange transaction (the
“Exchange”) pursuant to which we merged with a publicly traded company,
      MPLC, Inc., so that we (New Motion Mobile) became a publicly traded company,
      trading under the ticker “MPNC” on the Over-The-Counter Bulletin Board. 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 (i) increase the authorized number of shares
      of
      our common stock from 75,000,000 to 100,000,000, (ii) change our corporate
      name
      to New Motion, Inc. from MPLC, Inc., and (iii) effect a 1-for-300 reverse split.
      In connection with these corporate actions, we also changed our ticker symbol
      to
“NWMO.”





On
      April
      1, 2007, we entered into a Binding Letter of Intent (the “LOI”) with Opera
      Telecom USA (“Opera”), pursuant to which we purchased: (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. We
      purchased the assets for $970,000 in cash. The closing of the asset purchase
      occurred on May 25, 2007. We are actively operating the acquired
      Katazo assets and maintaining the respective websites, and are continuing
      to generate revenue from these assets.





In
      accordance with the terms of the IVG Note, on June 15, 2007, IVG converted
      all
      outstanding principal and accrued interest on the IVG Note into 172,572 shares
      of common stock at a conversion price of $3.44 per share, the fair market value
      of our stock on the date of issuance of the IVG Note.





On
      September 26, 2007, we executed a definitive Agreement and Plan of Merger (the
      “Merger Agreement”) with Traffix and NM Merger Sub, a Delaware corporation and
      wholly-owned subsidiary of ours (“Merger Sub”), pursuant to which Merger
      Sub would merge with and into Traffix, the separate existence of Merger Sub
      would cease, and Traffix would continue as the surviving corporation in the
      merger, thus becoming a wholly-owned subsidiary of ours (the
“Merger”).





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. Traffix’s clients include advertisers, direct marketers, agencies and
      wireless service providers. Traffix’s online marketing offers include search
      engine marketing, search engine optimization, email marketing, affiliate
      marketing, lead generation, creative support, and development and hosting
      solutions. Traffix owns and operates customized websites, hosted and third-party
      web pages, and email marketing platforms to facilitate consumer interaction
      with, and transactions for, its clients. Traffix generates and records revenue
      primarily on a performance-based model, whereby revenue is recognized upon
      the
      successful delivery of a qualifying lead, customer, survey, completed
      application, ultimate sale or the delivery of some other measurable marketing
      benefit as defined in the underlying marketing agreement. In addition to
      generating customers, sales and leads for its advertising clients, Traffix
      also
      uses this media platform for the promotion of its own services which include
      subscriptions to its online personals websites and its mobile services, under
      which


Traffix
      bills consumers directly.





On
      February 4, 2008, we completed the merger with Traffix, pursuant to the Merger
      Agreement entered into by the companies on September 26, 2007. As a result
      of
      the closing of the transaction, Traffix became our wholly owned subsidiary.
      Immediately following the consummation of the merger, Traffix stockholders
      owned
      approximately 45% of our capital stock, 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 our 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, we commenced trading on The NASDAQ Global
      Market under the symbol “NWMO.”




4





In
      February 2008, our newly comprised board of directors approved management’s
      combined company operating budget to assist in the integration and
      reorganization of the combined enterprise arising from the recently completed
      merger. Management intends to integrate both companies by maximizing certain
      operational efficiencies, while also positioning the group for sustained,
      profitable growth, as a leader in the mobile entertainment and performance-based
      online marketing industry. Also in February 2008, the board of directors
      unanimously approved a change in our name from New Motion, Inc. to Atrinsic,
      Inc. (“Atrinsic”), subject to shareholder approval.





**Overview
      of Atrinsic**





New
      Motion, Inc., doing business as Atrinsic, is one of the leading digital
      advertising and entertainment networks in the United States. Atrinsic is
      organized around two divisions, Networks – offering full service online
      marketing and distribution, and Entertainment – offering our unique content
      direct to users. Atrinsic brings together the power of the Internet, the latest
      in mobile technology, and traditional marketing/advertising methodologies,
      creating a fully integrated vehicle for both entertainment content and
      brand-based and performance advertising. Entertainment content is organized
      into
      four strategic services – digital music, casual games, interactive
      contests, and communities and lifestyles. Brands include GatorArcade, a premium
      online and mobile gaming site, Bid4Prizes, a low-bid mobile auction game, and
      iMatchUp, one of the first integrated web-mobile dating services. Feature-rich
      advertising services include a mobile ad network, extensive search capabilities,
      e-mail marketing, one of the largest and growing publisher networks, and
      proprietary entertainment content. Headed by a team of Internet, new media,
      entertainment and technology professionals, Atrinsic is headquartered in New
      York with offices in Irvine, CA, Seattle, WA, and Moncton, Canada.





**The
      Business of Atrinsic**





Our
      business model is focused on utilizing Internet media and the latest in mobile
      entertainment to generate revenue through premium billed subscriptions and
      online advertising. As a result of the combination of New Motion, a mobile
      entertainment company, and Traffix, a performance-based online marketing
      company, we are positioned to leverage the growing convergence trend of online
      and mobile media and to vertically integrate the marketing and distribution
      activities of Traffix with the subscription-based business of New Motion.





Atrinsic
      Networks offers a mobile and online advertising platform. This performance
      network offers access to customers through search, affiliate marketing, mobile
      advertising, email and highly targeted display advertising – all of which allows
      us to provide added value to advertisers and publishers. Atrinsic Entertainment
      combines Traffix’s content and promotional online assets with New Motion’s
      successful site and product portfolio. These online and mobile entertainment
      products are organized around our four strategic service lines, digital music,
      casual games, interactive content and communities and lifestyles. We expect
      to
      continue to expand our portfolio of products, services and websites and to
      improve the quantity and quality of the content accessed by users and
      subscribers by incorporating best practices across our entire portfolio of
      products.





***Atrinsic
      Networks - Full Service Online Marketing and
      Distribution***





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.





Our
      wholly owned content network comprises a portfolio of content driven web
      properties across a range of categories including music, games, lifestyle and
      interactive contests.





Our
      affiliate marketing service comprises an online marketplace of more than 6,000
      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. The growth in our affiliate marketing
      activities has been driven by advertiser demand for measurable
      results.





We
      offer
      search engine marketing services, as well as offering search engine
      optimization, giving clients access to organic search engine results, which
      is
      one of the most popular mediums on which to advertise websites.




5





Our
      list
      management service includes 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.





***Atrinsic
      Entertainment - 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 entertainment and Internet media services are 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 entertainment products and services
      generally range from $3.99 to $9.99.





Our
      primary interactive contests product is Bid4Prizes, a low-bid mobile auction
      game. According to Nielsen Mobile’s Premium SMS Report, Bid4Prizes accounted for
      50% of the total revenue in the entire U.S. Premium SMS market in the third
      quarter of 2007. Our casual games portfolio features GatorArcade and our
      communities and lifestyles group includes Imatchup, a growing social network
      destination that ties together web and mobile media with subscriptions billed
      to
      the phone. Our digital music portfolio includes MP3Giveaway and other
      music-centric websites.





**Atrinsic’s
      Products and Services**





***Atrinsic
      Networks***





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* .
      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
      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.




6





*List
      Management (Email and Mobile)* .
      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.





***Atrinsic
      Entertainment***





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 entertainment and Internet media services are 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 entertainment products and services
      generally range from $3.99 to $9.99.





Our
      primary interactive contests product is Bid4Prizes, a low-bid mobile auction
      game. The casual games portfolio features GatorArcade, a premium online and
      mobile gaming site. The community and lifestyle group includes Imatchup,
      a soon to be launched social network destination that ties together
      web and mobile media with subscriptions billed to the phone. Our digital music
      portfolio includes MP3Giveaway, a legal music download service featuring
      original artists, and other digital music-centric sites, including EZ-Tracks.
      Our four strategic product categories, along with their key product lines are
      detailed below:





*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. Products and services include:





•
            **iMatchup**.
                One of the first truly integrated web and mobile casual dating
                experiences, users can browse profiles and communicate both online
                and
                offline using the personal computer (“PC”) or the mobile phone,
                seamlessly. iMatchUp’s reduced price point, unique user rating system, and
                on-the-go lifestyle integration are key for capturing our target
                audience.





•
            **Recipe
                Rewards**.
                Recipe Rewards is the place to find thousands of free recipes online
                for
                quick and easy meals. Users can search the Recipe Rewards database
                and
                find cooking recipes along with pictures, reviews, tips and ratings
                to
                help plan meals.





*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. Our digital music properties
      include:





•
            ***EZ-Tracks***.
                This site has a portfolio of over 30,000 licensed songs by hundreds
                of
                artists and performers, all free for download to PCs. Music is grouped
                into over 35 genres, including pop, rock, jazz, alternative,
                inspirational, folk, Latin, soul, rap, re-mixes and soundtracks.
                All music
                is available in the universally accepted MP3 format, all fully licensed
                and legal for download. The flexible EZ-Tracks format allows for
                specialty
                packaging of our music portfolio to reach important niche
                audiences.





•
            ***MusicOfFaith***.
                One of the single biggest media markets today, this site serves the
                Christian market with downloadable traditional hymns, audio bible
                passages, Christmas music and children’s
                songs.





*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. These casual game sites include:




7





•
            ***GatorArcade***.
                GatorArcade offers its paid subscribers a broad selection of the
                most
                popular digital games, including top-rated games ZumaTM, Diner Dash®, and
                World Series of Poker® Pro Challenge. Subscribers can also play for free
                in an ad-supported environment.





•
            **GameFiesta**.
                Ad-supported and free for download, GameFiesta is a game-rich site
                with a
                well-established, frequent user base. Games include many developed
                by
                Atrinsic, including Ancient TriPeaks, Maui Wowee, Ultimate Pinball,
                and
                Atlantis Adventure.





*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 following sites feature sweepstakes,
      games, loyalty programs, discount online stores, and extras like downloadable
      ringtones and wallpapers:





•
            ***Bid4Prizes***.
                This entertainment site features a reverse-auction game where subscribers
                can play for name-brand prizes. Site visitors and subscribers can
                also buy
                products sold at discount prices, and enjoy many other entertainment
                features on the site. Ad-supported subscribers can access the site
                via the
                Internet for free, and paid subscribers enjoy mobile access, as well
                as a
                host of proprietary benefits, including a VIP center. With over 200,000
                visitors every day, Bid4Prizes offers multiple benefits for marketers
                -
                advertising, product placement, brand positioning, lead generation,
                and
                cross-promotional opportunities.





•
            ***GroupLotto***.
                One of the first online sweepstakes, GroupLotto allows players to
                instantly win $25,000 with a virtual scratch-off ticket.
                Fully indemnified by SCA Promotions, GroupLotto is fully flexible for
                customization with other Atrinsic products, or for publishing on
                your
                site.





Our
      entertainment business, regardless of the product or service sold, is primarily
      a subscription based business. To that end, 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. These metrics include: 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.





**Market
      Overview - Mobile Content and Online Advertising**





The
      magnitude of growth within the markets we operate provides us with a significant
      growth opportunity. According to publicly available research from eMarketer,
      projected U.S. mobile content revenues are expected to grow from $1.5 billion
      in
      2007 to $37.5 billion by 2010, representing a 62% compound annual growth rate.





***The
      Mobile Content Market***





The
      wireless entertainment 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 entertainment services will increase significantly
      in the coming years.





We
      believe that the growth in the wireless entertainment 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.




8


•
            ***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 and Symbian into mobile phones to enable multimedia applications,
                including gaming. We believe the availability of these next-generation
                mobile phones is driving demand for wireless entertainment applications
                taking advantage of these advanced multimedia
                capabilities.





•
            ***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
                entertainment 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 entertainment applications to
                differentiate their services and increase average revenue per user.
                The
                delivery of games, ringtones, images and other entertainment 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 entertainment 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
                entertainment industry in 2006 and growing to 19% in
                2009.





***The
      Online Advertising Market***





The
      online advertising market is large and growing. According to publicly accessible
      research conducted by PricewaterhouseCoopers, LLC (“PwC”) Internet advertising
      revenues for 2006 were estimated at $16.8 billion, an increase of 34 percent
      over 2005. This annual growth rate is expected to be indicative of the online
      advertising growth rate over the next several years. In its research, PwC also
      indicated that marketers are expected to continue to allocate more of their
      total marketing dollars to online advertising, especially as the industry
      delivers effective and innovative platforms for connecting with
      consumers.




9





It
      is
      expected that the greatest revenue growth in the online advertising space will
      come from companies positioned as performance based marketers and offering
      multiple online platforms, like those offered by Atrinsic. In its research,
      PwC
      notes that the Internet offers marketers the widest spectrum of advertising,
      including text ads, dynamic media and video and that companies in this space
      will continue to experience growth as marketing budget allocation to interactive
      media continues to increase.





**Mobile
      Entertainment and Internet Media Competitive Landscape**





The
      development, distribution and sale of wireless entertainment 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 entertainment 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,
      our primary competitors in the mobile entertainment 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 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.





**Distribution
      Channels**





We
      currently distribute the majority of our entertainment 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
      agreement to distribute our entertainment 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, Alltel, and Dobson. Subscribers of Cingular
      /
      AT&T and Verizon, representing the largest and second largest indirect
      carrier relationships by revenue, accounted for approximately 29% and 28%,
      respectively, of our revenue during the year ended December 31, 2007. For the
      year ended December 31, 2006, we received approximately 30% of our revenue
      from
      subscribers of Cingular / AT&T and 25% of our revenue from subscribers of
      Sprint. In addition to agreements with aggregators, we also have an agreement
      in
      place with Cingular / AT&T Wireless to distribute our products directly to
      subscribers on their network.





For
      the
      fiscal year ended December 31, 2007, we billed approximately 87% of our revenue
      through aggregation services provided by Motricity, Inc., formerly known as
      Goldpocket Wireless, Inc. (“Motricity”) and 6% of our revenue through aggregator
      Mobile Messenger Pty Ltd (“Mobile Messenger”). For the fiscal year ended
      December 31, 2006, we billed approximately 60% of our revenue through
      aggregation services provided Motricity and 34% of our revenue through
      aggregator Mobile Messenger.




10





**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, 2007, New Motion had 75 employees and full-time consultants in
      the
      United States. 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.





As
      of
      February 29, 2008, reflecting the combination of New Motion and Traffix,
      Atrinsic had 248 employees and full time consultants in the United States and
      in
      Canada.





**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 and as a result, we are exposed
      to
      legal and regulatory developments affecting either Internet or
      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.





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, as they have in the past. 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.




11





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.





Under
      its
      rule-making authority, the FCC in August 2004 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 new 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 its 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.





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.




12





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 16 different 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.





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.




13





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.




14




**ITEM
      2. DESCRIPTION OF PROPERTY**





New
      Motion’s corporate headquarters at December 31, 2007 were located at 42
      Corporate Park, Irvine, California. As a result of the Merger, and the approval
      of management's plan to integrate and reorganize the combined enterprise by
      the
      board of directors, Atrinsic will be headquartered in New York.





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





**Location**
            
            **Leased/**
              **Owned**
            
            **Square**
              **Feet**
            
            **Expiration**76
                North Broadway, Hicksville, NY
            
            
            Leased
            
            
            5,013
            
            
            11/30/20101
                Blue Hill Plaza, Pearl River, NY
            
            
            Leased
            
            
            14,220
            
            
            11/15/2011450
                7th Avenue, New York, NY
            
            
            Leased
            
            
            7,086
            
            
            10/31/201142
                Corporate Park, Irvine, CA
            
            
            Leased
            
            
            12,466
            
            
            1/31/2010Wells
                Fargo Center, Seattle, WA
            
            
            Leased
            
            
            1,200
            
            
            8/31/2008Dieppe,
                New Brunswick, Canada
            
            
            Owned
            
            
            17,000
            
            
            N/A





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 (949) 777-3700.





**ITEM
      3. LEGAL PROCEEDINGS**





From
      time
      to time we may be involved in other litigation relating to claims of alleged
      infringement, misuse or misappropriation of intellectual property rights of
      third parties. We may also be subject to claims arising out of our operations
      in
      the normal course of business, including claims brought by consumers of our
      services. As of this date, we are not a party to any such other litigation
      that
      would have a material adverse effect on us.





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





During
      the fourth quarter of the fiscal year covered by this report, we submitted
      certain matters to a vote of security holders through the solicitation of
      proxies. The proxy statement/prospectus was dated December 21, 2007, and was
      first mailed to stockholders about December 29, 2007. The date of the special
      meeting was January 31, 2008. The following table provides a brief description
      of each matter voted upon at the special meeting and the number of votes cast
      for or against or withheld, as well as the number of abstentions and broker
      non-votes as to each such matter.





**Matters
                Voted**
            
            **For**
            
            **Against or**
              **Withheld**
            
            **Abstentions**
              **And Broker**
              **Non-votes**Proposal
                to approve the issuance of New Motion common stock in connection
                with the
                merger contemplated by the Agreement and Plan of Merger, dated September
                26, 2007, by and among Traffix, Inc., NM Merger Sub, Inc. and New
                Motion,
                Inc.
            
            
            7,937,121
            
            
            -
            
            
            -Proposal
                to grant discretionary authority to management to adjourn the special
                meeting, if necessary, to solicit additional proxies if there appear
                to be
                insufficient votes at the time of the special meeting to approve
                any of
                the foregoing proposals
            
            
            7,936,821
            
            
            200
            
            
            100To
                transact such other business as may properly come before the meeting
                or
                any adjournment or adjournments thereof
            
            
            7,711,721
            
            
            400
            
            
            225,000





15


**ITEM
      5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS****AND**


**SMALL
      BUSINESS 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 also under the
      symbol, “NWMO.” 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 bid information for
      the
      common stock, as determined from quotations on the Over-The-Counter Bulletin
      Board, as well as the total number of shares of common stock traded during
      the
      periods indicated (to the extent available). The following 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.





**High**
            
            **Low**
            
            **Average**
              **Daily**
              **Volume****Year
                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**Year
                Ended December 31, 2006:**First
                Quarter
            
            $
            75.00
            
            $
            12.00
            
            
            N/ASecond
                Quarter
            
            $
            15.00
            
            $
            12.00
            
            
            N/AThird
                Quarter
            
            $
            30.00
            
            $
            15.00
            
            
            N/AFourth
                Quarter
            
            $
            120.12
            
            $
            12.01
            
            
            N/A





(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. The high and low prices presented for 2006 reflect MPLC’s
      historical operations, and not the operations of New Motion. Therefore, care
      should be taken in the interpretation of the data presented.





As
      of
      March 24, 2008, there were approximately 192 record holders of common stock.
      As
      of March 24, 2008, the closing sales price of our common stock as reported
      on
      the NASDAQ Global Market was $4.20 per share. Our transfer agent is American
      Stock Transfer & Trust Company and their phone number is (212)
      921-8208.





**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 2007 fiscal year, other than as disclosed in our Quarterly reports on
        Form
        10-QSB or in our Current Reports on Form 8-K, as filed with the Securities
        and
        Exchange Commission, and other than as described below, we have not sold
        unregistered securities.
 
 On
        February 16, 2007, we granted Burton Katz, our Chief Executive Officer, an
        option to purchase 81,250 shares of common stock at an exercise price of
        $6.00.
        On the same date, we granted Scott Walker, our former Chief Executive Officer,
        an option to purchase 37,500 shares of our common stock at an exercise price
        of
        $6.60 per share. Also on February 16, 2007, we granted options to purchase
        an
        aggregate of 289,950 shares of our common stock at an exercise price of $6.00
        per share to company directors, officers and consultants. Each of the
        aforementioned option grants were made pursuant to our 2007 Stock Incentive
        Plan. We did not receive any consideration in connection with the aforementioned
        option grants.
 
 On
        August
        20, 2007, we granted Ms. Swenson, our former Chief Operating Officer, 75,000
        shares of restricted stock pursuant to our 2007 Stock Incentive Plan. The
        restricted stock was granted in consideration of Ms. Swenson’s service to the
        company.
  In
        issuing the aforementioned options and restricted shares without registration
        under the Securities Act, we relied upon one or more of the exemptions from
        registration contained in Sections 4(2) of the Securities Act, and in Regulation
        D promulgated thereunder, as the options and restricted shares were issued
        to
        accredited investors, without a view to distribution, and were not issued
        through any general solicitation or advertisement.


16





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





*This
      discussion summarizes the significant factors affecting the operating results,
      financial condition and liquidity and cash flows of New Motion and its
      subsidiary (which includes the operating results of RingtoneChannel prior to
      its
      acquisition by New Motion, Inc. from a company with common ownership, as
      discussed hereafter) for the fiscal years ended December 31, 2006 and 2007.
      The
      following does not include a discussion about Traffix, as New Motion’s merger
      with Traffix was completed after the period covered by this report. The
      discussion and analysis that follows should be read together with the Financial
      Statements of New Motion and the notes to the Financial Statements included
      elsewhere in this Annual Report on Form 10-KSB. 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.*





**Overview**





New
      Motion, Inc. (“we,” “us,” “our”) is a digital entertainment company
      headquartered in Irvine, California. We provide a wide range of digital
      entertainment products and services, using the power of the Internet, the latest
      in mobile technology, and traditional marketing/advertising methodologies.
      Our
      product and service portfolio includes contests, games, ringtones, screensavers
      and wallpapers, trivia applications, fan clubs and voting services, blogs and
      information services.





Our
      business is focused on services in the following categories within one operating
      segment — digital music, casual games, interactive contests and communities and
      lifestyles. These services consist of a broad array of properties, including
      Bid4Prizes, a low-bid mobile auction game and GatorArcade, a premium online
      and
      mobile gaming site. Other brands include iMatchup, a mobile dating service
      and
      MP3Giveaway, a digital music site. We focus on selectively increasing our
      application portfolio with high-quality, innovative applications. Our growing
      portfolio of applications and services are based primarily on internally
      generated content, such as Bid4Prizes and GatorArcade. Internally generated
      content generates the majority of our revenues. We also license some
      identifiable content, such as ringtones, wallpapers and images from third
      parties to whom we generally pay a licensing fee on a per-download basis. We
      generate revenue on a subscription basis. The monthly end user subscription
      fees
      for our wireless entertainment products and services generally range from $3.99
      to $9.99.





**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 this 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 was formed in March 2005 and subsequently acquired the business
      of
      RingtonChannel, an Australian aggregator of ringtones in June 2005.
      RingtoneChannel was originally incorporated on February 23, 2004. In 2004,
      RingtoneChannel began to sell ringtones internationally and then launched its
      first ringtone subscription service in the U.S. in February 2005. In August
      2005, we launched our first successful text message campaign incorporating
      music
      trivia. In March of 2006, we partnered with GoldPocket Wireless, a leading
      provider of mobile technology solutions for media and entertainment companies,
      to enhance the proficiency and performance of our mobile service
      offering.




17





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





On
      January 19, 2007, we entered into an agreement with Index Visual & Games,
      Ltd. (“IVG”) to purchase certain specified assets of Mobliss, a provider of
      proprietary applications, delivery systems, and platforms for wireless devices.
      In return for these assets, New Motion Mobile issued to IVG a convertible
      promissory note (the “IVG Note”). Mobliss has direct networking and billing
      connectivity with carriers for executing large-scale SMS campaigns and
      distributing mobile content to a wide array of mobile devices across multiple
      carrier networks in the U.S. and Canada. The primary strategic objective of
      this
      purchase was to allow New Motion to more efficiently manage its business and
      operations by enabling it to directly bill and collect from mobile carriers,
      thus eliminating the fees associated with using third party billing processors
      and expediting the collection of open carrier receivables. This purchase is
      expected to enable New Motion to better serve its customers and end users by
      expediting the time in which it reacts to changes in the marketplace. During
      the
      fourth quarter of 2007, New Motion allocated a proportion of Cingular / AT&T
      new subscriber message traffic onto the acquired assets and developed
      technology, and expects to continue to allocate Cingular / AT&T traffic, at
      a manageable rate, through this system.





Also
      on
      January 19, 2007, we entered into an agreement with IVG to create an
      Asian-themed mobile entertainment portal, the first major endeavor of its kind
      in the North American off-deck arena. This new direct-to-consumer service
      provides us with an opportunity to tap into a new market with Asian-themed
      content, delivering sophisticated mobile products. The joint venture was
      registered under the name The Mobile Entertainment Channel Corporation (“MECC”)
      and was established to assist us in expanding our service offerings by
      partnering with IVG, a leading global player in the interactive games and mobile
      space. As of the end of 2007, we were evaluating services and content to be
      offered by MECC.





In
      February, 2007, we completed an exchange transaction pursuant to which we merged
      with a publicly traded company, MPLC, Inc., so that we (New Motion Mobile)
      became a publicly traded company, trading under the ticker “MPNC” on the
      Over-The-Counter Bulletin Board. 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 (i) increase the authorized number of shares
      of
      our common stock from 75,000,000 to 100,000,000, (ii) change our corporate
      name
      to New Motion, Inc. from MPLC, Inc., and (iii) effect a 1-for-300 reverse split.
      In connection with these corporate actions, we also changed our ticker symbol
      to
“NWMO.”





On
      April
      1, 2007, we entered into a Binding Letter of Intent (the “LOI”) with Opera
      Telecom USA (“Opera”), pursuant to which we purchased: (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. We
      purchased the assets for $970,000 in cash. The closing of the asset purchase
      occurred on May 25, 2007. New Motion is actively operating the acquired Katazo
      assets and maintaining the respective websites, and is continuing to generate
      revenue from these assets.





In
      accordance with the terms of the IVG Note, on June 15, 2007, IVG converted
      all
      outstanding principal and accrued interest on the IVG Note into 172,572 shares
      of common stock at a conversion price of $3.44 per share, the fair market value
      of our stock on the date of issuance of the IVG Note.





On
      September 26, 2007, we executed a definitive Agreement and Plan of Merger (the
      “Merger Agreement”) with Traffix and NM Merger Sub, a Delaware corporation and
      wholly-owned subsidiary of New Motion (“Merger Sub”), pursuant to which Merger
      Sub would merge with and into Traffix, the separate existence of Merger Sub
      would cease, and Traffix would continue as the surviving corporation in the
      merger, thus becoming a wholly-owned subsidiary of New Motion (the
“Merger”).




18





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. Traffix’s clients include advertisers, direct marketers, agencies and
      wireless service providers. Traffix’s online marketing offers include search
      engine marketing, search engine optimization, email marketing, affiliate
      marketing, lead generation, creative support, and development and hosting
      solutions. Traffix owns and operates customized websites, hosted and third-party
      web pages, and email marketing platforms to facilitate consumer interaction
      with, and transactions for, its clients. Traffix generates and records revenue
      primarily on a performance-based model, whereby revenue is recognized upon
      the
      successful delivery of a qualifying lead, customer, survey, completed
      application, ultimate sale or the delivery of some other measurable marketing
      benefit as defined in the underlying marketing agreement. In addition to
      generating customers, sales and leads for its advertising clients, Traffix
      also
      uses this media platform for the promotion of its own services which include
      subscriptions to its online personals websites and its mobile services, under
      which Traffix
      bills consumers directly.





On
      February 4, 2008, we completed the merger with Traffix, pursuant to the Merger
      Agreement entered into by the companies on September 26, 2007. As a result
      of
      the closing of the transaction, Traffix became our wholly owned subsidiary.
      Immediately following the consummation of the merger, Traffix stockholders
      owned
      approximately 45% of our capital stock, 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 our 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, we commenced trading on The NASDAQ Global
      Market under the symbol “NWMO.”





In
      February, 2008, our newly comprised board of directors approved management’s
      combined company operating budget to assist in the integration and
      reorganization of the combined enterprise arising from the recently completed
      merger. Management intends to integrate both companies by maximizing certain
      operational efficiencies, while also positioning the group for sustained,
      profitable growth, as a leader in the mobile entertainment and performance-based
      online marketing industry. Also in February, the board of directors unanimously
      approved a change in our name from New Motion, Inc. to Atrinsic, Inc.
      (“Atrinsic”), subject to shareholder approval.





**Application
      of Critical Accounting Policies and Estimates**





We
      have
      identified the policies below as critical to our business operations and
      understanding of our financial results. The preparation of financial statements
      in conformity with accounting principles generally accepted in the United States
      requires us to make estimates and assumptions that affect the reported amounts
      of assets and liabilities at the date of the financial statements and the
      reported amounts of revenues and expenses during the reported period. Actual
      results may differ from these estimates under different assumptions or
      conditions.





***Revenue
      Recognition and Receivables.***


We
      recognize revenue from the sale or subscription of our applications to wireless
      subscribers under distribution agreements with wireless carriers and aggregators
      in the period in which the applications are purchased, or over the period in
      which the applications are subscribed, assuming that: fees are fixed and
      determinable; we have no significant obligations remaining; and collection
      of
      the related receivable is reasonably assured.





We
      principally derive revenues from the licensing of our products and services
      to
      wireless subscribers for a one-time purchase fee or a monthly subscription
      fee.
      Substantially all of these fees appear on our customers’ monthly mobile phone
      bill. In accordance with our third-party aggregators and carrier agreements,
      the
      aggregators and carriers, collectively, perform billing and collection functions
      and remit a percentage of the fees to us. We recognize the net amount of
      revenues due to us from the wireless carrier net of any fees or other charges.
      In addition, we make estimates on chargebacks and returns based on historical
      trends and book this amount as a reduction in gross revenue. Our customers
      initiate the purchase of our products and services from our website properties
      (www.mobilesidewalk.com, www.Bid4Prizes.com, GatorArcade.com, or
      www.RingtoneChannel.com), various Internet portal sites or through other
      delivery mechanisms. We also generate limited revenues from third-party brands
      who wish to leverage the mobile channel.





In
      accordance with Emerging Issues Task Force, EITF, No 99-19, “Reporting Revenue
      Gross as a Principal Versus Net As an Agent,” we recognize the net amount the
      wireless carrier or distributor pays to us upon the sale of applications, net
      of
      any service or other fees earned and deducted by the wireless carrier or
      aggregator. We have evaluated our wireless carrier and aggregator agreements
      and
      have determined that we are acting as an agent, not as principal when selling
      our applications through wireless carriers.




19





We
      estimate revenues from carriers and aggregators in the current period when
      reasonable estimates of these amounts can be made. Several carriers and
      aggregators provide reliable sales data within a reasonable time frame following
      the end of each month, both of which allow us to make reasonable estimates
      of
      revenues and therefore to recognize revenues during the reporting period when
      the end user subscribes to our service. Determination of the appropriate amount
      of revenue recognized involves judgments and estimates that we believe are
      reasonable, but it is possible that actual results may differ from our
      estimates. When we receive the final aggregator reports broken out by carrier,
      to the extent these reports were not received within a reasonable time frame
      following the end of each month, we record any differences between estimated
      revenues and actual revenues in the next reporting period once we determine
      the
      actual amounts.





Revenues
      earned from certain carriers may not be reasonably estimated. If we are unable
      to reasonably estimate the amount of revenue to be recognized in the current
      period, we recognize revenues upon the receipt of a carrier revenue report.
      In
      order to mitigate the risk of a material misstatement, our management reviews
      the revenues by carrier on a monthly basis and gross billings on a daily basis
      to identify unusual trends that could indicate operational, carrier or market
      issues which could lead to a material misstatement in any reporting period.
      Additionally, on a weekly basis, management monitors cash settlements made
      by
      carriers to our aggregators.





We
      make
      estimates for future refunds, charge backs or credits, and create reserves
      netted against recorded revenue, in the period for which the sale occurs based
      on analyses of previous rates and trends which have historically varied between
      zero and 17% of Gross Revenue. This reserve is reconciled once a carrier remits
      total payment to our aggregator, who subsequently remits payment to us usually
      between 45-180 days after billing.





Reserves
      recorded based on this estimation process for the years ended December 31,
      2006
      and 2007, amounted to 7% and 2% of gross revenue, respectively. The improvement
      in our reserve is due to more accurate and timely billing information received
      from our aggregator customers. Historically, differences between our estimates
      and actual revenues have not been materially different and, as a private
      company, we had adequate time to adjust our estimated revenues to actual results
      once we received final sales data. On a going forward basis, our quarterly
      revenues will include a reserve allowance based on historical trends regarding
      chargebacks.





***Impairment
      of Long-Lived Assets.***


We
      assess
      impairment of our long-lived assets in accordance with the provisions of
      Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for
      the Impairment or Disposal of Long-lived Assets.” An impairment review is
      performed whenever events or changes in circumstances indicate that the carrying
      value may not be recoverable. Factors considered by us include significant
      underperformances relative to expected historical or projected future operating
      results; significant changes in the manner of use of the acquired assets or
      the
      strategy for our overall business; and significant negative industry or economic
      trends. When we determine that the carrying value of a long-lived asset may
      not
      be recoverable based upon the existence of one or more of the above indicators
      of impairment, we estimate the future undiscounted cash flows expected to result
      from the use of the asset and its eventual disposition. If the sum of the
      expected future undiscounted cash flows and eventual disposition is less than
      the carrying amount of the asset, we recognize an impairment loss. We report
      an
      impairment loss in the amount by which the carrying amount of the asset exceeds
      the fair value of the asset, based on the fair market value if available, or
      discounted cash flows if not. To date, we have not had an impairment of
      long-lived assets.





For
      each
      of the periods reported herein, our management believes there is no impairment
      of the company’s long-lived assets. There can be no assurance, however, that
      market conditions will not change or demand for our products or services will
      continue which could result in impairment of long-lived assets in the
      future.





***Intangible
      Assets Measurement and Recognition.***


For
      intangible assets that we acquire, in accordance with SFAS No. 142, “Goodwill
      and Other Intangible Assets,” we recognize and measure the intangible asset
      acquired based on its fair value, or in the case of a group of intangible assets
      acquired, based on each asset’s relative fair value. We use a range of valuation
      methodologies, including performing discounted cash flow analysis, to value
      acquired intangible assets. 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 our 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.




20





***Income
      Taxes.***


Income
      taxes are accounted for under the asset and liability method. Deferred tax
      assets and liabilities are recognized for the future tax consequences
      attributable to differences between the financial statement carrying amounts
      of
      assets and liabilities and their respective tax bases. Deferred tax assets
      and
      liabilities are measured using enacted tax rates expected to apply to taxable
      income in the years in which those temporary differences are expected to be
      recovered or settled. The effect on deferred tax assets and liabilities of
      a
      change in tax rates is recognized in the period that includes the enactment
      date.





We
      provided a valuation allowance against a portion of our deferred tax assets
      in
      2006. In assessing the realization of deferred tax assets, we weigh the positive
      and negative evidence to determine if it is more likely than not that some
      or
      all of the deferred tax assets will be realized. The ultimate realization of
      deferred tax assets is dependent upon the generation of future taxable income
      in
      the appropriate tax jurisdiction. Our
      valuation allowance decreased by $27,000 during the year ended December 31,
      2007.





Our
      estimate of the value of our tax reserves contains assumptions based on
      past experiences and judgments about the interpretation of statutes, rules
      and
      regulations by taxing jurisdictions. It is possible that the ultimate resolution
      of these matters may be greater or less than the amount estimated. If payment
      of
      these amounts proves to be unnecessary, the reversal of the liabilities would
      result in tax benefits being recognized in the period in which it is determined
      that the liabilities are no longer necessary. If the estimate of tax liabilities
      proves to be less than the ultimate assessment, a further charge to expense
      would result.





We
      file
      income tax returns in the U.S., Australia and California. We are subject to
      U.S.
      and Australia federal examinations and California state examinations by tax
      authorities. The statute of limitations for 2005 and 2006 in all jurisdictions
      remains open and are subject to examination by tax authorities.





We
      adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty
      in Income Taxes, on January 1, 2007. As a result of the implementation of
      Interpretation 48, we did not recognize any liability for unrecognized tax
      benefits. We do not have any unrecognized tax benefits as of December 31,
      2007.





We
      do not
      have any highly certain timing differences where the deduction is certain,
      but
      the timing is not. Because of the impact of deferred tax accounting, other
      than
      interest and penalties, the disallowance of the shorter deductibility period
      would not affect the annual effective tax rate but would accelerate the payment
      of cash to taxing authorities to an earlier period. We also have no unrecognized
      tax benefits in the balance at December 31, 2007, that if recognized, would
      impact the effective tax rate.





We
      recognize interest and penalties accrued related to unrecognized tax benefits
      in
      income tax expense. We had no amount accrued for the payment of interest and
      penalties accrued as of either January 1, 2007, or as of December 31, 2007.





***Accounting
      for Stock-Based Compensation***


We
      have
      historically utilized the fair value method of recording stock-based
      compensation as contained in SFAS No. 123, “Accounting for Stock-Based
      Compensation,” as amended. Compensation expense is measured at the grant date
      based on the value of the award and is recognized over the service period,
      which
      is usually the vesting period. The fair value of stock options is estimated
      on
      the grant date using the Black-Scholes option pricing model.





In
      December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based
      Payment,” (SFAS No. 123(R)”), which is a revision of SFAS No. 123. SFAS No.
      123(R) supersedes Accounting Principles Board Opinion No. 25, “Accounting for
      Stock Issued to Employees” and amends SFAS No. 95, “Statement of Cash Flows.”
Generally, the approach in SFAS No.123(R) is similar to the approach described
      in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments
      to
      employees, including grants of employee stock options, to be recognized in
      the
      income statement based on their fair values. Pro forma disclosure is no longer
      an alternative. SFAS No. 123(R) also establishes accounting requirements for
      measuring, recognizing and reporting share-based compensation, including income
      tax considerations. One such change was the elimination of the minimum value
      method, which under SFAS No. 123 permitted the use of zero volatility when
      performing Black-Scholes valuations. Under SFAS No. 123(R), companies are
      required to use expected volatilities derived from the historical volatility
      of
      the company's stock, implied volatilities from traded options on the company's
      stock and other factors. SFAS No. 123(R) also requires the benefits of tax
      deductions in excess of recognized compensation cost to be reported as a
      financing cash flow, rather than as an operating cash flow as required under
      current accounting literature.




21





The
      provisions of SFAS No. 123(R) were effective for and adopted by us as of January
      1, 2006. As we were using the fair market value accounting for stock based
      compensation pursuant to SFAS No. 123, the adoption of SFAS No. 123(R) was
      under
      the modified prospective method. Under the modified prospective application,
      the
      cost of new awards and awards modified, repurchased or cancelled after the
      required effective date and the portion of awards for which the requisite
      service has not been rendered (unvested awards) that are outstanding as of
      the
      required effective date will be recognized as the requisite service is rendered
      on or after the required effective date. The compensation cost for that portion
      of awards shall be based on the grant-date fair value of those awards as
      calculated under SFAS No. 123.





Since
      we
      had previously recorded stock compensation expense under the fair value method
      prescribed by SFAS No. 123, the adoption of SFAS No. 123(R) did not have a
      significant impact on our results of operations.





***Product
      Development Costs.***


We
      expense product development costs, which consist primarily of software
      development costs, as they are incurred. We account for software development
      costs in accordance with SFAS No. 86, “Accounting for the Costs of Computer
      Software to Be Sold, Leased, or Otherwise Marketed.” We expense software
      development costs that we incur in the research and development of software
      products and enhancements to existing software products until the time when
      we
      establish technological feasibility, and we capitalize costs from that time
      until the product is available for general release to customers. Under our
      current practice of developing new applications, the technological feasibility
      of the underlying software is not established until substantially all product
      development is complete, which generally includes the development of a working
      model. As a result, to date, we have not capitalized any costs relating to
      our
      application development because the costs incurred after the establishment
      of
      technological feasibility of our applications have not been significant. In
      addition, in the future, we will consider the following factors in determining
      whether costs can be capitalized: the emerging nature of the wireless
      entertainment market; the rapid evolution of the platforms and mobile phones
      on
      which we develop; the lack of pre-orders or sales history for our applications;
      the uncertainty regarding an application's revenue-generating potential; our
      lack of control over the sales channel resulting in uncertainty as to when
      an
      application will be available for sale, if at all; and our historical practice
      of canceling applications throughout each stage of the development process.
      We
      do not consider the amount of our software development costs to be material
      for
      the periods presented.





***Consolidation***


We
      have
      consolidated the accounts of our Mobile Entertainment Channel Corporation
      (“MECC”) joint venture, in accordance with FASB Interpretation No. 46(R),
“Consolidation of Variable Interest Entities (revised December 2003) — an
      interpretation of ARB No. 51.” The results of MECC have been consolidated with
      our accounts because we (i) currently control the joint venture’s activities,
      (ii) will share equally in any dividends or other distributions made by the
      joint venture, and (iii) expect to fund the joint venture for the foreseeable
      future. We own a 49% stake and IVG owns a 51% stake in the joint
      venture.





MECC
      is
      reflected with the following balances in New Motion’s consolidated balance sheet
      at December 30, 2007: current assets of $859,000 and current liabilities of
      $291,000. MECC’s results are reflected in New Motion’s consolidated statement of
      operations for the year ended December 30, 2007, and all intercompany
      transactions have been eliminated. The resulting minority interest was $283,000,
      net of provision for income tax of $146,000 for the year ended December 31,
      2007. The minority interest reflects New Motion’s joint venture partner’s
      portion of MECC’s net income or loss for the period.





In
      the
      future, we will consider the following factors in determining whether this
      joint
      venture entity, or other entities should be consolidated: (i) whether the
      variable interest entity (“VIE”) has sufficient equity investment at risk and
      (ii) whether equity investors in the VIE lack any of the following three
      characteristics of controlling financial interest: (a) participate in
      decision-making processes by voting their shares, (b) expect to share in returns
      generated by the entity and (c) absorb any losses the entity may
      incur.




22


**Results
      of Operations**





The
      following table presents selected combined statements of operations data, for
      each of the periods indicated, as a percentage of net sales.




**Years
                Ended December 31,****2006**
            
            **2007**Net
                sales
            
            
            100
            %
            
            100
            %Cost
                of sales
            
            
            3
            
            
            14Gross
                profit
            
            
            97
            
            
            86Selling
                and marketing
            
            
            64
            
            
            68General
                and administrative expenses
            
            
            25
            
            
            34Income
                from operations
            
            
            8
            
            
            (16
            )Other
                (income) expense
            
            
            -
            
            
            (1
            )Income
                (loss) before provision (benefit) for income taxes
            
            
            8
            
            
            (15
            )Provision
                (benefit) for income taxes
            
            
            4
            
            
            (3
            )Income
                (loss) before minority interest
            
            
            4
            
            
            (12
            )Minority
                interest
            
            
            -
            
            
            1Net
                income (loss)
            
            
            4
            %
            
            (11
            )%





***Results
      of Operations for the*** **Years
      Ended December 31, 2006 and 2007**


The
      following analysis and discussion pertains to New Motion’s results of operations
      for the year ended December 31, 2006, compared to New Motion’s results of
      operations for the year ended December 31, 2007.





*Net
      Sales*


**Years
                Ended**
              **December
                31,**
            
            **Percent**
              **Change****2006**
            
            **2007**Net
                sales
            
            $
            18,721,000
            
            $
            36,982,000
            
            
            98
            %


Net
      sales
      increased 98% to $36,982,000 for the year ended December 31, 2007, from
      $18,721,000 for the year ended December 31, 2006. The increase in sales was
      due
      primarily to a larger billable customer base and, to a lesser extent, is also
      attributable to higher average customer billings. The primary driver of higher
      sales was the Company’s significantly larger average monthly subscriber base in
      2007, which increased by 86% when compared to the average monthly subscriber
      base in 2006. New Motion ended 2007 with approximately 840,000 subscribers,
      compared to 380,000 at the end of 2006. New Motion also experienced a 5%
      year-over-year improvement in one of its key operating metrics, Average Revenue
      Per User, or ARPU. An increase in ARPU suggests that the Company is more
      efficiently billing its customer base and that the average price for a monthly
      subscription is higher. This does reflect the change in the Company’s product
      mix to higher subscription price points in 2007, compared to the Company’s
      product mix in 2006.





The
      growth in the Company’s subscriber base is directly attributable to the higher
      level of selling and marketing expense in 2007 when compared to 2006. The 5%
      improvement in 2007’s ARPU was offset by the Company’s May 2007 acquisition of
      Katazo subscribers. The billing rates on these subscribers tend to be lower
      than
      the rates charged to the Company’s new and existing subscribers, resulting in a
      lower ARPU metric than would have been the case without the Katazo subscribers.
      Although the Company is booking Katazo-related revenue in line with its
      estimates, it is forecast that the Company’s improvement in 2007 ARPU over 2006
      would have been approximately 12%, if the impact from the Katazo subscribers
      was
      eliminated.





As
      a
      result of management’s efforts to diversify the Company’s product portfolio, our
      2007 product mix consisted of a number of brands from each of the Company’s four
      product groups, Casual Games, Interactive Contests, Digital Music and
      Communities & Lifestyles. This 2007 diversified product mix is in contrast
      to the 2006 product mix, which consisted primarily of our Music Trivia product
      and RingtoneChannel offerings.




23





*Cost
      of Sales*


**Years
                Ended**
              **December
                31,**
            
            **Percent**
              **Change****2006**
            
            **2007**Cost
                of sales
            
            $
            597,000
            
            $
            5,014,000
            
            
            740
            %


Cost
      of
      sales increased 740% to $5,014,000 for the year ended December 31, 2007, from
      $597,000 for the year ended December 31, 2006. The increase in cost of sales
      is
      generally attributable to the Company’s higher sales activity and higher
      subscriber volumes in 2007. The increase in cost of sales is also due to our
      White Label sales in 2007. White Label sales have a significant cost of sales
      component because they involve revenue share arrangements with the Company’s
      White Label partners. However, the cost of sales associated with White Label
      sales is offset by lower customer acquisition costs, as the Company does not
      need to incur marketing expense to acquire these customers. Cost of sales in
      2007 also included approximately $385,000 of amortization related to the Katazo
      acquisition, which did not exist in 2006.





*Gross
      Profit*




**Years
                Ended**
              **December
                31,**
            
            **Percent**
              **Change****2006**
            
            **2007**Gross
                profit
            
            $
            18,124,000
            
            $
            31,968,000
            
            
            76
            %


Gross
      profit increased 76% to $31,968,000 for the year ended December 31, 2007, from
      $18,124,000 for the year ended December 31, 2006. Our gross profit margin
      decreased to 86% for the year ended December 31, 2007, from 97% for the year
      ended December 31, 2006. This decrease in gross profit margin  year-over-year
      is due to sales of the Company’s lower margin White Label services in 2007,
      compared to no White Label sales in the comparative period, as well as the
      presence of other cost of sales components, such as those related to Bid4Prizes,
      that did not exist a year ago.




*Selling
      and Marketing*




**Years
                Ended**
              **December
                31,**
            
            **Percent
                Change****2006**
            
            **2007**Selling
                and marketing
            
            $
            11,971,000
            
            $
            24,991,000
            
            
            109
            %




Selling
      and marketing expense increased 109% to $24,991,000 for the year ended December
      31, 2007, from $11,971,000 for the year ended December 31, 2006. As a percentage
      of net sales, selling and marketing expense increased to 68% for the year ended
      December 31, 2007, compared to 64% for the year ended December 31, 2006. The
      absolute increase in selling and marketing expense on a year-over-year basis
      is
      due to our customer acquisition activities. For the year ended December 31,
      2007, approximately $12.2 million, or 50%, of our selling and marketing expense
      was attributable to the purchase of customer acquisition services from Traffix,
      compared to zero a year ago. On February 4, 2008, we consummated a merger with
      Traffix. Please see the description of the merger with Traffix which is included
      elsewhere in this report.


24


*General
      and Administrative*




**Years
                Ended**
              **December
                31,**
            
            **Percent**
              **Change****2006**
            
            **2007**General
                and administrative
            
            $
            4,679,000
            
            $
            12,476,000
            
            
            167
            %


General
      and administrative expense increased 167% to $12,476,000 for the year ended
      December 31, 2007, from $4,679,000 for the year ended December 31, 2006. As
      a
      percentage of net sales, general and administrative expense increased to 34%
      for
      the year ended December 31, 2007 compared to 25% for the year ended December
      31,
      2006. Although all categories of general and administrative expense increased
      in
      the current period, the most prominent drivers of the 2007 increase in general
      and administrative expense, when compared to 2006, includes higher spending
      on
      professional services and stock-based compensation expense. The Company also
      experienced an increase in payroll expense, as it increased its full time
      equivalent headcount to 78 at December 31, 2007, compared to 38, at December
      31,
      2006. Overall, this higher level of general and administrative expenses are
      due
      to our greater level of sales and operational activity and are also the result
      of expenses associated with our public company status.





*Income
      (Loss) Before Provision (Benefit) for Income Taxes and Minority
      Interest*


**Years
                Ended**
              **December
                31,**
            
            **Percent****2006**
            
            **2007**
            
            **Change**Income
                (loss) before provision (benefit) for income taxes and minority
                interest
            
            $
            1,385,000
            
            $
            (5,069,000
            )
            
            ***not
                meaningful*


The
      Company’s income (loss) before provision (benefit) for income taxes decreased to
      a loss of $(5,069,000) for the year ended December 31, 2007 from an income
      of
      $1,385,000 for the year ended December 31, 2006. The Company’s income (loss)
      before provision (benefit) for income taxes and minority interest margin
      decreased to negative (15)% for the year ended December 31, 2007 compared to
      7%
      for the year ended December 31, 2006. This decrease in pretax income as a
      percentage of net sales is the result of increased spending on customer
      acquisition and higher levels of general and administrative expense, as
      discussed above.





*Net
      Income (Loss)*


**Years
                Ended**
              **December
                31,**
            
            **Percent**
              **Change****2006**
            
            **2007**Net
                income (loss)
            
            $
            677,000
            
            $
            (4,149,000
            )
            
            ***not
                meaningful*


Net
      income (loss) decreased to a loss of $(4,149,000), or ($0.37) per share, for
      the
      year ended December 31, 2007, compared to net income of $677,000, or $0.09
      per
      share, for the year ended December 31, 2006. The Company’s net income margin
      decreased to a negative (11)% for the year ended December 31, 2007 compared
      to
      4% for the year ended December 31, 2006 as a result of the combination of the
      factors discussed above. The Company’s income tax benefit was $1,203,000 for the
      year ended December 31, 2007, compared to a provision for income taxes of
      $708,000 for the year ended December 31, 2006. Minority interest of $283,000
      for
      the year ended December 31, 2007 represents the change in the Company’s joint
      venture partner’s claim on MECC’s net tangible assets during 2007.





**Liquidity
      and Capital Resources**





As of
      December 31, 2007, the Company had cash and cash equivalents of approximately
      $7,612,000, marketable securities of approximately $2,838,000 and a working
      capital balance of approximately $14,041,000. As of December 31, 2006, the
      Company had cash and cash equivalents of approximately $544,000
      and a working capital balance of approximately $694,000. The Company’s positive
      cash balance results primarily from financing activities. In the first quarter
      of 2007,
      the
      Company received gross proceeds of $20 million from the sale of capital stock
      to institutional
      investors and other accredited investors.





New
      Motion 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 from operations is
      less than anticipated or its working capital requirements or capital
      expenditures are greater than it expects, or if the Company expands its business
      by acquiring or investing in additional technologies, it may need to raise
      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 or at all. The inability to obtain additional
      debt or equity financing, if required, could have a material adverse effect
      on
      the Company’s operations.




25





***Cash
      Flows***




The
      Company currently satisfies its working capital requirements primarily through
      the issuance of debt and equity securities, supplemented by cash from
      operations. Cash flows provided by (used in) operating, investing and financing
      activities for the years ended December 31, 2006 and 2007 are summarized in
      the
      following table:




**Years
                Ended**
              **December
                31,****2006**
            
            **2007**Operating
                Activities
            
            $
            931,000
            
            $
            (5,210,000
            )Investing
                Activities
            
            
            (200,000
            )
            
            (5,184,000
            )Financing
                Activities
            
            
            (537,000
            )
            
            17,462,000Net
                change in cash
            
            $
            194,000
            
            $
            7,068,000





*Cash
      Provided By (Used In) Operating Activities*




New
      Motion’s cash requirements are principally for working capital. For the year
      ended December 31, 2007, cash used in operating activities was $5,210,000,
      compared to cash provided by operating activities of $931,000 for the year
      ended
      December 31, 2006. The Company’s operating cash flows result primarily from cash
      received from its aggregator customers, offset by cash payments the Company
      makes for products and services, including sales and marketing expenses,
      employee compensation and consulting fees. Cash received from aggregator
      customers generally corresponds to net sales.





*Cash
      Used In Investing Activities*




For
      the
      year ended December 31, 2007, cash used in investing activities was $5,184,000,
      compared to $200,000 for the year ended December 31, 2006. The Company’s
      investing cash flows correspond with purchases of fixed assets with cash and
      cash flows related to acquisitions. In the second quarter 2007, the purchase
      of
      the Katazo assets from Opera totaled $970,000 in cash. The purchase of the
      Mobliss assets during the year ended December 31, 2007, was financed through
      the
      issuance of the IVG Note. During the year ended December 31, 2007, the Company
      also made capital expenditures relating to investment in our technology
      infrastructure, computer equipment and furniture and fixtures.





*Cash
      Provided By (Used In) Financing Activities*




For
      the
      year ended December 31, 2007, cash provided by financing activities was
      $17,462,000, compared to cash used in financing activities of $537,000 for
      the
      year ended December 31, 2006. Cash from financing activities result from
      issuances of stock, issuance and repayment of notes payable and payments on
      capital lease obligations.





On
      January 19, 2007, New Motion entered into an Asset Purchase Agreement with
      IVG,
      pursuant to which it purchased from IVG certain specified assets of Mobliss.
      In
      exchange for the assets specified in the Asset Purchase Agreement, New Motion
      issued IVG a convertible promissory note in the initial principal amount of
      $500,000, with an aggregate maximum principal amount of up to $2,320,000. The
      IVG Note bore interest at the rate of five percent per annum accruing from
      the
      initial issuance of the IVG Note and matured on the earlier of November 30,
      2007
      or 30 days after delivery by IVG of written notice to us demanding payment. As
      a
      result of the assignment of one of the cellular carrier connection contracts
      listed in the Asset Purchase Agreement, on January 26, 2007, the Company
      increased the principal amount of the IVG Note by $580,000 to $1,080,000. On
      February 26, 2007, the Company repaid $500,000 of the IVG Note.





In
      accordance with the terms of the IVG Note, on September 15, 2007, IVG converted
      all outstanding principal and accrued interest on the IVG Note into 172,572
      shares of common stock at a conversion price of $3.44 per share, the fair market
      value of the Company’s stock on the date of issuance of the IVG Note. As a
      result of the conversion, the IVG Note has been fully extinguished and no
      further amount is owed to IVG.




26





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 assets New Motion acquired from IVG, up to the purchase
      price
      paid under the Asset Purchase Agreement, or $1,080,000. This management fee
      is
      to be fully paid by June 30, 2008.





New
      Motion made an advance payment on the management fee of $500,000 on March 12,
      2007, and made another, final, advance payment of $500,000 on September 4,
      2007.
      As of the end of the fourth quarter of 2007, New Motion is evaluating, in
      conjunction with IVG, services and content to be offered by MECC.





In
      February, 2007, New Motion Mobile completed an exchange transaction (the
“Exchange”) pursuant to which it merged with a publicly traded company, MPLC,
      Inc., so that New Motion Mobile became a publicly traded company, trading under
      the ticker “MPNC” on the Over-The-Counter Bulletin Board. In connection with the
      Exchange, the Company raised gross proceeds of approximately $20 million in
      equity financing through the sale of its Series A Preferred Stock, Series B
      Preferred Stock and Series D Preferred Stock.





On
      February 4, 2008, New Motion completed the transactions contemplated by the
      Agreement and Plan of Merger executed on September 26, 2007 by and among New
      Motion, NM Merger Sub and Traffix pursuant to which Merger Sub merged with
      and
      into Traffix. As a result of the Merger, Traffix became a wholly-owned
      subsidiary of New Motion. The Merger was approved by the stockholders of each
      of
      New Motion and Traffix on January 31, 2008. 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 10,409,000 shares of New Motion stock to Traffix
      shareholders. In addition, under the terms of the Merger Agreement, a stock
      option to purchase shares of Traffix converted into and became an option to
      purchase New Motion common stock, and New Motion assumed such option in
      accordance with the terms of the stock option plan or agreement under which
      that
      option was issued, subject to an option exchange ratio calculated in accordance
      with the Merger Agreement.





***Contractual
      Obligations and Off Balance Sheet Arrangements***




At
      December 31, 2007 and December 31, 2006, 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 noncancellable
      lease terms in excess of one year and future commitments under employment
      agreements, as of December 31, 2007:





**Operating**
              **Leases**
            
            **Employment**
              **Agreements**
            
            **Total**
              **Contractual**
              **Obligations**2008
            
            $
            598,000
            
            $
            916,000
            (a)
            $
            1,514,0002009
            
            
            304,000
            
            
            425,000
            (a)
            
            729,0002010
            
            
            26,000
            
            
            -
            
            
            26,0002011
            
            
            2,000
            
            
            -
            
            
            2,000$
            930,000
            
            $
            1,341,000
            
            $
            2,271,000





(a)
      Reflects a reduction in future commitments as a result of the departure of
      the
      Company’s Chief Operating Officer (See Note 14, “Subsequent Events,” in the
      Company’s notes to the consolidated financial statements).





Due
      to
      the payment terms of the carriers requiring in excess of 60 days from the date
      of billing or sale, New Motion utilizes factoring facilities offered by its
      aggregators. This factoring feature allows for payment of 70% of the prior
      month's billings 15 to 20 days after the end of the month. For this feature,
      New
      Motion pays an additional fee of 2.5% to 5% of the amount factored. For the
      year
      ended December 31, 2007, the gross amount of invoices subject to factoring
      totals approximately $35,496,000. The total factored amount of these invoices
      equals approximately $22,358,000. As of December 31, 2007, New Motion had
      reserves and allowances of approximately $565,000 against these factored
      amounts. This compares to $19,818,000 of gross invoices subject to factoring
      for
      year ended December 30, 2006, of which the total factored amount of these
      invoices equaled approximately $11,724,000. This factoring facility is offered
      on a recourse basis. Gross sales for each month are reported net of any of
      these
      factoring fees. New Motion believes that the reserve established against the
      accounts receivable balance is adequate to cover any credits and charge backs
      from the carrier and that New Motion will not be required to repay any amounts
      to the aggregator.




27





**Acquisition
      of Traffix, Inc. and Formation of Atrinsic, Inc.**





On
      February 4, 2008, New Motion 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.
      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.”





In
      February, 2008, our newly comprised board of directors approved management’s
      combined company operating budget to assist in the integration and
      reorganization of the combined enterprise arising from the recently completed
      merger. Management intends to integrate both companies by maximizing certain
      operational efficiencies, while also positioning the group for sustained,
      profitable growth, as a leader in the mobile entertainment and performance-based
      online marketing industry. Also in February, the board of directors unanimously
      approved a change in our name from New Motion, Inc. to Atrinsic, Inc.
      (“Atrinsic”), subject to shareholder approval.





**Overview
      of Atrinsic**





New
      Motion, Inc., doing business as Atrinsic, is one of the fastest growing digital
      advertising and entertainment networks in the United States. Atrinsic brings
      together the power of the Internet, the latest in mobile technology, and
      traditional marketing/advertising methodologies, creating a fully integrated
      vehicle for both entertainment content and brand-based and performance
      advertising. Entertainment content is organized into four strategic
      services – digital music, casual games, sweepstakes, and communities and
      lifestyles. Brands include Altnet, a mobile legal music download service
      featuring original artists, GatorArcade, a premium online and mobile gaming
      site, Bid4Prizes, a low-bid mobile auction game, and iMatchUp, one of the first
      integrated web-mobile dating services. Feature-rich advertising services include
      a mobile ad network, extensive search capabilities, e-mail marketing, one of
      the
      largest and growing publisher networks, and proprietary entertainment content.
      Headed by a team of Internet, new media, entertainment and technology
      professionals, Atrinsic is headquartered in New York with offices in Irvine,
      CA,
      Seattle, WA, and Moncton, Canada.





**The
      Business of Atrinsic**





Our
      business model is focused on utilizing Internet media and the latest in mobile
      entertainment to generate revenue through premium billed subscriptions and
      online advertising. As a result of the combination of New Motion, a mobile
      entertainment company, and Traffix, a performance-based online marketing
      company, we are positioned to leverage the growing convergence trend of online
      and mobile media and to vertically integrate the marketing and distribution
      activities of Traffix with the subscription-based business of New Motion.





As
      a
      combined entity, Atrinsic is organized into two divisions: Atrinsic Networks
      and
      Atrinsic Entertainment. Atrinsic Networks offers a mobile and online advertising
      platform. This performance network offers access to customers through search,
      affiliate marketing, mobile advertising, email and highly targeted display
      advertising – all of which allows us to provide added value to advertisers
      and publishers. Atrinsic Entertainment combines Traffix’s content and
      promotional online assets with New Motion’s successful site and product
      portfolio. These online and mobile Entertainment products are organized around
      our four strategic service lines, digital music, casual games, interactive
      content and communities and lifestyles. We expect to continue to expand our
      portfolio of products, services and websites and to improve the quantity and
      quality of the content accessed by users and subscribers by incorporating best
      practices across our entire portfolio of products.




28





***Atrinsic
      Networks - Full Service Online Marketing and
      Distribution***





Our
      online marketing and distribution assets provide customers with a full range
      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.





Our
      wholly owned content network comprises a portfolio of content driven web
      properties across a range of categories including music, games, lifestyle and
      interactive contests. This set of sites currently generates approximately 25
      million unique visitors per month, in addition to numerous pay per click
      campaigns.





Our
      affiliate marketing service comprises an online marketplace of more than 6,000
      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. The growth in our affiliate marketing
      activities has been driven by advertiser demand for measurable
      results.





Our
      search engine marketing service is built on a pay per click model. We also
      offer
      search engine optimization, giving clients access to organic search engine
      results, which is one of the most popular mediums on which to advertise
      websites.





Our
      list
      management service includes 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.





***Atrinsic
      Entertainment - Direct to Consumer Product***





We
      have a
      diverse portfolio of products and sites promoted “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 entertainment and Internet media services are 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 entertainment products and services
      generally range from $3.99 to $9.99.





Our
      primary interactive contests product is Bid4Prizes, a low-bid mobile auction
      game. According to Nielsen Mobile’s Premium SMS Report, Bid4Prizes accounted for
      50% of the total revenue in the entire U.S. Premium SMS market in the third
      quarter of 2007. Our casual games portfolio features GatorArcade and our
      communities and lifestyles group includes iMatchup, a growing social network
      destination that ties together web and mobile media with subscriptions billed
      to
      the phone. Our digital music portfolio includes MP3Giveaway.





**Atrinsic’s
      Business Strategy**





Our
      business strategy involves increasing our profitability by offering a large
      number of diverse, segmented products through a unique distribution network
      in
      the most cost effective manner possible. To achieve this goal, we plan to pursue
      the following objectives.





*Leverage
      the Cross Media Benefits of the Merger with Traffix* *.* One
      of
      our strategic objectives is to leverage the cross media benefit from the
      combination of New Motion and Traffix. New Motion’s premium-billed subscriptions
      allow Atrinsic to integrate and to leverage Traffix’s online and New Motion’s
      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 and 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.





*Vertically
      Integrate and Expand Distribution Options* .
      As a
      result of the merger with Traffix, we are already beginning to see the benefits
      of margin expansion through vertical integration. We now 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 marketing that the
      Atrinsic entertainment groups engage in through Atrinsic’s own 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 on the Network and Entertainment sides of
      the
      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.




29





*Multiple
      Revenue Streams and Advertiser Networks* .
      The
      merger with Traffix is expected to result in less customer concentration and
      more diversification of the combined company’s revenue streams. Atrinsic will
      continue to generate recurring revenue streams from a subscription-based
      business model, which is targeted at end user mobile subscribers. Atrinsic
      will
      also have the traditional revenue streams inherent in Traffix’s
      performance-based Internet business model, which is targeted to publishers
      and
      advertisers. Further revenue diversification is expected to result from the
      larger distribution reach of the combined company, and of the opportunity to
      generate ad revenue across the combined company’s portfolio of web properties.





*Publish
      High-Quality, Branded Entertainment 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 entertainment 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 the brands of its
      products, we plan to continue building brands through product and service
      quality, subscriber, customer and carrier support, advertising campaigns, public
      relations and other marketing efforts.





*Gain
      Scale Through Select Acquisitions* .
      As
      demonstrated with our acquisition of Traffix, we believe there may be future
      opportunities to acquire other companies or products, where appropriate, to
      take
      advantage of the growth opportunities in the online advertising and mobile
      entertainment industries.





***Pro
      Forma Financial Data***





New
      Motion has acquired all of the outstanding common shares of Traffix in
      accordance with the merger agreement. The following unaudited pro forma
      condensed combined financial statements are based on the historical consolidated
      financial statements of New Motion and Traffix, 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 accompanying
      notes.





The
      unaudited pro forma condensed combined statements of operations for the year
      ended December 31, 2007 is presented as if the acquisition had occurred on
      January 1, 2007. The unaudited pro forma condensed combined balance sheet is
      presented as if the acquisition had occurred on December 31, 2007. 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 merger had been completed on the dates
      indicated, nor is it indicative of future operating results or financial
      position. The pro forma adjustments are based upon available information and
      certain assumptions that we believe are reasonable and do not take into account
      anticipated operating efficiencies and costs savings resulting from the
      merger.





In
      accordance with SFAS No. 141, “Business Combinations,” the Merger will be
      accounted for as an acquisition of Traffix by New Motion using the purchase
      method of accounting under U.S. generally accepted accounting principles. Under
      the purchase method of accounting, the assets and liabilities of the acquired
      company are, as of completion of the merger, recorded at their respective fair
      values and added to those of the reporting public issuer, including an amount
      for goodwill representing the difference between the purchase price and the
      fair
      value of the identifiable net assets. Applicable income tax effects arising
      from
      these fair value adjustments on the assets of the acquired company will be
      included as a component of the combined company’s deferred tax asset or
      liability.





Financial
      statements of New Motion issued after the merger will reflect only the
      operations of Traffix after the merger and will not be restated retroactively
      to
      reflect the historical financial position or results of operations of Traffix.




30


**New
        Motion, Inc.**
 **Unaudited
        Pro Forma Consolidated Balance Sheet**
 **(In
        thousands)**


**New
                Motion December 31, 2007 Historical**
            
            **Traffix**
              **December 31, 2007**
              **Historical**
            
            **Acquisition
                Adjustments**
            
            **Pro Forma**
              **Combined****Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            7,612
            
            $
            10,760
            
            $
            -
            
            $
            18,372Marketable
                securities
            
            
            2,838
            
            
            17,585
            
            
            -
            
            
            20,423Accounts
                receivable, net
            
            
            8,389
            
            
            12,657
            
            
            -
            
            
            21,046Other
                receivable
            
            
            722
            
            
            -
            
            
            -
            
            
            722Prepaid
                income tax
            
            
            780
            
            
            -
            
            
            -
            
            
            780Deferred
                income taxes
            
            
            451
            
            
            305
            
            
            -
            
            
            756Prepaid
                expenses and other
            
            
            325
            
            
            787
            
            
            -
            
            
            1,112Total
                current assets
            
            
            21,117
            
            
            42,094
            
            
            -
            
            
            63,211Property,
                plant & equipment, net
            
            
            860
            
            
            1,934
            
            
            -
            
            
            2,794Goodwill
            
            
            -
            
            
            10,009
            
            
            (10,009
            )(c)
            
            70,50670,506
            (c)Intangible
                assets, net
            
            
            599
            
            
            2,450
            
            
            (2,450
            )(b)
            
            55,14154,542
            (b)Acquisition
                costs, net
            
            
            1,023
            
            
            -
            
            
            -
            
            
            1,023Deferred
                income taxes
            
            
            307
            
            
            1,166
            
            
            (1,166
            )
            
            307Deposits
                and other assets
            
            
            57
            
            
            -
            
            
            -
            
            
            57Total
                assets
            
            $
            23,963
            
            $
            57,653
            
            $
            111,423
            
            $
            193,039**Liabilities
                & Stockholders' Equity**Current
                liabilities:Accounts
                payable
            
            $
            3,257
            
            $
            5,729
            
            $
            2,000
            (a)
            $
            10,986Short-term
                notes payable and line of credit
            
            
            99
            
            
            -
            
            
            -
            
            
            99Income
                taxes payable
            
            
            -
            
            
            1,825
            
            
            -
            
            
            1,825Accrued
                expenses
            
            
            3,720
            
            
            5,021
            
            
            4,041
            (d)
            
            12,782Total
                current liabilities
            
            
            7,076
            
            
            12,575
            
            
            6,041
            
            
            25,692Notes
                payable
            
            
            22
            
            
            -
            
            
            -
            
            
            22Deferred
                income taxes
            
            
            -
            
            
            -
            
            
            2,302
            (c)
            
            2,302Minority
                interest
            
            
            283
            
            
            -
            
            
            -
            
            
            283Total
                liabilities
            
            
            7,382
            
            
            12,575
            
            
            8,343
            
            
            28,299Stockholders'
                equity:Common
                stock
            
            
            120
            
            
            15
            
            
            (15
            )(e)
            
            224104
            (e)Additional
                paid-in-capital
            
            
            19,583
            
            
            43,477
            
            
            (43,477
            )(e)
            
            167,637148,054
            (a)(e)Accumulated
                deficit
            
            
            (3,083
            )
            
            -
            
            
            -
            
            
            (3,083
            )Accumulated
                other comprehensive income (loss)
            
            
            (38
            )
            
            1,586
            
            
            (1,586
            )(e)
            
            (38
            )Total
                stockholders' equity
            
            
            16,582
            
            
            45,078
            
            
            103,080
            
            
            164,740Total
                liabilities and stockholders' equity
            
            $
            23,963
            
            $
            57,653
            
            $
            111,423
            
            $
            193,039





31


**New
        Motion, Inc.**
 **Unaudited
            Pro Forma Consolidated Statement of Operations**
 **(In
            thousands, except share and per share
            data)**


**New
                Motion**
              **Year
                Ended December 31,**
              **2007**
            
            **Traffix**
              **Year
                Ended**
              **December 31,**
              **2007**
            
            **Acquisition
                Adjustments**
            
            **Pro
                Forma**
              **Combined**Net
                sales
            
            $
            36,982
            
            $
            89,663
            
            $
            (12,219
            )(f)
            $
            114,426Cost
                of sales
            
            
            5,014
            
            
            64,060
            
            
            (5
            )(g)
            
            69,069Gross
                profit
            
            
            31,968
            
            
            25,603
            
            
            (12,214
            )
            
            45,357Operating
                expenses:Selling
                and marketing
            
            
            24,991
            
            
            2,990
            
            
            (12,219
            )(h)
            
            15,762General
                & administrative
            
            
            12,476
            
            
            19,766
            
            
            132
            (i)
            
            32,374Other
                operating expenses
            
            
            -
            
            
            (10
            )
            
            -
            
            
            (10
            )37,467
            
            
            22,746
            
            
            (12,087
            )
            
            48,126Operating
                income (loss)
            
            
            (5,499
            )
            
            2,857
            
            
            (127
            )
            
            2,769Other
                income (expense):Other
                income (expense)
            
            
            (34
            )
            
            (25
            )
            
            -
            
            
            (59
            )Realized
                gains on marketable securities
            
            
            -
            
            
            38
            
            
            -
            
            
            38Interest
                income and dividends
            
            
            464
            
            
            1,174
            
            
            -
            
            
            1,638Income
                (loss) before income taxes andminority
                interest
            
            
            (5,069
            )
            
            4,044
            
            
            (127
            )
            
            (1,152
            )Provision
                for income taxes
            
            
            (1,203
            )
            
            2,986
            
            
            (51
            )(j)
            
            1,732Net
                income (loss) before minority interest
            
            
            (3,866
            )
            
            1,058
            
            
            (76
            )
            
            (2,884
            )Minority
                interest
            
            
            283
            
            
            48
            
            
            -
            
            
            331Net
                income (loss)
            
            $
            (4,149
            )
            $
            1,010
            
            $
            (76
            )
            $
            (3,215
            )Pro
                Forma earnings per share:Basic
            
            $
            (0.37
            )
            
            
            
            
            
            
            $
            (0.15
            )Diluted
            
            $
            (0.37
            )
            
            
            
            
            
            
            $
            (0.15
            )Pro
                forma weighted average sharesused in the computation of
                net earnings per share:Basic
            
            
            11,331,260
            
            
            
            
            
            10,409,358
            (k)
            
            21,740,618Diluted
            
            
            11,331,260
            
            
            
            
            
            10,409,358
            (k)
            
            21,740,618





32


***Basis
      of Pro Forma Presentation***


On
      September 26, 2007, New Motion and Traffix entered into a definitive merger
      agreement in a transaction to be accounted for using the purchase method of
      accounting. The total estimated purchase price of approximately $150.2 million
      is comprised of New Motion common shares.





The
      unaudited pro forma condensed combined balance sheet is presented to give effect
      to New Motion’s acquisition of Traffix as if the transaction had been
      consummated on December 31, 2007. The unaudited pro forma condensed combined
      statement of operations for the year ended December 31, 2007 is presented as
      if
      the transaction had been consummated on January 1, 2007. The unaudited pro
      forma
      condensed combined balance sheet provides for the issuance of approximately
      10,409,538 New Motion common shares, based upon an exchange ratio of 0.676072
      New Motion common shares for each outstanding share of Traffix common stock.





Under
      the
      purchase method of accounting, the total consideration was approximately $150.2
      million, which includes the issuance of New Motion common stock valued at
      approximately $147.6 million and the assumption of the Traffix stock option
      plan, valued, under the treasury method, at approximately $605,000. New Motion
      estimates that its transaction costs related to this merger, including legal
      fees, investment banking fees, due diligence expenses, filing and printing
      fees,
      will be approximately $2 million. The estimated value of the common stock was
      calculated using the average New Motion common stock price two days before
      and
      after the merger announcement. The average stock price used to calculate the
      purchase price was $14.80.





***Purchase
      Price Allocation***


Pursuant
      to the purchase method of accounting, the total estimated purchase price has
      been preliminarily allocated to the assets acquired and liabilities assumed
      based on their respective fair values as of December 31, 2007. Any differences
      between the fair value of the total consideration issued and the fair value
      of
      the assets acquired, including a preliminary allocation for identifiable
      intangibles arising from the transaction, and liabilities assumed will be
      recorded as goodwill. Since these unaudited pro forma condensed combined
      financial statements have been prepared based on preliminary estimates of fair
      values attributable to the merger, the actual amounts recorded for the merger
      may differ materially from the information presented. New Motion’s management
      has engaged an independent third party valuation firm to determine the fair
      value of the amortizable identifiable intangible assets at the date the merger
      was consummated. These current allocations are subject to change pending further
      review of the fair value of the assets acquired and liabilities assumed as
      well
      as the impact of potential restructuring activities and actual transaction
      costs. Additionally, the fair value of assets acquired and liabilities assumed
      may be materially impacted by the results of Traffix’s operations up to the
      closing date of the merger.





New
      Motion has engaged an independent third party valuation firm to determine the
      fair value of the amortizable identifiable intangible assets when the merger
      is
      consummated. The actual purchase price allocation, including allocation of
      the
      purchase price to specific identifiable intangibles and liabilities assumed,
      and
      the resulting goodwill, is dependant upon a number of factors, including the
      impact of potential restructuring activities, actual transaction costs and
      the
      stock price volatility of New Motion. Additionally, the fair value of assets
      acquired and liabilities assumed are affected by the results of Traffix’s
      operations up to the closing date of the merger.





The
      following table summarizes the Company’s preliminary purchase price allocation
      based on the estimated fair values of the assets acquired and liabilities
      assumed on December 31, 2007 (in thousands).


**Tangible
                assets:**Cash
                and cash equivalents
            
            $
            10,760Marketable
                securities
            
            
            17,585Accounts
                receivable – trade, net
            
            
            12,657Prepaid
                and other current assets
            
            
            1,092Property
                and equipment, net
            
            
            1,934**Liabilities:**Accounts
                payable
            
            
            (5,729
            )Accrued
                expenses
            
            
            (5,020
            )Income
                taxes payable
            
            
            (1,825
            )Accrued
                restructuring costs - preliminary estimate
            
            
            (4,041
            )Deferred
                taxes payable - long term
            
            
            (2,302
            )




33






**Identified
                intangibles:**Software
            
            
            1,447Trade
                name / trademark
            
            
            48,826Customer
                list
            
            
            1,011License
                agreement
            
            
            1,218Non
                compete agreement
            
            
            2,040Goodwill
            
            
            70,506Total
                purchase price
            
            $
            150,159





Goodwill
      represents business benefits the Company anticipates realizing in future periods
      The following table details the lives of the identified
      intangibles:


**Life****(years)**Software
            
            
            10.0Trade
                name / trademark
            
            
            InfiniteCustomer
                list
            
            
            1.5License
                agreement
            
            
            9.0Non
                compete agreement
            
            
            5.0




***Pro
      Forma Adjustments***


The
      following pro forma adjustments are included in the unaudited pro forma
      consolidated combined statement of operations and unaudited pro forma balance
      sheet:




As of / For
              The Year
              Ended
              December 31,
              2007(in
                thousands)(a) 
                 To record acquisition costs as accounts payable and reduction in
                paid-in capital
            
            $
            2,000(b) 
                 Adjustments to intangible assets (in thousands):To
                eliminate Traffix intangible assets from previous
                acquisitions
            
            $
            (2,450
            )To
                record intangible assets related to the merger with
                Traffix
            
            
            54,542Total
            
            $
            52,092(c)  
                Adjustments to goodwill:To
                eliminate Traffix goodwill from previous acquisitions
            
            $
            (10,009
            )To
                record goodwill related to the merger with Traffix, including a $2.3
                million deferred tax liability related to identifiable
                intangibles
            
            
            70,506Total
            
            $
            60,497(d)  
                Adjustment to accrued liabilities:Deal
                costs
            
            $
            1,550Employee
                severance cost
            
            
            41Relocation
                - office move
            
            
            250Abandoned
                rent
            
            
            1,100Other
            
            
            1,100Total
            
            $
            4,041




34




(e)  
                Adjustments to stockholders' equity (in thousands):To
                eliminate Traffix additional paid in capital
            
            $
            (43,477
            )To
                eliminate Traffix common stock-par value
            
            
            (15
            )To
                eliminate Traffix accumulated other comprehensive income
            
            
            (1,586
            )To
                record New Motion common stock-par value
            
            
            104To
                record New Motion common stock-additional paid in capital
            
            
            150,054Total
            
            $
            105,080(f)   Adjustment
                to eliminate Traffix historical sales made to New Motion:To
                eliminate Traffix sales made to New Motion
            
            $
            (12,219
            )(g)  
                Adjustment to cost of sales:To
                eliminate Traffix historical amortization of intangibles
            
            $
            (5
            )(h) 
                 Adjustment to selling and marketing expense:To
                eliminate New Motion selling and marketing expense paid to
                Traffix
            
            $
            (12,219
            )(i)   
                Adjustment to general and administrative expense (in
                thousands):To
                record amortization of acquired intangibles
            
            $
            1,362To
                eliminate Traffix historical amortization of intangibles
            
            
            (1,000
            )To
                adjust for Mr. Shwartz’s employment contract renegotiation
            
            
            (405
            )To
                adjust for Ms. Swenson’s annual salary
            
            
            175$
            132(j)   
                To record the adjustment to income tax expense for the merger adjustments.
                Variance in the effective tax rates from the 34% federal statutory
                rate
                primarily result from the effect of state income taxes and estimated
                permanent differences.(k)  
                The pro forma number of shares used in per share calculations reflects
                the
                weighted average of New Motion's common shares for each period presented
                combined with the number of common shares New Motion will issue to
                Traffix
                common stockholders in the merger.




35




**Risk
      Factors**





*Investing
      in the Company’s 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 the Company’s common stock. The risks
      and uncertainties described below are not the only ones facing the Company.
      Additional risks and uncertainties that management is unaware of, or that it
      currently deems immaterial, also may become important factors that affect the
      Company. If any of the following risks occur, the Company’s business, financial
      condition, cash flows and/or results of operations could be materially and
      adversely affected. In that case, the trading price of the Company’s common
      stock could decline, and stockholders are at risk of losing some or all of
      the
      money invested in purchasing the Company’s common stock.*





**New
      Motion has a limited operating history in an emerging market, which may make
      it
      difficult to evaluate the company’s business.**





New
      Motion’s commenced offering entertainment products and services directly to
      consumers in 2005. Accordingly, New Motion has a limited history of generating
      revenues, and its future revenue and income generating potential is uncertain
      and unproven based on its limited operating history. As a result of New Motion’s
      short operating history, and its existence during that time in the nascent
      and
      dynamically evolving mobile entertainment industry, it has limited financial
      data that can be used to develop trends and other historical based evaluation
      methods to project and forecast its business. Any evaluation of New Motion’s
      business and the potential prospects derived from such evaluation must be
      considered in light of the company’s limited operating history and discounted
      accordingly. Evaluations of New Motion’s current business model and the
      company’s 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 that
      have
      yet to produce tangible business success accomplishments of significant
      magnitude.


The
      following is a list of some of the risks and uncertainties that exist in New
      Motion’s operating, and competitive marketing environment. To be successful, New
      Motion believes that it must:





-
            maintain
                and develop new wireless carrier and billing aggregator relationships
                upon
                which the company’s business currently
                depends;


-
            maintain
                a compliance based control system to render it’s 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 its 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 its technology to process increased usage and remain
                competitive with message delivery;


-
            continue
                to upgrade its 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 its 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 its web sites and third-party direct-to-consumer distributors;


-
            obtain
                the financial resources necessary to execute its business plan when
                such
                financing may be difficult and/or more expensive to obtain, especially
                in
                a period of slowed economic growth in the United States;
                and


-
            execute
                its business and marketing strategies
                successfully.





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





**New
      Motion’s business relies on wireless carriers and aggregators to facilitate
      billing and collections in connection with its entertainment products sold
      and
      services rendered. The loss of, or a material change in, any of these
      relationships could materially and adversely affect New Motion’s business,
      operating results and financial condition.**





During
      the fiscal year ended December 31, 2007, New Motion generated the majority
      of
      its revenues from the sale of its products and services directly to consumers
      which are billed through wireless aggregators and carriers. New Motion billed
      approximately 87% of its revenue during fiscal 2007 through a single aggregator.
      New Motion expects that it will continue to bill a significant portion of its
      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, New Motion has established a direct
      billing relationship with a carrier that mitigates a portion of its revenue
      generation risk as it relates to aggregator dependence; conversely this risk
      is
      replaced with internal performance risk regarding New Motion’s ability to
      successfully process billable messages directly with the carrier.




36





New
      Motion’s 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 the
      company’s 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 New Motion’s control and could impair
      its carrier relationships, including:


-
            a
                carrier’s decision to suspend delivery of New Motion’s products and
                services to its customer base;


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


-
            a
                carrier’s decision to offer similar entertainment applications, products
                and services to its subscribers for price points less than New Motions
                offered price points, or for free;


-
            a
                network encountering technical problems that disrupt the delivery
                of, or
                billing for, the company’s applications;


-
            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 slowed economic growth currently affecting
                the
                United States; or


-
            decision
                to increase the fees it charges to market and distribute the company’s
                applications, thereby increasing its own revenue and decreasing New
                Motion’s share of revenue.





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





**New
      Motion depends on third-party internet and telecommunications providers, over
      whom it has no control, for the conduct of its network business. Interruptions
      in these services caused 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 its network and
      entertainment business.**





New
      Motion depends heavily on several third-party providers of Internet and related
      telecommunication services, including hosting and co-location facilities, in
      operating its network services. These companies may not continue to provide
      services to New Motion 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
      a
      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 New Motion could cause
      interruptions in the services New Motion provides across all of its business
      activities. In addition to service interruptions arising from third-party
      service providers, unanticipated problems affecting New Motion’s 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 the
      company’s business, results of operations and financial condition.





**New
      Motion may be unable to successfully keep pace with the rapid technological
      changes that may occur in the wireless communication, internet and e-commerce
      arenas which would adversely affect its business
      operations.**





To
      remain
      competitive, New Motion must continually monitor, enhance and improve the
      responsiveness, functionality and features of its services, offered both in
      its
      entertainment and network 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 and/or business methods obsolete in future fiscal
      periods. New Motion’s success in its entertainment activities will depend, in
      part, on its 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
      New Motion will use internally developed or acquired new technologies
      effectively or adapt existing websites and operational systems to customer
      requirements or emerging industry standards. If New Motion is 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, its business, prospects, financial condition and results
      of operations could be materially adversely affected.




37





**New
      Motion may not be able to comply with the adoption of newly created laws and
      governmental regulation of the internet industry and new restrictions for
      internet use may increase New Motion’s cost of doing
      business.**




As
      a
      direct-to-consumer marketing company, New Motion is subject to a variety of
      federal, state and local laws and regulations designed to protect consumers
      that govern certain of its marketing practices, all as more fully set forth
      in
      the company’s periodic reports filed pursuant to the Securities Exchange Act of
      1934 under the heading “Business - Government Regulation.”





**New
      Motion relies exclusively on the Internet for all of its revenue generating
      activities. In the event that the marketing preferences of advertisers change
      such that advertisers reduce the amount they spend on internet advertising
      and
      digital marketing solutions, New Motion’s financial results could be adversely
      impacted.**





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 New Motion’s network business, as well as its entertainment business,
      with both having a materially negative impact on the company’s results of
      operations and financial condition.





**New
      Motion’s success depends on its 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. New Motion expects 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 New Motion from obtaining profit generating
      advertising or reduce the company’s margins on such advertising, and reduce the
      company’s ability to enter into joint marketing programs in the future. If New
      Motion fails to continue establishing new, and maintain and expand existing,
      profitable advertising and joint marketing arrangements, New Motion may suffer
      substantial adverse consequences to its financial condition and results of
      operations. Additionally, New Motion, as a result of its acquisition of Traffix,
      now has 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 New Motion can not effectively monitor the ever changing
      scoring and indexing criteria, and affectively adjust its search term
      applications to conform with such scoring and indexing, New Motion could suffer
      a material decline in its search term generated acquisitions, correspondingly
      reducing its ability to fulfill its clients marketing needs. This would have
      an
      adverse impact on the company’s revenues and profitability.





**The
      demand for a portion of New Motion’s network services may decline due to the
      proliferation of “spam” and the expanded commercial adoption of software
      designed to prevent its delivery.**





New
      Motion’s 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 New Motion. New Motion
      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 New Motion’s network, as well as its
      entertainment service activities. In the case that one or more of these
      technologies, or software applications, realize continued and/or widely
      increased adoption, demand for New Motion’s services could decline in response.
      During the fiscal year ended December 31, 2007 Traffix, New Motion’s recently
      acquired subsidiary (see financial statements – “Subsequent Events”)
      recognized a decline in a component of its network activity revenue attributable
      to email marketing of approximately 60% when compared to the year ended December
      31, 2006. New Motion believes that such decline is the result of the factors
      mentioned above, and such decline may continue at higher rates in future fiscal
      periods.




38





**New
      Motion has no intention to pay dividends on its equity
      securities.**





New
      Motion’s 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 New Motion’s current, and long-term intention that it will
      use all cash flows to fund operations and maintain excess cash requirements
      for
      the possibility of potential future acquisitions. Future dividend declarations,
      if any, will result from New Motion’s reversal of its current intentions, and
      would depend on New Motion’s performance, the level of its then current and
      retained earnings and other pertinent factors relating to its financial
      position. Prior dividend declarations should not be considered as an indication
      for the potential for any future dividend declarations.





**New
      Motion faces intense competition in the marketing of its entertainment services
      and its network based clients’ products.**





The
      development, distribution and sale of wireless entertainment applications is
      a
      highly competitive business. In both its entertainment services and network
      services, New Motion competes primarily on the basis of marketing acquisition
      cost, brand awareness, consumer penetration and carrier and distribution depth
      and breadth, as specific to its entertainment services.





New
      Motion considers its primary entertainment business competitors to be
      Buongiorno, Playphone, Dada Mobile, Acotel, Glu Mobile, Cellfish (Lagadere),
      Jamster (Fox), Hands on Mobile and Thumbplay. In its network business, New
      Motion considers Azoogle, Value Click, Miva, Kowabunga! (Think Partnership),
      Right Media, Aptimus and Blue Lithium to be its primary competitors. In the
      future, likely competitors may include other major media companies, traditional
      video game publishers, content aggregators, wireless software providers and
      other pure-play wireless entertainment publishers. Wireless carriers may also
      decide to develop and distribute their own similar on-deck wireless
      entertainment applications, products and services and as such they might refuse
      to, or limit the distribution of some or all of New Motion’s applications or may
      deny New Motion access to all or part of their networks.





New
      Motion also competes for experienced and talented employees from the same
      domestic labor pool as its competitors.





Some
      of
      New Motion’s competitors’ advantages include the following:


-
            substantially
                greater revenues and financial
                resources;


-
            stronger
                brand names, broader distribution networks and enhanced consumer
                recognition;


-
            the
                capacity to leverage their marketing expenditures across a broader
                portfolio of wireless and non-wireless
                products;


-
            pre-existing
                and long standing relationships with marquee brand
                holders;


-
            deeper
                resources, both financial and otherwise, to effectively execute on
                acquisition identification, closing and integration;
                and


-
            broader
                geographic presence potentially allowing for entrance into new markets,
                both domestically and
                internationally.





If
      New
      Motion is not as successful as its competitors in executing on its 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, New Motion’s sales could decline, its margins could be
      negatively impacted and it could lose market share, any and all of which could
      materially harm its business prospects, and potentially have a negative impact
      on its share price.





**New
      Motion is dependent on its key personnel for managing its business affairs.
      The
      loss of their services could materially and adversely affect the conduct and
      the
      continuation of the company’s business.**





New
      Motion is and will be highly dependent upon the efforts of the members of its
      management team, particularly those of its Chief Executive Officer, Burton
      Katz,
      its President, Andrew Stollman, its Chief Operating Officer, Raymond Musci
      and
      its Chief Financial Officer, Daniel Harvey. The loss of the services of Messrs.
      Katz, Stollman, Musci or Harvey may impede the execution of New Motion’s
      business strategy and the achievement of its business objectives. New Motion
      can
      give you no assurance that it will be able to attract and retain the qualified
      personnel necessary for the development of its business. New Motion’s failure to
      recruit key personnel or its failure to adequately train, motivate and supervise
      its existing or future personnel will adversely affect its
      operations.




39





**New
      Motion has been named as a defendant in litigation, either directly, or
      indirectly through its merger/acquisition of Traffix, Inc., with the outcome
      of
      such litigation being unpredictable; a materially adverse decision in any such
      matter could have a material adverse affect on New Motion’s financial position
      and results of operations.**





New
      Motion from time to time is named as a defendant in litigation matters, as
      described under "Legal Proceedings" in the company’s periodic reports filed
      pursuant to the Securities Exchange Act of 1934. The defense of these claims
      may
      divert financial and management resources that would otherwise be used to
      benefit the company’s operations. Although New Motion believes that it has
      meritorious defenses to the claims made in each and all of the litigation
      matters to which it has been a named party, whether directly or indirectly,
      and
      intends to contest each lawsuit vigorously, no assurances can be given that
      the
      results of these matters will be favorable to it. A materially adverse
      resolution of any of these lawsuits could have a material adverse affect on
      its
      financial position and results of operations.





**New
      Motion is subject to market fluctuation and debt repayment risk of marketable
      securities investment portfolio**





New
      Motion maintains an investment portfolio that is managed by prominent financial
      institutions. The portfolio includes high-grade corporate commercial paper
      and
      auction rate securities, and common stock equities, all of which are held for
      varying periods of time depending on market conditions and other factors. These
      investments are subject to market price volatility, in addition to the potential
      for business failure at the company level. Moreover, due to the potential for
      an
      economic downturn in the United States as a result of the current “sub-prime
      mortgage” problems and the potential of related fiscal difficulties that may be
      faced by some of the municipalities, educational institutions and companies
      in
      which we have investments, our investment portfolio could become impaired by
      the
      failure of such entities to repay principal upon maturity. Additionally, our
      cash flows and interest income could be negatively impacted by Federal Reserve
      Bank interest rate reductions.





**New
      Motion expects to record a significant amount of goodwill and other intangible
      assets in connection with its merger with Traffix, which may result in
      significant future charges against earnings if the goodwill and other intangible
      assets become impaired.**





In
      the
      accounting of the merger with Traffix, New Motion expects to allocate and record
      a large portion of the purchase price paid in the merger to goodwill and other
      intangible assets. Under SFAS No. 142, New Motion 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 will result in a charge against earnings,
      which could materially adversely affect New Motion’s results of operations in
      future periods.





**The
      integration of Traffix with New Motion following the merger may divert
      managements’ attention away from the day-to-day business of New Motion and
      negatively impact the combined business.**





The
      merger of Traffix and New Motion involves the integration of two companies
      that
      have previously operated independently with principal offices in two distinct
      locations. The combined company will be required to devote significant
      management attention and resources to integrate the two companies. Delays in
      this process could adversely affect the combined company’s business, financial
      results, financial condition and accordingly, its stock price. Even if New
      Motion and Traffix were able to integrate their business operations
      successfully, there can be no assurance that this integration will result in
      the
      realization of all of the synergies, cost savings, innovation and operational
      efficiencies that may be possible from this integration or that these benefits
      will be achieved within a reasonable period of time.





**New
      Motion may be impacted by the affects of a slow down of the United States
      economic environment and potential recession.**





The
      majority of the New Motion client audience are comprised of individuals
      dispersed throughout the United States that will be directly, and negatively
      impacted by increased mortgage payments, foreclosures and other factors arising
      out of a recessionary economy, and the results of the sub-prime mortgage
      problems, that restrict disposable income that is expended on our products
      and
      services. Should current expectations of a looming recession become fiscal
      fact,
      New Motion could be materially and adversely affected by reductions in revenue,
      and the corresponding negative impact on results of operations and financial
      condition.




40





**New
      Motion depends on a limited number of applications, products and services for
      a
      significant portion of its revenue.**





New
      Motion derives a significant portion of its revenue from a limited number of
      applications. In fiscal 2007 and 2006, the Company generated approximately
      19%
      and 26%, respectively, of its revenue from its Ringtone applications and
      approximately 33% and 70%, respectively of its revenue from its Trivia
      applications. As a percentage of New Motion’s net revenue for the year ended
      December 31, 2007, Bid4Prizes (“Interactive Contests”) generated approximately
      40% of the company’s net revenue and Gator Arcade (“Games”) 21%. New Motion
      expects to continue to derive a substantial portion of its revenues from
      Bid4Prizes and Gator Arcade and a limited number of other applications in the
      foreseeable future. Due to this dependence on a limited number of applications,
      the failure to achieve anticipated results with any one of these key
      applications may harm the Company’s business. Additionally, if New Motion cannot
      develop new applications that are as successful as its Bid4Prizes application,
      its future revenues could be limited and its business will suffer.





**New
      Motion will become subject to more stringent reporting and disclosure
      requirements as a result of its merger with Traffix, which could harm the
      combined company’s business.**





As
      a
      result of the completion of the merger with Traffix, the combined company will
      qualify as an “accelerated filer” for reporting purposes under the Securities
      Exchange Act of 1934, which requires the Company to file periodic reports and
      other documents on an accelerated timetable. Also, as a result of the merger,
      New Motion will no longer qualify as a small business issuer in subsequent
      reporting periods, and will be subject to more expanded and burdensome
      disclosure requirements with respect to any future reports or other documents
      filed with the Securities and Exchange Commission. Additionally, the merger
      significantly increases the complexity of the internal controls over financial
      reporting that the combined company will need, and significantly more resources
      will be required to ensure that these controls remain effective. Accordingly,
      as
      a result of the merger, the combined company will be subject to substantially
      more stringent and burdensome reporting and disclosure requirements, and
      complying with these requirements could be expensive and time consuming and
      could require significant management attention, which could substantially
      increase the Company’s expenses and harm its business.





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





Effective
      internal control over financial reporting is necessary for New Motion to provide
      reliable financial reports and effectively prevent fraud. Section 404 of the
      Sarbanes-Oxley Act of 2002 requires New Motion to evaluate and report on its
      internal control over financial reporting beginning with the Company’s Annual
      Report on Form 10-KSB for the fiscal year ending December 31, 2007. New Motion’s
      independent registered public accounting firm will need to annually attest
      to
      the Company’s evaluation, and issue their own opinion on the Company’s internal
      control over financial reporting beginning with the Company’s Annual Report on
      Form 10-KSB for the fiscal year ending December 31, 2008. The process of
      complying with Section 404 is expensive and time consuming, and requires
      significant management attention. New Motion cannot be certain that the measures
      it will undertake will ensure that the Company will maintain adequate controls
      over its financial processes and reporting in the future. Furthermore, if New
      Motion is able to rapidly grow its business, the internal controls over
      financial reporting that the Company will need will become more complex, and
      significantly more resources will be required to ensure that its internal
      controls over financial reporting remain effective. Failure to implement
      required controls, or difficulties encountered in their implementation, could
      harm New Motion’s operating results or cause the Company to fail to meet its
      reporting obligations. If New Motion or its auditors discover a material
      weakness in the Company’s internal control over financial reporting, the
      disclosure of that fact, even if the weakness is quickly remedied, could
      diminish investors’ confidence in New Motion’s financial statements and harm the
      Company’s stock price. In addition, non-compliance with Section 404 could
      subject the Company to a variety of administrative sanctions, including the
      suspension of trading, ineligibility for listing on one of the Nasdaq Stock
      Markets or national securities exchanges, and the inability of registered
      broker-dealers to make a market in the Company’s common stock, which would
      further reduce the Company’s stock price.




41





**Item
      7. FINANCIAL STATEMENTS**





**NEW
      MOTION, INC. AND SUBSIDIARY**





**CONSOLIDATED
      FINANCIAL STATEMENTS**





**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2007**








**TABLE
      OF CONTENTS**





Report
                of Independent Registered Public Accounting Firm
            F-1Consolidated
                Balance Sheet
            F-2Consolidated
                Statements of Operations
            F-3Consolidated
                Statements of Comprehensive Income (Loss)
            F-4Consolidated
                Statement of Stockholders’ Equity
            F-5Consolidated
                Statements of Cash Flows
            F-6Notes
                to the Consolidated Financial Statements
            F-7 –
                F-31





42


**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 each of the two years in the period
      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
      audits.





We
      conducted our audits 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 audits provide
      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 each of the two years
      in
      the period ended December 31, 2007, in conformity with accounting principles
      generally accepted in the United States of America.





/s/
              Windes & McClaughryWindes
                & McClaughry Accountancy CorporationIrvine,
                CaliforniaMarch
                31, 2008





F-1


**NEW
      MOTION, INC. AND SUBSIDIARY**





**CONSOLIDATED
      BALANCE SHEET**


**(in
      thousands, except share and per share amounts)**





**December
                31,****2007****ASSETS****CURRENT
                ASSETS**Cash
                and equivalents
            
            $
            7,612Marketable
                securities
            
            
            2,838Accounts
                receivable, net of allowance for doubtful accounts of $565
            
            
            8,389Other
                receivable
            
            
            722Prepaid
                income taxes
            
            
            780Prepaid
                expenses and other
            
            
            325Deferred
                income taxes
            
            
            45121,117**PROPERTY
                AND EQUIPMENT**
            
            
            860**OTHER
                ASSETS**Acquisition
                costs, net
            
            
            1,023Deposits
                and other assets
            
            
            57Deferred
                income taxes – non current
            
            
            307Intangible
                assets
            
            
            5991,986**TOTAL
                ASSETS**
            
            $
            23,963**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****CURRENT
                LIABILITIES**Accounts
                payable
            
            $
            3,257Accrued
                expenses
            
            
            3,720Short
                term notes payable
            
            
            89Line
                of credit
            
            
            107,076**LONG
                TERM LIABILITIES**Notes
                payable
            
            
            22Minority
                interest in consolidated joint venture
            
            
            283**COMMITMENTS
                AND CONTINGENCIES (Note 12)****STOCKHOLDERS'
                EQUITY**Common
                stock, par value $0.01, 100,000,000 authorized, 12,021,184 issued
                and
                outstanding
            
            
            120Additional
                paid-in capital
            
            
            19,583Accumulated
                other comprehensive loss
            
            
            (38
            )Retained
                earnings
            
            
            (3,083
            )16,582**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            $
            23,963





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




F-2




**NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **FOR
        THE YEARS ENDED DECEMBER 31,**
 **(in
        thousands, except share and per share amounts)**
 
 **2006**
              
              **2007****NET
                  SALES**
              
              $
              18,721
              
              $
              36,982**COST
                  OF SALES**
              
              
              597
              
              
              5,014**GROSS
                  PROFIT**
              
              
              18,124
              
              
              31,968**EXPENSES**Selling
                  and marketing
              
              
              11,971
              
              
              24,991General
                  and administrative
              
              
              4,679
              
              
              12,47616,650
              
              
              37,467**INCOME
                  (LOSS) FROM OPERATIONS**
              
              
              1,474
              
              
              (5,499
              )**OTHER
                  EXPENSE (INCOME)**Interest
                  income
              
              
              (14
              )
              
              (464
              )Interest
                  expense
              
              
              14
              
              
              22Other
                  expense, net
              
              
              89
              
              
              1289
              
              
              (430
              )**INCOME
                  (LOSS) BEFORE PROVISION****(BENEFIT) FOR INCOME TAXES AND****MINORITY INTEREST**
              
              
              1,385
              
              
              (5,069
              )**PROVISION
                  (BENEFIT) FOR INCOME TAXES**
              
              
              708
              
              
              (1,203
              )**INCOME
                  (LOSS) BEFORE MINORITY INTEREST**
              
              
              677
              
              
              (3,866
              )**MINORITY
                  INTEREST, NET OF INCOME TAXES**
              
              
              -
              
              
              283**NET
                  INCOME (LOSS)**
              
              $
              677
              
              $
              (4,149
              )**NET
                  INCOME (LOSS) PER SHARE:**Basic
              
              $
              0.09
              
              $
              (0.37
              )Diluted
              
              $
              0.09
              
              $
              (0.37
              )**WEIGHTED
                  AVERAGE SHARES OUTSTANDING:**Basic
              
              
              7,263,688
              
              
              11,331,260Diluted
              
              
              7,263,688
              
              
              11,331,260
  The
        accompanying notes are an integral part of these
        consolidated statements.
  F-3
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **CONSOLIDATED
        STATEMENTS OF COMPREHENSIVE INCOME (LOSS)**
 **FOR
        THE YEARS ENDED DECEMBER 31,**
 **(in
        thousands, except share and per share amounts)**
 
 **2006**
              
              **2007****NET
                  INCOME (LOSS)**
              
              $
              677
              
              $
              (4,149
              )**OTHER
                  COMPREHENSIVE LOSS, NET OF TAX:**Unrealized
                  loss on available-for-sale securities, net of income tax benefit
                  of
                  $24
              
              
              -
              
              
              (38
              )**COMPREHENSIVE
                  INCOME (LOSS)**
              
              $
              677
              
              $
              (4,187
              )
 
 The
        accompanying notes are an integral part of these consolidated
        statements.
 
 F-4
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **CONSOLIDATED
        STATEMENT OF STOCKHOLDERS' EQUITY**
 **FOR
        THE PERIOD FROM JANUARY 1, 2006 TO DECEMBER 31, 2007**
 **(in
        thousands, except share amounts)**
 
 **Accumulated**
              
              **Retained****Additional**
              
              **Other**
              
              **Earnings****Series
                  A**
              
              **Series
                  B**
              
              **Series
                  D**
              
              **Common**
              
              **Paid-In**
              
              **Comprehensive**
              
              **(Accumulated****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              **Loss**
              
              **Deficit)**
              
              **Total****Balance
                  at January 1, 2006**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **7,263,688**
              
              **$**
              **73**
              
              **$**
              **(63**
              **)**
              **$**
              **-**
              
              **$**
              **389**
              
              **$**
              **399**Stock-based
                  compensation expense
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              147
              
              
              -
              
              
              -
              
              
              147Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              677
              
              
              677**Balance
                  at December 31, 2006**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **7,263,688**
              
              
              **73**
              
              
              **84**
              
              
              **-**
              
              
              **1,066**
              
              
              **1,223**Financing
                  costs related toreverse
                  acquisition of MPLC
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (682
              )
              
              -
              
              
              -
              
              
              (682
              )Issuance
                  of Series A Preferred(See
                  Note 8)
              
              
              1
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,500
              
              
              -
              
              
              -
              
              
              3,500MPLC
                  Common Exchange (SeeNote
                  8)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              250,000
              
              
              3
              
              
              (3
              )
              
              -
              
              
              -
              
              
              -Issuance
                  of Series B Preferred(See
                  Note 8)
              
              
              -
              
              
              -
              
              
              650
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              6,500
              
              
              -
              
              
              -
              
              
              6,500Issuance
                  of Series D Preferred(See
                  Note 8)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              8,333
              
              
              1
              
              
              -
              
              
              -
              
              
              9,999
              
              
              -
              
              
              -
              
              
              10,000Equity
                  issuance costs related toissuance
                  of preferred stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,566
              )
              
              -
              
              
              -
              
              
              (1,566
              )Value
                  of warrants issued(See
                  Note 11)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              57
              
              
              -
              
              
              -
              
              
              57Reverse
                  Split and conversion(See
                  Note 8)
              
              
              (1
              )
              
              -
              
              
              (650
              )
              
              -
              
              
              (8,333
              )
              
              (1
              )
              
              4,166,658
              
              
              42
              
              
              (41
              )
              
              -
              
              
              -
              
              
              -Conversion
                  of IVG Note(See
                  Note 3)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              172,572
              
              
              1
              
              
              592
              
              
              -
              
              
              -
              
              
              593Issuance
                  of shares for odd lotrounding
                  after Reverse Split (See Note 8)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              112,578
              
              
              1
              
              
              (1
              )
              
              -
              
              
              -
              
              
              -Exercise
                  of stock options
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              55,688
              
              
              -
              
              
              27
              
              
              -
              
              
              -
              
              
              27Stock-based
                  compensation expense
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,117
              
              
              -
              
              
              -
              
              
              1,117Unrealized
                  loss on investments, net of tax benefit of $24
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (38
              )
              
              -
              
              
              (38
              )Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (4,149
              )
              
              (4,149
              )**Balance
                  at December 31, 2007**
              
              
              **-**
              
              **$**
              **-**
              
              
              **-**
              
              **$**
              **-**
              
              
              **-**
              
              **$**
              **-**
              
              
              **12,021,184**
              
              **$**
              **120**
              
              **$**
              **19,583**
              
              **$**
              **(38**
              **)**
              **$**
              **(3,083**
              **)**
              **$**
              **16,582**
 
 The
        accompanying notes are an integral part of these consolidated
        statements.
 
 F-5
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **CONSOLIDATED
        STATEMENT OF CASH FLOWS**
 **FOR
        THE YEARS ENDED DECEMBER 31,**
 **(in
        thousands)**
 
 **2006**
              
              **2007****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  income (loss)
              
              $
              677
              
              $
              (4,149
              )Adjustments
                  to reconcile net income (loss) to net cash from operating
                  activities:Allowance
                  for doubtful accounts
              
              
              228
              
              
              (698
              )Depreciation
                  and amortization
              
              
              25
              
              
              1,349Stock-based
                  compensation expense
              
              
              147
              
              
              1,117Deferred
                  income taxes
              
              
              183
              
              
              (1,149
              )Minority
                  interest in net income of consolidated joint venture, net of income
                  tax
              
              
              -
              
              
              283Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (2,388
              )
              
              (4,164
              )Other
                  receivable
              
              
              -
              
              
              (722
              )Prepaid
                  income taxes
              
              
              (578
              )
              
              (202
              )Prepaid
                  expenses
              
              
              (124
              )
              
              (148
              )Deposits
                  and other assets
              
              
              (5
              )
              
              (10
              )Accounts
                  payable
              
              
              2,129
              
              
              387Accrued
                  expenses
              
              
              637
              
              
              2,896Net
                  Cash Provided By (Used In) Operating Activities
              
              
              931
              
              
              (5,210
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Expenditures
                  for Mobliss transaction
              
              
              (123
              )
              
              (1,048
              )Purchase
                  of property and equipment
              
              
              (77
              )
              
              (266
              )Acquisition
                  of Katazo assets
              
              
              -
              
              
              (970
              )Purchase
                  of marketable securities
              
              
              -
              
              
              (3,000
              )Proceeds
                  from sale of marketable securities
              
              
              -
              
              
              100Net
                  Cash Used In Investing Activities
              
              
              (200
              )
              
              (5,184
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Issuance
                  of warrants
              
              
              -
              
              
              57Issuance
                  of stock
              
              
              -
              
              
              18,461Expenditures
                  for equity financing
              
              
              (213
              )
              
              (469
              )Line
                  of credit
              
              
              -
              
              
              10Repayment
                  of notes payable
              
              
              (324
              )
              
              (597
              )Net
                  Cash Provided By (Used In) Financing Activities
              
              
              (537
              )
              
              17,462**NET
                  CHANGE IN CASH AND CASH EQUIVALENTS**
              
              
              194
              
              
              7,068**CASH
                  AND CASH EQUIVALENTS AT BEGINNING OF PERIOD**
              
              
              350
              
              
              544**CASH
                  AND CASH EQUIVALENTS AT END OF PERIOD**
              
              $
              544
              
              $
              7,612**SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATION**Cash
                  paid for interest
              
              $
              (20
              )
              $
              (22
              )Cash
                  (paid) refunded for taxes, net of refunds of $0 and taxes paid of
                  $56
              
              $
              (949
              )
              $
              145Non-cash
                  financing and investing disclosure (certain non-cash transactions
                  are
                  disclosed in the financial statement footnotes)Acquisition
                  of intangible assets by issuance of note payable
              
              $
              -
              
              $
              (580
              )Acquisition
                  of equipment by issuance of note payable
              
              $
              -
              
              $
              (708
              )Extinguishment
                  of note payable and accrued interest upon conversion of note payable
                  into
                  common stock
              
              $
              -
              
              $
              593
 
 The
        accompanying notes are an integral part of these consolidated
        statements.
 
 F-6
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
        1 – Background and History**
 
 ***Background***
 New
        Motion, Inc. (“New Motion” or the “Company”) is a digital entertainment company
        headquartered in Irvine, California. The Company provides a wide range of
        digital entertainment products and services, using the power of the Internet,
        the latest in mobile technology, and traditional marketing/advertising
        methodologies. The Company’s product and service portfolio includes contests,
        games, ringtones, screensavers and wallpapers, trivia applications, fan clubs
        and voting services, blogs and information services. New Motion’s business is
        focused on services in the following categories within one operating segment
—
digital music, casual games, interactive contests and communities and
        lifestyles. These services consist of a broad array of properties, including
        Bid4Prizes, a low-bid mobile auction game and GatorArcade, a premium online
        and
        mobile gaming site. Other brands include iMatchup, a mobile dating service
        and
        MP3Giveaway, a digital music site. New Motion focuses on selectively increasing
        its application portfolio with high-quality, innovative applications. New
        Motion’s growing portfolio of applications and services are based primarily on
        internally generated content, such as Bid4Prizes and GatorArcade. Internally
        generated content generates the majority of the Company’s revenue. The Company
        also licenses some identifiable content, such as ringtones, wallpapers and
        images from third parties to whom it generally pays a licensing fee on a
        per-download basis. The Company generates revenue on a subscription basis.
        The
        monthly end user subscription fees for the Company’s wireless entertainment
        products and services generally range from $3.99 to $9.99.
 
 ***History***
 New
        Motion, Inc., 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 this 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 was formed in March 2005 and subsequently acquired the business
        of
        RingtonChannel, an Australian aggregator of ringtones in June 2005.
        RingtoneChannel was originally incorporated on February 23, 2004. In 2004,
        RingtoneChannel 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. In March of 2006, New Motion Mobile partnered
        with
        GoldPocket Wireless, now Motricity, a leading provider of mobile technology
        solutions for media and entertainment companies, to enhance the proficiency
        and
        performance of its mobile service offering.
 
 On
        October 24, 2006, New Motion (then known as MPLC, Inc.) and certain stockholders
        entered into a Common Stock Purchase Agreement with Trinad Capital Master
        Fund,
        Ltd. (“Trinad”), pursuant to which New Motion agreed to redeem 23,448,870 shares
        of New Motion’s common stock from existing stockholders and sell an aggregate of
        69,750,000 shares of New Motion’s common stock, representing 93% of New Motion’s
        issued and outstanding shares of common stock, to Trinad in a private placement
        transaction for aggregate gross proceeds of $750,000.
 
 On
        January 19, 2007, New Motion Mobile entered into an agreement with Index
        Visual
& Games, Ltd. (“IVG”) to purchase certain specified assets of Mobliss, a
        provider of proprietary applications, delivery systems, and platforms for
        wireless devices. In return for these assets, New Motion Mobile issued to
        IVG a
        convertible promissory note (the “IVG Note”). Mobliss has direct networking and
        billing connectivity with carriers for executing large-scale SMS campaigns
        and
        distributing mobile content to a wide array of mobile devices across multiple
        carrier networks in the U.S. and Canada. The primary strategic objective
        of this
        purchase was to allow New Motion to more efficiently manage its business
        and
        operations by enabling it to directly bill and collect from mobile carriers,
        thus eliminating the fees associated with using third party billing processors
        and expediting the collection of open carrier receivables. This purchase
        is
        expected to enable New Motion to better serve its customers and end users
        by
        expediting the time in which it reacts to changes in the marketplace. During
        the
        fourth quarter of 2007, New Motion allocated a portion of Cingular / AT&T
        new subscriber message traffic onto the acquired assets and developed
        technology, and expects to continue to allocate Cingular / AT&T traffic, at
        a manageable rate, through this system.
  F-7
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 Also
        on
        January 19, 2007, New Motion Mobile entered into an agreement with IVG to
        create
        an Asian-themed mobile entertainment portal, the first major endeavor of
        its
        kind in the North American off-deck arena. This new direct-to-consumer service
        provides an opportunity for New Motion to tap into a new market with
        Asian-themed content, delivering sophisticated mobile products. The joint
        venture was registered under the name The Mobile Entertainment Channel
        Corporation (“MECC”) and was established to assist New Motion in expanding its
        service offerings by partnering with IVG, a leading global player in the
        interactive games and mobile space. As of the end of 2007, New Motion was
        evaluating services and content to be offered by MECC.
 
 In
        February, 2007, New Motion Mobile completed an exchange transaction (the
        “Exchange”) pursuant to which it merged with a publicly traded company, MPLC,
        Inc., so that New Motion Mobile became a publicly traded company. In connection
        with the Exchange, MPLC, Inc. (now called New Motion, Inc.) raised gross
        proceeds of approximately $20 million in equity financing through the sale
        of
        its Series A Preferred Stock, Series B Preferred Stock and Series D Preferred
        Stock.
 
 After
        receiving approval by written consent of holders of a majority of all classes
        of
        its common and preferred stock and the approval of such holders voting together
        and as a single class, on May 2, 2007, MPLC, Inc. filed a certificate of
        amendment to its restated certificate of incorporation with the Delaware
        Secretary of State to effect the following corporate actions: (i) increase
        the
        authorized number of shares of its Common Stock from 75,000,000 to 100,000,000,
        (ii) change its corporate name to New Motion, Inc. from MPLC, Inc., and (iii)
        effect a 1-for-300 reverse split. 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.
 
 On
        April
        1, 2007, New Motion entered into a Binding Letter of Intent (the “LOI”) with
        Opera Telecom USA (“Opera”) pursuant to which the Company purchased: (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. New Motion purchased the assets
        for $970,000 in cash. The closing of the asset purchase occurred on May 25,
        2007. New Motion is actively operating the acquired Katazo assets and
        maintaining the respective websites, and is continuing to generate revenue
        from
        these assets.
 
 In
        accordance with the terms of the IVG Note, on June 15, 2007, IVG converted
        all
        outstanding principal and accrued interest on the IVG Note into 172,572 shares
        of common stock at a conversion price of $3.44 per share, the fair market
        value
        of the Company’s stock on the date of issuance of the IVG Note.
 
 On
        September 26, 2007, New Motion executed a definitive Agreement and Plan of
        Merger (the “Merger Agreement”) with Traffix, and NM Merger Sub, a Delaware
        corporation and wholly-owned subsidiary of New Motion (“Merger Sub”), pursuant
        to which the Merger Sub would merge with and into Traffix, the separate
        existence of Merger Sub would cease, and Traffix would continue as the surviving
        corporation in the merger, thus becoming a wholly-owned subsidiary of New
        Motion
        (the “Merger”).
 
 On
        February 4, 2008, New Motion completed its merger with Traffix (see Note
        14),
        pursuant to the 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.”
See Note 14, “Subsequent Events,” for details of the expected accounting
        treatment and purchase price allocation surrounding the Merger.
 
 In
        February, 2008, the Company’s newly comprised board of directors approved
        management’s combined company operating budget to assist in the integration and
        reorganization of the combined enterprise arising from the recently completed
        merger. Management intends to integrate both companies by maximizing certain
        operational efficiencies, while also positioning the group for sustained,
        profitable growth, as a leader in the mobile entertainment and performance-based
        online marketing industry. Also in February, the board of directors unanimously
        approved a change in the Company’s name from New Motion, Inc. to Atrinsic, Inc.
        (“Atrinsic”), subject to shareholder approval.
  F-8
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
        2 - Summary of Significant Accounting Policies**
 
 ***Principles
        of Consolidation***
 The
        consolidated financial statements include the accounts of RingtoneChannel
        from
        its inception in February 2004 and the accounts of New Motion Mobile from
        its
        inception in March 2005. All significant intercompany balances and transactions
        have been eliminated in consolidation. New Motion has focused its efforts
        on the
        high-growth opportunities in the United States market with less focus on
        the
        international market that was historically Ringtone Channel’s business. As such,
        by September 2006, the operations of RingtoneChannel were essentially blended
        into the operations of New Motion Mobile and New Motion began the process
        for
        the eventual dissolution of the RingtoneChannel legal entity.
 
 Beginning
        in the first quarter of 2007, New Motion’s consolidated financial statements
        also include the accounts of its joint venture. On January 19, 2007, New
        Motion
        entered into a Heads of Agreement with IVG, setting forth the terms of the
        joint
        venture to distribute IVG content within North America and to manage and
        service
        the Mobliss assets acquired from IVG. In accordance with FASB Interpretation
        No.
        46(R), “Consolidation of Variable Interest Entities (revised December 2003) - an
        interpretation of ARB No. 51,” the results of MECC have been consolidated with
        New Motion’s accounts because New Motion (i) currently controls the joint
        venture’s activities, (ii) will share equally in any dividends or other
        distributions made by the joint venture, and (iii) expects to fund the joint
        venture and absorb the expected losses for the foreseeable future. New Motion
        owns a 49% stake and IVG owns a 51% stake in the joint venture. As a result
        of
        the consolidation, the minority interest liability on New Motion’s balance sheet
        represents IVG’s interest in the operating results of the joint venture. See
        Note 3, “Transactions with IVG,” for further details of the MECC joint
        venture.
 
 ***Use
        of Estimates***
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities, and disclosure of contingent assets and liabilities at the date
        of
        the financial statements, and the reported amounts of revenues and expenses
        during the reporting period. Significant estimates and assumptions made by
        management are, among others, the recognition of revenue and related chargebacks
        and other credits, realizability of accounts receivable, recoverability of
        long-lived assets, valuation of stock options and deferred taxes. Actual
        results
        could materially differ from those estimates.
 ***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 a company in deciding how to allocate
          resources and in assessing performance. The Company’s chief operating decision
          maker assesses the Company’s performance, and allocates its resources as a
          single operating segment.
  ***Risks
        and Uncertainties***
 New
        Motion operates in industries that are subject to intense competition,
        government regulation and rapid technological change. New Motion’s operations
        are subject to significant risks and uncertainties including financial,
        operational, technological, regulatory and other risks associated with an
        operating business, including the potential risk of business failure.
 
 ***Fair
        Value of Financial Instruments***
 Except
        for marketable securities, the carrying amounts of current assets and
        liabilities are carried at historical value. Due to the relatively short
        maturity of these items, historical values are a reasonable estimate of their
        fair values. The carrying value of long term notes payable is equivalent
        to its
        fair value because the interest rate on these notes is comparable to prevailing
        market rates for similar debt securities. For more information concerning
        marketable securities, see Note 2, “Marketable Securities.”
 
 ***Foreign
        Currency Risk***
 New
        Motion has conducted a small amount of sales activity in Australia which
        is
        collected by its billing partner in Australian currency and remitted to New
        Motion in the U.S. In addition, New Motion’s subsidiary in Australia conducted
        its business in its local currency. New Motion has experienced insignificant
        foreign exchange gains and losses to date without engaging in any hedging
        activities.
 
 New
        Motion’s foreign operations’ functional currency is the applicable local
        currency. 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 year. Translation
        gains and losses have historically been insignificant and, as a result, these
        gains or losses are reflected in the statement of operations rather than
        comprehensive income
        (loss).
  F-9
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 ***Concentration
        of Business and Credit Risk***
 New
        Motion is currently utilizing several billing partners in order to provide
        content and subsequent billings to its customers. 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
        market place, due to a constant evolving business environment that stems
        from
        the infancy of the U.S. mobile content industry.
 
 The
        following table reflects the concentration of sales and accounts receivable
        with
        these billing aggregators:
 
 **For
                  the Years****Ended
                  December 31,****2006**
              
              **2007****Sales**Customer
                  A
              
              
              34
              %
              
              6
              %Customer
                  B
              
              
              6
              %
              
              -
              %Customer
                  C
              
              
              60
              %
              
              87
              %Other
                  Customers
              
              
              -
              %
              
              7
              %**As of**
              
              
              **As of****December 31,**
              
              
              **December 31,****2006**
              
              
              **2007****Accounts
                  receivable**Customer
                  A
              
              
              18
              %
              
              6
              %Customer
                  B
              
              
              11
              %
              
              -
              %Customer
                  C
              
              
              70
              %
              
              81
              %Other
                  Customers
              
              
              1
              %
              
              13
              %
 During
          the year ended December 31, 2007, we billed approximately 87% of our revenue
          through aggregation services provided by Motricity, Inc., formerly known
          as
          Goldpocket Wireless, Inc. (“Motricity”) and 6% of our revenue through aggregator
          Mobile Messenger Pty Ltd (“Mobile Messenger”). During the year ended December
          31, 2006, we billed approximately 60% of our revenue through aggregation
          services provided Motricity and 34% of our revenue through aggregator Mobile
          Messenger. Management believes that other aggregators could provide the
          Company
          with similar services with little, if any, impact on the Company’s
          operations.
  ***Marketable
        Securities***
 The
        Company considers all highly liquid debt instruments purchased with a maturity
        of three months or less to be cash equivalents. The Company determines the
        appropriate classification of its investments in debt and equity securities
        at
        the time of purchase and reevaluates such determinations at each balance-sheet
        date. Debt securities for which the Company does not have the intent or ability
        to hold to maturity are classified as available for sale and are carried
        at fair
        market value, with the unrealized gains and losses, net of tax, included
        in the
        determination of other comprehensive income and reported in stockholders’
equity. All of the Company’s marketable securities at December 31, 2007 have
        been classified as available for sale.
 
 The
        fair
        value of substantially all securities is determined by quoted market prices.
        The
        Company’s marketable securities consist primarily of perpetual or long maturity
        date preferred stock, and thus are classified as equity securities available
        for
        sale and are included in current assets because the investments will likely
        be
        sold prior to maturity. The Company’s unrealized losses on investments at
        December 31, 2007 totaled $38,000, net of tax benefit of $24,000. The Company
        had no investments in securities at December 31, 2006. The Company had net
        realized losses on sales of securities totaling approximately zero for the
        year
        ended December 31, 2007.
  F-10
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 Investments
        in securities at December 31, 2007 were as follows:
  **Aggregate**
                **Fair Value**
              
              **Cost**
                **Basis**
              
              **Unrealized**
                **Gain / (Loss)**Marketable
                  equity securities
              
              $
              2,838,000
              
              $
              2,900,000
              
              $
              (62,000
              )
 
 ***Accounts
        Receivable***
 Accounts
        receivable are stated at the amount management expects to collect from
        outstanding balances. New Motion makes estimates for future refunds, charge
        backs or credits, and provides for these probable uncollectible amounts through
        a credit to a valuation allowance and a reduction of recorded revenues in
        the
        period for which the sale occurs based on analyses of previous rates and
        trends,
        which have historically varied between zero and 17% of gross revenue. This
        reserve is reconciled once a carrier remits total payment to the New Motion’s
        aggregator, who subsequently remits payments to New Motion, usually between
        45
        to 180 days after billing. Balances that are still outstanding and deemed
        uncollectible after management has performed this reconciliation are written
        off
        through a charge to the valuation allowance and a credit to trade accounts
        receivable.
 
 Due
        to
        the payment terms of the carriers requiring in excess of 60 days from the
        date
        of billing or sale, New Motion utilizes factoring facilities offered by its
        aggregators. This factoring feature allows for payment of 70% of the prior
        month's billings 15 to 20 days after the end of the month. For this feature,
        New
        Motion pays an additional fee of 2.5% to 5% of the amount factored. For the
        year
        ended December 31, 2007, the gross amount of invoices subject to factoring
        totals approximately $35,496,000. The total factored amount of these invoices
        equals approximately $22,358,000. As of December 31, 2007, New Motion had
        reserves and allowances of approximately $565,000 against these factored
        amounts. This compares to $19,818,000 of gross invoices subject to factoring
        for
        year ended December 30, 2006, of which the total factored amount of these
        invoices equaled approximately $11,724,000. This factoring facility is offered
        on a recourse basis. Gross sales for each month are reported net of any of
        these
        factoring fees. New Motion believes that the reserve established against
        the
        accounts receivable balance is adequate to cover any credits and charge backs
        from the carrier and that New Motion will not be required to repay any amounts
        to the aggregator.
 
 ***Property
        and Equipment***
 New
        Motion provides for depreciation using the straight-line method over the
        estimated useful lives of its property and equipment, ranging from three
        to five
        years. Repairs and maintenance expenditures that do not significantly add
        value
        to property and equipment, or prolong its life, are charged to expense, as
        incurred. Gains and losses on dispositions of property and equipment are
        included in the operating results of the related period.
 
 ***Intangible
        Assets Measurement and Recognition***
 For
        intangible assets acquired, in accordance with SFAS No. 142, “Goodwill and Other
        Intangible Assets,” New Motion recognizes and measures the intangible asset
        acquired based on its fair value, or in the case of a group of intangible
        assets
        acquired, based on each asset’s relative fair value. New Motion uses a range of
        valuation methodologies, including performing discounted cash flow analysis,
        to
        value acquired intangible assets. 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 our
        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.
 
 ***Impairment
        of Long-Lived Assets***
 Long-lived
        assets, such as property and equipment subject to amortization, are reviewed
        for
        impairment whenever events or changes in circumstances indicate that the
        carrying amount of an asset may not be recoverable. Assets to be disposed
        of, if
        any, would be separately presented in the balance sheet and reported at the
        lower of the carrying amount or fair value less costs to sell, and are no
        longer
        depreciated. For each of the periods reported herein, New Motion’s management
        believes there is no impairment of its long-lived assets. There can be no
        assurance, however, that market conditions will not change or demand for
        New
        Motion’s services will continue which could result in impairment of long-lived
        assets in the future.
  F-11
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 ***Stock-Based
        Compensation***
 New
        Motion has historically utilized the fair value method of recording stock-based
        compensation as contained in Statement of Financial Accounting Standards
        (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended,
        whereby, compensation expense is measured at the grant dated based on the
        value
        of the award and is recognized over the service period, which is usually
        the
        vesting period. The fair value of stock options is estimated on the grant
        date
        using the Black-Scholes option pricing model.
 
 In
        December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
        123 (revised 2004), “Share-Based Payment,” (“SFAS No. 123(R)”), which is a
        revision of SFAS No. 123. SFAS No. 123(R) supersedes Accounting Principles
        Board
        Opinion No. 25, “Accounting for Stock Issued to Employees” and amends SFAS No.
        95, “Statement of Cash Flows.” Generally, the approach in SFAS No.123(R) is
        similar to the approach described in SFAS No. 123. However, SFAS No. 123(R)
        requires all share-based payments to employees, including grants of employee
        stock options, to be recognized in the income statement based on their fair
        values. Pro forma disclosure is no longer an alternative. SFAS No. 123(R)
        also
        establishes accounting requirements for measuring, recognizing and reporting
        share-based compensation, including income tax considerations. One such change
        was the elimination of the minimum value method, which under SFAS No. 123
        permitted the use of zero volatility when performing Black-Scholes valuations.
        Under SFAS No. 123(R), companies are required to use expected volatilities
        derived from the historical volatility of the company’s stock, implied
        volatilities from traded options on the company’s stock and other factors. SFAS
        No. 123(R) also requires the benefits of tax deductions in excess of recognized
        compensation cost to be reported as a financing cash flow, rather than as
        an
        operating cash flow as required under current accounting literature.
 
 The
        provisions of SFAS No. 123(R) were effective for and adopted by New Motion
        as of
        January 1, 2006. As the Company was using the fair market value accounting
        for
        stock based compensation pursuant to SFAS No. 123, the adoption of SFAS No.
        123(R) was made using the modified prospective method. Under the modified
        prospective application, the cost of new awards and awards modified, repurchased
        or cancelled after the required effective date and the portion of awards
        for
        which the requisite service has not been rendered (unvested awards) that
        are
        outstanding as of the required effective date will be recognized as the
        requisite service is rendered on or after the required effective date. The
        compensation cost for that portion of awards shall be based on the grant-date
        fair value of those awards as calculated under SFAS No. 123.
 
 Since
        New
        Motion had previously recorded stock compensation expense under the fair
        value
        method prescribed by SFAS No. 123, the adoption of SFAS No. 123(R) did not
        have
        a significant impact on New Motion’s results of operations, income taxes or
        earnings per share.
 
 New
        Motion estimates stock option forfeiture rates based on historical trends
        of its
        employees.
 
 ***Revenue
        Recognition***
 New
        Motion recognizes revenue from the sale or subscription of its applications
        to
        wireless subscribers under distribution agreements with wireless carriers
        and
        other distributors in the period in which the applications are purchased
        or over
        the period in which the applications are subscribed, assuming that: fees
        are
        fixed and determinable; we have no significant obligations remaining; and
        collection of the related receivable is reasonably assured. The Company makes
        estimates and creates reserves for future refunds, charge backs or credits
        in
        the period for which the sale occurs based on analyses of previous rates
        and
        trends, which have historically varied between zero and 17% of gross revenue.
        This reserve is reconciled once a carrier remits total payment to the Company’s
        aggregator, who subsequently remits payment usually 45 to 180 days after
        billing. Management reviews the revenue by carrier on a monthly basis and
        gross
        billings on a daily basis to identify unusual trends that could indicate
        operational, carrier or market issues which could lead to a material
        misstatement in any reporting period. Additionally, on a weekly basis,
        management monitors cash settlements made by carriers to the aggregators.
        New
        Motion’s policy is to record differences between recognized revenues and actual
        revenue in the next reporting period once the actual amounts are determined.
        To
        date, differences between estimates and ultimate reconciled revenues have
        not
        been significant.
 
 Revenue
        earned from certain aggregators may not be reasonably estimated. In these
        situations, New Motion’s policy is to recognize revenue upon the receipt of a
        carrier revenue report, which usually is received just prior to actual cash
        collection (i.e., on a cash basis). These revenue amounts are not significant.
  F-12
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 In
        accordance with Emerging Issues Task Force (“EITF”) No. 99-19, “Reporting
        Revenue Gross as a Principal Versus Net as an Agent,” New Motion recognizes as
        revenue the net amount the wireless carrier or distributor pays to New Motion
        upon the sale of applications, net of any service or other fees earned and
        deducted by the wireless carrier or distributor. New Motion has evaluated
        its
        wireless carrier and distributor agreements and has determined that it is
        not
        the principal when selling its applications through wireless
        carriers.
 
 ***Software
        Development Costs***
 New
        Motion accounts for software development costs in accordance with SFAS No.
        86,
“Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
        Marketed.” Costs incurred in the research and development of software products
        and enhancements to existing software products are expensed until the time
        when
        technological feasibility is established. Costs incurred from that point
        through
        the point the product is available for general release to customers are
        capitalized. Under New Motion’s current practice of developing new applications,
        the technological feasibility of the underlying software is not established
        until substantially all product development is complete, which generally
        includes the development of a working model. As a result, to date, New Motion
        has not capitalized any costs relating to its application development because
        the costs incurred after the establishment of technological feasibility of
        applications have not been significant.
 
 ***Advertising
        and Marketing Expense***
 New
        Motion expenses advertising and marketing costs as incurred. For the years
        ended
        December 31, 2006 and 2007, advertising and marketing expenses were $11,971,000
        and $24,991,000, respectively.
 
 ***Accumulated
        Other Comprehensive Income (Loss)***
 Comprehensive
        income consists of net income and other gains and losses affecting stockholders’
equity that, under generally accepted accounting principles are excluded
        from
        net income. For the year ended December 31, 2007, the Company’s accumulated
        other comprehensive loss consisted of unrealized losses on marketable
        securities, net of applicable taxes.
 
 ***Income
        Taxes***
 Income
        taxes are accounted for under the asset and liability method. Deferred tax
        assets and liabilities are recognized for the future tax consequences
        attributable to differences between the financial statement carrying amounts
        of
        assets and liabilities and their respective tax bases. Deferred tax assets
        and
        liabilities are measured using enacted tax rates expected to apply to taxable
        income in the years in which those temporary differences are expected to
        be
        recovered or settled. The effect on deferred tax assets and liabilities of
        a
        change in tax rates is recognized in the period that includes the enactment
        date.
 
 In
        assessing the realization of deferred tax assets, management weighs the positive
        and negative evidence to determine if it is more likely than not that some
        or
        all of the deferred tax assets will be realized. The ultimate realization
        of
        deferred tax assets is dependent upon the generation of future taxable income
        in
        the appropriate tax jurisdiction.
 
 New
        Motion's estimate of the value of its tax reserves contains assumptions based
        on
        past experiences and judgments about the interpretation of statutes, rules
        and
        regulations by taxing jurisdictions. It is possible that the ultimate resolution
        of these matters may be greater or less than the amount that New Motion
        estimated. If payment of these amounts proves to be unnecessary, the reversal
        of
        the liabilities would result in tax benefits being recognized in the period
        in
        which it is determined that the liabilities are no longer necessary. If the
        estimate of tax liabilities proves to be less than the ultimate assessment,
        a
        further charge to expense would result.
 
 In
        June
        2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
        in
        Income Taxes -an interpretation of FASB Statement No. 109," which clarifies
        the
        accounting for uncertainty in income taxes recognized in an enterprise's
        financial statements in accordance with SFAS No. 109, "Accounting for Income
        Taxes." This Interpretation prescribes a comprehensive model for how a company
        should recognize, measure, present and disclose in its financials statements
        uncertain tax positions that it has taken or expects to take on a tax return,
        including a decision whether to file or not to file a return in a particular
        jurisdiction. Under the Interpretation, the financial statements must reflect
        expected future tax consequences of these positions presuming the taxing
        authorities' full knowledge of the position and all relevant facts. The
        Interpretation also revises disclosure requirements and introduces a
        prescriptive, annual, tabular roll-forward of the unrecognized tax benefits.
        This Interpretation is effective for fiscal years beginning after December
        15,
        2006.
  F-13
 
 **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 New
        Motion and its subsidiaries file income tax returns in the U.S., Australia
        and
        California. New Motion is subject to U.S. and Australia federal examinations
        and
        California state examinations by tax authorities. The statute of limitations
        for
        2005 and 2006 in all jurisdictions remains open and are subject to examination
        by tax authorities.
 
 New
        Motion adopted the provisions of FASB Interpretation No. 48, Accounting for
        Uncertainty in Income Taxes, on January 1, 2007. As a result of the
        implementation of Interpretation 48, New Motion did not recognize any liability
        for unrecognized tax benefits. New Motion does not have any unrecognized
        tax
        benefits as of December 31, 2007.
 
 New
        Motion does not have any highly certain timing differences where the deduction
        is certain, but the timing is not. Because of the impact of deferred tax
        accounting, other than interest and penalties, the disallowance of the shorter
        deductibility period would not affect the annual effective tax rate but would
        accelerate the payment of cash to taxing authorities to an earlier period.
        New
        Motion also has no unrecognized tax benefits in the balance at December 31,
        2007, that if recognized, would impact the effective tax rate.
 
 New
        Motion recognizes interest and penalties accrued related to unrecognized
        tax
        benefits in income tax expense. The Company had no amount accrued for the
        payment of interest and penalties accrued as of either January 1, 2007, or
        as of
        December 31, 2007.
 
 For
        the
        year ended December 31, 2007, New Motion has a benefit for income taxes of
        approximately $1,203,000. This represents a tax benefit for New Motion of
        $1,494,000, offset by a tax provision of $291,000 for its consolidated joint
        venture entity, MECC. For year ended December 21, 2006, New Motion had a
        provision for income taxes of approximately $708,000.
 
 ***Earnings
        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.
 
 ***New
        Accounting Pronouncements***
 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. may have its consolidated financial
        statements.
  F-14
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 In
        December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
        Combinations” (SFAS No. 141(R)), which replaces SFAS No. 141, “Business
        Combinations” (SFAS No. 141). SFAS No. 141(R) retains the underlying concepts of
        SFAS No. 141 in that all business combinations are still required to be
        accounted for at fair value under the acquisition method of accounting but
        SFAS
        No. 141(R) changed the method of applying the acquisition method in a number
        of
        significant aspects. Acquisition costs will generally be expensed as incurred;
        noncontrolling interests will be valued at fair value at the acquisition
        date;
        in-process research and development will be recorded at fair value as an
        indefinite-lived intangible asset at the acquisition date; restructuring
        costs
        associated with a business combination will generally be expensed subsequent
        to
        the acquisition date; and changes in deferred tax asset valuation allowances
        and
        income tax uncertainties after the acquisition date generally will affect
        income
        tax expense. SFAS No. 141(R) is effective on a prospective basis for all
        business combinations for which the acquisition date is on or after the
        beginning of the first annual period subsequent to December 15, 2008. Early
        adoption is not permitted. SFAS No. 141(R) will not impact any historical
        balances or acquisitions completed prior to December 31, 2008. However for
        acquisitions occurring after January 1, 2009, the Company will be required
        to
        expense all acquisition related costs in the period in which they occur,
        which
        historically have been included in goodwill.
 
 In
        February 2007, FASB issued FAS No. 159, “The Fair Value Option for Financial
        Assets and Financial Liabilities” (“FAS 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. FAS 159 is effective for financial statements issued
        for
        fiscal year beginning after November 15, 2007. New Motion does not expect
        adoption of FAS 159 will have a material impact on our consolidated results
        of
        operations or financial position.
 
 In
        December 2006, the FASB issued FASB Staff Position EITF 00-19-2, “Accounting for
        Registration Payment Arrangements” (“ FSP EITF 00-19-2”). FSP EITF 00-19-2
        specifies that the contingent obligation to make future payments or otherwise
        transfer consideration under a registration payment arrangement, whether
        issued
        as a separate agreement or included as a provision of a financial instrument
        or
        other agreement, should be separately recognized and measured in accordance
        with
        SFAS No. 5, “Accounting for Contingencies.” FSP EITF 00-19-2 further clarifies
        that a financial instrument subject to a registration payment arrangement
        should
        be accounted for in accordance with other applicable GAAP without regard
        to the
        contingent obligation to transfer consideration pursuant to the registration
        payment arrangement. FSP EITF 00-19-2 is effective for registration payment
        arrangements and the financial instruments subject to those arrangements
        that
        are entered into or modified subsequent to December 21, 2006. For registration
        payment arrangements and financial instruments subject to those arrangements
        that were entered into prior to the issuance of FSP EITF 00-19-2, the standard
        is effective for financial statements issued for fiscal years beginning after
        December 15, 2006, and interim periods within those fiscal years. Early adoption
        for interim or annual periods for which financial statements or interim reports
        have not been issued is permitted. New Motion does not expect adoption of
        FSP
        EITF 00-19-2 will have a material impact on its consolidated results of
        operations or financial position.
  **NOTE
        3 – Transactions with IVG**
 
 ***Purchase
        of Mobliss Assets and IVG Note***
 On
        January 19, 2007, New Motion entered into an Asset Purchase Agreement with
        IVG,
        pursuant to which the New Motion purchased from IVG certain mobile associated
        assets of Mobliss. These assets do not constitute substantially all of the
        assets or the ongoing business of Mobliss and thus will be accounted for
        at cost
        consistent with the purchase of specific assets and not the acquisition of
        a
        business. New Motion purchased the assets specified in the Asset Purchase
        Agreement through the issuance to IVG of the IVG Note with an aggregate
        principal amount of up to $2,320,000. Pursuant to the terms of the Asset
        Purchase Agreement, on January 19, 2007, New Motion consummated the initial
        closing of the acquisition wherein New Motion issued the IVG Note in the
        principal amount of $500,000 to IVG and received all of the assets to be
        purchased under the Asset Purchase Agreement, other than certain cellular
        carrier connection contracts described under the Asset Purchase Agreement.
        On
        January 26, 2007, New Motion increased the principal amount of the IVG Note
        by
        $580,000 to $1,080,000 as payment for the assignment of one of the cellular
        carrier connection contracts listed in the Asset Purchase Agreement. On February
        26, 2007, the Company repaid $500,000 of the IVG Note.
  F-15
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 The
        IVG
        Note bore interest at the rate of 5% per annum accruing from the time amounts
        were advanced thereunder and matured on the earlier of November 30, 2007
        or 30
        days after delivery by IVG of written notice to the Company demanding payment.
        Prior to repayment, IVG could convert the IVG Note into shares of common
        stock
        at a conversion price of $3.44 per share, the fair market value of New Motion’s
        common stock on the date of issuance of the IVG Note. The IVG Note was also
        automatically convertible into shares of common stock at a conversion price
        of
        $3.44 upon the date that the common stock was listed on the New York Stock
        Exchange, American Stock Exchange, Nasdaq Global Market or Nasdaq Capital
        Market. New Motion granted IVG piggyback registration rights for the shares
        issuable upon conversion of the IVG Note. In accordance with EITF 98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features
        or
        Contingently Adjustable Conversion Ratios, and EITF 00-27, “Application of Issue
        No. 98-5 to Certain Convertible Instruments,” New Motion accounted for the IVG
        Note as short-term debt and did not separately value the convertibility feature
        of the IVG Note because (i) this option was contingent upon a future
        undeterminable event, (ii) the number of shares to be issued was not
        determinable until the future event occurred and (iii) the derivative component
        of the IVG Note is embedded and not detachable from the IVG Note.
 
 In
        accordance with the terms of the IVG Note, on June 15, 2007, IVG converted
        all
        outstanding principal and accrued interest on the IVG Note into 172,572 shares
        of common stock at a conversion price of $3.44 per share, the fair market
        value
        of New Motion’s stock on the date of issuance of the IVG Note. In accordance
        with SFAS No. 84, “Induced Conversions of Convertible Debt (An Amendment of APB
        Opinion No. 26),” the Company has not recognized a gain or loss upon the
        conversion of the IVG Note because the conversion was pursuant to original
        conversion terms, such that the debt was extinguished in exchange for equity
        pursuant to a preexisting contract that was already recognized in New Motion’s
        financial statements.
 
 ***Mobile
        Entertainment Channel Corporation***
 Concurrent
        with the signing of the Asset Purchase Agreement with IVG, New Motion also
        entered into a Heads of Agreement with IVG, setting forth the terms of a
        joint
        venture with IVG to distribute IVG content within North America and to manage
        and service the assets acquired under the Asset Purchase Agreement. The joint
        venture, MECC, is a Nevada corporation in which New Motion owns a 49% stake
        and
        IVG owns a 51% stake. 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.
 
 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 assets New Motion acquired from IVG, up to the purchase
        price
        paid under the Asset Purchase Agreement, or $1,080,000. This management fee
        is
        to be fully paid by June 30, 2008.
 
 New
        Motion made an advance payment on the management fee of $500,000 on March
        12,
        2007, and made another, final, advance payment of $500,000 on September 4,
        2007.
        As of the end of the fourth quarter of 2007, New Motion is evaluating, in
        conjunction with IVG, services and content to be offered by MECC.
 
 New
        Motion’s condensed consolidated financial statements include the accounts of the
        MECC joint venture. In accordance with FASB Interpretation No. 46(R),
“Consolidation of Variable Interest Entities (revised December 2003) - an
        interpretation of ARB No. 51,” the results of MECC have been consolidated with
        New Motion’s accounts because New Motion (i) currently controls the joint
        venture’s activities, (ii) will share equally in any dividends or other
        distributions made by the joint venture, and (iii) expects to fund the joint
        venture for the foreseeable future. The consolidation of MECC reflects the
        elimination of all intercompany transactions. MECC is reflected with the
        following balances in New Motion’s consolidated balance sheet at December 30,
        2007: current assets of $859,000 and current liabilities of $291,000. MECC’s
        results are reflected in New Motion’s consolidated statement of operations for
        the year ended December 30, 2007, and all intercompany transactions have
        been
        eliminated. The resulting minority interest was $283,000, net of provision
        for
        income tax of $146,000 for the year ended December 31, 2007. The minority
        interest reflects New Motion’s joint venture partner’s portion of MECC’s net
        income or loss for the period.
 
 F-16
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
        4 –
        Purchase of Katazo Assets**
 
 On
        April
        1, 2007, New Motion entered into an LOI with Opera to purchase the following
        identified and specified 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. Both parties expect to execute a more complete written agreement to
        supersede the LOI. According to the terms of the LOI, New Motion may terminate
        the LOI or final agreement in the event that the total number of billable
        subscribers is reduced by more than 15% during any 30-day period between
        April
        1, 2007 and June 30, 2007 (“Termination Period”). According to the LOI, there is
        no limit to the time New Motion can take to assess whether to terminate the
        LOI
        or final agreement. In the event of termination, the purchase price will
        be
        refunded to New Motion, less any amounts New Motion has collected from the
        assets. New Motion has elected not to terminate the LOI based on an analysis
        of
        the decline in billable subscribers during the Termination Period. 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. The $970,000 purchase price was
        allocated among the identified intangible assets as described in the following
        table. The table also shows the identifiable assets’ useful lives, over which
        New Motion is amortizing the purchase price.
 
 **Allocation**
              
              **Life**
                **(months)**Domain
                  name
              
              $
              1,000
              
              
              IndefiniteWebsite
                  code
              
              
              5,000
              
              
              IndefiniteContent
                  management system
              
              
              5,000
              
              
              12Subscriber
                  list
              
              
              949,000
              
              
              18Prepaid
                  short codes (a)
              
              
              10,000
              
              
              5$
              970,000
  (a)
                  expensed as short code cost of
                  sales
 
 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:
 **December 31,****2007**Computers
                    and software applications
                
                $
                1,019,000Furniture
                    and fixtures
                
                
                135,0001,154,000Less:
                    accumulated depreciation
                
                
                (
                    294,000
                )$
                860,000
 
 Depreciation
        expense for the years ended December 31, 2006 and 2007 totaled $25,000 and
        $260,000, respectively.
  **NOTE
        6– Intangible Assets**
 
 New
        Motion’s intangible assets consist of a cellular carrier connection contract
        acquired pursuant to the Asset Purchase Agreement with IVG and a subscriber
        list
        and certain other Katazo assets acquired from Opera. The gross carrying amount
        of New Motion’s intangible assets totals $1,540,000 and as of December 31, 2007
        the accumulated amortization applicable to the intangible assets was $941,000,
        resulting in a net carrying amount of $599,000. The amortizable intangible
        assets acquired are being amortized over periods of five to 18 months.
  F-17
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
        7–Note Payable and Line of Credit**
  In
        addition to the IVG Note, which was converted into New Motion’s common stock in
        June 2007 (see “Note 3 – Transactions with IVG”), New Motion also 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,
        2007, the principal balance of the Oracle note payable was approximately
        $111,000. In accordance with the terms of the Oracle Note, New Motion makes
        regular quarterly payments of principal and interest.
 
 New
        Motion also has a line of credit with Merrill Lynch, with an available balance,
        as of December 31, 2007, of approximately $190,000. Total borrowings under
        the
        line of credit are approximately $10,000. In February 2008, the line of credit
        was retired and closed.
 
 **NOTE
        8 - Stockholders' Equity**
 
 RingtoneChannel
        was incorporated on February 23, 2004 with authorized common stock of 100
        shares
        at $1 par value. New Motion Mobile was incorporated on March 21, 2005 with
        an
        authorized common stock of 10,000,000 shares at $.001 par value. As discussed
        in
        Note 1, RingtoneChannel was transferred to New Motion Mobile from BroadSpring,
        an entity under common ownership with New Motion Mobile. Accordingly, New
        Motion
        Mobile from its inception was considered to be a continuation of the
        RingtoneChannel business. In connection with this transfer, New Motion Mobile
        issued 1,000,000 shares to its stockholders in May 2005 in return for $100,000
        in proceeds and then paid $90,000 of these proceeds back to Broadspring for
        all
        the outstanding shares of RingtoneChannel. The change in the equity structure
        of
        New Motion Mobile at the time of the transfer was a recapitalization with
        net
        proceeds of $10,000 but no change in the percentage of ownership amongst
        the
        stockholders. In June 2005, the Board of Directors of New Motion Mobile approved
        a 5 for 1 forward stock split, thus increasing issued and outstanding common
        stock to 5,000,000 shares.
 
 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.
 
 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 effect 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
        is 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 is 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. New
        Motion
        is subject to a further one percent liquidated damages payment for each 30-day
        period in which the registration statement has not been filed, up to a maximum
        of 12% of the Series D aggregate purchase price. New Motion filed a registration
        statement on Form SB-2 on May 16, 2007, to register the common stock issued
        in
        connection with the conversion of the Series D Preferred Stock along with
        certain other shares of common stock. Subsequently, on July 20, 2007, New
        Motion
        filed Amendment No. 1 to Form SB-2 in response to comments received from
        the SEC
        on its original filing. New Motion intends to further amend its registration
        statement, either on Form SB-2, or on another acceptable registration statement,
        to meet its obligations under the registration rights agreement. To date,
        the
        Company has not incurred any liquidated damages under the registration rights
        agreement.
  F-18
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 On
        February 4, 2008, New Motion completed the transactions contemplated by the
        Merger Agreement executed on September 26, 2007 by and among New Motion,
        NM
        Merger Sub and Traffix, pursuant to which Traffix became a wholly-owned
        subsidiary of New Motion. Refer to Note 14 - “Subsequent Events” for further
        discussion.
 
 **NOTE
        9 – 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 Ended****December 31,****2006**
              
              **2007****Current:**Federal
              
              $
              420,000
              
              $
              (135,000
              )State
              
              
              105,000
              
              
              80,000Foreign
              
              
              -
              
              
              -**Total
                  Current**
              
              
              525,000
              
              
              (55,000
              )**Deferred:**Federal
              
              
              141,000
              
              
              (846,000
              )State
              
              
              42,000
              
              
              (302,000
              )Foreign
              
              
              -
              
              
              -**Total
                  Deferred**
              
              
              183,000
              
              
              (1,148,000
              )**Total
                  Income Tax Provision**
              
              $
              708,000
              
              $
              (1,203,000
              )
  F-19
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  The
        income tax effects of significant items comprising the Company's deferred
        income
        tax liabilities are as follows:
 
 **For
                  the Year Ended****December
                  31,****2006**
              
              **2007****Deferred
                  Tax Assets:**Allowance
                  for Doubtful Accounts
              
              $
              91,000
              
              $
              225,000Compensation
                  Expense – NSOs
              
              
              -
              
              
              369,000Professional
                  Fee Accrual
              
              
              22,000
              
              
              24,000State
                  Taxes
              
              
              36,000
              
              
              -Amortization
              
              
              -
              
              
              402,000Net
                  Operating Loss Carryforward
              
              
              27,000
              
              
              121,000Unrealized
                  Loss on Available-For-Sale Securities
              
              
              -
              
              
              25,000Subtotal
              
              
              176,000
              
              
              1,166,000Valuation
                  Allowance
              
              
              (27,000
              )
              
              -**Total
                  Deferred Tax Assets**
              
              
              149,000
              
              
              1,166,000**Deferred
                  Tax Liabilities:**Prepaid
                  Expenses
              
              
              (28,000
              )
              
              (91,000
              )Depreciation
              
              
              (53,000
              )
              
              (17,000
              )Accrual
                  to cash adjustments
              
              
              (483,000
              )
              
              (300,000
              )**Total
                  Deferred Tax Liabilities**
              
              
              (564,000
              )
              
              (408,000
              )**Net
                  Deferred Tax Assets (Liabilities)**
              
              $
              (415,000
              )
              $
              758,000
 
 At
        December 31, 2007, the Company had available approximately $2.1 million of
        state
        net operating loss carryforward that may be applied against future state
        taxable
        income. The state net operating loss carryforward will expire in 2012. At
        December 31, 2006, the Company had available approximately $90,000 of Australian
        net operating loss carryforwards with a 100% valuation allowance as the ultimate
        utilization of these losses was uncertain. As of December 31, 2007, the
        Company's Australian entity was dissolved and both the net operating loss
        carryforward and related valuation allowance were relieved. As such, the
        valuation allowance decreased by $27,000 during the year ended December 31,
        2007.
 
 At
        December 31, 2007, the Company recorded a tax benefit of approximately $24,000
        directly to other comprehensive income in relation to unrealized losses on
        available-for-sale securities.
 
 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,****2006**
              
              **2007**Computed
                  expected income tax expense at statutory rate
              
              $
              470,000
              
              
              34.00
              %
              $
              (1,723,000
              )
              
              -34.00
              %Permanent
                  differences
              
              
              65,000
              
              
              4.70
              %
              
              89,000
              
              
              1.75
              %State
                  taxes, net of federal benefit
              
              
              144,000
              
              
              10.40
              %
              
              (192,000
              )
              
              -3.79
              %Foreign
                  rate differential
              
              
              4,000
              
              
              0.26
              %
              
              -
              
              
              0.00
              %Amortization
                  of goodwill
              
              
              (2,000
              )
              
              -0.13
              %
              
              (2,000
              )
              
              -0.03
              %Change
                  in valuation allowance
              
              
              27,000
              
              
              1.94
              %
              
              (27,000
              )
              
              -0.53
              %Minority
                  interest
              
              
              -
              
              
              0.00
              %
              
              291,000
              
              
              5.74
              %Other
              
              
              -
              
              
              0.00
              %
              
              361,000
              
              
              7.14
              %$
              708,000
              
              
              51.16
              %
              $
              (1,203,000
              )
              
              -23.72
              %
  F-20
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 ***FIN
        48 Disclosure***
 The
        following is a tabular reconciliation of the total amounts of unrecognized
        tax
        benefits for the year:
 
 Unrecognized
                  Tax Benefit - Opening Balance
              
              $
              -Gross
                  increases - tax positions in prior period
              
              
              -Gross
                  decreases - tax positions in prior period
              
              
              -Gross
                  increases - tax positions in current period
              
              
              -Settlements
              
              
              -Lapse
                  of statute of limitations
              
              
              -Unrecognized
                  Tax benefit – Ending Balance
              
              $
              -
 
 There
        are
        no tax benefits included in the balance of unrecognized tax benefits at December
        31, 2007. There are also no tax benefits included in the balance of unrecognized
        tax benefits at December 31, 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. Related to the uncertain tax benefits, the
        Company accrued penalties of $0 and interest of $0 during 2007 and in total,
        as
        of December 31, 2007, has recognized a liability for penalties of $0 and
        interest of $0.
 
 The
        Company’s unrecognized tax benefits are not anticipated to significantly
        increase or decrease within 12 months of December 31, 2007.
 
 The
        Company is subject to taxation in the US and various states. The Company’s tax
        years for 2005 and 2006 are subject to examination by the tax authorities.
 
 **NOTE
        10 – Earnings (Loss) Per Share**
 
 The
        computational components of basic and diluted earnings per share are as
        follows:
 
 **For the Year Ended****December 31,****2006**
                
                **2007****EPS
                    Denominator:**Basic
                    weighted average shares
                
                
                7,263,688
                
                
                11,331,260Effect
                    of dilutive securities
                
                
                -
                
                
                -Diluted
                    weighted average shares
                
                
                7,263,688
                
                
                11,331,260**EPS
                    Numerator (effect on net income):**Basic
                    weighted earnings
                
                $
                677,000
                
                $
                (4,149,000
                )Effect
                    of dilutive securities
                
                
                -
                
                
                -Diluted
                    earnings
                
                $
                677,000
                
                $
                (4,149,000
                )**Earnings
                    per share:**Basic
                    weighted average earnings
                
                $
                0.09
                
                $
                (0.37
                )Effect
                    of dilutive securities
                
                
                -
                
                
                -Diluted
                    weighted average earnings
                
                $
                0.09
                
                $
                (0.37
                )
 For
        comparative purposes, the 7,263,688 shares of outstanding common stock of
        the
        Company, after the recapitalization in May 2007, has been retroactively and
        consistently applied throughout all periods presented for the purposes of
        earnings per share calculations.
  F-21
 
 **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 Common
        stock underlying outstanding options, convertible securities and warrants
        were
        not included in the computation of diluted earnings per share for the year
        ended
        December 31, 2007, because their inclusion would be antidilutive 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.
 
 Under
        the
        treasury stock method, options to purchase 1,382,125 shares of common stock
        and
        warrants to purchase 232,436 shares of common stock were not included in
        the
        computation of diluted earnings per share for the year ended December 31,
        2007
        because the Company had a net loss per share for the period.
 
 Under
        the
        treasury stock method, options to purchase 1,131,683 shares of common stock
        and
        notes convertible into 20,465 shares of common stock were not included in
        the
        computation of diluted earnings per share for the year ended December 31,
        2006
        because their exercise or conversion prices were greater than the then value
        of
        the common shares and therefore are antidilutive. Up until February 2007
        there
        was no market for New Motion’s common stock because it was not a publicly traded
        entity. Thus, for purposes of determining the effect of dilutive securities
        under the treasury stock method, the value of the common stock for the year
        ended December 31, 2006 was determined to be less than the exercise and
        conversion prices of the options and convertible notes.
 
 **NOTE
        11– 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. Incentive stock options 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.
 
 ***Option
        Valuation***
 To
        value
        awards granted, New Motion 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.
  F-22
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 The
        fair
        value of each option award during the year ended December 31, 2007 was estimated
        on the date of grant using a Black-Scholes valuation model that used the
        assumptions noted in the following table:
 **September**
                  **2006**
                
                **September**
                  **2006**
                
                **February**
                  **2007**
                
                **September**
                  **2007**(Modification)
                
                (Grant)
                
                (Grant)
                
                (Grant)Shares
                    underlying grants
                
                
                110,408
                
                
                7,624
                
                
                443,700
                
                
                25,000Stock
                    price
                
                $
                1.17
                
                $
                1.17
                
                $
                6.00
                
                $
                14.00Strike
                    Price
                
                $
                0.48
                
                $
                2.34
                
                $
                6.00
                
                $
                14.00Maturity
                
                
                7
                    years
                
                
                7
                    years
                
                
                7
                    years
                
                
                7
                    yearsRisk
                    free interest rate
                
                
                5
                %
                
                5
                %
                
                5
                %
                
                5
                %Volatility
                
                
                86
                %
                
                86
                %
                
                86
                %
                
                86
                %Fair
                    market value per share
                
                $
                1.02
                
                $
                0.82
                
                $
                4.72
                
                $
                11.01Forfeiture
                    rate
                
                
                0
                %
                
                0
                %
                
                5
                %
                
                5
                %
 
 As
        part
        of Scott Walker’s 2007 employment agreement, Mr. Walker received an option to
        purchase 37,500 shares of the Company’s common stock at an exercise price per
        share of $6.60 (on a post Reverse-Split basis) and a five year term, however,
        all options to purchase equity securities of New Motion, Inc. which were
        previously granted to Mr. Walker were cancelled pursuant to the terms of
        the
        Employment Agreement. The fair value of the option granted to Scott Walker
        was
        estimated on the date of grant using a Black-Scholes valuation model that
        used
        the assumptions noted above, except that the strike price was
        $6.60.
 
 Although
        the Company determines stock option forfeiture rates based on the historical
        trends of its employees, unique one-time forfeitures or cancellations may
        not be
        factored into the calculation of the forfeiture rate.
 
 ***Stock
        Options***
 Stock
        option activity under the 2005 Plan and 2007 Plan was as follows (amounts
        presented on a post-Reverse Split basis):
  **Weighted-**
              
              **Estimated****Average**
              
              **Aggregate****Number
                  of**
              
              **Exercise**
              
              **Intrinsic****Shares**
              
              **Price**
              
              **Value**Outstanding
                  at January 1, 2006
              
              
              1,375,016
              
              $
              0.50
              
              $
              2,530,000Granted
              
              
              7,264
              
              $
              2.34Exercised
              
              
              -
              
              
              -Forfeited
                  or cancelled
              
              
              (32,687
              )
              $
              0.48Outstanding
                  at December 31, 2006
              
              
              1,349,594
              
              $
              0.51
              
              $
              2,469,757Exercisable
                  at December 31, 2006
              
              
              776,225
              
              $
              0.50
              
              $
              1,428,254Outstanding
                  at January 1, 2007
              
              
              1,349,594
              
              $
              0.51
              
              $
              15,740,000Granted
              
              
              468,700
              
              $
              6.47Exercised
                  (a)
              
              
              (55,688
              )
              $
              0.48Forfeited
                  or cancelled
              
              
              (616,929
              )
              $
              0.53Outstanding
                  at December 31, 2007
              
              
              1,145,677
              
              $
              2.94
              
              $
              12,671,000Vested
                  or expected to vest at December 31, 2007
              
              
              1,088,393
              
              $
              2.94
              
              $
              12,038,000Exercisable
                  at December 31, 2007
              
              
              687,834
              
              $
              1.32
              
              $
              8,722,000
  (a)
        New
        Motion received approximately $27,000 upon the exercise of these
        options
  F-23
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 For
        the
        year ended December 31 2007, there was no stock option activity outside of
        the
        2005 Plan and 2007 Plan. Future amortization of the fair value of options
        outstanding as of December 31, 2007, including options outside of the 2005
        and
        2007 Plans, is shown in the following table:
 
 Fair Value to
                Be Amortized2008
              
              $
              828,0002009
              
              
              615,0002010
              
              
              45,000$
              1,488,000
  For
        the
        year ended December 31, 2007, $1,117,000, ($1,117,000 after tax) of compensation
        relating to options was recorded. 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. Prior to January 1, 2006, the Company would have reported the
        entire
        tax benefit related to the exercise of stock options as an operating cash
        flow
        if options had been exercised. There was no tax benefit from option exercises
        for year ended December 31, 2007.
 
 For
        the
        year ended December 31, 2007, the company received $27,000 in proceeds from
        option exercises.
 
 ***Grants
        Outside of Plan***
 In
        September 2006, the Company issued options to purchase 363,184 shares of
        the
        Company’s common stock to an executive of the Company. These options were issued
        outside of the Plan due to a limitation in the number of shares available
        under
        the Plan, and were issued at an exercise price of $2.34 with other terms
        similar
        to those issued under the Plan. There were no other options granted outside
        the
        Plan.
 
 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:
 **September**
                  **2006**(Grant)Shares
                    underlying grants
                
                
                363,184Stock
                    price
                
                $
                1.17Strike
                    Price
                
                $
                2.34Maturity
                
                
                7
                    yearsRisk
                    free interest rate
                
                
                5
                %Volatility
                
                
                86
                %Fair
                    market value per share
                
                $
                0.82Forfeiture
                    rate
                
                
                0
                %
  F-24
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  Stock
        option activity outside the Plan was as follows:
 
 **Weighted-**
              
              **Estimated****Average**
              
              **Aggregate****Number
                  of**
              
              **Exercise**
              
              **Intrinsic****Shares**
              
              **Price**
              
              **Value**Outstanding
                  at January 1, 2006
              
              
              -
              
              $
              -Granted
              
              
              363,184
              
              $
              2.34
              
              $
              -Exercised
              
              
              -
              
              
              -Forfeited
                  or cancelled
              
              
              -
              
              $
              -Outstanding
                  at December 31, 2006
              
              
              363,184
              
              
              2.34
              
              $
              -Exercisable
                  at December 31, 2006
              
              
              -
              
              
              -Outstanding
                  at January 1, 2007
              
              
              363,184
              
              $
              2.34
              
              $
              4,468,000Granted
              
              
              -
              
              $
              -Exercised
                  (a)
              
              
              -
              
              $
              -Forfeited
                  or cancelled
              
              
              -
              
              $
              -Outstanding
                  at December 31, 2007
              
              
              363,184
              
              $
              2.34
              
              $
              4,468,000Vested
                  or expected to vest at December 31, 2007
              
              
              363,184
              
              $
              2.34
              
              $
              4,468,000Exercisable
                  at December 31, 2007
              
              
              161,415
              
              $
              2.34
              
              $
              1,882,000
 
 ***Summary
        Option Information***
 The
        following table summarizes information concerning currently outstanding and
        exercisable stock options as of December 31, 2007:
  **Range
                  of**
                **Exercise**
                **Prices**
              
              **Options**
                **Outstanding**
              
              **Weighted**
                **Average**
                **Remaining**
                **Life
                  (years)**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**
              
              **Options**
                **Exercisable**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**2005
                  Plan:$0.48
              
              
              669,713
              
              
              8.0
              
              $
              0.48
              
              
              592,940
              
              $
              0.48$2.34
              
              
              7,264
              
              
              8.6
              
              $
              2.34
              
              
              3,228
              
              $
              2.342007
                  Plan:$6.00
              
              
              406,200
              
              
              9.1
              
              $
              6.00
              
              
              83,333
              
              $
              6.00$6.60
              
              
              37,500
              
              
              4.1
              
              $
              6.60
              
              
              -
              
              $
              6.60$14.00
              
              
              25,000
              
              
              9.7
              
              $
              14.00
              
              
              8,333
              
              $
              14.00Outside
                  of Plans:$2.34
              
              
              363,184
              
              
              8.7
              
              $
              2.34
              
              
              161,415
              
              $
              2.34
  F-25
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 ***Warrants***
 To
        value
        warrants granted, the Company uses the Black-Scholes option pricing model.
        The
        Company determines the assumptions in this pricing model at the grant date.
        For
        warrants granted or modified after January 1, 2006, the Company bases expected
        volatility on the historical volatility of a peer group of publicly traded
        entities. The Company 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
        values of each warrant issued during the period ended December 31, 2007 were
        estimated on the date of grant using a Black-Scholes valuation model that
        used
        the following assumptions:
 
 **January 2007**
                **Walker and SGE**
                **Warrants**
              
              **February 2007**
                **SMH**
                **Warrants**(Grant)
              
              (Grant)Stock
                  price
              
              $
              3.44
              
              $
              6.00Strike
                  Price
              
              $
              3.44
              
              $
              5.50Maturity
              
              
              5
                  years
              
              
              5
                  yearsRisk
                  free interest rate
              
              
              5
              %
              
              5
              %Volatility
              
              
              86
              %
              
              86
              %Fair
                  market value per share
              
              $
              2.42
              
              $
              4.31
 
 The
        warrants issued during the year ended December 31, 2007 are fully vested
        and
        exercisable on the date of grant.
 
 In
        2006,
        the Company issued Secured Convertible Notes to Scott Walker and SGE, a
        corporation owned by Allan Legator, the Company’s 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. The per share fair market value of the Company’s common stock
        on January 26, 2007 was $3.44. The warrants issued to Scott Walker and SGE
        are
        freestanding instruments and exercise of the warrants requires a physical
        or net
        share settlement. Thus, in accordance with Emerging Issues Task Force EITF
        00-19, “Accounting for Derivative Financial Instruments Indexed to, and
        Potentially Settled in, a Company’s Own Stock,” the warrants have been
        classified in stockholders’ equity and the Company recorded $57,000 of expense
        related to the issuance of the warrants to Scott Walker and SGE on January
        26,
        2007.
 
 In
        connection with the Series A, B and D Preferred Stock financings, Sanders
        Morris
        Harris, Inc. acted as placement agent. For its services, the Company paid
        Sanders Morris Harris 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 warrants issued to Sanders Morris Harris
        are freestanding instruments and exercise of the warrants requires a physical
        or
        net share settlement. In addition, the warrants were issued as a fee for
        Sanders
        Morris Harris’ services as placement agent in connection with the Series A, B
        and D financings. Thus, in accordance with SFAS No. 133, “Accounting for
        Derivative Instruments and Hedging Activities” and Emerging Issues Task Force
        EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and
        Potentially Settled in, a Company’s Own Stock,” the Company recorded the
        issuance of the Sanders Morris Harris warrants based on the value of the
        warrants established by the Black-Scholes option pricing model and credited
        additional paid in capital in the amount of $1,253,000 with a corresponding
        offset to the net proceeds from issuance of Preferred Stock.
  F-26
  **NEW
          MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 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, 2007:
  **Range of**
                **Exercise**
                **Prices**
              
              **Warrants
                  Outstanding**
              
              **Weighted**
                **Average**
                **Remaining**
                **Life (years)**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**
              
              **Warrants**
                **Exercisable**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**$3.44
              
              
              23,534
              
              
              4.3
              
              $
              3.44
              
              
              23,534
              
              $
              3.44$5.50
              
              
              290,909
              
              
              4.4
              
              $
              5.50
              
              
              290,909
              
              $
              5.50
 
 ***Restricted
        Stock***
  On
        August
        20, 2007, the Company entered into an employment agreement with Sue Swenson,
        pursuant to which Ms. Swenson became the Company’s Chief Operating Officer. In
        accordance with the terms of the employment agreement, Ms. Swenson was granted
        75,000 shares of restricted stock out of the 2007 Plan. Upon her first
        anniversary with the Company, 40,000 of the restricted shares vest and on
        the
        second anniversary, the remaining 35,000 shares were to vest. The fair value
        of
        the Company’s common stock on August 20, 2007 was $16.40 per share, which was
        the Company’s closing stock price on the OTC Bulletin Board. The aggregate fair
        market value of the restricted stock grant on the date of issuance was
        $1,230,000. This total fair market value of the restricted stock was originally
        being amortized in accordance with its vesting schedule, and was included
        in the
        Company’s stock-based compensation expense for the periods presented.
 
 On
        March,
        18, 2008, the Company announced that Sue Swenson was departing as its Chief
        Operating Officer. As a result of Ms. Swenson’s departure, the 75,000 shares of
        restricted stock were forfeited because she did not meet the service requirement
        for vesting. In accordance with SFAS 123(R), the Company determined that
        no
        compensation cost should be recognized for Ms. Swenson’s restricted stock grant
        because none of the grant vested prior to forfeiture. The amount of stock
        compensation expense related to Ms. Swenson’s restricted stock in 2007 was
        $273,000, which the Company reversed during the year with a debit to equity
        and
        a corresponding credit to stock compensation expense.
 
 **NOTE
        12 - Commitments and Contingencies**
 
 ***Litigation***
 In
        the
        normal course of business, the Company has been involved in various disputes,
        which are routine and incidental to the business. 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.
 
 ***Operating
        Leases***
 The
        following is a schedule by years of future minimum lease payments required
        under
        operating leases that have remaining noncancellable lease terms in excess
        of one
        year at December 31, 2007.
 
 **Year Ending**
              
              **Minimum****December 31,**
              
              **Payments**2008
              
              $
              598,0002009
              
              
              304,0002010
              
              
              26,0002011
              
              
              2,000$
              930,000
 
 Rent
        expense for the year ended December 31, 2006, was approximately $155,000
        for
        office space and approximately $9,000 for office equipment. Rent expense
        for the
        year ended December 31, 2007, was approximately $298,000 for office space
        and
        approximately $2,000 for computer and office equipment.
 
 ***Employment
        Agreements***
 The
        Company has various employment agreements for members of its management.
        The
        average employment contract is two to three years. The future commitments
        under
        employment agreements, as of December 31, 2007, are as follows:
  F-27
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **Year
                    Ending**
                
                **Future****December
                    31,**
                
                **Commitments**2008
                
                $
                916,0002009
                
                
                425,0002010
                
                
                -$
                1,341,000
 
 **NOTE
        13 - Employee Benefit Plan**
 
 The
        Company’s employee benefit plan covers all eligible employees with over three
        months of service 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, 2006 and 2007, the Company contributed approximately
        $20,000 and $32,000, respectively, to the plan.
 
 **NOTE
        14 - Subsequent Events**
 
 ***Acquisition
        of Traffix, Inc.***
 On
        February 4, 2008, New Motion completed the transactions contemplated by the
        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. The Merger
        was
        approved by the stockholders of each of New Motion and Traffix on January
        31,
        2008. 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 10,409,358 million
        shares of New Motion stock to Traffix shareholders. In addition, under the
        terms
        of the Merger Agreement, a stock option to purchase shares of Traffix converted
        into and became an option to purchase New Motion common stock, and New Motion
        assumed such option in accordance with the terms of the stock option plan
        or
        agreement under which that option was issued, subject to an option exchange
        ratio calculated in accordance with the Merger Agreement.
 
 ***Accounting
        Treatment.*** In
        accordance with SFAS No. 141, “Business Combinations,” the Merger will be
        accounted for as an acquisition of Traffix by New Motion using the purchase
        method of accounting under U.S. generally accepted accounting principles.
        Under
        the purchase method of accounting, the assets and liabilities of the acquired
        company are, as of completion of the merger, recorded at their respective
        fair
        values and added to those of the reporting public issuer, including an amount
        for goodwill representing the difference between the purchase price and the
        fair
        value of the identifiable net assets. Applicable income tax effects arising
        from
        these fair value adjustments on the assets of the acquired company will be
        included as a component of the combined company’s deferred tax asset or
        liability.
 
 Financial
        statements of New Motion issued after the merger will reflect only the
        operations of Traffix after the merger and will not be restated retroactively
        to
        reflect the historical financial position or results of operations of
        Traffix.
 
 ***Purchase
        Price Allocation.*** Under
        the
        purchase method of accounting, the total consideration was approximately
        $150.2
        million, which includes the issuance of New Motion common stock valued at
        approximately $147.6 million and the assumption of the Traffix stock option
        plan, valued, under the treasury method, at approximately $605,000. New Motion
        estimates that its transaction costs related to this merger, including legal
        fees, investment banking fees, due diligence expenses, filing and printing
        fees,
        will be approximately $2 million. The estimated value of the common stock
        was
        calculated using the average New Motion common stock price two days before
        and
        after the merger announcement. The average stock price used to calculate
        the
        purchase price was $14.80.
  F-28
  **NEW
          MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  New
        Motion has engaged an independent third party valuation firm to determine
        the
        fair value of the amortizable identifiable intangible assets when the merger
        is
        consummated. The actual purchase price allocation, including allocation of
        the
        purchase price to specific identifiable intangibles and liabilities assumed,
        and
        the resulting goodwill, is dependant upon a number of factors, including
        the
        impact of potential restructuring activities, actual transaction costs and
        the
        stock price volatility of New Motion. Additionally, the fair value of assets
        acquired and liabilities assumed are affected by the results of Traffix’s
        operations up to the closing date of the merger.
 
 The
        following table summarizes the Company’s preliminary purchase price allocation
        based on the estimated fair values of the assets acquired and liabilities
        assumed on February 4, 2008.
  **Tangible
                  assets:**Cash
                  and cash equivalents
              
              $
              12,344,000Marketable
                  securities
              
              
              13,151,000Accounts
                  receivable – trade, net
              
              
              12,207,000Prepaid
                  and other current assets
              
              
              855,000Property
                  and equipment, net
              
              
              1,546,000**Liabilities:**Accounts
                  payable
              
              
              (5,333,000
              )Accrued
                  expenses
              
              
              (4,563,000
              )Income
                  taxes payable
              
              
              68,000Accrued
                  restructuring costs -preliminary estimate
              
              
              (4,041,000
              )Deferred
                  taxes payable - long term
              
              
              (2,302,000
              )**Identified
                  Intangible Assets:**Software
              
              
              1,447,000Trade
                  name / trademark
              
              
              48,826,000Customer
                  list
              
              
              1,011,000License
                  agreement
              
              
              1,218,000Non
                  compete agreement
              
              
              2,040,000Goodwill
              
              
              71,686,000Total
                  purchase price
              
              $
              150,160,000
 
 Goodwill
        represents business benefits the Company anticipates realizing in future
        periods. The following table details the lives of the identified
        intangibles:
  **Life****(years)**Software
              
              
              10.0Trade
                  name / Trademark
              
              
              InfiniteCustomer
                  List
              
              
              1.5License
                  Agreement
              
              
              9.0Non
                  Compete Agreement
              
              
              5.0
 
 The
        results of operations of Traffix for the two years in the period ending December
        31, 2007 are not included in the Company’s consolidated statement of operations
        for the two years ending December 31, 2007.
 
 ***Change
        of Name to Atrinsic, Inc.***
 In
        February, 2008, New Motion’s newly comprised board of directors approved
        management’s plan to integrate and reorganize the combined enterprise arising
        from the recently completed merger. The plan is designed to successfully
        integrate both companies by maximizing certain operational efficiencies,
        while
        also positioning the group for sustained, profitable growth, as a leader
        in the
        mobile entertainment and performance-based online marketing industry. Along
        with
        this plan, the board of directors unanimously approved a change in the Company’s
        name from New Motion, Inc. to Atrinsic, Inc. (“Atrinsic”), subject to
        shareholder approval. Atrinsic will be headquartered in New York,
        NY.
  F-29
  **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 ***Entry
        into Employment Agreements with Mr. Katz and Mr.
        Stollman***
 In
        connection with the closing of the Merger on February 4, 2008, New Motion
        entered into employment agreements with each of Mr. Katz, New Motion's Chief
        Executive Officer, and Mr. Stollman, which replace their current employment
        agreements with their respective companies. The employment agreements have
        a
        term of three years, and may be terminated by New Motion or the executives
        at
        any time and without any reason. A summary of the material terms of the new
        employment agreements follows:
 
 *Title
        and Salary*
 Mr.
        Katz's title is Chief Executive Officer and Mr. Stollman's title is President.
        Each of Mr. Katz and Mr. Stollman will receive a base salary of $425,000
        per
        annum.
 
 *Signing
        Bonus*
 Upon
        the
        execution of his employment agreement, Mr. Stollman received a signing bonus
        of
        $250,000, and all options held by Mr. Stollman to purchase equity securities
        of
        New Motion (aside from the options discussed below) automatically vested.
        Upon
        the execution of Mr. Katz's employment agreement, all options to purchase
        equity
        securities of New Motion held by Mr. Katz (other than stock options to purchase
        81,250 shares of common stock of New Motion which were issued to Mr. Katz
        in
        February 2007, and the options discussed below) automatically
        vested.
 
 *Annual
        Bonus*
 Each
        executive is also eligible to receive an annual bonus for each calendar year
        during the term if New Motion's business operations meet or exceed certain
        financial performance standards to be determined by New Motion's Board of
        Directors.
 
 *Benefits*
 Each
        of
        Mr. Katz, Mr. Stollman and their families will be provided with medical,
        hospitalization, dental, disability and life insurance during the term. New
        Motion will pay all premiums and other costs associated with such policies.
        Each
        executive will also be able to participate in any other compensation plan
        or
        other perquisites generally made available to executive officers of the company
        from time to time.
 
 *Stock
        Options*
 Upon
        the
        closing of the Merger, each executive was granted an option to purchase 300,000
        shares of New Motion's common stock. The options are exercisable at an exercise
        price equal to $10.92 and expire on February 4, 2018. Except in the event
        either
        Mr. Katz or Mr. Stollman is terminated without cause and except in the event
        of
        a termination of either Mr. Katz's or Mr. Stollman's employment by such
        executive for good reason, any portion of such executive's option that remains
        unvested at the time of termination will be extinguished and
        cancelled.
 
 *Restricted
        Stock*
 Upon
        the
        closing of the Merger, New Motion issued to each of Mr. Katz and Mr. Stollman
        275,000 shares of restricted common stock. Except in the event either executive
        is terminated without cause and except in the event of a termination of Mr.
        Katz's or Mr. Stollman's employment by such executive for good reason, any
        portion of such executives restricted stock that remains unvested at the
        time of
        termination will be forfeited, extinguished and cancelled.
 
 *Long
        Term Performance Unit Plan*
 Promptly
        following the Merger, New Motion will establish and maintain a long term
        executive compensation plan for the benefit of each of Mr. Katz and Mr. Stollman
        and the other executive officers of the company. The terms of the plan will
        be
        determined by the company's Board of Directors.
 
 The
        Company is currently evaluating its treatment of aspects of the employment
        agreements entered into with Mr. Stollman and Mr. Katz, in accordance with
        SFAS
        No. 123(R), “Share-Based Payment,” in order to properly record (1) the
        accelerated vesting of pre-existing option grants, (2) the issuance of new
        stock
        options, and (3) the issuance of restricted stock or restricted stock
        units.
  F-30
 
 **NEW
        MOTION, INC. AND SUBSIDIARY**
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 
 ***Departure
        of the Chief Operating Officer***
 On
        August
        20, 2007, the Company entered into an employment agreement with Sue Swenson,
        pursuant to which Ms. Swenson became the Company’s Chief Operating Officer. In
        accordance with the terms of the employment agreement, Ms. Swenson was granted
        75,000 shares of restricted stock out of the 2007 Plan with cliff vesting
        terms
        on her first and second anniversary dates.
 
 On
        March,
        18, 2008, the Company announced that Sue Swenson was departing as its Chief
        Operating Officer. As a result of Ms. Swenson’s departure, the 75,000 shares of
        restricted stock were forfeited because she did not meet the service requirement
        for vesting. In accordance with SFAS 123(R), the Company determined that
        no
        compensation cost should be recognized for Ms. Swenson’s restricted stock grant
        because none of the grant vested prior to forfeiture. The amount of stock
        compensation expense related to Ms. Swenson’s restricted stock in 2007 was
        $273,000, which the Company reversed during the year ended December
        31, 2007 with a debit to equity and a corresponding credit to stock
        compensation expense.
  F-31
  **Item
                  8.**
              **CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURES**
 
 None.
 **Item
        8A(T). CONTROLS AND PROCEDURES**
  **EVALUATION
        OF CONTROLS AND PROCEDURES**
  Members
        of the our management, including our Chief Executive Officer, Burton Katz,
        and
        Chief Financial Officer, Dan Harvey, 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, 2007, the end of the period covered
        by this report. Based upon that evaluation, Messrs. Katz and Harvey concluded
        that our disclosure controls and procedures were not effective for the
        reasons described below.
  **CHANGES
        IN CONTROLS AND PROCEDURES**
  Other
        than is described below, 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, 2007 that have materially
        affected, or are reasonably likely to materially affect, our internal control
        over financial reporting.
  **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.
  **Limitations
        on the Effectiveness of Controls**
  Management,
        including the Company’s Chief Executive Officer and Chief Financial Officer, do
        not expect that the Company’s disclosure controls and procedures or the
        Company’s internal control over financial reporting will prevent all errors or
        all fraud. A control system, no matter how well conceived and operated, can
        provide only reasonable, not absolute, assurance that the objectives of the
        control system are met. Further, the design of a control system must reflect
        the
        fact that there are resource constraints, and the benefits of controls must
        be
        considered relative to their costs. Because of the inherent limitations in
        all
        control systems, no evaluation of controls can provide absolute assurance
        that
        all control issues and instances of fraud, if any, within the Company have
        been
        detected. These inherent limitations include the realities that judgments
        in
        decision-making can be faulty, and that breakdowns can occur because of simple
        error or mistake. Additionally, controls can be circumvented by the individual
        acts of some persons, by collusion of two or more people, or by management’s
        override of the control. The design of any system of controls also is based
        in
        part upon certain assumptions about the likelihood of future events, and
        there
        can be no assurance that any design will succeed in achieving its stated
        goals
        under all potential future conditions; over time, controls may become inadequate
        because of changes in conditions, or the degree of compliance with the policies
        or procedures may deteriorate.
  **Assessment
        of Internal Controls Over Financial Reporting**
  Our
        management assessed the effectiveness of our internal control over financial
        reporting as of December 31, 2007. 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.
  43
 Based
          upon their evaluation as of the end of the period covered by this report,
          our
          Chief Executive Officer and Chief Financial Officer concluded that our
          internal
          controls over financial reporting were not effective as the Company had
          two
          material control weaknesses as it relates to financial reporting.
  The
        Public Company Accounting Oversight Board has defined a material weakness
        as “a
        significant deficiency, or combination of significant deficiencies, that
        results
        in more than a remote likelihood that a material misstatement of the annual
        or
        interim financial statements will not be prevented or detected.”
 
 During
        the course of management’s evaluation of the effectiveness of our disclosure
        controls and procedures, two material weaknesses in internal controls were
        identified. Neither of these material weaknesses led to a misstatement of
        the
        Company’s results of operations for the year ended December 31, 2007, or
        statement of financial position as of December 31, 2007.
  The
        first
        material weakness in internal controls concerns the treatment of events
        subsequent to the year ended December 31, 2007. Upon the departure of our
        Chief
        Operating Officer, Sue Swenson, which was announced on March 18, 2008, Windes
        & McClaughry requested that we evaluate whether the compensation expense
        associated with Sue Swenson’s August 20, 2007 restricted stock grant should be
        included in our financial statements for the year ended December 31, 2007.
        Initially we had determined that we would recognize the cancellation of her
        restricted stock in the period in which she announced her departure. After
        evaluating the facts and reviewing SFAS 123(R), we determined that the
        cancellation of the restricted stock, and associated reversal of stock
        compensation expense, should be reflected in 2007. Also associated with our
        treatment of subsequent event information, Windes & McClaughry discovered
        that an accrual recorded at December 31, 2007 was settled on February 28,
        2008
        for an amount less than what was expected and, as such, the accrual on our
        balance sheet should be adjusted to reflect what was ultimately paid. We
        evaluated their finding and researched the issue, and determined that the
        amount
        that was ultimately paid is what should have been reflected in our financial
        accounts as of December 31, 2007. We therefore adjusted our December 31,
        2007
        accrual to reflect the settlement amount. In order to correct such weakness
        in
        internal controls surrounding the recognition of subsequent event activity
        in
        our financial statements, we are actively recruiting for an in-house legal
        counsel to better track and act on the impact of these types of subsequent
        events. We also intend to hire additional accounting personnel to enable
        greater
        oversight and analysis of such events.
  The
        second material weakness in internal controls concerns our consolidation
        process. Prior to finalization of our 2007 financial results, Windes &
McClaughry informed us of a potential error in accounting for an intercompany
        transaction. Upon review of the transaction, we determined that it was
        appropriate to eliminate the intercompany expense. In order to prevent such
        consolidation issues from occurring in the future, we are working to automate
        the consolidation process within our accounting system. We have also begun
        to
        simplify the structure and activities within our consolidated
        entities.
  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.
  **Item
        8B. OTHER INFORMATION**
 
 None.
  44
  **Part
        III**
  **Item
                  9.**
              **DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
                  COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
                  ACT**
 
 The
        information required by this item will be included an amendment to this report
        on form 10-KSB which shall be filed with the Securities and Exchange Commission
        no later than April 29, 2008.
 
 **Item
        10. EXECUTIVE COMPENSATION**
 
 The
        information required by this item will be included an amendment to this report
        on form 10-KSB which shall be filed with the Securities and Exchange Commission
        no later than April 29, 2008.
 
 **Item
        11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
        STOCKHOLDER MATTERS**
 
 The
        information required by this item will be included an amendment to this report
        on form 10-KSB which shall be filed with the Securities and Exchange Commission
        no later than April 29, 2008.
 
 **Item
        12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
        INDEPENDENCE**
 
 The
        information required by this item will be included an amendment to this report
        on form 10-KSB which shall be filed with the Securities and Exchange Commission
        no later than April 29, 2008.
 
 **Item
        13. EXHIBITS**
 
 See
        attached Exhibit Index.
 
 **Item
        14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**
  Effective
        February 12, 2007, Windes & McClaughry became the Company’s principal
        independent accounting firm. All audit work was performed by the full time
        employees of Windes & McClaughry. The Company’s audit committee approves in
        advance, all services performed by Windes & McClaughry. The Company’s audit
        committee has considered whether the provision of non-audit services is
        compatible with maintaining the principal accountant's independence, and
        has
        approved such services. Prior to February 12, 2007, the principal auditors
        of
        the Company were Carlin, Charron & Rosen, LLP.
 
 The
        following table sets forth fees billed to us by our auditors during the last
        two
        fiscal years 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.
 
 December 31, 2006
              
              December 31, 2007Audit
                  Fees
              
              $
              118,315
              
              $
              280,000Audit
                  Related Fees
              
              $
              -
              
              $
              -Tax
                  Fees
              
              $
              4,000
              
              $
              126,000All
                  Other Fees
              
              $
              -
              
              $
              103,000
 
 Audit
        related fees include $82,000 of fees billed by Windes & McClaughry for
        accounting services related to the review of our quarterly financial statements.
 
 All
        other
        fees include fees billed by Windes & McClaughry for services related to our
        registration statement on Form SB-2 and Proxy /Registration Statement of
        Form
        S-4.
 
 Tax
        fees
        billed in 2006 and 2007, for $4,000 and $126,000, respectively, were for
        tax
        return preparation and financial statement tax disclosure for New Motion
        and was
        performed by Deloitte and Touche, LLP.
  45
 
 The
        Company’s audit committee were directly responsible for interviewing and
        retaining the independent accountant, considering the accounting firm’s
        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
        accountant. The audit committee pre-approved 100% of the services described
        above.
  46
  **SIGNATURES**
 
 In
        accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
        the
        Registrant caused this report to be signed on its behalf by the undersigned,
        thereunto duly authorized.
 
 **New
                  Motion, Inc.**/s/
                  Dan HarveyBy:
                  Dan Harvey
                Its:
                  Chief Financial Officer (Principal Financial and Accounting
                  Officer)Date:
                  March 31, 2008
  **POWER
        OF ATTORNEY**
  The
        undersigned directors and officers of New Motion, Inc. do hereby constitute
        and
        appoint Burton Katz and Dan Harvey, 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-KSB, 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
                
                Burton
                  Katz
              
              Chief
                  Executive Officer and Director
                (Principal Executive Officer)
              
              March
                  31, 2008/s/
                  Dan Harvey
                
                Dan
                  Harvey
              
              Chief
                  Financial Officer and Secretary
                (Principal Financial and Accounting Officer)
              
              March
                  31, 2008/s/
                  Ray Musci
                Raymond
                  Musci
              
              Director
              
              March
                  31, 2008/s/
                  Lawrence Burstein
                Lawrence
                  Burstein
              
              Director
              
              March
                  31, 2008/s/
                  Robert Ellin
                Robert
                  S. Ellin
              
              Director
              
              March
                  31, 2008/s/
                  Andrew Stollman
                Andrew
                  Stollman
              
              Director,
                  President
              
              March
                  31, 2008/s/
                  Jerome Chazen
                Jerome
                  Chazen
              
              Director
              
              March
                  31, 2008/s/
                  Robert Machinist
                Robert
                  Machinist
              
              Director
              
              March
                  31, 2008
  S-1
 
 **EXHIBIT
        INDEX**
 
 **Exhibit****No.**
              
              **Title**2.1
              
              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. 34-51353) 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. 34-51353) 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.
                  34-51353) filed with the Commission on October 19, 2007.3.1
              
              Restated
                  Certificate of Incorporation. Incorporated by reference to Exhibit
                  3.1 to
                  the Registrant’s Form 10-SB (File No. 34-51353) 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. 34-51353) 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. 34-51353) 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. 34-51353) 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. 34-51353) 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. 34-51353) filed with the Commission on March 6,
                  2007.4.3
              
              2005
                  Stock Incentive Plan. Incorporated by reference to Exhibit 4.3
                  to the
                  Registrant’s Current Report on Form 8-K (File No. 34-51353) 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 34-51353) 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. 34-51353) filed with the
                  Commission on February 13, 2007.
              *9.1
              
              Stockholder
                  Agreement entered into as of September 26, 2007 among New Motion,
                  Inc. and
                  Jeffrey L. Schwartz. Incorporated by reference to Exhibit 2.2 to
                  the
                  Registrant’s Current Report on Form 8-K (file No. 34-51353) filed with the
                  Commission on September 27, 2007.9.2
              
              Stockholder
                  Agreement entered into as of September 26, 2007 among New Motion,
                  Inc. and
                  Andrew Stollman. Incorporated by reference to Exhibit 2.3 to the
                  Registrant’s Current Report on Form 8-K (file No. 34-51353) filed with the
                  Commission on September 27, 2007.
  EX-1
 
 10.1
              
              Common
                  Stock Purchase Agreement, dated October 24, 2006, among the Registrant,
                  Trinad Capital Master Fund, Ltd., Isaac Kier, Jerome A. Chazen,
                  Sid Banon,
                  Lawrence S. Coben and Ralph Kier. Incorporated by reference to
                  Exhibit
                  10.1 to the Registrant’s Current Report on Form 8-K (File No. 34-51353)
                  filed with the Commission on October 30, 2006.10.2
              
              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,
                  2007.10.3
              
              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. 33-51353) filed with the Commission
                  on
                  February 13, 2007.10.4
              
              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.
                  33-51353) filed with the Commission on March 6, 2007.10.5
              
              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. 34-51353) filed with the
                  Commission on March 6, 2007.10.6
              
              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. 34-51353) filed with the
                  Commission on February 13, 2007.10.7
              
              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. 34-51353) filed with the Commission on February 13,
                  2007.10.8
              
              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.
                  34-51353) filed with the Commission on February 13, 2007.10.9
              
              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. 34-51353) filed with the
                  Commission on February 13, 2007.10.10
              
              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.
                  34-51353) filed with the Commission on February 13, 2007.10.11
              
              Executive
                  Employment Agreement dated October 1, 2005, between New Motion,
                  Inc. and
                  Allan Legator. Incorporated by reference to Exhibit 10.9 to the
                  Registrant’s Current Report on Form 8-K (File No. 34-51353) filed with the
                  Commission on February 13, 2007.
              *10.12
              
              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. 34-51353) filed with the Commission
                  on March 14, 2007.
              *10.13
              
              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.
              *10.14
              
              Contractor
                  Agreement dated January 11, 2006, between New Motion, Inc. and
                  Raymond
                  Musci. Incorporated by reference to Exhibit 10.17 to the Registrants
                  Current Report on Form 8-K (File No. 34-51353) filed with the Commission
                  on February 13, 2007.
              *10.15
              
              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. 34-51353) filed with the Commission on February 13,
                  2007.10.16
              
              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. 34-51353) filed with the Commission
                  on February 13, 2007.10.17
              
              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. 34-51353) filed with the Commission
                  on February 13, 2007.
  EX-2
  10.18
              
              Engagement
                  Letter dated August 4, 2006, between New Motion, Inc. and Sanders
                  Morris
                  Harris Inc. Incorporated by reference to Exhibit 10.22 to the Registrants
                  Current Report on Form 8-K (File No. 34-51353) filed with the Commission
                  on February 13, 2007.10.19
              
              Executive
                  Employment Agreement dated August 28, 2006, between New Motion,
                  Inc. and
                  Burton Katz. Incorporated by reference to Exhibit 10.23 to the
                  Registrants
                  Current Report on Form 8-K (File No. 34-51353) filed with the Commission
                  on February 13, 2007.
              *10.20
              
              Executive
                  Employment Agreement dated October 28, 2006, between New Motion,
                  Inc. and
                  Zach Greenberger. Incorporated by reference to Exhibit 10.26 to
                  the
                  Registrants Current Report on Form 8-K (File No. 34-51353) filed with the
                  Commission on February 13, 2007.
              *10.21
              
              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. 34-51353)
                  filed
                  with the Commission on February 13, 2007.10.22
              
              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.
                  34-51353) filed with the Commission on February 13, 2007.10.23
              
              Messing
                  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. 34-51353) filed with the Commission
                  on
                  February 13, 2007.10.24
              
              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. 34-51353) filed with the Commission
                  on
                  February 13, 2007.10.25
              
              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. 34-51353) filed
                  with the
                  Commission on February 13, 2007.14.1
              
              Code
                  of Ethics. Incorporated by reference to Exhibit 14.1 to the Registrants
                  Current Report on Form 8-K (file No. 34-51353) filed with the Commission
                  on August 24, 2007.21.1
              
              Subsidiaries
                  of the registrant23.1
              
              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-KSB.
 **
        Pursuant to Item 601(b)(2) of Regulation S-B, the schedules to the Exchange
        Agreement have been omitted. The Registrant undertakes to supplementally
        furnish
        a copy of the omitted schedules to the Securities and Exchange Commission
        upon
        request.
  EX-3