UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form
FORM 10-K
(Mark one)
 (Mark One)
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
2009
 
oTRANSITION 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.
ATRINSIC, INC
(Exact name of small business issuerregistrant as specified in its charter)
doing business as
Delaware 06-1390025
(State or other jurisdiction of
incorporation or organizationorganization)
  (I. R. S.I.R.S. Employer Identification No.)
469 7th7th Avenue, 10th10th Floor,
New York, NY 10018
(Address of principal executive offices and zip code)offices) (ZIP Code)
(212)716-1977
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class                                                          Name of each exchange on which registered
Common Stock, $0.01 par value                                   The NASDAQ Global Market

Securities registered underpursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes   ¨  No x
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  ¨  
Accelerated filer   ¨
Non-accelerated filer   ¨ (Do not check if a smaller reporting company)
Smaller reporting company    x  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)
 Yes o No x
  
The aggregate market value of the voting and non-voting common equity held by non-affiliates, computed using the closing price of $4.16,$1.34, as of June 30, 2008,2009, was $63,997,556.$18,129,060.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No o

As of March 19, 2009,24, 2010, the issuer had 20,720,96220,878,933 shares of common stock issued and outstanding (which number excludes 2,381,3182,741,318 shares issued and held in treasury).  
 
DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement to be filed with the Securities and Exchange Commission are incorporated by reference into Part III, Items 10, 11, 12 13 and 1413 of this Form 10-K.
 
 
TABLE OF CONTENTS
 
PART I    
     
Item 1 Business 24
     
Item 1A Risk Factors 1011
     
Item 1B Unresolved Staff Comments 18
     
Item  2 Properties 18
     
Item 3 Legal Proceedings 18
     
Item 4 Submission of Matters to a Vote of Security HoldersRemoved and Reserved 18
     
PART II    
     
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 19
     
Item 6 Selected Financial Data 2119
     
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 2120
     
Item 7A Quantitative and Qualitative Disclosures about Market Risk 3230
     
Item 8 Financial Statements and Supplementary Data 3331
     
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 3432
     
Item 9A(T)  Controls and Procedures 3432
     
Item 9B Other Information 3432
     
PART III    
     
Item 10 Directors, Executive Officers and Corporate Governance 3533
     
Item 11 Executive Compensation 3533
     
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 3533
     
Item 13 Certain Relationships and Related Transactions, and Director Independence 3533
     
Item 14 Principal Accounting Fees and Services 3533
     
PART IV    
     
Item 15 Exhibits, Financial Statement Schedules 3634

 
 

Part I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This report, including the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains “forward-looking statements” that include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources of New Motion,Atrinsic, Inc. (“New Motion,Atrinsic,” “Atrinsic” or the “Company”). These forward-looking statements include, without limitation, statements regarding: proposed new services; the Company’s expectations concerning litigation, regulatory developments or other matters; statements concerning projections, predictions, expectations, estimates or forecasts for the Company’s business, financial and operating results and future economic performance; statements of management’s goals and objectives; and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes” and “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements.
 
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at,when, or by which,how, that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause these differences include, but are not limited to:
 
 ·our limited operating history
 ·our reliance on wireless carriers and aggregators to facilitate billing and collections;
·the highly competitive market in which we operate;
 ·our ability to develop and market new applications and services;
 ·protection of our intellectual property rights;
 ·hiring and retaining key employees;
·successful completion, and integration of, historical and potential acquisitions;
·increased costs and requirements as a public company;
 ·other factors, including those discussed under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business”.“Business.”
 
Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

 
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ITEM 1. BUSINESS
 
With respect to this discussion, the terms “we,” “us,” “our,” “New Motion”“Atrinsic”, and the “Company” refer to New Motion,Atrinsic, Inc., a Delaware corporation and its wholly-owned subsidiaries, including New Motion Mobile, Inc. and Traffix, Inc. (“Traffix”), also Delaware corporations.
 
A Note Concerning Presentation
 
This Annual Report on Form 10-K contains information concerning New Motion,Atrinsic, Inc. as it pertains to the period covered by this report – for the two years ended December 31, 20082009 and 2007.2008. As a result of the acquisitions of Traffix, Inc., a Delaware corporation (“Traffix”), and Ringtone.com LLC, (“Ringtone”), a Minnesota limited liability company (“Ringtone”), by New Motion,Atrinsic, Inc. on February 4, 2008 and June 30, 2008 respectively, (explained herein), this Annual Report on Form 10-K also contains information concerning the combination of New Motion,Atrinsic, Traffix and Ringtone, as of the date of this Annual Report.
 
Background and History of New MotionAtrinsic
 
New Motion,Atrinsic, formerly known as MPLC,New Motion, Inc., and prior to MPLC,New Motion, Inc. as The Millbrook Press,MPLC, Inc., was incorporated under the laws of the State of Delaware in 1994.1994 under the original name, The Millbrook Press, Inc. Until 2004, the Company was a publisher of children’s nonfiction books for the school and library market and the consumer market under various imprints. As a result of market factors, and after an unsuccessful attempt to restructure its obligations out of court, on February 6, 2004, the Company filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for the District of Connecticut (the “Bankruptcy Court”). After filing for bankruptcy, the Company sold its imprints and remaining inventory and by July 31, 2004, had paid all secured creditors 100% of amounts owed. At that point in time, the Company was a “shell” company with nominal assets and no material operations. Beginning in January 2005, after the Bankruptcy Court’s approval, all pre-petition unsecured creditors had been paid 100% of the amounts owed (or agreed) and all post petition administrative claims submitted had been paid. In December 2005, $0.464 per eligible share was available for distribution and was distributed to stockholders of record as of October 31, 2005. The bankruptcy proceedings were concluded in January 2006 and no additional claims were permitted to be filed after that date.
 
New Motion Mobile, Inc. (our wholly-owned subsidiary) was formed in March 2005 and subsequently acquired the business of Ringtone Channel, an Australian aggregator of ringtones in June 2005. Ringtone Channel was originally incorporated on February 23, 2004. In 2004, Ringtone Channel began to sell ringtones internationally and then launched its first ringtone subscription service in the U.S. in February 2005. In August 2005, New Motion Mobile launched its first successful text message campaign incorporating music trivia. As of December 31, 2007, the Company’s Australian entity was dissolved.
 
On October 24, 2006, the Company and certain stockholders entered into a Common Stock Purchase Agreement with Trinad Capital Master Fund, Ltd. (“Trinad”), pursuant to which we agreed to redeem 23,448,870 shares of our common stock from existing stockholders and sell an aggregate of 69,750,000 shares of our common stock, representing 93% of our issued and outstanding shares of common stock, to Trinad in a private placement transaction for aggregate gross proceeds of $750,000.
 
In February 2007, we completed an exchange transaction (the “Exchange”) pursuant to which New Motion Mobile became our wholly-owned subsidiary. In connection with the Exchange, we raised gross proceeds of approximately $20 million in equity financing through the sale of our Series A Preferred Stock, Series B Preferred Stock and Series D Preferred Stock.
 
After receiving the requisite approval of our stockholders, on May 2, 2007, we filed a certificate of amendment to our restated certificate of incorporation with the Delaware Secretary of State to, among other things, change our corporate name to New Motion, Inc. from MPLC, Inc., and effect a 1-for-300 reverse split. In connection with these corporate actions, we also changed our ticker symbol to “NWMO.”
 
On February 4, 2008, we completed a merger with Traffix, Inc., a Delaware corporation.  Pursuant to the merger, Traffix became our wholly owned subsidiary.  Traffix iswas a leading interactive media andonline marketing company that providesprovided complete end-to-end marketing solutions for its clients who seekseeking to increase sales and customer contact deploying the numerous facets of online marketing Traffix offers.offered.   Following the consummation of our merger with Traffix, Traffix stockholders owned approximately 45% of our capital stock, on a fully-diluted basis.  Also upon the closing of our transaction with Traffix, we commenced trading on The NASDAQ Global Market under the symbol “NWMO.”

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

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On July 30, 2008, we entered into a Joint Venture Agreementan agreement to launch online and mobile marketing services and offer our mobile products in the Indian market.  Under the agreement, we own 19% of the Joint Venture and are required to pay up to $325,000 in return for Compulsory Convertible Debentures which can be converted to common stock at any time, at our sole discretion. AmountsWe have paid under$225,000 of the agreement as$325,000 we were required to pay. We are in the process of December 31, 2008 were $125,000.dissolving the venture and we will not be required to make the remaining $100,000 payment.
 
On October 30, 2008, we acquired a 36% minority interest in The Billing Resource, LLC (“TBR”). TBR providesis an aggregator of fixed line telephone billing, providing alternative billing services to us and unrelated third parties. We contributed $2.2 million in cash to TBR upon its formation and are committed to provide an additionalanother $1.0 million of working capital advances subsequent to TBRthe close of the transaction.  As of December 31 2009, we received a distribution of $1.9 million.

On June 25, 2009, we amended our Restated Certificate of Incorporation to support its near-term growth.change our corporate name from New Motion, Inc. to Atrinsic, Inc.  In connection with the change in our corporate name, we also changed our ticker symbol on the NASDAQ Global Market from “NWMO” to “ATRN.”
 
On December 2, 2008, July 31, 2009, we entered into an Asset Purchase Agreement with Central Internet Corporation d/b/a/ ShopIt.com (“ShopIt”), pursuant to which we acquired certain net assets from ShopIt, including but not limited to software, trademarks and certain domain names. In consideration for the assets, at the closing we cancelled $1.8 million in aggregate principal amount of indebtedness owed by ShopIt to us, paid to ShopIt $450,000 and issued 380,000 shares of our common stock, of which 180,000 shares were distributed to certain secured debt-holders of ShopIt subject to put options, and 200,000 shares were placed in escrow to be available until July 31, 2010 until finalization of the opening balance sheet. 

On March 26, 2010,we entered into a Marketing Services Agreement (the “Marketing Agreement”) and Contenta Master Services Agreement (the “Services Agreement”) with Central Internet Corporation which operatesBrilliant Digital Entertainment, Inc. (“BDE”) effective as of July 1, 2009 (collectively, the website www.shopit.com (Hereinafter referred“Agreements”), relating to as “Shopit”).the operation and marketing of the Kazaa digital music service.  The Agreements have a term of three years from the effective date, contain provisions for automatic one year renewals, subject to notice of non-renewal by either party, and may only be terminated generally upon a bankruptcy or liquidation event or in the event of an uncured material breach by either party. In accordance with the Agreements, Atrinsic and BDE will share equally in the “Net Profit” generated by the Kazaa music subscription service after all of our costs and expenses are recovered.  Under the agreement,Marketing Agreement, we are required to perform certainresponsible for marketing, promotional, and administrativeadvertising services for Shopit and distribute proprietary and third party advertisements through Shopit.com and its social media advertising network. The agreement provides Shopit with a revenue share of all leads monetized by the Company. As partin respect of the agreement,Kazaa service.  Pursuant to the Services Agreement, we are required to make periodic advance payments totaling $1.025 million through March 2009. The advances, which are secured under separate agreement, are recoverable on a dollar for dollar basis against future revenues. As of December 31, 2008, we had advanced $425,000 to Shopit pursuantprovide services related to the termsoperation of the agreement.Kazaa website and service, including billing and collection.  BDE is obligated to provide certain other services with respect to the service, including licensing the intellectual property underlying the Kazaa service to us.

 
The Business of New MotionAtrinsic

New Motion, Inc., doing business as Atrinsic, is one of theWe are a leading digital advertising andInternet focused marketing services company in the United States. Atrinsic is organized as a single segment with two principal offerings: (1) Transactional  services - offering full service online marketing and distribution services which are targeted and measurable online campaigns and programs for marketing partners, corporate advertisers, or their agencies, generating qualified customer leads, online responses and activities, or increased brand recognition, and (2) Subscription  services - offering our portfolio of proprietary subscription based content applications direct to consumers distributed on a mobile internet or PC internet billed in three ways: to a mobile phone number, landline phone number , or, a credit card.
Atrinsic brings togethercompany.  We combine the power of the Internet the latest in mobile technology,with traditional direct response marketing techniques to sell entertainment and traditional marketing/lifestyle subscription products directly to consumers.  We also leverage our media network and marketing expertise to provide lead generation and search related marketing services to our corporate and advertising methodologies, creating a fully integrated multi platform vehicle for the advanced generationclients.  We have developed our marketing media network, consisting of qualified leads monetized by the saleweb sites, proprietary content and distribution of subscription content, brand-based distributionlicensed media, to attract consumers, corporate partners and pay-for-performance advertising. Atrinsic’s service’s content is organized into four strategic content groups - digital music, casual games, interactive contests, and communities/lifestyles. The Atrinsic brands include GatorArcade, a premium online and mobile gaming site, Ringtone.com, a mobile music download service, and iMatchUp, one of the first integrated web-mobile dating services. Feature-rich Transactional advertising services include a mobile adadvertisers.  We believe our marketing media network extensive search capabilities, email marketing, one of the largest and growing publisher networks, and proprietary technology allows us to cost-effectively acquire consumers and provide targeted leads and marketing data to our corporate partners and advertisers.

Our strategy is to maximize the value of each media impression by maximizing the revenue and profit from each visitor to our media network.  We do this by using proprietary technology to match each consumer touch point (visit, registration or lead submission) with the highest value offer or series of offers.  These offers are sourced from a large pool of advertisers or from our own portfolio of consumer subscription content. Servicesproducts.  We also engage in targeted performance marketing activities, where we focus on acquiring customers for an advertiser on an exclusive basis.

Our premium subscription products include those that are providedwholly owned and administered by us and those that are executed in partnership with another party.  They represent an important component of our value maximization strategy.  By maintaining alternatives to third party offers, we are able to make use of a larger proportion of acquired Internet traffic and leads generated than would be the case with only third party offerings.  Our owned products typically provide a higher effective value for each media impression.  Consequently, we are continually working to maximize the presentation and conversion of our own offers to consumers who we touch in our media network.  We believe we have a competitive advantage relative to other direct marketing companies, including those that are marketing on the Internet.  The reason for this is because we are able to offer multiple billing modalities as a varietyresult of pricing models including cost per action, fixed fee,contracts and established relationships with billing aggregators and carriers, further expanding the pool of eligible customers or commission based arrangements.leads.  In addition to the standard credit card billing modality, we are sometimes able to bill directly to a user’s mobile phone or land-line telephone bill.

 
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Transactional Service - Full ServiceOur services business is principally composed of services that we perform for third parties in the areas of lead generation and search related services.  Our lead generation business provides qualified inquiries to third party advertisers through form submissions, validated telephone calls, data delivery and other forms of targeting for advertisers.  We are continually developing new performance marketing products that correspond to our clients needs.  Our business model in this area is typically based on a cost per designated action and not on an impression basis.  Our search related services are comprised of search engine marketing services, search engine optimization, banner display advertising and search engine optimization to a range of clients.  This area of the business, historically, has arisen from expertise and technology that has been developed internally as a direct result of the development of our own performance marketing media network.  This business is concentrated on providing client representation and strategy assistance with paid search marketing for the larger search portals in the United States.

Our business principally serves two sets of customers:

·Corporate clients and advertisers – our transactional marketing services, and

·End user consumers – our subscription services.

Each of these business activities – transactional and subscription – may utilize the same originating media or derive a customer from the same source; the difference is reflected in the type of customer billing.  In the case of transactional marketing services, the billing is generally carried out on a service fee, percentage, or on a performance. For subscription services, the end user is able to access premium content and, in return, is billed a recurring monthly fee through their credit card, mobile phone, or land-line.

Direct-to-Consumer Subscription Services

We market our recurring revenue services direct-to-consumer across the entertainment and lifestyle categories.  We bill more than 300,000 subscribers each month, at fees ranging from $5.00 to $20.00 per monthly subscription.

Our subscribers principally originate from our performance marketing media network, which includes owned content sites, promotional and sweepstakes sites, email campaigns, social media and, mobile media applications, and an affiliate network.  Our direct model allows us to source large numbers of subscribers and by using our own media network, also allows us to control the quality of the subscribers.  We also incorporate advanced lead validation strategies to enhance consumer targeting for our subscription products and to ensure the highest data quality for our advertisers.  In addition, as a result of our alternative billing platforms, we are able to further expand the universe of eligible users for our services.  Depending on the subscription service and user profile, we can offer mobile phone, land-line, and credit card billing options to our users.

In order to be successful in the recurring revenue, direct-to-consumer subscription services we offer, we are constantly monitoring a range of key metrics that have a direct impact on our ability to retain existing subscribers and our efficiency in acquiring new subscribers.  We regularly monitor the Life Time Value (“LTV”) of those subscribers, taking into consideration cost per acquisition, churn rates of subscribers, average revenue per user, ability to bill new subscribers, ability to bill existing subscribers and refund rates, among others.  To be competitive in our subscription business, we also seek to leverage our considerable expertise in the alternative billing models we offer which we believe provides us with a competitive advantage in the marketplace.
Entertainment Subscriptions:  In conjunction with Brilliant Digital Entertainment, Inc. (“BDE”), a distributor of licensed digital content, we are offering Kazaa, a subscription-based digital music service that gives users unlimited access to hundreds of thousands of CD-quality tracks.  For a monthly fee of $19.98 users can download unlimited music files and play those files on up to three separate computers. The downloaded files remain playable as long as the user’s subscription is active.  The subscription package also allows users to download unlimited ringtones to a mobile phone.  Unlike other music services that charge you every time a song is downloaded, Kazaa allows users to listen to and explore as much music as they want for one monthly fee, without having to pay for every track or album.  We bill consumers for this service on a monthly recurring basis through a credit card, land-line, or mobile device. Royalties are paid to the music labels for licenses to the music utilized by this digital service.

We also offer consumers access to a premium ringtone service through Ringtone.com, which is billed to a users mobile device. Through this service, consumers can download premium ringtones to their mobile device.

Through our interactive contests, we allow subscribers to win money, prizes and discounts online and through mobile phones.  Our sweepstake services encourage an engaged, repeat audience.  Bid4Prizes is a sweepstakes and entertainment site that features a reverse-auction game where consumers can play for name-brand prizes. Visitors can also buy discount products, and enjoy the site's entertainment features. While ad-supported subscribers can access the site online for free, paid subscribers enjoy VIP benefits, including mobile access.

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Our casual gaming portfolio captures a wide-range of demographics and interests.  Our primary casual game subscription service, GatorArcade, has a broad selection of the most popular digital games, including top-rated games Zuma™, Diner Dash®, and World Series of Poker® Pro Challenge. The site also offers arcade games, strategy games, puzzles, and mobile entertainment. Subscribers can also play for free in an ad-supported environment and still download certain games.
Lifestyles Subscriptions: Through various partnerships, we have developed a range of subscription-based services and clubs which appeal to various lifestyle interest categories.  These services offer consumers access to shopping and entertainment coupons and premium services that can be redeemed online.  These memberships and clubs give consumers access to a broad range of benefits, offered by national businesses, including Universal Studios, Disney, and AMC Theatres.
Lead Generation and Online Marketing and Lead GenerationServices (Transactional Services)

Our online marketing and distribution assets provide customers with a full range of marketing alternatives, which includes our wholly owned content network, affiliate marketing services search engine marketing and optimization and list management – for both email and mobile mediums.
Proprietary Content Network: We own and operate a variety of Internet websites featuring specialized content across four principal content categories: interactive contests; casual games; communities and lifestyles; and digital music. Traffic is directed to these proprietary websites through advertisements on third-party Internet media (e.g., search engines, email and banner advertisements) and through cross-marketing within Atrinsic’s own network. Visitors to a content network website are ultimately directed to the valuable and unique content which they are registering for, but during this registration process, users are given the opportunity to sign-up or submit their contact information, for other offers and for various products and services.
Each of the content sites is designed for a specific consumer interest category that we match with client advertising/promotions that are expected to appeal to such interest category. The advertisements are served across all of the network using internally developed technology that serves ads to websites using an algorithm that takes into account a number of factors, including information supplied by the visitor upon registration, and by taking into account the price paid to Atrinsic by the client for the advertisement (the higher the price the earlier the offer or advertisement is displayed to the user).
Affiliate Marketing: Our affiliate marketing service comprises an online marketplace of more than 5,600 independent publishers who distribute internal and third party offers. The affiliate marketing group manages the online marketing mix for clients on a pay for performance basis via display advertisements and lead generation across a diverse set of industry verticals. This online marketplace allows publishersoffering gives corporate clients and advertisers access to incorporate numerous unique and exclusive deals and customized promotions. We also provide affiliate partnersa full suite of direct marketing services from a company with detailed tracking capabilities and significant multi-level customer support services.comprehensive Internet-based direct marketing experience.

Online and Search Engine Marketing Services: We offer search engine marketing services, as well as search engine optimization, giving clients access to organic search engine results, which is one of the most popular mediums on which to advertise websites.  We develop and manage search engine marketing campaigns for our third party advertising clients, as well as for our own proprietary websites, promotions and offers.  Historically, these services developed as a result of our in-house expertise and technology which we used to support our own performance marketing network.  Using proprietary technology, we build, manage and analyze the effectiveness of hundreds of thousands of pay per clickPay Per Click (“PPC”) keywords in real time across each of the major search engines, likeincluding Google, Yahoo and MSN.Bing.  For our own products, we employ the same search marketing and optimization strategies that we deploy on behalf of advertisers, providing scalable search strategies, including organic and paid search campaigns.  Our goal is to manage our advertisers' media mix properly and minimize cannibalization between marketing channels. We also perform search engine optimization services, for which advertising clients are billed monthly. 

We also offer advertisers additional online marketing services, including a monthly retainer fee. display media platform, online and business intelligence, and brand protection.  We provide advertisers with brand protection to mount an optimal defense against online risks to an advertiser’s brand.  Our brand protection provides advertisers with a high degree of visibility and actionable intelligence to curb online abuse.  Our business intelligence allows us to audit and analyze our advertisers' activities, their competitors' activities, industry trends and the marketplace as a whole.
A recent addition to our range of service offerings includes the Atrinsic Affiliate Network.  This network is a developing business and represents an advance in the development of affiliate marketing platforms.  The Atrinsic Affiliate Network offers a full-service solution for branded advertisers.  Using the Network, advertisers create partnerships with publishers to drive website traffic, customer acquisitions, and online sales. The system’s software increases the transparency between publishers and advertisers, giving both parties access to higher quality data and allowing advertisers to connect to customers in the most cost efficient way possible.  The system includes key differentiating features, including business intelligence and brand protection.
 
List Management (EmailLead Generation:  We leverage our performance marketing media network for third party lead generation activities.  We invest heavily in driving traffic to our network.  In an effort to maximize revenue and Mobile): Our list management services include targeted access to both email addressesprofit per visit, and mobile phone numbers. Through online registrations, we capture email and cell phone addresses on free and paid for websites, which allows us to aggregate a large amount of email and mobile data. In addition to utilizing these lists for internal direct to consumer offers, we serve clients through our list management business. We rent and manage our proprietary, profiled databases. Programs can be implemented either through our numerous web properties, through email marketing, or to mobile phones. We, as a result of our regular operations, are constantly addingadvanced consumer targeting, users will frequently be directed by us to our databasesthird party offers.  Our network of unique mobile phone recordssites and online registrations and cell phone submissions, in the process creating a substantial set of email and mobile lists that can be marketed to clients or utilized for internal marketing programs.
New Motion Subscription Based Services - Direct to Consumer Product
We have a diverse portfolio of products and sites promoted as “direct to consumer” and centered around four key areas: interactive contests; casual games; communities and lifestyles; and digital music. We are focused on selectively increasing our services portfolio with high-quality, innovative applications. This growing portfolio of mobile subscription and Internet media services is based primarily on internally generated content, augmented by licensed identifiable content, such as games, ringtones, wallpapers and images from third parties to whom we pay a licensing fee, generally on a per-download basis. The monthly end user subscription fees for our wireless subscription products and services generally range from $3.99 to $9.99.
Communities and Lifestyles Whether it is cooking, dating, or astrology, we build the spaces where relationships happen. Our communities are themed social networking destinations, designed to connect people to other people with similar interests. This category has users who self-select themselves in, so targeting is easy and advertiser return on investment is high.

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Digital Music Everybody’s favorite tune has a home in Atrinsic’s digital music sector. One of the first formats to make the transition from web to phone, we started early on to gather one of the biggest music libraries in the digital space. All music is fully licensed and legal for download. Across this category, our products offer a selection of more than 35 genres and more than 30,000 songs. For our private label customers, our music library is customizable.
Casual Games Our casual gaming portfolio is expansive and growing, capturing most every demographic and interest area, and offering multiple marketing solutions. In addition to brand-building opportunities, our casual gaming destinations can deliver traffic to third-party sites through our search, data, email and publisher network. We also provide the option of flexible configurations and alternative packaging of the casual game portfolio in myriad combinations to suit the needs of publisher partners, to target niche markets, and, of course, to serve our own gaming audience.
Interactive Contests Our interactive contest and sweepstakes sites encourage an engaged repeat audience ideal for both advertising programs and lead generation. AsThese interactive sites and media programs provide performance driven marketing opportunities that expose an advertiser’s products or service offerings to our digital entertainment customer base.  Our sites feature music content, games, sweepstakes, and loyalty programs.  The Atrinsic performance marketing network also includes multiple email programs, which allows us to use collected data for emailing advertiser offers or for our own direct to consumer offers.

Our content sites generate consumers who are attracted to our proprietary or licensed content found on the sites.  Our websites feature specialized content across the entertainment and lifestyle categories. This content includes EZTracks.com, a library of 30,000 licensed songs by hundreds of artists across all different genres, and GameFiesta.com, a casual gaming site for premium online and downloadable games.  These sites allow third-party advertisers to present their own offers and advertising.  In addition, like our advertisers and corporate clients, we are able to capitalize on the lead generation capabilities of these promotional and content-based web properties to acquire customers for our own products.

Applying technology is an important aspect of our lead generation business. We manage a number of technology platforms which utilize dynamic targeting and advanced data validation to automatically match consumers with the highest value offer or series of offers, maximizing value per acquired customer.  This technology allows us to get the maximum return on the marketing dollars spent to drive traffic into our performance marketing network.

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In order to be successful in the lead generation business, we continually develop and implement innovative strategies to provide our advertisers and clients with access to targeted and qualified leads.  Such innovations include proprietary data validation and enhancement services, and real-time lead validation using call center and telephonic technologies.  Each layer of validation and qualification enhances the value of a user to our advertisers, which enables us to generate a higher value per acquired customer, or enables us to determine lead suitability for our own products.

In addition to our systems and technology that validate and enhance data and improve user targeting, we are continually developing new ad units that correspond to our clients needs for the delivery of their sales generation inquiries.  These new ad units range from expressions of interest, customized and targeted questions and data capture, to completed sales transactions.  This range of ad unit offering, and the corresponding flexibility of our technology and systems, allows us to work with a broad array of advertisers, from direct marketers to established brands.  It also allows us to go to market with products that have a corresponding range of price points.

Competitive Landscape

We face competition in all areas of our business and expect that this competition will continue to intensify in the future as a result of industry consolidation, the feature-rich relationship with participants, advertisers have many ways to reach out and touch subscribers and users, including through product placement through prize system and proprietary stores. The sites feature sweepstakes, games, loyalty programs, discount online stores, and extras like downloadable ringtones and wallpapers.
Our direct to consumer business, regardlesscontinuing maturation of the product or service sold, is primarily a subscription basedindustry and low barriers to entry.  These factors may result in price reductions and loss of market share, which could reduce our future revenues and otherwise harm our business. We frequently monitorcompete with a rangediverse and large pool of key metricsadvertising, media, Internet companies and wireless and traditional telephone carriers.  Larger, more established companies are increasingly focused on developing and distributing products and services that have a direct impact ondirectly compete with us.  Our ability to compete depends upon several factors, including our customer service and support levels, our sales and marketing efforts, the ease of use, performance, price, and reliability of products and services provided by us, and our ability to retain existing subscribersremain price competitive while maintaining our operating margins.  The development, distribution and our efficiency in acquiringsale of subscription services is a highly competitive business.  In this market, we compete primarily on the basis of marketing acquisition costs, brand strength, and carrier and billing breadth.  The subscription and online marketing markets are characterized by frequent product introductions, evolving platforms, new subscribers. Management regularly monitors the Long Term Value (“LTV”) of those subscribers taking into consideration cost per acquisition, churn rate of existing subscribers, churn rate of recurring subscribers, average revenue per user, billability of new subscribers, billability of existing subscriberstechnologies, and refund rates among others. Our ability to receive information on a daily, weekly,fluid and monthly basis in order to calculate our operational metrics is critical to successfully running our business.changing regulatory environment.
 
Digital Music:  Consumers are fundamentally changing the way that they interact with and utilize music content, as the format used for digital music distribution is evolving to become more user friendly and increasingly device compatible.  With the increased availability of compatible music, consumers are embracing technologies and services that allow them to conveniently obtain, manage and move digital content in an easy and affordable manner.  The growth of consumer Internet connectivity, particularly broadband, WiFi, and the deployment of 3G mobile networks, has increased consumer access to digital media.  Broadband PC Internet connections enable consumers to transfer data more quickly than ever before.  We believe these trends, along with other new technologies, will improve consumers’ access to digital media.

As transfer speed for digital media to consumers’ PCs via the Internet, to other non-PC Internet connected devices and to consumers’ mobile phones via WiFi and 3G networks continues to improve, we believe that consumers will continue to seek products and services that help them quickly and easily find and access content, manage their own collection of digital assets, and help them enjoy, access and move their music collection from their PCs to other media such as CDs, DVDs and digital entertainment devices, including portable MP3 players and mobile phones.  Portable devices, including MP3 players and mobile phones, have proliferated and their uses have increased.  Portable digital music devices have revolutionized the way consumers listen to music.  Many users are playing back digital music, spoken word and video content via consumer electronics devices such as portable MP3 players.

Digital music rights management has evolved, expanding hardware compatibility and thereby reducing constraints on how consumers may use their digital content.  Prior to 2007, record labels had licensed digital music for distribution subject to specific requirements that all downloaded songs contained Digital Rights Management (“DRM”).  As is common in new technology industries, key market leaders each chose different, sometimes proprietary, approaches to DRM, which caused compatibility issues. During 2007 the record labels agreed to allow DRM-free distribution of permanent downloads in certain circumstances.  The new open DRM-free standard should increase consumer interest in paid online music and may also drive increased competition.  We also expect that DRM will allow companies like ours, that provide content, rather than hardware, an opportunity to succeed in this rapidly growing space.

Mobile Content Market
and Marketing Landscape:  The wireless market has emerged as a result of the rapid growth and significant technological advancement in the wireless communications industry.  Wireless carriers are delivering new handsets to new and existing subscribers which have the capability to download rich media content.  Due to the increase in advanced mobile phones with the capabilities to handle rich media downloads, the potential market for mobile services will increase significantly in the coming years.
We believeexpect that the growth in the wireless market has been positively influenced byas a numberresult of key factorsour mobile billing expertise, Internet marketing experience and trendsunique content offerings that we expectwill be able to continue in the near future, including:
·   Growth in Wireless Subscribers. In 2005, the number of global wireless subscribers surpassed two billion and subscriber growth is expected to continue as wireless communications increase in emerging markets, including China and India. According to ITFacts Mobile Usage, which information is available publicly, the number of global wireless subscribers will grow from approximately 2 billion in 2005 to 2.3 billion in 2009. The North American wireless subscriber base currently exceeds 219 million. New handset delivery and adoption is expected to continue to accelerate in the U.S. market as current and new subscribers embrace newer mobile technology and media.
·   Deployment of Advanced Wireless Networks. Wireless carriers are deploying high-speed, next-generation digital networks to enhance wireless voice and data transmission. These advanced networks have enabled the provisioning and billing of data applications and have increased the ability of wireless subscribers to quickly download large amounts of data, including games, music and video.
·   Availability of Mobile Phones with Multimedia Capabilities. Annual mobile phone sales are expected to grow from 520 million units in 2003 to over one billion units in 2009, according to publicly available research conducted by Gartner Inc. In recent years, the mobile phone has evolved from a voice-only device to a personal data and voice communications device that enables access to wireless content and data services. Mobile phone manufacturers are competing for consumers by designing next-generation mobile phones with enhanced features including built-in digital cameras, color screens, music and data connectivity. Manufacturers are also embedding application environments such as BREW, Java, Symbian, iPhone and Android into mobile phones to enable multimedia applications, including gaming. We believe the availability of these next-generation mobile phones is driving demand for wireless subscription applications taking advantage of these advanced multimedia capabilities.  According to data released by NPD Group, 23% of all mobile phones sold in the United States in the 4th quarter of 2008, were Smartphones compared to 12% in the fourth quarter of 2007.capitalize on this rapidly growing market.

 
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·Lead Generation Services Landscape   Off Portal Direct: Attracting new customers is becoming increasingly more difficult and expensive given rising postage fees, the Do-Not-Call list, CAN-SPAM legislation and click-fraud via search engines. Online lead generation, qualification and email campaign management is an optimal solution to Consumer Market Dynamics. Priorconfront and mitigate some of these challenges.

Lead Generation involves the use of technology to November 2004, allgather information about Internet users.  Regulation requires users to grant permission or “opt-in” to allow this information to be gathered. This “opt-in” is often acquired through user registration forms. The information is then sold to advertisers for a price per lead that can vary from $5 to $60, depending on factors such as the quality of the lead, the lead exclusivity, the price level of product or service being sold and the “freshness” of the lead. The financial services, education, and automotive industries have been the most successful areas for lead generation.

The U.S. carriers maintained a “walled garden” approachlead generation market has become increasingly competitive, as the largest U.S. advertisers are shifting more of their budgets from traditional media to the internet. We believe that prevented any direct to consumer off portal sites from succeeding, whilewe can successfully compete in Europethe lead generation business because of our technology and Asia, a large percentage of mobile subscription revenue came from off deck direct to consumer portals. Witnessing the huge success of direct to consumer portals in those geographies, specific U.S. carriers opened the walled garden in late 2004 and early 2005. By allowing premium SMS billing to direct-to-consumer off portal sites, the carriers opened up a potential multi-billion dollar industry opportunity.media network.

·Search Marketing Landscape   Demand:  The Internet is a global digital medium for Wireless Entertainment. Wireless carrierscommerce, content, advertising and other off-deck content providers arecommunications. As the online population continues to grow, the Internet is increasingly launchingbecoming a tool for research and promoting wireless subscription applicationscommerce and for distributing and consuming media. Online users regularly use the Internet to differentiate their servicesresearch offline purchases, making the Internet an important channel for both online and increase average revenue per user. The delivery of games, ringtones, images and other subscription content to subscribers enables wireless carriers to leverage both the increasing installed base of next-generation mobile phones and their investment in high-bandwidth wireless networks.offline merchants. Consumers are downloadingalso using the Internet to access an increasing amount of digital content across media formats including video, music, text and paying for wireless subscription content offered bygames. As consumers increasingly use the carriersInternet to research and off-deck providers. Accordingmake purchases and to eMarketer,consume digital media, advertisers are shifting more of their marketing budgets to digital channels. Despite the mobile content market is expectedsize and growth of the digital marketing sector, the shift of traditional advertising spending to grow from $1.5 billion in revenue in 2007the Internet has yet to $37.5 billion by 2010, representing a compound annual growthmatch the rate of 62%.
·   Growth in Our Core Market – North America. According to IDC, the wireless messaging market is forecast to grow from 54.6 billion messages in 2004 to 387.9 billion messages exchanged in 2009, and Juniper Research expects the North American user base to increase steadily with a compounded growth rateconsumption of around 28%, which is roughly twice that of Europe. Even though Asia and Europeonline media. Marketers are expected to remainshift dollars away from traditional media and toward search marketing, display advertising, email marketing, social media, and mobile marketing. As advertisers spend more of their marketing budgets to reach Internet users, we believe the largest market for mobile entertainment, the North American marketsearch marketing will represent the highest growth potential. Accordingcontinue to Juniper Research, North America will represent a total of 12% of the mobile subscription industry in 2006grow and growingwe believe our business is structured to 19% in 2009.capitalize on this opportunity.
Mobile Subscription and Internet Media Competitive Landscape
The development, distribution and sale of wireless subscription applications is a highly competitive business. In this market, we compete primarily on the basis of marketing acquisition costs, brand strength, and carrier and distribution breadth. We are also subject to intense competition in the online advertising and Internet media market. Within these markets, we compete on the basis of employing traditional direct marketing disciplines, such as continuously analyzing marketing results and measuring advertising cost effectiveness, and applying it to the online marketing world.
The wireless subscription and online marketing markets are highly competitive and characterized by frequent product introductions, evolving platforms and new technologies. As demand for these services continues to increase, we expect new competitors to enter the market and existing competitors to allocate more resources to develop and market to customers. As a result, we expect competition to intensify.
The current and potential competition in the markets in which we operate includes major media companies, traditional publishing companies, wireless carriers, wireless software providers, Internet affiliate and network companies. Larger, more established companies are increasingly focused on developing and distributing products and services that directly compete with us.
Currently some of our competitors in the mobile subscription market are Buongiorno, Playphone, Dada Mobile, Acotel, Glu Mobile, Cellfish (Lagadere), Jamster (Fox), Hands on Mobile and Thumbplay.
In the online advertising and network market, competitors include Azoogle, Value Click, Miva, Kowabunga! (Think Partnership), Right Media, Aptimus, iCrossing, 360i, Omnicom, iProspect, Publicis(Formerly Digitas), and, Blue Lithium. We believe that our extensive experience in Internet marketing, our existing subscriber base and our range of products and services enable us to compete effectively against all current and potential new entrants.

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Distribution Channels
We currently distribute the majority of our subscription products and services directly to consumers, or “offdeck,” which is independent of the carriers, primarily through the Internet. We bill and collect revenues for our products and services through third-party aggregators who are connected to the majority of U.S. wireless carriers and their customers. We have agreements through multiple aggregators who have direct access to U.S. carriers for billing. Our customers download products or subscribe to services on their mobile phones and are billed monthly through their wireless carrier. Both the carriers and the aggregators retain fees for their services before amounts are remitted to us. Our aggregator agreements are not exclusive and generally have a limited term of one or two years, with evergreen or automatic renewal provisions upon expiration of the initial term. The agreements generally do not obligate the carriers or aggregators to market or distribute any of our products and services. In addition, any party can terminate these agreements early and, in some instances, without cause.
We have agreements to distribute our subscription products in North America through a number of aggregators who have access to the majority of U.S. and Canadian based wireless carriers, whose networks serve approximately 215 million subscribers. These wireless carriers include Cingular / AT&T Wireless, Nextel, Sprint PCS, T-Mobile, Verizon Wireless and Alltel. In addition to agreements with aggregators, we also have an agreement in place with AT&T Wireless to distribute and bill for our products directly to subscribers on their network.
For the year ended December 31, 2008, we billed approximately 13% of our revenue through aggregation services provided by one Aggregator with no more than 8% billed through a second Aggregator. For the year ended December 31, 2007, we billed approximately 87 % of our revenue through aggregation services provided by one Aggregator with no more than 1% of our revenue billed through a second Aggregator.
Technology Platform

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

We have also developed, or are developing, technologies related to our use and treatment of data, including the collection, processing and storage of data.  In order to enhance the value of our leads and data, we continue to improve our validation technology, including cross-checking and employing service bureau database lookups for our core products and services.  Central to our information strategy is a data warehouse that organizes and consolidates enterprise data to facilitate data modeling, reporting and the monetization of data.

Employees
 
As of December 31, 2008, New Motion has 2062009, Atrinsic had 144 employees and full-time consultants in the United States and Canada. We have never had a work stoppage and none of our employees are represented by a labor organization or under any collective bargaining arrangements. We consider our employee relations to be good.
 
Government Regulation
 
As a direct-to-consumer marketing company we are subject to a variety of Federal, State and Local laws and regulations designed to protect consumers that govern certain of our marketing and information collection practices. Also, since our products and services are accessible on mobile phones and the Internet, we are exposed to legal and regulatory developments affecting the Internet and telecommunications services in general.

 
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There is substantial uncertainty as to the applicability to the Internet of existing laws governing issues such as property ownership, copyrights and other intellectual property issues, taxation, defamation, obscenity and privacy. The vast majority of these laws were adopted prior to the advent of the Internet and, as a result, did not contemplate the unique issues of the Internet. In addition,  theredue to the increasing popularity and use of the Internet, a number of laws and regulations have been variousadopted at the international, federal, state and local levels with respect to the Internet. Many of these laws cover issues such as freedom of expression, pricing, online products and services including sweepstakes, taxation, advertising, intellectual property, and the convergence of traditional telecommunications services with Internet communications. Recently, growing public concern regarding privacy and the collection, distribution and use of Internet user information has led to increased federal and state scrutiny, as well as regulatory activity concerning data collection, record keeping, storage, security, notification of data theft, and associated use practices. Moreover, a number of laws and regulations have been proposed and court cases relatingare currently being considered by Federal, State, Local and foreign legislatures with respect to companies’ online business activities, includingthese issues.
The application of existing laws or the adoption or modification of laws or regulations in the areas of data protection, trademark, copyright, fraud, indecency, obscenity and defamation. Future developments in the lawfuture, together with increased regulatory scrutiny might decrease the growth of the Internet, impose taxes or other costly technical requirements, create uncertainty in the market or in some other manner have an adverse effect on the Internet. These developments could in turn have a material adverse effect on our business prospects, financial condition and results of operations.
Due to the increasing popularity and use of the Internet, a number of laws and regulations have been adopted at the international, federal, state and local levels with respect to the Internet. Many of these laws cover issues such as privacy, freedom of expression, pricing, online products and services, taxation, advertising, intellectual property, information security and the convergence of traditional telecommunications services with Internet communications. Moreover, a number of laws and regulations have been proposed and are currently being considered by Federal, State, Local and foreign legislatures with respect to these issues. The nature of any new laws and regulations and the manner in which existing and new laws and regulations may be interpreted and enforced cannot be fully determined.

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We provide many of our services through carriers’ networks. These networks are subject to regulation by the U.S. Federal Communications Commission (“FCC”), state public utility commissions and foreign governmental authorities. However, in the Company’s capacity of providing services via the Internet, it is generally not subject to direct regulation by the FCC.
Federal legislation was signed into law, effective January 1, 2004, substantially pre-empting existing and pending state email marketing legislation. The CAN-SPAM Act of 2003 (“CAN-SPAM”) requires that certain “opt-out” procedures, including, but not limited to, a functioning return e-mail address, be included in commercial e-mail marketing. CAN-SPAM prohibits the sending of e-mail containing false, deceptive or misleading subject lines, routing information, headers and/or return address information; however, CAN-SPAM does not permit consumers to file suit against e-mail marketers for violations of CAN-SPAM. We believe that this may benefit us, as individuals will be more limited in their ability to file frivolous suits against us. If any subsequent federal regulations are enacted, including, but not limited to, those implementing regulations promulgated by the FCC that limit our ability to market our products and services, such regulations could potentially have a material adverse impact in our future fiscal period net revenue growth, and, therefore, our profitability and cash flows could be adversely affected.
In contrast to CAN-SPAM, most state deceptive marketing statutes contain private rights of action. Such private right of action lawsuits may have an adverse impact in future fiscal period net revenue growth, as individuals may be more inclined to file frivolous state deceptive marketing suits against us.
In August 2004, under its rule-making authority, the FCC adopted rules prohibiting sending of unsolicited commercial e-mails to wireless phones and pagers. To assist in compliance with the rules, the FCC published on February 7, 2005 a list of mail domain names associated with wireless devices. Senders were given thirty (30) days to come into compliance. Thereafter, it became illegal to send unsolicited commercial e-mail to a domain address on the list unless the subscriber gave prior express authorization. The effect of these rules is to create a ‘double opt-in’ requirement for each sender of mail (advertiser and publisher). The practical consequence of these requirements on senders of commercial e-mail is that conducting compliant campaigns will necessitate the suppression of the domains listed in the FCC's list of wireless domains. Additionally, since domain suppression is now required as a practical matter by law, any campaigns that have domain suppression lists will have those lists included with the regular e-mail suppression lists. Our publishers will be required to suppress the domain lists associated with each campaign in the same manner that they already suppress the e-mail address lists. Although these regulations do not have a material adverse impact on our current operations there can be no assurance that they will not have a material adverse impact on our future operations.
Under its rule-making authority, in May 2005, the Department of Justice adopted rules that amend the record keeping and inspection requirements for producers of sexually explicit performances. Codified in 18 U.S.C. 2257 of the federal criminal code, Section 2257, as amended, went into effect on June 23, 2005 and requires a class referred to as “secondary producers” to comply with the record keeping and inspection requirements that apply to primary producers. On June 16, 2005, The Free Speech Coalition, Inc. brought an action challenging, among other things, the extent to which webmasters and/or web sites fall under the definition of secondary producers under the new Section 2257 regulations. In a ruling issued December 28, 2005, the U.S. District Court rejected the establishment of a class of secondary producers that would have to comply with the recordkeeping and inspection requirements of Section 2257 and reaffirmed the decision in Sundance Associates v. Reno, which held that primary producers would be limited to those persons involved in the “hiring, contracting for, managing, or otherwise arranging for the participating of the depicted performer.” Secondary producers will likely still have to comply with the labeling requirements of Section 2257, which require that secondary producers obtain from the primary producer a letter or other correspondence indicating who the custodian of records is, where such records are kept and the date of production of the material. The ruling in this proceeding is limited to current or future members of The Free Speech Coalition, Inc. There is the risk that the definition of secondary producers may be reinstated and/or more broadly interpreted in the future. At this juncture, Section 2257 has had no material effect on our net revenue growth, profitability and cash flows.

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The states of Michigan and Utah have passed Child Protection Registry laws that bar the transmission of commercial e-mail to registered state residents under the age of eighteen (collectively, the “Statutes”). The Statutes contain provisions for fines and jail time for violators, and create a private right of action for aggrieved parties. Under the Statutes, state residents may register any e-mail address, fax number, wireless contact information or instant message identifier assigned to the account of a minor or one to which a minor has access. Unlike other e-mail marketing statutes, there are no opt-in or pre-existing business relationship exceptions. The Statutes provide that once an address of a state resident is on the registry for thirty (30) days, commercial emailers are prohibited from sending to that address anything containing an advertisement, or even a link to an advertisement, for a product or service that a minor is legally prohibited from accessing. Such products and/or services include, but are not limited to, alcohol, tobacco, gambling, firearms, automotive, financial, prescription drug and adult material. This prohibition remains in force even if the e-mail or other communication is otherwise solicited. The Free Speech Coalition, Inc. has brought an action that challenges certain aspects of the Utah Child Protection Registry law; no decision on this proceeding has yet been rendered. We await the results of this action. To the extent we market these types of products and/or services; we have blocked sending such e-mail to Michigan and Utah residents. State action was initiated in 2005 and early 2006 in the respective legislative bodies in the states of Illinois, Connecticut, Georgia, Hawaii, Iowa and Wisconsin in order to pursue the enactment of legislation similar to the Statutes that will create state-level e-mail registries for minors. None of the proposed legislation has been enacted as of yet. We await the results of the respective legislative processes associated with these proposed child email registry laws. Depending on the outcome, and to the extent we market these types of products and/or services, we may have to block sending such e-mail to Illinois, Connecticut, Georgia, Hawaii and/or Iowa.
Federal legislation was signed into law, effective December 1, 2006, that makes changes to the Federal Rules of Civil Procedure (“Rules”) affecting the storing, retention and production of electronically stored information (“ESI”) in connection with discovery pursuant to litigation. As a result of the changes to the Rules, attorneys will be required to advise their adversaries, during litigation, of the details of their clients’ ESI retention and management systems and, in many instances, produce ESI including, but not limited to, e-mails. As a result of these changes to the Rules, companies should: (i) identify the various forms of ESI generated in the course of business, and where such ESI is stored; (ii) implement systems and technology capable of storing and retrieving such ESI, as necessary; and (iii) adopt a clear ESI document retention program and adhere to same at all times. The requirements imposed by the changes to the Rules as detailed above could require us to change our ESI-related programs at some additional cost. In addition, any subsequent litigation could result in substantially higher costs as a result of the need to produce greater quantities of ESI, which could have a material adverse impact on profitability and cash flows.
Legislation has been passed in a number of states that are intended to regulate “spyware” and, to a limited extent, the use of “cookies.” Of particular significance is the Revised Utah Spyware Control Act (the “Utah Act”) that bars a person or company from using a context-based trigger mechanism to display an advertisement that partially or wholly covers paid advertising or other content on a website in a way that interferes with the user's ability to view the website. The Utah Act also requires purveyors of pop-up advertising to ask whether a user is a resident of the state of Utah before downloading spyware software onto the user's computer and further allows a trademark owner to sue any person or company who displays a pop-up advertisement in violation of a specific trademark protection which is set forth in the Utah Act. The State of Alaska has enacted similar legislation that bars the same means of delivering advertisements as the Utah Act, and requires similar verification of residency prior to downloading spyware or “adware” software onto the user's computer. In practice, we do not provide or use spyware in our marketing, but if more restrictive legislation is adopted, we may be required to develop new technology and/or methods to provide our services or discontinue services in some jurisdictions altogether. Additionally, there is a risk that state courts will broadly interpret the term spyware to include legitimate ad-serving software and/or cookie technology that we currently provide or use.
At the federal level, competing bills are pending which are also intended to regulate spyware and, to a limited extent, the use of cookies. Spyware has not been precisely defined in existing and pending legislation, but is generally considered to include software which is installed on consumers’ computers and designed to track consumers’ activities and collect and possibly disseminate information, including personally identifiable information, about those consumers without their knowledge and consent. As stated above, Atrinsic does not provide or use spyware in its marketing practices, but there is the risk that the definition of spyware may be broadly interpreted to include legitimate ad-serving software and/or cookie technology that is currently provided or used by us. Anti-spyware legislation has (1) generally included a limited exemption for the use of cookies; and (2) focused on providing consumers with notification and the option to accept or decline the installation of spyware software. However, there can be no assurance that future legislation will not incorporate more burdensome standards by which the use of cookies will not be exempted and software downloading onto consumers’ computers will not be more strictly enforced. If more restrictive legislation is adopted, we may be required to develop new technology and/or methods to provide our services or discontinue services in some jurisdictions altogether.

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Legislation has also been passed at the state level and competing bills are pending at the federal level which are intended to require that businesses and institutions provide notice to consumers of any potential theft or loss of sensitive consumer information then in possession of the applicable business or institution. At the state level, laws that recently took effect in the states of Arizona, Colorado, Hawaii, Idaho, Indiana, Kansas, Nebraska, Utah, Vermont and Wisconsin require companies, governmental agencies and private organizations to notify individuals in cases where their confidential information has been exposed to possible data thieves (the “New State Laws”). Upon taking effect on April 1, 2006, April 10, 2006, June 27, 2006, July 1, 2006, September 1, 2006, December 31, 2006 and January 1, 2007, as applicable, the New State Laws make customer notification mandatory in the event that personally identifiable information (including, but not limited to, social security numbers, driver's license numbers or bank and financial account numbers) has been accessed improperly by third parties. The New State Laws are in addition to similar laws previously in effect in at least twenty-four (24) other states including the states of Arkansas, California, Connecticut, Delaware, Florida, Georgia, Illinois, Louisiana, Maine, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New York, North Carolina North Dakota, Ohio, Pennsylvania, Rhode Island, Tennessee, Texas and Washington that all require consumer notification where confidential or sensitive information has been improperly accessed, lost or stolen (together with the New State Laws, the “Information Security Laws”). The Information Security Laws also impose obligations on companies that collect, store and transmit sensitive information to use secure socket and/or encryption technologies, as applicable, when performing the aforementioned tasks. To the extent that we collect such personally identifiable information, the Information Security Laws may increase our costs to protect such information.
At the Federal level, the FCC, pursuant to its enforcement authority, filed a complaint against BJ’s Wholesale Club, Inc. (“BJ's”) for violation of the FCC Act in connection with the theft of consumer credit/debit card information which was then in BJ’s possession. The FCC alleged that BJ’s failure to secure customers' sensitive information was an unfair practice under the FCC Act because it caused substantial injury that was not reasonably avoidable by consumers and not outweighed by offsetting benefits to consumers or competition. BJ’s agreed to a settlement that requires BJ’s to establish and maintain a comprehensive information security program that includes administrative, technical and physical safeguards. Although we do not anticipate that this interpretation of the FCC Act, nor the Information Security Laws requiring notice of theft or loss of sensitive consumer information, will have a material adverse impact on our current operations, we could potentially be subject to regulatory proceedings for past and current practices in connection with the storage and security of sensitive consumer information and notice of such sensitive consumer information's theft or loss. In addition, we may be required to make changes in our future practices relating to the storage, security and provision of notice in connection with sensitive consumer information.
At present, the laws and regulations governing the Internet remain largely unsettled, even in areas where there has been legislative and/or regulatory action. It is uncertain as to how long it will take to determine the extent to which existing laws, including, but not limited to, those relating to intellectual property, advertising, sweepstakes and privacy, apply to the Internet and Internet marketing. Recently, growing public concern regarding privacy and the collection, distribution and use of Internet user information has led to increased Federal and state scrutiny, as well as regulatory activity concerning data collection, record keeping, storage, security, notification of data theft, and associated use practices. The application of existing laws or the adoption or modification of laws or regulations in the future, together with increased regulatory scrutiny, could materially and adversely affect our business, prospects, results of operations and financial condition and could potentially expose us and/or our clients to fines, litigation, cease and desist orders and civil and criminal liability.liability and/or other compliance costs.

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ITEM 1A. RISK FACTORS
 
Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this report before purchasing our common stock. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management is unaware of, or that it currently deems immaterial, also may become important factors that affect us. If any of the following risks occur, our business, financial condition, cash flows and/or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and stockholders are at risk of losing some or all of the money invested in purchasing our common stock.

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

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

If we are unable to address these risks, and respond accordingly, our operating results may not meet our publicly forecasted expectations, and/or the expectations as derived by our investors, which could cause the price of our common stock to decline.
 
Our business relies on wireless and landline carriers and aggregators to facilitate billing and collections in connection with our subscription products sold and services rendered. The loss of, or a material change in, any of these relationships could materially and adversely affect our business, operating results and financial condition.
 
During the year ended December 31, 2008,2009, we generated a significant portion of our revenues from the sale of our products and services directly to consumers which are billed through wireless aggregators and telephone carriers. We expect that we will continue to bill a significant portion of our revenues through a limited number of aggregators for the foreseeable future, although these aggregators may vary from period to period. In a risk diversification and cost saving effort, we have established a direct billing relationship with a carrier that mitigates a portion of our revenue generation risk as it relates to aggregator dependence; conversely this risk is replaced with internal performance risk regarding our ability to successfully process billable messages directly with the carrier.  Moreover, in an effort to further mitigate such operational risk, we invested a 36% equity stake in a landline telephone aggregator, TBR, to give us more visibility in the billing and collection process associated with subscription services billed to customers of local exchange carriers.
 
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 aggregator and carriers, and provide that either party to the contract can terminate such agreement prior to its expiration, and in some instances, terminate without cause.

 
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Many other factors exist that are outside of our control and could impair our carrier relationships, including:
 
 ·a carrier’s decision to suspend delivery of our products and services to its customer base;
 ·a carrier’s decision to offer its own competing subscription applications, products and services;
 ·a carrier’s decision to offer similar subscription applications, products and services to its subscribers for price points less than our offered price points, or for free;
 ·a network encountering technical problems that disrupt the delivery of, or billing for, our applications;

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·
the potential for concentrations of credit risk embedded in the amounts receivable from the aggregator should any one, or group if aggregators encounter financial difficulties, directly or indirectly, as a result of the current period of slower economic growth currently affecting the United States; or
 ·a carrier’s decision to increase the fees it charges to market and distribute our applications, thereby increasing its own revenue and decreasing our share of revenue.
 
If one or more of these wireless carriers decidesdecide to suspend the offering of off-deck applications,our subscription services, 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 internetInternet and telecommunications providers, over whom we have no control, for the conduct of our subscription business and transactional business. Interruptions in or the discontinuance of the services provided by one of the providers could have an adverse effect on revenue; and securing alternate sources of these services could significantly increase expenses and cause significant interruption to both our transactional and subscription businesses.
 
We depend heavily on several third-party providers of Internet and related telecommunication services, including hosting and co-location facilities, in conducting our business. These companies may not continue to provide services to us without disruptions in service, at the current cost or at all. The costs associated with any transition to a new service provider would be substantial, requiring the reengineering of computer systems and telecommunications infrastructure to accommodate a new service provider to allow for a rapid replacement and return to normal network operations. This process would be both expensive and time-consuming. In addition, failure of the Internet and related telecommunications providers to provide the data communications capacity in the time frame required by us could cause interruptions in the services we provide across all of our business activities. In addition to service interruptions arising from third-party service providers, unanticipated problems affecting our proprietary internal computer and telecommunications systems have the potential to occur in future fiscal periods, and could cause interruptions in the delivery of services, causing a loss of revenue and related gross margins, and the potential loss of customers, all of which could materially and adversely affect our business, results of operations and financial condition.
  
We depend on partners and third-parties for our content and for the delivery of services underlying our subscriptions.
We depend heavily on partners and third-parties to provide us with licensed content including the Kazaa music service.  We are reliant on such companies to maintain licenses with music labels so that we can deliver services that we are contractually obligated to deliver to our customers.  These companies may not continue to provide services to us without disruption, or maintain licenses with the owners of the delivered content.  In addition to licensed content, we are also reliant on partners and third parties to provide services and to perform other activities which allow us to bill our subscribers.  Failure of our partners to continue to provide these services, may result in disruption to our customers and a loss in our business.  The costs associated with any transition to a new service or content provider would be substantial, even if a similar partner is available.  Failure of our partners or other third parties to provide content or deliver services have the potential to 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.

Our working capital requirements are significant and we may need to raise cash in the future to fund our working capital requirements.

Our working capital requirements are significant.  If our cash flows from operations are less than anticipated or our working capital requirements or capital expenditures are greater than expectations, or if we expand our business by acquiring or investing in additional products or technologies, we may need to secure additional debt or equity financing. We are continually evaluating various financing strategies to be used to expand our business and fund future growth. There can be no assurance that additional debt or equity financing will be available on acceptable terms, if at all. The potential inability to obtain additional debt or equity financing, if required, could have a material adverse effect on our operations.

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If advertising on the internet loses its appeal, our revenue could decline.
 
Companies doing business on the Internet must compete with traditional advertising media, including television, radio, cable and print, for a share of advertisers' total marketing budgets. Potential customers may be reluctant to devote a significant portion of their marketing budget to Internet advertising or digital marketing if they perceive the Internet to be trending towards a limited or ineffective marketing medium. Any shift in marketing budgets away from Internet advertising spending or digital marketing solutions, could directly, materially and adversely affect our transactional business, as well as our subscription business, with both having a materially negative impact on our results of operations and financial condition.
 
During 2008,2009, all of our revenue was generated, directly or indirectly, through the Internet in part by delivering advertisements that generate leads, impressions, click-throughs, and other actions to our advertiser customers' websites as well as confirmation and management of mobile services.  This business model may not continue to be effective in the future for various reasons, including the following reasons:following:
 
 ·click and conversion rates may decline as the number of advertisements and ad formats on the Web increases, making it less likely that a user will click on our advertisement;
 ·the installation of "filter" software programs by web users which prevent advertisements from appearing on their computer screens or in their email boxes may reduce click throughs;click-throughs;
 ·companies may be reluctant or slow to adopt online advertising that replaces, limits or competes with their existing direct marketing efforts;
 ·companies may prefer other forms of Internet advertising we do not offer, including certain forms of search engine placements;
 ·companies may reject or discontinue the use of certain forms of online promotions that may conflict with their brand objectives;
 ·  companies may not utilize online advertising due to concerns of "click-fraud", particularly related to search engine placements;  

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 ·regulatory actions may negatively impact certain business practices that we currently rely on to generate a portion of our revenue and profitability; and
 ·perceived lead quality.
 
If the number of companies who purchase online advertising from us does not continue to grow, we may experience difficulty in attracting publishers, and our revenue could decline.

We no longer meet the minimum bid price requirement for continued listing on the NASDAQ Global Market and have until June 22, 2010 to correct it.

We received a notice from NASDAQ that we no longer meet the minimum bid price requirement for continued listing on the NASDAQ Global Market as set forth in NASDAQ’s Marketplace Rule 5450(a)(1), as a result of the bid price of our common stock closing below the required minimum $1.00 per share for 30 consecutive business days.  We have been provided with a customary grace period of 180 calendar days in which to regain compliance with the minimum bid price rule.  If at any time before June 22, 2010, the bid price of our stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, NASDAQ will provide written confirmation to us that we have regained compliance. If we do not regain compliance with the bid price rule by June 22, 2010, NASDAQ will notify us that our common stock is subject to delisting from The NASDAQ Global Market. However, we may appeal the delisting determination to a NASDAQ hearing panel and the delisting will be stayed pending the panel's determination. Alternatively, we may apply to transfer the listing of its common stock to the NASDAQ Capital Market if we satisfy all criteria for initial listing on the NASDAQ Capital Market, other than compliance with the minimum bid price requirement. If such application to the NASDAQ Capital Market is approved, then we may be eligible for an additional grace period.

We intend to actively monitor the bid price for our common stock between now and June 22, 2010, and will consider available options to regain compliance with the NASDAQ minimum bid price requirements. If we are unable to regain compliance with the minimum bid rule and is delisted, or unable to qualify for listing on the NASDAQ Capital Market, market liquidity for our common stock could be severely affected, and our stockholders’ ability to sell securities in the secondary market could be limited. Delisting from NASDAQ would negatively affect the value of our common stock. Delisting could also have other negative results, including, but not limited to, the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.

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

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

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We could be subject to legal claims, government enforcement actions, and be held accountable for our or our customers' failure to comply with federal, state and foreign laws, regulations or policies, all of which could materially harm our business.
 
As a direct-to-consumer marketing company, we are subject to a variety of federal, state and local laws and regulations designed to protect consumers that govern certain of aspects of our business.  For instance, recent growing public concern regarding privacy and the collection, distribution and use of information about Internet users has led to increased federal, state and foreign scrutiny and legislative and regulatory activity concerning data collection and use practices..practices. Any failure by us to comply with applicable federal, state and foreign laws and the requirements of regulatory authorities may result in, among other things, indemnification liability to our customers and the advertising agencies we work with, administrative enforcement actions and fines, class action lawsuits, cease and desist orders, and civil and criminal liability.
 
Our customers are also subject to various federal and state laws concerning the collection and use of information regarding individuals. These laws include the Children's Online Privacy Protection Act, the Federal CAN-SPAM Act of 2003, as well as other laws that govern the collection and use of consumer credit information. We cannot assure you that our customers are currently in compliance, or will remain in compliance, with these laws and their own privacy policies. We may be held liable if our customers use our technologies in a manner that is not in compliance with these laws or their own stated privacy policies, which would have an adverse impact on our operations.
 
Our success depends on our ability to continue forming relationships with other Internet and interactive media content, service and product providers.
 
The Internet includes an ever-increasing number of businesses that offer and market consumer products and services. These entities offer advertising space on their websites, as well as profit sharing arrangements for joint effort marketing programs. We expect that with the increasing number of entrants into the Internet commerce arena, advertising costs and joint effort marketing programs will become extremely competitive. This competitive environment might limit, or possibly prevent us from obtaining profit generating advertising or reduce our margins on such advertising, and reduce our ability to enter into joint marketing programs in the future. If we fail to continue establishing new, and maintain and expand existing, profitable advertising and joint marketing arrangements, we may suffer substantial adverse consequences to our financial condition and results of operations. Additionally, we, as a result of our acquisition of Traffix, now have a significant economic dependence on the major search engine companies that conduct business on the Internet; such search engine companies maintain ever changing rules regarding scoring and indexing their customers marketing search terms. If we cannot effectively monitor the ever changing scoring and indexing criteria, and affectively adjust our search term applications to conform to such scoring and indexing, we could suffer a material decline in our search term generated acquisitions, correspondingly reducing our ability to fulfill our clients marketing needs. This would have an adverse impact on our company’s revenues and profitability.

 
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The demand for a portion of our transactional services may decline due to the proliferation of “spam” and the expanded commercial adoption of software designed to prevent its delivery.
 
Our business may be adversely affected by the proliferation of "spam" or unwanted internet solicitations. In response to the proliferation of spam, Internet Service Providers ("ISP's") have been adopting technologies, and individual computer users are installing software on their computers that are designed to prevent the delivery of certain Internet advertising, including legitimate solicitations such as those delivered by us. We cannot assure you that the number of ISP's and individual computer users who employ these or other similar technologies and software will not increase, thereby diminishing the efficacy of our transactional, as well as our subscription service activities. In the case that one or more of these technologies, or software applications, realize continued and/or widely increased adoption, demand for our services could decline in response.
 
We have no intentiondo not intend to pay dividends on our equity securities.
 
Our recently acquired subsidiary, Traffix, had paid dividend of $0.08 per share on its common stock for its last 18 fiscal quarters prior to the acquisition. It is our current and long-term intention that we will use all cash flows to fund operations and maintain excess cash requirements for the possibility of potential future acquisitions.  We may also use our cash to repurchase shares pursuant to our share repurchase program discussed elsewhere in this report. Future dividend declarations, if any, will result from our reversal of our current intentions, and would depend on our performance, the level of our then current and retained earnings and other pertinent factors relating to our financial position. Prior dividend declarations should not be considered as an indication for the potential for any future dividend declarations.

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We face intense competition in the marketing of our subscription services and the products of our transaction based clients.
 
In both our subscription services, including our Kazaa music service, and transaction services, we compete primarily on the basis of marketing acquisition cost, brand awareness, consumer penetration and carrier and distribution depth and breadth.  We considerface numerous competitors, many of whom are much larger than us, who have greater financial and operating resources than we do and who have been operating in our primary subscription business competitors to be Buongiorno, Playphone, Dada Mobile, Acotel, Glu Mobile, Cellfish (Lagadere), Jamster (Fox), Hands on Mobile and Thumbplay. In our transactional business,target markets longer than we consider Azoogle, Value Click, Miva, Kowabunga! (Think Partnership), Right Media, iCrossing, 360i, iProspect, Publicis (Formerly Digitas), Omnicom, Aptimus and Blue Lithium to be our primary competitors.have.  In the future, likely competitors may include other major media companies, traditional video game publishers, wirelesstelephone carriers, content aggregators, wireless software providers and other pure-play wireless subscription publishers,direct response marketers publishing content and media, and Internet affiliate and network companies.
 
If we are not as successful as our competitors in executing on our strategy in targeting new markets, increasing customer penetration in existing markets, executing on marquee brand alignment, and/or effectively executing on business level accretive acquisition identification and successful closing and post acquisition integration, our sales could decline, our margins could be negatively impacted and we could lose market share, any and all of which could materially harm our business prospects, and potentially have a negative impact on our share price.
 
If we do not successfully execute our international strategy, our revenue, results of operations and the growth of our business could be harmed.
Our planned international expansion and the integration of international operations present unique challenges and risks to our company, and require management attention. Our foreign operations subject us to foreign currency exchange rate risks and we currently do not utilize hedging instruments to mitigate foreign currency exchange rate risks.
Our continued international expansion will subject us to additional foreign currency exchange rate risks and will require additional management attention and resources. We cannot assure you that we will be successful in our international expansion and operations efforts. Our international operations and expansion subject us to other inherent risks, including, but not limited to: the impact of recessions in economies outside of the United States; changes in and differences between regulatory requirements between countries; U.S. and foreign export restrictions, including export controls relating to encryption technologies; reduced protection for and enforcement of intellectual property rights in some countries; potentially adverse tax consequences; difficulties and costs of staffing and managing foreign operations; political and economic instability; tariffs and other trade barriers; and seasonal reductions in business activity.
Our failure to address these risks adequately could materially and adversely affect our business, revenue, results of operations and financial condition.
System failures could significantly disrupt our operations, which could cause us to lose customers or content.
 
Our success depends on the continuing and uninterrupted performance of our systems. Sustained or repeated system failures that interrupt our ability to provide services to customers, including failures affecting our ability to deliver advertisements quickly and accurately and to process visitors' responses to advertisements, and, validate mobile subscriptions, would reduce significantly the attractiveness of our solutions to advertisers and Web publishers. Our business, results of operations and financial condition could also be materially and adversely affected by any systems damage or failure that impacts data integrity or interrupts or delays our operations. Our computer systems are vulnerable to damage from a variety of sources, including telecommunications failures, power outages, malicious or accidental human acts, and natural disasters. We operate a data center in Canada and have a co-location agreement with a service provider to support our operations. Therefore, any of the above factors affecting any of these areas could substantially harm our business. Moreover, despite network security measures, our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems in part because we cannot control the maintenance and operation of our third-party data centers. Despite the precautions taken, unanticipated problems affecting our systems could cause interruptions in the delivery of our solutions in the future and our ability to provide a record of past transactions. Our data centers and systems incorporate varying degrees of redundancy. All data centers and systems may not automatically switch over to their redundant counterpart. Our insurance policies may not adequately compensate us for any losses that may occur due to any failures in our systems.

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

Decreased effectiveness of equity compensation could adversely affect our ability to attract and retain employees and harm our business.
 
We have historically used stock options as a key component of our employee compensation program in order to align employees' interests with the interests of our stockholders, encourage employee retention, and provide competitive compensation packages. Volatility or lack of positive performance in our stock price may adversely affect our ability to retain key employees, many of whom have been granted stock options, or to attract additional highly-qualified personnel. As of December 31, 2008,2009, a majority of our outstanding employee stock options have exercise prices in excess of the stock price on that date. To the extent this continues to occur, our ability to retain employees may be adversely affected. Moreover, applicable NASDAQ listing standards relating to obtaining stockholder approval of equity compensation plans could make it more difficult or expensive for us to grant stock options or other stock-based awards to employees in the future. As a result, we may incur increased compensation costs, change our equity compensation strategy or find it difficult to attract, retain and motivate employees, any of which could materially, adversely affect our business.
 
We have been named as a defendant in litigation, either directly, or indirectly, with the outcome of such litigation being unpredictable; a materially adverse decision in any such matter could have a material adverse affect on our financial position and results of operations.
 
As described below and as described under the heading "Legal Proceedings" in our periodic reports filed pursuant to the Securities Exchange Act of 1934, from time to time we are named as a defendant in litigation matters. The defense of these claims may divert financial and management resources that would otherwise be used to benefit our operations. Although we believe that we have meritorious defenses to the claims made in each and all of the litigation matters to which we have been a named party, whether directly or indirectly, and intend to contest each lawsuit vigorously, no assurances can be given that the results of these matters will be favorable to us. A materially adverse resolution of any of these lawsuits could have a material adverse affect on our financial position and results of operations.
 
In 2007,On March 10, 2010, and subsequent to our fiscal year-end, Atrinsic received final approval of its settlement to its Class Action proceeding in the OfficeState of California on Allen v. Atrinsic, Inc. f/k/a New Motion, Inc., pending in Los Angeles County Superior Court.  The settlement covers all of the Attorney Generalcompany’s mobile products, web sites and advertizing practices through December 2009. All costs of the settlement and defense were accrued for in 2008, therefore this settlement did not have an impact on the Company’s results of operations in 2009 and will not impact the Company’s results of operations in 2010.

As a result of the State of Florida commenced an investigationCalifornia Settlement and final approval of the  advertisingjudgment, Atrinsic has filed stays, and business practiceswill file dispositive motions, in the following actions, which it is either directly named in or has assumed the defense of the third party wireless content industry including the Companyfollowing cases: Baker v. Sprint Nextel Corp., Motricity, Inc., and its acquired entities, namely Traffix,New Motion, Inc. On February 12, 2009, the Company approached thepending in Dade County Superior Court in Florida,  Attorney General to volunteer its complianceStewart v New Motion, Inc. and cooperate with the ongoing investigation, and contribute to the remediation and educational initiatives of the Florida Attorney General.  In connection with this matter, at December 31, 2008 the Company estimatesMotricity, Inc., pending in Hennepin County District Court in Minnesota, Rynearson v. Motricty, Inc, pending in King County Superior Court in Washington Walker v. Motricity, Inc., pending in Alameda County Superior Court in California.  Management believes that total costs approximate $1.125 million which is included Accrued Expenses in the Consolidated Balance Sheet.
The Company is also named in two Class Action Lawsuits (in Florida and California) involving allegations concerning the Company's marketing practices associated with some of its services billed and delivered via wireless carriers. The Company is disputing the allegations and is vigorously defending itself in these matters. In one of these matters the Company has received a Summary Judgment on its Motion to Dismiss related to a number of the allegations made in the original complaint. The Companyit has accrued for theall probable and estimable related costs in the amount of $275,000 in connection with these matters which are included in Accrued Expenses in the Consolidated Balance Sheet.

actions.
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On February 2, 2009 the Companywe filed a complaint, in the Superior Court of the State of California for the County of Los Angeles, against Mobile Messenger Americas, Inc. and Mobile Messenger PTY LTD, and its subsidiarylater amended to name Mobile Messenger Americas Inc. (“MobilePty, Ltd in place of the latter (collectively, “Mobile Messenger”), to recover monies owed the Companyto us in connection with transaction activity incurred in the ordinary and normal course andof business.  The complaint also included declaritorysought declaratory relief concerning demands made by Mobile Messenger'sMessenger for indemnification infor amounts paid by Mobile Messenger's settlement in it’s Florida Class Action Matter which it settledMessenger in late 2008 (“in settlement of a class action lawsuit in Florida, Grey vs.v. Mobile Messenger”Messenger, et al. (the “Florida Class Action”).  Mobile Messenger a party also involved in the Florida Attorney General investigation described herein, brought upon the Companyus a cross complaint, filed in April 2009, seeking injunctive relief, indemnification for the settlement of the Florida Class Action and other matters, damages allegedly exceeding $17 million, declaratory relief and recoupment of attorneys fees.  The Settlement in Gray vs. Mobile Messenger was represented by KamberEdelson, LLC, which now represents Mobile Messenger inIn November 2009, we reached a settlement of the action against the Company on a contingency basis.in principle with Mobile Messenger.  The same firm represents the Plaintiffsterms of this settlement are to be confidential but in the Florida Class Action filed against the Company, as well as another plaintiff, an internet marketing company based in NY,general will result in a commercial dispute over payments for marketing services and potential damages concerning that company's marketing practices. The Company disputes the allegations and intends to vigorously defend itself in these matters considering, among other things, the specific facts surrounding the underlying claims against the Company are without merit.  The Company will also seek to limit any participation in any settlement to recoup legal fees citing an apparent conflict of interest in that the attorney representing Mobile Messenger (Kamber Edelson, LLC,) whom is also representing numerous other parties taking action in the aforementioned and other related matters.
We recorded a significant amount of goodwill and other intangible assets in connection with our merger with Traffix and the acquisitioncomplete dismissal of the assets of Ringtone.com, which may resultentire action, including the cross-complaint, with prejudice. The settlement is not expected to have a material impact on our results from operations, beyond what we have already expensed and accrued for in significant future charges against earnings if the goodwill and other intangible assets become impaired.2009.

 
In accounting for the merger with Traffix and the acquisition of the assets of Ringtone.com, we allocated and recorded a large portion of the purchase price paid in the merger to goodwill and other intangible assets. Under SFAS No.142, we must assess, at least annually and potentially more frequently, whether the value of goodwill and other intangible assets has been impaired. Any reduction or impairment of the value of goodwill or other intangible assets, such as the charge that was taken in the fourth quarter of 2008, could materially adversely affect New Motion’s results of operations in future periods.
We may incur liabilities to tax authorities in excess of amounts that have been accrued which may adversely impact our results of operations and financial condition.
 
As more fully described in note 11 "Income"Provision (Benefit) for Income Taxes" to our consolidated financial statements contained in this annual report on Form 10-K, we have recorded significant income tax liabilities. The preparation of our consolidated financial statements requires estimates of the amount of income tax that will become payable in each of the jurisdictions in which we operate. We may be challenged by the taxing authorities in these jurisdictions and, in the event that we are not able to successfully defend our position, we may incur significant additional income tax liabilities and related interest and penalties which may have an adverse impact on our results of operations and financial condition.

 
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We may be impacted by the affects of the current slowdown of the United States economy.
 
Our performance is subject to worldwideUnited States economic conditions and theirits impact on levels of consumer spending.   Consumer spending recently has deteriorated significantly as a result of the current economic situation in the United States and may remain depressed, or be subject to further deterioration for the foreseeable future.  Purchases of our subscription based services as well as our transactional services tend to decline in periods of recession or uncertainty regarding future economic prospects, as disposable income declines. Many factors affect the level of spending for our products and services, including, among others: prevailing economic conditions, levels of employment, salaries and wage rates, energy costs, interest rates, the availability of consumer credit, taxation and consumer confidence in future economic conditions. During periods of recession or economic uncertainty, we may not be able to maintain or increase our sales to existing customers, make sales to new customers or maintain or increase our international operations on a profitable basis. As a result, our operating results may be adversely and materially affected by downward trends in the United States or global economy, including the current recession in the United States. 
 
The requirements of the Sarbanes-Oxley act, including section 404, are burdensome, and our failure to comply with them could have a material adverse affect on the company’s business and stock price.
 
Effective internal control over financial reporting is necessary for us to provide reliable financial reports and effectively prevent fraud. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal control over financial reporting. Our independent registered public accounting firm will need to annually attest to the Company’s evaluation, and issue their own opinion on the Company’s internal control over financial reporting beginning with the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2009.2010. The process of complying with Section 404 is expensive and time consuming, and requires significant management attention. We cannot be certain that the measures we will undertake will ensure that we will maintain adequate controls over our financial processes and reporting in the future. Furthermore, if we are able to rapidly grow our business, the internal controls over financial reporting that we will need, will become more complex, and significantly more resources will be required to ensure that our internal controls over financial reporting remain effective. Failure to implement required controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we or our auditors discover a material weakness in our internal control over financial reporting, the disclosure of that fact, even if the weakness is quickly remedied, could diminish investors’ confidence in our financial statements and harm our stock price. In addition, non-compliance with Section 404 could subject us to a variety of administrative sanctions, including the suspension of trading, ineligibility for listing on one of the Nasdaq Stock Markets or national securities exchanges, and the inability of registered broker-dealers to make a market in our common stock, which would further reduce our stock price.

Revenue from our new businesses may be difficult to predict

We are devoting resources to service offerings where we have limited operation history. This makes it difficult to predict revenue and could result in longer than expected sales and implementation cycles.

 
17
 
 
ITEM 1B UNRESOLVED STAFF COMMENTS
 
Not applicable
 
ITEM 2. PROPERTIES
 
New Motion’sAtrinsic’s corporate headquarters at December 31, 2008 wereare located at 469 7th Avenue, New York, NY.
 
The following table details the various properties leased and owned by us after our merger with Traffix.as of March 24, 2010.
 
Location 
Leased/
Owned
 
Square
Feet
  Expiration 
Dieppe, New Brunswick, Canada Owned  17,000   N/A 
469 7th Avenue, New York, NY Leased  12,40017,000  9/30/2018 
1 Blue Hill Plaza, Pearl River, NY Leased  14,220  11/15/2011 
42 Corporate Park, Irvine, CALeased12,4661/31/2010
 
The spacespaces listed above isare adequate for our current needs and we believe suitable additional or substitute space will be available to accommodate the foreseeable expansion of our operations. Our owned property in Dieppe, Canada is not subject to a mortgage or any liens. Atrinsic’s telephone number is (212) 716-1977.
 
ITEM 3. LEGAL PROCEEDINGS.
 
We are subjectOn March 10, 2010, and subsequent to certain legal proceedingsour fiscal year-end, Atrinsic received final approval of its settlement to its Class Action proceeding in the State of California on Allen v. Atrinsic, Inc. f/k/a New Motion, Inc., pending in Los Angeles County Superior Court.  The settlement covers all of the company’s mobile products, web sites and claims arisingadvertizing practices through December 2009. All costs of the settlement and defense were accrued for in 2008. Therefore this settlement did not have an impact on the Company’s results of operations in 2009 and will not impact its results of operations in 2010.

As a result of the State of California Settlement and final approval of the  judgment, Atrinsic has filed stays, and will file dispositive motions, in the following actions, which it is either directly named in or has assumed the defense of the following cases: Baker v. Sprint Nextel Corp., Motricity, Inc., and New Motion, Inc. pending in Dade County Superior Court in Florida,  Stewart v New Motion, Inc. and Motricity, Inc., pending in Hennepin County District Court in Minnesota, Rynearson v. Motricty, Inc, pending in King County Superior Court in Washington Walker v. Motricity, Inc., pending in Alameda County Superior Court in California.  Management believes that it has accrued for all probable and estimable related costs of these actions.

On February 2, 2009 the Company filed a complaint, in the Superior Court of the State of California for the County of Los Angeles, against Mobile Messenger Americas, Inc. and Mobile Messenger PTY LTD, later amended to name Mobile Messenger Americas Pty, Ltd in place of the latter (collectively, “Mobile Messenger”), to recover monies owed the Company in connection with ourtransaction activity incurred in the ordinary and normal course of business.  The complaint also sought declaratory relief concerning demands made by Mobile Messenger for indemnification for amounts paid by Mobile Messenger in late 2008 in settlement of a class action lawsuit in Florida, Grey v. Mobile Messenger, et al. (the “Florida Class Action”).  Mobile Messenger brought upon the Company a cross complaint, filed in April 2009, seeking injunctive relief, indemnification for the settlement of the Florida Class Action and other matters, damages allegedly exceeding $17 million, declaratory relief and recoupment of attorneys fees.  In November 2009, the Company reached a settlement of the action in principle with Mobile Messenger. The terms of the settlement are to be confidential but in general will result in a complete dismissal of the entire action, including the cross complaint, with prejudice. The settlement is not expected to have a material impact on the Company’s results from operations, beyond what the Company has already expensed and accrued for in 2009.

In the ordinary course of business, the Company is involved in various disputes, which are routine and incidental to the business and the industry in which it operates. In the opinion of management there are currently no claims thatthe results of such disputes will not have a materialsignificant adverse effect on our consolidatedthe financial position or the results of operations or cash flows.of the Company.

We are not involved in any legal proceedings that require disclosure in this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSRemoved and Reserved
None

18
 
Part II
 
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERSAND ISSUER PURCHASES OF EQUITY SECURITIES
 
On June 25, 2009, the Company changed its corporate name and ticker symbol from New Motion, Inc., (NWMO) to Atrinsic, Inc., (ATRN). Our common stock is quoted on The NASDAQ Global Market under the symbol “NWMO.Market.” Prior to our acquisition of Traffix which occurred on February 4, 2008, our common stock was quoted on the Over-The-Counter Bulletin Board under the symbol NWMO, and prior to May, 2007, our common stock was quoted on the Over-The-Counter Bulletin Board under the symbol “MPNC.”NWMO. The following table sets forth, for the periods indicated, the high and low sales prices (or high and low bid quotations with respect to the periods during which our common stock was traded on the Over-The-Counter Bulletin Board as determined from quotations on the Over-The-Counter Bulletin Board) for our common stock, as well as the total number of shares of common stock traded during the periods indicated.  With respect to the Over-The-Counter market quotations referenced above, such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. The quotations have been adjusted to reflect a 1-for-300 reverse stock split of our common stock which took effect on May 2, 2007.
 
        Average 
        Daily 
  High  Low  Volume 
Year Ended December 31, 2008:         
First Quarter $14.00  $4.10   44,166 
Second Quarter $5.08  $3.92   82,617 
Third Quarter $4.30  $3.09   39,769 
Fourth Quarter $3.00  $1.06   42,630 
             
Year Ended December 31, 2007:            
First Quarter(1)
 $114.00  $15.00   60 
Second Quarter $39.00  $4.00   3,720 
Third Quarter $18.00  $13.00   1,060 
Fourth Quarter $19.90  $10.00   740 
 (1) On February 12, 2007, pursuant to the closing of an Exchange Transaction, New Motion (then called MPLC, Inc) acquired all of the outstanding voting securities of New Motion Mobile, Inc. (then called New Motion), which became MPLC’s wholly owned subsidiary.
        Average 
        Daily 
  High  Low  Volume 
Year Ended December 31, 2009:         
First Quarter  1.46   0.75   44,077 
Second Quarter  1.50   0.87   33,344 
Third Quarter  1.42   0.90   14,863 
Fourth Quarter  1.17   0.52   43,920 
             
Year Ended December 31, 2008:            
First Quarter  14.00   3.70   44,166 
Second Quarter  5.25   3.26   82,617 
Third Quarter  4.35   2.20   39,769 
Fourth Quarter  3.41   1.01   42,630 
 
As of March 12,26, 2009, there were approximately 146165 record holders of common stock. As of March 12,26, 2009, the closing sales price of our common stock as reported on the NASDAQ Global Market was $1.19$0.88 per share. Our transfer agent is American Stock Transfer & Trust Company and their phone number is (718) 921-8275.
 
Dividend Policy
 
We do not anticipate paying any dividends on our common stock for the foreseeable future. We intend to retain our future earnings to re-invest in our ongoing business. The declaration of cash dividends in the future will be determined by our board of directors based upon our earnings, financial condition, capital requirements and other relevant factors.
 
Recent Sales of Unregistered Securities
 
During the 20082009 fiscal year, other than as disclosed in our Quarterly Reports on Form 10-Q or on Form 8-K, as filed with the Securities and Exchange Commission, we did not sell unregistered securities.

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Common Stock Repurchases
On April 8, 2008, the Company’s Board of Directors authorized management to repurchase up to $10 million of common stock through May 31, 2009. The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements, and other factors, including management’s discretion. Repurchases may be made through privately negotiated transactions or in the open market. The Board of Directors of the Company may modify, extend, or terminate the share repurchase program at any time, and there is no guarantee of the exact number of shares that will be repurchased under the program. Repurchases will be funded from available working capital, and subject to other limitations.
During the year ended December 31, 2008, we repurchased an aggregate of 1,908,926 shares of our common stock at a cost of $4.05 million, at an average of $2.12 per share.
Issuer Purchases of Equity Securities 
  
(a) Total Number
Of Shares
 Purchased
  
(b) Average Price
Paid per Share
  
(c) Total Number
of Shares
Purchased as Part
Of Publicly
announced Plans
or Programs
  
(d) Approximate
Dollar Value of
Shares That May
Yet Be Purchased
Under Plans Or
Programs
 
Beginning balance April 8 , 2008          $10,000,000 
              
(April 8, 2008 to
June 30, 2008)
  232,300  $4.51   232,300  $8,953,282 
                 
(July 1, 2008 to
September 30, 2008)
  387,072  $3.96   387,072  $7,419,060 
                 
(October 1, 2008 to
October 31, 2008)
  248,100  $2.34   248,100  $6,838,506 
                 
(November 1, 2008 to
November 30, 2008)
  791,954  $0.63   791,954  $6,338,506 
                 
(December 1, 2008 to
December 31, 2008)
  249,500  $1.57   249,500  $5,946,791 
Total  1,908,926       1,908,926     
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ITEM 6. SELECTED FINANCIAL DATA
 
The following table sets forth certain information regarding our results of operations and financial position and is qualified in its entirety by the Consolidated Financial Statements and notes thereto, which appear elsewhere herein.Not required.
(In thousands except per share data) 
2008
  
2007
 
OPERATING RESULTS FOR YEAR ENDED DECEMBER 31:      
Net Revenue $113,884  $36,982 
Operating and Corporate Costs, Excluding Depreciation and Amortization, Goodwill Impairment, Stock based compensation  109,042   40,015 
Goodwill Impairment  114,783   - 
Depreciation and Amortization  5,867   1,349 
Stock based Compensation  1,282   1,117 
Operating (Loss) Income  (117,090)  (5,499)
Net (Loss) Income $(115,766) $(4,149)
         
(Loss) Income Per Basic Share         
Common stock $(5.43) $(0.37)
(Loss) Income Per Diluted Share         
Common stock $(5.43) $(0.37)
BALANCE SHEET DATA AT DECEMBER 31:      
(In thousands except per share data) 
2008
  
2007
 
Cash and cash equivalents  20,410   1,112 
Working Capital  23,683   14,041 
Property and Equipment  3,525   860 
Goodwill and Intangibles  23,583   599 
Total Shareholders’ Equity (Deficit)  54,389   16,582 

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

The following discussion and analysis should be read together with the Consolidated Financial Statements of New Motion,Atrinsic, Inc. and the “Notes to Consolidated Financial Statements” included elsewhere in this report.  This discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity and cash flows of New Motion,Atrinsic, Inc. for the fiscal years ended December 31, 20082009 and 2007.2008. Except for historical information, the matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond our control.
 
Executive Overview
 
New Motion, Inc., doing business as Atrinsic,As a direct to consumer Internet marketing company, our strategy is oneto maximize the value of each media impression by maximizing the revenue and profit from each visitor to our media network.  We do this by using proprietary technology to match each consumer touch point (visit, registration or lead submission) with the highest value offer or series of offers.  These offers are sourced from a large pool of advertisers or from our own portfolio of consumer subscription products.  We also engage in targeted performance marketing activities where we focus on acquiring customers for an advertiser on an exclusive basis.

Our premium subscription products, which are marketed directly to consumers, are an important component of the leading digital advertisingmaximization strategy.  By maintaining alternatives to third party offers, we are able to make use of a larger proportion of acquired Internet traffic and marketing services company inleads generated than would be the United States. Atrinsic is organized ascase with only third party advertisers’ offerings, since our owned products typically provide a single segment with two principal offerings: (1) Transactional services - offering full service online marketing and distribution services which are targeted and measurable online campaigns and programshigher effective value for marketing partners, corporate advertisers, or their agencies, generating qualified customer leads, online responses and activities, or increased brand recognition, and (2) Subscription  services - offering our portfolio of subscription  based content applications direct to users working with wireless carriers and other distributors.each media impression.

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Atrinsic brings together the power of the Internet, the latest in mobile technology, and traditional marketing/advertising methodologies, creating a fully integrated multi platform vehicle for the advanced generation of qualified leads monetized by the sale and distribution of subscription content, brand-based distribution and pay-for-performance advertising. Atrinsic’s service’s content is organized into four strategic content groups - digital music, casual games, interactive contests, and communities/lifestyles. The Atrinsic brands include GatorArcade, a premium online and mobile gaming site, Ringtone.com, a mobile music download service, and iMatchUp, one of the first integrated web-mobile dating services. Feature-rich Transactional advertising services include a mobile ad network, extensive search capabilities, email marketing, one of the largest and growing publisher networks, and proprietary subscription  content. Services are provided on a variety of pricing models including cost per action, fixed fee, or commission based arrangements.
New Motion, Inc. is operating under the trade name of Atrinsic and is in the process of formally changing its name. Our goal is to optimize revenues from each of our qualified leads, regardless of the nature of the services we provide to such parties. Over an extended period of time, our ability to generate incremental revenues relies on our ability to increase the size and scope of our media network, our ability to target campaigns, and our ability to convert qualified leads into appropriate revenue generating opportunities.opportunities, including into subscribers of our own products.  Revenue growth also depends on our ability to market and sell our services, including search services and lead generation activities, to third parties.

We combine our direct response capability with an Internet-based customer acquisition model, which allows us to use proprietary lead generation, search and email marketing strategies, to generate a greater volume of Internet traffic at a lower effective cost of acquisition.  Our success at acquiring qualified customers at a low effective cost is due, in part to our portfolio of attractive web properties, content and licensed media. This performance marketing media network ensures a continual base of subscribers to our subscription products, and also generates qualified traffic that is complementary to our third-party advertisers.

Our direct response marketing business principally serves two sets of customers. Corporate clients and third party advertisers (transactional services) use our products and services to enhance their online marketing programs.  Consumers (subscriptions) subscribe to our services to receive premium content on the Internet and on their mobile device. Each of these business activities – transactional and subscription – may utilize the same originating media or derive a customer from the same source; the difference is reflected in the type of customer billing.  In the case of transactional marketing services, the billing is generally carried out on a service fee, percentage, or on a performance basis. For subscription services, the end user (the consumer) is able to access premium content and in return is charged a recurring monthly fee to a credit card, mobile phone, or land-line phone.

In managing our business, we internally develop programming or partner with online content providers to match users with our service offerings and those of our advertising clients. Our continued success and prospects for growth are dependent on our ability to acquire content in a cost effective manner. Our results may also be impacted by overall economic conditions, trends in the online marketing and telecommunications industry, competition, and risks inherent in our customer database, including customer attrition.
There are a variety of factors that influence our revenues on a periodic basis including but not limited to: (1) economic conditions and the relative strengths and weakness of the U.S. economy; (2)economy, trends in the online marketing and telecommunications industry, including client spending patterns and their overall demand for our service offerings; (3) increases or decreases in our portfolio of service offerings; and (4)offerings, including the overall demand for such offerings, competitive and alternative programs and advertising mediums.mediums, and risks inherent in our customer database, including customer attrition.
 
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.ability to qualify, validate and enhance leads that we acquire.  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; (4) our ability to enhance the value of leads through validation and (4)traffic disaggregation; (5) matching leads to the highest relative value offer; and (6) the level of customization required by our clients.

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

STRATEGIC INITIATIVES
OurAs a growing part of our direct-to-consumer business, strategy involves increasing our overall scalethe Kazaa music service is an important focus for management.  The Kazaa digital music service is offered in conjunction with BDE, an online distributor of licensed digital content.  On March 26, 2010, we entered into a Marketing Services Agreement (the “Marketing Agreement”) and profitabilitya Master Services Agreement (the “Services Agreement”) with BDE effective as of July 1, 2009 (collectively, the “Agreements”), relating to the operation and marketing of the Kazaa digital music service.  The Agreements have a term of three years from the effective date, contain provisions for automatic one year renewals, subject to notice of non-renewal by offeringeither party, and may only be terminated generally upon a large number of diversified products through a unique distribution networkbankruptcy or liquidation event or in the most cost effective manner possible. To achieve this goal,event of an uncured material breach by either party.  In accordance with the Agreements, Atrinsic and BDE will share equally in the “Net Profit” generated by the Kazaa music subscription service after all of our costs and expenses are recovered.

Under the Marketing Agreement, we are pursuingresponsible for marketing, promotional, and advertising services in respect of the following objectives.Kazaa service.  In exchange for these marketing services, we will be reimbursed for the pre-approved costs and expenses incurred in connection with the provision of the services plus all other agreed budgeted amounts.  Pursuant to the Services Agreement, we are to provide services related to the operation of the Kazaa website and service, including billing and collection services and the operation of the Kazaa online storefront.  BDE is obligated to provide certain other services with respect to the service, including licensing the intellectual property underlying the Kazaa service to us, obtaining all licenses to the content offered as part of the service and delivering that content to the subscribers via the service interface.

As part of the Agreements, we are required to make advance payments and expenditures in respect of certain expenses incurred in order to provide the required services and operate the Kazaa music service.  These advances and expenditures are recoverable on a dollar for dollar basis against future revenues.  BDE has agreed to repay up to $2,500,000 of these advances and expenditures which are not otherwise recovered from Kazaa generated revenues and this repayment obligation will be secured under separate agreement.  Similarly, we are not obligated to make additional expenditures if more than $5,000,000 remains unrecovered or unrecouped by us from Kazaa revenues.

Business Strategy
 
Achieve Cross Media BenefitsTo become a leading direct to consumer Internet marketing company, our strategy is to continue to develop a broad marketing and media network that allows us to cost-efficiently acquire consumers for our subscription-based services and for our third-party lead generation activities.  We also must continually develop best in class service offerings for our clients in the area of search related services. One

Expand Online Distribution Capabilities: we consider our distribution capabilities as encompassing the various ways we generate Internet traffic by attracting users to various web properties and converting visitors into subscribers and third-party leads.  We employ a multifaceted approach to generating traffic: (i) users may navigate directly to our web properties, (ii) users respond to our email marketing, (iii) we garner users of our strategic objectivespromotional and sweepstakes sites, (iv) we attract users to our content sites by offering valuable media and other content, (v) we utilize call center technology in the acquisition process, and (vi) we use search engine optimization and search marketing efforts which attract users to our sites and services on a PPC-basis.  Our strategy is to leverageincrease our volume of visitors, subscribers, and third-party leads by improving the cross media benefit derived primarily from the combinationreach and widening our breadth of New Motion and Traffix which was consummated on February 4, 2008. Our premium-billed subscriptions allow us to integrate and to leverage online and mobile distribution channels to deliver compelling media and entertainment. The advantage of the fixed Internet is that from a marketing expense standpoint, the cost of customer acquisitions is generally determinable. In addition, the Internet is full of free content that is advertisement supported. The Internet also allows for the delivery of rich media over broadband. The advantage of mobile media is that it already has a well established customer activation and customer retention capability and is accessible and portable for those using it to access content. Our cross media strategy seamlessly enables our subscriber to realize true convergence. Atrinsic enables subscribers to interact with our content at work, at home or on a remote basis.
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Vertically Integrate and Expand Distribution Channels.distribution. We own a large library of wholly owned content, proprietary premium billed services, and our own media and distribution. By allocating a large proportion of the qualified leads acquired by our subscription properties to our owned marketing and distribution networks, we expect to generate cost savings through the eliminationdo this by increasing our portfolio of third-party margins. These cost savings are expectedweb properties and sites, and improving existing, or employing innovative techniques, to result insource traffic.  We expect that by expanding our online distribution capability, we will lower our 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.improving margins through greater scale.
Multiple Revenue Streams and Advertiser Network. Our merger with Traffix has allowed for a reduction in customer concentration and more diversification of the combined company’s revenue streams. We will continue to generate recurring revenue streams from a subscription -based model, which is targeted at end user mobile subscribers. We will also have the traditional revenue streams inherent in our online performance-based model, which is targeted to publishers and advertisers. Further revenue diversification is expected to result from our larger distribution reach, and our ability to generate ad revenue across the combined company’s portfolio of web properties.

Publish High-Quality, Branded Subscription Content.: As a direct to consumer Internet marketing company, we are focused on partnering with companies, and developing proprietary sources of content, for our direct to consumer subscription products.  We believe that publishing a diversified portfolio of the highest quality most innovative applicationscontent, like the Kazaa music service, is criticalimportant 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 and innovative products services and Internet storefronts. The U.S. consumer’s propensityservices.  We will focus on subscription based products in the entertainment and lifestyle categories as these products correspond to use the fixed Internet to acquire, redeem and use mobile subscription products is unique. In this regard, we aim to provide complementary services between these two high-growthvisitor base in our media channels. We also expect to continue to create Atrinsic-branded applications, products and services, which typically generate higher margins.network.

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Lead Generation Product Development:  In order to enhancebe competitive in the Atrinsicperformance marketing areas, companies must de-commoditize the leads they generate.  We are pursuing a number of value enhancing strategies to increase the marketability of our leads to third parties and to increase the conversion of leads into subscribers of our direct-to-consumer subscription services.  These innovations include ad units designed to drive direct telephone calls, where a call center operator will respond instantly to a user’s request for information and, in some instances, transfer the consumer directly to an advertiser.  We also actively increase the value of a consumer inquiry by validating the submission of online information through automated data lookups and validation, or through call center confirmation.  All of these lead value enhancement techniques assist us in increasing the average sales price of leads sold to our advertisers, or improves the conversion of users into subscribers to our direct-to-consumer subscription services and the corresponding increases in LTV that result from more highly qualified subscribers.

Multiple Billing Platforms:  As a direct result of being proficient in multiple billing platforms, we are able to create customer acquisition efficiencies because we can acquire direct subscribers and generate third-party leads.  This provides us with a competitive advantage over traditional direct response marketers, who may only offer a single billing modality – credit cards.  We have agreements through multiple aggregators who have access to U.S. carriers – both wireless and landline – for billing.  These relationships include our 36% interest in TBR, which is an aggregator of fixed-line billing.  In addition to agreements with aggregators, we also have an agreement in place with AT&T Wireless to distribute and bill for our services directly to subscribers on their network.  As a result of our multiple billing protocols, we are able to expand our potential customer base, attracting consumers who may prefer a different billing mechanism than is traditionally offered.  Many of our new product initiatives leverage and expand upon our alternative billing capabilities.

Online Marketing Services: In order to be competitive in the area of online marketing services, particularly in search related marketing services, we must continue to expand our staff and technology capabilities.  Our product offering will not remain competitive if we don’t offer our clients leading edge technology and strategies designed to drive their online sales efforts.  Adding more services revenue will involve prospecting a targeted set of clients who are natural consumers of our services.  Our initiatives include delivering an integrated suite of services, which include search engine marketing services, search engine optimization, display advertising, and affiliate marketing.  Our ability to integrate brand protection and competitive intelligence is a source of differentiation and growth for our product brands, we plan to continue building brands through productexisting and service quality, subscriber, customer and carrier support, advertising campaigns, public relations and other marketing efforts.new client base.

Technology: Through our use of technology, we attempt to display the highest value offer to the consumer.  On a real-time basis, our technology dynamically analyzes user data, media source, and estimated offer values and progressions to gauge which offer maximizes the value of the media impression.  If the user is “qualified,” we will expose one of our targeted consumer subscription offers.  In the event that the user does not correspond to our internal targeting criteria, the most profitable third-party offers will be displayed.  In every case, we are continually working on technology to improve targeting capability so as to maximize the value of each media impression.  We also employ proprietary technology which measures, in real time, the effectiveness of our media buying by media source.  This allows us to adjust marketing efforts immediately towards the most effective partners. These tools allow us to be more effective in our media buying, reducing our acquisition costs and improving convertibility and profitability.

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Results of Operations for the year ended December 31, 20082009 compared to the year ended December 31, 2007.2008.
 
Revenues presented by type of activity are as follows for the year ended December 31:

 For the Year  Change  Change 
 
For the Year
December 31
  
Change
Inc.(Dec.)
  
Change
Inc.(Dec.)
  December 31,  Inc.(Dec.)  Inc.(Dec.) 
 2008  2007  $   %  2009  2008  $  % 
                        
Subscription $44,196  $36,982  $7,214  20% $22,254  $44,196  $(21,942)  -50%
Transactional $69,688  $-  $69,688   100%  46,835   69,688   (22,853)  -33%
                            
Total Revenues (1) $113,884  $36,982  $76,902   208% $69,089  $113,884  $(44,795)  -39%
 
(1)As described above, the Companywe currently aggregatesaggregate revenues based on the type of user activity monetized. The company’sOur objective is to optimize total revenues from the user experiences. Accordingly, this factor should be considered in evaluating the relative revenues generated from our Subscription and Transactional Services.

Revenues increaseddecreased approximately by $76.9$44.8 million, or 208%39%, to $69.1 million for the year ended December 31, 2009, compared to $113.9 million for the year ended December 31, 2008, compared2008.

Subscription revenue consists of content applications billed direct to $37.0consumers via mobile or land based telephone lines or credit card.  These services are delivered through the Internet to PCs, or mobile phones, or through other Internet-connected devices.  Subscription revenue decreased by approximately $22.0 million, or 50%, to $22.2 million for the year ended December 31, 2007. Subscription based revenue increased by approximately $7.2 million, or 20%,2009, compared to $44.2 million for the year ended December 31, 2008, compared to $37.0 million for the year ended December 31, 2007.2008. The increasedecrease in subscription service revenue was principally attributable to an increasea decrease in the average number of billable subscribers during the period. At December 31, 2009 the number of subscribers was 338,000 compared to 501,000 at December 31, 2008.  This also compares to 346,000 subscribers at September 30, 2009.  The decrease in billable subscribers from a year ago was due primarily to a significant reduction in mobile customer acquisition rates, offset by approximately 70,000 net billable additions from the introduction of the Kazaa music subscription service.  Net billable additions refers to the number of subscribers added during the period, less attrition.  During 2009, we reduced our mobile marketing spends, which directly impacted customer acquisition rates. We elected to cut our mobile marketing spends because of the uncertain regulatory and our purchase of Ringtone.com, coupledlegal environment associated with our efforts to improve subscriber retention. Although we ended 2008 with approximately 501,000 subscribers as compared to approximately 840,000 subscribers at the end of 2007, during 2008 the average number of monthly billable subscribers was higher than in 2007marketing mobile subscription services and the number of subscribers increased disproportionally at the end of 2007. The number of subscribers is largely, but not precisely, correlateddue to the periodic reported revenues asless profitable economics – a result of inter-period volatilityhigher customer acquisition costs – of our mobile subscription service offerings.

Transactional revenue is derived from our online marketing and lead generation activities, 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. Transactional revenue decreased by approximately $22.9 million or 33% to $46.8 million for the circumstance that subscribers are billedyear ended December 31, 2009 compared to $69.7 million for the year ended December 31, 2008. The decrease is principally attributed to the reduction in discretionary advertising spending by our search customers.

We also experienced weakness in our marketing services and lead generation business, including a reduction in page views, site visits, and registrations, which manifested itself in lower revenue for these service lines on a monthlyyear-over-year basis.  As a result of the slow-down in economic activity in the United States during 2009, spending on advertising decreased markedly, leading to increased competition in the Internet marketing and lead generation markets which, in turn, created significant downward pricing pressure on our offerings and resulted in a lower volume of registrations and leads that could be sourced at an attractive price.

23
Transactional revenues increased by $69.7 million or 100% in 2008. The increase is attributable to the service offerings acquired in connection with our acquisition of Traffix, Inc which took place in February 4, 2008.
 
Operating Expenses
 
 
For the Year
December 31,
  
Change
Inc.(Dec.)
  
Change
Inc.(Dec.)
  For the Year  Change  Change 
 2008  2007  $  %  December 31,  Inc.(Dec.)  Inc.(Dec.) 
             2009  2008  $  % 
Operating Expenses                         
Cost of Media – 3rd party
 $74,541  $29,054  45,487  157% $43,313  $74,541  $(31,228)  -42%
Product and distribution 9,749  3,149  6,600  210%  10,559   9,749   810   8%
Selling and marketing 9,974  1,521  8,453  556%  8,386   9,974   (1,588)  -16%
General and administrative and other operating 16,060  7,408  8,652  117%
General, administrative and other operating  14,706   16,060   (1,354)  -8%
Depreciation and Amortization 5,867  1,349  4,518  335%  3,698   5,867   (2,169)  -37%
Impairment of goodwill  114,783   -   114,783   100%
Impairment of Goodwill and Intangible Assets  17,289   114,783   (97,494)  -85%
                                
Total Operating Expenses $230,974  $42,481  $ 188,493   444% $97,951  $230,974  $(133,023)  -58%

Cost of Media
 
Cost of Media increased– 3rd party decreased by $45.5$31.2 million to $43.3 million for the year ended December 31, 2009 from $74.5 million in 2008 from $29 million in 2007. For 2008,for the year ended December 31, 2008. Cost of Media – 3rd party includes media purchased for monetization of both transactional and subscription revenues. The increaseBecause of its strictly variable nature, this decrease was principally attributedproportionately correlated to the media necessarydecline in the related revenue.  As a percentage of revenue, Cost of Media -3rd party improved to source63% for the revenue acquiredyear ended December 31, 2009 from 65% for the year ended December 31, 2008.  This improvement in Cost of Media -3rd party margin is attributable to reductions in the pace of mobile customer acquisition, partially offset by increased search marketing spend associated with the acquisitionKazaa music subscription service. It is to be expected that for businesses with a significant recurring revenue component, if direct marketing expense is significantly curtailed, the business, as a result of Traffix, Inc. which took place February 4, 2008.the recurring nature of revenue generated by the subscription service, will exhibit a short term period of improved Cost of Media – 3 rd party margins.

Product and Distribution
 
Product and distribution expense increased by $6.6$0.8 million to $10.5 million in the year ended December 31, 2009 as compared to $9.7 million for the year ended December 31, 2008 compared to $3.1 million for the year ended December 31, 2007. The increase was principally attributed to the acquisition of Traffix, Inc. which took place February 4, 2008. Product and distribution expenses are costs necessary to develop and maintain proprietary content and support and maintain our websites and user data, technology platforms – which drivesdrive both our transactional and subscription based revenue.revenues.  In 2009, we experienced higher product and distribution expense as a result of costs incurred to further develop the Kazaa music service, greater royalty and license expense, also associated with Kazaa, and other general marketing and distribution technology-related expense.  These higher technology and royalty costs were offset by a reduction in product and distribution salary expense. Included in product and distribution cost is stock compensation expense of $6,593$111,000 and $288,443$7,000 for 2008the year ended December 31, 2009 and 20072008, respectively.

Selling and marketing
 
Selling and marketing expense increaseddecreased by $1.6 million to $8.4 million to $9.9 million in 2008the year ended December 31, 2009 as compared to $1.5$10.0 million for the year ended December 31, 2007.2008. The increasedecrease is primarily due to an increasea reduction in fixedsalaries and variable labor, principally attributed toother marketing costs, in accordance with the acquisitiondecrease in our revenue over the same period.  This decrease in selling and marketing expense was partially offset by higher customer service expense as a result of Traffix, Inc. which took place February 4, 2008. In addition, the company incurred approximately $2.2 million of bad debt expense in 2008new service offerings and none in 2007.call center activity.

General, Administrative and Other Operating
 
General and administrative expenses increaseddecreased by approximately $8.7$1.4 million to $14.7 million for the year ended December 31, 2009 compared to $16.1 million for the year ended December 31, 2008 compared to $7.4 million for the year ended December, 31, 2007.2008. The increasedecrease is due primarily due to an increasea reduction in labor and related costs, necessary to support core operations, professional and consulting fees, facilities and related costs, principally attributablepartially offset by an increase in Sarbanes Oxley consulting fees, legal expense and severance payments and accruals to the growth the company experienced as of result of the acquisition of Traffix, Inc. Management has taken action to achieve approximately $4.0 million of efficiencies resulting from the acquisition of Traffix, however the Company continuesformer executives. While we consider it important to make appropriate and modest investments in labor, facilities, technology infrastructure, and utilization of third party professional service providers to support itsour continued growth, business development, and corporate governance initiatives.initiatives, management has also made steps to reduce our overall cost structure as a result of the challenging and competitive business environment, and the associated decrease in revenue and unfavorable operating results we have experienced over the last year.  We continue to look for opportunities to leverage our existing infrastructure or to generate appropriate cost savings without affecting employee morale or jeopardizing business development opportunities. Included in general and administrative expense is severance of $1.1 million for the year ended December 31, 2009 and stock compensation expense of $0.7 million and $1.3 million for the year ended December 31, 2009 and $828,045 for 2008, and 2007 respectively.

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Depreciation and amortization
 
Depreciation and amortization expense increased $4.5decreased $2.2 million to $3.7 million for the year ended December 31, 2009 compared to $5.9 million for the year ended December 31, 2008 comparedprincipally as a result of a reduction in capital expenditure and a decrease of $1.4 million of Ringtone subscriber database amortization expense from 2008 to $1.3 million2009. The database was fully amortized by the second quarter of 2009.

Impairment of Goodwill and Intangible Assets
The Company conducts its annual impairment test in the fourth quarter of the year, unless an event occurs prior to the fourth quarter that would more likely than not reduce the fair value of the Company below its carrying amount. In connection with our annual goodwill impairment testing conducted in the fourth quarter, and for the year ended December 31, 2007 principally as the result of the amortization of intangible assets and depreciation of fixed assets acquired in connection with the acquisition of the Traffix, Inc. and Ringtone.com.
Impairment of Goodwill
In connection with its annual goodwill impairment testing for the year ended December 31, 2008, the Company2009, we determined there was impairment of the carrying value of goodwill and intangible assets and recorded a non-cash charge of $17.3 million compared to an impairment charge of $114.8 million.million in 2008. The goodwill and intangibles impairment, the majority of which is not deductible for income tax purposes, is primarily due to our declining market price, reduced expectations for future operating results and reduced valuation multiples. Such negative factors are reflected in our stock price and market capitalization.
 
Income (Loss)Loss from Operations
 
Operating loss increaseddecreased to approximately $117.0$28.9 million for the year ended December 31, 2008,2009 compared to an operating loss of $5.5$117.1 million for the year ended December 31, 2007. This increase was principally attributable to the $114.8 million charge for the impairment of goodwill taken during the fourth quarter of 2008. Excluding the charge foreffect of goodwill and intangibles impairment thein 2009 and 2008, operating loss for the year ended December 31, 2008 decreased $3.2 millionincreased to ($2.3) million compared to an operating loss of ($5.5)approximately $11.6 million for the year ended December 31, 2007. Management has taken action2009, compared to gain approximately $4.0$2.3 million for the year ended December 31, 2008. The higher operating loss is the result of efficiencies resulting from the acquisitionrevenue decrease, together with proportionately higher product and distribution expense, selling and marketing expense and general and administrative expense, offset by an improvement in the Cost of Traffix, however the Company continues to make appropriate and modest investments in labor, facilities, technology infrastructure, and utilization ofMedia – 3rd party professional service providers to support its continued growth, business development and corporate governance initiatives.margin.

Interest income and dividends

Interest and dividend income increased $284,000decreased approximately $676,000 to $72,000 for the year ended December 31, 2009, compared to $748,000 for the year ended December 31, 2008,2008. The reduction is mainly due to a decrease in the balances of cash and marketable securities at December 31, 2009 compared to $464,000 for the year ended December 31, 2007. The increase is primarily due to interest income earned2008, as well as a reduction in the rate of return on higher cash balances maintained throughout 2008, offset by lower rates, and interest and dividends earned on marketable securities.invested capital.

Interest expense
 
Interest expense increased $125,000was $76,000 for the year ended December 31, 2009 compared to $147,000 for the year ended December 31, 2008, compared to $22,000 for the year ended December 31, 2007.2008. The increaseinterest paid is primarily attributablerelated to interest expense of $90,000 on the note payable associated with the purchase of the assets ofto Ringtone .com.which was paid in January 2009.

Other Income (Expense)
 
Other expense increased $141,000 to $153,000income was $5,000 for the year ended December 31, 2008,2009 compared to $12,000other expense of ($153,000) for the year ended December 31, 2007.2008. The increase is primarily attributable2008 expense was due to a loss on the sale of marketable securities of $174,000.securities.
 
Income Taxes
 
Income tax benefitexpense (benefit), before noncontrolling interest and equity in income of investee, for the year ended December 31, 2009 and 2008 was $852,000$0.6 million and ($0.9) million, respectively and reflects an effective tax rate of 0.73%, which was2.2% and 0.7% respectively. The effective tax rates were computed taking into consideration the non-deductible impairment charge noted above,charges of $12.1 million and $114.8 million for 2009 and 2008, respectively, and the effectsestablishment of the merger with Traffix, Inc. which occurred on February 4, 2008,  and includes the resultan income tax valuation allowance of changes$11.0 million for 2009.

Equity in the weighted average statutory rate attributable to the additionLoss of certain local jurisdictions resulting from the merger, and certain adjustments realized in connection with the finalization of tax returns.Investee
 
MinorityEquity in income of investee was $59,000, net of taxes at December 31, 2009 and represents our 36% interest in The Billing Resource, LLC (TBR). We acquired the interest in TBR in the 4th Quarter 2008 and  the operating results were de minimis.

 
Minority interest represents the income allocable
25

Net Loss (Income) Attributable to the non-controlling interests and net incomeNoncontrolling Interest

Net loss attributable to the shareholders of the Company for itsnoncontrolling interest in MECC. Minority interestwas $28,000 for the year ended December 31, 2008 was $24,0002009 as compared to net income of ($283,000)24,000) for the year ended December 31, 2007.2008. This related to our investment in MECC which was dissolved in June 2009.
25

Net Loss Attributable to Atrinsic, Inc.

Net loss increasedattributable to Atrinsic Inc., decreased by $111.6$86.3 million to $29.5 million for the year ended December 31, 2009 as compared $115.8 million for the year ended December 31, 2008 as compared to a net loss of $4.1 million for2008. This decrease resulted from the year ended December 31, 2007. The increase is asfactors described above.

Liquidity and Capital Resources
 
The CompanyWe continually projectsproject anticipated cash requirements, which may include share repurchases, business combinations, capital expenditures, principal and interest payments on its outstanding and future indebtedness, and working capital requirements. Funding requirements have been financed through business combinations, cash flow from operations, issuance of preferred stock, option exercises and issuance of long-term debt. As of December 31, 2008, the Company2009, we had cash and cash equivalents of approximately $20.4$16.9 million marketable securitiesand working capital of approximately $4.2$15.3 million. We used approximately $3.0 million (including Auction Rated Securities of $4.0 million that was redeemed and converted toin cash at par plus interest in January 2009) and a working capital balance of approximately $23.7 million. The Company generated approximately $4.4 million fromfor operations for the year ended December 31, 20082009 and, expects to generate cash flows from operating activities prospectively, which, contingent on prospective operating performance, may require reductions in discretionary variable costs and other realignments to permanently reduce fixed operating costs.
In conjunction with We generated $2.4 million in cash from investing activities, principally from proceeds from sale of marketable securities and a distribution from The Billing Resource, offset by the Company’s objectiveinvestment in ShopIt. Cash used in financing activities was $2.8 million and was principally attributable to repayment of enhancing shareholder value, the Company’sRingtone note payable of $1.8 million and stock repurchases. Our Board of Directors authorized a share repurchase program.program which expired in May 2009. Under this share repurchase program the Companywe purchased 1,908,926832,392 shares of the Company’sour common stock for an aggregate price of approximately $4.05 million during the Fiscal 2008.$939,000.

The Company believesWe believe that itsour 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’sour future capital requirements will depend on many factors, including itsour results of operations. If the Company’sour cash flows from operations is less than anticipated or itsour working capital requirements or capital expenditures are greater than expectations, or if the Company expands itswe expand our business by acquiring or investing in additional products or technologies, itwe may need to secure additional debt or equity financing. The Company isWe are continually evaluating various financing strategies to be used to expand itsour business and fund future growth. There can be no assurance that additional debt or equity financing will be available on acceptable terms, itif at all. The potential inability to obtain additional debt or equity financing, if required, could have a material adverse effect on the Company’sour operations.
 
In connection with its investments as further described in footnote 14, the Company is obligated to fund investments totaling approximately $1.6 million in 2009. Furthermore, management anticipates the risk adjusted return is sufficiently in excess of the contributed capital obligations, as of this date.  There is however, no guarantee of the anticipated returns. In addition, management has taken considerable actions to secure its interest in achieving such a return.
Significant Estimates andCritical Accounting Policies and Estimates
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of all majority and wholly-owned subsidiaries and significant intercompany balances and transactions have been eliminated.
 
The equity method is used to account for investments in entities in which we have an ownership of less than 50% and have significant influence over the operating and financial policies of the affiliate. For investments in entities for which the company has a less than 50 percent ownership interest, but has certain participatory rights, the investee is consolidated.
 
Use of Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. Management continually evaluates its estimates and judgments including those related to allowances for doubtful accounts, and the associated allowances for returns and chargebacks, useful lives of property, plant and equipment and intangible assets, fair value of stock options granted, forfeiture rate of equity based compensation grants, probable losses associated with pre-acquisition contingencies, income taxes and other contingencies. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable in the circumstances. Actual results may differ from those estimates. Macroeconomic conditions may directly, or indirectly through our business partners and vendors, impact our financial performance and available resources. Such conditions may, in turn, impact the aforementioned estimates and assumptions. Management has discussed the development, selection and disclosure of these estimates and assumptions with the Audit Committee of the Board of Directors.

26

Accounts Receivable and Related Allowances
 
The Company maintains allowances for doubtful accounts for estimated losses which may result from the inability of its customers to make required payments. The Company bases its allowances on the likelihood of recoverability of accounts receivable by customer, based on past experience, the age of the accounts receivable balance, the credit quality of the Company’s customers, and, taking into account current collection trends. If specific customer circumstances change or industry trends worsen beyond the Company’s estimates, the Company would be required to increase its allowances for doubtful accounts. Alternatively, if trends improve beyond the Company’s estimates, the Company would be required to decrease its allowance for doubtful accounts. The Company’s estimates are reviewed periodically, and adjustments are reflected through bad debt expense in the period they become known. Changes in the Company’s bad debt experience can materially affect its results of operations.
 
The Company also makes estimates for refunds chargebacks or credits, and provides for these probable uncollectible amounts through a deferral and reduction of recorded revenues in the period for which the sale occurs, based on analyses of previous rates and trends.
 
Due to the payment terms of the carriers requiring in excess of 60 days from the date of billing or sale, at its sole discretion, the Company can elect to use trade discounts in order to facilitate quicker payment. This discount or fee allows for payments of approximately 80% of the prior month’s billings 15 to 20 days after the end of the month. The Company records revenue net of that fee, if incurred, which is 3.5% to 5% of the associated revenue.
 
Goodwill and Intangible Assets
 
Goodwill represents the excess of cost over fair value of net assets of businesses acquired. In accordance with ASC 350 formerly Statement of Financial Accounting Standards No. 142 (“SFAS 142”) “Goodwill and Other Intangible Assets”, the value assigned to goodwill and indefinite lived intangible assets is not amortized to expense, but rather it is evaluated at least on an annual basis to determine if there is a potential impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the reporting unit goodwill is less than the carrying value. If the fair value of an indefinite lived intangible is less than its carrying amount, an impairment loss is recorded. Fair value is determined based on discounted cash flows, market multiples or appraised values as appropriate. Discounted cash flow analysis requires assumptions about the timing and amount of future cash inflows and outflows, risk, the cost of capital, and terminal values. Each of these factors can significantly affect the value of the intangible asset. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s judgment. Any changes in key assumptions about the Company’s businesses and their prospects, or changes in market conditions, could result in an impairment charge. Some of the more significant estimates and assumptions inherent in the intangible asset valuation process include: the timing and amount of projected future cash flows; the discount rate selected to measure the risks inherent in the future cash flows; and the assessment of the asset’s life cycle and the competitive trends impacting the asset, including consideration of any technical, legal or regulatory trends.
 
The Company has determined that there was an impairment of the carrying value of  goodwill and non-amortizable intangible assets as a result of completing its annual impairment analysis as of December 31, 2008.2009. In performing the related valuation analysis the company used various valuation methodologies including probability weighted discounted cash flows, comparable transaction analysis, and market capitalization and comparable company multiple comparison. The results of this review and impact of the impairment are more fully described in Note 67 - “Goodwill and Intangible Assets”.
 
Intangible assets subject to amortization primarily consist of customer lists, trade names and trademarks, and restrictive covenants that were acquired.  The intangible asset values assigned to the identified assets for each acquisition were generally determined based upon the expected discounted aggregate cash flows to be derived over the estimated useful life. The method of amortizing the intangible asset values reflects, based upon the Company’s historical experience, an accelerated rate of attrition in the subscriber database based over the expected life of the underlying subscriber database after considering turnover.  Accordingly, the Company amortizes the value assigned to subscriber database based on the actual depletion of the acquired subscriber database. The Company reviews the recoverability of its finite-lived intangible assets for recoverability whenever events or circumstances indicated that the carrying amount of an asset may not be recoverable. Recoverability is assessed by comparison to associated undiscounted cash flows. In the fourth quarter of 2009, and prior to ASC 350 evaluation, the Company recognized an impairment of $2.1 million under ASC 360.
27
Stock-Based Compensation
 
The Company records stock based compensation in accordance with ASC 718 formerly Financial Accounting Standard Board Statement of Financial Accounting Standards No. 123 (revised 2004). In estimating the grant date fair value at stock option awards and performance based restricted stock, we use certainthe Black Scholes option pricing model and other binomial pricing models where appropriate. The key assumptions and estimatesfor these models to derive fair value such asinclude expected term, rate of risk free returns and volatility. If different assumptions and estimates were used, the amounts charged to compensation expense would be different.

27

Revenue Recognition
 
The Company monetizes a portion of its user activities through subscription based sources by providing on-going monthly access to and usage of premium products and services.  In general, customers are billed at standard rates, at the beginning of the month, and revenues are recognized upon receipt of information confirming an arrangement. The Company estimates a provision for refunds and credits which is recorded as a reduction to revenues. In determining the estimate for refunds and credits, the Company relies upon historical data, contract information and other factors. The estimated provision for refunds can vary from actual results.
 
The Company effectuates this type ofits subscription revenues through a carrier or distributors who are paid a transaction fee for their services.  In accordance with ASC 605 formerly Emerging Issues Task Force (“EITF” No 99-19) “Reporting Revenues Gross as Principal Versus Net as an Agent”, the Company recognizes as revenues the net amount received from the carrier or distributor, net of their fee.  Revenues are deferred if the probability of collection is not reasonably assured.
 
The Company monetizes a portion of its user activities through transactional based services generated primarily from (a) fees earned, primarily on a CPCCost Per Click basis, from search syndication services; (b) commission fees earned for the Company's search engine marketing ("SEM") services; (c) commission fees earned from marketing service arrangements associated with our affiliate marketing partners; and (d)(c) other fees for marketing services including data and list management services, which can be either periodic or transactional. Commission fee revenue is recognized in the period that the Company's advertiser customer generates a sale or other agreed-upon action on the Company's affiliate marketing networks or as a result of the Company's SEM services, provided that no significant Company obligations remain, collection of the resulting receivable is reasonably assured, and the fees are fixed or determinable. All transaction services revenues are recognized on a gross basis in accordance with the provisions of EITF 99-19, due to the fact that the Company is the primary obligor and bears all credit risk to its customer, and publisher expenses that are directly related to a revenue-generating event are recorded as a component of 3rd part Media Cost.
 
Income Taxes
 
The Company uses the asset and liability method of financial accounting and reporting for income taxes required by ASC 740 formerly Statement of Financial Accounting Standards No. 109 (“SFAS 109”), “Accounting for Income Taxes”. Under SFAS 109,ASC 740, deferred income taxes reflect the tax impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes.

We maintain valuation allowances where it is more likely than not that all or a portion of  a deferred tax asset will not be realized.
 
Effective January 1, 2007, the Company adopted FIN No. 48, “Accounting for Uncertainty in Income Taxes” subsequently codified under ASC 740-10-25 which resulted in no material adjustment in the liability for unrecognized tax benefits. The Company classifies interest expense and penalties related to unrecognized tax benefits as income tax expense. FIN 48ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109ASC 740 and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The evaluation of a tax position in accordance with this Interpretation is a two-step process. The first step is recognition, in which the enterprise determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step is measurement. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements.

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The Company and its subsidiaries file income tax returns in the U.S and Canada. The Company is subject to U.S., Australian (prior years filing)federal,  state and Canadian federal and state examinations. The statute of limitations for 20072008 and 20082009 in all jurisdictions remains open and are subject to examination by tax authorities.
 
Contractual Obligations and Off-Balance Sheet Arrangements
 
At December 31, 2008,2009, the Company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, the Company is not exposed to any financing, liquidity, market or credit risk that could arise if it had engaged in such relationships.

28
 
The following table shows the Company’s future commitments for future minimum lease payments required under operating leases that have remaining non cancellable lease terms in excess of one year, future commitments under investment and marketing agreements and future commitments under employment agreements and note and interest payable as of December 31, 2008:2009:

 
Operating
Leases
  
Employment
Agreements
  
Investments &
Marketing
Advances
  
Note and
Interest
payable
  
Total
Obligations
  Operating  Employment  Total 
2009 $1,502  $1,333  $1,570  $1,925  $6,330 
(in thousands) Leases  Agreements  Obligations 
2010 1,246  1,250  -  -  $2,496  $1,165  $717  $1,882 
2011 1,184  271  -  -  $1,455   1,127   135   1,262 
2012 and thereafter  5,912   -   -   -  $5,912 
2012  886   -   886 
2013  936   -   936 
2014  987   -   987 
2015 and thereafter  3,618   -   3,618 
 $9,844  $2,854  $1,570  $1,925  $16,193             
 $8,719  $852  $9,571 
In certain situations, the Company does have minimum fee obligations assuming the counterparty performs the required level of services. We feel that the level of business activity under normal and ordinary circumstances exceeds the minimum thresholds. Therefore, the amounts are not included in the table above.

Recent Accounting Pronouncements

Adopted in 2009

In August 2009, the FASB issued ASU 2009-05 “Measuring Liabilities at Fair Value” (“ASC 820-10”). ASC 820-10 is effective for interim and annual reporting periods beginning after August 27, 2009.  It clarifies the application of certain valuation techniques in circumstances in which a quoted price in an active market for the identical liability is not available and clarifies that when estimating the fair value of a liability, the fair value is not adjusted to reflect the impact of contractual restrictions that prevent its transfer.  We adopted ASC 820-10 for the year ended December 31, 2009 and it did not have a material impact on our consolidated financial statements.

In the third quarter of 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The ASC is the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the Securities and Exchange Commission (SEC).  The adoption of the ASC did not have an impact on the Company’s results of operations or financial position.

In June 2009, the FASB issued SFAS No. 165, “Subsequent Events”, which has been superseded by the FASB codification and included in ASC 855-10.  ASC 855-10 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  The effective date of ASC 855-10 is interim or annual financial periods ending after June 15, 2009.  The adoption of ASC 855-10 did not have a material effect on the Company’s consolidated financial statements.
 
In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” EITF 03-6-1Securities” which has been superseded by the FASB codification ASC 260-10 gives guidance as to the circumstances when unvested share-based payment awards should be included in the computation of EPS. EITF 03-6-1ASC 260-10 is effective for fiscal years beginning after December 15, 2008. We are currently assessing the impactThe adoption of EITF 03-6-1 on our consolidated financial statements.
In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162 ("SFAS 162"), The Hierarchy of Generally Accepted Accounting Principles. This statement identifies the sources of accounting principles and the framework for selecting the principles used in preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. GAAP. This statement is effective November 15, 2008. The Company will adopt SFAS 162 as required, and its adoption isASC 260-10 did not expected to have an impact on the consolidated financial statements.
In April 2008, the FASB issued FASB Staff Position No. FSP 142-3, “Determining the Useful Life of Intangible Assets” FSP 142-3 amends the factors to be considered in determining the useful life of intangible assets. Its intent is to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure its fair value. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. We are currently assessing the impact of FSP 142-3 on our consolidatedCompany’s financial statements.
29

 
In March 2008, the FASB issued SFAS No. 161, “Disclosure about Derivative Instruments and Hedging Activities,” an amendment of FASB Statement No. 133. SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement No. 133 and its related interpretations and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently evaluating the impact SFAS No. 161 may have its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” which we refer to as SFAS No. 160. SFAS No. 160 establishes requirements for ownership interests in subsidiaries held by parties other than us (minority interests) be clearly identified and disclosed in the consolidated statement of financial position within equity, but separate from the parent's equity. Any changes in the parent's ownership interests are required to be accounted for in a consistent manner as equity transactions and any noncontrolling equity investments in deconsolidated subsidiaries must be measured initially at fair value. SFAS No. 160 is effective, on a prospective basis, for fiscal years beginning after December 15, 2008; however, presentation and disclosure requirements must be retrospectively applied to comparative financial statements. The Company will adopt SFAS No. 160 in our fiscal year ending December 31, 2009. However, the Company is currently evaluating the impact of SFAS No. 160 may have its consolidated financial statements.
On February 12, 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 157-2, “Effective Date of SFAS No. 157,” which defers the effective date of SFAS 157 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. This FSP delayed the implementation of SFAS 157 for the Company’s accounting of goodwill, acquired intangibles, and other nonfinancial assets and liabilities that are measured at the lower of cost or market until January 1, 2009.
In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141Rwhich has been superseded the FASB codification and included in ASC 805. ASC 805 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 141RASC 805 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 141RASC 805 transaction-related expenses, which were previously capitalized, will be expensed as incurred. The adoption of ASC 805 did not have a material effect on our results of operations or financial position.

29

In FebruaryDecember 2007, the FASB issued SFAS No. 159, The Fair Value Option160, “Noncontrolling Interests in Consolidated Financial Statements,” which has been superseded by the FASB codification and included in ASC 810-10-65-1 and establishes requirements for Financial Assetsownership interests in subsidiaries held by parties other than us (minority interests) be clearly identified and Financial Liabilities (“SFAS 159”), which gives companiesdisclosed in the option to measure eligibleconsolidated statement of financial assets, financial liabilities and firm commitments at fair value (i.e.,position within equity, but separate from the fair value option), on an instrument-by-instrument basis, thatparent's equity. Any changes in the parent's ownership interests are otherwise not permittedrequired to be accounted for in a consistent manner as equity transactions and any noncontrolling equity investments in deconsolidated subsidiaries must be measured initially at fair value under other accounting standards. The election to use the fair value optionvalue. ASC 810-10-65-1 is available when an entity first recognizeseffective, on a financial asset or liability or upon entering into a firm commitment. Subsequent changes in fair valueprospective basis, for fiscal years beginning after December 15, 2008; however, presentation and disclosure requirements must be recordedretrospectively applied to comparative financial statements. Except for presentation and disclosure requirements, the adoption of ASC 810-10-65-1 had no material impact on the Company’s financial statements.

Not Yet Adopted

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS No. 167”) which has been superseded by the FASB Codification and included in earnings. SFAS 159 isASC 810 to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as one with the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity that could potentially be significant to the variable interest. These revisions to ASC 810 will be effective for financial statements issued for fiscal yearas of the beginning of the annual reporting period commencing after November 15, 2007. The Company elected not to adopt the provisions of SFAS 159 for its financial instruments that are not required to2009 and will be measured at fair value.
Acquisitions
On February 4, 2008, New Motion completed its merger with Traffix, Inc. (“Traffix”); a performance based online marketing company, pursuant to a merger agreement entered intoadopted by the companies on September 26, 2007. As a result of the closing of the transaction, Traffix became a wholly owned subsidiary of New Motion. Immediately following the consummation of the merger, Traffix stockholders owned approximately 45% of the capital stock of New Motion, on a fully-diluted basis. Each issued and outstanding share of Traffix common stock was converted into the right to receive approximately 0.676 shares of New Motion common stock based on the capitalization of both companies on the closing date of the merger. Effective the date of the close of the merger, New Motion commenced trading on The NASDAQ Global Market under the symbol “NWMO.”
30
On June 30, 2008, New Motion entered into an Asset Purchase Agreement with Ringtone.com, LLC, a Minnesota limited liability company and W3i Holdings LLC, a Minnesota limited liability company and the sole member of Ringtone.com. In consideration for the assets, the Company at the closing paid to Ringtone.com $7 million in cash. In addition, the Company delivered to Ringtone.com a convertible promissory note (the “Note”) in the aggregate principal amountfirst quarter of $1.75 million, which accrues interest at2010. We do not believe that the adoption of these revisions to ASC 810 will have a rate of 10% per annum (provided that from and after an event of default, the Note will bear interest at a rate of 15% per annum).
See Note 4material impact to the consolidated financial statements for a more detailed description of the Traffix and Ringtone.com acquisitions.
Pro Forma Financial Data
As more fully described in Note 4 to the consolidated financial statements, New Motion acquired all of the outstanding common shares of Traffix in accordance with the merger agreement as well as certain assets and liabilities of Ringtone.com, LLC in accordance with the asset purchase agreement. The following unaudited pro formaour results of operations are based on the historical statements of operations of New Motion,  Traffix and Ringtone.com, LLC, after giving effect to the acquisition of Traffix by New Motion, using the purchase method of accounting and applying the assumptions and adjustments described in the related discussion below.
The pro forma combined statement of operations for the year ended December 31, 2008 is presented as if the acquisitions of Traffix and Ringtone.com had occurred on January 1, 2008. You should read this information in conjunction with the accompanying notes to the consolidated financial statements included herewith.
The pro forma information presented is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisitions had been completed on the dates indicated, nor is it indicative of future operating results or financial position.
 
Financial statements of New Motion issued after the acquisitions reflects only the operations of TraffixIn October 2009, FASB approved for issuance Emerging Issues Task Force (EITF) issue 08-01, Revenue Arrangements with Multiple Deliverables which has been superseded by FASB codification and Ringtone.com after the acquisitions and have not been restated retroactively to reflect the historical financial position or results of operations of Traffix and Ringtone.com.
Traffix and Ringtone results of operations are derived from the unaudited management accounts of Traffix and Ringtone for the period from January 1, 2008 to February 3, 2008 and the period from January 1, 2008 to June 30, 2008, respectively.
UNAUDITED PRO FORMA RESULTS OF OPERATIONS
For The Year Ended December 31, 2008
(Dollars in thousands, except per share data)
  New Motion  Traffix  
Acquisition
Adjustments
  
Total
Traffix
  Ringtone  
Acquisition
Adjustments
  
Total
Ringtone
  
Combined
Pro Forma
 
                              
Net revenue-Subscription $44,196           $7,278  $(310)(g) $6,968  $51,164 
Net revenue-Transactional  69,688   10,637   (3,068)(a)  7,569       -   -   77,257 
TOTAL REVENUE  113,884   10,637   (3,068)  7,569   7,278   (310)  6,968   128,421 
                                 
EXPENSES                                
Cost of revenues-third party  74,541   7,441   (310)(b)  7,131   5,675   (1,107)(h)  4,568   86,240 
Product and  distribution  9,749       -   -       -   -   9,749 
Selling and marketing  9,974   266   (1,961)(c)  (1,695)      -   -   8,279 
General and administrative  16,060   1,596   (560)(d)  1,036   669   -   669   17,765 
Depreciation and amortization  5,867   96   275(e)  371   54   14(e)  68   6,306 
Impairment of goodwill  114,783   -   -   -   -   -   -   114,783 
   230,974   9,399   (2,556)  6,843   6,398   (1,093)  5,305   243,122 
(LOSS) FROM OPERATIONS  (117,090)  1,238   (512)  726   880   783   1,663   (114,701)
                                 
OTHER EXPENSE (INCOME)                                
                                 
Interest income and dividends  (748)      -   -   -   -   -   (748)
Interest expense  147       -   -   -   -   -   147 
Other income/expenses  153       28   28   -   -   -   181 
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES $(116,642) $1,238  $(540) $698  $880  $783  $1,663  $(114,281)
                                 
INCOME TAXES  (852)  551   (551)(f)  -   -   -   -   (852)
                               - 
(LOSS) INCOME BEFORE MINORITY INTEREST  (115,790)  687   11   698   880   783   1,663   (113,429)
                                 
MINORITY INTEREST, NET OF PROVISION FOR INCOME  (24)      -   -   -   -   -   (24)
                                      - 
NET INCOME $(115,766) $687  $11  $698  $880  $783  $1,663  $(113,405) 
31
Pro Forma Adjustments
The following pro forma adjustments are included in ASC 605-25. This statement provides principles for allocation of consideration among its multiple-elements, allowing more flexibility in identifying and accounting for separate deliverables under an arrangement. The EITF introduces an estimated selling price method for valuing the unaudited pro forma consolidated statementelements of operations:a bundled arrangement if vendor-specific objective evidence or third-party evidence of selling price is not available, and significantly expands related disclosure requirements. This standard is effective on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Alternatively, adoption may be on a retrospective basis, and early application is permitted. The Company is currently evaluating the impact of adopting this pronouncement.

(a)    Adjustments to sales:   
    
 To eliminate Traffix sales made to New Motion $(1,961)
     
 To eliminate Traffix sales made to Ringtone $(1,107)
     
(b)    Adjustments to cost of revenue-third party:    
     
 To eliminate Traffix expense paid to Ringtone $(310)
     
(c)    Adjustments to sales and marketing:    
     
 To eliminate New Motion expense paid to Traffix $(1,961)
     
(d)   Adjustments to general and administrative:    
     
 To adjust for various acquisition cost related to the merger of Traffix $(560)
     
(e)    Adjustments to depreciation and amortization:    
      
To record additional amortization related to intangibles recorded in $14 
purchase accounting to reflect such amounts from January 1, 2008 to the
respective date of acquisition.
 $275 
     
(f)    Adjustments to income taxes:    
     
To eliminate Traffix tax expense which is now reflected in New Motion $(551)
     
(g)   Adjustments to sales:    
     
 To eliminate Ringtone sales made to Traffix $(310)
     
(h)   Adjustments to cost of revenue-third party:
    
     
To eliminate Ringtone expense paid to Traffix $(1,107)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not applicable.required. 

3230

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
ReportsReport of Independent Registered Public Accounting FirmsFirm  F-1 
     
Consolidated Balance Sheets  F-3F-2 
     
Consolidated Statements of Operations  F-4F-3 
     
Consolidated Statements of Comprehensive Income (Loss)Loss  F-5F-4 
     
Consolidated Statement of Stockholders’ Equity  F-6F-5 
     
Consolidated Statements of Cash Flows  F-7F-6 
     
Notes to the Consolidated Financial Statements  F-8F-7 – F-28F-29 

3331
 
Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
New Motion,Atrinsic, Inc.:
 
We have audited the accompanying consolidated balance sheetsheets of New Motion,Atrinsic, Inc. and subsidiaries, as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity, comprehensive loss, and cash flows for each of the yearyears in the two-year period ended December 31, 2008.2009. These consolidated financial statements are the responsibility of the New Motion, Inc.’sCompany’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audit.audits.
 
We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit providesaudits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Motion,Atrinsic, Inc. and subsidiaries as of December 31, 2009 and 2008 and the results of their operations and their cash flows for each of the year thenyears in the two-year period ended December 31, 2009 in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

New York, New York
March 26, 200930, 2010 

F-1

Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of New Motion, Inc.
We have audited the accompanying consolidated balance sheet of New Motion, Inc. and consolidated variable interest entity as of December 31, 2007, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the year ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Motion, Inc. and consolidated variable interest entity as of December 31, 2007, and the results of their operations and their cash flows for the year ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.
/s/ Windes & McClaughry
Windes & McClaughry Accountancy Corporation
Irvine, California
March 26, 2008
F-2
NEW MOTION,ATRINSIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Years EndedAs of December 31,
(Dollars in thousands, except per share data)

  2009  2008 
ASSETS      
Current Assets      
Cash and cash equivalents $16,913  $20,410 
Marketable securities  -   4,245 
Accounts receivable, net of allowance for doubtful accounts of $4,295 and $2,938  7,985   16,790 
Income tax receivable  4,373   2,666 
Prepaid expenses and other current assets  2,643   3,686 
         
Total Currents Assets  31,914   47,797 
         
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1,078 and $1,435  3,553   3,525 
GOODWILL  -   11,075 
INTANGIBLE ASSETS, net of accumulated amortization of $8,605 and $5,683  7,253   12,508 
DEFERRED INCOME TAXES  -   778 
INVESTMENTS, ADVANCES AND OTHER ASSETS  1,878   3,080 
         
TOTAL ASSETS $44,598  $78,763 
LIABILITIES AND EQUITY        
Current Liabilities        
Accounts payable $6,257  $7,194 
Accrued expenses  9,584   13,941 
Note payable  -   1,858 
Deferred revenues and other current liabilities  725   152 
         
Total Current Liabilities  16,566   23,145 
         
DEFERRED TAX LIABILITY, NET  1,697   - 
OTHER LONG TERM LIABILITIES  988   969 
         
TOTAL LIABILITIES $19,251  $24,114 
         
COMMITMENTS AND CONTINGENCIES (see note 14)        
   -   - 
STOCKHOLDERS' EQUITY        
Common stock - par value $.01, 100,000,000 authorized, 23,583,581 and 22,992,280 shares issued at 2009 and 2008, respectively; and, 20,842,263 and 21,083,354 shares outstanding at 2009 and 2008, respectively. $236  $230 
Additional paid-in capital  178,442   177,347 
Accumulated other comprehensive loss  (20)  (286)
Common stock, held in treasury, at cost, 2,741,318 and 1,908,926 shares at 2009 and 2008, respectively.  (4,992)  (4,053)
Accumulated deficit  (148,319)  (118,849)
         
Total Stockholders' Equity  25,347   54,389 
         
NONCONTROLLING INTEREST  -   260 
         
TOTAL EQUITY  25,347   54,649 
         
TOTAL LIABILITIES AND EQUITY $44,598  $78,763 

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

F-2

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

  2008  2007 
ASSETS      
Current Assets      
Cash and cash equivalents $20,410  $1,112 
Marketable securities  4,245   9,338 
Accounts receivable, net of allowance for doubtful accounts of $2,938 and $565  16,790   8,389 
Income tax receivable  2,666   - 
Prepaid expenses and other current assets  3,686   2,278 
             
Total Currents Assets  47,797   21,117 
         
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1,435 and $294  3,525   860 
GOODWILL  11,075   - 
INTANGIBLES ASSETS, net of accumulated amortization of $5,683 and $941  12,508   599 
INVESTMENTS AND OTHER ADVANCES  2,519   - 
DEPOSITS AND OTHER ASSETS  1,339   1,387 
         
TOTAL ASSETS $78,763  $23,963 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
Current Liabilities        
Accounts payable $7,194  $3,257 
Accrued expenses  12,340   3,720 
Short-term note payable  1,858   - 
Merger related accrual  1,601   - 
Deferred revenue  152   - 
Other current liabilities  969   99 
Total Current Liabilities  24,114   7,076 
Long Term note payable  -   22 
         
MINORITY INTERESTS  260   283 
         
COMMITMENTS AND CONTINGENCIES (See Note 14)
  -   - 
         
STOCKHOLDERS' EQUITY        
         
Common stock - par value $.01, 100,000,000 authorized, 22,992,280 and 12,021,184 shares issued at 2008 and 2007, respectively; and, 21,083,354 and 12,021,184 shares outstanding at 2008 and 2007, respectively.  230   120 
Additional paid-in capital  177,347   19,583 
Accumulated other comprehensive loss  (286)  (38)
Common stock, held in treasury, at cost, 1,908,926 shares  (4,053)  - 
Accumulated deficit  (118,849)  (3,083)
Total Stockholders' Equity  54,389   16,582 
         
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $78,763  $23,963 
  2009  2008 
       
Subscription $22,254  $44,196 
Transactional  46,835   69,688 
         
REVENUE  69,089   113,884 
         
OPERATING EXPENSES        
Cost of media-third party  43,313   74,541 
Product and distribution  10,559   9,749 
Selling and marketing  8,386   9,974 
General, administrative and other operating  14,706   16,060 
Depreciation and amortization  3,698   5,867 
Impairment of Goodwill and Intangible Assets  17,289   114,783 
         
   97,951   230,974 
         
LOSS FROM OPERATIONS  (28,862)  (117,090)
         
OTHER (INCOME) EXPENSE        
Interest income and dividends  (72)  (748)
Interest expense  76   147 
Other (income) expense  (5)  153 
         
   (1)  (448)
         
LOSS BEFORE TAXES AND EQUITY IN LOSS OF INVESTEE  (28,861)  (116,642)
         
INCOME TAXES  640   (852)
         
EQUITY IN INCOME OF INVESTEE, AFTER TAX  (59)  - 
         
NET LOSS  (29,442)  (115,790)
         
LESS: NET  LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTEREST,  AFTER TAX  28   (24)
         
NET LOSS ATTRIBUTABLE TO ATRINSIC, INC $(29,470) $(115,766)
         
NET LOSS PER SHARE ATTRIBUTABLE TO ATRINSIC COMMON STOCKHOLDERS        
Basic $(1.43) $(5.43)
Diluted $(1.43) $(5.43)
         
WEIGHTED AVERAGE SHARES OUTSTANDING:        
Basic  20,648,929   21,320,638 
Diluted  20,648,929   21,320,638 

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

F-3
NEW MOTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
(Dollars in thousands, except per share data)

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

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

F-4
 
NEW MOTION,ATRINSIC, INC. AND SUBSIDIARYSUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Years Ended December 31,
(Dollars in thousands, except per share data)

  2008  2007 
NET LOSS $(115,766) $(4,149)
         
OTHER COMPREHENSIVE LOSS, NET OF TAX:        
Unrealized gain (loss) on available-for-sale securities  38   (38)
Net Currency translation adjustment  (286)  - 
         
COMPREHENSIVE LOSS $(116,014) $(4,187)
The accompanying notes are an integral part of these consolidated statements.

F-5

NEW MOTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Two Years Ended December 31,
(Dollars in thousands, except per share data)

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

  2008  
2007
 
       
Cash Flows From Operating Activities      
Net loss $(115,766) $(4,149)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:        
Allowance for doubtful accounts  2,152   (698)
Depreciation and amortization  5,867   1,349 
Impairment of goodwill  114,783   - 
Stock-based compensation expense  1,282   1,117 
Excess tax benefit from share-based compensation  (1,017)  - 
Net losses on sale of marketable securities  175   - 
Deferred income taxes  (2,345)  (1,149)
Minority interest in net loss on consolidated joint venture  (24)  283 
         
Changes in operating assets and liabilities of business, net of acquisitions:        
Accounts receivable  4,532   (4,164)
Prepaid income tax  (2,464)  (202)
Prepaid expenses and other current assets  1,152   (880)
Accounts payable  (3,205)  387 
Other, principally accrued expenses  (767)  2,896 
Net cash provided by (used in) operating activities  4,355   (5,210)
         
Cash Flows From Investing Activities        
Purchases of securities  (6,577)  (16,000)
Proceeds from sales of securities  24,708   6,600 
Cash acquired in business combinations  11,212   - 
Cash paid for business combinations  (7,030)  (2,018)
Capital expenditures  (2,029)  (266)
Cash paid for investments and other advances  (2,519)  - 
Net cash provided by (used in) investing activities  17,765   (11,684)
         
Cash Flows From Financing Activities        
Repayments of notes payable  (111)  (597)
Expenditures for equity financing  -   (469)
Issuance of warrants  -   57 
Issuance of stock  -   18,461 
Line of credit  -   10 
Excess tax benefit on share-based compensation  1,017   - 
Purchase of common stock held in treasury  (4,053)  - 
Proceeds from exercise of options  343   - 
Net cash (used in) provided by financing activities  (2,804)  17,462 
         
Effect of exchange rate changes on cash and cash equivalents  (18)  - 
         
Net Increase In Cash and Cash Equivalents  19,298   568 
Cash and Cash Equivalents at Beginning of Year  1,112   544 
Cash and Cash Equivalents at End of Year $20,410  $1,112 
         
SUPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION        
Cash paid for interest $(35) $(22)
Cash (paid) refunded for taxes $(2,620) $145 
Non-Cash financing and investing disclosure        
Acquisition of intangibles assets by issuance of note payable $1,750  $(580)
Acquisition of equipment by issuance of note payable $-  $(708)
Extinguishment of note payable and accrued interest upon conversion of note into common stock $-  $593 
Common stock issued in connection with business combination $ 155,232   - 
  2009  2008 
NET LOSS $(29,442) $(115,790)
         
OTHER COMPREHENSIVE LOSS, NET OF TAX:        
Unrealized gain on available-for-sale securities  -   38 
Net Currency translation adjustment  267   (287)
         
Total Other Comprehensive loss, Net of Tax $(29,175) $(116,039)
Comprehensive loss attributable to noncontrolling interest  (28) $24 
         
Comprehensive loss attributable to Atrinsic, Inc $(29,147) $(116,063)

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

F-7F-4
 
ATRINSIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
Years Ended December 31,
(Dollars in thousands, except per share data)

           Accumulated          
     Additional     Other          
  
Common Stock
  Paid-In  (Accumulated  Comprehensive  
Treasury Stock
  Noncontrolling  Total 
  
Shares
  
Amount
  
Capital
  
Deficit)
  
Loss
  
Shares
  
Amount
  
Interest
  
Equity
 
                            
Balance at January 1, 2008  12,021,184  $120  $19,583  $(3,083) $(38)  -  $-  $283   16,865 
Net loss  -   -   -   (115,766)  -   -   -   (23)  (115,789)
 Unrealized loss on investments  -   -   -   -   38   -   -   -   38 
Foreign currency translation adjustment  -   -   -   -   (287)  -   -   -   (287)
Stock based compensation expense  -   -   1,282   -   -   -   -   -   1,282 
Exercise of stock options  561,738   6   337   -   -   -   -   -   343 
Excess tax benefit on share-based compensation  -   -   1,017   -   -   -   -   -   1,017 
Purchase of common stock, at cost  -   -   -   -   -   1,908,926   (4,053)  -   (4,053)
Common stock issued in connection with business combination  10,409,358   104   155,128   -   -   -   -   -   155,232 
                                     
Balance at December 31, 2008  22,992,280  $230  $177,347  $(118,849) $(287)  1,908,926  $(4,053) $260   54,648 
Net loss              (29,470)              28   (29,442)
Foreign currency translation adjustment  -   -   -   -   267   -   -   -   267 
Liquidation of non controlling interest                              (288)  (288)
Stock based compensation expense  91,301   1   856   -   -   -   -   -   857 
Issuance of common stock  40,000   -   47   -   -   -   -   -   47 
Tax shortfall on Stock based compensation  -   -   (430)  -   -   -   -   -   (430)
Purchase of common stock, at cost  -   -   -   -   -   832,392   (939)  -   (939)
Return of Equity  -   -   138   -   -   -   -   -   138 
Common stock issued in connection with a business combination  460,000   5   484   -   -   -   -   -   489 
                                     
Balance at December 31, 2009  23,583,581  $236  $178,442  $(148,319) $(20)  2,741,318  $(4,992)  (0)  25,347 

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

F-5

ATRINSIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(Dollars in thousands, except per share data)

  2009  2008 
       
Cash Flows From Operating Activities      
Net loss $(29,442) $(115,790)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:        
Allowance for doubtful accounts  1,991   2,152 
Depreciation and amortization  3,698   5,867 
Impairment of goodwill and intangible assets  17,289   114,783 
Stock-based compensation expense  857   1,282 
Stock based consulting expense  40   - 
Excess tax benefit from share-based compensation  -   (1,017)
Impairment of investment in Mango Networks  225   - 
Net loss on sale of marketable securities  -   175 
Deferred income taxes  3,651   (2,345)
Equity in loss (income) of investee  (108)  - 
Changes in operating assets and liabilities of business, net of acquisitions:        
Accounts receivable  6,686   4,532 
Prepaid income tax  (1,617)  (2,464)
Prepaid expenses and other current assets  (359)  1,152 
Accounts payable  (937)  (3,205)
Other, principally accrued expenses  (4,989)  (767)
Net cash (used in) provided by operating activities  (3,015)  4,355 
         
Cash Flows From Investing Activities        
Cash received from investee  1,940   11,212 
Cash paid to investees  (914)  (2,519)
Purchases of marketable securities  -   (6,577)
Proceeds from sales of marketable securities  4,242   24,708 
Business combinations  (1,740)  (7,030)
Acquisition of loan receivable  (480)  - 
Capital expenditures  (682)  (2,029)
Net cash provided by investing activities  2,366   17,765 
         
Cash Flows From Financing Activities        
Repayments of notes payable  (1,750)  (111)
Liquidation of non-controlling interest  (288)  - 
Return of investment - noncontrolling interest  138   - 
Excess tax benefit on share-based compensation  -   1,017 
Purchase of common stock held in treasury  (939)  (4,053)
Proceeds from exercise of options  -   343 
Net cash used in financing activities  (2,839)  (2,804)
         
Effect of exchange rate changes on cash and cash equivalents  (9)  (18)
         
Net (Decrease) Increase In Cash and Cash Equivalents  (3,497)  19,298 
Cash and Cash Equivalents at Beginning of Year  20,410   1,112 
Cash and Cash Equivalents at End of Period $16,913  $20,410 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION        
Cash paid for interest $(76)  $(35)
Cash refunded (paid) for taxes $867  $(2,620)
Acquisition of intangibles assets by issuance of note payable $-  $1,750 
Extinguishment of loan receivable in connection with business combination $480  $- 
Common stock issued for extinguishment of loan receivable in connection with business combination $155  $- 
Common stock issued in connection with business combination $600  $155,232 
The accompanying notes are an integral part of these consolidated statements.

F-6
NOTE 1 – Nature of Operations
 
New Motion, Inc. (“New Motion” or the “Company”), doing business as Atrinsic is a leading integrated media anddirect marketing services company that drives growing audiences from its content network and third party distribution channels to acquire high value customers for advertisers and its proprietary products. The Company providesbased in the United States. Atrinsic has two principal offerings: (1)main service offerings. Transactional services - offeringand Subscription services. Transactional services offers full service online marketing and distribution services which are targeted and measurable online campaigns and programs for marketing partners, corporate advertisers, or their agencies, generating qualified customer leads, online responses and activities, or increased brand recognition, and (2)recognition. Subscription services - offeringoffer our portfolio of subscription based content applications direct to users working with wireless carriers and other distributors.
 
NOTE 2 - Summary of Significant Accounting Policies
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of all majority and wholly-owned subsidiaries and significant intercompany balances and transactions have been eliminated.
 
The equity method is used to account for investments in entities in which we have an ownership of less than 50% and have significant influence over the operating and financial policies of the affiliate. For investments in entities for which the company has a less than 50 percent ownership interest, but has certain participatory rights, the investee is consolidated.
 
Use of Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. Management continually evaluates its estimates and judgments including those related to allowances for doubtful accounts, and the associated allowances for returns and chargebacks, useful lives of property, plant and equipment and intangible assets, fair value of stock options granted, forfeiture rate of equity based compensation grants, probable losses associated with pre-acquisition contingencies, income taxes and other contingencies. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable in the circumstances. Actual results may differ from those estimates. Macroeconomic conditions may directly, or indirectly through our business partners and vendors, impact our financial performance and available resources. Such conditions may, in turn, impact the aforementioned estimates and assumptions.
 
Segment Reporting
 
The Company has determined it operates in one operating segment. Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Company in deciding how to allocate resources and in assessing performance. The business model is centered around the monetization of user activities either online, mobile, or other. The Company monetizes that activity on either a subscription basis (i.e. Subscription Services) or on a transactional basis (i.e. Network) largely at the discretion of the Chief Operating Decision Maker however,and discrete financial information by source of monetization is not available.
 
Foreign Currency Translation
 
The Company has a wholly owned subsidiary based in Canada which is included in the Company’s consolidated financial statements. The subsidiary’s financials are reported in Canadian dollars and translated in accordance with FASB 52.Accounting Standards Codification (“ASC”) 830. Assets and liabilities for these foreign operations are translated at the exchange rate in effect at the balance sheet date, and income and expenses are translated at average exchange rates prevailing during the period. Gains and losses from these translations are credited or charged to foreign currencyWe include accumulated net translation includedadjustments in Accumulated Other Comprehensive Income in Shareholders’ Equity.stockholders’ equity as a component of accumulated other comprehensive loss.

 
F-8

Cash and Cash Equivalents
 
 The Company considers all highly liquid instruments purchased with a maturity of less than three months to be cash equivalents. The carrying amount of cash equivalents approximates fair value because of the shortshort-term maturity of these instruments.
 
Accounts Receivable and Related Allowances
 
The Company maintains allowances for doubtful accounts for estimated losses which may result from the inability of its customers to make required payments. The Company bases its allowances on the likelihood of recoverability of accounts receivable by customer, based on past experience, the age of the accounts receivable balance, the credit quality of the Company’s customers, and, taking into account current collection trends. If specific customer circumstances change or industry trends worsen beyond the Company’s estimates, the Company would be required to increase its  allowances for doubtful accounts. Alternatively, if trends improve beyond the Company’s estimates, the Company would be required to decrease its allowance for doubtful accounts. The Company’s estimates are reviewed periodically, and adjustments are reflected through bad debt expense in the period they become known. Changes in the Company’s bad debt experience can materially affect its results of operations.

 
The Company also makes estimates for refunds, chargebacks or credits, and provides for these probable uncollectible amounts through a deferral and reduction of recorded revenues in the period in which the sale occurred based on analyses of previous rates and trends.
F-7
 
Due to the payment terms of the carriers requiring in excess of 60 days from the date of billing or sale, at its sole discretion, the Company can elect to use trade discounts in order to facilitate quicker payment. This discount or fee allows for payments of approximately 80% of the prior month’s billings 15 to 20 days after the end of the month. The Company records revenue net of that fee, if incurred, which is 3.5% to 5% of the associated revenue.

Goodwill and Intangible Assets
 
 Goodwill represents the excess of cost over fair value of net assets of businesses acquired. In accordance with ASC 350 formerly Statement of Financial Accounting Standards No. 142 (“SFAS 142”) “Goodwill and Other Intangible Assets”, the value assigned to goodwill and indefinite lived intangible assets is not amortized to expense, but rather it is evaluated at least on an annual basis to determine if there is a potential impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the reporting unit goodwill is less than the carrying value. If the fair value of an indefinite lived intangible is less than its carrying amount, an impairment loss is recorded. Fair value is determined based on discounted cash flows, market multiples or appraised values as appropriate. Discounted cash flow analysis requires assumptions about the timing and amount of future cash inflows and outflows, risk, the cost of capital, and terminal values. Each of these factors can significantly affect the value of the intangible asset. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s judgment. Any changes in key assumptions about the Company’s businesses and their prospects, or changes in market conditions, could result in an impairment charge. Some of the more significant estimates and assumptions inherent in the intangible asset valuation process include: the timing and amount of projected future cash flows; the discount rate selected to measure the risks inherent in the future cash flows; and the assessment of the asset’s life cycle and the competitive trends impacting the asset, including consideration of any technical, legal or regulatory trends.
 
The Company has determined that there was an impairment of the carrying value of goodwill as a result of completing its annual impairment analysis as of December 31, 2008.2009. The results of this review and impact of the impairment are more fully described in Note 67 - “Goodwill and Intangible Assets”.
 
Intangible assets subject to amortization primarily consist of customer lists, trade names and trademarks, and restrictive covenants that were acquired.  The intangible asset values assigned to the identified assets for each acquisition were generally determined based upon the expected discounted aggregate cash flows to be derived over the estimated useful life. The method of amortizing the intangible asset values reflects, based upon the Company’s historical experience, an accelerated rate of attrition in the subscriber database based over the expected life of the underlying subscriber database after considering turnover.  Accordingly, the Company amortizes the value assigned to subscriber database based on the actual depletion of the acquired subscriber database. The Company reviews the recoverability of its finite-lived intangible assets for recoverability whenever events or circumstances indicated that the carrying amount of an asset may not be recoverable. Recoverability is assessed by comparison to associated undiscounted cash flows.

F-9The Company has determined that there was an impairment of finite-lived intangible assets during the fourth quarter of 2009. The results of this assessment are more fully described in Note 7.


Stock-Based Compensation
 
The Company records stock based compensation in accordance with ASC 718, formerly Financial Accounting Standard Board Statement of Financial Accounting Standards No. 123 (revised 2004). In estimating the grant date fair value atof stock option awards and performance based restricted stock, we use certainthe Black Scholes option pricing model and other binomial pricing models where appropriate. The key assumptions and estimatesfor these models to derive fair value such asinclude expected term, rate of risk free returns and volatility. If different assumptions and estimates were used, the amounts charged to compensation expense wouldInformation about our specific award plans can be different.found in Note 13.
 
Revenue Recognition
 
TheIn accordance with ASC 605 and SEC Staff Accounting Bulletin 104, the Company monetizes a portion of its user activities through subscription based sources by providing on-going monthly access to and usage of premium products and services.  In general, customers are billed at standard rates, at the beginning of the month, and revenues are recognized upon receipt of information confirming an arrangement. The Company estimates a provision for refunds, chargebacks,charge-backs, or credits which are recorded as a reduction to revenues. In determining the estimate for refunds and credits, the Company relies upon historical data, contract information and other factors. The estimated provision for refunds can vary from actual results.
 
The Company effectuates this type ofits subscription service revenues through a carrier or distributors who are paid a transaction fee for their services. In accordance with Emerging Issues Task Force (“EITF” No 99-19) “Reporting Revenues Gross as Principal Versus Net as an Agent”ASC subtopic 605-45 “Principal Agent Considerations”,  the Company recognizes as revenues the net amount received from the carrier or distributor, net of their fee.  Revenues are deferred if the probability of collection is not reasonably assured.

 
F-8

The Company monetizes a portion of its user activities through transactional based services generated primarily from (a) fees earned, primarily on a cost per click (“CPC”) basis, from search syndication services; (b) commission fees earned for the Company's search engine marketing ("SEM") services; (c) commission fees earned from marketing service arrangements associated with our affiliate marketing partners; and (d)(c) other fees for marketing services including data and list management services, which can be either periodic or transactional. Commission feeFee revenue is recognized in the period that the Company's advertiser customer generates a sale or other agreed-upon action on the Company's affiliate marketing networks or as a result of the Company's SEM services, provided that no significant Company obligations remain, collection of the resulting receivable is reasonably assured, and the fees are fixed or determinable. All transactiontransactional services revenues are recognized on a gross basis in accordance with the provisions of EITF 99-19,ASC Subtopic 605-45, due to the fact that the Company is the primary obligor, and bears all credit risk to its customer, and publisher expenses that are directly related to a revenue-generating event are recorded as a component of 3rd partparty Media Cost.
 
Accumulated Other Comprehensive Income (Loss)Loss
 
Comprehensive  income (loss)loss consists of two components, net income (loss)loss and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under generally accepted accounting principles in the United States, or GAAP, are recorded as an element of shareholders’ equity but are excluded from net income (loss).  The Company’s other comprehensive income (loss)loss consists of foreign currency translation adjustments from those subsidiaries not using the US dollar as their functional currency and unrealized gains and losses on marketable securities categorized as available for sale.
 
Income Taxes
 
The Company uses the asset and liability method of financial accounting and reporting for income taxes required by ASC 740, formerly Statement of Financial Accounting Standards No. 109 (“SFAS 109”), “Accounting for Income Taxes”. Under SFAS 109,ASC 740, deferred income taxes reflect the tax impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes.

We maintain valuation allowances where it is more likely than not that all or a portion of a deferred tax asset will not be realized.
 
Effective January 1, 2007, the Company adopted FIN No. 48, “Accounting for Uncertainty in Income Taxes” subsequently codified under ASC 740-10-25 which resulted in no material adjustment in the liability for unrecognized tax benefits. The Company classifies interest expense and penalties related to unrecognized tax benefits as income tax expense. FIN 48ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109ASC 740 and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The evaluation of a tax position in accordance with this Interpretation is a two-step process. The first step is recognition, in which the enterprise determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step is measurement. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the largest amount of benefit that is more likely than not to be sustained.

F-10

The Company and its subsidiaries file income tax returns in the U.S and Canada. The Company is subject to U.S., Australian (prior year filings)federal, states and Canadian and State tax examinations. The statute of limitations for 20072008 and 20082009 in all jurisdictions remains open and are subject to examination by tax authorities.

Fair Value Measurements

We apply the fair value measurement guidance of ASC 820 for our financial assets and liabilities that are required to be measured at fair value and for our nonfinancial assets and liabilities that are not required to be measured at fair value on a recurring basis, including goodwill and intangible assets. The measurement of fair value requires the use of techniques based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. The inputs create the following fair value hierarchy:

•       Level 1 —       Quoted prices for identical assets or liabilities in active markets.   

•       Level 2 —       Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations where inputs are observable or where significant value drivers are observable.
       
•       Level 3 —       Assets or liabilities where inputs are unobservable to third parties.  

When available, we use quoted market prices for the same or similar instruments to determine the fair value of our assets and liabilities and classify such items in Level 1 or Level 2.  In some cases, and where observable inputs are not available, we use unobservable inputs to measure fair value and classify such items in Level 3.

F-9
Reclassification
 
Certain amounts reported in prior years have been reclassified to conform to the current year presentation.
 
NOTE 3 - Marketable Securities
As– Purchase of December 31, 2008 and 2007, the Company held certain assets that are required to be measured at fair value on a recurring basis. These included the Company’s investments in marketable securities consistingAssets of U.S. governmental agency, U.S. municipal agency, corporate obligations and auction-rate securities. In accordance with the SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, our Marketable Securities are considered available-for-sale, based on our intentions to hold the related investment securities for varying and indefinite periods of time, pursuant to maturity dates, market conditions and other factors. The Company has not changed its investment intentions. Available for sale securities are carried at fair value, with unrealized gains or losses, net of tax, recorded in a separate component of stockholders’ equity within other accumulated comprehensive income.
Included in Marketable securities on the balance sheet at December 31, 2008 and 2007 are auction-rate security instruments (ARS) with a par value of $4.0 million and $6.5 million, respectively.
Marketable Securities Rollforward      
  2008  2007 
Beginning Balance, January 1, $9,338  $- 
Gains/(losses), realized  (175)  (0)
Gains/(losses), unrealized  62   (62)
Purchases & (sales), net  (18,131)  9,400 
Acquired  13,151   - 
         
Ending Balance, December 31, $4,245  $9,338 
ShopIt

For purposes of SFAS 157 the ARS are classified as Level III and the certificates of deposit are classified as Level I assets.
  
December 31,
2008
  Level I  Level II  Level III 
             
Auction-rate Securities $4,000  $-  $   $4,000 
Other available-for-sale securities  245   245         
Total Assets Measured at Fair Value $4,245  $245  $-  $4,000 
In January 2009 the remaining ARS of $4.0 million was redeemed and converted to cash at par plus interest.
NOTE 4 – Business Combinations
The Company consummated two business combinations during the year endedOn December 31, 2008 for total consideration of approximately $166.2 million. As a result of these acquisitions, the Company recorded $125.9 million of goodwill and $16.7 million of other long lived intangible assets.  The results of operations of the acquired entities have been included in the consolidated results presented herein as of their date of acquisition. The purchase price allocations for these acquisitions are preliminary for up to 12 months after the acquisition date and subject to revision as more detailed analyses are completed and additional information about fair value of assets and liabilities becomes available. Any change in the estimated fair value of the net assets of the acquired companies will change the amount of the purchase price allocable to goodwill. Acquired intangibles are generally amortized on a straight line basis over their estimated useful lives.

F-11

During the fourth quarter of2, 2008 the Company finalized its valuation analysis ofentered into a Marketing Services and License Agreement (the “Agreement”) with ShopIt.  Under the assets, liabilities assumed, and identifiable intangible assets acquired in connection with the Traffix acquisition and revised its estimates concerning certain elements of acquired assets, liabilities assumed and intangible assets acquired. As a result,Agreement the Company reallocatedperformed certain marketing and administrative services for ShopIt and distributed proprietary and third party advertisements through Shopit.com and its preliminary purchase price allocations which resulted insocial media advertising network. The Agreement provided ShopIt with a revenue share of all leads monetized by the reclassification of approximately $24.4 million from indefinite lived intangible assets to goodwill. Included inCompany. Under the reallocation is the corresponding impact of the reclassification of deferred taxes. In connection with its annual impairment testing for the year ended December 31, 2008,Agreement, the Company determined there was an impairmentmade periodic advance payments and recorded a goodwill impairment charge of $114.8 million. See Note 6.
Acquisition of Traffix, Inc.
On February 4, 2008, New Motion, Inc. completed its merger with Traffix, a performance based onlinemade incremental advances to ShopIt to support continued marketing company, pursuant to a merger agreement entered into by the companies on September 26, 2007. As a result of the closing of the transaction, Traffix became a wholly owned subsidiary of New Motion.  Immediately following the consummation of the merger, Traffix stockholders owned approximately 45% of the capital stock of New Motion, on a fully diluted basis.
The application of purchase accounting under SFAS No. 141 resulted in the transaction being valued at $155.2 million based upon the average closing price of $14.18 of our common stock on The NASDAQ Global Select Market for the two days prior to, including, and two days subsequent to the public announcement of the Merger on September 26, 2007.
On that basis, the table below shows the value of the consideration paid in connection with the Merger:
Fair value of common stock issued to Traffix stockholders $147,553 
Fair value of converted stock options  7,679 
Acquisition costs  2,082 
Total $157,314 
The table below summarizes the fair value of the Traffix, Inc. assets acquired and liabilities assumed as of the acquisition date.
Acquired Assets:   
Currents Assets $37,518 
Property & equipment  1,684 
Non amortizable intangible assets  5,323 
Amortizable intangible assets  6,198 
Goodwill  125,399 
  $176,122 
     
Assumed Liabilities:     
Current liabilities $18,581 
Deferred income taxes  227 
   18,808 
     
Total Consideration $157,314 
product development.

As ofOn July 31, 2009, the acquisition date we recorded a merger related accrual totaling approximately $4.4 million of cost recognized as liabilities assumed in the Merger. Included in the $4.4 million is $3.6 million of costs recognized under EITF No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination. As of December 31, 2008, the merger related accrual balance was approximately $1.6 million.

F-12
Acquisition of Ringtone.com
On June 30 2008, New MotionCompany entered into an Asset Purchase Agreement (“APA”) with Ringtone.com, LLC (“Ringtone”) and W3i Holdings LLC (“W3i”)ShopIt.com pursuant to which the Company acquired certain net assets from Ringtone.com,ShopIt.com, including but not limited to short codes, subscriber database, covenant not to compete , working capital,software, trademarks and certain domain names. The Company purchased ShopIt to be the foundation of its e-commerce platform and a distribution point for its social media application. In consideration for the assets, and certain liabilities assumed, the Company at the closing paid to Ringtone.com approximately $7cancelled $1.8 million in cash. In addition, the Company delivered to Ringtone.com a convertible promissory note (the “Note”) in the aggregate principal amount of $1.75 million, which accrues interest at a rate of 10% per annum. As the effective conversion price was significantly greater than the fair value of the Company's stock at the commitment date, no value was assignedindebtedness owed by ShopIt to the conversion feature upon issuance. The Note is payable on the earlierCompany, paid to occurShopIt $450,000 and issued 380,000 shares 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, of which 180,000 shares were distributed to certain secured debt-holders of ShopIt and 200,000 shares were placed in escrow to be available in July 2010 or upon finalization of the opening balance sheet. Of the $1.8 million of indebtedness owed by ShopIt, $1.1 million related to a marketing agreement between the Company and ShopIt and $640,000 of debt was purchased at a conversion pricediscount from ShopIt’s debt-holders’ prior to entering into the APA. The Company purchased the $640,000 debt for $480,000 in cash and 80,000 shares of $5.42the Company’s stock. The debt-holder share consideration for both the 180,000 and the 80,000 shares, issued to debt-holders, are subject to put options at $2 per share.  This payment of principalshare which were valued at fair market value using an option pricing model, recorded as a liability and interestmarked to market through earnings each accounting period. The put options are exercisable at any time during the 30 day period commencing on the Notedate which is subject to certain recoupment provisions containedtwelve months following the closing date of the APA and the debt Assignment Agreements as applicable. The put options are recorded in other current liabilities on the Consolidated Balance Sheets and classified as Level II in accordance with ASC 820.

The purchase was accounted for as a business combination in accordance with ASC 805 (formerly SFAS No. 141R), “Business Combinations.” Goodwill of $1.1 million was recorded as a result of the acquisition and all acquisition costs are recorded in the NoteConsolidated Statement of Operations in the period incurred. The Company has up to one year after the acquisition date to finalize business combination accounting. During the fourth quarter of 2009, the company revised its provisional estimates of the fair market value of the intangible assets of ShopIt it acquired by a $0.3 million reduction of software, a $0.8 million reduction of domain names and APA.a $0.1 million increase for trademarks and trade names, with the offset of $1.1 million recorded as an increase to Goodwill. Revisions were based on a formal evaluation conducted by management in the fourth quarter of 2009.

The table below shows the fair value of the consideration paid in connection with the Asset Purchase:Purchase Agreement:

Cash Paid $6,250 
Promissory Note  1,750 
Net working capital  791 
Acquisition cost  98 
Purchase price $8,889 

The table below summarizes the fair value of the Ringtone assets acquired and liabilities assumed as of the acquisition date.
Acquired Assets:   
Currents Assets $3,795 
Software  270 
Non amortizable intangible assets  1,174 
Amortizable intangible assets  3,956 
Goodwill  458 
  $9,655 
Assumed Liabilities:    
Current liabilities  766 
   766 
     
Total Consideration $8,889 
Purchase of Mobliss Assets and IVG Note
On January 19, 2007, the Company advanced $0.5 million related to a Convertible Promissory note issued on this date which for goods and valuable consideration received the Company promises to pay to Index Visual & Games Ltd (IVG) up to a maximum sum of $2.32 million related to an Asset Purchase Agreement (APA) dated November 17, 2006, between IVG (Buyer) and Mobliss, Inc (Seller) to purchase all assets included in the Mobliss billing system and various carrier contract listed in the agreement. Whereby concurrently with the delivery of such assets purchased under this agreement IVG (the buyer) agreed to immediately sell and deliver such assets to New Motion which both parties to the APA agree is the intended third party beneficiary of this agreement. On January 26, 2007, the Company increased the principal amount of this note by $0.58 million to $1.08 million. On February 26, 2007 the Company repaid $0.5 million of this note. In accordance with the terms of the note, on June 15, 2007 IVG converted the remaining outstanding principal and accrued interest into 172,572 shares of common stock at a conversion price of $3.44, the fair market value of the Company's stock on the date of issuance of this note.
Closing payment $450 
Pre existing cash advances to ShopIt  1,175 
Extinguishment of loan receivable by ShopIt  480 
Equity instruments (380,000 shares at closing )  414 
Equity instruments (80,000 shares in connection with prior period consideration)  74 
Put options (180,000 shares at closing)  186 
Put options (80,000 shares in connection with prior period consideration)  81 
     
Total consideration $2,860 

 
F-13F-10
 
The purchase price was allocated to the assets acquired based on their estimated fair values as of the date of acquisition as summarized below:

Mobile Entertainment Channel Corporation
Goodwill $1,052 
Software, estimated useful life - 5 yrs  705 
Domain names  196 
Trademarks and Trade names  907 
     
Estimated fair value of assets acquired $2,860 

At December 31, 2009, all the Goodwill from the acquisition of ShopIt was impaired as part of the year end impairment analysis (see footnote 7).

The Company has not presented the pro forma effect of the ShopIt acquisition because there is insufficient continuity of the acquired entity's operations prior to and after the transaction and because of the limited activity and deminimus operations of ShopIt. The Company believes that pro forma financial information involving ShopIt is immaterial to an understanding of future operations of the Company.

NOTE 4 – Investments and Advances

Joint Venture with Visionaire and Mango Networks

On July 30, 2008, the Company entered into an agreement to launch online and mobile marketing services and offer the Company’s mobile products in the Indian market.  Under the agreement, the Company owns 19% of the Joint Venture and is entitled to one of three seats on the Board of Directors. The Company is required to pay up to $325,000 in return for Compulsory Convertible Debentures which can be converted to common stock at any time, at the Company’s sole discretion. The Company paid $225,000 of the $325,000 it was required to pay and subsequently recorded, at December 31, 2009, an other-than-temporary impairment for the $225,000 paid. The Company is in the process of dissolving the Joint Venture called Mango Networks and will not be required to make the remaining $100,000 payment.
 
ConcurrentInvestment in The Billing Resource, LLC

On October 30, 2008, the Company acquired a 36% non-controlling interest in The Billing Resource, LLC (“TBR”). TBR is an aggregator of fixed telephone line billing, providing alternative billing services to the Company and unrelated third parties. The Company contributed $2.2 million in cash on formation and provided an additional $0.9 million of working capital advances in 2009 to support near term growth. As of December 31, 2009, the Company received a distribution $1.9 million from TBR. As of December 31, 2009 the Company’s net investment in TBR totals $1.4 million and is included in Investments, Advances and Other Assets on the accompanying  Consolidated Balance Sheet.

In addition, the Company has an operating agreement with TBR whereby TBR provides billing services to the signingCompany and its customers.  The agreement reflects transactions in the normal course of business and was negotiated on an arm’s length basis.

The Company records its investment in TBR under the equity method of accounting and as such presents its prorata share of the Convertible Promissory Note describedequity in earnings and losses of TBR within its quarterly and year end reported results. The Company recorded $59,000 as equity in income for the previous paragraph,year ended December 31, 2009.

NOTE 5- Kazaa

Kazaa is a subscription-based music service providing unlimited online access to hundreds of thousands of CD-quality tracks for a monthly fee of approximately $19.98.  Subscribers of this service are signed up for this service on the Internet and are billed monthly to their credit card, mobile phone or landline phone.  Kazaa allows users to download unlimited music files to up to three PCs that the user owns.
On March 26, 2010, the Company also entered into a HeadsMarketing Services Agreement (the “Marketing Agreement”) and a Master Services Agreement (the “Services Agreement”) with Brilliant Digital, Inc. (“BDE”) effective as of July 1, 2009 (collectively, the “Agreements”), relating to the operation and marketing of the Kazaa digital music service.  The Agreements have a term of three years from the effective date, contain provisions for automatic one year renewals, subject to notice of non-renewal by either party, and may only be terminated generally upon a bankruptcy or liquidation event or in the event of an uncured material breach by either party.
F-11

Under the Marketing Agreement, the Company is responsible for marketing, promotional, and advertising services in respect of the Kazaa service.  In exchange for these marketing services, the Company will be reimbursed for pre-approved costs and expenses incurred in connection with IVG. This joint venture will managethe provision of the services plus all other agreed budgeted amounts.

Pursuant to the Services Agreement, the Company is to provide services related to the operation of the Kazaa website and service, including billing and collection services and the asset acquired under the APA described above and engage in content development and licensing activities in North America. The joint venture, Mobile Entertainment Channel Corporation (MECC), is a Nevada corporation in which New Motion owns 49% and IVG owns 51%. Both parties shall each receive 50%operation of the amountKazaa online storefront.  BDE is obligated to provide certain other services with respect to the service, including licensing the intellectual property underlying the Kazaa service to us, obtaining all licenses to the content offered as part of any dividendsthe service and delivering that content to the subscribers via the service interface.
As part of the Agreements, the Company is required to make advance payments and expenditures in respect of certain expenses incurred in order to provide the required services and operate the Kazaa music service.  These advances and expenditures are recoverable on a dollar for dollar basis against future revenues.  BDE has agreed to repay up to $2.5 million of these advances and expenditures which are not otherwise recovered from Kazaa generated revenues and this repayment obligation will be secured under separate agreement.  Similarly, the Company is not obligated to make additional expenditures if more than $5.0 million remains unrecovered or other distributions madeunrecouped by the joint venture. The joint venture is to be managed by a three-member board, with each party designating one member and both parties mutually designating the third member of the board. The results of MECC are consolidated within the financial statements under FIN 46(R) and represents less than 1% and 3% of total assets, and less than 1% and 7% of net income for the years ended 2008 and 2007 respectively. The Company has reflected the appropriate minority interest in the consolidated financial statements.from Kazaa revenues.

In accordance with the Heads of Agreement, New Motion is required to pay a fee for management services renderedAgreements, Atrinsic and BDE will share equally in the “Net Profit” generated by the joint venture equal to 10%Kazaa music subscription service after all of our costs and expenses are recovered.  As of, and for the period ending December 31, 2009, the Company has presented net revenue generatedearned of $2.7 million, expenses incurred for the Kazaa music service net of reimbursements of $4.9 million, along with an other receivable due from the asset acquired related to the APA described above, up to the purchase priceBDE of $1.08$2.1 million. The Company made advance payments of $0.5 million on March 12, 2007 and September 4, 2007 which are non refundable. The joint venture made a distribution to each shareholder of $100,000 in August, 2008. The remaining management fee of $80,000 is currently recorded as a miscellaneous receivable on MECC books while the company and IVG are evaluating the services and content to be offered by MECC.

Katazo
On April 1, 2007, New Motion entered into an LOI with Opera Telecom USA (“Opera”) to purchase the following identified and specified assets (the “Katazo Assets”) : (1) the domain name www.katazo.com , (2) website html code and graphics, (3) access to a content management system, (4) a subscriber list, and (5) prepaid short codes. The Company purchased the assets for $970,000 in cash. The closing of the asset purchase occurred on May 25, 2007. In accordance with APB Opinion No. 16, “Business Combinations” and EITF 98-3, “Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business,” New Motion has determined that the purchase of assets was not a purchase of a business. New Motion has also evaluated the specified assets and, in accordance with SFAS 142, “Goodwill and Other intangible Assets,” has allocated the cost of the acquisition to the individual assets based on their relative fair values, without any goodwill. New Motion is actively operating the acquired Katazo Assets and maintaining the respective websites, and is continuing to generate revenue from these assets.
NOTE 56 - Property and Equipment
 
Property and equipment consists of the following:

    Useful Life  December 31,  December 31, 
    in years  2009  2008 
            
Computers and software applications    3  $1,874  $2,335 
Leasehold improvements  10   1,830   1,626 
Building  40   766   655 
Furniture and fixtures    7   161   344 
Gross PP&E      4,631   4,960 
Less: accumulated depreciation        (1,078)  (1,435)
Net PP&E     $3,553  $3,525 
  Useful Life  December 31,  December 31, 
  in years  2008  2007 
          
Computers and software applications  3  $2,335  $1,019 
Leasehold improvements  Lease term   1,626   - 
Building  40   655   - 
Furniture and fixtures  7   344   135 
Gross PP&E      4,960   1,154 
Less: accumulated depreciation      (1,435)  (294)
Net PP&E     $3,525  $860 

Depreciation expense for the years ended December 31, 2009 and 2008 totaled $0.8 million and 2007 totaled $1.1million and $300,000$1.1 million respectively and is recorded on a straight line basis. In connection with improvements made during 2008 to the Company’s facility located at 469 7th Avenue, New York, the Company capitalized $0.65M within other liabilities on the Company’s consolidated balance sheet, which amount will be amortized to operating expenses over the ten year term of the lease.  As an inducement for the Company to enter into the lease, the landlord at the location agreed to reimburse the Company $0.6 million for the cost of such improvements, and thereforeimprovements. This reimbursement is being amortized over the Company has recorded a receivable10-year life of $650,000 within other assets on its consolidated balance sheet.the lease.

F-14

NOTE 6–7– Goodwill and Intangible Assets
 
Impairment of Long-Lived Assets
ASC 360 requires that an entity test for the recoverability of long-lived assets if events or changes in circumstances indicate that the carrying value may not be recoverable.  We concluded that a triggering event occurred in late fourth quarter 2009, meeting the significant adverse change in business climate criterion, indicating that the carrying value of our amortizable intangible assets may not be recoverable. 
F-12

The Company has assessed the recoverability of the long-lived asset groups classified as held and used by comparing their undiscounted future cash flows to their individual carrying value.  The future undiscounted cash flows associated with certain acquired Traffix amortizable intangible assets were determined to be significantly less than the carrying value of such assets.

The Company then determined the fair value of such amortizable intangible assets and recognized an impairment charge of $2.0 million. 
Impairment of  Indefinite Lived Intangibles and Goodwill

As part of our annual impairment analysis, it was determined that the carrying amount of the Company’s indefinite lived intangible assets was impaired and a loss of $2.1 million was recognized.

In connection with its annual goodwill impairment testing for the year ended December 31, 2008,2009, the Company determined there was an impairment of the carrying value of goodwill and recorded a non-cash goodwill impairment charge of $114.8$13.1 million.  The goodwill impairment which is not deductible for income tax purposes, is primarily due to reduced valuation multiples, which is reflected in our stock price and market capitalization.

The impairment charge reflects the amount by which the carrying amount of goodwill exceeded the residual value remaining after ascribing fair values to the Company’s tangible and intangible assets. In performing the related valuation analysis the company used various valuation methodologies including probability weighted discounted cash flows, comparable transaction analysis, and market capitalization and comparable company multiple comparison to determine whether goodwill was impaired.
 
The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. As a result, the Company allocated the fair value of the single reporting unit to all of the assets and liabilities of the Company as if the reporting unit had been acquired in the business combination and fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of the goodwill.
 
The grosschanges in carrying valueamount of goodwill for the year ended December 31, 2009 and intangibles as well as the accumulated amortization of the intangibles2008 respectively are as follows:

Balance at December 31, 2007$-
Acquisition of Traffix Inc125,858
Impairment Charge(114,783)
Balance at December 31, 200811,075
Estimate revision in connection with acquisition of Traffix, Inc906
Estimate revision in connection with acquisition of Ringtone115
Acquisition of ShopIt1,052
Impairment(13,148)
Balance at December 31, 2009$-

During the first quarter of 2009, the Company revised its estimate of the fair market value of certain pre-acquisition contingencies and other merger related liabilities for its acquisitions of Traffix, Inc., and Ringtone.com. This resulted in an increase of the Company’s liabilities by approximately $906,000. In the second quarter of 2009 the Company increased its liabilities by a further $115,000 in relation to its acquisition of Ringtone.com. In the third quarter of 2009, as a result of the purchase of the assets of ShopIt.com, the Company recorded $1.1 million of goodwill and $1.8 million of identifiable intangible assets (see note 3).
F-13

The carrying amount and accumulated amortization of intangible assets as of December 31 2009 and 2008, respectively, are as follows:

     2007  2008 
  
Useful
Life
(in years )
  
Gross
Carrying
Value
  
Impairment/
Accumulated
Amortization
  
Net
Carrying 
Value
  
Gross
Carrying
Value
  
Traffix
Acquisition
  
Ringtone
Acquisition
  
Impairment/
Accumulated
Amortization
  
Net
Carrying
Value
 
                                     
Unamortized intangible assets:                                    
Goodwill     $-  $-   -  $-  $125,399  $458  $(114,783)    $11,075 
                                     
Other unamortized identifiable intangible assets:                                    
Trademarks      11   -   11   11               11 
Trademarks              -       5,323           5,323 
Domain Name              -           1,174       1,174 
                                     
Other amortized identifiable intangible assets:              -                   - 
               -                   - 
Acquired Software Technology  3           -       2,431       (743)  1,688 
Domain Name  3           -       550       (168)  382 
Licensing  2   580   (556)  24   580           (580)  - 
Trade names  9           -       1,320       (134)  1,186 
Customer list 
 
1.5   949   (385)  564   949           (949)  - 
Customer list  3           -       669       (205)  464 
Subscriber Database  1           -           3,956   (2,679)  1,277 
Restrictive Covenants  5           -       1,228       (225)  1,003 
Total identifiable intangible assets     $1,540  $(941) $599  $1,540  $11,521  $5,130  $(5,683) $12,508 
  Useful Life  Gross Book  Accumulated     Net Book 
  in Years  Value  Amortization  Impairment  Value 
                
As of December 31, 2009               
                
Indefinite Lived assets               
Tradenames    $6,241  $-  $1,916  $4,325 
Domain names     1,370   -   72   1,298 
                    
Amortized Intangible Assets                   
Acquired software technology  3 - 5   3,136   1,589   620   927 
Domain names  3   550   351   124   75 
Licensing  2   580   580   -   - 
Tradenames  9   1,320   281   761   278 
Customer lists  1.5 - 3   1,618   1,377   87   154 
Subscriber database  1   3,956   3,956   -   - 
Restrictive covenants  5   1,228   471   561   196 
                     
Total     $19,999  $8,605  $4,141  $7,253 
                     
As of December 31, 2008                    
                     
Indefinite Lived assets                    
Tradenames     $5,334  $-  $-  $5,334 
Domain names      1,174   -   -   1,174 
                     
Amortized Intangible Assets                    
Acquired software technology  3 - 5   2,431   743   -   1,688 
Domain names  3   550   168   -   382 
Licensing  2   580   580   -   - 
Tradenames  9   1,320   134   -   1,186 
Customer lists  1.5 - 3   1,618   1,154   -   464 
Subscriber database  1   3,956   2,679   -   1,277 
Restrictive covenants  5   1,228   225   -   1,003 
                     
Total     $18,191  $5,683  $-  $12,508 

Amortization expense for the year ended December 31, 2009 and 2008 and 2007 was $4.7$2.9 million and $0.9$4.7 million respectively. Expected annual amortization expense related to amortizable intangibles for fiscal year 2009, 2010, 2011, 2012, 2013, and thereafter2013and 2014 are $2.9$0.8 million, $1.6$0.3 million, $493,531, $392,122, and $619,166 respectively.
NOTE 7 - Investments and other Advances
Marketing Services Agreement with Central Internet Corporation d/b/a Shopit.com
On December 2, 2008 the Company entered into a Marketing Services and Content Agreement with Central Internet Corporation which operates the website www.shopit.com (Hereinafter referred to as “Shopit”).  Under the agreement the Company is required to perform certain marketing and administrative services for Shopit and distribute proprietary and third party advertisements through Shopit.com and its social media advertising network. The agreement provides Shopit with a revenue share of all leads monetized by the Company. As part of the agreement, the Company is required to make periodic advance payments totaling $1.025$0.2 million, through March 2009. The advances, which are secured under separate agreement, are recoverable on a dollar for dollar basis against future revenues and the Company has taken action to obtain further security in the assets of Shopit. As of December 31, 2008 the Company had made $425,000 in advance payments under the agreement which is recorded on balance sheet in other assets.

F-15

Joint Venture with Visionaire and Mango Networks
On July 30, 2008, the Company entered into a Joint Venture Agreement to launch online and mobile marketing services and offer the Company’s mobile products in the Indian market.  Under the agreement, the Company owns 19% of the Joint Venture and is required to pay up to $325,000 in return for Compulsory Convertible Debentures which can be converted to common stock at any time, at the Company’s sole discretion. Under the agreement, the Company is entitled to one of three seats on the Board of Directors. The company is accounting for the investment under the Cost Method. Amounts paid under the agreement as of December 31, 2008 were $125,000.
Investment in The Billing Resource, LLC
On October 30, 2008, the Company acquired a 36% interest in The Billing Resource, LLC (“TBR”). TBR provides alternative billing services to the Company and unrelated third parties. The Company contributed $2.2 million on formation and has committed to provide an additional $1.0 million of working capital to support near term growth.  In addition, the Company has an operating agreement with TBR whereby TBR provides billing services to the Company and its customers.  The agreement was transacted in the normal course of business and negotiated on an arm’s length basis.
The Company recorded its investment in TBR under the equity method of accounting and as such would present its equity in earnings and losses in TBR within its quarterly and year end reported results.  At the time of this report, financial statements of TBR were not available.  The Company believes the operating results of TBR for the period from October 31 to December 31, 2008 are de minimis.
NOTE 8 - Note Payable
In connection with the acquisition Ringtone.com, the Company delivered a convertible promissory note (the “Note”) with the aggregate principal amount of $1.75 million, which accrues interest at a rate of 10% per annum. The Note is payable on the earlier to occur of either (i) July 1, 2009, or (ii) 5 days after the Company gives written notice to Ringtone.com of its intent to prepay the Note (the “Maturity Date”). The Note is optionally convertible by Ringtone.com on the Maturity Date into the Company’s common stock at a conversion price of $5.42 per share. As the effective conversion price was significantly greater than the fair value of the Company’s stock at the commitment date, no value was assigned to the conversion feature upon issuance. The payment of principal and interest on the Note is subject to certain recoupment provisions contained in the Note and in the APA (See Note 4).
New Motion has a fully amortizable note payable due to Oracle for hardware and software purchases made on February 28, 2007 (“Oracle Note”). The term of the note is two years and interest charged there under is approximately 8% per annum. As of December 31, 2008 and 2007, the principal balance of the Oracle note payable was approximately $0.02$0.2 million and $0.1 million, respectively. In accordance

NOTE 8 -   Fair Value Measurement
The carrying amounts of cash equivalents, accounts receivable, accounts payable and accrued expenses are believed to approximate fair value due to the short-term maturity of these financial instruments. The following tables present certain information for our assets and liabilities that are measured at fair value on a recurring basis at December 31, 2009 and 2008:
  Level I  Level 2  Level 3  Total 
2009:            
Liabilities:            
Put options $-  $267  $-  $267 
                 
2008:                
Assets:                
Auction-rate securities $-  $-  $4,000  $4,000 
Available-for sale securities $245  $-  $-  $245 

F-14
At December 31, 2009, put option liabilities on our common stock issued in connection with the termsShop-It acquisition are included in other current liabilities in our consolidated balance sheet.  At December 31, 2008, auction-rate securities and available-for-sale securities are included in marketable securities in our consolidated balance sheet.  In January 2009, the auction-rate securities of the Oracle Note, New Motion makes regular quarterly payments of principal$4.0 million were redeemed and converted to cash at par plus interest.
 
We also measure goodwill and intangible assets on a non-recurring basis, for which we recognized impairment charges in 2009 that is summarized as follows (in thousands):

     Quoted Prices in          
     Active Markets  Significant  Significant    
  December 31,  for Identical  Unobservable  Unobservable  Total 
  2009  Assets (Level 1)  Inputs (Level 2)  Inputs (Level 3)  Losses 
                
Goodwill $-  $-  $-  $-  $13,148 
Intangible Assets $7,253  $-  $-  $7,253  $4,141 
Goodwill, with a carrying amount of $13.1 million was written down to its fair value of $0.0 million in 2009, resulting in an impairment charge of $13.1 million, which was included in earnings for the period.
Intangible assets, with a carrying amount of $11.4 million were written down to their fair value of $7.3 million, resulting in an impairment charge of $4.1 million, which was included in earnings for the period.
NOTE 9 - Concentration of Business and Credit Risk

New MotionFinancial instrument which potentially subject the Company to credit risk consist primarily of cash and cash equivalents and accounts receivable.

Atrinsic is currently utilizing several billing partnersaggregators in order to provide content and subsequent billings to the end user. These billing partners, or aggregators act as a billing interface between New MotionAtrinsic and the mobile phone carriers that ultimately bill New Motion’sAtrinsic’s end user subscribers. These partner companiesbilling aggregators have not had long operating histories in the U.S. or operations with traditional business models. These companies face a greater business risk in the marketplace, due to a constant evolving business environment that stems from the infancy of the U.S. mobile content industry.
In addition, as a result of the acquisition of Traffix, Inc., the Company also has customers other than aggregators that represent significant amounts of revenues and accounts receivable.

 
F-16F-15
 

The following table reflectsbelow represents the company’s concentration of revenuesbusiness and accounts receivable with these billing aggregatorscredit risk by customers and a certain significant customer:aggregators.

  For The Years Ended 
  December 31, 
  2009  2008 
       
Revenues      
Customer A  28%  13%
Billing Aggregator B  8%  4%
Customer C  7%  3%
Other Customers & Aggregators  57%  80%
         
  As of December 31, 
  2009  2008 
         
Accounts Receivable        
Billing Aggregator D  16%  12%
Billing Aggregator B  12%  1%
Customer E  12%  7%
Other Customers & Aggregators  60%  80%
  For the Years 
  Ended December 31, 
  2008  2007 
       
Revenues      
Billing Aggregator A  13%  87%
Customer B  13%  0%
Billing Aggregator C  8%  1%
Other Customers & Aggregators  66%  12%
         
  For the Years 
  Ended December 31, 
  2008  2007 
         
Accounts Receivable        
Billing Aggregator C  22%  0%
Billing Aggregator A  18%  81%
Customer B
  7%  0%
Other Customers & Aggregators  53%  19%

NOTE 10 - Stockholders' Equity
 
In April, 2008, the Company’s Board of Directors authorized a stock repurchase program allowing it to purchase up to $10 million of its outstanding shares of common stock through May 31, 2009, depending on market conditions, share prices, and other factors. Repurchases maycould take place in the open market or in privately negotiated transactions and maycould be made under a Rule 10b5-1 plan.
 
During the year ended December 31, 2008, theThe Company repurchased 832,392 and 1,908,926 shares of its common stock during the years ended December 31, 2009 and 2008, respectively. The shares were repurchased at an average purchase price of$1.13 and $2.12 per share.share for the years ended December 31, 2009 and 2008 respectively. Total cash consideration for the repurchased stock was $4.05 Million.$5.0 million which is presented as Common Stock, Held in Treasury in the accompanying Consolidated Balance Sheet.
There is no guarantee as to the exact number of shares that will be repurchased by the Company, and the Company may discontinue repurchases at any time that management under the direction of the Company’s Board of Directors determines additional repurchases are not warranted. The amounts authorized by the Company’s Board of Directors exclude broker commissions.

On February 4, 2008, New MotionAtrinsic completed the transactions contemplated by that certain Agreement and Plan of Merger executed on September 26, 2007 (the “Merger Agreement”) by and among New Motion,Atrinsic, NM Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of New MotionAtrinsic (“Merger Sub”) and Traffix, Inc., a Delaware corporation (“Traffix”) (the “Merger Agreement”) pursuant to which Merger Sub merged with and into Traffix (the “Merger”). As a result of the Merger, Traffix became a wholly-owned subsidiary of New Motion.Atrinsic. In consideration for the Merger, shareholders of Traffix received approximately 0.676 shares of common stock of New MotionAtrinsic for each share of Traffix common stock. In the aggregate, New MotionAtrinsic issued approximately 10,409,358 shares of New MotionAtrinsic stock to Traffix shareholders.
On January 31, 2007, New Motion Mobile entered into an exchange agreement with MPLC (now called New Motion, Inc.) and Trinad Capital Master Fund, Ltd. The closing of the Exchange occurred on February 12, 2007. At the closing, MPLC acquired all of the outstanding shares of the capital stock of New Motion Mobile. In exchange for the stock, MPLC issued to New Motion Mobile’s stockholders 500,000 shares of MPLC’s Series C Convertible Preferred Stock, par value $0.10 per share (the “Series C Preferred Stock”), which was subsequently converted into 7,263,688 shares of MPLC’s common stock on May 2, 2007. After the Exchange, the stockholders of MPLC immediately prior to the Exchange owned 250,000 post-Reverse Split common shares of the Company.  

 
F-17F-16
 

On May 2, 2007 MPLC filed an amendment to its restated certificate of incorporation with the Secretary of State of the State of Delaware, to change its corporate name to New Motion, Inc. from MPLC, Inc., to increase the authorized shares of common stock from 75 million to 100 million and to effect a 1-for-300 reverse stock split (the “Reverse Split”). These matters were approved by the requisite vote of the stockholders of the Company on March 15, 2007. As such, for comparative purposes, the 7,263,688 shares of outstanding common stock of the combined entity, after recapitalization and the 1-for-300 Reverse Split, has been retroactively applied to January 1, 2006 and consistently applied throughout all periods presented.
In conjunction with the exchange transaction, New Motion issued one share of its Series A Preferred Stock on January 19, 2007, 650 shares of its Series B Preferred Stock on February 12, 2007 and 8,333 shares of its Series D Preferred Stock on March 6, 2007 for aggregate gross proceeds to New Motion of approximately $20 million. Upon effectiveness of the Reverse Split, on May 2, 2007, the one share of Series A Preferred Stock automatically converted into 1,200,000 shares of common stock, the 650 shares of Series B Preferred Stock automatically converted into 1,300,000 shares of common stock and the 8,333 shares of Series D Preferred Stock automatically converted into 1,666,658 shares of common stock. The effects of the Reverse Split and of the conversion of all classes of preferred stock into common shares of New Motion have been retroactively applied to the financing transactions.
Pursuant to a registration rights agreement entered into on February 28, 2007, New Motion was required to file a registration statement with the SEC to register the common stock issued in connection with the conversion of the Series D Preferred Stock. New Motion was subject to payment of liquidated damages of one percent of the Series D aggregate purchase price if the registration statement is not filed within 75 days of the Series D financing, which closed on March 6, 2007, the date New Motion received the cash proceeds of the Series D financing. The Company did not incur any liability under the agreement and it is not probable that it had any liability pursuant to the liquidated damages clause in the agreement.
NOTE 11 – Provision (Benefit) for Income Taxes
 
The provision (benefit) for income taxes consists of the following components for the periods ended as follows:

 For the Year Ended  For the Year Ended 
 December 31,  December 31, 
 2008  2007  2009  2008 
Current:            
Federal 504  (135) $(3,361) $504 
State 591  80   19   591 
Foreign  398   -   331   398 
Total Current  1,493   (55) $(3,011) $1,493 
                
Deferred:                
Federal (1,644) (846) $2,489  $(1,644)
State (736) (302)  1,177   (736)
Foreign  35   -   (15)  35 
Total Deferred  (2,345)  (1,148) $3,651  $(2,345)
                
Total Income Tax (Benefit) Provision  (852)  (1,203)
Total Income Tax Provision (Benefit) $640  $(852)

Deferred tax assets and liabilities reflect the effect of tax losses, credits, and the future tax effect of temporary differences between consolidated financial statementsstatement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to either future taxable income or deductible amounts in the years in which those temporary differences are expected to be recovered or settled.

F-18

The income tax effects of significant items comprising the Company's deferred income tax assets and liabilities are as follows:

  For the Year Ended 
  December 31, 
  2009  2008 
Deferred Tax Assets:      
Allowance for Doubtful Accounts $1,759  $1,194 
Compensation Expense – NSOs  687   768 
Accrued Expenses  1,649   315 
Intangible Assets  5,642   4,641 
Net Operating Loss Carryforward  1,567   186 
Foreign Tax Credit  1,068   144 
AMT Credit  39   39 
Total Deferred Tax Assets  12,411   7,287 
Deferred tax asset valuation allowance  (11,091)  - 
Deferred Tax Assets, Net of Valuation Allowance $1,320  $7,287 
         
Deferred Tax Liabilities:        
Prepaid Expenses $(270) $(335)
Fixed Assets  (714)  (397)
Intangible Assets  (1,946)  (4,259)
Other  -   (157)
Total Deferred Tax Liabilities  (2,930)  (5,148)
         
Net Deferred Tax (Liabilities) Assets $(1,610) $2,139 
  
For the Year Ended
December 31,
 
  2008  2007 
Deferred Tax Assets:      
Allowance  for Doubtful Accounts  1,194   225 
Compensation Expense – NSOs  768   369 
Accrued Expenses  315   24 
Intangible  Assets  4,641   402 
Net Operating  Loss Carryforward  186   121 
Foreign Tax Credit  144   - 
AMT Credit  39   - 
Unrealized  Loss on Available-For-Sale Securities  -   25 
Total Deferred Tax Assets  7,287   1,166 
         
Deferred Tax Liabilities:        
Prepaid Expenses  (335)  (91)
Fixed Assets  (397)  (17)
Intangible  Assets  (4,259)  - 
Other  (157)  (300)
Total Deferred Tax Liabilities  (5,148)  (408)
         
Net Deferred Tax Assets  2,139   758 

The netUnder the provisions of Financial Accounting for Income Taxes, ASC 740, formerly Statement of Financial Accounting Standards 109 (“SFAS 109”), “Accounting for Income Taxes”, management is required to evaluate whether a valuation allowance should be established against its deferred tax assets based on the consideration of all available evidence using a "more likely than not" standard. Realization of deferred tax assets is dependent upon taxable income in prior carryback years, estimates of future taxable income, tax planning strategies, and reversals of existing taxable temporary differences. Based on negative evidence such as cumulative losses in recent years and losses expected in future years, management concluded that a full valuation allowance of $11.1 million should be recorded as of December 31, 2009. However, the Company recorded a deferred tax liability relating to intangibles which are includednot expected to reverse in our balance sheet in prepaid expensesthe future and other current assets ($1.4million) and deposits and other assets ($0.8 million).therefore cannot be offset against deferred tax assets.
  
As of December 31, 20082009 the Company had $1.3 million of federal net operating loss carryforwards, $10.4 million state tax loss carry forwards of approximately $3.2carryforwards and $1.0 million and ain foreign tax credit carry forward of $144,000.credits. The federal net operating loss  and state net operating loss carryforward will expire in 2019.The2029 if not utilized by then. The foreign tax credit carryforward will expire through 2017. SFAS No. 109 requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In making this assessment, management considers the level of historical taxable income, scheduled reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income. Management believes it is more likely than not that the projected taxable income together with the tax effects of the deferred tax attributes will be sufficientfrom 2015 to fully recover the remaining deferred tax assets.2019.
 
The Company has $2.7$4.4 million and $ 2.7 million recorded as an income tax receivable on its consolidated balance sheet as of December 31, 2008. All2009 and 2008, respectively. In November 2009 Congress passed the Worker Homeownership & Business Assistance Act of 2009 which allows businesses to carryback operating losses for up to 5 years. As a result of this Act the company is able to carryback some of its 2009 taxable loss, resulting in an estimated  refund of  approximately $2.7 million, which is included in income tax receivables reportedreceivable on the Balance Sheet at December 31, 2009. Also included in the consolidated financial statements represent overpayments or other valid refunds dueincome taxes receivable is a carryback of $0.7 million which was submitted to the Company on or beforeIRS subsequent to the balance sheet date.2009 Act. The remaining $1.0 million was for overpayment of federal taxes.
 
A reconciliation of the Company’sThe total income tax provision as compared(benefit) relating to the tax provision for continuing operations is calculated by applyingdiffered from income taxes at the statutory federal income tax rate atrates of 35% and 34% tofor 2009 and 2008, respectively, as a result of the income from continuing operations before income taxes for the periods:following items:

  For the Year Ended December 31, 
  2008  2007 
Computed expected income tax expense at statutory rate
  (39,658)  -34.00%  (1,723)  -34.00%
Non deductible goodwill  39,026   33.46%  -   0.00%
Permanent differences  258   0.22%  87   1.72%
State taxes, net of federal benefit  (198)  -0.17%  (192)  -3.79%
Change in valuation allowance
  -   -   (27)  -0.53%
Other, net  (280)  -0.24%  652   12.88%
   (852)  -0.73%  (1,203)  -23.72%

F-19
  For the Year Ended December 31, 
  2009  2008 
             
Computed expected income tax benefit at statutory rate $(10,101)  -35.00% $(39,658)  -34.00%
Permanent differences including goodwill impairment  2,511   8.70%  39,284   33.68%
State taxes, net of federal benefit  (1,612)  -5.59%  (198)  -0.17%
Foreign taxes  (677)  -2.35%  -   - 
Valuation allowance  11,090   38.43%  -   - 
Other, net  (571)  -1.99%  (280)  -0.24%
                 
  $640   2.22% $(852)  -0.73%

The Company’s income tax receivable has been increased by the excess tax benefits from employee stock options.  The Company received an income tax deduction calculated as the difference between the fair market value of the stock issued at the time of the exercise and the option price, tax effected. The excess tax benefit from employee stock options was approximately $1.0 million and $0 for the years ended December 31, 2008 and 2007, respectively, and were reflected as an increase to common stock in the consolidated statement of stockholders equity.
FIN 48 Disclosures
There are no tax benefits included in the balance of unrecognized tax benefits at December 31, 2008 and 2007 that would result in adjustments to other tax accounts, primarily deferred taxes.Uncertain Tax Positions
 
The Company recognizes interest accruedand penalties related to unrecognizeduncertain tax benefits and penaltiespositions as income tax expense. There were no accrued penalties or interest for the years ended December 31, 2008 and 2007 related to uncertain tax benefits.
 
The Company is subject to taxationor its subsidiaries filed income tax returns in U.S. and Canada. In the US Federal, State and many foreign jurisdictions. Thenormal course of business the Company’s open tax years forof 2006 and 2007forward are subject to examinationexaminations by the taxtaxing authorities.  In addition, the tax returns for certain acquired entities are also subject to examination. As of December 31, 2008, the total liability for uncertain tax liabilities recorded in our balance sheet in Merger Related accruals is $531,000. Management believes that an adequate provision has been made for any adjustments that may result from tax examinations.  The outcome of tax examinations however, cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income tax, or goodwill, to the extent such adjustments relate to acquired entities.taxes. Although the timing or the resolution and/or closure of the audits is highly uncertain the Company does not believe that its unrecognized tax benefit will materiallyand may change inwithin the next twelve months the changes are not anticipated to be significant.
 
A year-over-year reconciliation of our liability for uncertain tax positions is as follows:

  2009  2008 
Balance at beginning of the year $531  $- 
Additions based on tax positions in prior years  220   531 
Reductions due to settlements and other  (676)  - 
         
Balance at end of the year $75  $531 

F-18

NOTE 12– Earnings (Loss) Per Share
 
Basic earnings per share (“EPS”) is computed by dividing reported earnings by the weighted average number of shares of common stock outstanding for the period. Diluted EPS includes the effect, if any, of the potential issuance of additional shares of common stock as a result of the exercise or conversion of dilutive securities, using the treasury stock method. Potential dilutive securities for the Company include outstanding stock options warrants and convertible debtwarrants.
 
The computational components of basic and diluted earnings per share are as follows:

  For The Year Ended 
  December 31, 
  2009  2008 
EPS Denominator:      
Basic weighted average shares  20,648,929   21,320,638 
Effect of dilutive securities  -   - 
Diluted weighted average shares  20,648,929   21,320,638 
         
EPS Numerator (effect on net income):         
Net loss attributable to Atrinsic, Inc. $(29,470) $(115,766)
Effect of dilutive securities  -   - 
Diluted loss attributable to Atrinsic, Inc. $(29,470) $(115,766)
         
Net loss per common share:        
Basic weighted average loss attributable to Atrinsic, Inc. $(1.43) $(5.43)
Effect of dilutive securities  -   - 
Diluted weighted average loss attributable to Atrinsic, Inc. $(1.43) $(5.43)
  For the Year Ended 
  December 31, 
  2008  2007 
EPS Denominator:      
Basic weighted average shares  21,320,638   11,331,260 
Effect of dilutive securities  -   - 
Diluted weighted average shares  21,320,638   11,331,260 
         
EPS Numerator (effect on net income):        
Net Loss $(115,766) $(4,149)
Effect of dilutive securities  -   - 
Diluted earnings $(115,766) $(4,149)
         
Earnings per share:        
Basic weighted average earnings $(5.43) $(0.37)
Effect of dilutive securities
  -   - 
Diluted weighted average earnings $(5.43) $(0.37)

 
F-20

Common stock underlying outstanding options and convertible securities and warrants were not included in the computation of diluted earnings per share for the years ended December 31, 20082009 and 2007,2008, because their inclusion would be anti dilutive when applied to the Company’s net loss per share. For the year ended December 31, 2007, the Company’s weighted average shares outstanding includes the effects of (i) 1,200,000 common shares as of January 19, 2007, after the conversion of the Series A Preferred Stock, (ii) 1,300,000 common shares as of February 12, 2007, after the conversion of the Series B Preferred Stock, (iii) 250,000 common shares which were issued and outstanding shares of MPLC immediately prior to the Exchange as of February 12, 2007, (iv) 1,666,658 common shares as of March 6, 2007, after the conversion of the Series D Preferred Stock, (v) 172,572 common shares as of June 15, 2007, after the conversion of the IVG Note, (vi) 112,578 common shares issued for odd lot rounding in connection with the Reverse Split and (vii) 55,688 common shares issued pursuant to the exercise of an option grant as of September 27, 2007.
 
Financial instruments, which may be exchanged for equity securities are excluded in periods in which they are anti-dilutive. The following shares were excluded from the calculation of diluted earnings per share:
 
Anti Diluted EPS Disclosure
  December 31, 2008  December 31, 2007 
         
Convertible note payable  322,878   20,465 
Options
  2,883,372   1,131,683 
Warrants  314,443   314,443 
Anti Dilutive EPS Disclosure      
  December 31, 
  2009  2008 
       
Convertible note payable  -   322,878 
Options  1,877,244   2,883,372 
Warrants  314,443   314,443 
Restricted Shares  11,670   110,000 
Restricted Stock Units  275,000   - 

The per share exercise prices of the options excluded were $0.48-$10.92 in 200814.00 at December 31, 2009 and $20.50-$38.34 in 2007.2008. The per share exercise prices of the warrants excluded were $3.44 - - $5.50 in 2008at December 31, 2009 and 2007.2008.
 
See notes 8 andnote 13 for further information about the convertible note payable and the options and warrants.
 
F-19
NOTE 13– Stock Based Compensation
 
2005 Plan
 
In 2005, New Motion Mobile, Inc., the Company’s wholly-owned subsidiary, established theits 2005 Stock Incentive Plan, (the “2005 Plan”), for eligible employees and other directors and consultants. Under the 2005 Plan, officers, employees and non-employees may be granted options to purchase New Motion’s common stock at no less than 100% of the market price at the date the option is granted. Since New Motion’sMotion Mobile’s stock was not publicly traded, the market price at the date of grant was historically determined by third party valuation.valuation or the Company’s Board of Directors. Incentive stock options granted to date typically vest at the rate of 33% on the anniversary of the vesting commencement date, and 1/24th of the remaining shares on the last day of each month thereafter until fully vested. The options expire ten years from the date of grant subject to cancellation upon termination of employment or in the event of certain transactions such as a merger ofIn February 2007, the Company completed an exchange transaction (the “Exchange”) pursuant to which New Motion. TheMotion Mobile became Atrinsic’s wholly-owned subsidiary. In connection with the Exchange the options granted under the 2005 Plan by New Motion Mobile were assumed by MPLC in the ExchangeAtrinsic and, at that time of the Exchange, the MPLC’sAtrinsic’s board of directors adopted a resolution to not grant any further equity awards under the 2005 Plan.
 
2007 Plan
 
On February 16, 2007, New Motion’sAtrinsic’s board of directors approved the 2007 Stock Incentive Plan (the “2007 Plan”). which made available for grant up to 1,400,000 shares of common stock. On March 15, 2007, New MotionAtrinsic received, by written consent of holders of a majority of all classes of its common and preferred stock and the consent of the holders of a majority of New Motion’sAtrinsic’s common stock and preferred stock voting together and as a single class, approval of the 2007 Plan. Under the 2007 Plan, officers, employees and non-employees may be granted options to purchase New Motion’sAtrinsic’s common stock at no less than 100% of the market price at the date the option is granted. Stock options and restricted stock granted under the 2007 Plan typically vest at the rate of 33% on the anniversary of the vesting commencement date, and 1/24th of the remaining shares on the last day of each month thereafter until fully vested. The options expire ten years from the date of grant subject to cancellation upon termination of employment or in the event of certain transactions, such as a merger of New Motion.Atrinsic.

2009 Plan

On June 25, 2009, the Company adopted the Atrinsic, Inc. 2009 Stock Incentive Plan.  Under the plan, the Company is authorized to grant equity-based awards in the form of stock options, restricted common stock, restricted stock units, stock appreciation rights, and other stock based awards to employees (including executive officers), directors and consultants of the Company and its subsidiaries. The maximum number of shares available for grant under the plan is 2,750,000 shares of common stock.  The number of shares available for award under the plan is subject to adjustment for certain corporate changes and based on the types of awards provided, all in accordance with the provisions of the plan.

Following adoption of the 2009 Stock Incentive Plan, executives were granted 750,000 restricted stock units under the plan which will vest after the closing of trading on the date that the average per share trading price of the Company’s common stock during any period of 10 consecutive trading days equals or exceeds $7.50 or upon a change in control of the Company, as defined in the plan. In addition, the Company adopted a one-time option exchange program pursuant to which 283,334 restricted stock units were granted in exchange for 850,000 options held by certain executives of the Company. On each of December 31, 2009, December 31, 2010, and December 31, 2011, one-third of the restricted stock units held by each individual will be eligible for vesting in accordance with quantitative and qualitative measures to be determined by the Compensation Committee of the Board. From an accounting perspective the 283,334 grants from the exchange program have not been granted since the Board has not determined the quantitative or qualitative measures under which these restricted share units will vest. On October 6, 2009, Burton Katz resigned from his position as Chief Executive Officer of the Company and also resigned from the Company’s Board of Directors. On October 20, 2009, the Company and Burton Katz entered into a Separation and Mutual Release Agreement which provided that the 375,000 restricted stock units held by Mr. Katz (of which 100,000 were from the exchange program and were not granted from an accounting perspective) are cancelled along with all rights of Mr. Katz to receive shares of common stock of the Company pursuant to such restricted stock units. On December 16, 2009, Andrew Zaref resigned as Chief Financial Officer of the Company and Mr. Zaref entered into a Separation and Mutual Release agreement which led to the cancellation of the 266,667 (of which 66,667 were from the exchange program and were not granted from an accounting perspective) restricted stock units held by Mr. Zaref. As a result of the resignation of these executives, the forfeiture rate on stock based compensation expense increased to 51% in 2009 compared to 20% in 2008.
 
Stock based compensation is expensed using the straight line attribution method and reflects the application of an annual forfeiture rate.

 
F-21

Option Valuation
 
To value awards granted, the Company uses the Black-Scholes option pricing model. The Company determines the assumptions in this pricing model at the grant date. For options granted prior to January 1, 2006, New MotionAtrinsic used the minimum value method for volatility, as permitted by SFAS No. 123, resulting in 0% volatility. For options granted or modified after January 1, 2006, New MotionAtrinsic bases expected volatility on the historical volatility of a peer group of publicly traded entities. New MotionAtrinsic has limited history with its stock option grants, during which time there has been limited stock option exercise and forfeiture activity on which to base expected maturity. Management estimates that on average, options will be outstanding for approximately 7 years. New MotionAtrinsic bases the risk-free rate for the expected term of the option on the U.S. Treasury Constant Maturity rate as of the grant date. There were no options granted in 2009.
 
F-20

The fair value of each option award during the year ended December 31, 2008 was estimated on the date of grant using a Black-Scholes valuation model that used the assumptions noted in the following table:
 
  2008 2007
     
Strike Price $4.16 - $10.92 $6 - $14
Expected life 5.6 years 5.6 years
Risk free interest rate 3.0% to 3.5% 4.4% - 4.8%
Volatility 58.0% 61.2% - 66.3%
Fair market value per share $2.23 - $4.57 $3.75 - $7.83
2008
Strike Price$4.16 - $10.92
Expected life5.6 years
Risk free interest rate3.0% to 3.5%
Volatility58.0%
Fair market value per share$2.23 - $4.57
 
Stock Options

Stock option activity under the 2005 Plan and 2007 Plan was as follows (amounts presented on a post-Reverse Split basis):follows:

     Weighted-  Estimated 
     Average  Aggregate 
  Number of  Exercise  Intrinsic 
  Shares  Price  Value 
          
Outstanding at January 1, 2008  1,145,677  $2.94  $12,671 
Traffix options converted to NWMO  1,508,069  $8.37     
Granted  325,000  $10.72     
Exercised  (561,737) $0.61     
Forfeited or cancelled  (506,821) $8.25     
Outstanding at December 31, 2008  1,910,188  $7.82  $81,527 
Vested or expected to vest at December 31. 2008  1,491,075  $7.35  $81,527 
Exercisable at December 31, 2008  121,682  $0.48  $81,527 
             
Outstanding at January 1, 2009  1,910,188  $7.82  $81,527 
Granted  -         
Exercised  -         
Forfeited or cancelled  (396,128) $9.93     
Outstanding at December 31, 2009  1,514,060  $7.28  $20,671 
Vested or expected to vest at December 31, 2009  1,499,768  $7.29  $20,671 
Exercisable at December 31, 2009  121,592  $0.48  $20,671 
     Weighted-  Estimated 
     Average  Aggregate 
  Number of  Exercise  Intrinsic 
  Shares  Price  Value 
Outstanding at January 1, 2007  1,349,594  $0.51  $15,740 
Granted  468,700  $6.47     
Exercised  (55,688) $0.48     
Forfeited or cancelled  (616,929) $0.53     
Outstanding at December 31, 2007  1,145,677  $2.94  $12,671 
Vested or expected to vest at December 31. 2007  1,088,393  $2.94  $12,038 
Exercisable at December 31, 2007  687,834  $1.32  $8,722 
             
Outstanding at January 1, 2008  1,145,677  $2.94  $12,671 
Traffix options converted to NWMO  1,508,069  $8.37     
Granted  325,000  $10.72     
Exercised  (561,737) $0.61     
Forfeited or cancelled  (506,821) $8.25     
Outstanding at December 31, 2008  1,910,188  $7.82  $82 
Vested or expected to vest at December 31, 2008  1,491,075  $7.35  $95 
Exercisable at December 31, 2008  121,682  $0.48  $82 

For the year ended December 31, 2008 and 2007, the company received $344,000 and $27,000 in proceeds from option exercises.
 
Grants Outside of PlanPlans
 
In 2008, the Company issued options to purchase 500,000 shares of the Company’s common stock to executives of the Company. These options were issued outside of the Plan due to a limitation in the number of shares available under the Plan.

As a result of the adoption of the Company’s one-time option exchange program on June 25, 2009, these shares were cancelled. The remaining options to purchase 363,184 shares of common stock are exercisable until October 5, 2010 as per the Company’s Separation and Mutual Release Agreement with Burton Katz.
F-22

Awards granted outside the Plan are valued in the same manner as options granted under the Plan, including the methods of deciding upon the assumptions used in the Black-Scholes valuation. The fair value of the option award outside the Plan was estimated on the date of grant using a Black Scholes valuation model that used the assumptions noted in the following table:

F-21
 
Stock option activity outside the Plan was as follows:

     Weighted-  Estimated 
     Average  Aggregate 
  Number of  Exercise  Intrinsic 
  Shares  Price  Value 
          
Outstanding at January 1, 2008  363,184  $2.34  $- 
Granted  500,000  $8.22     
Exercised  -         
Forfeited or cancelled  -         
Outstanding at December 31, 2008  -         
Vested or expected to vest at December 31, 2008  863,184  $5.74  $- 
Exercisable at December 31, 2008  363,184  $2.34  $- 
             
Outstanding at January 1, 2009  863,184  $5.74  $- 
Granted  -         
Exercised  -         
Forfeited or cancelled  (500,000) $8.22     
Outstanding at December 31, 2009  363,184  $2.34  $- 
Vested or expected to vest at December 31, 2009  363,184  $2.34  $- 
Exercisable at December 31, 2009  -         
  
Number of
Shares
  
Weighted-
Average
Exercise
Price
  
Estimated
Aggregate
Intrinsic
Value
 
Outstanding at January 1, 2007  363,184  $2.34  $4,468 
Granted  -  $-     
Exercised  -  $-     
Forfeited or cancelled  -  $-     
Outstanding at December 31, 2007  363,184  $2.34  $4,468 
Vested or expected to vest at December 31, 2007  363,184  $2.34  $4,468 
Exercisable at December 31, 2007  161,415  $2.34  $1,882 
             
Outstanding at January 1, 2008  363,184  $2.34     
Granted  500,000  $8.22     
Exercised  -         
Forfeited or cancelled  -         
Outstanding at December 31, 2008  863,184  $5.74  $- 
Vested or expected to vest at December 31, 2008  363,184  $2.34  $- 
Exercisable at December 31, 2008  -  $2.34  $- 

Summary Option Information
 
The following table summarizes information concerning currently outstanding and exercisable stock options as of December 31, 2008:2009:
 
Range of
Exercise
Prices
  
Options 
Outstanding
  
Weighted 
Average 
Remaining 
Life (years )
  
Weighted 
Average 
Exercise 
Price
  
Options 
Exercisable
  
Weighted
Average
Exercise
Price
 
    Weighted  Weighted     Weighted 
Range of    Average  Average     Average 
Exercise Options  Remaining  Exercise  Options  Exercise 
Prices Outstanding  Life (years)  Price  Exercisable  Price 
                                 
2005 Plan :
                                 
 $0.48  121,682  7.2  $0.48  121,682  $0.48 
$0.48  121,592   6.2  $0.48   121,592  $0.48 
 $2.34  1,076  7.6  $2.34  1,076  $2.34                     
2007 Plan :
                                            
 $6.00  406,200  8.1  $6.00  287,087  $6.00 
$6.00  356,200   7.1  $6.00   341,908  $6.00 
$14.00  25,000   7.7  $14.00   25,000  $14.00 
Traffix Options converted to AtrinsicTraffix Options converted to Atrinsic                 
$0 - $4.99  205,353   1.4  $3.90   205,353  $3.90 
$5.00 - $9.99  519,431   3.4  $8.77   519,431  $8.77 
$10.00 - $14.99  286,484   4.3  $10.89   286,484  $10.89 
 $10.92  325,000  9.1  $11.16  25,000  $14.00                     
Outside of Plans :                                            
 $2.34  363,184  7.7  $2.34  363,184  $2.34 
 $4.16  200,000  9.5  $4.16  -  - 
 $10.92  300,000  9.1  $10.92  -  - 
$2.34  363,184   6.7  $2.34   363,184  $2.34 

 
F-23F-22
 

Restricted Stock
 
The following table summarizes restricted stock activity for the years ended December 31, 20082009 and 2007.2008.
 
     Weighted Avg. 
     Grant Date 
  Number of  Fair Value 
  Shares  Per Share 
       
Outstanding at January 1, 2008  75,000  $16.40 
Granted  132,005  $8.33 
Exercised  -  $- 
Forfeited or cancelled  (97,005) $14.57 
Outstanding at December 31, 2008  110,000  $8.33 
Vested or expected to vest at December 31. 2008  -  $- 
Exercisable at December 31, 2008  -  $- 
         
Outstanding at January 1, 2009  110,000  $8.33 
Granted  38,352  $1.13 
Exercised  (91,396) $5.31 
Forfeited or cancelled  (45,286) $8.33 
Outstanding at December 31, 2009  11,670  $8.33 
Vested or expected to vest at December 31, 2009  -  $- 
Exercisable at December 31, 2009  -  $- 

Restricted Stock Units

In 2009, the Company adopted the Atrinsic, Inc. 2009 Stock Incentive Plan. Under this plan, 750,000 restricted stock units were granted to certain executives of the Company. With the resignation of Burton Katz, the Chief Executive Officer, and Andrew Zaref, the Chief Financial Officer, 475,000 of these restricted stock units were cancelled. The following table summarizes the activity for 2009.

  Number of  Fair Value 
  Shares  Per share 
       
Outstanding at January 1, 2009  -  $- 
Granted  750,000  $0.28 
Exercised  -  $- 
Forfeited or cancelled  (475,000) $0.28 
Outstanding at December 31, 2009  275,000  $0.28 
Vested or expected to vest at December 31 2009  -  $- 
Exercisable at December 31, 2009  -  $- 

     
Weighted Avg.
Grant Date
 
  Number of  Fair Value 
  Shares  Per Share 
Outstanding at January 1, 2007  -  $- 
Granted  75,000   16.40 
Exercised  -   - 
Forfeited or cancelled  -   - 
Outstanding at December 31, 2007  75,000  $16.40 
Vested or expected to vest at December 31. 2007  -     
Exercisable at December 31, 2007  -     
         
Outstanding at January 1, 2008  75,000  $16.40 
Granted  132,005   8.33 
Exercised  -   - 
Forfeited or cancelled  (97,005)  14.57 
Outstanding at December 31, 2008  110,000  $8.33 
Vested or expected to vest at December 31, 2008  -  $- 
Exercisable at December 31, 2008  -  $- 
F-23
 
Future amortizationAt December 31, 2009, there was $0.6 million of the fair value oftotal unrecognized compensation cost related to unvested stock options, restricted stock, and restricted stock outstanding as of December 31, 2008,units including options granted outside of the 2005, 2007, and 2007 Plans,2009 Plan.  That cost is shown in the following table:
  Fair Value to 
(in thousands) Be Amortized 
2009 $1,641 
2010  1,291 
2011  167 
  $ 3,099  
expected to be recognized over a weighted average period of one year.
 
Total non-cash equity based compensation expense included in the consolidated Statement of Operations for the years ended December 31, 2009 and 2008 and 2007 was $1.35$0.9 million and $1.12$1.3 million, respectively, as follows:
 
 For the Year Ended 
 December 31, 
 2009  2008 
 2008  2007       
Product and distribution $7  $288  $111  $7 
Selling and marketing 3  -   -   3 
General and administrative and other operating 1,272  829   746   1,272 
                
 $1,282  $1,117  $857  $1,282 

For the year ended December 31, 20082009 and 20072008 compensation expense relating to options was recorded net of a forfeiture rate of approximately 20%51% and 5%20% respectively. No stock-based compensation costs were capitalized as part of the cost of an asset for any of the periods presented. Additionally, SFAS No. 123(R) (ASC Subtopic 718) requires that the tax benefit from the tax deduction related to share-based compensation that is in excess of recognized compensation costs be reported as a financing cash flow rather than an operating cash flow.

F-24

Warrants
 
In 2006, the Company issued Secured Convertible Notes to Scott Walker and SGE, a corporation owned by Allan Legator, the Company’s then Chief Financial Officer. These Secured Convertible Notes were repaid in full with interest in September 2006. Pursuant to the terms of the Secured Convertible Notes, on January 26, 2007, Scott Walker was granted a right to receive a warrant to purchase, on a post-Reverse Split basis, 14,382 shares of common stock at an exercise price of $3.44 per share and SGE was granted a right to receive a warrant to purchase, on a post-Reverse Split basis, 9,152 shares of common stock at an exercise price of $3.44 per share.

In February 2007, the Company completed an exchange transaction pursuant to which New Motion Mobile became our wholly-owned subsidiary. In connection with the exchange transaction, we raised gross proceeds of approximately $20 million in equity financing through the sale of our Series A Preferred Stock, Series B Preferred Stock and Series D Preferred Stock.  In connection with the Series A, B and D Preferred Stock financings, a placement agent was paid a cash fee equal to 7.5% of the gross proceeds from the financing and five year warrants to purchase 290,909 shares of common stock at an average exercise price of $5.50 per share (post-Reverse Split),on a post reverse-split basis, which was equivalent to the average per share valuation of the Company for the Series A, B and D Preferred Stock financings.
 
The fair values of the warrants were between $2.42 and $4.31 and were estimated on the date of grant using a Black-Scholes valuation model. To calculate the fair value, volatility of 86%, interest rate of 5% and expected life of 5 years was used. The warrants issued during the year ended December 31, 20072008 are fully vested and exercisable on the date of grant. The Company did not have any warrant activity prior to January 1, 2007.

F-24


 
The following table summarizes information concerning currently outstanding and exercisable common stock warrants as of December 31, 2008:2009:

 
 
    Weighted  Weighted  
 
    
Range of
    Average  Average       
Exercise
 Warrants  Remaining  Exercise  Warrants  Fair 
Prices
 Outstanding  
Life (years)
  
Price
  Exercisable  
Value
 
                 
$3.44  23,534   2.1  $3.44   23,534  $2.42 
$5.50  290,909   2.2  $5.50   290,909  $4.31 
     Weighted  Weighted     Weighted 
Range of    Average  Average     Average 
Exercise Warrants  Remaining  Exercise  Warrants  Exercise 
Prices Outstanding  Life (years)  Price  Exercisable  Price 
                
$            3.44  23,534   3.1  $3.44   23,534  $3.44 
                     
$            5.50  290,909   3.2  $5.50   290,909  $5.50 

NOTE 14 - Commitments and Contingencies

Contingencies, AssertedOn March 10, 2010, and Unasserted Claims
In 2007,subsequent to our fiscal year-end, Atrinsic received final approval of its settlement to its Class Action proceeding in the OfficeState of California on Allen v. Atrinsic, Inc. f/k/a New Motion, Inc., pending in Los Angeles County Superior Court.  The settlement covers all of the Attorney Generalcompany’s mobile products, web sites and advertizing practices through December 2009. All costs of the settlement and defense were accrued for in 2008, therefore this settlement did not have an impact on the Company’s results of operations in 2009 and will not impact the Company’s results of operations in 2010.

As a result of the State of Florida commenced an investigationCalifornia Settlement and final approval of the  advertisingjudgment, Atrinsic has filed stays, and business practiceswill file dispositive motions, in the following actions, which it is either directly named in or has assumed the defense of the third party wireless content industry including the Companyfollowing cases: Baker v. Sprint Nextel Corp., Motricity, Inc., and its acquired entities, namely Traffix,New Motion, Inc. On February 12, 2009, the Company approached thepending in Dade County Superior Court in Florida,  Attorney General to volunteer its complianceStewart v New Motion, Inc. and cooperate with the ongoing investigation, and contribute to the remediation and educational initiatives of the Florida Attorney General.  In connection with this matter, at December 31, 2008 the Company estimatesMotricity, Inc., pending in Hennepin County District Court in Minnesota, Rynearson v. Motricty, Inc, pending in King County Superior Court in Washington Walker v. Motricity, Inc., pending in Alameda County Superior Court in California.  Management believes that total costs will approximate $1.125 million which is included Accrued Expenses in the Consolidated Balance Sheet through purchase accounting.
The Company is also named in two Class Action Lawsuits (in Florida and California) involving allegations concerning the Company's marketing practices associated with some of its services billed and delivered via wireless carriers. The Company is disputing the allegations and is vigorously defending itself in these matters. In one of these matters the Company has received a Summary Judgment on its Motion to Dismiss related to a number of the allegations made in the original complaint. The Companyit has accrued for theall probable and estimable related costs through purchase accounting in the amount of $0.275 million in connection with these matters which are included in Accrued Expenses in the Consolidated Balance Sheet.

actions.
F-25

On February 2, 2009 the Companywe filed a complaint, in the Superior Court of the State of California for the County of Los Angeles, against Mobile Messenger Americas, Inc. and Mobile Messenger PTY LTD, and its subsidiarylater amended to name Mobile Messenger Americas Inc. (“MobilePty, Ltd in place of the latter (collectively, “Mobile Messenger”), to recover monies owed the Companyto us in connection with transaction activity incurred in the ordinary and normal course andof business.  The complaint also included declaritorysought declaratory relief concerning demands made by Mobile Messenger'sMessenger for indemnification infor amounts paid by Mobile Messenger's settlement in its Florida Class Action Matter which it settledMessenger in late 2008 (“in settlement of a class action lawsuit in Florida, Grey vs.v. Mobile Messenger”Messenger, et al. (the “Florida Class Action”).  Mobile Messenger a party also involved in the Florida Attorney General investigation described herein, brought upon the Companyus a cross complaint, filed in April 2009, seeking injunctive relief, indemnification damages exceeding $17 million, and recoupmentfor the settlement of attorney’s fees.  The Settlement in Gray vs. Mobile Messenger was represented by KamberEdelson, LLC, which now represents Mobile Messenger in the action against the Company on a contingency basis. The same firm represents the Plaintiffs in the Florida Class Action filed againstand other matters, damages allegedly exceeding $17 million, declaratory relief and recoupment of attorneys fees.  In November 2009, we reached a settlement of the Company, as well as another plaintiff, an internet marketing company basedaction in NY,principle with Mobile Messenger.  The terms of this settlement are to be confidential but in general will result in a commercial dispute over paymentscomplete dismissal of the entire action, including the cross-complaint, with prejudice. The settlement is not expected to have a material impact on our results from operations, beyond what we have already expensed and accrued for marketing services and potential damages concerning that company's marketing practices. The Company disputes the allegations and intends to vigorously defend itself in these matters considering, among other things, the specific facts surrounding the underlying claims against the Company are without merit.  The Company will also seek to limit any participation in any settlement to recoup legal fees citing an apparent conflict of interest in that the attorney representing Mobile Messenger (Kamber Edelson, LLC,) whom is also representing numerous other parties taking action in the aforementioned and other related matters.2009

In the ordinary course of business, the Company is involved in various disputes, which are routine and incidental to the business and the industry in which it operates. In the opinion of management the results of such disputes will not have a significant adverse effect on the financial position or the results of operations of the Company exceptCompany. Of approximately $9.6 million in total accrued expenses as otherwise disclosed.of December 31, 2009, $2.1 million is associated with legal contingencies disclosed above.

F-25
 
Lease and Employment Commitments

The following table shows the Company’s future commitments for future minimum lease payments required under operating leases for office space and equipment that have remaining non cancellable lease terms in excess of one year future commitments under investment and marketing agreements, and future commitments under employment agreements, as of December 31, 2008:2009:

 
Operating
Leases
  
Employment
Agreements
  
Investments &
Marketing
Advances
  
Note and
Interest
payable
  Operating  Employment  Total 
2009 $1,502  $1,333  $1,570  $1,925 
(in thousands) Leases  Agreements  Obligations 
2010 1,246  1,250  -  -  $1,165  $717  $1,882 
2011 1,184  271  -    -   1,127   135   1,262 
2012 and thereafter  5,912   -   -   - 
2012  886   -   886 
2013  936   -   936 
2014  987   -   987 
2015 and thereafter  3,618   -   3,618 
 $9,844  $2,854  $1,570  $1,925             
 $8,719  $852  $9,571 

In certain situations, the Company does have minimum fee obligations assuming the counterparty performs the required level of services.  We feel that the level of business activity under normalRent expense for all operating leases in 2009 and ordinary circumstances exceeds the minimum thresholds. Therefore, the amounts are not included in the table above.2008 was $1.3million and $1.4 million, respectively. 

NOTE 15 - Employee Benefit Plan
 
The Company’s employee benefit plan covers all eligible employees with and includes a savings plan under Section 401(k) of the Internal Revenue Code. The savings plan allows participants to make pretax contributions up to 90% of their earnings, with the Company contributing an additional 35% of up to six percent of an employee’s compensation. During the yearyears ended December 31, 20082009 and 2007,2008, the Company contributed approximately $27,000$78,000 and 32,000$27,000 to the plan.
 
NOTE 16 – Geographic Data
 
Geographic information about the Company’s long-lived assets is presented below. Revenues were exclusively generated in the United States. 

  Years Ended December 31, 
(In thousands) 2009  2008 
       
Canada $1,238  $1,245 
United States  9,569   14,789 
         
  $10,807  $16,034 
  Years Ended December 31, 
  2008  2007 
         
Canada $1,245  $- 
United States  14,789   1,459 
  $16,034  $1,459 


F-26
NOTE 17 – Recent Accounting Pronouncements

Adopted in 2009

In August 2009, the FASB issued ASU 2009-05 “Measuring Liabilities at Fair Value” (“ASC 820-10”). ASC 820-10 is effective for interim and annual reporting periods beginning after August 27, 2009.  It clarifies the application of certain valuation techniques in circumstances in which a quoted price in an active market for the identical liability is not available and clarifies that when estimating the fair value of a liability, the fair value is not adjusted to reflect the impact of contractual restrictions that prevent its transfer.  We adopted ASC 820-10 for the year ended December 31, 2009 and it did not have a material impact on our consolidated financial statements.
F-26

In the third quarter of 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The ASC is the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the Securities and Exchange Commission (SEC).  The adoption of the ASC did not have an impact on the Company’s results of operations or financial position.

In June 2009, the FASB issued SFAS No. 165, “Subsequent Events”, which has been superseded by the FASB codification and included in ASC 855-10.  ASC 855-10 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  The effective date of ASC 855-10 is interim or annual financial periods ending after June 15, 2009.  The adoption of ASC 855-10 did not have a material effect on the Company’s consolidated financial statements.
 
In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” EITF 03-6-1Securities” which has been superseded by the FASB codification ASC 260-10 gives guidance as to the circumstances when unvested share-based payment awards should be included in the computation of EPS. EITF 03-6-1ASC 260-10 is effective for fiscal years beginning after December 15, 2008. We are currently assessing the impactThe adoption of EITF 03-6-1 on our consolidated financial statements.
In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162 ("SFAS 162"), The Hierarchy of Generally Accepted Accounting Principles. This statement identifies the sources of accounting principles and the framework for selecting the principles used in preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. GAAP. This statement is effective November 15, 2008. The Company will adopt SFAS 162 as required, and its adoption isASC 260-10 did not expected to have an impact on the consolidated financial statements.
In April 2008, the FASB issued FASB Staff Position No. FSP 142-3, “Determining the Useful Life of Intangible Assets” FSP 142-3 amends the factors to be considered in determining the useful life of intangible assets. Its intent is to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure its fair value. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. We are currently assessing the impact of FSP 142-3 on our consolidatedCompany’s financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosure about Derivative Instruments and Hedging Activities,” an amendment of FASB Statement No. 133. SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement No. 133 and its related interpretations and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently evaluating the impact SFAS No. 161 may have its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” which we refer to as SFAS No. 160. SFAS No. 160 establishes requirements for ownership interests in subsidiaries held by parties other than us (minority interests) be clearly identified and disclosed in the consolidated statement of financial position within equity, but separate from the parent's equity. Any changes in the parent's ownership interests are required to be accounted for in a consistent manner as equity transactions and any noncontrolling equity investments in deconsolidated subsidiaries must be measured initially at fair value. SFAS No. 160 is effective, on a prospective basis, for fiscal years beginning after December 15, 2008; however, presentation and disclosure requirements must be retrospectively applied to comparative financial statements. The Company will adopt SFAS No. 160 in our fiscal year ending December 31, 2009. However, the Company is currently evaluating the impact of SFAS No. 160 may have its consolidated financial statements.
On February 12, 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 157-2, “Effective Date of SFAS No. 157,” which defers the effective date of SFAS 157 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. This FSP delayed the implementation of SFAS 157 for the Company’s accounting of goodwill, acquired intangibles, and other nonfinancial assets and liabilities that are measured at the lower of cost or market until January 1, 2009.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141Rwhich has been superseded the FASB codification and included in ASC 805. ASC 805 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 141RASC 805 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 141RASC 805 transaction-related expenses, which were previously capitalized, will be expensed as incurred. The adoption of ASC 805 did not have a material effect on our results of operations or financial position.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” which has been superseded by the FASB codification and included in ASC 810-10-65-1 and establishes requirements for ownership interests in subsidiaries held by parties other than us (minority interests) be clearly identified and disclosed in the consolidated statement of financial position within equity, but separate from the parent's equity. Any changes in the parent's ownership interests are required to be accounted for in a consistent manner as equity transactions and any noncontrolling equity investments in deconsolidated subsidiaries must be measured initially at fair value. ASC 810-10-65-1 is effective, on a prospective basis, for fiscal years beginning after December 15, 2008; however, presentation and disclosure requirements must be retrospectively applied to comparative financial statements. Except for presentation and disclosure requirements, the adoption of ASC 810-10-65-1 had no material impact on the Company’s financial statements.

Not Yet Adopted

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS No. 167”) which has been superseded by the FASB Codification and included in ASC 810 to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as one with the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity that could potentially be significant to the variable interest. These revisions to ASC 810 will be effective as of the beginning of the annual reporting period commencing after November 15, 2009 and will be adopted by the Company in the first quarter of 2010.  We do not believe that the adoption of these revisions to ASC 810 will have a material impact to our results of operations or financial position.
In October 2009, FASB approved for issuance Emerging Issues Task Force (EITF) issue 08-01, Revenue Arrangements with Multiple Deliverables which has been superseded by FASB codification and included in ASC 605-25. This statement provides principles for allocation of consideration among its multiple-elements, allowing more flexibility in identifying and accounting for separate deliverables under an arrangement. The EITF introduces an estimated selling price method for valuing the elements of a bundled arrangement if vendor-specific objective evidence or third-party evidence of selling price is not available, and significantly expands related disclosure requirements. This standard is effective on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Alternatively, adoption may be on a retrospective basis, and early application is permitted. The Company is currently evaluating the impact of adopting this pronouncement.

 
F-27
 
 
In February 2007, FASB issued SFAS No. 159, The Fair Value OptionNOTE 18 – Subsequent Events

We have evaluated events subsequent to the balance sheet date for the year ended December 31, 2009. Except for the matters separately disclosed in Note 4 (pertaining to Mango), Note 5 (pertaining to Kazaa) and Note 14 (pertaining to the settlement of class action proceeding in the State of California), there have not been any material events that have occurred  that would require adjustments to or disclosure in our Consolidated Financial Assets and Financial Liabilities (“SFAS 159”), which gives companies the option to measure eligible financial assets, financial liabilities and firm commitments at fair value (i.e., the fair value option), on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or liability or upon entering into a firm commitment. Subsequent changes in fair value must be recorded in earnings. SFAS 159 is effective for financial statements issued for fiscal year beginning after November 15, 2007. The Company elected not to adopt the provisions of SFAS 159 for its financial instruments that are not required to be measured at fair value.Statements.

NOTE 18–19 – Valuation and Qualifying Accounts
 
The following table provides information regarding the Company’s allowance for doubtful accounts and deferred tax valuation allowance.
 
        Write-offs/    
Description Balance  Charged to  Payments/  Balance 
(In thousands) January 1,  Expenses  Other  December 31, 
2008            
Allowance for doubtful accounts $565   2,141   232  $2,938 
Deferred tax assets — valuation allowance $-   -   -  $- 
2009                
Allowance for doubtful accounts $2,938   1,991   (634) $4,295 
Deferred tax assets — valuation allowance $-   11,090   -  $11,090 
Supplemental Financial Information
The following table presents unaudited quarterly results of operations for 2009 and 2008. These quarterly results reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results.
    Quarter Ended 
    March 31,  June 30,  September 30,  December 31, 
  2009  2009  2009  2009 
Total revenues $23,548  $17,008  $14,873  $13,660 
Net loss before income taxes  (1,790)  (2,865)  (5,061)  (19,146)
Provision (benefit) for taxes  (670)  (930)  (2,736)  4,976 
Net loss  (1,120)  (1,935)  (2,325)  (24,122)
Equity in loss (income) of Investee  85   (33)  61   (173)
Net (loss)  Income attibutable to non-controlling interest  (18)  46   -   - 
Net (loss) income attributable to Atrinsic,Inc. $(1,187) $(1,948) $(2,386) $(23,949)
Net loss per share:                
Basic $(0.06) $(0.10) $(0.12) $(1.15)
Diluted $(0.06) $(0.10) $(0.12) $(1.15)
Weighted average number of common shares:                
Basic  20,790,942   20,294,869   20,634,558   20,841,331 
Diluted  20,790,942   20,294,869   20,634,558   20,841,331 
        Write-offs/    
  Balance  Charged to  Payments/  Balance 
Description January 1,  Expenses  Other  December 31, 
2007            
Allowance for doubtful accounts  1,263     $(698) $565 
Deferred tax assets — valuation allowance $27   -   (27) $- 
2008                  
Allowance for doubtful accounts $565   2,141   232  $2,938 
Deferred tax assets — valuation allowance  -   -   -   - 

F-28
  Quarter Ended 
  March 31,  June 30,  September 30,  December 31, 
  2008  2008  2008  2008 
Total revenues $28,738  $31,451  $30,819  $22,876 
Net (loss) Income before income taxes  (470)  1,786   (98)  (117,860)
Provision (benefit) for taxes  (174)  768   (77)  (1,369)
Net (loss) income  (296)  1,018   (21)  (116,491)
Equity in loss of Investee  -   -   -   - 
Net (loss) income attibutable to non-controlling interest  (29)  (48)  (15)  68 
Net (loss) income attributable to Atrinsic,Inc. $(267) $1,066  $(6) $(116,559)
Earnings (loss) income per share:                
Basic $(0.01) $0.05  $(0.00) $(5.37)
Diluted $(0.01) $0.05  $(0.00) $(5.37)
Weighted average number of common shares:                
Basic  18,932,871   22,664,860   22,545,451   21,689,795 
Diluted  18,932,871   23,176,573   22,545,451   21,689,795 

F-29
 

 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.
 
None
 
ITEM 9A(T) CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
Members of the our management, including our Chief Executive Officer, Burton Katz,Jeffrey Schwartz, and Chief Financial Officer, Andrew Zaref,Thomas Plotts, have evaluated the effectiveness of our disclosure controls and procedures, as defined by paragraph (e) of Exchange Act Rules 13a-15 or 15d-15, as of December 31, 2008,2009, the end of the period covered by this report.  Based upon that evaluation, Messrs. KatzSchwartz and ZarefPlotts concluded that our disclosure controls and procedures were effective as of December 31, 2008.2009.
 
Management’s Report on Internal Control over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.  Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Our internal control over financial reporting includes those policies and procedures that:
 
(i)           pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
 
(ii)           provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and directors; and
 
(iii)          provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition our assets that could have a material effect on our financial statements.
 
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008.2009.  In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.  Based on our assessment and those criteria, we have concluded that our internal control over financial reporting was effective as of December 31, 2008.2009.
 
This annual report does not include an attestation report by our registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only our management report in this annual report.
 
Changes in Internal Control over Financial Reporting
 
There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the fourth quarter ended December 31, 20082009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 9B. OTHER INFORMATION
 
None.
The description of the Marketing Services Agreement and the Master Services Agreement, contained under Item 7 under the heading “Executive Overview” beginning on page 21 is incorporated under this Item 9B by reference.

The description of the company’s settlement of its Class Action proceeding in the State of California on Allen V. Atrinsic f/k/a New Motion, Inc. pending in the Los Angeles County Superior Court and the description of the company’s settlement with Mobile Messenger, each as described under Item 3, Legal Proceedings, are incorporated under this Item 9B by reference. 
3432

Part III
 
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
 
The information required by this item will be included in an amendment to this report on form 10-K or a proxy statement which shall be filed with the Securities and Exchange Commission no later than April 29, 2009.30, 2010.
 
ITEM 11. EXECUTIVE COMPENSATION
 
The information required by this item will be included in an amendment to this report on form 10-K or a proxy statement which shall be filed with the Securities and Exchange Commission no later than April 29, 2009.30, 2010.
 
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item will be included in an amendment to this report on form 10-K or a proxy statement which shall be filed with the Securities and Exchange Commission no later than April 29, 2009.30, 2010.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
The information required by this item will be included in an amendment to this report on form 10-K or a proxy statement which shall be filed with the Securities and Exchange Commission no later than April 29, 2009.30, 2010.
 
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
On January 30, 2009, we appointed KPMG, LLP as our new independent registered public accounting firm following the resignation of McGladrey and Pullen LLP, our former auditors, on January 21, 2009.  We originally engaged McGladrey & Pullen LLP as our independent registered public accountant on May 7, 2008.  Prior to their resignation, McGladrey and Pullen LLP had not commenced any procedures with regard to the December 31, 2008 audit nor did they report on our consolidated financial statements during their engagement.
 
Prior to May 7, 2008, Windes & McClaughry was engaged as our principal independent accounting firm and reported on our December 31, 2007 consolidation financial statements.  Prior to February 12, 2007, our principal auditors were Carlin, Charron & Rosen, LLP.
 
The following table sets forth fees billed to us by our auditors, KPMG LLP during fiscal year ending December 31, 2008,2009 and Windes & McClaughry  during fiscal year ending December 31, 20072008 for: services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, services by our auditors that are reasonably related to the performance of the audit or review of our financial statements and that are not reported as Audit Fees, services rendered in connection with tax compliance, tax advice and tax planning, and all other fees for services rendered.

(In thousands) December 31, 2008  December 31, 2007  December 31, 2009  December 31, 2008 
Audit related Fees $285  $280 
      
Audit Fees $375  $285 
Audit Related Fees  5   - 
Tax Fees -  126   -   - 
All Other Fees      103   -   - 
        
Total $285  $509  $380  $285 

Our audit committee was directly responsible for interviewing and retaining our independent accountants, considering the accounting firms’ independence and effectiveness, and pre-approving the engagement fees and other compensation to be paid to, and the services to be conducted by, the independent accountants mentioned above. The audit committee pre-approved 100% of the services described above.

 
3533
 

Part IV
 
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
(a)           Documents filed as part of this report
 
1. 
1. Financial Statements..
 
See Index to Financial Statements in Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.
 
2. 
2. Financial Statement Schedules..
 
All financial statement schedules are omitted because the information inis inapplicable or presented in the Notes to Financial Statements.
 
a.3.           Exhibits.  See Item 15(b) below.
 
(b)         Exhibits.  We have filed, or incorporated into this Form 10-K by reference, the exhibits listed on the accompanying Index to Exhibits immediately following the signature page of this Form 10-K.
 
(c)         Financial Statement Schedule.  See Item 15(a) above.

 
3634
 


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 New Motion,Atrinsic, Inc.
 
/s/ Andrew ZarefThomas Plotts
 
By: Andrew ZarefThomas Plotts
Its: Chief Financial Officer (Principal Financial and Accounting Officer)(Interim)
  Date: March 26, 200930, 2010
 
POWER OF ATTORNEY
 
The undersigned directors and officers of New Motion,Atrinsic, Inc. do hereby constitute and appoint Burton KatzJeffrey Schwartz and Andrew Zaref,Thomas Plotts, and each of them, with full power of substitution and resubstitution, as their true and lawful attorneys and agents, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorney and agent, may deem necessary or advisable to enable said corporation to comply with the Securities Exchange Act of 1934, as amended and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments hereto, and we do hereby ratify and confirm all that said attorneys and agents, or either of them, shall do or cause to be done by virtue hereof.
 
In accordance with the Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
Name Title Date
     
/s/ Burton KatzJeffrey Schwartz   Chief Executive Officer and March 26, 200930, 2010
Burton KatzJeffrey Schwartz Director
   (Principal(Principal Executive Officer)  
     
/s/ Andrew ZarefThomas Plotts   Chief Financial Officer and(Interim) March 26, 200930,  2010
Andrew ZarefThomas Plotts Secretary(Principal Financial and Accounting  
     (Principal Financial and
Accounting Officer)  
     
/s/ Ray Musci   Director March 26, 200930, 2010
Raymond Musci    
     
 /s/ Lawrence Burstein Director March 30, 2010
Lawrence Burstein    
     
/s/ Robert  Ellin   Director March 26, 200930, 2010
Robert S. Ellin
/s/ Jeffrey Schwartz  DirectorMarch 26, 2009
Jeffrey Schwartz

S-1
/s/ Jerome Chazen  DirectorMarch 26, 2009
Jerome Chazen    
     
/s/ Mark Dyne   Director March 26, 200930, 2010
Mark Dyne
/s/ Jerome Chazen  DirectorMarch 30, 2010
Jerome Chazen
/s/ Stuart GoldfarbDirectorMarch 30, 2010
Stuart Goldfarb    

 
S-2S-1
 


EXHIBIT INDEX
 
Exhibit  
No. Title
   
2.1 Exchange Agreement dated January 31, 2007, among MPLC, Inc., New Motion,Atrinsic, Inc., the Stockholders of New Motion,Atrinsic, Inc. and Trinad Capital Master Fund, Ltd. Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on February 1, 2007.**
   
2.2 Plan of Reorganization dated January 25, 2005. Incorporated by reference to Exhibit 2.1 to the Registrant’s Form 10-SB (File No. 000-51353) filed with the Commission on June 10, 2005.
   
2.3 Order Confirming Plan of Reorganization dated January 25, 2005. Incorporated by reference to Exhibit 2.2 to the Registrant’s Form 10-SB (File No. 000-51353) filed with the Commission on June 10, 2005.
   
2.4 Agreement and Plan of Merger dated September 26, 2007 by and between the Registrant, Traffix, Inc., and NM Merger Sub. Incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on September 27, 2007.
   
2.5 Amendment to Agreement and Plan of Merger dated October 12, 2007. Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on October 19, 2007.
   
2.6 Asset Purchase Agreement entered into on June 30, 2008, by and among New Motion,Atrinsic, Inc. Ringtone.com, LLC and W3i Holdings, LLC.  Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 001-12555) filed with the Commission on July 7, 2008.**
   
3.1 Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Registrant’s Form 10-SB (File No. 000-51353) filed with the Commission on June 10, 2005.
   
3.2 Certificate of Amendment to the Restated Certificate of Incorporation, dated October 12, 2004. Incorporated by reference to Exhibit 3.2 to the Registrant’s Form 10-SB (File No. 000-51353) filed with the Commission on June 10, 2005.
   
3.3 Certificate of Amendment to the Restated Certificate of Incorporation, dated April 8, 2005. Incorporated by reference to Exhibit 3.3 to the Registrant’s Form 10-SB (File No. 000-51353) filed with the Commission on June 10, 2005.
   
3.4 Certificate of Amendment to the Restated Certificate of Incorporation, dated May 2, 2007. Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on May 7, 2007.
   
3.5Certificate of Amendment to the Restated Certificate of Incorporation dated June 25, 2009. Incorporated by reference to Exhibit 3(i).1 to the Registrant’s Current Report on Forms 8-K (File No. 000-12555) filed with the Commission on July 1, 2010.
3.6 Bylaws. Incorporated by reference to Exhibit 3.4 to the Registrant’s Form 10-SB (File No. 000-51353) filed with the Commission on June 10, 2005.
   
3.63.7 Form of certificate for shares of common stock of New Motion,Atrinsic, Inc. Incorporated by reference to Exhibit 99.1 of the Registrant’s Registration Statement of  Form SB-2/A (File No. 333-143025) filed with the Commission on July 23, 2007.
   
4.1 Series A Convertible Preferred Stock Registration Rights Agreement. Incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on January 26, 2007.
   
4.2 Series D Convertible Preferred Stock Registration Rights Agreement. Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on March 6, 2007.
 

EX-1
4.3 2005 Stock Incentive Plan. Incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on February 13, 2007.

EX-1

4.4 2007 Stock Incentive Plan. Incorporated by reference to Exhibit 4.9 to the Registrant’s Current Report on Form 10-QSB (File No. 000-51353) filed with the Commission on May 15, 2007.
   
4.5 Form of Stock Option Agreement. Incorporated by reference to Exhibit 4.4 to the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on February 13, 2007.
 
10.1 Series A Convertible Preferred Stock Purchase Agreement dated January 24, 2007, between the Registrant and Trinad Capital Master Fund, Ltd. Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on January 26, 2007.
   
10.2Series B Convertible Preferred Stock Purchase Agreement dated January 30, 2007, among the Registrant, Watchung Road Associates, L.P., Lyrical Opportunity Partners II LP, Lyrical Opportunity Partners II Ltd. and Destar LLC. Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on February 13, 2007.
10.3 Series D Convertible Preferred Stock Purchase Agreement dated February 28, 2007, between the Registrant and various purchasers. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on March 6, 2007.
   
10.410.3 
Voting Agreement dated February 21, 2007 among Trinad Capital Master Fund, Raymond Musci, MPLC Holdings, LLC, Europlay Capital Advisors, LLC and Scott Walker. Incorporated by reference to Exhibit 10.34 to the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on March 6, 2007.
   
10.5Master SMS Services Agreement dated April 19, 2005, between New Motion, Inc. and Mobile Messenger Pty Ltd. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on February 13, 2007.
10.6Addendum dated April 28, 2005 to Master SMS Services Agreement dated April 19, 2005, between New Motion, Inc. and Mobile Messenger Pty Ltd. Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on February 13, 2007.
10.7Amendment to Mobile Gateway Agreement dated July 1, 2005, between New Motion, Inc. and Mobile Messenger Australia Pty Ltd. This amendment is an addendum to the Master SMS Services Agreement dated April 19, 2005, between New Motion, Inc. and Mobile Messenger Pty Ltd. Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on February 13, 2007.
10.810.4 Standard Multi-Tenant Office Lease dated July 6, 2005, between New Motion,Atrinsic, Inc. and Dolphinshire, L.P. Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on February 13, 2007.
   
10.9Software Development and Consulting Agreement dated July 19, 2005, between New Motion, Inc. and e4site, Inc. d/b/a Visionaire. Incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on February 13, 2007.
10.10Executive Employment Agreement dated March 8, 2007, between MPLC, Inc. and Scott Walker. Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K (File No. 000-51353) filed with the Commission on March 14, 2007.*
10.11Employment Agreement by and between Susan Swenson and New Motion dated August 20, 2007. Incorporated by reference to Exhibit 10.16 to the Registration Statement on Form S-4 (File No. 333-147131) filed with the Commission on November 2, 2007.*
10.12US Premium Master Service Agreement dated January 17, 2006, between New Motion, Inc. and Mobile Messenger Americas Pty Ltd. Incorporated by reference to Exhibit 10.18 to the Registrants Current Report on Form 8-K (File No. 000-51353) filed with the Commission on February 13, 2007.

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10.13Addendum dated January 17, 2006 to US Premium Master Service Agreement dated January 17, 2006, between New Motion, Inc. and Mobile Messenger Americas Pty Ltd. Incorporated by reference to Exhibit 10.19 to the Registrants Current Report on Form 8-K (File No. 000-51353) filed with the Commission on February 13, 2007.
10.14Addendum dated January 18, 2006 to US Premium Master Service Agreement dated January 17, 2006, between New Motion, Inc. and Mobile Messenger Americas Pty Ltd. Incorporated by reference to Exhibit 10.20 to the Registrants Current Report on Form 8-K (File No. 000-51353) filed with the Commission on February 13, 2007.
10.15 Asset Purchase Agreement dated January 19, 2007, between New Motion,Atrinsic, Inc. and Index Visual & Games Ltd. Incorporated by reference to Exhibit 10.28 to the Registrants Current Report on Form 8-K (File No. 3400-51353) filed with the Commission on February 13, 2007.
   
10.1610.6 Secured Convertible Promissory Note issued on January 19, 2007 by New MotionAtrinsic in favor of Index Visual & Games Ltd. Incorporated by reference to Exhibit 10.29 to the Registrants Current Report on Form 8-K (File No. 000-51353) filed with the Commission on February 13, 2007.
   
10.1710.7 Messaging Agreement dated November 17, 2003, between Mobliss, Inc. and Cingular Wireless LLC, assigned to New Motion,Atrinsic, Inc. on January 19, 2007. Incorporated by reference to Exhibit 10.30 to the Registrants Current Report on Form 8-K (File No. 000-51353) filed with the Commission on February 13, 2007.
   
10.1810.8 SMS Connectivity Agreement dated January 8, 2004, between Mobliss, Inc. and Cingular Wireless LLC, assigned to New Motion,Atrinsic, Inc. on January 19, 2007. Incorporated by reference to Exhibit 10.31 to the Registrants Current Report on Form 8-K (File No. 000-51353) filed with the Commission on February 13, 2007.
   
10.1910.9 Heads of Agreement dated January 19, 2007, between New Motion,Atrinsic, Inc. and Index Visual & Games Ltd. Incorporated by reference to Exhibit 10.32 to the Registrants Current Report on Form 8-K (File No. 000-51353) filed with the Commission on February 13, 2007.
   
10.2010.10 Lease Agreement dated April 14, 2008, between MED 469 LLC, Rector 469, LLC and TPP 469 LLC and Traffix, Inc.
   
10.2110.11 First Lease Modification Agreement dated as of May 14, 2008 between MED 469 LLC, Rector 469, LLC and TPP 469 LLC and Traffix, Inc.
   
10.2210.12 Employment Agreement dated as of February 1, 2008, by and between New Motion,Atrinsic, Inc. and Andrew Stollman.  Incorporated by reference to the Registrant’s Current Report on Form 10-Q (File No. 001-12555) filed with the Commission on May 20, 2008. *
   
10.2310.13 Employment Agreement dated as of February 1, 2008, by and between New Motion,Atrinsic, Inc. and Burton Katz.  Incorporated by reference to the Registrant’s Current Report on Form 10-Q (File No. 001-12555) filed with the Commission on May 20, 2008. *
   
10.2410.14 Consulting Agreement dated as of January 31, 2008 by and between New Motion,Atrinsic, Inc. and Jeffrey Schwartz. Incorporated by reference to the Registrant’s Current Report on Form 10-Q (File No. 001-12555) filed with the Commission on May 20, 2008.
   
10.2510.15 Master Services Agreement effective as of January 1, 2008 by and between New Motion,Atrinsic, Inc. and Motricity, Inc.  Incorporated by reference to the Registrant’s Current Report on Form 10-Q (File No. 001-12555) filed with the Commission on May 20, 2008.  Certain portions of this agreement have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for an order granting confidential treatment pursuant to Rule 24b-2 of the Rules and Regulations of the Commission under the Securities Exchange Act of 1934.
   
10.26
10.16
 Form of Convertible Promissory Note Issued to Ringtone.com. Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 001-12555) filed with the Commission on July 7, 2008.

 
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10.2710.17 Employment Agreement by and between Andrew Zaref and New Motion,Atrinsic, Inc. dated July 14, 2008.  Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 001-12555) filed with the Commission on July 17, 2008. *
 
10.18Atrinsic, Inc. 2009 Stock Incentive Plan, Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-12555) filed with the Commission on July 1, 2009.
10.19Atrinsic, Inc. 2010 Annual Incentive Compensation Plan. Incoporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-12555) filed with the Commission on July 1, 2009.
10.20Employment Agreement by and between Jeffery Schwartz and Atrinisc, Inc. dated January 27, 2010. *
10.21Employment offer by and between Thomas Plotts and Atrinsic, Inc. dated January 29, 2010. *
10.22Separation Agreement and Mutual release by and between Burton Katz and Atrinsic, Inc. dated October 20, 2009.
10.23Separation and Release Agreement by and between Andrew Zaref and Atrinsic, Inc. dated December 16, 2009.
   
14.1 Code of Ethics. Incorporated by reference to Exhibit 14.1 to the Registrants Current Report on Form 8-K (file No. 000-51353) filed with the Commission on August 24, 2007.
   
21.1 Subsidiaries of the registrantregistrant.
   
23.1 Consent of Independent Registered Public Accounting Firm.
23.2Consent of Independent Registered Public Accounting Firm.
   
24.1 Power of Attorney (included on signature page)
   
31.1 Certification of Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2 Certification of Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1 Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
 
99.1Asset Purchase Agreement entered into on July 31, 2009 by and among the registrant and ShopIt, Inc., a Delaware corporation. Incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K (File 001-12555) filed with the Commission on August 6, 2009.

* Each a management contract or compensatory plan or arrangement required to be filed as an exhibit to this annual report on Form 10-K.
** Pursuant to Item 601(b) (2) of Regulation S-K, the schedules to these agreements have been omitted. The Registrant undertakes to supplementally furnish a copy of the omitted schedules to the Securities and Exchange Commission upon request.

 
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