**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 September 30, 2008 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.)
 
 42
                  Corporate Park, Suite 250, Irvine, California 92606(Address
                  of principal executive offices and ZIP
                  Code)
  (949)
                  777-3700(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 and 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 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 companyx
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 Yes o No   x
 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 No o
  As
        of
        November 12, 2008, the Company had 21,406,855 shares of Common Stock, $.01
        par
        value, outstanding.
  
 
 **New
        Motion, Inc.**
 doing
        business as
 **Atrinsic**
 **Table
        of Contents**
  PagePART
                  I
              FINANCIAL
                  INFORMATIONItem
                  1
              Financial
                  Statements
              2Item
                  2
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              12Item
                  3
              Quantitative
                  and Qualitative Disclosures about Market Risk
              19Item
                  4T
              Controls
                  and Procedures
              19PART
                  II
              OTHER
                  INFORMATIONItem
                  1A
              Risk
                  Factors
              20Item
                  2
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              26Item
                  6
              Exhibits
              27
  
  **NEW
        MOTION, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **(in
        thousands, except share and per share amounts)**
 
 **September 30,**
              
              **December 31,****2008**
              
              **2007****(Unaudited)****ASSETS****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              21,888
              
              $
              987Marketable
                  securities
              
              
              3,950
              
              
              9,463Accounts
                  receivable, net of allowance for doubtful accounts of $1,786 at
                  September
                  30, 2008 and $565 at December 31, 2007
              
              
              20,321
              
              
              8,389Prepaid
                  income taxes
              
              
              2,680
              
              
              780Other
                  current assets
              
              
              3,149
              
              
              1,498**TOTAL
                  CURRENT ASSETS**
              
              
              51,988
              
              
              21,117**PROPERTY
                  AND EQUIPMENT, NET**
              
              
              4,286
              
              
              860**MARKETABLE
                  SECURITIES - NON CURRENT**
              
              
              4,000
              
              
              -**GOODWILL**
              
              
              100,852
              
              
              -**IDENTIFIED
                  INTANGIBLES, NET**
              
              
              44,044
              
              
              599**OTHER
                  ASSETS**
              
              
              -
              
              
              1,387**TOTAL
                  ASSETS**
              
              $
              205,170
              
              $
              23,963**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              7,993
              
              $
              3,257Accrued
                  expenses
              
              
              12,725
              
              
              3,720Notes
                  Payable
              
              
              1,794
              
              
              -Deferred
                  taxes payable
              
              
              1,340
              
              
              -Other
                  current liabilities
              
              
              1,866
              
              
              99**TOTAL
                  CURRENT LIABILITIES**
              
              
              25,718
              
              
              7,076Deferred
                  income taxes
              
              
              14,918
              
              
              -Notes
                  payable
              
              
              -
              
              
              22**TOTAL
                  LIABILITIES**
              
              
              40,636
              
              
              7,098**MINORITY
                  INTEREST**
              
              
              191
              
              
              283**COMMITMENTS
                  AND CONTINGENCIES****STOCKHOLDERS'
                  EQUITY**Common
                  stock - par value $.01, 100,000,000 authorized, 22,991,942 and
                  12,021,184
                  shares issued at 2008 and 2007, respectively; and, 22,372,570 and
                  12,021,184 shares outstanding at 2008 and 2007,
                  respectively.
              
              
              230
              
              
              120Additional
                  paid-in capital
              
              
              168,984
              
              
              19,583Accumulated
                  other comprehensive loss
              
              
              -
              
              
              (38
              )Common
                  stock, held in treasury, at cost, 619,372 shares
              
              
              (2,581
              )Accumulated
                  deficit
              
              
              (2,290
              )
              
              (3,083
              )**TOTAL
                  STOCKHOLDERS' EQUITY**
              
              
              164,343
              
              
              16,582**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              $
              205,170
              
              $
              23,963
  The
        accompanying notes are an integral part of these Condensed Consolidated
        Financial Statements
  2
  **NEW
        MOTION, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(UNAUDITED)**
 **(in
        thousands, except share and per share amounts)**
 
 **Three Months Ended**
              
              **Nine Months Ended****September 30,**
              
              **September
                  30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****NET
                  REVENUES**
              
              $
              30,819
              
              $
              10,495
              
              $
              91,008
              
              $
              23,031**COST
                  OF REVENUES**
              
              
              21,217
              
              
              1,406
              
              
              54,082
              
              
              3,626**GROSS
                  PROFIT**
              
              
              9,602
              
              
              9,089
              
              
              36,926
              
              
              19,405**OPERATING
                  EXPENSES**Selling
                  and marketing
              
              
              2,075
              
              
              7,878
              
              
              11,229
              
              
              15,325General
                  and administrative (includes non-cash equity compensation of (($71),
                  $278,
                  $1,009, and $472, respectively)
              
              
              6,433
              
              
              2,916
              
              
              22,200
              
              
              7,500Depreciation
                  and amortization
              
              
              1,339
              
              
              415
              
              
              2,619
              
              
              9299,847
              
              
              11,209
              
              
              36,048
              
              
              23,754**INCOME
                  (LOSS) FROM OPERATIONS**
              
              
              (245
              )
              
              (2,120
              )
              
              878
              
              
              (4,349
              )**OTHER
                  (INCOME) EXPENSE**Interest
                  income and dividends
              
              
              (192
              )
              
              (123
              )
              
              (567
              )
              
              (362
              )Interest
                  expense
              
              
              67
              
              
              2
              
              
              82
              
              
              20Other
                  expense
              
              
              (22
              )
              
              -
              
              
              145
              
              
              21(147
              )
              
              (121
              )
              
              (340
              )
              
              (321
              )**INCOME
                  (LOSS) BEFORE INCOME TAXES**
              
              
              (98
              )
              
              (1,999
              )
              
              1,218
              
              
              (4,028
              )**INCOME
                  TAXES**
              
              
              (77
              )
              
              (206
              )
              
              517
              
              
              (1,111
              )**INCOME
                  (LOSS) BEFORE MINORITY INTEREST**
              
              
              (21
              )
              
              (1,793
              )
              
              701
              
              
              (2,917
              )**MINORITY
                  INTEREST**
              
              
              (15
              )
              
              156
              
              
              (92
              )
              
              291**NET
                  INCOME (LOSS)**
              
              $
              (6
              )
              $
              (1,949
              )
              $
              793
              
              $
              (3,208
              )**EARNINGS
                  (LOSS) PER SHARE:****Basic**
              
              $
              0.00
              
              $
              (0.16
              )
              $
              0.04
              
              $
              (0.29
              )**Diluted**
              
              $
              0.00
              
              $
              (0.16
              )
              $
              0.04
              
              $
              (0.29
              )**WEIGHTED
                  AVERAGE SHARES OUTSTANDING:****Basic**
              
              
              22,545,451
              
              
              12,000,167
              
              
              21,208,980
              
              
              11,108,117**Diluted**
              
              
              22,545,451
              
              
              12,000,167
              
              
              22,006,232
              
              
              11,108,117
  The accompanying notes are an integral part of these Condensed Consolidated
        Financial Statements
 3
  **NEW
        MOTION, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(UNAUDITED)**
 **(in
        thousands)**
  **Nine
                  Months Ended****September
                  30****2008**
              
              **2007****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  income (loss)
              
              $
              793
              
              $
              (3,208
              )Adjustments
                  to reconcile net income (loss) to net cashprovided
                  by (used in) operating activities:Allowance
                  for doubtful accounts
              
              
              1,221
              
              
              (440
              )Depreciation
                  and amortization
              
              
              3,097
              
              
              929Stock-based
                  compensation expense
              
              
              1,009
              
              
              884Net
                  losses on sale of marketable securities
              
              
              238
              
              
              -Deferred
                  income taxes
              
              
              (1,248
              )
              
              (1,802
              )Minority
                  interest in net loss of consolidated joint venture
              
              
              (92
              )
              
              291Changes
                  in operating assets and liabilities of business, net of
                  acquisitions:Accounts
                  receivable
              
              
              2,872
              
              
              (2,301
              )Prepaid
                  income tax
              
              
              (2,478
              )
              
              336Prepaid
                  expenses and other current assets
              
              
              2,116
              
              
              (593
              )Accounts
                  payable
              
              
              (3,412
              )
              
              2,547Other,
                  principally accrued expenses
              
              
              1,215
              
              
              233**Net
                  cash provided by (used in) operating activities**
              
              
              5,331
              
              
              (3,124
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Purchases
                  of securities
              
              
              (6,332
              )
              
              -Proceeds
                  from sales of securities
              
              
              20,758
              
              
              -Cash
                  received in business combinations
              
              
              12,271
              
              
              -Cash
                  paid in business combinations
              
              
              (7,041
              )
              
              (1,736
              )Capital
                  expenditures
              
              
              (1,737
              )
              
              (166
              )**Net
                  cash provided by (used in) investing activities**
              
              
              17,919
              
              
              (1,902
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Repayments
                  of notes payable
              
              
              (111
              )
              
              (575
              )Expenditures
                  for equity financing
              
              
              -
              
              
              (470
              )Issuance
                  of warrants
              
              
              -
              
              
              57Issuance
                  of stock
              
              
              -
              
              
              18,434Purchase
                  of common stock held in treasury
              
              
              (2,581
              )
              
              -Proceeds
                  from exercise of stock options
              
              
              343
              
              
              27**Net
                  cash (used in) provided by financing activities**
              
              
              (2,349
              )
              
              17,473**NET
                  INCREASE IN CASH AND CASH EQUIVALENTS**
              
              
              20,901
              
              
              12,447**CASH
                  AND CASH EQUIVALENTS AT BEGINNING OF PERIOD**
              
              
              987
              
              
              544**CASH
                  AND CASH EQUIVALENTS AT END OF PERIOD**
              
              $
              21,888
              
              $
              12,991
  The
        accompanying notes are an integral part of these Condensed Consolidated
        Financial Statements.
 
 4
  **NEW
        MOTION, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY**
 **FOR
        THE NINE MONTHS ENDED SEPTEMBER 30, 2008 (UNAUDITED)**
 **(in
        thousands, except share amounts)**
  **Accumulated****Additional**
              
              
              
              
              
              
              
              
              **Other**
              
              
              
              
              
              **Total****Common Stock**
              
              
              **Paid-in**
              
              
              **Treasury Stock**
              
              
              **Comprehensive**
              
              
              **Accumulated**
              
              
              **Stockholders'****Shares**
              
              
              **Amounts**
              
              
              **Capital**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Income
                  (Loss)**
              
              
              **Deficit**
              
              
              **Equity****Balance,
                  December 31, 2007**
              
              
              12,021,184
              
              $
              120
              
              $
              19,583
              
              
              -
              
              $
              -
              
              $
              (38
              )
              $
              (3,083
              )
              $
              16,582Net
                  income for the nine months ended
                September
                  30, 2008
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              793
              
              
              793Components
                  of other comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              38
              
              
              
              
              
              38Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              831Stock-based
                  compensation expense
              
              
              
              
              
              
              
              
              1,010
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,010Stock
                  option exercises
              
              
              561,495
              
              
              6
              
              
              337
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              343Purchase
                  of common stock , at cost
              
              
              
              
              
              
              
              
              
              
              
              619,372
              
              
              (2,581
              )
              
              
              
              
              
              
              
              (2,581
              )Common
                  stock issued in connection with business combinations
              
              
              10,409,358
              
              
              104
              
              
              148,054
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              148,158Miscellaneous
                  share retirement
              
              
              (95
              )**Balance,
                  September 30, 2008**
              
              
              22,991,942
              
              $
              230
              
              $
              168,984
              
              $
              619,372
              
              $
              (2,581
              )
              $
              -
              
              $
              (2,290
              )
              $
              164,343
  The
        accompanying notes are an integral part of these Condensed Consolidated
        Financial Statements
  5
 
 **NEW
        MOTION, INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Note
        1 - Basis of Presentation**
  The
        accompanying Consolidated Balance Sheet as of September 30, 2008, and the
        Consolidated Statements of Operations and the Consolidated Statements of
        Cash
        Flows for the three and nine month periods ended September 30, 2008 and 2007
        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, 2007. 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, 2007, included in the Company’s Annual Report on Form 10-KSB
        filed on March 31, 2008, and the amended Form 10-KSB, as filed on April 29,
        2008, for inclusion of part III, Directors, Executives Officers, Promoters,
        Control Persons and Corporate Governance; Compliance with Section 16(a) of
        the
        Exchange Act, and all other documents that have been filed with the Securities
        and Exchange Commission. The balance sheet at December 31, 2007 have been
        derived from the audited financial statements included in the Company’s Form
        10-KSB.
 
  The
        preparation of financial statements in conformity with GAAP requires management
        to make estimates and assumptions that affect the reported amounts of assets
        and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the financial statements, and the reported amounts of revenue and expenses
        during the reporting period. On an ongoing basis, management evaluates its
        estimates, including, but not limited to, those related to: i) returns and
        allowances; ii) the allowance for doubtful accounts; iii) the assessment
        of
        other-than-temporary impairments related to the Company’s marketable securities;
        iv) the valuation of equity instruments granted by the Company; v) the value
        assigned to, recoverability and estimated useful lives of, goodwill and
        intangible assets acquired in business combinations; vi) the Company’s income
        tax expense, its deferred tax assets and liabilities and any valuation
        allowances recorded against deferred tax assets; and vii) the recognition
        and
        disclosure of contingent liabilities. These estimates and assumptions are
        based
        on historical data and experience, as well as various other factors that
        management believes to be reasonable under the circumstances. Actual results
        may differ from these 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.
 
 **Supplemental
        Cash Flow information for the periods presented is as
        follows:**
  **Nine Months Ended**September 30,
              
              September 30,2008
              
              2007**Supplemental
                  Cash Flow Disclosure**Cash
                  paid during the nine months ended for:Income
                  taxes
              
              **$**
              1,699
              
              $
              40Interest
                  expense
              
              
              20
              
              
              4
  
 **Note
        2**  -  **Marketable
        Securities**
 
 The
        Financial Accounting Standards Board issued FAS No. 157, Fair Value Measurements
        (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring
        fair value in generally accepted accounting principles (GAAP), and expands
        disclosures about fair value measurements. FAS 157 was adopted by the Company,
        as required, for fiscal periods ending after November 15, 2007 and for the
        interim period reporting therein. Although the adoption of FAS 157 did not
        materially impact the Company’s financial condition, results of operation, or
        cash flows, the Company is providing additional disclosures.
 
 SFAS
        157
        establishes a three-tier fair value hierarchy, which prioritizes the inputs
        used
        in measuring fair value. These tiers are: Level I - fair value as measured
        based
        on observable inputs such as quoted prices in active markets for identical
        assets or liabilities; Level II - fair value as measured based on
        observable inputs such as quoted prices in active markets for similar assets
        or
        liabilities, and inputs other than quoted prices in active markets that are
        either directly or indirectly observable; and Level III - fair value as
        measured based on unobservable inputs in which little or no market data exists,
        thereby requiring an entity to develop its own fair value
        assumptions.
  6
  As
        of
        September 30, 2008, the Company held certain assets that are required to
        be
        measured at fair value on a recurring basis. These included the Company’s
        investments in marketable securities consisting of U.S. governmental agency,
        U.S. municipal agency, corporate obligations and auction-rate securities.
        In
        accordance with the SFAS No. 115, “Accounting for Certain Investments in Debt
        and Equity Securities”, our Marketable Securities are considered
        available-for-sale, based on our intentions to hold the related investment
        securities for varying and indefinite periods of time, pursuant to maturity
        dates, market conditions and other factors. The Company has not changed its
        investment intentions. Available for sale securities are carried at fair
        value,
        with unrealized gains or losses, net of tax, recorded in a separate component
        of
        stockholders’ equity within other accumulated comprehensive income.
 
 Included
        in marketable securities at September 30, 2008 are auction-rate security
        instruments (ARS) with a par value of $7.95 million. Subsequent to September
        30,
        2008, prior to the issuance of the condensed consolidated financials statements,
        approximately $3.950 million of the ARS were redeemed and converted to cash.
        The
        Company presents the remaining portion of the ARS, which have not been redeemed,
        as non-current based on current market conditions and liquidity concerns.
        Due to
        recent events in the credit markets, the auction events for some of the ARS
        the
        Company held failed when the ARS market first froze in February 2008 and
        have
        continued to fail through September 30, 2008. The ARS held by the Company
        at
        September 30, 2008 were collateralized by preferred securities in closed-ended
        tax-exempt mutual funds $4.6 million, federally-guaranteed student loans
        $1.35
        million, and private student loans $2.0. As of September 30, 2008, the Company
        continued to earn interest on its entire ARS portfolio based on contractually
        required “auction failure” rates, which are either variable based on short-term
        municipal bond or other market indices, or fixed based on issuer contract
        penalty rates and result in the Company earning a higher interest as a form
        of
        compensation for the lack of liquidity. The Company estimated fair value
        for its
        ARS portfolio by considering the collateralization of the underlying security
        investments, the creditworthiness of the issuer, the interest rates on the
        investments, any guarantee or insurance underlying the issuance, and any
        liquidity expectation or experience through redemption or successful auctions.
        Any future fluctuation in fair value related to ARS the Company deems to
        be
        temporary, including the recovery of any write-downs, would be recorded in
        accumulated other comprehensive income. If the Company determines that any
        impairment is other than temporary, the Company will be required to incur
        a
        charge to earnings in the period that the determination was made. All ARS
        are
        considered Level III for purposes of SFAS 157.
  **September
                  30,****2008**
              
              **Level
                  I**
              
              **Level
                  II**
              
              **Level
                  III**Auction-rate
                  Securities
              
              $
              7,950
              
              $
              -
              
              $
              -
              
              $
              7,950Other
                  available-for-sale securities
              
              
              
              
              
              -
              
              
              -Total
                  Assets Measured at Fair Value
              
              $
              7,950
              
              $
              -
              
              $
              -
              
              $
              7,950
 
 **LEVEL
        III ASSET RECONCILIATION**
 
 Beginning
                  Balance, 12/31/2007
              
              $
              9,463Gains/(losses),
                  realized
              
              
              -Gains/(losses),
                  unrealized
              
              
              -Purchases
                  & (sales), net
              
              
              (14,426
              )Transfers
                  in/(out) of Level III Assets (1)
              
              
              12,913Ending
                  Balance, 9/30/2008
              
              $
              7,950
  (1)
        Includes mainly transfers from Traffix, Inc. acquisition, which was effective
        February 4, 2008
 
 **Note
        3** - **Business
        Combinations**
  The
        Company consummated two business combinations during the nine months ended
        September 30, 2008 for total consideration of approximately $159 million.
        As a result of these acquisitions, the Company recorded $100 million of goodwill
        and $48 million of other long lived intangible assets.  The results of
        operations of the acquired entities have been included in the consolidated
        results presented herein as of their date of acquisition. The purchase price
        allocations for these acquisitions are preliminary for up to 12 months after
        the
        acquisition date and subject to revision as more detailed analyses are completed
        and additional information about fair value of assets and liabilities becomes
        available. Any change in the estimated fair value of the net assets of the
        acquired companies will change the amount of the purchase price allocable
        to
        goodwill. Acquired intangibles are generally amortized on a straight line
        basis
        over their estimated useful lives and the related amortization expense totaled
        $1.1, and $2.0 for the three and nine month period ended September 30,
        2008.  Pro forma results of operations have previously been presented or
        are otherwise available. The Company believes it is possible that it will
        have
        an impairment of goodwill and other long lived identified intangibles in
        the
        future, which would result in an a non cash impairment charge reflected in
        the
        Statement of Operations.
  The
        Company’s balance sheet at September 30, 2008,
        and statement of operations for the three and nine months ended September
        30,
        2008 reflects management’s best estimates of fair values of the intangible
        assets acquired and the related estimated useful lives. Modification to these
        estimates could affect fair values ascribed to the identified amortizable
        assets
        acquired and cause changes to prospective balance sheets and statements of
        operations.
 
 7
 
 **Note
        4 -**  **Notes
        Payable**
 
 On
        June
        30, 2008, the Company entered into an Asset Purchase Agreement (“APA”) with
        Ringtone.com, LLC (“Ringtone.com”) and W3i Holdings, LLC. (“W3i”) pursuant to
        which the Company acquired certain net-assets from Ringtone.com, including
        but
        not limited to short code, subscriber database, covenant not to compete,
        working
        capital, and certain domain names. The Company at the closing paid to
        Ringtone.com approximately $7.0 million in cash and 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. The payment of principal and interest on the Note is subject to certain
        recoupment provisions contained in the Note and in the APA. At September
        30,
        2008, all amounts paid in excess of working capital have been ascribed to
        the
        estimated fair value of the identifiable intangibles.
 
 **Note
        5 -**  **Significant
        Economic Dependence**
 
 The
        Company’s revenues may at times be dependent on a limited number of major
        customers within its Network activities; additionally the Company uses several
        billing partners, also known as aggregators, in order to provide content
        and
        subsequent billings to its Entertainment activity subscription customers.
        These
        aggregator companies have not had long operating histories in the United
        States,
        or operations within traditional and proven business models. These aggregators
        face a greater business risk in the market place, due to a constantly evolving
        business environment that stems from the infancy of the United States mobile
        entertainment content industry. During the three and nine month periods ended
        September 30, 2008, the Company had one customer within its Network activities
        which represented 19.3% and 20.5% of revenues, respectively, with no other
        single customer accounting for revenue in excess of 3%. This concentration
        resulted from the acquisition of Traffix, Inc., which was effective on February
        4, 2008 (for this reason, fiscal 2007 doesn’t have a comparable measure). During
        the three months ended September 30, 2008 the Company had two aggregators
        within
        its Entertainment activities which represented 20% and 15% of revenues, with
        no
        other single aggregator accounting for revenue in excess of 6%. During the
        three
        months ended September 30, 2007 the Company had one aggregator within its
        Entertainment activities which represented 89% of revenues, with no other
        single
        aggregator accounting for revenue in excess of 6%. During the nine months
        ended
        September 30, 2008, the Company had one aggregator within its Entertainment
        activities which represented 26% of revenues, with no other single aggregator
        accounting for revenue in excess of 2%. During the nine months ended September
        30, 2007, the Company had two aggregators within its Entertainment activities
        which represented 91% and 8% of revenues, with no other single aggregator
        accounting for revenue in excess of 2%.
  **Note
        6**-**Income
        Taxes**
 
 The
        Company is subject to taxation in federal, state and foreign jurisdictions.
        The
        Traffix, Inc, subsidiary, which was acquired on February 4, 2008, is currently
        under U.S. federal audit for fiscal 2005 and 2006. With a few exceptions,
        the
        Company is no longer subject to U.S. federal, state, local or foreign income
        tax
        examinations for years prior to 2005.
 
 **Note
        7—Stock options and other 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, and dividend
        yield.
        Many of these assumptions are judgmental and highly sensitive. The following
        table set forth the key assumptions used in the valuation calculations for
        the
        three and nine month periods ending September 30, 2008 and September 30,
        2007
        and a discussion of our methodology for developing each assumption used in
        the
        valuation model.
  Three Months Ended
              
              Nine Months EndedSeptember 30,
              
              September 30,2008
              
              2007
              
              2008
              
              2007Expected
                  Volatility
              
              
              28
              %
              
              25
              %
              
              82
              %
              
              25
              %Dividend
                  Yield
              
              
              0
              %
              
              0
              %
              
              0
              %
              
              0
              %Expected
                  Term (Yrs)
              
              
              6.5
              
              
              7.0
              
              
              6.7
              
              
              7.0Risk-Free
                  Interest Rate
              
              
              3.85
              %
              
              3.50
              %
              
              3.79
              %
              
              3.50
              %
 
 8
 
 Expected
        Volatility. Actual
        changes in the market value of our stock are used to calculate the expected
        volatility assumption (previously, the Company based volatility on changes
        in
        the market prices of a peer group of publicly traded entities used to calculate
        the volatility assumption). The Company calculated daily market value changes
        during the period that the grant was issued to determine volatility, which
        are
        then annualized. An increase in the expected volatility will increase
        share-based compensation expense.
 
 Dividend
        Yield . This
        is the annual rate of dividends per share over the exercise price of the
        award.
        The Company has no history of paying a dividend, so this has been 0%. An
        increase in the dividend yield will increase share-based compensation
        expense.
 
 Expected
        Term . This
        is the period of time over which the awards granted are expected to remain
        outstanding. Awards granted have a maximum term of ten years. The Company
        lacks
        sufficient historical exercise data that it may rely on to determine expected
        term for the grants issued through September 30, 2008. Therefore the Company
        relied on the simplified method for expected term as defined by the SAB 107,
        where expected term equals the sum of the vesting term and the original
        contractual term, which is then divided by two. SAB 107’s simplified method for
        estimating expected term was only available for award grants through December
        31, 2007. However, SAB 110 allows for the continued use of the simplified
        method
        beyond December 31, 2007 for companies where award exercises are not sufficient
        to base an expected term beyond that date, such as the Company. An increase
        in
        the expected term will increase share-based compensation expense.
 
 Risk-Free
        Interest Rate . This
        is the average of the ten-year US Treasury zero coupon bond interest rate
        for
        the period reported. An increase in the risk-free interest rate will increase
        share-based compensation expense.
  The
        Company’s stock option activity during the nine month period ended September 30,
        2008 is as follows:
 **Shares**
              
              **Weighted**
                **Average**
                **Exercise Price**
              
              **Aggregate**
                **Intrinsic**
                **Value**Awards
                  outstanding at December 31, 2007
              
              
              1,508,538
              
              $
              $3.31Granted
                  during the period
              
              
              2,338,140
              
              $
              $9.15Exercised
                  during the period
              
              
              561,496
              
              $
              $0.66Forfeited,
                  expired, or cancelled during the period
              
              
              27,623
              
              $
              $7.58Awards
                  outstanding at September 30, 2008
              
              
              3,257,559
              
              $
              $7.34Awards
                  exercisable at September 30, 2008
              
              
              2,243,411
              
              $
              $6.68
              
              $
              857,270Awards
                  authorized
              
              
              5,145,389Awards
                  available to grant
              
              
              1,035,954
 
 The
        aggregate intrinsic value of exercisable awards represents the total pre-tax
        intrinsic value (the difference between the Company’s closing stock price on the
        last day of the third quarter of fiscal 2008 and the grant exercise price,
        multiplied by the number of in-the-money awards) that would have been received
        by the award holders had all award holders exercised their vested grants
        on
        September 30, 2008.
 
 Additional
        summarized information related to awards outstanding at September 30, 2008,
        segregated by grant price range, follows:
 **Awards**
                **Exercise
                  Prices**
                **Ranges**
              
              **Awards**
                **Outstanding**
              
              **Awards**
                **Outstanding
                  Weighted**
                **Average**
                **Exercise Price**
              
              **Awards**
                **Outstanding**
                **Remaining**
                **Contractual**
                **Life (Yrs)**
              
              **Awards**
                **Exercisable**
              
              **Awards**
                **Exercisable**
                **Weighted**
                **Average**
                **Exercise Price**$0.00-$4.99
              
              
              895,938
              
              $
              2.85
              
              
              7.05
              
              
              716,476
              
              $
              2.42$5.00.-$9.99
              
              
              1,446,757
              
              $
              7.82
              
              
              6.44
              
              
              1,212,071
              
              $
              8.04$10.00-$14.90
              
              
              914,864
              
              $
              10.99
              
              
              8.14
              
              
              314,864
              
              $
              11.13ALL
                  PLANS
              
              
              3,257,559
              
              $
              7.34
              
              
              7.09
              
              
              2,243,411
              
              $
              6.68
  9
  **Note
        8 - Earnings per Share**  **
  Basic
        earnings per common share (“EPS”) is calculated using the weighted average
        number of shares outstanding during each period and excludes all dilutive
        instruments. Diluted earnings per share reflects the potential dilution that
        would occur if all dilutive financial instruments that may be exchanged for
        equity securities were exchanged for common stock.
 
 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. The following numbers of shares related to such instruments
        were added to the basic weighted average shares outstanding to arrive at
        the
        diluted weighted average shares outstanding for each period:
  **Diluted
        EPS Disclosure**
  **Three Months Ended**
              
              **Nine Months Ended****September 30, 
                  2008**
              
              **September 30, 
                  2007**
              
              **September 30, 
                  2008**
              
              **September 30,
                   2007**Convertible
                  note payable
              
              
              -
              
              
              -
              
              
              -
              
              
              -Options
              
              
              -
              
              
              -
              
              
              788,794
              
              
              -Warrants
              
              
              -
              
              
              -
              
              
              8,458
              
              
              -
 
 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:
 **Three Months Ended**
              
              **Nine Months Ended****September 30, 
                  2008**
              
              **September
                  30,  2007**
              
              **September 30, 
                  2008**
              
              **September 30, 
                  2007**Convertible
                  note payable
              
              
              322,878
              
              
              -
              
              
              322,878
              
              
              -Options
              
              
              3,252,812
              
              
              1,508,861
              
              
              2,662,649
              
              
              1,508,861Warrants
              
              
              314,443
              
              
              314,443
              
              
              290,909
              
              
              314,443
 
 The
        per
        share exercise prices of the options were $0.48 - $14.00 and $0.48 - $6.00
        for
        the three months, and $0.48 - $14.00 and $0.48 - $6.00 for the nine months
        ended
        September 30, 2008 and 2007, respectively. The per share exercise prices
        of the
        warrants were $3.44 - $5.50 for the three and nine month periods ended September
        30, 2008 and 2007. 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
        9—Equity**
  In
        April,
        2008, the Company’s Board of Directors authorized a stock repurchase program
        allowing it to purchase up to $10.0 million of its outstanding shares of
        common
        stock, depending on market conditions, share prices, and other factors.
        Repurchases may take place in the open market or in privately negotiated
        transactions and may be made under a Rule 10b5-1 plan.
 
 During
        the three month period ended September 30, 2008, the Company repurchased
        387,072
        shares of its common stock at an average purchase price of $3.96 per share.
        Total cash consideration for the repurchased stock was $1,534,221.
 
 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.
  **Note
        10—Recent Accounting Pronouncements**
 
 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 will delay 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.
  10
  In
        December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
        Combinations” (“SFAS 141R”). SFAS 141R establishes the principles and
        requirements for how an acquirer: (i) recognizes and measures in its financial
        statements the identifiable assets acquired, the liabilities assumed and
        any
        non-controlling interest in the acquiree; (ii) recognizes and measures the
        goodwill acquired in the business combination or a gain from a bargain purchase;
        and (iii) determines what information to disclose to enable users of the
        financial statements to evaluate the nature and financial effects of the
        business combination. SFAS 141R is to be applied prospectively to business
        combinations consummated on or after the beginning of the first annual reporting
        period on or after December 15, 2008, with early adoption prohibited. We
        are
        currently evaluating the impact SFAS 141R will have on adoption on our
        accounting for future acquisitions. Previously, any release of valuation
        allowances for certain deferred tax assets would serve to reduce goodwill,
        whereas under the new standard any release of the valuation allowance related
        to
        acquisitions currently or in prior periods will serve to reduce our income
        tax
        provision in the period in which the reserve is released. Additionally, under
        SFAS 141R transaction-related expenses, which were previously capitalized,
        will
        be expensed as incurred.
  In
        December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
        Consolidated Financial Statements — an Amendment of ARB No. 51” (“SFAS 160”).
        SFAS 160 establishes accounting and reporting standards that require (i)
        non-controlling interests to be reported as a component of equity, (ii) changes
        in a parent’s ownership interest while the parent retains its controlling
        interest to be accounted for as equity transactions, and (iii) any retained
        non-controlling equity investment upon the deconsolidation of a subsidiary
        to be
        initially measured at fair value. SFAS 160 is effective for fiscal years
        and
        interim periods within those fiscal years, beginning on or after December
        15,
        2008, with early adoption prohibited. We do not expect the adoption of SFAS
        160
        to have a material effect on our financial position or results of
        operations.
 
 In
        February 2007, FASB issued FAS 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. SFAS159 is effective for financial statements issued
        for
        fiscal year beginning after November 15, 2007. On January 1, 2008, we adopted
        SFAS 159. The adoption of SFAS 159 did not have a material effect on our
        financial condition or results of operations.
 
 **Note
        10—Commitments and contingencies**
 
 From
        time
        to time the Company is named as a defendant in litigation matters which arise
        in
        the ordinary course of business, as described in its periodic reports filed
        pursuant to the Securities Exchange Act of 1934. The defense of these
        claims may divert financial and management resources that would otherwise
        be
        used to benefit the Company’s operations. Although the Company believes that it
        has meritorious defenses to the claims made in each and all of the litigation
        matters to which it has been a named party, including claims relating to
        recently acquired Traffix, Inc., and although management is of the opinion
        that
        the ultimate outcome of these matters would not have a material adverse impact
        on the financial condition and/or the results of operations of the Company,
        no
        assurances can be given that the results of these matters will be favorable.
        A
        materially adverse resolution of any of these lawsuits could have a material
        adverse affect on the Company’s financial position and results of operations.
        The Company believes it has adequately provided for such litigation risks
        and
        costs, and has accounted for such amounts as pre-acquisition contingencies,
        which are included in accrued expenses.
 
 
 **Note
        11—Subsequent Events**
 
 On
        October 30, 2008, the Company acquired a 36% minority interest in The Billing
        Resource, LLC (“TBR”). TBR provides alternative billing services to the Company,
        its other members, 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.
 
 11
 
 **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 and nine month periods ended September 30, 2008 and the three and nine
        month periods ended September 30, 2007. 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 and nine
        month
        periods ended September 30, 2008 and 2007, and is intended to update the
        information contained in our Annual Report on Forms 10-KSB and 10-KSB/A for
        the
        year ended December 31, 2007 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 Forms 10-KSB and 10-KSB/A. The following
        discussion and analysis also should be read together with our consolidated
        financial statements and the notes to the consolidated financial statements
        for
        Traffix, Inc. and subsidiaries and any other information related to the
        companies, their business combination, and the like as filed with the Securities
        and Exchange Commission.*
 
 **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 and
        nine month periods ended September 30, 2008 and 2007. As a result of the
        acquisition of Traffix, Inc., a Delaware corporation (“Traffix”), by New Motion,
        Inc. on February 4, 2008, this Quarterly Report on Form 10-Q also contains
        information concerning the combination of New Motion and Traffix, as of
        September 30, 2008, and for the three and nine month periods ended September
        30,
        2008. To assist the reader where practicable, when reference is made to New
        Motion, it pertains to the Company’s activities for the three and nine month
        periods ended September 30, 2008 inclusive of Traffix for all periods presented
        after February 4, 2008.
 
 ***Executive
        Overview***
 
 New
        Motion, Inc., doing business as Atrinsic, is one of the leading digital
        advertising and entertainment network and marketing services companies in
        the
        United States. Atrinsic is organized as a single segment with two principal
        offerings: (1) Networks services - offering full service online marketing
        and
        distribution services which are targeted and measurable online campaigns
        and
        programs for marketing partners, corporate advertisers, or their agencies,
        generating qualified customer leads, online responses and activities, or
        increased brand recognition, and (2) Entertainment services - offering 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 entertainment content, brand-based distribution
        and pay-for-performance advertising. Atrinsic’s Entertainment service’s content
        is organized into four strategic service groups - digital music, casual games,
        interactive contests, and communities/lifestyles. The Atrinsic brands include
        GatorArcade, a premium online and mobile gaming site, Bid4Prizes, a low-bid
        mobile auction interactive game, and iMatchUp, one of the first integrated
        web-mobile dating services. Feature-rich Network advertising services include
        a
        mobile ad network, extensive search capabilities, email marketing, one of
        the
        largest and growing publisher networks, and proprietary entertainment content.
        Services are provided on a variety of pricing models including cost per action,
        fixed fee, or commission based arrangements.
 
 New
        Motion, Inc. is operating under the trade name of Atrinsic and is in the
        process
        of formally changing its name. In addition, Atrinsic is moving its headquarters
        to New York City, and will continue to maintain offices in Irvine, CA, Seattle,
        WA, and Moncton, Canada.
 
 Our
        goal
        is to maximize the value of our available media (primarily qualified leads)
        to
        optimize revenues regardless of the nature of the services provided. Over
        an
        extended period of time our ability to generate incremental revenues relies
        on
        our ability to increase in 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.
 
 12
 
 There
        are
        a variety of factors that influence the Company’s revenues on a periodic basis
        including but not limited to; (1) economic conditions and the relative strengths
        and weakness of the U.S. economy; (2) client spending patterns and their
        overall
        demand for our service offerings; (3) increases or decreases in our portfolio
        of
        service offerings; and (4) competitive and alternative programs and advertising
        mediums.
 
 Similar
        to other media based companies, our ability to specifically isolate the relative
        historical aggregate impact of price and volume regarding our revenue is
        not
        practical as the majority of our services are sold and managed on an order
        by
        order basis and our revenues are greatly impacted by our decisions regarding
        qualified lead monetization. Factors impacting the pricing of our services
        include, but are not limited to: (1) the dollar value, length and breadth
        of the
        order; (2) the quality of the desired action; (3) the quantity of actions
        or
        services requested by our clients; and (4) the level of customization required
        by our clients.
 
 The
        principal components of operating expenses are labor, media and media related
        expenses (including affiliate compensation, content development and licensing
        fees), marketing and promotional expenses (including sales commissions and
        customer acquisition and retention expenses) and corporate general and
        administrative expenses. We consider the Company’s operating cost structure to
        be predominantly variable in nature over a short time horizon, and as a result,
        the Company is immediately able to make modifications to its cost structure
        to
        what it believes to be increases or decreases in revenue and market trends.
        This
        factor is important in monitoring the Company’s performance in periods when
        revenues are increasing or decreasing. In periods where revenues are increasing
        as a result of improved market conditions, the Company will make every effort
        to
        best utilize existing resources, but there can be no guarantee that the Company
        will be able to increase revenues without incurring additional marketing
        or
        operating costs and expenses. Conversely, in a period of declining market
        conditions the Company is immediately able to reduce certain operating expenses
        and preserve operating income. Furthermore, if the Company perceives a decline
        in market conditions to be temporary, it may choose to maintain or increase
        operating expenses for the future maximization of operating
        results.
 
 **STRATEGIC
        INITIATIVES**
  Our
        business strategy involves increasing our overall scale and profitability
        by
        offering a large number of diversified products through a unique distribution
        network in the most cost effective manner possible. To achieve this goal,
        we are
        pursuing the following objectives.
 
 *Achieve
        Cross Media Benefits*  *.* One of
        our strategic objectives is to leverage the cross media benefit derived
        primarily from the combination of New Motion and Traffix which was consummated
        on February 4, 2008. The Company’s premium-billed subscriptions allow Atrinsic
        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 entertainment 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 Networks* . Our
        recent merger has allowed for a reduction in customer concentration and more
        diversification of the combined company’s revenue streams. The Company will
        continue to generate recurring revenue streams from a subscription-based
        model,
        which is targeted at end user mobile subscribers. The Company will also have
        the
        traditional revenue streams inherent in it’s online performance-based model,
        which is targeted to publishers and advertisers. Further revenue diversification
        is expected to result from the larger distribution reach, and of the opportunity
        to generate ad revenue across the combined company’s portfolio of web
        properties.
 
 13
 
 *Publish
        High-Quality, Branded Entertainment Content* . We
        believe that publishing a diversified portfolio of the highest quality, most
        innovative applications is critical to our business. We intend to continue
        to
        develop innovative and sought-after content and intend to continue to devote
        significant resources to the development of high-quality, innovative products,
        services and Internet storefronts. The U.S. consumer’s propensity to use the
        fixed Internet to acquire, redeem and use mobile entertainment products is
        unique. In this regard, we aim to provide complementary services between
        these
        two high-growth media channels. We also expect to continue to create
        Atrinsic-branded applications, products and services, which typically generate
        higher margins. In order to enhance the Atrinsic brand, and 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 September 30, 2008 compared to the
        three months ended September 30, 2007.**
 
 Revenues
        presented by type of activity are as follows for the three month periods
        ending
        September 30:
 **THREE
                  MONTHS ENDED**
              
              **CHANGE**
              
              **CHANGE****September
                  30,**
              
              **INC(DEC)**
              
              **INC(DEC)****2008**
              
              **2007**
              
              
              
              $%Entertainment
                  Services
              
              $
              10,858
              
              $
              10,495
              
              $
              363
              
              
              3
              %Network
                  Activities
              
              
              19,961
              
              
              -
              
              
              19,961
              
              
              100
              %**Total
                  Revenues (1)**
              
              $
              30,819
              
              $
              10,495
              
              $
              20,324
              
              
              194
              %
  (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
                  Entertainment and Network Services.
 
 Revenues
        increased approximately $20.3 million, or 194%, to $30.8 million for the
        three
        months ended September 30, 2008, compared to $10.5 million for the three
        months
        ended September 30, 2007. Entertainment Service revenue increased by
        approximately $0.4 million, or 3%, to $10,858 million for the three months
        ended
        September 30, 2008, compared to $10.5 million for the three months ended
        September 30, 2007. The increase in entertainment service revenue was
        principally attributable to an increase in the net conversion of new customers
        to our recurring subscriber database, subscribers added in connection with
        the
        purchase of Ringtone.com, coupled with our efforts to improve subscriber
        retention. We ended the third quarter of 2008 with approximately 750,000
        subscribers, compared to approximately 840,000 at the end of the fourth quarter
        of fiscal 2007. Approximately 190% of the increase in revenue, or $20 million,
        was attributable to revenue included in the third quarter of fiscal 2008
        arising
        from our acquisition of Traffix, Inc., which was effective as of February
        4,
        2008.
 
 **Cost
        of Revenues**
 
 Cost
        of
        revenues consists principally of the amounts we pay to website publishers,
        content owners, and distribution partners. In addition, certain
        telecommunications, revenue producing technology related, licensing, and
        labor
        are included in cost of revenues. The vast majority of cost of revenues are
        variable and directly related to revenue producing activities. Gross margin
        is
        computed by the Company allowing management to evaluate the overall productivity
        of our resources and is largely dependent on the mix of internal and external
        resources utilized to secure qualified leads and product mix. Since the
        Company’s goal is to maximize the yield on the total population of qualified
        leads, the Gross Margins attributable to each product or service are not
        computed. Gross profit for the third quarter of 2008 totaled $9.6 million
        (or
        31.2% of Revenues) as compared to $9.1 million (or 86.6% of Revenues) for
        the
        second quarter of 2007. This increase is largely attributable to the acquisition
        of Traffix, Inc. on February 4, 2008, the resulting change in the Company’s mix
        of service offerings, and the convergence of our content and distribution
        platform.
 14
 
 **Operating
        Expenses**
 
 **THREE
                  MONTHS ENDED**
              
              **CHANGE**
              
              **CHANGE****September
                  30,**
              
              **INC(DEC)**
              
              **INC(DEC)****2008**
              
              **2007**
              
              
              
              $**%****Operating
                  Expenses**Selling
                  and marketing
              
              $
              2,075
              
              $
              7,878
              
              $
              (5,803
              )
              
              (74
              )%General
                  and administrative
              
              
              6,433
              
              
              2,916
              
              
              3,517
              
              
              121
              %Depreciation
                  and amortization
              
              
              1,339
              
              
              415
              
              
              924
              
              
              223
              %**Total
                  Operating Expenses**
              
              $
              9,847
              
              $
              11,209
              
              $
              (1,362
              )
              
              (12
              )%
  Selling
        and marketing expense declined as a result of management’s decision to decrease
        discretionary customer acquisition and retention activities by approximately
        $5.8 million in response to market conditions coupled with management’s focus on
        post merger integration matters when compared to the prior year’s comparable
        quarter, offset by an increase of approximately $1.0 million attributable
        to the
        acquisition of the Traffix subsidiary, which was principally comprised of
        compensation related expenses.
 
 General
        and administrative expenses increased by approximately $3.5 million, of which
        approximately $2.3 million is attributable to the acquisition of Traffix,
        Inc.,
        which was effective as of February 4, 2008. Management has taken action to
        gain
        approximately $4.0 million of efficiencies resulting from the acquisition
        of
        Traffix, however the Company continues to make appropriate and modest
        investments in labor, facilities, technology infrastructure, and utilization
        of
        3 rd party
        professional service providers to support its continued growth, business
        development and corporate governance initiatives. In addition, non-cash equity
        based compensation expense, which is included as a component of General &
Administrative expense, decreased concurrent with management’s re-computations
        of certain underlying estimates.
 
 Depreciation
        and amortization expense increased when compared to the prior year’s three month
        period principally as the result of the amortization of intangible assets
        acquired in connection with the acquisition of the Traffix, Inc. and
        Ringtone.com.
 
 **Income
        (Loss) from Operations**
 
 Operating
        loss decreased to approximately $0.2 million during the three months ended
        September 30, 2008, when compared to an operating loss of approximately $2.1
        million for the prior year’s comparable period. This decrease was principally
        attributable to the Traffix merger transaction which occurred on February
        4,
        2008. The merger’s attendant synergies allowed for the linkage of distribution
        and content, coupled with the opportunity to eliminate duplicative operating
        expenses.
 
 **Income
        Taxes**
 
 Income
        tax benefit for the three months ended September 30, 2008 was $0.08 million
        and
        reflects an effective tax rate of 78.6%, which was computed taking into
        consideration the effects of the merger with Traffix, Inc. which occurred
        on
        February 4, 2008, and includes the result of changes in the weighted average
        statutory rate attributable to the addition of certain local jurisdictions
        resulting from the merger, and certain adjustments realized in connection
        with
        the finalization of tax returns. ****
 
 15
 
 **Results
        of Operations for the nine months ended September 30, 2008 compared to the
        nine
        months ended September 30, 2007.**
 
 Revenues
        presented by type of activity are as follows for the nine month periods ending
        September 30:
 
 **NINE
                  MONTHS ENDED**
              
              **CHANGE**
              
              **CHANGE****SEPTEMBER
                  30, 2008**
              
              **INC(DEC)**
              
              **INC(DEC)****2008**
              
              **2007**
              
              
              
              $%Entertainment
                  Services
              
              $
              33,947
              
              $
              23,031
              
              $
              10,916
              
              
              47
              %Network
                  Activities
              
              
              57,061
              
              
              -
              
              
              57,061
              
              
              100
              %**Total
                  Revenues (1)**
              
              $
              91,008
              
              $
              23,031
              
              $
              67,977
              
              
              295
              %
  (1)
              As
                  described above, the Company currently aggregates revenues based
                  on the
                  type of user activity monetized. The Company’s objective is to optimize
                  total revenues from the user experiences. Accordingly, this factor
                  should
                  be considered in evaluating the relative revenues generated from
                  our
                  Entertainment and Network Services.
 
 Revenues
        increased approximately $68 million, or 295%, to $91 million for the nine
        months
        ended September 30, 2008, compared to $23 million for the nine months ended
        September 30, 2007.
 
 Entertainment
        Service revenues increased by approximately $10.9 million, or 47%, to $33.9
        million for the nine months ended September 30, 2008, compared to $23.0 million
        for the nine months ended September 30, 2007. The increase in entertainment
        service revenue was principally attributable to an increase in the net
        conversion of new customers to our recurring subscriber database, subscribers
        added in connection with the purchase of Ringtone.com, coupled with our efforts
        to improve subscriber retention. We ended the third quarter of 2008 with
        approximately 750,000 subscribers, compared to approximately 840,000 at the
        end
        of the fourth quarter of fiscal 2007.
  Approximately
        248% of the increase in revenue, or $57.1 million, was attributable to revenue
        included in the nine months ended September 30, 2008 arising from our
        acquisition of Traffix, Inc., which was effective as of February 4, 2008.
 
 **Cost
        of Revenues**
 
 Cost
        of
        revenues consists principally of the amounts we pay to website publishers,
        content owners, and distribution partners. In addition, certain
        telecommunications, revenue producing technology related, licensing, and
        labor
        are included in cost of revenues. The vast majority of cost of revenues are
        variable and directly related to revenue producing activities. Gross margin
        is
        computed by the Company allowing management to evaluate the overall productivity
        of our resources and is largely dependent on the mix of internal and external
        resources utilized to secure qualified leads and product mix. Since the
        Company’s goal is to maximize the yield on the total population of qualified
        leads, the Gross Margins attributable to each product or service are not
        computed. Gross profit for the nine months ended September 30, 2008 totaled
        $36.9 million (or 41% of Revenues) as compared to $19.4 million (or 84% of
        Revenues) for the comparable period ending September 30, 2007. This increase
        is
        largely attributable to the acquisition of Traffix, Inc. on February 4, 2008
        and
        the resulting change in the Company’s mix of service offerings, and the
        convergence of our content and distribution platform.
  16
  **Operating
        Expenses**
 
 **NINE MONTHS ENDED**
              
              **CHANGE**
              
              **CHANGE****September 30,**
              
              **INC(DEC)**
              
              **INC(DEC)****2008**
              
              **2007**
              
              $
              
              %**Operating
                  Expenses**Selling
                  and marketing
              
              $
              11,229
              
              $
              15,325
              
              $
              (4,096
              )
              
              (27
              )%General
                  and administrative
              
              
              22,200
              
              
              7,500
              
              
              14,700
              
              
              196
              %Depreciation
                  and amortization
              
              
              2,619
              
              
              929
              
              
              1,690
              
              
              182
              %**Total
                  Operating Expenses**
              
              $
              36,048
              
              $
              23,754
              
              $
              12,294
              
              
              52
              %
 
 Selling
        and Marketing expense decreased as a result of management’s decision to maintain
        a modest level of customer acquisition and retention activities earlier in
        the
        year, offset by an increase of approximately $1.5 million attributable to
        the
        acquisition of Traffix, Inc., which was principally comprised of the costs
        of
        labor.
 
 General
        and administrative expenses increased by approximately $14.7 million, of
        which
        approximately $10.8 million is attributable to the acquisition of Traffix,
        Inc.,
        which was effective as of February 4, 2008. Management has taken action to
        gain
        approximately $4.0 million of efficiencies resulting from the acquisition
        of
        Traffix, however the Company continues to make appropriate and modest
        investments in labor, facilities, technology infrastructure, and utilization
        of
        3 rd party
        professional service providers to support its continued growth, business
        development and corporate governance initiatives. In addition, non-cash equity
        based compensation expense increased concurrent with the grant of stock options
        deemed necessary to attract and maintain talent.
 
 Depreciation
        and amortization expense increased when compared to the prior year’s nine month
        period principally as a result of the amortization of intangible assets acquired
        in connection with the acquisition of Traffix, Inc.
 
 **Operating
        income**
 
 Operating
        income increased to $0.9 million during the nine months ended September 30,
        2008, when compared to an operating loss of approximately $4.3 million for
        the
        prior year’s comparable period. This increase was principally attributable to
        the Traffix merger transaction which occurred on February 4, 2008. The merger’s
        attendant synergies allowed for the linkage of distribution and content,
        coupled
        with the opportunity to eliminate duplicative operating expenses.
  **Income
        taxes**
 
 Income
        tax expense for the nine months ended September 30, 2008 was $0.5 million,
        for
        an effective tax rate of 42.4%, as compared to an income tax benefit for
        the
        nine months ended September 30, 2007 of $1.1 million, for an effective tax
        rate
        of 27.6%. This increase is primarily the result of changes in the weighted
        average statutory rate attributable to the addition of certain local
        jurisdictions in the current period when compared with the prior year’s
        comparable period.
 
 **Liquidity
        and Capital Resources**
 
 The
        Company continually projects anticipated cash requirements, which may include
        share repurchases, business combinations, capital expenditures, principal
        and
        interest payments on its outstanding and future indebtedness, and working
        capital requirements. Funding requirements have been financed through business
        combinations, cash flow from operations, the issuance of preferred stock,
        option exercises and the issuance of long-term debt. As of September 30,
        2008,
        the Company had cash and cash equivalents of approximately $21.9 million,
        marketable securities of approximately $8.0 million and a working capital
        balance of approximately $26.3 million. The Company has and expects to generate
        cash flows from operating activities, which, contingent on prospective operating
        performance, may require reductions in discretionary variable costs and other
        realignments to permanently reduce fixed operating costs.
 
 In
        conjunction with the Company’s objective of enhancing shareholder value, the
        Company’s Board of Directors authorized a share repurchase program. Under this
        share repurchase program, the Company purchased 619,372 shares of the Company’s
        common stock for an aggregate price of $2.6 million during the first nine
        months
        of fiscal 2008.
 
 On
        October 30, 2008, the Company acquired a 36% minority interest in The Billing
        Resource, LLC (“TBR”). TBR provides alternative billing services to the Company,
        its other members, 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.
 
 17
 
 The
        Company believes that its existing cash and cash equivalents and anticipated
        cash flows from our operating activities will be sufficient to fund minimum
        working capital and capital expenditure needs for at least the next twelve
        months. The extent of the Company’s future capital requirements will depend on
        many factors, including its results of operations. If the Company’s cash flows
        from operations is less than anticipated or its working capital requirements
        or
        capital expenditures are greater than expectations, or if the Company expands
        its business by acquiring or investing in additional products or technologies,
        it may need to secure additional debt or equity financing. The Company is
        continually evaluating various financing strategies to be used to expand
        its
        business and fund future growth. There can be no assurance that additional
        debt
        or equity financing will be available on acceptable terms. The potential
        inability to obtain additional debt or equity financing, if required, could
        have
        a material adverse effect on the Company’s operations.
 
 **New
        Accounting Standards and Interpretations Not Yet Adopted**
 
 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 will delay the implementation of SFAS 157 for the Company’s accounting of
        goodwill, acquired intangibles, and other nonfinancial assets and liabilities
        that are measured at the lower of cost or market until January 1,
        2009.
 
 In
        December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS
        141R”). SFAS 141R establishes the principles and requirements for how an
        acquirer: (i) recognizes and measures in its financial statements the
        identifiable assets acquired, the liabilities assumed and any non-controlling
        interest in the acquiree; (ii) recognizes and measures the goodwill acquired
        in
        the business combination or a gain from a bargain purchase; and (iii) determines
        what information to disclose to enable users of the financial statements
        to
        evaluate the nature and financial effects of the business combination. SFAS
        141R
        is to be applied prospectively to business combinations consummated on or
        after
        the beginning of the first annual reporting period on or after December 15,
        2008, with early adoption prohibited. We are currently evaluating the impact
        SFAS 141R will have on adoption on our accounting for future acquisitions.
        Previously, any release of valuation allowances for certain deferred tax
        assets
        would serve to reduce goodwill, whereas under the new standard any release
        of
        the valuation allowance related to acquisitions currently or in prior periods
        will serve to reduce our income tax provision in the period in which the
        reserve
        is released. Additionally, under SFAS 141R transaction-related expenses,
        which
        were previously capitalized, will be expensed as incurred.
 
 In
        December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
        Consolidated Financial Statements — an Amendment of ARB No. 51” (“SFAS 160”).
        SFAS 160 establishes accounting and reporting standards that require (i)
        non-controlling interests to be reported as a component of equity, (ii) changes
        in a parent’s ownership interest while the parent retains its controlling
        interest to be accounted for as equity transactions, and (iii) any retained
        non-controlling equity investment upon the deconsolidation of a subsidiary
        to be
        initially measured at fair value. SFAS 160 is effective for fiscal years
        and
        interim periods within those fiscal years, beginning on or after December
        15,
        2008, with early adoption prohibited. We do not expect the adoption of SFAS
        160
        to have a material effect on our financial position or results of
        operations.
 
 In
        February 2007, FASB issued FAS 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. SFAS159 is effective for financial statements issued
        for
        fiscal year beginning after November 15, 2007. On January 1, 2008, we adopted
        SFAS 159. The adoption of SFAS 159 did not have a material effect on our
        financial condition or results of operations.
  18
  **Item
        3. Quantitative and Qualitative Disclosures about Market
        Risk**
 
 Not
        Required.
 
 **Item
        4. Disclosure Controls and Procedures**
 
 *Evaluation
        of Disclosure Controls and Procedures*
 
 The
        SEC
        defines the term “disclosure controls and procedures” to mean a company’s
        controls and other procedures that are designed to ensure that information
        required to be disclosed in the reports that it files or submits under the
        Securities Exchange Act of 1934 is recorded, processed, summarized and reported,
        within the time periods specified in the Commission’s rules and
        forms.
 
 Members
        of the 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 September 30, 2008, the end of the period covered
        by this report. Based upon that evaluation, Messrs. Katz and Zaref concluded
        that our disclosure controls and procedures were effective for the period
        ended
        September 30, 2008.
 
 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 third quarter
        ended September 30, 2008 that have materially affected, or are reasonably
        likely
        to materially affect, our internal control over financial
        reporting.
 
 19
 
 **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
        face substantial risks and uncertainties in our operating and competitive
        marketing environment and some of our businesses have a limited operating
        history.**
 
 Evaluations
        of our current business model and of our future prospects must address the
        risks
        and uncertainties encountered by companies in various stages of development,
        that may possess limited operating history, and may have had wide fluctuations
        in net sale and profitability levels, and that are conducting business in
        new
        and emerging markets that have yet to produce tangible business success
        accomplishments of significant magnitude.
  The
        following is a list of some of the risks and uncertainties that exist in
        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 mobile entertainment 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’ Attorneys
                  General;•
              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;•
              obtain
                  the financial resources necessary to execute our business plan
                  when such
                  financing may be difficult and/or more expensive to obtain, especially
                  in
                  a period of slowed-economic-growth in the United States;
                  and•
              our
                  ability to successfully execute on our business and marketing
                  strategies.
 
 If
        we are
        unable to address these risks, and respond accordingly, our operating results
        may not meet our publicly forecasted company goals, and/or the expectations
        as
        derived by our investors, which could cause the price of our common stock
        to
        decline. The potential for a decline in our stock price could also have a
        negative impact on our recorded goodwill and intangible asset values, and
        potentially subject us to a non-cash impairment write-down on such assets.
        At
        September 30, 2008, our approximate book value was $164.2 million, and our
        market value was approximately $80 million.
 
 Our
        mobile entertainment business commenced offering entertainment products and
        services directly to consumers in 2005. Accordingly, this business has a
        limited
        history of generating revenues, and its future revenue and income generating
        potential is uncertain and unproven based on its limited operating history.
        As a
        result of the mobile entertainment business’s short operating history, and its
        existence during that time in the nascent and dynamically evolving mobile
        entertainment industry, we have limited financial data that can be used to
        develop trends and other historical based evaluation methods to project and
        forecast this business. Any evaluation of our business and the potential
        prospects derived from such evaluation must be considered in light of the
        mobile
        entertainment business’s limited operating history and should be discounted
        accordingly.
 
 20
  **A
        large proportion of our business relies on wireless carriers and aggregators
        to
        facilitate billing and collections in connection with our entertainment 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.**
 
 We
        expect
        that we will continue to bill a significant portion of our revenues through
        a
        limited number of aggregators for the foreseeable future, although these
        aggregators may vary from period to period. In a risk diversification and
        cost
        saving effort, we have established a direct billing relationship with a carrier
        that mitigates a portion of our revenue generation risk as it relates to
        aggregator dependence; conversely this risk is replaced with internal
        performance risk regarding our ability to successfully process billable messages
        directly with the carrier.
 
 Our
        aggregator agreements are not exclusive and generally have a limited term
        of
        less than three years with automatic renewal provisions upon expiration in
        the
        majority of the agreements. These agreements set out the terms of our
        relationships with the carriers, and provide that either party to the contract
        can terminate such agreement prior to its expiration, and in some instances,
        terminate without cause.
 
 Many
        other factors exist that are outside of our control and could impair our
        carrier
        relationships, including:
 •
              a
                  carrier’s decision to suspend delivery of our products and services to
                  our
                  customer base;•
              a
                  carrier’s decision to offer its own competing entertainment applications,
                  products and services;•
              a
                  carrier’s decision to offer similar entertainment applications, products
                  and services to its subscribers for price points less than 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 of aggregators,
                  encounter financial difficulties, directly or indirectly, as a
                  result of
                  the current period of slowed-economic-growth currently affecting
                  the
                  United States; or•
              A
                  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 network business. Interruptions in
        these
        services caused by one of the providers could have an adverse effect on revenue
        and securing alternate sources of these services could significantly increase
        expenses and cause significant interruption to both our network and
        entertainment business.**
 
 We
        depend
        heavily on several third-party providers of Internet and related
        telecommunication services, including hosting and co-location facilities,
        in
        operating our network services. These companies may not continue to provide
        services 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.
 
 21
  **We
        may be unable to successfully keep pace with the rapid technological changes
        that may occur in the wireless communication, Internet and e-commerce arenas
        which would adversely affect our business operations.**
 
 To
        remain
        competitive, we must continually monitor, enhance and improve the
        responsiveness, functionality and features of our services, offered both
        in our
        entertainment and network activities. Wireless network and mobile phone
        technologies, the Internet and the online commerce industry in general are
        characterized by rapid innovation and technological change, changes in user
        and
        customer requirements and preferences, frequent new product and service
        introductions requiring new technologies to facilitate commercial delivery,
        as
        well as the emergence of new industry standards and practices that could
        render
        existing technologies, systems and/or business methods obsolete in future
        fiscal
        periods. Success in our mobile entertainment business 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
        may not be able to comply with the adoption of newly created laws and
        governmental regulation of the Internet industry and new restrictions for
        internet use may increase our cost of doing 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 our marketing practices, all as more fully set forth in our periodic
        reports filed pursuant to the Securities Exchange Act of 1934.
 
 **We
        rely exclusively on the Internet for much of our revenue generating activities.
        In the event that the marketing preferences of advertisers change such that
        advertisers reduce the amount they spend on Internet advertising and digital
        marketing solutions, our financial results could be adversely
        impacted.**
 
 Companies
        doing business on the Internet must compete with traditional advertising
        media,
        including television, radio, cable and print, for a share of advertisers'
        total
        marketing budgets. Potential customers may be reluctant to devote a significant
        portion of their marketing budget to Internet advertising or digital marketing
        if they perceive the Internet to be trending towards a limited or ineffective
        marketing medium. Any shift in marketing budgets away from Internet advertising
        spending or digital marketing solutions could directly, materially and adversely
        affect our network business, as well as our entertainment business, with
        both
        having a materially negative impact on our results of operations and financial
        condition.
 
 
 **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, as a result of our merger
        with Traffix, we 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 effectively adjust our search
        term
        applications to conform within these scoring and indexing practices, 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 revenues and
        profitability.
 
 22
 
 **The
        demand for a portion of our network 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 ("ISPs") 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 the ones we deliver. We cannot assure you that the
        number
        of ISPs and individual computer users who employ these or other similar
        technologies and software will not increase, thereby diminishing the efficacy
        of
        our network, as well as our entertainment service activities. In the case
        that
        one or more of these technologies, or software applications, realize continued
        and/or widely increased adoption, demand for our services could decline in
        response. During 2007 Traffix (our recently merged subsidiary), recognized
        a
        decline in a component of its network activity revenue attributable to email
        marketing compared to the prior year, and further noted declines in such
        revenue
        during the nine months ended September 30, 2008, as compared with that period
        a
        year ago. We believe that such decline is the result of the factors mentioned
        above, and such decline may continue at higher rates in future fiscal
        periods.
 
 **We
        have no intention to pay dividends on our equity
        securities.**
 
 Our
        recently merged subsidiary, Traffix, had paid a dividend of $0.08 per share
        on
        its common stock for its last 18 fiscal quarters prior to the acquisition.
        It is
        our current and long-term intention that we will use all cash flows to fund
        operations in a growth mode and maintain excess cash requirements for the
        possibility of potential future merger and acquisition transactions. Future
        dividend declarations, if any, will result from the reversal of our current
        intention, 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 entertainment services
        and our network based clients’ products.**
 
 The
        development, distribution and sale of wireless entertainment applications
        is a
        highly competitive business. In our entertainment services and network services,
        we compete primarily on the basis of marketing acquisition cost, brand
        awareness, consumer penetration, and carrier and distribution depth and breadth,
        as specific to our entertainment services.
 
 We
        consider our primary entertainment business competitors to be Buongiorno,
        Playphone, Dada Mobile, Acotel, Glu Mobile, Cellfish (Lagadere), Jamster
        (Fox),
        Hands on Mobile and Thumbplay. In the network business, we consider Azoogle,
        Value Click, Miva, Kowabunga! (Think Partnership), Right Media (Yahoo!),
        Aptimus
        and Blue Lithium (Yahoo!) to be our primary competitors. In the future, likely
        competitors may include other major media companies, traditional video game
        publishers, content aggregators, wireless software providers and other pure-play
        wireless entertainment publishers. Wireless carriers may also decide to develop
        and distribute their own similar on-deck wireless entertainment applications,
        products and services and as such they might refuse to distribute, or limit
        the
        distribution of, some or all of our applications or may deny access to all
        or
        part of their networks.
 
 New
        Motion also competes for experienced and talented employees from the same
        domestic labor pool as its competitors.
  
 Some
        of
        our competitors’ advantages include the following:
 •
              substantially
                  greater revenues and financial resources;•
              stronger
                  brand names, broader distribution networks and enhanced consumer
                  recognition;•
              the
                  capacity to leverage their marketing expenditures across a broader
                  portfolio of wireless and non-wireless products;•
              pre-existing
                  and long standing relationships with marquee brand
                  holders;•
              deeper
                  resources, both financial and otherwise, to effectively execute
                  on
                  acquisition identification, closing and integration;
                  and•
              broader
                  geographic presence potentially allowing for entrance into new
                  markets,
                  both domestically and
                  internationally.
 
 If
        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 stock
        price.
 
 23
  **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
        currently highly dependent upon the efforts of the members of our management
        team, particularly those of Burton Katz, our Chief Executive Officer, Andrew
        Stollman, our President, Raymond Musci, Executive Vice President and Andrew
        Zaref, our Chief Financial Officer. The loss of the services of Messrs. Katz,
        Stollman, Musci, or Zaref may impede the execution of our business strategy
        and
        the achievement of its business objectives. We can give you no assurance
        that we
        will be able to attract and retain the qualified personnel necessary for
        the
        development and growth of our business. Our failure to recruit key personnel
        or
        failure to adequately train, motivate and supervise our existing or future
        personnel will adversely affect our operations.
  **We
        have been named as a defendant in litigation, either directly, or indirectly
        through the merger with Traffix, Inc., with the outcome of such litigation
        being
        unpredictable; a materially adverse decision in any such matter could have
        a
        material adverse affect on our financial position and results of
        operations.**
 
 From
        time
        to time we are named as a defendant in litigation matters, as described under
        in
        our periodic reports filed pursuant to the Securities Exchange Act of 1934.
        The
        defense of these claims may divert financial and management resources that
        would
        otherwise be used to benefit 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
        despite our intent to contest each lawsuit vigorously, no assurances can
        be
        given that the results of these matters will be favorable. A materially adverse
        resolution of any of these lawsuits could have a material adverse affect
        on our
        financial position and results of operations.
 
 **We
        are subject to market fluctuation and debt repayment risk of our marketable
        securities investment portfolio**
 
 We
        maintain an investment portfolio that is managed by prominent financial
        institutions. The portfolio includes high-grade corporate commercial paper
        and
        auction rate securities, and common stock equities, all of which are held
        for
        varying periods of time depending on market conditions and other factors.
        These
        investments are subject to market price volatility, in addition to the potential
        for business failure at the company level. Moreover, due to the potential
        for an
        economic downturn in the United States as a result of the current “sub-prime
        mortgage” problems and the potential of related fiscal difficulties that may be
        faced by some of the municipalities, educational institutions and companies
        in
        which we have investments, our investment portfolio could become impaired
        by the
        failure of such entities to repay principal upon maturity. Additionally,
        our
        cash flows and interest income could be negatively impacted by Federal Reserve
        Bank interest rate reductions.
 
 **We
        recorded a significant amount of goodwill and other intangible assets in
        connection with the merger with Traffix and the acquisition 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 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 will result in a charge
        against
        earnings, which could materially adversely affect our results of operations
        in
        future periods.
  
 **The
        integration of Traffix following the merger may divert managements’ attention
        away from our day-to-day business and negatively impact the combined
        business.**
 
 The
        merger with Traffix involves the integration of two companies that previously
        operated independently with principal offices in two distinct locations (CA
        and
        NY). The combined company will be required to devote significant management
        attention and resources to integrate the two companies. Delays in this process
        could adversely affect the combined company’s business, financial results,
        financial condition and accordingly, our stock price. Even if we are able
        to
        integrate the businesses successfully, there can be no assurance that this
        integration will result in the realization of all of the synergies, cost
        savings, innovation and operational efficiencies that may be possible from
        this
        integration or that these benefits will be achieved within a reasonable period
        of time.
 
 **We
        may be impacted by reduced growth or recession of the United States
        economy.**
 
 The
        majority of our client audience is comprised of individuals dispersed throughout
        the United States that will be directly and negatively impacted by increased
        mortgage payments, foreclosures and other factors arising out of a recessionary
        economy, and the results of the sub-prime mortgage problems, that restrict
        disposable income that is expended on our products and services. Should current
        anxieties of a looming recession become fiscal fact, we could be materially
        and
        adversely affected by reductions in revenue, and the corresponding negative
        impact on results of operations and financial condition.
 
 24
  **New
        technologies could block our advertisements, which would harm our operating
        results.**
  Technologies
        have been developed and are likely to continue to be developed that can block
        the display of our advertisements or our other service offerings. Much of
        our
        revenue is derived from fees paid to us by advertisers in connection with
        the
        display of advertisements or through other service offerings. As a result,
        advertisement-blocking technology could reduce the number of advertisements
        and
        search results that we are able to deliver and, in turn, our advertising
        revenues and operating results maybe negatively impacted.
  **We
        depend on a limited number of applications, products and services for a
        significant portion of revenue.**
 
 We
        derive
        a significant portion of our revenue from a limited number of applications
        and
        we expect to continue to derive a substantial portion of our mobile
        entertainment revenue from a limited number of other applications in the
        foreseeable future. Due to this dependence on a limited number of applications,
        the failure to achieve anticipated results with any one of these key
        applications may harm our business. Additionally, if we cannot develop new
        applications that are as successful as prior application offerings, our future
        revenue could be limited and our business will suffer.
 
 **The
        requirements of the Sarbanes-Oxley Act of 2002, including Section 404, are
        burdensome, and our failure to comply with them could have a material adverse
        affect on our business and stock price.**
 
 Effective
        internal control over financial reporting is necessary so we can 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 beginning with our Annual Report on Form
        10-KSB
        for the fiscal year ending December 31, 2007. Our independent registered
        public
        accounting firm will need to annually attest to our evaluation, and issue
        their
        own opinion on our internal control over financial reporting beginning with
        our
        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
        continue to rapidly grow our business, the internal controls over financial
        reporting we require 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.
 
 25
  **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 worth of its common stock in the open market over the balance
        of
        its current fiscal year ending December 31, 2008. 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.
  During
        the three months ended September 30, 2008, the Company repurchased an aggregate
        of 387,072 shares of its common stock at a cost of $1.5 million, at an average
        of $3.96 per share.
 **Issuer
                    Purchases of Equity
                    Securities**(a) Total
                  Number
                    of
                  Shares
                  Purchased
                
                (b) Average
                  Price
                    Paid
                  per
                  Share
                
                (c) Total
                  Number of
                  Shares
                  Purchased
                  as Part of
                  Publicly
                  Announced
                  Plans
                    or
                  Programs
                
                (d) Approximate
                  Dollar Value
                  of Shares
                  That May Yet
                  Be Purchased
                  Under
                  Plans
                    or
                  ProgramsBeginning
                    balance July 1 , 2008
                
                
                
                
                
                
                
                
                
                
                $
                8,953,519**Period**Month
                    #1(July
                    1, 2008 toJuly
                    31, 2008)
                
                
                237,500
                
                $
                4.11
                
                
                237,500
                
                $
                7,976,831Month
                    #2(August
                    1, 2008 toAugust
                    31, 2008)
                
                
                -
                
                $
                -
                
                
                -
                
                $
                7,976,831Month
                    #3(September
                    1, 2008 toSeptember
                    30, 2008)
                
                
                149,572
                
                $
                3.73
                
                
                149,572
                
                $
                7,419,297Total
                
                
                387,072
                
                
                
                
                
                387,072
  26
 
 **Item
        6. Exhibits**
 
 **Exhibit****Number**
              
              **Description
                  of Exhibit**10.1
              
              Employment
                  Agreement by and between Andrew Zaref and New Motion, Inc. dated
                  July 14,
                  2008, incorporated by reference to our Current Report on Form 8-K
                  filed
                  with the Securities and Exchange Commission on July 17,
                  2008.31.1
              
              Certification
                  of Principal Executive Officer pursuant to Securities Exchange
                  Act Rules
                  13a-14(a) and
                15d-14(a)
                  as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
                  2002.31.2
              
              Certification
                  of Principal Financial Officer pursuant to Securities Exchange
                  Act Rules
                  13a-14(a) and
                15d-14(a)
                  as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
                  2002.32.1
              
              Certification
                  of Principal Executive Officer and Principal Financial Officer
                  pursuant to
                  18 U.S.C. Section 1350, as adopted pursuant to section 906 of the
                  Sarbanes-Oxley Act of 2002.
  27
 
 **Signatures**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, as amended, the registrant has caused this report to be signed on its
        behalf by the undersigned, there unto duly authorized.
 
 Dated:
        November 14, 2008
  BY:
              /s/
                  Burton Katz
              
              BY:
              /s/
                  Andrew ZarefBurton
                  Katz
              
              Andrew
                  ZarefChief
                  Executive Officer
              
              Chief
                  Financial Officer(Principal
                  Financial and Accounting Officer)
  28