UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q


(Mark
One)


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




For the
quarterly period ended March 31, 2009 or




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




For the
transition period from __________ to __________


Commission
File Number: 001-12555




New
Motion, Inc.


Doing
business as












(Exact
      name of registrant as specified in its
charter)




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





469
      7th
      Avenue, 10th
      Floor, New York, NY 10018(Address
      of principal executive offices and ZIP
Code)




(212)
      716-1977(Registrant’s
      telephone number, including area
code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90days.


Yes x    Noo





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


Yes x    No
o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.




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










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


Yeso Nox




Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities and Exchange
Act of 1934 subsequent to the distribution of securities under a plan confirmed
by a court.   Yes x  
  Noo




As of May
8, 2009, the Company had 20,360,962 shares of Common Stock, $.01 par value,
outstanding, which excludes 2,741,318 shares held in treasury.











Table
of Contents




PagePART
      I
                FINANCIAL
      INFORMATION
                3Item
      1
                Financial
      Statements
                3Item
      2
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                14Item
      3
                Quantitative
      and Qualitative Disclosures about Market Risk
                20Item
      4
                Controls
      and Procedures
                20PART
      II
                OTHER
      INFORMATION
                21Item
      1A
                Risk
      Factors
                21Item
      2
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                27Item
      6
                Exhibits
                29




2




PART I- FINANCIAL INFORMATION
  Item 1. Financial
Statements




NEW
MOTION, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(UNAUDITED)


(Dollars
in thousands, except per share data)





March 31,
                                                                                                                
                                                                                                                
                                                                                                                December 31,2009
                                                                                                                
                                                                                                                
                                                                                                                2008ASSETSCurrent
      AssetsCash
      and cash equivalents
                                                                                                                
                                                                                                                $
                                                                                                                22,646
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                20,410Marketable
      securities
                                                                                                                
                                                                                                                
                                                                                                                243
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                4,245Accounts
      receivable, net of allowance for doubtful accounts of $3,926 and
      $2,938
                                                                                                                
                                                                                                                
                                                                                                                15,110
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                16,790Income
      tax receivable
                                                                                                                
                                                                                                                
                                                                                                                2,891
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                2,666Prepaid
      expenses and other current assets
                                                                                                                
                                                                                                                
                                                                                                                4,847
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                3,686Total
      Currents Assets
                                                                                                                
                                                                                                                
                                                                                                                45,737
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                47,797PROPERTYAND
      EQUIPMENT, net of accumulated depreciation of $1,597 and$1,435
                                                                                                                
                                                                                                                
                                                                                                                3,500
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                3,525GOODWILL
                                                                                                                
                                                                                                                
                                                                                                                11,981
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                11,075INTANGIBLE
      ASSETS, net of accumulated amortization of $7,074 and
    $5,683
                                                                                                                
                                                                                                                
                                                                                                                11,117
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                12,508INVESTMENTS,
      ADVANCES AND OTHER ASSETS
                                                                                                                
                                                                                                                
                                                                                                                4,314
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                3,858TOTAL
      ASSETS
                                                                                                                
                                                                                                                $
                                                                                                                76,649
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                78,763LIABILITIES
      AND EQUITYCurrent
      LiabilitiesAccounts
      payable
                                                                                                                
                                                                                                                $
                                                                                                                10,598
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                7,194Accrued
      expenses
                                                                                                                
                                                                                                                
                                                                                                                9,862
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                13,941Note
      payable
                                                                                                                
                                                                                                                
                                                                                                                1,881
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,858Deferred
      revenue and Other current liabilities
                                                                                                                
                                                                                                                
                                                                                                                1,613
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,121Total
      Current Liabilities
                                                                                                                
                                                                                                                
                                                                                                                23,954
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                24,114STOCKHOLDERS'
      EQUITYCommon
      stock - par value $.01, 100,000,000 authorized, 23,032,000 and 22,992,280
      shares issued at 2009 and 2008, respectively; and, 20,290,682 and
      21,083,354 shares outstanding at 2009 and 2008,
    respectively.
                                                                                                                
                                                                                                                
                                                                                                                230
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                230Additional
      paid-in capital
                                                                                                                
                                                                                                                
                                                                                                                177,563
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                177,347Accumulated
      other comprehensive loss
                                                                                                                
                                                                                                                
                                                                                                                (312
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (286
                                                                                                                )Common
      stock, held in treasury, at cost, 2,741,318 shares
                                                                                                                
                                                                                                                
                                                                                                                (4,992
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (4,053
                                                                                                                )Accumulated
      deficit
                                                                                                                
                                                                                                                
                                                                                                                (120,036
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (118,849
                                                                                                                )Total
      New Motion's Stockholders' Equity
                                                                                                                
                                                                                                                
                                                                                                                52,453
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                54,389NONCONTROLLING
      INTEREST
                                                                                                                
                                                                                                                
                                                                                                                242
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                260TOTAL
      EQUITY
                                                                                                                
                                                                                                                
                                                                                                                52,695
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                54,649TOTAL
      LIABILITIES AND EQUITY
                                                                                                                
                                                                                                                $
                                                                                                                76,649
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                78,763





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





3





NEW
MOTION, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)


(Dollars
in thousands, except per share data)





Three
      Months EndedMarch
      31,2009
                                                                                          
                                                                                          
                                                                                          2008Subscription
                                                                                          
                                                                                          $
                                                                                          5,377
                                                                                          
                                                                                          
                                                                                          $
                                                                                          13,282Transactional
                                                                                          
                                                                                          
                                                                                          18,171
                                                                                          
                                                                                          
                                                                                          
                                                                                          15,456NET
      REVENUES
                                                                                          
                                                                                          
                                                                                          23,548
                                                                                          
                                                                                          
                                                                                          
                                                                                          28,738OPERATING
      EXPENSESCost
      of media-third party
                                                                                          
                                                                                          
                                                                                          15,475
                                                                                          
                                                                                          
                                                                                          
                                                                                          20,070Product
      and distribution
                                                                                          
                                                                                          
                                                                                          2,254
                                                                                          
                                                                                          
                                                                                          
                                                                                          2,362Selling
      and marketing
                                                                                          
                                                                                          
                                                                                          2,785
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,951General
      and administrative and other operating
                                                                                          
                                                                                          
                                                                                          3,266
                                                                                          
                                                                                          
                                                                                          
                                                                                          4,415Depreciation
      and amortization
                                                                                          
                                                                                          
                                                                                          1,555
                                                                                          
                                                                                          
                                                                                          
                                                                                          56525,335
                                                                                          
                                                                                          
                                                                                          
                                                                                          29,363LOSS
      FROM OPERATIONS
                                                                                          
                                                                                          
                                                                                          (1,787
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (625
                                                                                          )OTHER
      (INCOME) EXPENSEInterest
      income and dividends
                                                                                          
                                                                                          
                                                                                          (46
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (292
                                                                                          )Interest
      expense
                                                                                          
                                                                                          
                                                                                          50
                                                                                          
                                                                                          
                                                                                          
                                                                                          7Other
      (income) expense
                                                                                          
                                                                                          
                                                                                          (1)
                                                                                          
                                                                                          
                                                                                          
                                                                                          1303
                                                                                          
                                                                                          
                                                                                          
                                                                                          (155)LOSS
      BEFORE TAXES AND EQUITY IN LOSS OF INVESTEE
                                                                                          
                                                                                          
                                                                                          (1,790
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (470
                                                                                          )INCOME
      TAXES
                                                                                          
                                                                                          
                                                                                          (670
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (174
                                                                                          )NET
      LOSS
                                                                                          
                                                                                          
                                                                                          (1,120
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (296
                                                                                          )EQUITY
      IN LOSS OF INVESTEE, AFTER TAX
                                                                                          
                                                                                          
                                                                                          85
                                                                                          
                                                                                          
                                                                                          
                                                                                          -LESS
      : NET LOSS ATTRIBUTABLE TO NONCONTROLLINGINTEREST,
      AFTER TAX
                                                                                          
                                                                                          
                                                                                          (18
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (29
                                                                                          )NET
      LOSS ATTRIBUTABLE TO NEW MOTION, INC
                                                                                          
                                                                                          $
                                                                                          (1,187
                                                                                          )
                                                                                          
                                                                                          $
                                                                                          (267
                                                                                          )NET
      LOSS ATTRIBUTABLE TO NEW MOTION, INC PER SHAREBasic
                                                                                          
                                                                                          $
                                                                                          (0.06
                                                                                          )
                                                                                          
                                                                                          $
                                                                                          (0.01
                                                                                          )Diluted
                                                                                          
                                                                                          $
                                                                                          (0.06
                                                                                          )
                                                                                          
                                                                                          $
                                                                                          (0.01
                                                                                          )WEIGHTED
      AVERAGE SHARES OUTSTANDING:Basic
                                                                                          
                                                                                          
                                                                                          20,790,942
                                                                                          
                                                                                          
                                                                                          
                                                                                          18,932,871Diluted
                                                                                          
                                                                                          
                                                                                          20,790,942
                                                                                          
                                                                                          
                                                                                          
                                                                                          18,932,871





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





4




NEW
MOTION, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)


(Dollars
in thousands, except per share data)





Three
      Months EndedMarch
      31,2009
                                                                      
                                                                      
                                                                      2008Cash
      Flows From Operating ActivitiesNet
      loss
                                                                      
                                                                      $
                                                                      (1,187
                                                                      )
                                                                      
                                                                      $
                                                                      (267
                                                                      )Adjustments
      to reconcile net loss to net cashprovided by (used in) operating
      activities:Allowance
      for doubtful accounts
                                                                      
                                                                      
                                                                      988
                                                                      
                                                                      
                                                                      
                                                                      (5
                                                                      )Depreciation
      and amortization
                                                                      
                                                                      
                                                                      1,555
                                                                      
                                                                      
                                                                      
                                                                      565Stock-based
      compensation expense
                                                                      
                                                                      
                                                                      341
                                                                      
                                                                      
                                                                      
                                                                      694Net
      loss on sale of marketable securities
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      53Deferred
      income taxes
                                                                      
                                                                      
                                                                      (863
                                                                      )
                                                                      
                                                                      
                                                                      180Net
      Loss attributable to noncontrolling interest
                                                                      
                                                                      
                                                                      (18
                                                                      )
                                                                      
                                                                      
                                                                      (29
                                                                      )Equity
      in loss of investee
                                                                      
                                                                      
                                                                      153
                                                                      
                                                                      
                                                                      
                                                                      -Changes
      in operating assets and liabilities of business, net ofacquisitions:Accounts
      receivable
                                                                      
                                                                      
                                                                      1,179
                                                                      
                                                                      
                                                                      
                                                                      1,767Prepaid
      income tax
                                                                      
                                                                      
                                                                      (225
                                                                      )
                                                                      
                                                                      
                                                                      (202
                                                                      )Prepaid
      expenses and other current assets
                                                                      
                                                                      
                                                                      (593
                                                                      )
                                                                      
                                                                      
                                                                      (527
                                                                      )Accounts
      payable
                                                                      
                                                                      
                                                                      3,404
                                                                      
                                                                      
                                                                      
                                                                      568Other,
      principally accrued expenses
                                                                      
                                                                      
                                                                      (5,010
                                                                      )
                                                                      
                                                                      
                                                                      449Net
      cash used in operating activities
                                                                      
                                                                      
                                                                      (276
                                                                      )
                                                                      
                                                                      
                                                                      3,246Cash
      Flows From Investing ActivitiesPurchases
      of marketable securities
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (4,972
                                                                      )Proceeds
      from sales of marketable securities
                                                                      
                                                                      
                                                                      4,000
                                                                      
                                                                      
                                                                      
                                                                      7,706Business
      combinations
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      10,575Capital
      expenditures
                                                                      
                                                                      
                                                                      (214
                                                                      )
                                                                      
                                                                      
                                                                      (383
                                                                      )Cash
      paid for investments and other advances
                                                                      
                                                                      
                                                                      (309
                                                                      )
                                                                      
                                                                      
                                                                      -Net
      cash provided by investing activities
                                                                      
                                                                      
                                                                      3,477
                                                                      
                                                                      
                                                                      
                                                                      12,926Cash
      Flows From Financing ActivitiesRepayments
      of notes payable
                                                                      
                                                                      
                                                                      (20
                                                                      )
                                                                      
                                                                      
                                                                      (171
                                                                      )Purchase
      of common stock held in treasury
                                                                      
                                                                      
                                                                      (939
                                                                      )
                                                                      
                                                                      
                                                                      -Proceeds
      from exercise of options
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      36Net
      cash used in financing activities
                                                                      
                                                                      
                                                                      (959
                                                                      )
                                                                      
                                                                      
                                                                      (135
                                                                      )Effect
      of exchange rate changes on cash and cash equivalents
                                                                      
                                                                      
                                                                      (6
                                                                      )
                                                                      
                                                                      
                                                                      (92
                                                                      )Net
      Increase In Cash and Cash Equivalents
                                                                      
                                                                      
                                                                      2,236
                                                                      
                                                                      
                                                                      
                                                                      15,945Cash
      and Cash Equivalents at Beginning of Year
                                                                      
                                                                      
                                                                      20,410
                                                                      
                                                                      
                                                                      
                                                                      987Cash
      and Cash Equivalents at End of Year
                                                                      
                                                                      $
                                                                      22,646
                                                                      
                                                                      
                                                                      $
                                                                      16,932SUPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCash
      (paid) for interest
                                                                      
                                                                      $
                                                                      (4
                                                                      )
                                                                      
                                                                      $
                                                                      (7
                                                                      )Cash
      (paid) refunded for taxes
                                                                      
                                                                      $
                                                                      (264
                                                                      )
                                                                      
                                                                      $
                                                                      (900
                                                                      )





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




5




NEW
MOTION, INC. AND SUBSIDIARY
 CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 (UNAUDITED)
 For
the Three Months Ended March 31,
 (Dollars
in thousands, except per share data)




Retained
                                            
                                            
                                            AccumulatedAdditional
                                            
                                            
                                            Earnings
                                            
                                            
                                            Other
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            TotalComprehensive
                                            
                                            
                                            Common
      Stock
                                            
                                            
                                            Paid-In
                                            
                                            
                                            (Accumulated
                                            
                                            
                                            Comprehensive
                                            
                                            
                                            Treasury
      Stock
                                            
                                            
                                            Noncontrolling
                                            
                                            
                                            shareholders'Loss
                                            
                                            
                                            Shares
                                            
                                            
                                            Amount
                                            
                                            
                                            Capital
                                            
                                            
                                            Deficit)
                                            
                                            
                                            Loss
                                            
                                            
                                            Shares
                                            
                                            
                                            Amount
                                            
                                            
                                            Interest
                                            
                                            
                                            EquityBalance
      at December 31, 2008
                                            
                                            
                                            
                                            
                                            
                                            22,992,280
                                            
                                            
                                            $
                                            230
                                            
                                            
                                            $
                                            177,347
                                            
                                            
                                            $
                                            (118,849
                                            )
                                            
                                            $
                                            (286
                                            )
                                            
                                            
                                            1,908,926
                                            
                                            
                                            $
                                            (4,053
                                            )
                                            
                                            $
                                            260
                                            
                                            
                                            $
                                            54,649Net
      loss attributable to New Motion. Inc.
                                            
                                            
                                            (1,187
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (1,187
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (18
                                            )
                                            
                                            
                                            (1,205
                                            )Foreign
      currency translation adjustment
                                            
                                            
                                            (26
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (26
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (26
                                            )Comprehensive
      loss
                                            
                                            
                                            (1,213
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            -Stock
      based compensation expense
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            341
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            341Restricted
      Stock vested
                                            
                                            
                                            -
                                            
                                            
                                            
                                            39,720
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            -Tax
      shortfall on Stock based compensation
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (125
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (125
                                            )Purchase
      of common stock, at cost
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            832,392
                                            
                                            
                                            
                                            (939
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            (939
                                            )Balance
      at March 31, 2009
                                            
                                            
                                            
                                            
                                            
                                            
                                            23,032,000
                                            
                                            
                                            $
                                            230
                                            
                                            
                                            $
                                            177,563
                                            
                                            
                                            $
                                            (120,036
                                            )
                                            
                                            $
                                            (312
                                            )
                                            
                                            
                                            2,741,318
                                            
                                            
                                            $
                                            (4,992
                                            )
                                            
                                            $
                                            242
                                            
                                            
                                            $
                                            52,695





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





6





NEW
MOTION, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





Note 1 - Basis of
Presentation




The
accompanying Condensed Consolidated Balance Sheet as of March 31, 2009 and
December 31, 2008, and the Consolidated Statements of Operations and the
Consolidated Statements of Cash Flows for the three months ended March 31, 2009
and 2008 are unaudited, but in the opinion of management include all adjustments
necessary for the fair presentation of financial position, the results of
operations and cash flows for the periods presented and have been prepared in a
manner consistent with the audited financial statements for the year ended
December 31, 2008. Results of operations for interim periods are not
necessarily indicative of annual results. These financial statements should be
read in conjunction with the audited financial statements for the year ended
December 31, 2008, included in the Company’s Annual Report on Form 10-K
filed on March 27, 2009.




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





Certain
prior year amounts have been reclassified to conform to the current year’s
presentation, specific to account groupings within the Company’s unaudited
condensed consolidated financial statements.





Note
2–Investments
and Advances





Marketing
Services Agreement with Central Internet Corporation d/b/a
Shopit.com




On
December 2, 2008 the Company entered into a Marketing Services and Content
Agreement with Central Internet Corporation which operates the website www.shopit.com
(Hereinafter referred to as “Shopit”).  Under the agreement the
Company is required to perform certain marketing and administrative services for
Shopit and distribute proprietary and third party advertisements through
Shopit.com and its social media advertising network. The agreement provides
Shopit with a revenue share of all leads monetized by the Company. As part of
the agreement, the Company was required to make periodic advance payments
totaling $1.025 million through March 2009. The advances, which are secured
under separate agreement, are recoverable on a dollar for dollar basis against
future revenues and the Company has taken action to obtain further security in
the assets of Shopit. As of March 31, 2009 the Company had made $1.025 million
in advance payments under the agreement which is recorded on balance sheet in
prepaid expense and other current assets.





Joint Venture
with Visionaire and Mango Networks




On July
30, 2008, the Company entered into a Joint Venture Agreement to launch online
and mobile marketing services and offer the Company’s mobile products in the
Indian market.  Under the agreement, the Company owns 19% of the Joint
Venture and is required to pay up to $325,000 in return for Compulsory
Convertible Debentures which can be converted to common stock at any time, at
the Company’s sole discretion. Under the agreement, the Company is entitled to
one of three seats on the Board of Directors. The company is accounting for the
investment under the cost method of accounting. Amounts paid under the agreement
as of March 31, 2009 were $125,000.




Investment
in The Billing Resource, LLC




On
October 30, 2008, the Company acquired a 36% noncontrolling interest in The
Billing Resource, LLC (“TBR”). TBR provides alternative billing services to the
Company and unrelated third parties. The Company contributed $2.2 million on
formation and has committed to provide an additional $1.0 million of working
capital to support near term growth. As of March 31, 2009, the Company has
contributed $0.5 million of working capital to TBR. In addition, the
Company has an operating agreement with TBR whereby TBR provides billing
services to the Company and its customers.  The agreement was
transacted in the normal course of business and negotiated on an arm’s length
basis.




7




The Company recorded its investment in
TBR under the equity method of accounting and as such would present its equity
in earnings and losses in TBR within its quarterly and year end reported
results. The Company recorded $85,000 as equity in earnings for the three months
ended March 31, 2009.





Note
3 -Notes
Payable





In
connection with the acquisition of Ringtone.com, the Company delivered a
convertible promissory note (the “Note”) with the aggregate principal amount of
$1.75 million, which accrues interest at a rate of 10% per annum. The Note is
payable on the earlier to occur of either (i) July 1, 2009, or (ii) 5 days after
the Company gives written notice to Ringtone.com of its intent to prepay the
Note (the “Maturity Date”). The Note is optionally convertible by Ringtone.com
on the Maturity Date into the Company’s common stock at a conversion price of
$5.42 per share. As the effective conversion price was significantly greater
than the fair value of the Company’s stock at the commitment date, no value was
assigned to the conversion feature upon issuance. The payment of principal and
interest on the Note is subject to certain recoupment provisions contained in
the Note and in the Asset Purchase Agreement “APA”.





FASB
issued Staff Position APB14-1 (FSP APB 14-1) which requires that issuers of
convertible debt separately account for the liability and equity components in a
manner that will reflect the entity’s nonconvertible debt borrowing rate when
interest cost is recognized in subsequent periods. This FSP is effective for
financial statements issued for fiscal years beginning after December 15, 2008.
The application of FSP APB 14-1 did not result in a material change to the
Company’s financial statements.




New
Motion had 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 was two years and interest charged thereunder was approximately 8% per
annum. As of December 31, 2008, the principal balance of the Oracle note payable
was approximately $20,000. The note plus interest was paid in February
2009.





Note
4 -Concentration
of Business and Credit Risk





New
Motion is currently utilizing several billing partners in order to provide
content and subsequent billings to the end user. These billing partners, or
aggregators, act as a billing interface between New Motion and the mobile phone
carriers that ultimately bill New Motion’s end user subscribers. These partner
companies have not had long operating histories in the U.S. or operations with
traditional business models. These companies face a greater business risk in the
marketplace, due to a constant evolving business environment that stems from the
infancy of the U.S. mobile content industry.




In
addition, the Company also has customers other than aggregators that represent
significant amounts of revenues and accounts receivable.




For
      the three monthsEnded
      March 31,2009
            
            
            2008RevenuesCustomer
      A
            
            
            29
            %
            
            
            16
            %Billing
      Aggregator B
            
            
            9
            %
            
            
            0
            %Billing
      Aggregator C
            
            
            8
            %
            
            
            37
            %Other
      Customers & Aggregators
            
            
            54
            %
            
            
            47
            %




8





For
      the three monthsEnded
      March 31,2009
                              
                              
                              2008Accounts
      ReceivableBilling
      Aggregator B
                              
                              
                              21
                              %
                              
                              
                              0
                              %Customer
      A
                              
                              
                              18
                              %
                              
                              
                              8
                              %Billing
      Aggregator C
                              
                              
                              11
                              %
                              
                              
                              33
                              %Other
      Customers & Aggregators
                              
                              
                              50
                              %
                              
                              
                              59
                              %




Note 5 –
Goodwill





The gross
carrying value of goodwill and intangibles as well as the accumulated
amortization of the intangibles are as follows:





March
      31,
                                          2009
                                        
                                        December
      31,
                                          2008Useful
                                        
                                        
                                        Gross
                                        
                                        
                                        
                                        
                                        Impairment/
                                        
                                        
                                        Net
                                        
                                        
                                        Gross
                                        
                                        Impairment/
                                        
                                        
                                        NetLife
                                        
                                        
                                        Carrying
                                        
                                        Acquisition
                                        
                                        Accumulated
                                        
                                        
                                        Carrying
                                        
                                        
                                        Carrying
                                        
                                        Accumulated
                                        
                                        
                                        Carrying(in
      years)
                                        
                                        
                                        Value
                                        
                                        Adjustments
                                        
                                        Amortization
                                        
                                        
                                        Value
                                        
                                        
                                        Value
                                        
                                        Amortization
                                        
                                        
                                        ValueUnamortized
      intangible assets:Goodwill
                                        
                                        
                                        
                                        
                                        $
                                        11,075
                                        
                                        
                                        $
                                        906
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        
                                        11,981
                                        
                                        
                                        $
                                        125,858
                                        
                                        
                                        $
                                        (114,783
                                        )
                                        
                                        $
                                        11,075Other
      unamortized identifiable intangibleassets:Trademarks
                                        
                                        
                                        
                                        
                                        
                                        11
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        11
                                        
                                        
                                        
                                        11
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        11Trademarks
                                        
                                        
                                        
                                        
                                        
                                        5,323
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        5,323
                                        
                                        
                                        
                                        5,323
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        5,323Domain
      Name
                                        
                                        
                                        
                                        
                                        
                                        1,174
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,174
                                        
                                        
                                        
                                        1,174
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,174Other
      amortized identifiable intangibleassets:Acquired
      Software Technology
                                        
                                        
                                        3
                                        
                                        
                                        
                                        2,431
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        (945
                                        )
                                        
                                        
                                        1,486
                                        
                                        
                                        
                                        2,431
                                        
                                        
                                        
                                        (743
                                        )
                                        
                                        
                                        1,688Domain
      Name
                                        
                                        
                                        3
                                        
                                        
                                        
                                        550
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        (214
                                        )
                                        
                                        
                                        336
                                        
                                        
                                        
                                        550
                                        
                                        
                                        
                                        (168
                                        )
                                        
                                        
                                        382Licensing
                                        
                                        
                                        2
                                        
                                        
                                        
                                        580
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        (580
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        580
                                        
                                        
                                        
                                        (580
                                        )
                                        
                                        
                                        -Trade
      names
                                        
                                        
                                        9
                                        
                                        
                                        
                                        1,320
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        (171
                                        )
                                        
                                        
                                        1,149
                                        
                                        
                                        
                                        1,320
                                        
                                        
                                        
                                        (134
                                        )
                                        
                                        
                                        1,186Customer
      list
                                        
                                        
                                        1.5
                                        
                                        
                                        
                                        949
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        (949
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        949
                                        
                                        
                                        
                                        (949
                                        )
                                        
                                        
                                        -Customer
      list
                                        
                                        
                                        3
                                        
                                        
                                        
                                        669
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        (260
                                        )
                                        
                                        
                                        409
                                        
                                        
                                        
                                        669
                                        
                                        
                                        
                                        (205
                                        )
                                        
                                        
                                        464Subscriber
      Database
                                        
                                        
                                        1
                                        
                                        
                                        
                                        3,956
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        (3,668
                                        )
                                        
                                        
                                        288
                                        
                                        
                                        
                                        3,956
                                        
                                        
                                        
                                        (2,679
                                        )
                                        
                                        
                                        1,277Restrictive
      Covenants
                                        
                                        
                                        5
                                        
                                        
                                        
                                        1,228
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        (287
                                        )
                                        
                                        
                                        941
                                        
                                        
                                        
                                        1,228
                                        
                                        
                                        
                                        (225
                                        )
                                        
                                        
                                        1,003Total
      identifiable intangible assets
                                        
                                        
                                        
                                        
                                        
                                        $
                                        18,191
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        (7,074
                                        )
                                        
                                        $
                                        11,117
                                        
                                        
                                        $
                                        18,191
                                        
                                        
                                        $
                                        (5,683
                                        )
                                        
                                        $
                                        12,508





During
the first quarter of 2009, the Company revised its estimate of the fair market
value of certain pre acquisition contingencies and other merger related
liabilities which resulted in the increase of its liabilities by approximately
$0.9 million.





Note 6 - Stock-based
compensation





The fair
value of share-based awards granted is estimated on the date of grant using the
Black-Scholes option pricing model. The key assumptions for this model are
expected term, expected volatility, risk-free interest rate, dividend yield and
strike price. Many of these assumptions are judgmental and highly sensitive.
There were no options granted for the period ending March 31, 2009. A total of
39,720 shares of restricted stock vested during the period ended March 31, 2009.
The Company recorded $341,000 and $694,000 of share based compensation expenses
for the three months ended March 31, 2009 and 2008, respectively, as
follows:




9




For the three months
                                            ended
                                            March 31,2009
                                          
                                          
                                          2008Product
      and distribution
                                          
                                          $
                                          45
                                          
                                          
                                          $
                                          71Selling
      and marketing
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -General
      and administrative and other operating
                                          
                                          
                                          296
                                          
                                          
                                          
                                          623$
                                          341
                                          
                                          
                                          $
                                          694





Note
7 - LossPer
Share Attributable to New Motion, Inc




Basic
loss per share attributable to New Motion, Inc. is computed by dividing reported
loss by the weighted average number of shares of common stock outstanding for
the period. Diluted loss per share includes the effect, if any, of the potential
issuance of additional shares of common stock as a result of the exercise or
conversion of dilutive securities, using the treasury stock method. Potential
dilutive securities for the Company include outstanding stock options, warrants
and convertible debt.





The
computational components of basic and diluted loss per share are as
follows:





Three Months endedMarch 31,2009
                        
                        
                        2008EPS
      Denominator:Basic
      weighted average shares
                        
                        
                        20,790,942
                        
                        
                        
                        18,932,871Effect
      of dilutive securities
                        
                        
                        -
                        
                        
                        
                        -Diluted weighted average
    shares
                        
                        
                        20,790,942
                        
                        
                        
                        18,932,871EPS
      Numerator (effect on net income):Net
      loss attributable to New Motion, Inc.
                        
                        $
                        (1,187
                        )
                        
                        $
                        (267
                        )Effect
      of dilutive securities
                        
                        
                        -
                        
                        
                        
                        -Diluted loss attributable to New Motion,
      Inc.
                        
                        $
                        (1,187
                        )
                        
                        $
                        (267
                        )Earnings
      per share:Basic
      weighted average loss attributable to New Motion, Inc.
                        
                        $
                        (0.06
                        )
                        
                        $
                        (0.01
                        )Effect
      of dilutive securities
                        
                        
                        -
                        
                        
                        
                        -Diluted
      weighted average loss attributable to New Motion, Inc.
                        
                        $
                        (0.06
                        )
                        
                        $
                        (0.01
                        )





The
Company has issued options, a convertible note payable and warrants, which may
have a dilutive effect on reported earnings if they are exercised or converted
to common stock. Common stock underlying outstanding options, convertible
securities and warrants were not included in the computation of diluted earnings
per share for the three months ended March 31, 2009 and 2008, because their
inclusion would be anti dilutive when applied to the Company’s net loss per
share.





Financial
instruments, which may be exchanged for equity securities are excluded in
periods in which they are anti-dilutive. The following shares were excluded from
the calculation of diluted earnings per share:




10




Anti
Diluted EPS Disclosure




Three
      Months endedMarch
      31,2009
                              
                              
                              2008Convertible
      note payable
                              
                              
                              322,878
                              
                              
                              
                              -Options
                              
                              
                              2,773,372
                              
                              
                              
                              3,531,789Restricted
      Stock
                              
                              
                              70,280
                              
                              
                              
                              110,000Warrants
                              
                              
                              314,443
                              
                              
                              
                              314,443








The per
share exercise prices of the options were $0.48 - $14.00 for the three months
ended March 31, 2009 and 2008. The per share exercise prices of the warrants
were $3.44 - $5.50 for the three months ended March 31, 2009 and 2008. The
convertible note payable with a face value of $1,750,000, and a conversion price
of $5.42, has a post conversion effect of 322,878 shares, if
converted.





Note 8 —Stockholders’
Equity




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





During
the three months ended March 31, 2009, the Company repurchased 832,392 shares at
an average purchase price of $1.13. For the year ended December 31, 2008, the
Company repurchased 1,908,926 shares of its common stock at an average purchase
price of $2.12 per share. Total cash consideration for the repurchased stock to
date is $5.0 million at an average price of $1.82.





There is
no guarantee as to the exact number of shares that will be repurchased by the
Company, and the Company may discontinue repurchases at any time that
management under the direction of the Company’s Board of Directors determines
additional repurchases are not warranted. The amounts authorized by the
Company’s Board of Directors exclude broker commissions.





Note9-Income
Taxes





The
effective tax rate for income before noncontrolling interest and loss on
investee was 37.4% and 37.0% for the three months ended March 31, 2009 and 2008,
respectively.





FIN
48 Disclosures




The
Company recognizes interest accrued related to unrecognized tax benefits and
penalties as income tax expense. There were accrued penalties and interest
recorded on the Balance Sheet in Merger Related Accruals for the three months
ended March 31, 2009, related to uncertain tax benefits for Traffix
Inc.




The
Company is subject to taxation in the US Federal, State and many foreign
jurisdictions. The Company’s tax years for 2006 and 2007 are subject to
examination by the tax authorities.  In addition, the tax returns for
certain acquired entities are also subject to examination. As of March 31, 2009,
the total liability for uncertain tax liabilities recorded in our balance sheet
in Merger Related accruals is $450,000. Management believes that an adequate
provision has been made for any adjustments that may result from tax
examinations. The outcome of tax examinations however, cannot be predicted with
certainty. If any issues addressed in the Company’s tax audits are resolved in a
manner not consistent with management’s expectations, the Company could be
required to adjust its provision for income tax, or goodwill, to the extent such
adjustments relate to acquired entities.  Although the timing or the
resolution and/or closure of the audits is highly uncertain, the Company does
not believe that its unrecognized tax benefit will materially change in the next
twelve months.





Note10–Noncontrolling
Interest in Consolidated Financial Statements





Mobile
Entertainment Channel Corporation (MECC) is a Nevada corporation in which New
Motion owns 49%. New Motion shall receive 50% of the amount of any dividends or
other distributions made by the joint venture. The results of MECC are
consolidated within the financial statements under FIN 46(R). There has
been no change in the Company’s ownership of MECC for the three months ended
March 31, 2009 and 2008.





11




Note 11 -Recent Accounting
Pronouncements





In
December 2008, the EITF issued EITF Issue No. 08-7, Accounting for Defensive Intangible
Assets(EITF 08-7). This issue clarifies the accounting for defensive
assets, which are separately identifiable intangible assets acquired in an
acquisition which an entity does not intend to actively use but does intend to
prevent others from using. EITF 08-7 requires an acquirer to account for these
assets as a separate unit of accounting, which should be amortized to expense
over the period the asset diminishes in value. This issue is effective for
intangible assets acquired on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The adoption of EITF
08-7 did not have an impact on the Company’s financial statements.





FASB
issued Staff Position APB14-1 (FSP APB 14-1) which requires that issuers of
convertible debt separately account for the liability and equity components in a
manner that will reflect the entity’s nonconvertible debt borrowing rate when
interest cost is recognized in subsequent periods. This FSP is effective for
financial statements issued for fiscal years beginning after December 15, 2008.
The application of FSP APB 14-1 did not result in a material change to the
Company’s financial statements.





In
June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities.” EITF 03-6-1 gives guidance as to the circumstances
when unvested share-based payment awards should be included in the computation
of EPS. EITF 03-6-1 is effective for fiscal years beginning after
December 15, 2008. The adoption of EITF 03-6-1 did not have an impact on
the Company’s financial statements.





In
April 2008, the FASB issued FASB Staff Position No. FSP 142-3,
“Determining the Useful Life of Intangible Assets” FSP 142-3 amends the factors
to be considered in determining the useful life of intangible assets. Its intent
is to improve the consistency between the useful life of an intangible asset and
the period of expected cash flows used to measure its fair value. FSP 142-3 is
effective for fiscal years beginning after December 15, 2008. The adoption
of FSP 142-3 did not have an impact on the Company’s financial
statements.





On
February 12, 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 157-2,
“Effective Date of SFAS No. 157,” which defers the effective date of SFAS 157
for nonfinancial assets and liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis. This
FSP delayed the implementation of SFAS 157 for the Company’s accounting of
goodwill, acquired intangibles, and other nonfinancial assets and liabilities
that are measured at the lower of cost or market until January 1, 2009. There is
no impact on the financial statements for the three months ended March 31,
2009.





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





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





12




Note 12 -Commitments and
contingencies





In 2007,
the Office of the Attorney General of the State of Florida commenced an
investigation of the advertising and business practices of the third party
wireless content industry including the Company and its acquired entities,
namely Traffix, Inc. On February 12, 2009, the Company approached the Florida
Attorney General to volunteer its compliance and cooperate with the ongoing
investigation, and contribute to the remediation and educational initiatives of
the Florida Attorney General.  In connection with this matter, the
Company estimates that total costs will approximate $1.125 million which is
included in the Consolidated Balance Sheet through purchase accounting. The
Company paid $500,000 of the estimated $1.125 million to the State of Florida in
the three months ended March 31, 2009.




The
Company is also named in two Class Action Lawsuits (in Florida and California)
involving allegations concerning the Company's marketing practices associated
with some of its services billed and delivered via wireless carriers. The
Company is disputing the allegations and is vigorously defending itself in these
matters. In one of these matters the Company has received a Summary Judgment on
its Motion to Dismiss related to a number of the allegations made in the
original complaint. The Company has accrued for the related costs through
purchase accounting in the amount of $0.275 million in connection with these
matters which are included in Accrued Expenses in the Consolidated Balance
Sheet.





On
February 2, 2009 the Company filed a complaint against Mobile Messenger PTY LTD
and its subsidiary Mobile Messenger Americas, Inc. (“Mobile Messenger”) to
recover monies owed the Company in connection with transaction activity incurred
in the ordinary and normal course and also included declaratory relief
concerning demands made by Mobile Messenger's for indemnification in Mobile
Messenger's settlement in its Florida Class Action Matter which it settled in
late 2008  (“Grey vs. Mobile Messenger”). Mobile Messenger, a party
also involved in the Florida Attorney General investigation described herein,
brought upon the Company a cross complaint seeking injunctive relief,
indemnification, damages exceeding $17 million, and recoupment of attorney’s
fees. The Company disputes the allegations and intends to vigorously defend
itself in these matters considering, among other things, the specific facts
surrounding the underlying claims against the Company, which we believe, are
without merit.




In the
ordinary course of business, the Company is involved in various disputes, which
are routine and incidental to the business and the industry in which it
operates. In the opinion of management the results of such disputes will not
have a significant adverse effect on the financial position or the results of
operations of the Company except as otherwise disclosed.





13






Item
2. Management’s Discussion and Analysis





CAUTIONARY
STATEMENT





This discussion summarizes the
significant factors affecting our consolidated operating results, financial
condition and liquidity and cash flows for the three months ended March 31, 2009
and 2008. 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. The information
contained in this Form 10-Q, as at and for the three months ended March 31, 2009
and 2008, is intended to update the information contained in our Annual Report
on Form 10-K for the year ended December 31, 2008 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 Annual Report on Form
10-K.





A
NOTE CONCERNING PRESENTATION





This
Quarterly Report on Form 10-Q contains information concerning New Motion, Inc.
as it pertains to the periods covered by this report - for the three months
ended March 31, 2009 and 2008.





Executive
Overview





New
Motion, Inc., doing business as Atrinsic, is one of the leading digital
advertising and marketing services companies in the United States. Atrinsic has
two main service offerings, Transactional services and Subscription services.
Transactional services offers full service online marketing and distribution
services which are targeted and measurable online campaigns and programs for
marketing partners, corporate advertisers, or their agencies, generating
qualified customer leads, online responses and activities, or increased brand
recognition. Subscription services offer our portfolio of subscription based
content applications direct to users working with wireless carriers and other
distributors.





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





Our goal
is to optimize revenues from each of our qualified leads, regardless of the
nature of the services we provide to such parties. Over an extended period of
time our ability to generate incremental revenues relies on our ability to
increase the size and scope of our media, our ability to target campaigns, and
our ability to convert qualified leads into appropriate revenue generating
opportunities





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





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





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




14




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





New
Motion, Inc. is operating under the trade name of Atrinsic and is in the process
of formally changing its name.





STRATEGIC
INITIATIVES




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




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





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




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




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





Results
of Operations for the three months ended March 31, 2009 compared to the three
months ended March 31, 2008.





In terms
of comparability, the March 31, 2008 total revenue and operating expenses
include two months of Traffix, Inc. activity and none for Ringtone.com LLC
whereas March 31, 2009 total revenue and operating expenses includes three full
months of Traffix, Inc. and Ringtone.com LLC activity.




15





Revenues
presented by type of activity are as follows for the three month periods ending
March 31:




For
      the three months ended
              March
      31,
            
            
            Change
              Inc.(Dec.)
            
            
            Change
              Inc.(Dec.)2009
            
            
            2008
            
            
            $
            
            
            %Subscription
            
            $
            5,377
            
            
            $
            13,282
            
            
            $
            (7,905
            )
            
            
            -60
            %Transactional
            
            $
            18,171
            
            
            $
            15,456
            
            
            $
            2,715
            
            
            
            18
            %Total
      Revenues (1)
            
            $
            23,548
            
            
            $
            28,738
            
            
            $
            (5,190
            )
            
            
            -18
            %




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




Revenues
decreased approximately $5.2 million, or 18%, to $23.5 million for the three
months ended March 31, 2009, compared to $28.7 million for the three months
ended March 31, 2008.





Subscription
revenue decreased by approximately $7.9 million, or 60%, to $5.4 million for the
three months ended March 31, 2009, compared to $13.3 million for the three
months ended March 31, 2008. The decrease in subscription service revenue was
principally attributable to a decrease in the average number of billable
subscribers during the period. We ended the first quarter of 2009 with
approximately 419,000 subscribers, compared to approximately 1.0 million at the
end of the first quarter of 2008. The number of subscribers is largely, but not
precisely, correlated to the periodic reported revenues as a result of
inter-period volatility and the circumstance that subscribers are billed on a
monthly basis.





Transactional
revenue increased by approximately $2.7 million or 18% to $18.2 million for the
three months ended March 31, 2009 compared to $15.5 million for the three months
ended March 31, 2008. The increase is principally attributed to the acquisition
of Traffix, Inc. which took place February 4, 2008.





Operating
Expenses





For
      the three months ended
                                
                                
                                Change
                                
                                
                                ChangeMarch
      31,
                                
                                
                                Inc.(Dec.)
                                
                                
                                Inc.(Dec.)2009
                                
                                
                                2008
                                
                                
                                $
                                
                                
                                %Operating
      ExpensesCost
      of Media - 3rd
      party
                                
                                $
                                15,475
                                
                                
                                $
                                20,070
                                
                                
                                
                                (4,595
                                )
                                
                                
                                -23
                                %Product
      and distribution
                                
                                
                                2,254
                                
                                
                                
                                2,362
                                
                                
                                
                                (108
                                )
                                
                                
                                -5
                                %Selling
      and marketing
                                
                                
                                2,785
                                
                                
                                
                                1,951
                                
                                
                                
                                834
                                
                                
                                
                                43
                                %General
      and administrative and other operating
                                
                                
                                3,266
                                
                                
                                
                                4,415
                                
                                
                                
                                (1,149
                                )
                                
                                
                                -26
                                %Depreciation
      and Amortization
                                
                                
                                1,555
                                
                                
                                
                                565
                                
                                
                                
                                990
                                
                                
                                
                                175
                                %Total
      Operating Expenses
                                
                                $
                                25,335
                                
                                
                                $
                                29,363
                                
                                
                                $
                                (4,028
                                )
                                
                                
                                -14
                                %





Cost
of Media




Cost of
Media decreased by $4.6 million to $15.5 million for the three months ended
March 31, 2009 from $20.1 million for the three months ended March 31, 2008. For
2009, Cost of Media – 3 rd party
includes media purchased for monetization of both transactional and subscription
revenues. The decrease was proportionately correlated to the decline in the
related revenue. Where possible, the Company has curtailed its discretionary
spending as a result of uncertainties in the marketplace and plans to increase
such expenditures with the launch of new products and initiatives.




16




Product
and Distribution




Product
and distribution expense decreased by $108,000 to $2.3 million for the three
months ended March 31, 2009 compared to $2.4 million for the three months ended
March 31, 2008. Product and distribution expenses are costs necessary to develop
and maintain proprietary content, support and maintain our websites, user data
and technology platforms which drive both our transactional and subscription
based revenues. Included in product and distribution cost is stock compensation
expense of $45,000 and $71,000 for the three months ended March 31, 2009 and
2008 respectively.





Selling
and Marketing




Selling
and marketing expense increased by $0.8 million to $2.8 million in the three
months ended March 31, 2009 as compared to $2.0 million for the three months
ended March, 2008. The Company’s bad debt expense increased by approximately
$1.0 million for the three months ended March 31, 2009 compared to for the three
months ended March 31, 2008 partially offset by a reduction in salaries and
other marketing costs.




General,
Administrative and Other Operating




General
and administrative expenses decreased by approximately $1.1 million to $3.3
million for the three months ended March 31, 2009 compared to $4.4 million for
the three months ended March 31, 2008. The decrease is primarily due to a
reduction in labor and related costs, professional and consulting fees,
facilities and related costs. The Company continues to make appropriate and
modest investments in labor, facilities, technology infrastructure, and
utilization of third party professional service providers to support its
continued growth, business development and corporate governance initiatives.
Included in general and administrative expense is stock compensation expense of
$296,000 and $623,000 for the three months ended March 31, 2009 and 2008
respectively.





Depreciation
and Amortization




Depreciation
and amortization expense increased $1.0 million to $1.6 million for the three
months ended March 31, 2009 compared to $0.6 million for the year three months
ended March 31, 2008 principally as a result of the increase in intangible
assets as a result of the acquisitions of Traffix, Inc. on February 4, 2008 and
Ringtone.com LLC on June 30, 2008, and an increase in leasehold improvements for
the Company’s New York City headquarters.





Loss
from Operations





Operating
loss increased to approximately $1.8 million for the three months ended March
31, 2009, compared to an operating loss of $0.6 million for the three months
ended March 31, 2008. The Company’s revenue decreased by 18% with a
corresponding decrease in operating expenses of 14%.





Interest
income and dividends




Interest
and dividend income decreased $246,000 to $46,000 for the three months ended
March 31, 2009, compared to $292,000 for the three months ended March 31, 2008.
The reduction is mainly due to a decrease in the balances of cash and marketable
securities at March 31, 2009 compared to March 31, 2008, as well as a reduction
in the rate of return on invested capital.





Interest
expense




Interest
expense increased $43,000 to $50,000 for the three months ended March 31, 2009,
compared to $7,000 for the three months ended March 31, 2008. The increase is
due principally to interest accrued on the note payable.





Income
Taxes





Income
tax benefit, before noncontrolling interest and loss on investee, for the
three months ended March 31, 2009 and 2008 was $670,000 and $174,000
respectively and reflects an effective tax rate of 37.6% and 37.0% respectively.
The Company had a loss before taxes of $1.8 million for the three months ended
March 31, 2009 compared to $0.5 million for the three months ended March 31,
2008.





Equity
in Loss of Investee




Equity in
loss of investee was ($85,000), net of taxes and represents the Company’s 36%
interest in The Billing Resource, LLC.




17




Net
loss attributable to noncontrolling interest




Noncontrolling
interest for the three months ended March 31, 2009 was ($18,000) compared to
($29,000) for the three months ended March 31, 2008.





Net
Loss attributable to New Motion, Inc.




Net loss
increased by $0.9 million to $1.2 million for the three months ended March 31,
2009 as compared to a net loss of $0.3 million for the three months ended March
31, 2008. This increase resulted from the factors described above.





Liquidity
and Capital Resources




The
Company continually projects anticipated cash requirements, which may include
share repurchases, business combinations, capital expenditures, principal and
interest payments on its outstanding and future indebtedness, and working
capital requirements. As of March 31, 2009, the Company had cash and cash
equivalents of approximately $22.6 million, marketable securities of
approximately $0.2 million and a working capital balance of approximately $21.8
million. The Company used approximately $276,000 in operations for the three
months ended March 31, 2009 and, contingent on prospective operating
performance, may require reductions in discretionary variable costs and other
realignments to permanently reduce fixed operating costs.




In
conjunction with the Company’s objective of enhancing shareholder value, the
Company’s Board of Directors authorized a share repurchase program. Under this
share repurchase program, the Company purchased 832,392 shares of the Company’s
common stock for an aggregate price of approximately $1.0 million during the
three months ended March 31, 2009.




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




In
connection with its investments the Company is obligated to fund investments
totaling approximately $0.7 million in 2009. Furthermore, management anticipates
the risk adjusted return is sufficiently in excess of the contributed capital
obligations, as of this date.  There is however, no guarantee of the
anticipated returns. In addition, management has taken considerable actions to
secure its interest in achieving such a return.





New
Accounting Standards and Interpretations





In
June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities.” EITF 03-6-1 gives guidance as to the circumstances
when unvested share-based payment awards should be included in the computation
of EPS. EITF 03-6-1 is effective for fiscal years beginning after
December 15, 2008. The adoption of EITF 03-6-1 will not have an impact on
the Company’s financial statements.




In
April 2008, the FASB issued FASB Staff Position No. FSP 142-3,
“Determining the Useful Life of Intangible Assets” FSP 142-3 amends the factors
to be considered in determining the useful life of intangible assets. Its intent
is to improve the consistency between the useful life of an intangible asset and
the period of expected cash flows used to measure its fair value. FSP 142-3 is
effective for fiscal years beginning after December 15, 2008. The adoption
of FSP 142-3 will not have an impact on the Company’s financial
statements.




18





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




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





19




Item
3. Quantitative and Qualitative Disclosures about Market Risk





Not
required.




Item
4. Disclosure Controls and Procedures





Evaluation
of Disclosure Controls and Procedures





Members
of the our management, including our Chief Executive Officer, Burton Katz, and
Chief Financial Officer Andrew Zaref, have evaluated the effectiveness of our
disclosure controls and procedures, as defined by paragraph (e) of Exchange Act
Rules 13a-15 or 15d-15, as of March 31, 2009, the end of the period covered by
this report. Based upon that evaluation, Messrs. Katz and Zaref concluded that
our disclosure controls and procedures were effective for the period ended March
31, 2009.





INTERNAL
CONTROL OVER FINANCIAL REPORTING





There
were no changes in our internal control over financial reporting or in other
factors identified in connection with the evaluation required by paragraph (d)
of Exchange Act Rules 13a-15 or 15d-15 that occurred during the first quarter
ended March 31, 2009 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.




20




PART II 
  - OTHER
INFORMATION




Item
1A. Risk Factors





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





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




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





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




·
            Maintain
      and develop new wireless carrier and billing aggregator relationships upon
      which our business currently depends;·
            Maintain
      a compliance based control system to render our products and services
      compliant with carrier and aggregator demands, as well as marketing
      practices imposed by private marketing rule makers, such as the Mobile
      Marketing Association (MMA), and to conform with the stringent marketing
      demands as imposed by various States’ Attorney
Generals;·
            Respond
      effectively to competitive pressures in order to maintain our market
      position;·
            Increase
      brand awareness and consumer recognition to secure continued
      growth;·
            Attract
      and retain qualified management and employees for the expansion of the
      operating platform;·
            Continue
      to upgrade our technology to process increased usage and remain
      competitive with message delivery;·
            Continue
      to upgrade our information processing systems to assess marketing results
      and customer satisfaction ;·
            Continue
      to develop and source high-quality mobile content that achieves
      significant market acceptance;·
            Maintain
      and grow our off-deck distribution (“off-deck” refers primarily to
      services delivered through the Internet, which are independent of the
      carriers own product and service offers), including such distribution
      through our web sites and third-party direct-to-consumer
      distributors;·
            Execute
      our business and marketing strategies
  successfully.





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





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




During
the first quarter ended March 31, 2009, we generated a significant portion of
our revenues from the sale of our products and services directly to consumers
which are billed through wireless aggregators and carriers. We expect that we
will continue to bill a significant portion of our revenues through a limited
number of aggregators for the foreseeable future, although these aggregators may
vary from period to period. In a risk diversification and cost saving effort, we
have established a direct billing relationship with a carrier that mitigates a
portion of our revenue generation risk as it relates to aggregator dependence;
conversely this risk is replaced with internal performance risk regarding our
ability to successfully process billable messages directly with the
carrier.




21




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




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




·
            a
      carrier’s decision to suspend delivery of our products and services to its
      customer base;·
            a
      carrier’s decision to offer its own competing subscription applications,
      products and services;·
            a
      carrier’s decision to offer similar subscription applications, products
      and services to its subscribers for price points less than our offered
      price points, or for free;·
            a
      network encountering technical problems that disrupt the delivery of, or
      billing for, our applications;·
            the
      potential for concentrations of credit risk embedded in the amounts
      receivable from the aggregator should any one, or group if aggregators
      encounter financial difficulties, directly or indirectly, as a result of
      the current period of slower economic growth currently affecting the
      United States; or·
            a
      carrier’s decision to increase the fees it charges to market and
      distribute our applications, thereby increasing its own revenue and
      decreasing our share of revenue.




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




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




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





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




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





During
the three months ended March 31, 2009, all of our revenue was generated,
directly or indirectly, through the Internet in part by delivering
advertisements that generate leads, impressions, click-throughs, and other
actions to our advertiser customers' websites as well as confirmation and
management of mobile services.  This business model may not continue
to be effective in the future for the following reasons:




·
              click
      and conversion rates may decline as the number of advertisements and ad
      formats on the Web increases, making it less likely that a user will click
      on our advertisement;·
              the
      installation of "filter" software programs by web users which prevent
      advertisements from appearing on their computer screens or in their email
      boxes may reduce click
throughs;




22




·
                companies
      may be reluctant or slow to adopt online advertising that replaces, limits
      or competes with their existing direct marketing
  efforts;·
                companies
      may prefer other forms of Internet advertising we do not offer, including
      certain forms of search engine placements;·
                companies
      may reject or discontinue the use of certain forms of online promotions
      that may conflict with their brand objectives;·
                companies
      may not utilize online advertising due to concerns of "click-fraud",
      particularly related to search engine placements;·
                regulatory
      actions may negatively impact certain business practices that we currently
      rely on to generate a portion of our revenue and profitability;
      and·
                perceived
      lead quality.




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




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





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




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




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





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




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





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




23




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




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





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




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





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




It is our
current and long-term intention that we will use all cash flows to fund
operations and maintain excess cash requirements for the possibility of
potential future acquisitions.  We may also use our cash to repurchase
shares pursuant to our share repurchase program discussed elsewhere in this
report. Future dividend declarations, if any, will result from our reversal of
our current intentions, and would depend on our performance, the level of our
then current and retained earnings and other pertinent factors relating to our
financial position. Prior dividend declarations should not be considered as an
indication for the potential for any future dividend declarations.




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




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





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




24




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





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





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




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




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




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





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




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





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




We have
historically used stock options as a key component of our employee compensation
program in order to align employees' interests with the interests of our
stockholders, encourage employee retention, and provide competitive compensation
packages. Volatility or lack of positive performance in our stock price may
adversely affect our ability to retain key employees, many of whom have been
granted stock options, or to attract additional highly-qualified personnel. As
of March 31, 2009, a majority of our outstanding employee stock options
have exercise prices in excess of the stock price on that date. To the extent
this continues to occur, our ability to retain employees may be adversely
affected. Moreover, applicable NASDAQ listing standards relating to obtaining
stockholder approval of equity compensation plans could make it more difficult
or expensive for us to grant stock options or other stock-based awards to
employees in the future. As a result, we may incur increased compensation costs,
change our equity compensation strategy or find it difficult to attract, retain
and motivate employees, any of which could materially, adversely affect
our business.




25




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




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




In 2007,
the Office of the Attorney General of the State of Florida commenced an
investigation of the advertising and business practices of the third party
wireless content industry including the Company and its acquired entities,
namely Traffix, Inc. On February 12, 2009, the Company approached the Florida
Attorney General to volunteer its compliance and cooperate with the ongoing
investigation, and contribute to the remediation and educational initiatives of
the Florida Attorney General. In connection with this matter, at December
31, 2008 the Company estimates that total costs approximate $1.125 million which
is included Accrued Expenses in the Consolidated Balance Sheet. During the three
months ended March 31, 2009, $500,000 was paid to the State of
Florida.





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





On
February 2, 2009 the Company filed a complaint against Mobile Messenger PTY LTD
and its subsidiary Mobile Messenger Americas, Inc. (“Mobile Messenger”) to
recover monies owed the Company in connection with transaction activity incurred
in the ordinary and normal course and also included declaritory relief
concerning demands made by Mobile Messenger's for indemnification in Mobile
Messenger's settlement in its Florida Class Action Matter which it settled in
late 2008  (“Grey vs. Mobile Messenger”).  Mobile Messenger,
a party also involved in the Florida Attorney General investigation described
herein, brought upon the Company a cross complaint seeking injunctive relief,
indemnification, damages exceeding $17 million, and recoupment of attorneys
fees. The Company disputes the allegations and intends to vigorously defend
itself in these matters considering, among other things, the specific facts
surrounding the underlying claims against the Company are without
merit.





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




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




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




The
preparation of our consolidated financial statements requires estimates of the
amount of income tax that will become payable in each of the jurisdictions in
which we operate. We may be challenged by the taxing authorities in these
jurisdictions and, in the event that we are not able to successfully defend our
position, we may incur significant additional income tax liabilities and related
interest and penalties which may have an adverse impact on our results of
operations and financial condition.




26




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




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





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




Effective
internal control over financial reporting is necessary for us to provide
reliable financial reports and effectively prevent fraud. Section 404 of the
Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal
control over financial reporting. Our 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-K for the fiscal year ending
December 31, 2009. The process of complying with Section 404 is expensive and
time consuming, and requires significant management attention. We cannot be
certain that the measures we will undertake will ensure that we will maintain
adequate controls over our financial processes and reporting in the future.
Furthermore, if we are able to rapidly grow our business, the internal controls
over financial reporting that we will need, will become more complex, and
significantly more resources will be required to ensure that our internal
controls over financial reporting remain effective. Failure to implement
required controls, or difficulties encountered in their implementation, could
harm our operating results or cause us to fail to meet our reporting
obligations. If we or our auditors discover a material weakness in our internal
control over financial reporting, the disclosure of that fact, even if the
weakness is quickly remedied, could diminish investors’ confidence in our
financial statements and harm our stock price. In addition, non-compliance with
Section 404 could subject us 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 our common stock, which would further reduce
our stock price.




Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.





Common Stock
Repurchases.




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




During
the three months ended March 31, 2009, the Company repurchased an aggregate of
832,392 shares of its common stock at a cost of approximately $1.0 million, at
an average of $1.13 per share.




27




Issuer
      Purchases of Equity Securities(c)
      Total Number
                    
                    
                    (d)
      Approximateof
      Shares
                    
                    
                    Dollar
      Value ofPurchased
      as Part
                    
                    
                    Shares
      That May(a)
      Total Number
                    
                    
                    
                    
                    
                    Of
      Publicly
                    
                    
                    Yet
      Be PurchasedOf
      Shares
                    
                    
                    (b)
      Average Price
                    
                    
                    announced
      Plans
                    
                    
                    Under
      Plans OrPurchased
                    
                    
                    Paid
      per Share
                    
                    
                    or
      Programs
                    
                    
                    ProgramsBeginning
      balance January 1, 2009
                    
                    
                    1,908,926
                    
                    
                    
                    
                    
                    
                    1,908,926
                    
                    
                    $
                    5,946,791January
      1 to January 31, 2009
                    
                    
                    472,392
                    
                    
                    $
                    1.02
                    
                    
                    
                    472,392
                    
                    
                    $
                    5,464,944February
      1 to February 28, 2009
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    5,464,944March
      1 to March 31, 2009
                    
                    
                    360,000
                    
                    
                    $
                    1.27
                    
                    
                    
                    360,000
                    
                    
                    $
                    5,007,737Total
                    
                    
                    2,741,318
                    
                    
                    
                    
                    
                    
                    
                    2,741,318





28





Item
6. Exhibits




Exhibit Number
                  
                  Description
      of Exhibit31.1
                  
                  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.




29




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:
May 12, 2009




BY:
                  /s/
      Burton Katz
                  
                  BY:
                  /s/
      Andrew ZarefBurton
      Katz
                  
                  Andrew
      ZarefChief
      Executive Officer
                  
                  Chief
      Financial Officer(Principal
      Financial and Accounting
Officer)




30