**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB**





(Mark
      One)


x
            Quarterly
                Report under Section13 or 15(d) of the Securities Exchange Act of
                1934





For
      the
      quarterly period ended September
      30, 2007







o
            Transition
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934




For
      the
      transition period from __________ to __________


Commission
      File Number: _________________________





New Motion Logo


NEW
      MOTION, INC.


(Exact
      name of small business issuer as specified in its charter)





Delaware
            
            34-1775913(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer Identification No.)





42
      Corporate Park, Suite 250, Irvine, California 92606


(Address
      of principal executive offices)





(949)
      777-3700


(Issuer’s
      telephone number)






(Former
      name, former address, and former fiscal year, if changed from last
      report)





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 past 90days.


Yes  x   No 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





Check
      whether the registrant 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
      November 6, 2007, the Company has 12,096,284 shares of Common Stock, $.01 par
      value, outstanding.





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





**New
      Motion, Inc.**




**Table
      of Contents**





PageTable
                of Contents
            1PART
                I – FINANCIAL INFORMATION
            2Item
                1. Financial Statements
            2Item
                2. Management’s Discussion and Analysis
            27Cautionary
                Statements and Risk Factors
            43Item
                3. Controls and Procedures
            54PART
                II – OTHER INFORMATION
            55Item
                6. Exhibits
            55


1


**New
      Motion, Inc.**


**Condensed
      Consolidated Balance Sheets**


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





**PART
      I**  ****–**FINANCIAL INFORMATION**


**Item
      1. Financial Statements**





**September 30,****2007**
            
            **December
                31,****(Unaudited)**
            
            **2006****ASSETS****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            12,991
            
            $
            544Accounts
                receivable, net of allowance for doubtful accounts of $823 (unaudited)
                and
                $1,263, respectively
            
            
            6,268
            
            
            3,527Prepaid
                income taxes
            
            
            242
            
            
            578Prepaid
                expenses and other
            
            
            759
            
            
            167Deferred
                income taxes
            
            
            1,951
            
            
            14922,211
            
            
            4,965**PROPERTY
                AND EQUIPMENT**
            
            
            836
            
            
            146**OTHER
                ASSETS**Acquisition
                costs, net
            
            
            781
            
            
            336Deposits
                and other assets
            
            
            58
            
            
            47Intangible
                asset
            
            
            904
            
            
            -1,743
            
            
            383**TOTAL
                ASSETS**
            
            $
            24,790
            
            $
            5,494**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****CURRENT
                LIABILITIES**Accounts
                payable
            
            $
            5,417
            
            $
            2,870Accrued
                expenses
            
            
            1,057
            
            
            837Short-term
                note payable
            
            
            89
            
            
            -Deferred
                income taxes
            
            
            564
            
            
            5647,127
            
            
            4,271**LONG
                TERM LIABILITIES**Note
                payable
            
            
            44
            
            
            -Minority
                interest in joint venture
            
            
            291
            
            
            -**COMMITMENTS
                AND CONTINGENCIES****STOCKHOLDERS'
                EQUITY**Common
                stock, par value $0.01, 100,000,000 authorized, 12,096,284 and 7,263,688
                issued and outstanding, respectively
            
            
            121
            
            
            73Additional
                paid-in capital
            
            
            19,349
            
            
            84Retained
                earnings (deficit)
            
            
            (2,142
            )
            
            1,06617,328
            
            
            1,223**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            $
            24,790
            
            $
            5,494





The
      accompanying notes are an integral part of these Condensed Consolidated
      Financial Statements.


2


**New
      Motion, Inc.**


**Condensed
      Consolidated** **Statements
      of Operations**


**(Unaudited)**


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


**Three
                  Months EndedSeptember 30,**
              
              **Nine
                  Months EndedSeptember 30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****NET
                  SALES**
              
              $
              10,495
              
              $
              5,581
              
              $
              23,031
              
              $
              12,543**COST
                  OF SALES**
              
              
              1,406
              
              
              122
              
              
              3,626
              
              
              341**GROSS
                  PROFIT**
              
              
              9,089
              
              
              5,459
              
              
              19,405
              
              
              12,202**EXPENSES**Selling
                  and marketing
              
              
              7,878
              
              
              4,076
              
              
              15,325
              
              
              6,899General
                  and administrative
              
              
              3,331
              
              
              1,253
              
              
              8,429
              
              
              3,03411,209
              
              
              5,329
              
              
              23,754
              
              
              9,993**INCOME
                  (LOSS) FROM OPERATIONS**
              
              
              (2,120
              )
              
              130
              
              
              (4,349
              )
              
              2,269**OTHER
                  EXPENSE (INCOME)**Interest
                  income
              
              
              (123
              )
              
              9
              
              
              (362
              )
              
              -Interest
                  expense
              
              
              2
              
              
              3
              
              
              20
              
              
              14Other
                  expense
              
              
              -
              
              
              185
              
              
              21
              
              
              214(121
              )
              
              197
              
              
              (321
              )
              
              228**INCOME
                  (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES**
              
              
              (1,999
              )
              
              (67
              )
              
              (4,028
              )
              
              2,041**PROVISION
                  (BENEFIT) FOR INCOME TAXES**
              
              
              (206
              )
              
              370
              
              
              (1,111
              )
              
              967**INCOME
                  (LOSS) BEFORE MINORITY INTEREST**
              
              
              (1,793
              )
              
              (437
              )
              
              (2,917
              )
              
              1,074**MINORITY
                  INTEREST, NET OF INCOME TAX**
              
              
              156
              
              
              -
              
              
              291
              
              
              -**NET
                  INCOME (LOSS)**
              
              
              (1,949
              )
              
              (437
              )
              
              (3,208
              )
              
              1,074**NET
                  INCOME (LOSS) PER SHARE:**Basic
              
              $
              (0.16
              )
              $
              (0.06
              )
              $
              (0.29
              )
              $
              0.15Diluted
              
              $
              (0.16
              )
              $
              (0.06
              )
              $
              (0.29
              )
              $
              0.13**WEIGHTED
                  AVERAGE SHARES OUTSTANDING:**Basic
              
              
              12,000,167
              
              
              7,263,688
              
              
              11,108,117
              
              
              7,263,688Diluted
              
              
              12,000,167
              
              
              7,263,688
              
              
              11,108,117
              
              
              8,048,166




The
      accompanying notes are an integral part of these Condensed Consolidated
      Financial Statements.


3


**New
      Motion, Inc.**


**Condensed
      Consolidated** **Statement
      of Cash Flows**


**(Unaudited)(in
      thousands)**





**Nine
                Months EndedSeptember 30,****2007**
            
            **2006****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                income (loss)
            
            $
            (3,208
            )
            $
            1,074Adjustments
                to reconcile net income to net cash from operating
                activities:Allowance
                for doubtful accounts
            
            
            (440
            )
            
            212Depreciation
                and amortization
            
            
            929
            
            
            18Stock-based
                compensation expense
            
            
            884
            
            
            113Deferred
                income taxes
            
            
            (1,802
            )
            
            (104
            )Minority
                interest in net income of consolidated joint venture, net of income
                tax
            
            
            291
            
            
            -Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (2,301
            )
            
            (2,271
            )Prepaid
                income taxes
            
            
            336
            
            
            (37
            )Prepaid
                expenses
            
            
            (582
            )
            
            (41
            )Deposits
                and other assets
            
            
            (11
            )
            
            (7
            )Employee
                advance
            
            
            -
            
            
            (287
            )Accounts
                payable
            
            
            2,547
            
            
            1,271Accrued
                expenses
            
            
            233
            
            
            341Net
                Cash (Used In) Provided By Operating Activities
            
            
            (3,124
            )
            
            282**CASH
                FLOWS FROM INVESTING ACTIVITIES**Expenditures
                for Mobliss and Traffix transactions
            
            
            (766
            )
            
            -Purchase
                of property and equipment
            
            
            (166
            )
            
            (24
            )Acquisition
                of Katazo assets
            
            
            (970
            )
            
            -Net
                Cash Used In Investing Activities
            
            
            (1,902
            )
            
            (24
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Repayment
                of notes payable
            
            
            (575
            )
            
            (324
            )Expenditures
                for equity financing
            
            
            (470
            )
            
            -Issuance
                of warrants
            
            
            57
            
            
            -Issuance
                of preferred stock
            
            
            18,434
            
            
            -Proceeds
                from exercise of stock options
            
            
            27
            
            
            -Net
                Cash Provided By (Used In) Financing Activities
            
            
            17,473
            
            
            (324
            )**NET
                CHANGE IN CASH**
            
            
            12,447
            
            
            (66
            )**CASH
                AT BEGINNING OF PERIOD**
            
            
            544
            
            
            350**CASH
                AT END OF PERIOD**
            
            $
            12,991
            
            $
            284**SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION**Cash
                paid for interest and taxes
            
            $
            (44
            )
            $
            (1,166
            )Non-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 Condensed Consolidated
      Financial Statements.


4




**New
      Motion, Inc.**


**Condensed
      Consolidated** **Statement
      of Stockholders’ Equity**


**For
      the Period From January 1, 2006 to September 30, 2007**


**(Unaudited)**


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





**Additional****Series
                A**
            
            **Series
                B**
            
            **Series
                D**
            
            **Common**
            
            **Paid-In**
            
            **Retained****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Capital**
            
            **Earnings**
            
            **Total**Balance
                at January 1, 2006
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            
            7,263,688
            
            $
            73
            
            $
            (63
            )
            $
            389
            
            $
            399Stock-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 to reverse acquisition of MPLC
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (682
            )
            
            -
            
            
            (682
            )Issuance
                of Series A Preferred (Note 8)
            
            
            1
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,500
            
            
            -
            
            
            3,500MPLC
                Common Exchange (Note 8)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            250,000
            
            
            3
            
            
            (3
            )
            
            -
            
            
            -Issuance
                of Series B Preferred (Note 8)
            
            
            -
            
            
            -
            
            
            650
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            6,500
            
            
            -
            
            
            6,500Issuance
                of Series D Preferred (Note 8)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            8,333
            
            
            1
            
            
            -
            
            
            -
            
            
            9,999
            
            
            -
            
            
            10,000Equity
                issuance costs related to issuance of preferred stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,566
            )
            
            -
            
            
            (1,566
            )Value
                of warrants issued (Note 9)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            57
            
            
            -
            
            
            57Reverse
                split and conversion (Note 8)
            
            
            (1
            )
            
            -
            
            
            (650
            )
            
            -
            
            
            (8,333
            )
            
            (1
            )
            
            4,166,658
            
            
            42
            
            
            (41
            )
            
            -
            
            
            -Conversion
                of IVG Note (Note 4)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            172,572
            
            
            1
            
            
            592
            
            
            -
            
            
            593Issuance
                of shares for odd lot
              rounding
                after Reverse Split (Note 8)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            112,678
            
            
            1
            
            
            (1
            )
            
            -
            
            
            -Exercise
                of stock options
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            55,688
            
            
            -
            
            
            27
            
            
            -
            
            
            27Issuance
                and amortization of restricted stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            75,000
            
            
            1
            
            
            108
            
            
            
            
            
            109Stock-based
                compensation expense
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            775
            
            
            -
            
            
            775Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,208
            )
            
            (3,208
            )**Balance
                at September 30, 2007**
            
            
            **-**
            
            **$**
            **-**
            
            
            **-**
            
            **$**
            **-**
            
            
            **-**
            
            **$**
            **-**
            
            
            **12,096,284**
            
            **$**
            **121**
            
            **$**
            **19,349**
            
            **$**
            **(2,142**
            **)**
            **$**
            **17,328**





The
      accompanying notes are an integral part of these Condensed Consolidated
      Financial Statements.


5


**New
        Motion, Inc.**
 **Notes
        to** **Unaudited
        Condensed Consolidated Financial Statements**
 
 **Note
        1**– **Background and Basis of Presentation**
 
 *Business*
 
 New
        Motion, Inc. (“New Motion” or the “Company”) and its wholly-owned operating
        subsidiary New Motion Mobile, Inc. (“New Motion Mobile” and collectively “New
        Motion” or the “Company”) is
        an
        innovative mobile entertainment and Internet media company providing a broad
        range of digital and mobile services to consumers. New Motion combines and
        applies the power of the Internet, the latest in mobile technology, and
        traditional marketing / advertising methodologies to its three strategic
        service
        lines - digital music, casual games and interactive contests. Each of these
        service lines represents unique growth opportunities -- for New Motion‘s
        existing domestic business, through the acquisition of product and distribution
        assets, and through future international business development. New Motion’s
        innovative brands includes, Bid4Prizes, a low-bid mobile auction game,
        GatorArcade, a premium online and mobile gaming site, YourCrush, an
        astrology-driven mobile dating help site, Altnet, a mobile legal music download
        service featuring original artists, New Motion’s MobileSidewalk,TM a mobile
        entertainment portal, and RingtoneChannel, a mobile storefront.
 
 New
        Motion focuses on selectively increasing its services portfolio with
        high-quality, innovative applications. New Motion’s growing portfolio of mobile
        entertainment and Internet media services are based primarily on internally
        generated content, such as Bid4Prizes, GatorArcade and MobileSidewalk’s Music
        Trivia. Internally generated content generates the majority of New Motion’s
        revenue. New Motion 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 monthly end user subscription fees for the
        Company’s wireless entertainment products and services generally range from
        $3.99 to $9.99. Across all of its services, the median subscription term
        of the
        Company’s users is approximately three months. Premium downloads offered on an
        a-la-carte basis range from $0.99 to $5.99. The Company generates 95% of
        its
        revenues on a subscription basis versus 5% on an a-la-carte basis.
 
 *History*
 
 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, 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.
  6
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**
 
 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 the 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
        the 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 is 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
        will
        also enable New Motion to better serve its customers and end users by expediting
        the time in which it reacts to changes in the marketplace. As of the end
        of the
        third quarter of 2007, New Motion has begun to channel some new subscriber
        messages traffic onto the acquired assets and developed technology, and expects
        to increase, at a manageable rate, the volume of messages billed through
        this
        system.
 
 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 is to be registered under the name The Mobile Entertainment Channel
        Corporation (“MECC”) and will 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 the third quarter of 2007, New Motion
        is 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, trading
        under
        the ticker “MPNC” on the Over-The-Counter Bulletin Board (“OTCBB”). 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. In connection with these corporate actions,
        New Motion also changed its ticker to “NWMO” on the OTCBB.
 
 On
        April
        1, 2007, New Motion entered into a Binding Letter of Intent (the “LOI”) with
        Opera Telecom USA (“Opera”) to purchase the following identified and specified
        assets (the “Katazo Assets”): (1) the domain name www.katazo.com, (2) website
        html code and graphics, (3) access to a content management system, (4) a
        subscriber list, and (5) prepaid short codes. 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.
  7
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**
 
 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, Inc., a Delaware corporation
        (“Traffix”), and NM Merger Sub, a Delaware corporation and wholly-owned
        subsidiary of New Motion (“Merger Sub”), pursuant to which Merger Sub will merge
        with and into Traffix, the separate existence of Merger Sub shall cease,
        and
        Traffix shall continue as the surviving corporation in the merger, thus becoming
        a wholly-owned subsidiary of New Motion (the “Merger”). Traffix, Inc. is a
        premier interactive media company that develops its own content and builds
        Internet and mobile communities tailored to consumers specific interests
        and
        lifestyles. Traffix’s full solution marketing services delivers media, analytics
        and results to third parties through its four business groups: Traffix
        Performance Marketing, which offers marketers brand and distribution solutions
        via Traffix’s proprietary ad-serving optimization technology, SendTraffic, a
        performance focused, search engine marketing firm, Hot Rocket Marketing,
        an
        online direct-response media firm leveraging a vast online inventory across
        sites, networks, search engines and email, and mxFocus, a developer and
        distributor of content and services for mobile phones and devices.
 
 At
        the
        effective time of the Merger, the stockholders of Traffix, and other security
        holders, will receive in aggregate 11,917,520 shares of New Motion common
        stock,
        including shares underlying options to purchase shares of New Motion common
        stock, in exchange for their shares of Traffix common stock and options to
        purchase shares of Traffix common stock. Based on the capitalization of both
        companies as of September 26, 2007, the date of the merger agreement, Traffix
        stockholders will receive 0.683 shares of New Motion common stock for each
        share
        of Traffix common stock. The exchange ratio and the aggregate number of shares
        are subject to adjustment as provided in the Merger Agreement if certain
        contingent matters are not resolved in accordance with the requirements and
        conditions referenced in the Merger Agreement. Under the terms of the Merger
        Agreement, each outstanding stock option to purchase shares of Traffix common
        stock will convert into and become an option to purchase common stock of
        New
        Motion upon the same terms and conditions as the outstanding options, except
        that the number of shares for which the new option may be exercised and the
        exercise price of the new option will be adjusted consistent with the applicable
        exchange ratio in the Merger. It is the intent of the parties that the aggregate
        Merger Consideration, together with the shares of New Motion’s common stock to
        be issued to holders of Traffix options upon their exercise, at the effective
        time of the Merger, will constitute approximately 45% of the shares of New
        Motion’s capital stock outstanding immediately after the Merger on a fully
        diluted basis, assuming the exercise of all of New Motion’s outstanding options
        and warrants and settlement of certain contingent matters described in the
        Merger Agreement. Subject to satisfaction of all closing conditions, the
        merger
        is expected to close during the first quarter of 2008.
 
 See
        Note
        3 of these financial statement footnotes for more information about the merger
        with Traffix.
 
 *Interim
        Financial Information*
 
 New
        Motion’s condensed balance sheet as of December 31, 2006 has been derived from
        audited financial statements and the interim condensed consolidated financial
        statements have been prepared from the records of New Motion without audit.
        New
        Motion’s unaudited condensed consolidated financial statements have been
        prepared pursuant to the rules and regulations of the Securities and Exchange
        Commission (the “SEC”). Certain information and note disclosures normally
        included in annual financial statements prepared in accordance with generally
        accepted accounting principles have been condensed or omitted pursuant to
        those
        rules and regulations, although New Motion believes that the disclosures
        made
        are adequate to make the information not misleading. In the opinion of
        management, all adjustments, which consist of only normal recurring adjustments
        to present fairly the financial position at September 30, 2007, and the results
        of operations and cash flows for the three- and nine-months ended September
        30,
        2007 and 2006, respectively, have been made. These interim consolidated
        financial statements should be read in conjunction with New Motion’s audited
        financial statements and notes thereto for each of the two years in the period
        ended December 31, 2006 contained in the Company’s Annual Report on Form 10−KSB
        filed with the SEC on April 2, 2007. The results of operations for the three-
        and nine-months ended September 30, 2007 are not necessarily indicative of
        the
        results to be expected for any other interim period or for the full fiscal
        year.
  8
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**
 
 **Note
        2**–**Summary** **of
        Significant Accounting Policies**
 
 *Principles
        of Consolidation*
 
 The
        condensed 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.
 
 *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 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.
 
 *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.
  9
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**
 
 *Fair
        Value of Financial Instruments*
 
 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.
 
 *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 conducts
        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 or losses are reflected in the statement of operations.
 
 *Concentration
        of 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 Nine Months**
              
              **For
                  the Three Months****Ended
                  September 30,**
              
              **Ended
                  September 30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****Revenue**Customer
                  A
              
              
              8
              %
              
              43
              %
              
              5
              %
              
              21
              %Customer
                  B
              
              
              -
              %
              
              9
              %
              
              -
              %
              
              4
              %Customer
                  C
              
              
              87
              %
              
              48
              %
              
              89
              %
              
              74
              %Other
                  Customers
              
              
              5
              %
              
              -
              %
              
              6
              %
              
              1
              %
 
 **As
                  of**
              
              **As
                  of****September
                  30,**
              
              **December
                  31,****2007**
              
              **2006****Accounts
                  receivable**Customer
                  A
              
              
              11
              %
              
              18
              %Customer
                  B
              
              
              -
              %
              
              11
              %Customer
                  C
              
              
              83
              %
              
              70
              %Other
                  Customers
              
              
              6
              %
              
              1
              %
 
 *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
        60
        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.
  10
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed 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
        three months ended September 30, 2007, the gross amount of invoices subject
        to
        factoring totals approximately $10,465,000. The total factored amount of
        these
        invoices equals approximately $7,187,000. As of September 30, 2007, New Motion
        had reserves and allowances of approximately $823,000 against these factored
        amounts. This compares to $6,146,000 of gross invoices subject to factoring
        for
        the three months ended September 30, 2006, of which the total factored amount
        of
        these invoices equaled approximately $3,902,000. 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.
  11
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed 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 60 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.
  12
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**
 
 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.
 
 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 nine
        months
        ended September 30, 2006 and 2007, advertising and marketing expenses were
        $6,899,000 and $15,325,000, respectively. For the quarters ended September
        30,
        2006 and 2007, advertising and marketing expenses were $4,076,000 and
        $7,878,000, respectively.
 
 *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.
 
 New
        Motion provides a valuation allowance against a portion of its deferred tax
        assets. 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. A decrease in New Motion’s
        valuation allowance would result in an immediate material income tax benefit,
        an
        increase in total assets and stockholder's equity and could have a significant
        impact on earnings in future periods.
 
 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.
  13
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**
 
 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.
 
 New
        Motion and its subsidiaries file income tax returns in the U.S. and Australian
        federal jurisdictions and the state of California jurisdiction. 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 recognized no change in the
        liability for unrecognized tax benefits. New Motion does not have any
        unrecognized tax benefits as of January 1, 2007, and June 30, 2007.
 
 New
        Motion does not have any tax positions in the balance at January 1, 2007,
        for
        which the ultimate deductibility is highly certain but for which there is
        uncertainty about the timing of such deductibility. 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
        January 1, 2007, that if recognized, would impact the effective tax rate.
        As a
        result, New Motion expects no adjustment to
        its
        amount of unrecognized tax benefits during 2007.
 
 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 at September 30, 2007.
 
 For
        the
        nine-months ended September 30, 2007, New Motion has a benefit for income
        taxes
        of approximately $1,111,000. This represents a current tax benefit for New
        Motion of $1,411,000, offset by a tax provision of $300,000 for its consolidated
        joint venture entity, MECC. For the three months ended September 30, 2007,
        New
        Motion has a benefit for income taxes of approximately $206,000. This represents
        a current tax benefit for New Motion of $367,000, offset by a tax provision
        of
        $161,000 for MECC.
 
 *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.
  14
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**
 
 *New
        Accounting Pronouncements*
 
 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**–**Merger with Traffix**
 
 On
        September 26, 2007, New Motion executed a definitive Agreement and Plan of
        Merger (the “Merger Agreement”) with Traffix, Inc., a Delaware corporation
        (“Traffix”), and NM Merger Sub, a Delaware corporation and wholly-owned
        subsidiary of New Motion (“Merger Sub”), pursuant to which Merger Sub will merge
        with and into Traffix, the separate existence of Merger Sub shall cease,
        and
        Traffix shall continue as the surviving corporation in the merger, thus becoming
        a wholly-owned subsidiary of New Motion (the “Merger”).
 
 Traffix,
        Inc. is a premier interactive media company that develops its own content
        and
        builds Internet and mobile communities tailored to consumers specific interests
        and lifestyles. Traffix’s full solution marketing services delivers media,
        analytics and results to third parties through its four business groups:
        Traffix
        Performance Marketing, which offers marketers brand and distribution solutions
        via Traffix’s proprietary ad-serving optimization technology, SendTraffic, a
        performance focused, search engine marketing firm, Hot Rocket Marketing,
        an
        online direct-response media firm leveraging a vast online inventory across
        sites, networks, search engines and email, and mxFocus, a developer and
        distributor of content and services for mobile phones and devices.
 
 *Merger
        Consideration*
 
 At
        the
        effective time of the Merger, the stockholders of Traffix, and other security
        holders, will receive in aggregate 11,917,520 shares of New Motion common
        stock,
        including shares underlying options to purchase shares of New Motion common
        stock, in exchange for their shares of Traffix common stock and options to
        purchase shares of Traffix common stock. Based on the capitalization of both
        companies as of September 26, 2007, the date of the merger agreement, Traffix
        stockholders will receive 0.683 shares of New Motion common stock for each
        share
        of Traffix common stock. The exchange ratio and the aggregate number of shares
        are subject to adjustment as provided in the Merger Agreement if certain
        contingent matters are not resolved in accordance with the requirements and
        conditions referenced in the Merger Agreement. Under the terms of the Merger
        Agreement, each outstanding stock option to purchase shares of Traffix common
        stock will convert into and become an option to purchase common stock of
        New
        Motion upon the same terms and conditions as the outstanding options, except
        that the number of shares for which the new option may be exercised and the
        exercise price of the new option will be adjusted consistent with the applicable
        exchange ratio in the Merger. It is the intent of the parties that the aggregate
        Merger Consideration, together with the shares of New Motion’s common stock to
        be issued to holders of Traffix options upon their exercise, at the effective
        time of the Merger, will constitute approximately 45% of the shares of New
        Motion’s capital stock outstanding immediately after the Merger on a fully
        diluted basis, assuming the exercise of all of New Motion’s outstanding options
        and warrants and settlement of certain contingent matters described in the
        Merger Agreement. Subject to satisfaction of all closing conditions, the
        merger
        is expected to close during the first quarter of 2008.
  15
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**
 
 *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.
 
 New
        Motion’s management expects to engage 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 may be materially
        impacted by the results of Traffix’s operations up to the closing date of the
        merger.
 
 **Note
        4**–**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.
  16
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed 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. New Motion will enter into a
        management services agreement with the joint venture pursuant to which it
        will
        pay the joint venture a management fee equal to the purchase price paid under
        the Asset Purchase Agreement, or $1,080,000, for management services rendered
        by
        the joint venture. 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. New
        Motion is required to make additional quarterly
        management fee payments to the joint venture equal to 10% of the revenue
        generated from the assets New
        Motion acquired
        from IVG. As
        of the
        end of the third quarter of 2007, New Motion is evaluating 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 September 30, 2007: current assets of
        $882,000 and current liabilities
        of $300,000. MECC’s
        results are reflected in New Motion’s consolidated statement of operations for
        the nine months ended September 30, 2007, and all intercompany transactions
        have
        been eliminated. The resulting minority interest was $291,000, net of
        provision for income tax of
        $300,000 for the
        nine months ended September 30, 2007. For the three months ended September
        30,
        2007 the resulting minority interest was $156,000,
        net of provision
        for income tax of
        $161,000. The minority
        interest reflects New Motion’s joint venture partner’s portion of MECC’s net
        income or loss for the period.
  17
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**
 
 **Note
        5**–**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
              
              
              10,000
              
              
              5$
              970,000
 
 New
        Motion is actively operating the acquired Katazo assets and maintaining the
        respective websites, and is continuing to generate revenue from these
        assets.
 
 **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 September 30, 2007 the accumulated amortization applicable to the intangible
        assets was $ 636,000 ,
        resulting in a net carrying amount of $904,000. The amortizable intangible
        assets acquired are being amortized over periods of five to 18 months.
  18
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**
 
 **Note
        7**–**Debt**
 
 In
        addition to the IVG Note, which was subsequently converted into New Motion’s
        common stock (see “Note 4– 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 In accordance
        with
        the terms of the Oracle Note, New Motion makes regular quarterly payments
        of
        principal and interest.
 
 **Note
        8**–**Earnings per Share**
 
 The
        computational components of basic and diluted earnings per share are as
        follows:
 
 **For
                  the Three Months Ended**
              
              **For
                  the Nine Months Ended****Ended
                  September 30,**
              
              **Ended
                  September 30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****EPS
                  Denominator:**Basic
                  weighted average shares
              
              
              12,000,167
              
              
              7,263,688
              
              
              11,108,117
              
              
              7,263,688Effect
                  of dilutive securities
              
              
              -
              
              
              -
              
              
              -
              
              
              784,478Diluted
                  weighted average shares
              
              
              12,000,167
              
              
              7,263,688
              
              
              11,108,117
              
              
              8,048,166**EPS
                  Numerator (effect on net income):**Basic
                  weighted average earnings
              
              $
              (1,949,000
              )
              $
              (437,000
              )
              $
              (3,208,000
              )
              $
              1,074,000Effect
                  of dilutive securities
              
              
              -
              
              
              -
              
              
              -
              
              
              -Diluted
                  weighted average earnings
              
              $
              (1,949,000
              )
              $
              (437,000
              )
              $
              (3,208,000
              )
              $
              1,074,000**Earnings
                  per share:**Basic
                  weighted average earnings
              
              $
              (0.16
              )
              $
              (0.06
              )
              $
              (0.29
              )
              $
              0.15Effect
                  of dilutive securities
              
              
              -
              
              
              -
              
              
              -
              
              
              (0.02
              )Diluted
                  weighted average earnings
              
              $
              (0.16
              )
              $
              (0.06
              )
              $
              (0.29
              )
              $
              0.13
 
 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.
 
 Common
        stock underlying outstanding options, convertible securities and warrants
        were
        not included in the computation of diluted earnings per share for the three-
        and
        nine-months ended September 30, 2007, because their inclusion would be
        antidilutive when applied to the Company’s net loss per share. For the three-
        and nine-months ended September 30, 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, and (vi) 112,678 common shares issued for odd
        lot
        rounding in connection with the Reverse Split.
 
 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 three- and nine-months
        ended
        September 30, 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 three- and nine-months ended September 30, 2006 was determined
        to
        be less than the exercise and conversion prices of the options and convertible
        notes.
  19
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**
 
 **Note
        9**–**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 on Form SB-2 to describe the merger agreement entered into with
        Traffix on September 26, 2007, in accordance with its obligations under the
        registration rights agreement. To date, the Company has not incurred any
        liquidated damages under the registration rights agreement.
  20
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**
 
 **Note
        10**–**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 our 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.
 
 The
        fair
        value of each option award during the nine months ended September 30, 2007
        was
        estimated on the date of grant using a Black-Scholes valuation model that
        used
        the assumptions noted in the following table:
  21
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**
 
 **September**
                **2007**
              
              **February**
                **2007**(Grant)
              
              (Grant)Stock
                  price
              
              $
              14.00
              
              $
              6.00Strike
                  Price
              
              $
              14.00
              
              $
              6.00Maturity
              
              
              7
                  years
              
              
              7
                  yearsRisk
                  free interest rate
              
              
              5%
              
              
              5%Volatility
              
              
              86%
              
              
              86%Fair
                  market value per share
              
              $
              11.01
              
              $
              4.72Forfeiture
                  rate
              
              
              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.
 
 The
        Company determines stock option forfeiture rates based on the historical
        trends
        of its employees.
 
 *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, 2007
                
                
                1,349,594
                
                $
                0.51
                
                $
                18,881,000Granted
                
                
                468,700
                
                $
                6.47Exercised
                    (a)
                
                
                (55,688
                )
                $
                0.48
                
                $
                781,000Forfeited
                    or cancelled
                
                
                (616,929
                )
                $
                0.53Outstanding
                    at September 30, 2007
                
                
                1,145,677
                
                $
                2.94
                
                $
                13,244,000Vested
                    or expected to vest at September 30, 2007
                
                
                1,088,393
                
                $
                1.01
                
                $
                14,682,000Exercisable
                    at September 30, 2007
                
                
                616,851
                
                $
                1.01
                
                $
                8,321,000
 
 (a)
        New
        Motion received approximately $27,000 upon the exercise of these
        options
 
 For
        the
        nine months ended September 30 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 September 30, 2007, is shown in the following
        table:
 
 Fair
                  Value to
                Be
                  Amortized2007
              
              $
              1,117,0002008
              
              
              827,0002009
              
              
              615,000$
              2,559,000
  22
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**
 
 For
        the
        three- and nine months ended September 30, 2007, $412,000 and $775,000,
        respectively ($412,000 and $775,000, respectively 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 the three- and nine-month periods ended September 30, 2007.
 
 The
        following table summarizes information concerning currently outstanding and
        exercisable stock options as of September 30, 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
              
              
              8.3
              
              $
              0.48
              
              
              555,895
              
              $
              0.48$2.34
              
              
              7,264
              
              
              8.8
              
              $
              2.34
              
              
              2,623
              
              $
              2.342007
                  Plan:$6.00
              
              
              406,200
              
              
              9.4
              
              $
              6.00
              
              
              58,333
              
              $
              6.00$6.60
              
              
              37,500
              
              
              4.4
              
              $
              6.60
              
              
              -
              
              $
              6.60$14.00
              
              
              25,000
              
              
              4.4
              
              $
              14.00
              
              
              -
              
              $
              14.60Outside
                  of Plans:$2.34
              
              
              363,184
              
              
              8.9
              
              $
              2.34
              
              
              -
              
              $
              2.34
 
 *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.
  23
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**
 
 The
        fair
        values of each warrant issued during the period ended September 30, 2007
        were
        estimated on the date of grant using a Black-Scholes valuation model that
        used
        the following assumptions:
 
 **January
                  2007**
                **Walker
                  andSGE 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 nine months ended September 30, 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.
  24
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**
 
 The
        following table summarizes information concerning currently outstanding and
        exercisable common stock warrants as of September 30, 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 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 is being
        amortized in accordance with its vesting schedule, and is included in the
        Company’s stock-based compensation expense for the periods presented.
 
 Restricted
        stock activity under the 2007 Plan was as follows (amounts presented on a
        post-Reverse Split basis):
  **Weighted-**
              
              **Estimated****Average**
              
              **Aggregate****Number
                  of**
              
              **Grant**
              
              **Intrinsic****Shares**
              
              **Price**
              
              **Value**Outstanding
                  at January 1, 2007
              
              
              -
              
              $
              -
              
              $
              -Granted
              
              
              75,000
              
              $
              16.40
              
              $
              1,230,000Vested
                  at September 30, 2007
              
              
              -
              
              $
              -
              
              $
              -Unvested
                  at September 30, 2007
              
              
              75,000
              
              $
              16.40
              
              $
              1,230,000
 
 Future
        amortization of the fair value of restricted stock outstanding as of September
        30, 2007, is shown in the following table:
 
 Fair
                  Value to
                Be
                  Amortized2007
              
              $
              273,0002008
              
              
              622,0002009
              
              
              335,000$
              1,230,000
 
 For
        the
        three- and nine months ended September 30, 2007, $109,000 ($109,000 after
        tax)
        of compensation relating to restricted stock was recorded.
  25
  **New
        Motion, Inc.**
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**
 
 **Note
        11**–**Commitments and Contingencies**
 
 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.
 
 **Note
        12**–**Subsequent Events**
 
 On
        October 30, 2007 (the “Effective Date”), the Company entered into an Amended and
        Restated Advertising Agreement (“the Agreement”) with Jingle Networks, Inc.
        (“Jingle”). Jingle operates a free to consumer directory assistance telephone
        service called “Free411” and a number of informational websites, including
        www.free411.com. Under the terms of the agreement, Jingle will provide telephone
        advertising services and analysis and will provide the Company 90 million
        up-front advertisement impressions on the Free411 service at the rate of
        7.5
        million impressions per month for 12 months (the “Initial Period”). The Company
        may terminate the Agreement, by 30-day written notice, if Jingle does not
        deliver 7.5 million impressions per month up to 90 million impressions in
        aggregate. The Company may also terminate the Agreement if the average response
        rate (“Response Rate”) is less than 7.5% over any consecutive two week period,
        after giving Jingle a 30-day period to remedy the Response Rate to above
        7.5%.
        The Company also has a first right of refusal to purchase available additional
        impressions in excess of the 7.5 million per month. The Agreement provides
        for
        either party to terminate the Agreement by 30-day written notice in the event
        of
        the other party’s default or breach of any of its obligations under the
        Agreement. The Agreement is to be in effect for the Initial Period, and will
        automatically renew for additional 30-day periods unless otherwise terminated.
        The Company is to pay Jingle $0.02 per impression and is to provide a $900,000
        fully refundable advance pre-payment upon the Effective Date, which payment
        was
        made on November 1, 2007. The Company is to make a subsequent fully refundable
        advance prepayment of $450,000 on January 16, 2008, plus pay any additional
        amounts due in excess of the 7.5 million monthly impression minimum. The
        Company
        is also to make another final fully refundable advance prepayment of $450,000
        on
        April 16, 2008, plus any additional amounts due in excess of the 7.5 million
        monthly impression minimum. According to the terms of the Agreement, any
        and all
        payments advanced and pre-paid by the Company are fully refundable, and any
        amounts not utilized to purchase or acquire impressions prior to termination
        share be returned and repaid to the Company.
 
 As
        a
        result of the fully refundable nature of the payments, the Jingle performance
        requirements and the relative size of the expenditure in relation to the
        Company’s total marketing and advertising expenditure, the Company considers the
        advertising agreement with Jingle to be a small component of its regular
        marketing and advertising expenditure and entered into the agreement in the
        ordinary course of its business.
  26
  **New
        Motion, Inc.**
 **Management’s
        Discussion and Analysis**
 
 **Item
        2. Management’s Discussion and Analysis**
 
 The
        information contained in this Form 10-QSB is intended to update the information
        contained in the Annual Report on Form 10-KSB for the year ended December
        31,
        2006 of New Motion, Inc. (“we,” “our,” “us”, the “Company,” or “New Motion”) and
        presumes that readers have access to, and will have read, the “Management’s
        Discussion and Analysis” and other information contained in our Form 10-KSB. The
        following discussion and analysis also should be read together with our
        consolidated financial statements and the notes to the consolidated financial
        statements included elsewhere in this Form 10-QSB.
 
 *This
        discussion summarizes the significant factors affecting our consolidated
        operating results, financial condition and liquidity and cash flows for the
        three and nine months ended September 30, 2007 and the three and nine months
        ended September 30, 2006. Except for historical information, the matters
        discussed in this* *“Management’s
        Discussion and Analysis” are forward-looking statements that involve risks and
        uncertainties and are based upon judgments concerning various factors that
        are
        beyond our control. Actual results could differ materially from those projected
        in the* ** *forward-looking
        statements as a result of, among other things, the factors described under
        the
“Cautionary Statements and Risk Factors” included elsewhere in this report.*
 
 **Overview**
 
 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 three strategic service lines – digital music,
        casual games and interactive contests. These distinct service lines consist
        of a
        broad array of properties, including Bid4Prizes, a low-bid mobile auction
        game,
        GatorArcade, a premium online and mobile gaming site, YourCrush, an
        astrology-driven mobile dating help site and Altnet, a mobile legal music
        download service featuring original artists. Other brands include
        MobileSidewalkTM, a U.S.-based mobile entertainment company and RingtoneChannel,
        a mobile storefront provider. 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, GatorArcade and MobileSidewalk’s Music Trivia. 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.
  The
        monthly end user subscription fees for our wireless entertainment products
        and
        services generally range from $3.99 to $9.99. Premium downloads offered on
        an
        a-la-carte basis range from $0.99 to $5.99. We generate 95% of our revenue
        on a
        subscription basis versus 5% on an a-la-carte basis.
  **History**
 
 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.
  27
  **New
        Motion, Inc.**
 **Management’s
        Discussion and Analysis**
 
 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.
  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 the 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
        the 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 IVG to purchase certain
        specified assets of Mobliss, a provider of proprietary applications, delivery
        systems, and platforms for wireless devices. 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 US and Canada. The primary strategic objective of
        this
        purchase is 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 will
        also
        enable us to better serve our customers and end users by expediting the time
        in
        which we react to changes in the marketplace. As
        of the
        end of the third quarter of 2007, New Motion has begun to channel some new
        subscriber messages traffic onto the acquired assets and developed technology,
        and expects to increase, at a manageable rate, the volume of messages billed
        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 an opportunity for us to tap into a new market with Asian-themed
        content, delivering sophisticated mobile products. The joint venture is to
        be
        registered under the name The Mobile Entertainment Channel Corporation and
        will
        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 the third quarter of 2007, New Motion is 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 the Over-The-Counter Bulletin Board.
  28
 
 **New
        Motion, Inc.**
 **Management’s
        Discussion and Analysis**
 
 On
        April
        1, 2007, we entered into a Binding Letter of Intent (the “LOI”) with Opera
        Telecom USA (“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. 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, Inc., a Delaware corporation (“Traffix”), and
        NM Merger Sub, a Delaware corporation and wholly-owned subsidiary of New
        Motion
        (“Merger Sub”), pursuant to which Merger Sub will merge with and into Traffix,
        the separate existence of Merger Sub shall cease, and Traffix shall continue
        as
        the surviving corporation in the merger, thus becoming a wholly-owned subsidiary
        of New Motion (the “Merger”). Traffix, Inc. is a premier interactive media
        company that develops its own content and builds Internet and mobile communities
        tailored to consumers specific interests and lifestyles. Traffix’s full solution
        marketing services delivers media, analytics and results to third parties
        through its four business groups: Traffix Performance Marketing, which offers
        marketers brand and distribution solutions via Traffix’s proprietary ad-serving
        optimization technology, SendTraffic, a performance focused, search engine
        marketing firm, Hot Rocket Marketing, an online direct-response media firm
        leveraging a vast online inventory across sites, networks, search engines
        and
        email, and mxFocus, a developer and distributor of content and services for
        mobile phones and devices.
 
 At
        the
        effective time of the Merger, the stockholders of Traffix, and other security
        holders, will receive in aggregate 11,917,520 shares of New Motion common
        stock,
        including shares underlying options to purchase shares of New Motion common
        stock, in exchange for their shares of Traffix common stock and options to
        purchase shares of Traffix common stock. Based on the capitalization of both
        companies as of September 26, 2007, the date of the merger agreement, Traffix
        stockholders will receive 0.683 shares of New Motion common stock for each
        share
        of Traffix common stock. The exchange ratio and the aggregate number of shares
        are subject to adjustment as provided in the Merger Agreement if certain
        contingent matters are not resolved in accordance with the requirements and
        conditions referenced in the Merger Agreement. Under the terms of the Merger
        Agreement, each outstanding stock option to purchase shares of Traffix common
        stock will convert into and become an option to purchase common stock of
        New
        Motion upon the same terms and conditions as the outstanding options, except
        that the number of shares for which the new option may be exercised and the
        exercise price of the new option will be adjusted consistent with the applicable
        exchange ratio in the Merger. It is the intent of the parties that the aggregate
        Merger Consideration, together with the shares of New Motion’s common stock to
        be issued to holders of Traffix options upon their exercise, at the effective
        time of the Merger, will constitute approximately 45% of the shares of New
        Motion’s capital stock outstanding immediately after the Merger on a fully
        diluted basis, assuming the exercise of all of New Motion’s outstanding options
        and warrants and settlement of certain contingent matters described in the
        Merger Agreement. Subject to satisfaction of all closing conditions, the
        merger
        is expected to close during the first quarter of 2008.
 
 For
        the
        three months ended September 30, 2007, approximately $5.9 million, or 75%,
        of
        our selling and marketing expense was attributable to Traffix, compared to
        zero
        in the year ago period and $2.1 million, or 47%, for the three months ended
        June
        30, 2007. For the nine months ended September 30, 2007, approximately $8
        million, or 52%, of our selling and marketing expense was attributable to
        Traffix, compared to zero in the year ago period.
  29


**New
      Motion, Inc.**  **Management’s
      Discussion and Analysis**




**Key
      Business Factors**




In
      managing and evaluating our business, we consider, among other factors the
      following:




*Consistent
      Monitoring of Operational Metrics* .
      Our
      business model, regardless of the product 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.




*Composition
      of our Services* .
      Our
      strategy is to publish a diversified and balanced portfolio of high-quality
      services based primarily on New Motion brands, as well as some brands that
      we
      license from third parties. We aim to provide a range of services that leverage
      the fixed Internet, where U.S. consumers increasingly purchase and redeem our
      services (commonly referred to as the “off deck arena”), alongside mobile
      delivery. We believe that creating innovative Internet storefronts where online
      content is wrapped around mobile products provides a richer experience to the
      consumer and a higher retention rate.




Our
      third
      party license agreements for third-party branded content typically require
      that
      we pay a small advance or guaranteed payment. However, the majority of our
      licensed content deals are based on revenue share so that our exposure to high
      priced, up front licenses is limited. We generally recoup all of the advances
      we
      have paid from royalties earned from sales of the application before the
      licensor receives any further royalty payments from us. We also distribute
      applications for other publishers, developers and licensors. When we distribute
      applications, we generally do not assume the cost or responsibility associated
      with application development, which ultimately results in a higher royalty
      payment to the third party and therefore a lower gross margin for us on
      distributed products.




**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.




30


**New
        Motion, Inc.**  **Management’s
        Discussion and Analysis**


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.




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 60-180 days after billing.




Reserves
      recorded based on this estimation process for the years ended December 31,
      2005
      and 2006, amounted to 15% and 13% of gross revenue, respectively. Reserves
      recorded as of September 30, 2007 amounted to 4% of gross revenue. 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 receive 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.




31


**New
        Motion, Inc.**  **Management’s
        Discussion and Analysis**


For
      each
      of the periods reported herein, the Company’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 the Company’s 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.




*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
      provide a valuation allowance against a portion of our deferred tax assets.
      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. A decrease in our valuation allowance would result
      in an immediate material income tax benefit, an increase in total assets and
      stockholder's equity and could have a significant impact on earnings in future
      periods.




Our
      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 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 with U.S. and Australian federal jurisdictions and in the
      state of 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 recognized no change in the liability for unrecognized
      tax
      benefits, which was accounted for as a reduction to the January 1, 2007, balance
      of retained earnings. We do not have any unrecognized tax benefits as of January
      1, 2007, and June 30, 2007.




32


**New
        Motion, Inc.**  **Management’s
        Discussion and Analysis**


Included
      in the balance at January 1, 2007, are $0 of tax positions for which the
      ultimate deductibility is highly certain but for which there is uncertainty
      about the timing of such deductibility. 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.
      Also
      included in the balance at January 1, 2007, are $0 of unrecognized tax benefits
      that, if recognized, would impact the effective tax rate. We do not expect
      any
      adjustment to our amount of unrecognized tax benefits during 2007.




We
      recognize interest and penalties accrued related to unrecognized tax benefits
      in
      income tax expense. We did not have any amount accrued for the payment of
      interest and penalties at June 30, 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 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 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 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.




33


**New
        Motion, Inc.**  **Management’s
        Discussion and Analysis**


*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.




The
      consolidation of MECC reflects the elimination of all intercompany transactions.
      MECC is reflected with the following balances in our consolidated balance sheet
      at June 30, 2007: current assets of $882,000 and current liabilities of
      $300,000. MECC’s results of operations are reflected in our consolidated
      statement of operations for the nine months ended September 30, 2007 as minority
      interest of $291,000, net of provision for income tax of $300,000 and for the
      three months ended September 30, 2007 as minority interest of $156,000, net
      of a
      benefit for income tax of $161,000. The minority interest reflects our 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.





**Results
      of Operations for the three months ended September 30, 2007 compared to three
      months ended September 30, 2006.**




The
      following analysis and discussion pertains to our results of operations for
      the
      three months ended September 30, 2007, compared to our results of operations
      for
      the three months ended September 30, 2006.





*Net
      Sales*


**Three
                  months ended****September
                  30,**
              
              **Percent****2007**
              
              **2006**
              
              **Change**Net
                  sales
              
              $
              10,495,000
              
              $
              5,581,000
              
              
              88
              %





34


**New
        Motion, Inc.**  **Management’s
        Discussion and Analysis**


Net
      sales
      increased 88% to $10,495,000 for the three months ended September 30, 2007,
      compared to $5,581,000 for the three months ended September 30, 2006. This
      increase in sales was due to a larger base of average monthly subscribers during
      the three months ended September 30, 2007, which increased 77% over the three
      months ended September 30, 2006. This year-over-year increase in the average
      billable customer base, when combined with a 6% improvement in our average
      monthly revenue per user (“ARPU”) over the same period, resulted in the
      substantial net sales increase year-over-year. We also ended the third quarter
      of 2007, with approximately 750,000 monthly subscribers.





The
      increase in the third quarter average billable customer base is principally
      due
      to higher levels of selling and marketing expense to acquire new subscribers.
      The increase in third quarter ARPU when
      compared to the year-ago period was due
      to a greater proportion of higher-priced subscription services, which was offset
      by our
      May,
      2007 acquisition of the Katazo assets. A relatively
      large number of Katazo-subscribers are billed at a lower monthly rate than
      our
      existing subscriber base – which has negatively impacted firm-wide ARPU. We
      do expect that this effect will be mitigated over future periods as the Katazo
      subscriber base becomes a smaller proportion of our overall subscriber base.
      Our
      third quarter service mix consisted of a number of different brands, including
      Bid4Prizes, GatorArcade, Katazo, our White Label services, where we partner
      with
      existing web properties to deliver our services, Music Trivia and
      RingtoneChannel. This service mix compares favorably to the third quarter of
      2006, which consisted of only our Music Trivia and RingtoneChannel services.





*Cost
      of Sales*


**Three
                  months ended****September
                  30,**
              
              **Percent****2007**
              
              **2006**
              
              **Change**Cost
                  of sales
              
              $
              1,406,000
              
              $
              122,000
              
              
              1,052
              %




Cost
      of
      sales increased 1,052% to $1,406,000 for the three months ended September 30,
      2007, from $122,000 for the three months ended September 30, 2006. Sequentially,
      cost of sales for the third quarter was constant on an absolute basis when
      compared to second quarter cost of sales. The
      increase in cost of sales year-over-year is due to White Label sales in the
      three months ended September 30, 2007, which did not exist in the prior period.
      White Label sales have a significant cost of sales component because they
      involve revenue share arrangements with our White Label partners. However,
      the
      cost of sales associated with White Label sales is offset by lower customer
      acquisition costs, as we do not need to incur marketing expense to acquire
      these
      customers. The increase in cost of sales is also due to other cost of sales
      components which we did not incur in the comparison period, including
      amortization relating to the acquisition of Katazo assets and Bid4Prizes auction
      giveaways. Generally higher sales activity and higher subscriber volumes for
      the
      period ended September 30, 2007 also contributed to higher cost of sales as
      a
      result of higher hosting and licensing fees, when compared to the level of
      activity for the period ended September 30, 2006.




35


**New
        Motion, Inc.**  **Management’s
        Discussion and Analysis**
  *Gross
      Profit*


**Three
                  months ended****September
                  30,**
              
              **Percent****2007**
              
              **2006**
              
              **Change**Gross
                  profit
              
              $
              9,089,000
              
              $
              5,459,000
              
              
              66
              %




Gross
      profit increased 66% to $9,089,000 for the three months ended September 30,
      2007, from $5,459,000 for the three months ended September 30, 2006. Our
      gross
      margin decreased to 87% for the three months ended September 30, 2007, from
      98%
      for the three months ended September 30, 2006. The decrease in our gross margin
      year-over-year is due to sales of our lower margin White Label services in
      the
      third quarter of 2007, compared to no White Label sales in the comparative
      period, as well as the presence of other cost of sales components in the third
      quarter that did not exist a year ago. We expect that our gross margin
      percentage will remain relatively steady and may modestly increase if the growth
      in our White label services does not match the growth in our other,
      predominately non-White Label, sales.





*Selling
      and Marketing Expense*


**Three
                  months ended**
                **September
                  30,**
              
              **Percent****2007**
              
              **2006**
              
              **Change**Selling
                  and marketing
              
              $
              7,878,000
              
              $
              4,076,000
              
              
              93
              %




Selling
      and marketing expense increased 93% to $7,878,000 for the three months ended
      September 30, 2007, from $4,076,000 for the three months ended September 30,
      2006. A s
      a
      percentage of net sales, selling and marketing expense increased slightly to
      75%
      for the three months ended September 30, 2007, compared to 73% for the three
      months ended September 30, 2006. The absolute increase in selling and marketing
      expense on a year-over-year basis is due to our customer acquisition activities.
      For the three months ended September 30, 2007, approximately $5.9 million,
      or
      75%, of our selling and marketing expense was attributable to Traffix, compared
      to zero in the year ago period and $2.1 million, or 47%, for the three months
      ended June 30, 2007. On September 26, 2007, we entered into a merger agreement
      with Traffix. Please see Note 3, “Merger with Traffix,” in our Unaudited
      Consolidated Notes to Financial Statements for more information.





*General
      and Administrative Expense*




**Three
                  months ended**
                **September
                  30,**
              
              **Percent****2007**
              
              **2006**
              
              **Change**General
                  and administrative
              
              $
              3,331,000
              
              $
              1,253,000
              
              
              166
              %




General
      and administrative expense increased 166% to $3,331,000 for the three months
      ended September 30, 2007, from $1,253,000 for the three months ended September
      30, 2006. As
      a
      percentage of net sales, general and administrative expense increased to 32%
      for
      the three months ended September 30, 2007 compared to 22% for the three months
      ended September 30, 2006. On a sequential basis, general and administrative
      expense increased 14% in the third quarter compared to the second quarter of
      2007. Although all categories of general and administrative expense increased
      in
      the current period, the most prominent drivers of this year-over-year increase
      in general and administrative expense include a $436,000, or 202%, increase
      in
      consulting and professional services, and an $883,000, or 157% increase in
      payroll expense, excluding stock based compensation expense. These higher
      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. Our
      salaried headcount at the end of the third quarter of 2007 was 50, an increase
      of five personnel from the second quarter of 2007. We also recorded $412,000
      of
      stock compensation expense, including amortization of restricted stock grants,
      in the third quarter of 2007, which represents 20% of the increase in general
      and administrative expense over the year ago period.




36


**New
        Motion, Inc.**  **Management’s
        Discussion and Analysis**
  *(Loss)
      Before Provision (Benefit) for Income Taxes*


**Three
                    months ended****September
                    30,**
                
                **Percent****2007**
                
                **2006**
                
                **Change**(Loss)
                    before provision (benefit) for income taxes
                
                $
                (1,999,000
                )
                $
                (67,000
                )
                
                (2,884
                )%





(Loss)
      before provision (benefit) for income taxes decreased 2,884% to a loss of
      $1,999,000 for the three months ended September 30, 2007, from a loss of $67,000
      for the three months ended September 30, 2006. Our
      income (loss) before provision (benefit) for income taxes margin decreased
      to
      negative 19% for the three months ended September 30, 2007 compared to (1)%
      for
      the three months ended September 30, 2006. The expansion in our pretax loss
      is a
      result of higher levels of selling and marketing expense and general and
      administrative expense, offset by an increase in net sales, as described above.





*Net
      Income (Loss)*




**Three
                  months ended****September
                  30,**
              
              **Percent****2007**
              
              **2006**
              
              **Change**Net
                  income (loss)
              
              $
              (1,949,000
              )
              $
              (437,000
              )
              
              (346
              )%





Net
      income (loss) decreased 346% to a loss of $1,949,000 for the three months ended
      September 30, 2007, from net income (loss) of $(437,000) for the three months
      ended September 30, 2006 .
      Our net
      income (loss) margin decreased to negative 19% for the three months ended
      September 30, 2007 compared to negative 8% for the three months ended September
      30, 2006. Our income tax benefit was $206,000 for the three months ended
      September 30, 2007, compared to a provision for income taxes of $370,000 for
      the
      three months ended September 30, 2006. Minority interest of $156,000 for the
      three months ended September 30, 2007 represents the change in our joint venture
      partner’s claim on MEC’s net tangible assets during the second quarter of 2007.
      On a per share basis, basic and diluted net income (loss) per share decreased
      to
      a loss of $0.16 per share for the three months ended September 30, 2007,
      compared to basic and diluted net loss of $0.06 per share for the three months
      ended September 30, 2006.





**Results
      of Operations for the nine months ended September 30, 2007 compared to nine
      months ended September 30, 2006.**




The
      following analysis and discussion pertains to our results of operations for
      the
      nine months ended September 30, 2007, compared to our results of operations
      for
      the nine months ended September 30, 2006.




37


**New
        Motion, Inc.**  **Management’s
        Discussion and Analysis**


*Net
        Sales*
 
 **Nine
                  months ended****September
                  30,**
              
              **Percent****2007**
              
              **2006**
              
              **Change**Net
                  sales
              
              $
              23,031,000
              
              $
              12,543,000
              
              
              84
              %
  Net
        sales
        increased 84% to $23,031,000 for the nine months ended September 30, 2007,
        compared to $12,543,000 for the nine months ended September 30, 2006. This
        increase in sales was due to a larger base of average monthly subscribers
        during
        the nine months ended September 30, 2007, which increased 81% over the nine
        months ended September 30, 2006. This year-over-year increase in the average
        billable customer base, together with a relatively flat ARPU over the same
        period, resulted in the net sales increase year-over-year.
 
 The
        increase in the average billable customer base for the nine months ended
        September 30, 2007 is principally due to higher levels of selling and marketing
        expense to acquire new subscribers. The flat ARPU when
        compared to the year-ago period was due
        to the benefit of a greater proportion of higher-priced subscription services,
        which was canceled out by our
        May,
        2007 acquisition of the Katazo assets. A relatively
        large number of Katazo-subscribers are billed at a lower monthly rate than
        our
        existing subscriber base – which has negatively impacted firm-wide ARPU.
        Our service mix over the nine months ended September 30, 2007 consists of
        brands
        such as Bid4Prizes, GatorArcade, Katazo, our White Label services, where
        we
        partner with existing web properties to deliver our services, Music Trivia
        and
        RingtoneChannel. This current period service mix is much more diversified
        than
        our business in the year ago period, which consisted of only our Music Trivia
        and RingtoneChannel services.
 
 *Cost
        of Sales*
 
 **Nine
                  months ended****September 30,**
              
              **Percent****2007**
              
              **2006**
              
              **Change**Cost
                  of sales
              
              $
              3,626,000
              
              $
              341,000
              
              
              963
              %
  Cost
        of
        sales increased 963% to $3,626,000 for the nine months ended September 30,
        2007,
        from $341,000 for the nine months ended September 30, 2006. The
        increase in cost of sales year-over-year is due to White Label sales in the
        nine
        months ended September 30, 2007, which did not exist in the prior period.
        White
        Label sales have a significant cost of sales component because they involve
        revenue share arrangements with our White Label partners. The increase in
        cost
        of sales is also due to other cost of sales components which we did not incur
        in
        the comparison period, including Bid4Prizes auction giveaways. Generally
        higher
        sales activity and higher subscriber volumes for the period ended September
        30,
        2007 also contributed to higher cost of sales as a result of higher hosting
        and
        licensing fees, when compared to the level of activity for the period ended
        September 30, 2006.
 
 38
 **New
          Motion, Inc.****Management’s Discussion and
          Analysis**
 *Gross
        Profit*
 
 **Nine
                  months ended**
                **September
                  30,**
              
              **Percent****2007**
              
              **2006**
              
              **Change**Gross
                  profit
              
              $
              19,405,000
              
              $
              12,202,000
              
              
              59
              %
  Gross
        profit increased 59% to $19,405,000 for the nine months ended September 30,
        2007, from $12,202,000 for the nine months ended September 30, 2006. Our
        gross
        margin decreased to 84% for the nine months ended September 30, 2007, from
        97%
        for the nine months ended September 30, 2006. The decrease in our gross margin
        year-over-year is due to sales of our lower margin White Label services,
        which
        began in earnest in the second quarter of 2007 and has continued through
        the
        third quarter of 2007, compared to no White Label sales in the comparative
        period, as well as the presence of other cost of sales components in the
        third
        quarter that did not exist a year ago.
 
 *Selling
        and Marketing Expense*
 
 **Nine
                  months ended**
                **September
                  30,**
              
              **Percent****2007**
              
              **2006**
              
              **Change**Selling
                  and marketing
              
              $
              15,325,000
              
              $
              6,899,000
              
              
              122
              %
  Selling
        and marketing expense increased 122% to $15,325,000 for the nine months ended
        September 30, 2007, from $6,899,000 for the nine months ended September 30,
        2006. A s
        a
        percentage of net sales, selling and marketing expense increased to 67% for
        the
        nine months ended September 30, 2007, compared to 55% for the nine months
        ended
        September 30, 2006. The absolute increase in selling and marketing expense
        on a
        year-over-year basis is due to our customer acquisition activities. For the
        nine
        months ended September 30, 2007, approximately $8 million, or 52%, of our
        selling and marketing expense was attributable to Traffix, compared to zero
        in
        the year ago period. On September 26, 2007, we entered into a merger agreement
        with Traffix. Please see Note 3, “Merger with Traffix,” in our Unaudited
        Consolidated Notes to Financial Statements for more information.
 
 *General
        and Administrative Expense*
 
 **Nine
                  months ended**
                **September
                  30,**
              
              **Percent****2007**
              
              **2006**
              
              **Change**General
                  and administrative
              
              $
              8,429,000
              
              $
              3,034,000
              
              
              178
              %
 
 General
        and administrative expense increased 178% to $8,429,000 for the nine months
        ended September 30, 2007, from $3,034,000 for the nine months ended September
        30, 2006. As
        a
        percentage of net sales, general and administrative expense increased to
        37% for
        the nine months ended September 30, 2007 compared to 24% for the nine months
        ended September 30, 2006. Although all categories of general and administrative
        expense increased in the current period, the most prominent drivers of this
        year-over-year increase in general and administrative expense include a $1.3
        million, or 214%, increase in consulting and professional services, and a
        $2
        million, or 141% increase in payroll expense, excluding stock based compensation
        expense. These higher 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. We also recorded $884,000 of stock compensation expense,
        including amortization of restricted stock grants, for the nine months ended
        September 30, 2007.
  39
 **New
          Motion, Inc.**  **Management’s
          Discussion and Analysis**
  *Income
        (Loss) Before Provision (Benefit) for Income Taxes*
 
 **Nine
                  months ended**
                **September
                  30,**
              
              **Percent****2007**
              
              **2006**
              
              **Change**Income
                  (loss) before provision (benefit) for income taxes
              
              $
              (4,028,000
              )
              $
              2,041,000
              
              
              (297
              )%
  Income
        (loss) before provision (benefit) for
        income taxes decreased 297% to a loss of $4,028,000 for the nine months ended
        September 30, 2007, from income of $2,041,000 for the nine months ended
        September 30, 2006. . Our
        income (loss) before provision (benefit) for income taxes margin decreased
        to
        negative 17% for the nine months ended September 30, 2007 compared to 16%
        for
        the nine months ended September 30, 2006. The expansion in our pretax loss
        is a
        result of higher levels of selling and marketing expense and general and
        administrative expense, offset by an increase in net sales, as described
        above.
 
 *Net
        Income (Loss)*
 
 **Nine
                  months ended**
                **September
                  30,**
              
              **Percent****2007**
              
              **2006**
              
              **Change**Net
                  income (loss)
              
              $
              (3,208,000
              )
              $
              1,074,000
              
              
              (399
              )%
  Net
        income (loss) decreased 399% to a loss of $3,208,000 for the nine months
        ended
        September 30, 2007, from net income of $1,074,000 for the nine months ended
        September 30, 2006 .
        Our net
        income (loss) margin decreased to negative 14% for the nine months ended
        September 30, 2007 compared to 9% for the nine months ended September 30,
        2006.
        Our income tax benefit was $1,111,000 for the nine months ended September
        30,
        2007, compared to a provision for income taxes of $967,000 for the nine months
        ended September 30, 2006. Minority interest of $291,000 for the nine months
        ended September 30, 2007 represents the change in our joint venture partner’s
        claim on MEC’s net tangible assets during the period ended September 30, 2007.
        On a per share basis, basic and diluted net income (loss) per share decreased
        to
        a loss of $0.29 per share for the nine months ended September 30, 2007, compared
        to basic and diluted net income of $0.15 and $0.13 per share for the nine
        months
        ended September 30, 2006, respectively.
 
 **Liquidity
        and Capital Resources**
 
 As
        of
        September 30, 2007, we had cash and cash equivalents of approximately
        $12,991,000 and a working capital balance of approximately $15,084,000. As
        of
        December 31, 2006, we had cash and cash equivalents of approximately $544,000
        and a working capital balance of approximately $694,000. Our positive cash
        balance results primarily from financing activities. In the first quarter
        of 2007,
        we
        received gross proceeds of $20 million from the sale of capital stock to institutional
        investors and other accredited investors.
  We
        believe that our existing cash and cash equivalents and anticipated cash
        flows
        from our operating activities will be sufficient to fund our minimum working
        capital and capital expenditure needs for at least the next twelve months.
        In
        order to expand and improve our operating and management infrastructure,
        we
        expect to incur approximately $200,000 of expenses over the next twelve months
        relating to improving our internal controls and procedures, which includes
        expenses related to training and hiring additional staff, implementing a
        new
        accounting system and consulting fees relating to Sarbanes-Oxley Act compliance.
        The extent of our future capital requirements will depend on many factors,
        including our results of operations. If our cash from operations is less
        than
        anticipated or our working capital requirements or capital expenditures are
        greater than we expect, or if we expand our business by acquiring or investing
        in additional technologies, we may need to raise additional debt or equity
        financing. We are continually evaluating various financing strategies to
        be used
        to expand our 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 our operations.
  40
 **New
          Motion, Inc.**  **Management’s
          Discussion and Analysis**
 *Cash
        Flows*
  We
        currently satisfy our 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 nine months ended September 30, 2006 and 2007 are summarized in the
        following table:
  **Nine
                  Months Ended****September 30,****2007**
              
              **2006**Operating
                  Activities
              
              $
              (3,124,000
              )
              $
              282,000Investing
                  Activities
              
              
              (1,902,000
              )
              
              (24,000
              )Financing
                  Activities
              
              
              17,473,000
              
              
              (324,000
              )Net
                  change in cash
              
              $
              12,447,000
              
              $
              66,000
 
 *Cash
        Provided By (Used In) Operating Activities*
 
 New
        Motion’s cash requirements are principally for working capital. For
        the
        nine months ended September 30, 2007, cash used in operating activities was
        $3,124,000, compared to cash provided by operating activities of $282,000
        for
        the nine months ended September 30, 2006. Our operating cash flows result
        primarily from cash received from our aggregator customers, offset by cash
        payments we make for products and services, including sales and marketing
        expenses, employee compensation and consulting fees. Cash received from our
        aggregator customers generally corresponds to our net sales.
  *Cash
        Used In Investing Activities*
  For
        the
        nine months ended September
        30 ,
        2007,
        cash used in investing activities was $1,902,000, compared to $24,000 for
        the
        nine months ended September
        30 ,
        2006.
        Our investing cash flows correspond with purchases of fixed assets for cash
        and
        cash flows related to acquisitions. In the second quarter 2007, our purchase
        of
        the Katazo assets from Opera totaled $970,000 in cash. The purchase of the
        Mobliss assets during the nine months ended September 30, 2007, was financed
        through the issuance of the IVG Note. During the period ended September 30,
        2007, we also made capital expenditures relating to investment in our technology
        infrastructure, computer equipment and furniture for new employees.
  *Cash
        Provided By (Used In) Financing Activities*
  For
        the
        nine months ended September
        30 ,
        2007,
        cash provided by financing activities was $17,473,000, compared to cash used
        in
        financing activities of $324,000 for the nine months ended September 30,
        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, we entered into an Asset Purchase Agreement with IVG, pursuant
        to which we purchased from IVG certain specified assets of Mobliss. In exchange
        for the assets specified in the Asset Purchase Agreement, we 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, we increased
        the
        principal amount of the IVG Note by $580,000 to $1,080,000. On February 26,
        2007, we repaid $500,000 of the IVG Note.
  41
 **New
          Motion, Inc.**  **Management’s
          Discussion and Analysis**
 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.
 
 In
        connection with The Mobile Entertainment Channel Corporation joint venture
        with
        IVG, we are obligated to pay the joint venture a management fee equal to
        the
        purchase price paid for hardware and software assets we acquired from IVG,
        or
        $1,080,000, for management services rendered to us by the joint venture. 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. New
        Motion is required to make additional quarterly
        management fee payments to the joint venture equal to 10% of the revenue
        generated from the assets New
        Motion acquired
        from IVG. As
        of the
        end of the third quarter of 2007, New Motion is 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, 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
        September 26, 2007, New Motion executed a definitive Agreement and Plan of
        Merger (the “Merger Agreement”) with Traffix, Inc., a Delaware corporation
        (“Traffix”), and NM Merger Sub, a Delaware corporation and wholly-owned
        subsidiary of New Motion (“Merger Sub”), pursuant to which Merger Sub will merge
        with and into Traffix, the separate existence of Merger Sub shall cease,
        and
        Traffix shall continue as the surviving corporation in the merger, thus becoming
        a wholly-owned subsidiary of New Motion (the “Merger”). Traffix, Inc. is a
        premier interactive media company that develops its own content and builds
        Internet and mobile communities tailored to consumers specific interests
        and
        lifestyles. Traffix’s full solution marketing services delivers media, analytics
        and results to third parties through its four business groups: Traffix
        Performance Marketing, which offers marketers brand and distribution solutions
        via Traffix’s proprietary ad-serving optimization technology, SendTraffic, a
        performance focused, search engine marketing firm, Hot Rocket Marketing,
        an
        online direct-response media firm leveraging a vast online inventory across
        sites, networks, search engines and email, and mxFocus, a developer and
        distributor of content and services for mobile phones and devices.
 
 At
        the
        effective time of the Merger, the stockholders of Traffix, and other security
        holders, will receive in aggregate 11,917,520 shares of New Motion common
        stock,
        including shares underlying options to purchase shares of New Motion common
        stock, in exchange for their shares of Traffix common stock and options to
        purchase shares of Traffix common stock. Based on the capitalization of both
        companies as of September 26, 2007, the date of the merger agreement, Traffix
        stockholders will receive 0.683 shares of New Motion common stock for each
        share
        of Traffix common stock. The exchange ratio and the aggregate number of shares
        are subject to adjustment as provided in the Merger Agreement if certain
        contingent matters are not resolved in accordance with the requirements and
        conditions referenced in the Merger Agreement. Under the terms of the Merger
        Agreement, each outstanding stock option to purchase shares of Traffix common
        stock will convert into and become an option to purchase common stock of
        New
        Motion upon the same terms and conditions as the outstanding options, except
        that the number of shares for which the new option may be exercised and the
        exercise price of the new option will be adjusted consistent with the applicable
        exchange ratio in the Merger. It is the intent of the parties that the aggregate
        Merger Consideration, together with the shares of New Motion’s common stock to
        be issued to holders of Traffix options upon their exercise, at the effective
        time of the Merger, will constitute approximately 45% of the shares of New
        Motion’s capital stock outstanding immediately after the Merger on a fully
        diluted basis, assuming the exercise of all of New Motion’s outstanding options
        and warrants and settlement of certain contingent matters described in the
        Merger Agreement. Subject to satisfaction of all closing conditions, the
        merger
        is expected to close during the first quarter of 2008.
  42
 **New
          Motion, Inc.**  **Management’s
          Discussion and Analysis**
  *Contractual
        Obligations and Off Balance Sheet Arrangements*
 
 At
        September 30, 2007 and September 30, 2006, we 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, we are not exposed
        to any financing, liquidity, market or credit risk that could arise if we
        had
        engaged in such relationships.
 
 The
        following table shows our 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:
 **OperatingLeases**
                
                **EmploymentAgreements**
                
                **Total****Contractual****Obligations**2007
                
                $
                380,000
                
                $
                1,678,000
                
                $
                2,058,0002008
                
                
                277,000
                
                
                1,231,000
                
                
                1,508,0002009
                
                
                15,000
                
                
                564,000
                
                
                579,000$
                672,000
                
                $
                3,473,000
                
                $
                4,145,000
  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
        three months ended September 30, 2007, the gross amount of invoices subject
        to
        factoring totals approximately $10,465,000. The total factored amount of
        these
        invoices equals approximately $7,187,000. As of September 30, 2007, New Motion
        had reserves and allowances of approximately $823,000 against these factored
        amounts. This compares to $6,146,000 of gross invoices subject to factoring
        for
        the three months ended September 30, 2006, of which the total factored amount
        of
        these invoices equaled approximately $3,902,000, This factoring facility
        is
        offered on a recourse basis. Gross sales for each month are reported net
        of any
        of these factoring fees. We continually evaluate the best use of our cash
        assets
        relating to our factoring facility or to alternative uses of cash, such as
        enhancing our infrastructure and making selective acquisitions.
 
 **Cautionary
        Statements and Risk Factors**
 
 Several
        of the matters discussed in this document contain forward-looking statements
        that involve risks and uncertainties. Factors associated with the
        forward-looking statements that could cause actual results to differ materially
        from those projected or forecast are included in the statements below. In
        addition to other information contained in this report, readers should carefully
        consider the following cautionary statements.
 
 43
 **New
          Motion, Inc.**  **Management’s
          Discussion and Analysis**
 **Risks
        Relating to Our Business**
 
 *New
        Motion has a limited operating history in an emerging market, which may make
        it
        difficult to evaluate the company's business.*
 
 New
        Motion was incorporated in March 2005 and immediately began offering
        entertainment products and services directly to consumers through the transfer
        of the RingtoneChannel Pty Limited ("RingtoneChannel") business to the company.
        These services and products are billed through wireless carriers to their
        subscribers. Accordingly, New Motion has a limited history of generating
        revenues, and its future revenue and income potential business is uncertain.
        As
        a result of New Motion's short operating history in the emerging mobile
        entertainment industry, it has limited financial data that you can use to
        evaluate its business. Any evaluation of New Motion's business and its prospects
        must be considered in light of its limited operating history and the risks
        and
        uncertainties often encountered by companies in New Motion's stage of
        development. Some of these risks and uncertainties relate to the company's
        ability to do the following:
 
 -  maintain
        and develop new wireless carrier and billing aggregator relationships upon
        which
        the company's business currently depends;
 -  respond
        effectively to competitive pressures;
 -  increase
        brand awareness and consumer recognition;
 -  attract
        and retain qualified management and employees;
 -  continue
        to upgrade its technology;
 -  continue
        to upgrade its information processing systems;
 -  continue
        to develop and source high-quality mobile content that achieves significant
        market acceptance;
 -  maintain
        and grow its off-deck distribution, including through its web sites and
        third-party direct-to-consumer distributors; and
 -  execute
        its business and marketing strategies successfully.
 
 If
        New
        Motion is unable to address these risks, its operating results may not meet
        the
        expectations of investors, which would likely cause the price of its common
        stock to decline.
 
 *New
        Motion's business currently relies on wireless carriers and aggregators to
        facilitate billing and collections in connection with its entertainment products
        sold and services rendered, and 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.*
 
 New
        Motion currently generates, and it expects to continue to generate, the majority
        of its revenues from the sale of its products and services directly to consumers
        which are billed through wireless aggregators and carriers. For the fiscal
        year
        ended December 31, 2006, New Motion billed approximately 60% of its revenue
        through aggregation services provided by Goldpocket Wireless, Inc. ("Goldpocket
        Wireless"), now known as Motricity, and 34% of its revenue through its
        aggregator Mobile Messenger Pty Ltd ("Mobile Messenger"). In 2005, New Motion
        billed approximately 78% of its revenue with Buongiorno USA, Inc. ("Buongiorno")
        and approximately 22% of its revenue through its aggregator Mobile Messenger.
        Through the third quarter of 2007, New Motion billed approximately 87% of
        its
        revenue through Goldpocket Wireless and approximately 8% through Mobile
        Messenger. New Motion expects that it will continue to generate 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.
 
 New
        Motion's 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. These agreements set out the terms of the
        company's relationships with the carriers. In addition, any party can terminate
        these agreements early, and in some instances, without cause.
  44
 **New
          Motion, Inc.**  **Management’s
          Discussion and Analysis**
 Many
        other factors outside New Motion's control could impair its carrier
        relationships, including a carrier's:
 
 -  decision
        to deliver New Motion's products and services to its customer base;
 -  decision
        to offer its own competing entertainment applications, products and
        services;
 -  decision
        to offer similar entertainment applications, products and services to its
        subscribers for free;
 -  network
        encountering technical problems that disrupt the delivery of or billing for
        the
        company's applications; 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 not to offer off-deck applications,
        New
        Motion may be unable to replace the revenue source with an acceptable
        alternative, causing it to lose access to the subscribers covered by that
        wireless carrier, which could materially harm its business, operating results
        and financial condition. The off-deck arena refers primarily to services
        delivered through the Internet, which is independent of the
        carriers.
 
 *The
        markets in which New Motion operates are highly competitive and many of its
        competitors have greater resources than New Motion does.*
 
 The
        development, distribution and sale of wireless entertainment applications
        is a
        highly competitive business. New Motion competes primarily on the basis of
        marketing acquisition cost, brand awareness, and carrier and distribution
        breadth. New Motion also competes for experienced and talented
        employees.
 
 Currently,
        New Motion considers its primary competitors to be Jamster, Buongiorno, Flycell,
        Playphone, Fun Mobile, Thumbplay and Dada Mobile. 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 wireless entertainment applications, products
        and services and as such they might refuse to distribute some or all of New
        Motion's applications or may deny New Motion access to all or part of their
        networks. Some of New Motion's competitors' advantages include the
        following:
 
 -  substantially
        greater revenues and financial resources;
 -  stronger
        brand names and consumer recognition;
 -  the
        capacity to leverage their marketing expenditures across a broader portfolio
        of
        wireless and non-wireless products;
 -  pre-existing
        relationships with brand holders;
 -  more
        resources to make acquisitions; and
 -  broader
        geographic presence.
 
 If
        New
        Motion is not as successful as its competitors in its target markets, New
        Motion's sales could decline, its margins could be negatively impacted and
        it
        could lose market share, any of which could materially harm its
        business.
 
 *New
        Motion's success depends on its ability to develop new applications products
        and
        services that its customers will continue to buy.*
 
 New
        Motion's success depends on providing applications, products and services
        that
        offer its customers a high-quality entertainment experience. New Motion must
        continue to invest significant resources in research and development to enhance
        its offering of wireless applications and introduce new applications that
        its
        customers will continue to buy. New Motion's operating results would suffer
        if
        its applications are not responsive to the preferences of its customers or
        are
        not effectively brought to market.
  45
 **New
          Motion, Inc.**  **Management’s
          Discussion and Analysis**
 The
        planned timing or introduction of new applications is subject to risks and
        uncertainties. Unexpected technical, operational, deployment, distribution,
        carrier approval, or other problems could delay or prevent the introduction
        of
        new applications, which could result in a loss of, or delay in, revenues
        or
        damage to New Motion's reputation and brand. If any of New Motion's applications
        are introduced with defects, errors or failures, it could experience decreased
        sales, loss of customers and damage to its reputation and brand. In addition,
        new applications may not achieve sufficient market acceptance to offset the
        costs of development. New Motion's success depends, in part, on unpredictable
        and volatile factors beyond its control, including customer preferences,
        competing applications and the availability of other entertainment activities.
        A
        shift in mobile phone usage or the entertainment preferences of its customers
        could cause a decline in New Motion's applications' popularity that could
        materially reduce its revenues and harm its business.
 
 New
        Motion continuously develops and introduces new applications for use on
        next-generation mobile phones. New Motion must make product development
        decisions and commit significant resources well in advance of the anticipated
        introduction of a new mobile phone model. New mobile phone models for which
        the
        company is developing applications may be delayed, may not be commercially
        successful, may have a shorter life cycle than anticipated or may not be
        adequately promoted by wireless carriers or the mobile phone manufacturer.
        If
        the mobile phone models for which New Motion is developing applications are
        not
        released when expected or do not achieve broad market penetration, New Motion's
        potential revenues will be limited and its business will suffer.
 
 *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 2005 and 2006, the company generated approximately
        67%
        and 26%, respectively, of its revenue from its Ringtone applications and
        approximately 33% and 70%, respectively of its revenues from its Trivia
        applications. As a percentage of New Motion's net revenue for the three months
        ended September 30, 2007, Bid4Prizes generated approximately 61% of the
        company's net revenue, Gator Arcade 15%, RingtoneChannel and Trivia services
        13%, and White Label services 6%. The remaining 5% of New Motion's revenue
        for
        the three months ended September 30, 2007 was generated from several smaller
        sources. New Motion expects to continue to derive a substantial portion of
        its
        revenues from Bid4Prizes, Gator Arcade and Ringtone and Trivia applications
        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 faces challenges in managing the rapid growth of its
        business.*
 
 New
        Motion has experienced, and continues to experience, rapid growth in its
        business. This growth has placed, and may continue to place, significant
        demands
        on its management and its operational and financial infrastructure. To manage
        New Motion's growth effectively, it must continue to improve and enhance
        its
        operational, financial and management controls in order to maintain efficiency
        and innovation in its growing organization. New Motion must also enhance
        its
        reporting systems and procedures to ensure timely and accurate periodic public
        disclosure of its operations and it will need to hire additional personnel.
        These system enhancements and improvements will require significant expenditures
        and allocation of valuable management resources. If New Motion fails to maintain
        the efficiency of its organization as it grows, its profit margins will decline
        and its earnings could be materially diminished.
  46
 **New
          Motion, Inc.**  **Management’s
          Discussion and Analysis**
 In
        order
        to meet competitive challenges or take advantage of market opportunities,
        New
        Motion may expand its technology, sales, administrative and marketing
        organizations. Any growth in or expansion of New Motion's business is likely
        to
        continue to place a strain on its management and administrative resources,
        infrastructure and systems. As with other growing businesses, New Motion
        expects
        that it will need to further refine and expand its business development
        capabilities, its systems and processes and its access to financing sources.
        New
        Motion also will need to hire, train, supervise and manage new employees.
        These
        processes are time consuming and expensive, will increase management
        responsibilities and will divert management attention.
 
 *If
        New Motion fails to deliver its applications to correspond with the commercial
        introduction of new mobile phone models, its sales may suffer.*
 
 New
        Motion's business is tied, in part, to the commercial introduction of new
        mobile
        phone models with enhanced features, including color screens and greater
        processing power. Many new mobile phone models are released in the final
        quarter
        of the year to coincide with the holiday shopping season. New Motion cannot
        control the timing of these mobile phone launches. Some of New Motion's
        customers download its applications soon after they purchase their new mobile
        phones in order to experience the new features of those phones. If New Motion
        misses the opportunity to sell applications when its customers upgrade to
        a new
        mobile phone due to application launch delays, its sales may suffer. In
        addition, if New Motion misses the key holiday selling period, either because
        the introduction of a new mobile phone model is delayed or New Motion does
        not
        successfully deploy its applications in time for the holiday selling season,
        New
        Motion's sales may suffer.
 
 *New
        Motion's business and growth may suffer if it is unable to hire and retain
        key
        personnel who are in high demand.*
 
 New
        Motion depends on the continued contributions of its senior management and
        other
        key personnel, many of whom may be difficult to replace. In particular, New
        Motion is dependant on the continued service of Burton Katz, its Chief Executive
        Officer. The loss of the services of any of its executive officers or other
        key
        employees could harm its business. New Motion's future success also depends
        on
        its ability to identify, attract and retain highly skilled technical,
        managerial, finance, marketing and creative personnel. Qualified individuals
        are
        in high demand, and New Motion may incur significant costs to attract them.
        If
        New Motion is unable to attract or retain the personnel it needs to succeed,
        its
        business may suffer.
 
 Many
        of
        New Motion's senior management personnel and other key employees have become,
        or
        will soon become, substantially vested in their initial stock option grants.
        Employees may be more likely to leave if their owned shares or the shares
        underlying their options have significantly appreciated in value relative
        to the
        original purchase price of the shares or the option exercise price.
 
 *New
        Motion's financial results could vary significantly from quarter to quarter
        and
        are difficult to predict.*
 
 New
        Motion's revenues and operating results could vary significantly from quarter
        to
        quarter because of a variety of factors, many of which are outside of its
        control. As a result, comparing New Motion's operating results on a
        period-to-period basis may not be meaningful. In addition, New Motion may
        not be
        able to predict its future revenues or results of operations. New Motion
        bases
        its current and future expense levels on its internal operating plans and
        sales
        forecasts, and its operating costs are to a large extent fixed. As a result,
        New
        Motion may not be able to reduce its costs sufficiently to compensate for
        an
        unexpected shortfall in revenues, and even a small shortfall in revenues
        could
        disproportionately and adversely affect financial results for that quarter.
        Products and carrier relationships may represent meaningful portions of its
        revenues and net income in any quarter. In addition, any payments due to
        New
        Motion from carriers may be delayed because of changes or issues with those
        carriers' processes.
 
 In
        addition to other risk factors discussed in this section, factors that may
        contribute to the variability of New Motion's quarterly results
        include:
  47
  **New
        Motion, Inc.**  **Management’s
        Discussion and Analysis**
  -  the
        timing of charges related to impairments of goodwill, intangible assets,
        prepaid
        royalties and guarantees;
 -  changes
        in pricing policies by the company, its competitors or its carriers and other
        distributors;
 -  changes
        in the mix of original and licensed content, which have varying gross
        margins;
 -  the
        timing of successful mobile handset launches;
 -  fluctuations
        in the size and rate of growth of overall consumer demand for mobile related
        content;
 -  strategic
        decisions by the company or its competitors, such as acquisitions, divestitures,
        spin-offs, joint ventures, strategic investments or changes in business
        strategy;
 -  charges
        related to the company's acquisition of assets;
 -  accounting
        rules governing recognition of revenue;
 -  the
        timing of compensation expense associated with equity compensation grants;
        and
 -  decisions
        by the company to incur additional expenses, such as increases in marketing
        or
        research and development.
 
 As
        a
        result of these and other factors, New Motion's operating results may not
        meet
        the expectations of investors or public market analysts who choose to follow
        the
        company. Failure to meet market expectations could result in decreases in
        the
        trading price of the company's common stock.
 
 *Wireless
        communications technology is changing rapidly, and New Motion may not be
        successful in working with these new technologies.*
 
 Wireless
        network and mobile phone technologies are undergoing rapid innovation. New
        mobile phones with more advanced processors and supporting advanced programming
        languages continue to be introduced in the market. New Motion has no control
        over the demand for, or success of, these products. However, if New Motion
        fails
        to anticipate and adapt to these and other technological changes, the company's
        market share and its operating results may suffer. New Motion's future success
        will depend on its ability to adapt to rapidly changing technologies, develop
        applications to accommodate evolving industry standards and improve the
        performance and reliability of its applications. In addition, the widespread
        adoption of networking or telecommunications technologies or other technological
        changes could require substantial expenditures to modify or adapt New Motion's
        entertainment applications.
 
 The
        markets for New Motion's applications, products and services are also
        characterized by frequent new mobile phone model introductions and shortening
        mobile phone model life cycles. The development of new, technologically advanced
        applications to match the advancements in mobile phone technology is a complex
        process requiring significant research and development expense, as well as
        the
        accurate anticipation of technological and market trends. As the life cycle
        of
        mobile phone models and other wireless devices shortens, New Motion will
        be
        required to develop and adapt its existing applications and create new
        applications more quickly. These efforts may not be successful. Any failure
        or
        delay in anticipating technological advances or developing and marketing
        new
        applications that respond to any significant change in technology or customer
        demand could limit the available channels for New Motion's applications and
        limit or reduce the company's sales.
 
 *New
        Motion's success depends on the continuing adoption of entertainment
        applications by wireless subscribers.*
 
 New
        Motion operates in a developing industry. Currently, only a limited number
        of
        wireless subscribers download entertainment applications, products and services
        to their mobile phones. New Motion's success depends on growth in the number
        of
        wireless subscribers who use their mobile phones to access data services
        and, in
        particular, entertainment applications, products and services. If this market
        does not continue to grow or New Motion is unable to acquire new customers,
        its
        business growth, operating results and financial condition could be materially
        and adversely affected.
  48
 **New
          Motion, Inc.**  **Management’s
          Discussion and Analysis**
 *Changes
        in government regulation of the media and wireless communications industries
        may
        adversely affect New Motion's business.*
 
 It
        is
        possible that a number of laws and regulations may be adopted in the United
        States and elsewhere which could restrict the media and wireless communications
        industries, including laws and regulations relating to customer privacy,
        taxation, content suitability, copyright, distribution and antitrust.
        Furthermore, the growth and development of the market for electronic commerce
        may prompt calls for more stringent consumer protection laws that may impose
        additional burdens on companies such as New Motion's which conduct business
        through wireless carriers. In particular, changes in marketing guidelines
        and
        other requirements and regulations imposed by regulatory agencies, the Federal
        Communications Commission and industry associations, which fundamentally
        change
        the manner in which New Motion currently markets and sells its products and
        services, could have a material adverse effect on New Motion's ability to
        acquire and retain customers. Additionally, changes in current laws or
        regulations or the imposition of new laws and regulations in the United States
        or elsewhere regarding the media and wireless communications industries may
        lessen the growth of wireless communications services and may materially
        reduce
        New Motion's ability to increase or maintain sales of its products and
        services.
 
 *A
        decline in, or limitation on, the use of mobile phones would negatively impact
        New Motion's business.*
 
 A
        number
        of public and private entities have begun to restrict the use of mobile phones
        on their premises. For example, many places of worship, restaurants, hospitals,
        medical offices, libraries, museums, concert halls and other private and
        public
        businesses restrict the use of mobile phones due to privacy concerns, the
        inconvenience caused by mobile phone users to other patrons and the disruption
        mobile phones may cause to other electronic equipment at these
        locations.
 
 Legislation
        has also been proposed in the U.S. Congress and by many states and
        municipalities to restrict or prohibit the use of mobile phones while driving
        motor vehicles. Some states and municipalities in the United States have
        already
        passed laws restricting the use of mobile phones while driving, and similar
        laws
        have been enacted in other countries. These laws and other potential laws
        prohibiting or restricting the use of mobile phones could reduce demand for
        mobile phones generally and, accordingly, the demand for New Motion's
        applications, which could reduce the company's ability to increase or maintain
        sales of its applications.
 
 A
        number
        of studies have examined the health effects of mobile phone use and the results
        of some of the studies have been interpreted as evidence that mobile phone
        use
        causes adverse health effects. The establishment of a link between the use
        of
        mobile phone services and health problems, and any media reports suggesting
        such
        a link, could reduce demand for mobile phones and, accordingly, the demand
        for
        New Motion's applications.
 
 *New
        Motion's business depends on the growth and maintenance of wireless
        communications infrastructure.*
 
 New
        Motion's success will depend on the continued growth and maintenance of wireless
        communications infrastructure in the United States and around the world.
        This
        includes deployment and maintenance of reliable next-generation digital networks
        with the necessary speed, data capacity and security for providing reliable
        wireless communications services. Wireless communications infrastructure
        may be
        unable to support the demands placed on it if the number of customers continues
        to increase, or if existing or future customers increase their bandwidth
        requirements. In addition, viruses, worms and similar break-ins and disruptions
        from illicit code or unauthorized tampering may harm the performance of wireless
        communications. If a well-publicized breach of security were to occur, general
        mobile phone usage could decline, which could reduce the demand for and use
        of
        New Motion's applications. Wireless communications experience a variety of
        outages and other delays as a result of infrastructure and equipment failures,
        and could face outages and delays in the future. These outages and delays
        could
        reduce the level of wireless communications usage as well as New Motion's
        ability to distribute its applications successfully.
  49
 **New
          Motion, Inc.**  **Management’s
          Discussion and Analysis**
 *The
        liquidity of New Motion's common stock is affected by its limited trading
        market.*
 
 Bid
        and
        ask prices for shares of New Motion's common stock are currently quoted on
        the
        OTC Bulletin Board under the symbol NWMO. There is currently no broadly
        followed, established trading market for New Motion's common stock. Active
        trading markets generally result in lower price volatility and more efficient
        execution of buy and sell orders. The absence of an active trading market
        reduces the liquidity of New Motion's common stock. As a result of the lack
        of
        trading activity, the quoted price for New Motion's common stock on the OTCBB
        is
        not necessarily a reliable indicator of its fair market value.
 
 *Substantial
        future sales of New Motion's common stock in the public market could cause
        its
        stock price to fall.*
 
 Upon
        the
        effectiveness of our registration statement on Form S-4 and on Form SB-2,
        and
        any others that New Motion may file with respect to the resale of shares
        held by
        certain stockholders, a significant number of the company's shares of common
        stock may become eligible for sale. Sales of a significant number of shares
        of
        the company's common stock in the open market could harm the market price
        of the
        company's common stock. A reduced market price for New Motion's shares could
        make it more difficult to raise funds through future offering of common
        stock.
 
 Moreover,
        as additional shares of New Motion's common stock become available for resale
        in
        the open market (including shares issued upon the exercise of New Motion's
        outstanding warrants and options), the supply of New Motion's publicly traded
        shares will increase, which could decrease New Motion's stock
        price.
 
 Some
        of
        New Motion's shares may also be offered from time to time in the open market
        pursuant to Rule 144, and these sales may have a depressive effect on the
        market
        for New Motion's shares. In general, a person who has held restricted shares
        for
        a period of one year may, upon filing with the SEC a notification on Form
        144,
        sell into the market shares up to an amount equal to 1% of the outstanding
        shares.
 
 *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. New Motion plans
        to
        prepare for compliance with Section 404 by strengthening, assessing and testing
        its systems of internal control over financial reporting to provide the basis
        for its report. The process of strengthening New Motion's internal control
        over
        financial reporting and complying with Section 404 is expensive and time
        consuming, and requires significant management attention, especially given
        that
        New Motion has not yet undertaken any substantial efforts to comply with
        the
        requirements of Section 404. New Motion cannot be certain that the measures
        it
        is and 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. The internal control
        over
        financial reporting that New Motion will need will become more complex, and
        more
        resources will be required to ensure that these controls remain effective,
        after
        the completion of the proposed merger with Traffix. 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.
  50
 **New
          Motion, Inc.**  **Management’s
          Discussion and Analysis**
 *New
        Motion does not expect to pay dividends for the foreseeable future, and any
        return on investment may be limited to potential future appreciation on the
        value of New Motion's common stock.*
 
 New
        Motion currently intends to retain any future earnings to support the
        development and expansion of its business and does not anticipate paying
        cash
        dividends in the foreseeable future. New Motion's payment of any future
        dividends will be at the discretion of the company's board of directors after
        taking into account various factors, including without limitation, our financial
        condition, operating results, cash needs, growth plans and the terms of any
        credit agreements that the company may be a party to at the time. To the
        extent
        the company does not pay dividends, its stock may be less valuable because
        a
        return on investment will only occur if and to the extent the company's stock
        price appreciates, which may never occur. In addition, investors must rely
        on
        sales of their common stock after price appreciation as the only way to realize
        their investment, and if the price of the company's stock does not appreciate,
        then there will be no return on investment. Investors seeking cash dividends
        should not purchase New Motion's common stock.
 
 *New
        Motion's officers, directors and principal stockholders can exert significant
        influence over the company and may make decisions that are not in the best
        interests of all stockholders.*
 
 Collectively,
        New Motion's officers, directors and principal stockholders (greater than
        5%
        stockholders) beneficially own approximately 88% of the company's outstanding
        common stock. As a result, these stockholders will be able to affect the
        outcome
        of, or exert significant influence over, all matters requiring stockholder
        approval, including the election and removal of directors and any change
        in
        control. In particular, this concentration of ownership of New Motion's common
        stock could have the effect of delaying or preventing a change of control
        of the
        company or otherwise discouraging or prevent a potential acquirer from
        attempting to obtain control of the company. This, in turn, could have a
        negative effect on the market price of the company's common stock. It could
        also
        prevent New Motion's stockholders from realizing a premium over the market
        prices for their shares of common stock. Moreover, the interests of this
        concentration of ownership may not always coincide with New Motion's interests
        or the interests of other stockholders, and accordingly, they could cause
        the
        company to enter into transactions or agreements that it would not otherwise
        consider.
 
 *Anti-takeover
        provisions may limit the ability of another party to acquire New Motion,
        which
        could cause the Company's stock price to decline.*
 
 New
        Motion's restated certificate of incorporation, as amended, its bylaws and
        Delaware law contain provisions that could discourage, delay or prevent a
        third
        party from acquiring New Motion, even if doing so may be beneficial to New
        Motion's stockholders. In addition, these provisions could limit the price
        investors would be willing to pay in the future for shares of New Motion’s
        common stock.
 
 **Risks
        Relating to the Merger with Traffix**
 
 *Uncertainty
        about the Merger and diversion of management could harm us, whether or not
        the
        Merger is completed.*
 
 In
        response to the announcement of the Merger, our existing customers and suppliers
        may delay or defer their purchasing or other decisions concerning us, or
        they
        may seek to change their existing business relationship. In addition, as
        a
        result of the Merger, current and prospective employees could experience
        uncertainty about their future. These uncertainties may impair our ability
        to
        retain, recruit or motivate key personnel. Completion of the Merger will
        also
        require a significant amount of time and attention from management. The
        diversion of management attention away from ongoing operations could adversely
        affect ongoing operations and business relationships.
  51
 **New
          Motion, Inc.**  **Management’s
          Discussion and Analysis**
 *Failure
        to complete the Merger could adversely affect our stock prices and our future
        business and financial results.*
  Completion
        of the Merger is conditioned upon the approval of our stockholders as well
        as
        the stockholders of Traffix. There is no assurance that we will receive the
        necessary approvals or satisfy the other conditions to the completion of
        the
        Merger. Failure to complete the proposed Merger would prevent us from realizing
        the anticipated benefits of the Merger. We will also remain liable for
        significant transaction costs, including legal, accounting and financial
        advisory fees. In addition, the market price of our common stock may reflect
        various market assumptions as to whether the Merger will occur. Consequently,
        the completion of, or failure to complete, the Merger could result in a
        significant change in the market price of our common stock.
  *Because
        certain of our directors and executive officers and of Traffix have interests
        in
        seeing the Merger completed that are different than those of the other
        stockholders of the two companies, these persons may have conflicts of interest
        in recommending that the stockholders of the two companies vote to approve
        the
        Merger Agreement.*
  Certain
        directors of the two companies have arrangements or other interests that
        provide
        them with interests in the Merger that are different than those of other
        stockholders. For example, Burton Katz, our CEO, who is also a director of
        the
        company, will, pursuant to the Merger Agreement, keep that title with the
        combined company and will remain on the board of directors of the combined
        company; Andrew Stollman, Traffix's President and a director of Traffix,
        will
        become the President of the combined company; and Jeffrey Schwartz, Traffix's
        CEO and a director of Traffix, will receive a severance payment of $1.5 million
        and a new consulting agreement providing for a term of two years. In addition,
        up to three current Traffix directors and up to four current New Motion
        directors may serve on the combined company’s board. While other current
        directors of the two companies will not become directors of the combined
        company
        after the Merger, New Motion will indemnify and maintain liability insurance
        for
        each of the directors’ services as directors before the Merger. As a result of
        these interests, these directors and officers could be more likely to recommend
        a vote in favor of approval of the Merger and adoption of the Merger Agreement
        than if they did not hold these interests, and may have reasons for doing
        so
        that are different than the interests of other stockholders of the two
        companies.
  *The
        trading price of shares of our common stock after the Merger may be affected
        by
        factors different from those affecting the price of shares of our common
        stock
        or shares of Traffix's common stock before the Merger.*
  52
 **New
          Motion, Inc.**  **Management’s
          Discussion and Analysis**
 If
        we
        complete the Merger, holders of Traffix's common stock will become holders
        of
        our common stock. Our results of operations, as well as the trading price
        of our
        common stock, after the Merger may be affected by factors different from
        those
        currently affecting our results or Traffix's results of operations and the
        trading price of our common stock.
  *The
          issuance of shares of our common stock to Traffix stockholders in the merger
          will substantially reduce the percentage interests of New Motion stockholders.*
  If
          the
          merger is completed, we will issue up to approximately 11.9 million shares
          of
          our common stock in the merger. Based on the number of shares of our common
          stock and Traffix’s common stock outstanding on September 26, 2007, Traffix
          stockholders before the merger will own, in the aggregate, approximately
          45% of
          the fully diluted shares of common stock immediately after the merger.
          The
          issuance of shares of our common stock to Traffix stockholders in the merger
          and
          to holders of assumed options to acquire shares of Traffix common stock
          will
          cause a significant reduction in the relative percentage interest of our
          current
          stockholders in earnings, voting, liquidation value and book and market
          value.
 
 *Any
          delay in completion of the merger may significantly reduce the benefits
          expected
          to be obtained from the merger.*
  In
          addition to stockholder approval, the merger is subject to a number of
          other
          conditions beyond the control of the companies that may prevent, delay
          or
          otherwise materially adversely affect its completion. We cannot predict whether
          and when these other conditions will be satisfied. Further, the requirements
          for
          obtaining the required approvals could delay the completion of the merger
          for a
          significant period of time or prevent it from occurring. Any delay in completing
          the merger may significantly reduce the synergies and other benefits that
          we and
          Traffix expect to achieve if we successfully complete the merger within
          the
          expected timeframe and integrate our respective businesses.
 
 *The
          merger agreement contains provisions that could discourage a potential
          competing
          acquiror that might be willing to pay more to acquire Traffix or that may
          be
          willing to acquire New Motion.*
 
 The
          merger agreement contains “no shop” provisions that restrict New Motion’s and
          Traffix’s ability to solicit or facilitate proposals regarding a merger or
          similar transaction with another party. Further, there are only limited
          exceptions to our or Traffix’s agreement that our respective board of directors
          will not withdraw or adversely qualify their recommendation regarding the
          merger
          agreement. Although the boards of each company are permitted to terminate
          the
          merger agreement in response to a superior proposal if they determine that
          a
          failure to do so would be inconsistent with their fiduciary duties, its
          doing so
          would entitle the other party to collect a termination fee of up to $4
          million.
          These provisions could discourage a potential competing acquiror from
          considering or proposing that acquisition, even if it were prepared to
          pay
          consideration with a higher value than that proposed to be paid in the
          merger,
          or might result in a potential competing acquiror proposing to pay a lower
          per
          share price than it might otherwise have proposed to pay because of the
          added
          expense of the termination fee.
 
 *We
          expect to record a significant amount of goodwill and other intangible
          assets in
          connection with the merger, which may result in significant future charges
          against earnings if the goodwill and other intangible assets become
          impaired.*
  In
          connection with the accounting for the merger, we expect to allocate a
          large
          portion of the purchase price paid in the merger to goodwill and other
          intangible assets, and so we expect to record a significant amount of goodwill
          and other intangible assets. Under SFAS No. 142, we must assess, at least
          annually and potentially more frequently, whether the value of goodwill
          and
          other intangible assets has been impaired. Any reduction or impairment
          of the
          value of goodwill or other intangible assets will result in a charge against
          earnings, which could materially adversely affect our results of operations
          in
          future periods.
  The
          share
          prices of our common stock during the period beginning two days before
          and
          ending two days after September 26, 2007, the day before the merger agreement
          was announced, were used to calculate the total purchase price and the
          amount of
          goodwill recorded in connection with the merger. Because an active trading
          market for our common stock currently does not exist, the quoted prices
          of our
          common stock on the OTC Bulletin Board may not be a reliable indicator
          of its
          fair market value. Following the merger, the price of our common stock
          may
          decline significantly resulting in an impairment of goodwill and other
          intangible assets. This could cause us to incur significant future charges
          against earnings, which could materially reduce our earnings and harm our
          business.
 
 53
 
 **Item
        3. Controls and Procedures**
 
 *Evaluation
        of Disclosure Controls and Procedures*
 
 The
        SEC
        defines the term “disclosure controls and procedures” to mean a company’s
        controls and other procedures that are designed to ensure that information
        required to be disclosed in the reports that it files or submits under the
        Securities Exchange Act of 1934 is recorded, processed, summarized and reported,
        within the time periods specified in the Commission’s rules and forms.
 
 Members
        of the Company's management, including our Chief Executive Officer, Burton
        Katz,
        and Chief Financial Officer, Allan Legator, 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 September 30, 2007, the end of the period
        covered by this report. Based upon that evaluation, Messrs. Katz and Legator
        concluded that our disclosure controls and procedures were effective as of
        September 30, 2007, the end of the period covered by this report.
 
 It
        should
        be noted that any system of controls, however well designed and operated,
        can
        provide only reasonable, and not absolute, assurance that the objectives
        of the
        system are met. In addition, the design of any control system is based in
        part
        upon certain assumptions about the likelihood of future events. Because of
        these
        and other inherent limitations of control systems, there can be no assurance
        that any design will succeed in achieving its stated goals under all potential
        future conditions, regardless of how remote.
 
 54
 
 **PART
        II**  **–
        OTHER INFORMATION**
 
 **Item
        6. Exhibits**
 
 **Exhibit****Number**
              
              **Description
                  of Exhibit**2.1
              
              Agreement
                  and Plan of Merger. Incorporated by reference to Exhibit 2.1 to
                  the
                  Registrant’s Form 8-K (File No. 00-51353) filed with the Commission on
                  September 27, 2007.2.1.1
              
              Letter
                  agreement dated October 15, 2007 by and among New Motion, Inc.,
                  a Delaware
                  corporation,
                Traffix,
                  Inc., a Delaware corporation, and NM Merger Sub, a Delaware corporation.
                  Incorporated by reference to Exhibit 2.1.1 to the Registrant’s Form 8-K
                  (File No. 00-51353) filed with the Commission on October 19,
                  2007.2.3
              
              Form
                  of Stockholder Agreement by and between New Motion, Inc. and Jeffrey
                  Schwartz. Incorporated by reference to Exhibit 2.2 to the Registrant’s
                  Form 8-K (File No. 00-51353) filed with the Commission on September
                  27,
                  2007.2.4
              
              Form
                  of Stockholder Agreement by and between New Motion, Inc. and Andrew
                  Stollman. Incorporated by reference to Exhibit 2.3 to the Registrant’s
                  Form 8-K (File No. 00-51353) filed with the Commission on September
                  27,
                  2007.10.1
              
              Executive
                  Employment Agreement, dated August 20, 2007 by and between New
                  Motion,
                  Inc. and Susan Swenson. Incorporated by reference to Exhibit 10.16
                  to the
                  Registrant’s Form S-4 (File No. 333-147131) filed with the Commission on
                  November 2, 2007.31.1
              
              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.
              *
 
 *
        Filed
        herewith.
  55
  **Signatures**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, as amended, the registrant has caused this report to be signed on its
        behalf by the undersigned, there unto duly authorized.
 
 Dated:
        November 14, 2007
  BY:
              /s/
                  Allan LegatorAllan
                  LegatorChief
                  Financial Officer and Secretary(Principal
                  Financial and Accounting Officer)
 
 56
 
 **Exhibit
        Index**
 
 **Exhibit**
                **Number**
              
              **Description
                  of Exhibit**2.1
              
              Agreement
                  and Plan of Merger. Incorporated by reference to Exhibit 2.1 to
                  the
                  Registrant’s Form 8-K (File No. 00-51353) filed with the Commission on
                  September 27, 2007.2.1.1
              
              Letter
                  agreement dated October 15, 2007 by and among New Motion, Inc.,
                  a Delaware
                  corporation,
                Traffix,
                  Inc., a Delaware corporation, and NM Merger Sub, a Delaware corporation.
                  Incorporated by reference to Exhibit 2.1.1 to the Registrant’s Form 8-K
                  (File No. 00-51353) filed with the Commission on October 19,
                  2007.2.3
              
              Form
                  of Stockholder Agreement by and between New Motion, Inc. and Jeffrey
                  Schwartz. Incorporated by reference to Exhibit 2.2 to the Registrant’s
                  Form 8-K (File No. 00-51353) filed with the Commission on September
                  27,
                  2007.2.4
              
              Form
                  of Stockholder Agreement by and between New Motion, Inc. and Andrew
                  Stollman. Incorporated by reference to Exhibit 2.3 to the Registrant’s
                  Form 8-K (File No. 00-51353) filed with the Commission on September
                  27,
                  2007.10.1
              
              Executive
                  Employment Agreement, dated August 20, 2007 by and between New
                  Motion,
                  Inc. and Susan Swenson. Incorporated by reference to Exhibit 10.16
                  to the
                  Registrant’s Form S-4 (File No. 333-147131) filed with the Commission on
                  November 2, 2007.31.1
              
              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.
              *
 
 *
        Filed
        herewith.