UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

Form 10-K/A
FORM 10-K(Amendment No. 1)

(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, 2010

 ¨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

ATRINSIC, INC

(Exact name of registrant as specified in its charter)

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

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

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

(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each className of each exchange on which registered
Common Stock, $0.01 par valueThe NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the 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  . Yes ¨o     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 $3.64, as of June 30, 2010, was $10,768,454.

As of March 31, 2011, the issuer had 6,978,745 shares of common stock issued and outstanding (which number excludes 681,509 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 14 of this Form 10-K.None

 
 
 

STATEMENT REGARDING AMENDMENT NO. 1

This Amendment No. 1 to Form 10-K on Form 10-K/A (this “Amendment”) is being filed for the purpose of restating Part III of the Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the Securities and Exchange Commission on April 7, 2011 (the “Original Filing”).

Except as expressly noted herein, this Amendment does not reflect events occurring after the April 7, 2011 filing date of our Original Filing, and we do not undertake to update any item of our Original Filing, except in each case to reflect the changes discussed in this Amendment. Accordingly, this Amendment should be read in conjunction with the Original Filing. As a result of these amendments, we are also filing as exhibits to this Amendment the certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Because no financial statements are contained within this Amendment, we are not including certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
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TABLE OF CONTENTS

PART I
Item 1Business4
Item 1ARisk Factors10
Item 1BUnresolved Staff Comments18
Item 2Properties19
Item 3Legal Proceedings19
Item 4Removed and Reserved19
PART II
Item 5Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities20
Item 6Selected Financial Data21
Item 7Management’s Discussion and Analysis of Financial Condition and Results of Operations22
Item 7AQuantitative and Qualitative Disclosures about Market Risk32
Item 8Financial Statements and Supplementary Data33
Item 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure34
Item 9A Controls and Procedures34
Item 9BOther Information34
PART III    
     
Item 10 Directors, Executive Officers and Corporate Governance 354
     
Item 11 Executive Compensation 358
     
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 3517
     
Item 13 Certain Relationships and Related Transactions, and Director Independence 3519
     
Item 14 Principal Accounting Fees and Services 3520
     
PART IV    
     
Item 15 Exhibits, Financial Statement Schedules 3622

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 Atrinsic, Inc. (“Atrinsic,” or the “Company”). These forward-looking statements include, without limitation, statements regarding: proposed new services including, without limitation, the Company’s Kazaa digital music subscription service; 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 when, or 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 cash and ability to operate as a going concern;
·the risk that our Kazaa asset purchase does not close;
·the highly competitive and resource intensive market in which we operate;
·our ability to develop and market our products and services;
·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.”
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.

Adjustment for Reverse Stock Split
On December 2, 2010, we effected a 1-for-4 reverse stock split of our common stock. Unless clearly indicated in this report on Form 10-K to the contrary, all references to stock price or number of shares of common stock contained in this report (whether prior to, on or after December 2, 2010) are presented on an “as adjusted” basis to reflect the effect of the reverse stock split.

 
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ITEM 1. BUSINESSPART III

With respectITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The following table sets forth the name, age and position of each of our current directors as of April 30, 2011.

Name Age Director Since Position
       
Jerome Chazen 83 2005 Chairman of the Board
Raymond Musci 49 2007 Executive Vice President, Corporate Development, Director
Lawrence Burstein 68 2008 Director
Mark Dyne 48 2008 Director
Stuart Goldfarb 56 2010 Director

Board of Directors

Jerome A. Chazen. Mr. Chazen is currently the Chairman of our Board of Directors, and has served as one of our directors since April 2005. Mr. Chazen is also Chairman of Chazen Capital Partners, a private investment company. Prior to this discussion,Chazen Capital Partners, Mr. Chazen was one of the terms “we,” “us,” “our,” “Atrinsic”, and the “Company” refer to Atrinsic,four founders of Liz Claiborne Inc., where he is also Chairman Emeritus. Mr. Chazen is also the founder and Benefactor of the Jerome A. Chazen Institute of International Business, the focal point of all international programs at Columbia Business School. Mr. Chazen received his Bachelor Degree from the University of Wisconsin and his MBA from Columbia Business School. Mr. Chazen has been a Delaware corporationdirector of Taubman Centers, Inc., since 1992.  Mr. Chazen was chosen to be a director of the company because of his extensive knowledge and its wholly-owned subsidiaries, includingexperience in executive management, finance, corporate governance matters, private investing and product marketing.

Raymond Musci. Mr. Musci serves as our Executive Vice President, Corporate Development.  Mr. Musci has also served as a director since May 2007. From August 2006 through February 2008, Mr. Musci served as President of New Motion Mobile, Inc., our wholly-owned subsidiary, and prior to joining our organization as an employee, Mr. Musci was a consultant to our operations from January through August of 2006. Mr. Musci brings over 25 years of high tech, media, entertainment and consumer product experience to us, and was selected to serve as a director of the company for this reason. From 1999 to 2006, Mr. Musci was Chief Executive Officer of Bam! Entertainment, Inc., a company he founded in 1999 that published and distributed movie, sports and cartoon video games to a wide range of retailers. Prior to Bam!, from 1996 to 1999, Mr. Musci was president and chief executive officer of the U.S. subsidiary of Infograms Entertainment, Inc., now better known as Atari, Inc. In that position, he oversaw all aspects of the company's North American unit, was responsible for 250 employees, and grew global revenues from $60 million to $300 million, and U.S. revenues from $80 million to $150 million. Before joining Infograms/Atari, Mr. Musci was founder, president and chief executive officer of Ocean Of America, Inc., a publisher and distributor of entertainment software. Founded in 1990, Mr. Musci built the company to annual revenues of $50 million, and sold it to Infograms/Atari in 1996. Mr. Musci holds a degree in criminal justice with a minor in business administration from Western New Mexico University. Mr. Musci was a director of Talon International, Inc., a public reporting Company and served as a member of the board of directors of Brilliant Digital Entertainment, Inc. from October 1996 until April 2009, a former public reporting company.

Lawrence Burstein. Mr. Burstein became a director upon the completion of our merger with Traffix, Inc. (“Traffix”)on February 4, 2008. Mr. Burstein has been a director of Traffix since April 1999. Since March 1996, Mr. Burstein has been Chairman of the Board and a principal shareholder of Unity Venture Capital Associates, Ltd., also Delaware corporations.

What We Do
Atrinsic, Inc.a private venture capital firm. For approximately ten years prior thereto, Mr. Burstein was the President, a director and principal stockholder of Trinity Capital Corporation, a private investment banking concern. Trinity ceased operations upon the formation of Unity Venture Capital Associates, Ltd. in 1996. Mr. Burstein is a marketerdirector of direct-to-consumer subscription products and an Internet search-marketing agency. We sell entertainment and lifestyle subscription products directly to consumers, which we market through the Internet. We also sell Internet marketing services to our corporate and advertising clients. We have developed our marketing media network, consisting of web sites, proprietary content and licensed media, to attract consumers, corporate partners and advertisers. We believe our marketing media network and proprietary technology allows us to cost-effectively acquire consumers for our products and for our corporate partners and advertisers.
Our business is focused on two key areas:
·Direct-to consumer subscriptions, built around the Kazaa brand, and
·Search and affiliate marketing, built around the Atrinsic Interactive brand.

Our direct-to-consumer subscription business is built around a recurring-revenue business model.  We are focused on digital musicseveral companies, being, respectively, THQ, Inc., engaged in the rapidly growing mobile space,development and marketing of video games for Sony, Microsoft and Nintendo; CAS Medical Systems, Inc., engaged in the manufacture and marketing of blood pressure monitors and other disposable products, principally for the neonatal market; and I.D. Systems Inc., engaged in the design, development and production of a wireless monitoring and tracking system which uses radio frequency technology.  In addition, Mr. Burstein was formerly a director of publicly traded American Telecom Systems, Inc., a company engaged in the development and marketing of convergent telecommunication services and Millennium India Acquisition Corp., a publicly trading holding company.  Mr. Burstein was selected as a member of our lead offering, Kazaa, is a recognizable brand in this market.  We also provide alternative billing capabilities, allowing our subscribers to utilize payment methods other than just credit cards, to purchase our services.  Our core strategic focus for KazaaBoard of Directors because he adds substantial expertise from his venture capital finance background and our direct-to-consumer subscription business is to build and sustain a large and profitable subscriber base and a growing and engaged audience and to deliver entertainment content to our customers anywhere, anytime and on any device, in a manner our customers choose.

Atrinsic Interactive, our affiliate network and search marketing agency, is a top ten search agency according to Advertising Age (2010) and a top-tier affiliate network.  We offer advertisers an integrated service offering across paid search, or search engine marketing (“SEM”), search engine optimization (“SEO”), display advertising, affiliate marketing,his executive experience, as well as offering business intelligence and brand protection services to our clients.  We work with all types and sizes of advertisershis service as a board member on a performance basis to assist them in acquiring customers at an attractive return on investment.  Our core strategic focus for Atrinsic Interactive is to build a leading independent search marketing agency and a top-five affiliate network.
Business Overview

In February 2008, New Motion, Inc., a subscription-based mobile content company which was originally incorporated  in 1994 under the laws of the state of Delaware under the original name, The Millbrook Press, Inc., merged with Traffix, Inc., an Internet marketing company.  Pursuant to the merger, Traffix became our wholly owned subsidiary and in June 2009, after approval by our stockholders, we changed our name from New Motion, Inc. to Atrinsic, Inc. and also changed our ticker symbol on the NASDAQ Global Market from “NWMO” to “ATRN.”

Since the merger with Traffix, we have engaged in several other transactions, including our purchase of the Ringtone.com assets in June 2008 for approximately $8.8 million in cash and notes.  This acquisition gave us a prominent domain from which to market our mobile content services. In addition, in October 2008, we acquired a 36% minority interest in The Billing Resource, LLC (“TBR”), initially contributing $2.2 million to its formation.  TBR is an aggregator of fixed line telephone billing, providing its customers with the ability to charge end user customer’s telephone bills for subscription services they deliver.

On July 31, 2009,public companies.  His experience provides the Company entered into an Asset Purchase Agreement (“ShopIt APA”) with ShopIt.com pursuantvaluable insight with respect to which the Company acquired certain net assets from ShopIt.com, including but not limited to software, trademarksfinancing and certain domain names. In consideration for the assets, the Company at the closing cancelled $1.8 million in aggregate principal amount of indebtedness owed by ShopIt to the Company, paid to ShopIt $450,000operational strategies and issued 95,000 shares of the Company’s common stock.corporate governance issues.

 
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Mark Dyne.  Mr. Dyne has served as a director of the company since November 11, 2008.  Mr. Dyne currently serves as the Chief Executive Officer and Chairman of Europlay Capital Advisors, LLC, a merchant banking and advisory firm, and has served in this capacity since 2002. In this capacity, he provides corporate and advisory services.  Mr. Dyne currently sits on the Board of Directors of Skype Global S.a.r.l., a leader in V.O.I.P communications as well as Talon International, Inc.  Prior to joining Europlay, Mr. Dyne served as Chief Executive Officer of Sega Gaming Technology Inc. (USA), a gaming company, and Chief Executive Officer of Virgin Interactive Entertainment Ltd., a distributor of computer software programs and video games based in London, England. Mr. Dyne was a founder and former director of Sega Ozisoft Pty Ltd., a leading distributor of entertainment software in both Australia and New Zealand. Mr. Dyne was chosen to be a member of our board because of his long history of developing digital properties and technology focused businesses around the world.
On March 26,
Stuart Goldfarb. Mr. Goldfarb has served as a director of the Company since January 12, 2010. Since November 2009, Mr. Goldfarb has been a Partner in Unbound Partners LLC, a marketing and management consulting firm.  From 2001 to 2009 Mr. Goldfarb was President and CEO of Direct Brands, Inc.  Under his leadership, the company grew to be the world’s largest direct marketer of music, DVDs, and books, with household brands such as Columbia House, BMG Music, Doubleday Book Club, Book-of-the-Month-Club, cdnow.com and many more.  Prior to that, Mr. Goldfarb was President and CEO of bol.com, Bertelsmann’s premier online retailer of books and music, doing business in 18 European and Asian countries.  Before joining Bertelsmann, he was Vice Chairman of Value Vision International, a cable TV home shopping and e-commerce company.  He was formerly Executive Vice President, Worldwide Business Development at NBC, where he held various executive level positions.  Mr. Goldfarb was selected to be a member of our Board of Directors because of extensive history and success in operating direct marketing, entertainment and media related companies.

OTHER EXECUTIVE OFFICERS

Thomas Plotts. Mr. Plotts, 40, was appointed as our Chief Financial Officer on June 30, 2010 we entered intoafter serving as Interim Chief Financial Officer since December 16, 2009.  Prior to his appointment as CFO, Mr. Plotts was Atrinsic’s Vice President of Finance & SEC Reporting, a Marketing Services Agreement (the “Marketing Agreement”)position he held since February 2007. From 2005 to 2007, Mr. Plotts was Chief Financial Officer of DBH Resources, a privately held risk management company, which was successfully sold to AON Corporation (NYSE: AOC) in 2007. From 2001 to 2005, Mr. Plotts was Director of Business Information Systems and Corporate Development at Cardiac Science Corporation (NASDAQ: CSCX). Mr. Plotts served in the Australian Army Reserve, and was commissioned as a Lieutenant in 1988. Mr. Plotts has a Bachelor of Economics degree from the University of Western Australia and a Master Services Agreement (the “Services Agreement”)Masters of Business Administration from the Marshall School of Business at the University of Southern California.

FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS

Director Independence.  Our board of directors consists of four “independent” members, as that term is defined in Section 5605 of the Marketplace Rules as required by the NASDAQ Stock Market: Jerome Chazen, Lawrence Burstein, Mark Dyne and Stuart Goldfarb. Our board also has a seat held by a non-independent executive director, Raymond Musci.  Robert Ellin, who resigned from our Board of Directors on April 20, 2011, was also an “independent” director while serving on our Board in 2010.

Our Board considered the objective tests and the subjective tests for determining who is an “independent director” under the NASDAQ rules. The subjective test states that an independent director must be a person who lacks a relationship that, in the opinion of the Board, would interfere with Brilliant Digital, Inc. (“Brilliant Digital”) effectivethe exercise of independent judgment in carrying out the responsibilities of a director. In assessing independence under the subjective test, our Board took into account the standards in the objective tests, and reviewed and discussed additional information provided by the directors and the Company with regard to each director’s business and personal activities as they may relate to Atrinsic and Atrinsic’s management. Based on all of July 1, 2009 (collectively, the “Agreements”), relatingforegoing, as required by NASDAQ rules, the Board made a subjective determination as to each independent director that no relationships exists which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

In making its independence determinations, the Board will consider transactions occurring since the beginning of the third fiscal year prior to the operationdate of its determination between Atrinsic and marketingentities associated with the independent directors or members of their immediate family. All identified transactions that appear to relate to Atrinsic and a person or entity with a known connection to a director will be presented to the Board for consideration. In each case, the Board will determine whether, because of the Kazaa digital music service.  The Agreements govern the operation of Brilliant Digital’s Kazaa digital music service, which is jointly operated by us and Brilliant Digital. Under the Marketing Services Agreement, we are responsible for marketing, promotional, and advertising services for the Kazaa business. Pursuant to the Master Services Agreement, we provide services related to the operationnature of the Kazaa business, including billing and collection servicesdirector’s relationship with the entity and/or the amount involved, the relationship impaired the director’s independence.

Meetings. The Board of Directors held ten meetings during fiscal 2010.  All directors then serving attended 75% or more of all of the meetings of the Board of Directors and the operation of the Kazaa online storefront.  Brilliant Digital is obligated to provide certain other servicescommittees on which they served in fiscal 2010.  The Company has not established a specific policy with respect to the Kazaa business, including licensing the intellectual property underlying the Kazaa business to Atrinsic, obtaining all licenses to the content offered as partmembers of the Kazaa business and delivering that content to subscribers. As partBoard of the agreements, we are required to make advance payments and expendituresDirectors attending annual stockholder meetings.  Three board members attended our 2010 Annual Meeting of certain expenses incurred in order to operate the Kazaa business. These advances and expenditures are recoverable on a dollar for dollar basis against revenues generated by the business.

Beginning in April 2010, we began to take steps to eliminate unprofitable or marginally profitable lead generation activities and marketing programs from our product offerings, to focus the Company on businesses our Board believes will be more likely to generate long term value for our stockholders.

On October 13, 2010, we entered into amendments to the Agreements with Brilliant Digital and entered into an agreement with Brilliant Digital and Altnet, Inc., a wholly-owned subsidiary of Brilliant Digital, to acquire all of the assets of Brilliant Digital that relate to its Kazaa digital music service.

Among other things, the amendments extend the term of the Agreements from three years to thirty years, provide us with an exclusive license to the Kazaa trademark in connection with our services under the agreements, and modify the Kazaa digital music service profit share payable to us under the agreements from 50% to 80%. In addition, the amendments remove Brilliant Digital’s obligation to repay up to $2.5 million of advances and expenditures which are not otherwise recovered from Kazaa generated revenues and remove a $5 million cap on expenditures that we are required to advance to the operation of the Kazaa business. As consideration for entering into the amendments, we issued 1,040,358 shares of our common stock to Brilliant Digital.

On October 13, 2010, in addition to the amendments to the Agreements, we entered into an asset purchase agreement with Brilliant Digital to acquire all of the assets of Brilliant Digital that relate to the Kazaa business.  The purchase price for the acquired assets includes the issuance of an additional 1,781,416 shares of our common stock at the closing of the transaction, as well as the assumption of certain liabilities related to the Kazaa business. The closing of the transaction contemplated by the asset purchase agreement will occur when all of the assets associated with the Kazaa business, including the Kazaa trademark and associated intellectual property, as well as Brilliant Digital’s content management, delivery and customer service platforms, and licenses with third parties, have been transferred to us. The closing of the transaction is subject to approval by both our stockholders and Brilliant Digital’s stockholders, receipt of all necessary third party consents as well as other customary closing conditions. At the closing of the transactions contemplated by the asset purchase agreement, we have agreed to appoint two individuals to be selected by Brilliant Digital to serve on our Board. In addition, at the closing, the Marketing Services Agreement and Master Services Agreement will terminate.

In November, 2010, in connection with our announcement to purchase the assets of the Kazaa digital music service, we also undertook a restructuring of our existing operations to rapidly reduce certain expenditures.  The restructuring involves the consolidation of all of our activities in New York and includes the closure of our Canadian technology facility and the retrenchment of approximately 40 employees in the U.S. and in Canada.  In addition to the restructuring of our Canadian operations, which is substantially complete, we intend to transition the Kazaa functions and activities that are currently being carried out by personnel and contractors of Brilliant Digital, including development, backend and marketing operations, to the U.S. from Sydney, Australia.

On December 2, 2010, in order to meet the $1.00 minimum bid price continued listing standard on the NASDAQ Global Market, we effected a 1-for-4 reverse stock split of our common stock, after approval by our stockholders.  Subsequent to the reverse split, we regained listing compliance on the Nasdaq Global Market.

Financing

In order to fund operations, we need to raise additional capital.  We are currently working with an independent financial advisory firm to assist us in structuring a financing arrangement and to engage an investment bank to assist us in raising debt or equity capital to fund our immediate cash needs and to finance our longer term growth to further develop the Kazaa business and grow our subscriber base.  We currently have no formal arrangements in place with respect to additional financing and there is no guaranty funding will be available on favorable terms or at all. If we cannot obtain such funds, we will need to significantly curtail or cease our operations.  In addition, the sale of additional equity securities or convertible debt could result in dilution to our stockholders.Stockholders.

 
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Board Committees. Our Board of Directors maintains an Audit Committee, Compensation Committee and Nominating and Governance Committee.  Our Board may also establish special committees from time to time to perform specifically delegated functions. The Board of Directors has adopted a written charter that governs the conduct and responsibilities of each of the Audit Committee, Compensation Committee and Nominating and Governance Committee, copies of which may be found on our website located at http://www.atrinsic.com.

Audit Committee. Our Audit Committee currently is chaired by Lawrence Burstein and seated by Stuart Goldfarb and Jerome Chazen.  Each of Mr. Burstein, Mr. Chazen and Mr. Goldfarb qualify as “independent” directors within the meaning of the applicable rules for companies traded on The NASDAQ Global Market (NASDAQ).  We continue to evaluate the sale of certainhave determined that each member of our assetsAudit Committee qualifies as an “audit committee financial expert” within the meaning of the rules and businesses.  We cannot provide any assurance that we will be successful in finding suitable purchasersregulations of the SEC, with Mr. Burstein having acquired the requisite experience from having served on the audit committees of three other public companies for more than 10 years.  Among other responsibilities, the Audit Committee reviews the scope and results of quarterly audit reviews and the year-end audit with management and the independent auditors, reviews and discusses the adequacy of our internal controls, and recommends to the Board of Directors the selection of independent auditors for the salecoming year.  During 2010, our audit committee held five meetings.

Compensation Committee. Our Compensation Committee is currently chaired by Lawrence Burstein, and seated by Jerome Chazen, each who qualify as “independent” directors within the meaning of the applicable rules for companies traded on NASDAQ. Prior to his resignation from our Board of Directors on April 20, 2011, Robert Ellin also served on our Compensation Committee in 2010 and was “independent” under NASDAQ rules.  The Compensation Committee of the Board of Directors is primarily responsible for determining the annual salaries and other compensation of directors and executive officers and administering our equity compensation plans.  Our Compensation Committee determines the compensation to be paid to our officers and directors, with recommendations from our full Board of Directors and management as to the amount and/or form of such assets.  Even ifcompensation.  While our Board may utilize the services of consultants in determining or recommending the amount or form of executive and director compensation, we do not at this time employ consultants for this purpose. During 2010, our compensation committee held one meeting and matters relating to compensation were also discussed at full meetings of our Board of Directors.

Nominating and Governance Committee.  Our Nominating and Governance Committee is currently chaired by Stuart Goldfarb and was seated by Robert Ellin prior to his resignation on April 20, 2011.  Stuart Goldfarb qualifies as an “independent” director within the meaning of the applicable rules for companies traded NASDAQ and while serving, Robert Ellin was “independent” as well.  During 2010, our nominating and governance committee did not meet, however, matters relating to nominations and governance were discussed at full meetings of our Board of Directors. The Company intends to fill the vacancy on this committee created by Mr. Ellin’s resignation in the near future.

Our Nominating and Governance Committee reviews and makes recommendations regarding the functioning of the Board of Directors as an entity, recommends corporate governance principles applicable to Atrinsic and assists the Board of Directors in its reviews of the performance of the Board and each of its committees.  The Committee also reviews those Board members who are ablecandidates for re-election to find purchasers, we may not be ableour Board of Directors, and makes the determination to obtain attractive terms and conditionsnominate a candidate who is a current member of the Board of Directors for such sales, including attractive pricing. In addition, divestituresre-election for the next term. The Committee’s methods for identifying candidates for election to the Board of businesses involveDirectors (other than those proposed by our stockholders, as discussed below) include the solicitation of ideas for possible candidates from a number of risks, includingsources—members of the diversionBoard of managementDirectors; our executives; individuals personally known to the members of the Board of Directors; and employee attention, significant costsother research. The Committee may also from time to time retain one or more third-party search firms to identify suitable candidates. The Committee members also nominate outside candidates for inclusion on the Board of Directors.  The diversity of the background of an individual and expenses,their field of expertise is a consideration for membership on our Board. We consider diversity broadly to include differences of viewpoint, professional experience, individual characteristics, qualities and skills resulting in the lossability for naturally varying perspectives among our Board of customer relationships,Directors while simultaneously providing skills that complement our full Board so that the Board, as a decrease in revenuesunit, possesses the appropriate skills and contribution associatedexperience to oversee our business.

An Atrinsic stockholder may nominate one or more persons for election as a director at an annual meeting of stockholders if the stockholder complies with the divested business,notice, information and consent provisions contained in our Bylaws. Stockholders who desire the disruption of operations in the affected business.  Furthermore, divestitures potentially involve significant post-closing separation activities, which could involve the expenditure of significant financialNominating and employee resources. An inabilityGovernance Committee to consummate identified asset sales or manage the post-separation transition arrangements could adversely affect our business, financial condition, results of operations and cash flows.

Ability to Continueconsider a candidate for nomination as a Going Concern

There is substantial doubt about our abilitydirector at the 2011 annual meeting must submit advance notice of the nomination to continue asthe Committee a going concern. Our consolidated financial statements included in this Annual Report on Form 10-K are prepared using accounting principles generally accepted inreasonable time prior to the United Statesmailing date of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities inproxy statement for the normal course of business.2011 annual meeting. The historical consolidated financial statements included in this Annual Report on Form 10-K do not include any adjustments that mightrecommendation should be necessary if we are unable to continue as a going concern. The report of our independent registered public accountants, KPMG LLP, includes an explanatory paragraph relatedaddressed to our ability to continue as a going concern.Corporate Secretary.

The assessment of our ability to continue as a going concern was made by management considering, among other factors: (i) our current levels of expenditures, including subscriber acquisition costs, operating expense, including product development, and overhead, (ii) our ongoing working capital needs, (iii) the uncertainty concerning the outcome of any financing, (iv) our fiscal year net losses of $19.7 million and $29.5 million for the years ending December 31, 2010 and 2009, respectively, (v) our $11.2 million and $3.0 million in cash used for operating activities for the years ending December 31, 2010 and 2009, respectively, (vi) the outstanding balance of cash and cash equivalents of $6.3 million as of December 31, 2010, and (vii) our budgets and financial projections of future operations, including the likelihood of achieving operating profitability without the need for additional financing.

For periods subsequent to December 31, 2010, we expect our losses to continue if we make expenditures to develop the Kazaa service, acquire subscribers for the Kazaa digital music service, and are not able to reduce other operating expenses and overhead sufficiently to a level in line with our level of revenues.  If we are unable to increase revenues sufficiently or decrease our expenditures to a sustainable level, our financial position, results of operations, cash flows and liquidity will continue to be materially adversely affected. These conditions raise substantial doubt about our ability to continue as a going concern.

Based on current financial projections, we believe the continuation of our Company as a going concern is primarily dependent on our ability to, among other factors: (i) consummate a suitable financing, or obtain financing from the sale of our assets or lines of business, (ii) scale our Kazaa subscriber base to a level where the monthly revenue generated from our subscriber base exceeds subscriber acquisition costs, net of expenses required to operate Kazaa, (iii) continue to generate revenue from our legacy subscription products without billing or service disruption, (iv) eliminate or reduce operating and overhead expenditures to a level more in line with our revenue, (v) improve utilization of the Kazaa digital music service and improve Lifetime Value (“LTV”) of subscribers to that service, (vi) acquire profitable subscribers to the Kazaa digital music service at cost effective rates,(vii) grow our search marketing agency revenue base through the addition of new customers or expansion of business with existing customers and, (viii) expand margins in our search marketing agency and on our affiliate platform.  While we address these operating matters, we must continue to meet expected near-term obligations, including normal course operating cash requirements and costs associated with developing and operating the Kazaa digital music service, as well as funding overhead and the working capital needs of our other businesses.  If we are not able to obtain sufficient funds through a financing, or if we experience adverse outcomes with respect to our operational forecasts, our financial position, results of operations, cash flows and liquidity will continue to be materially adversely affected. See Item 1A—“Risk Factors” included in this Annual Report on Form 10-K regarding additional risks we face with respect to these matters.

In the near term, we are focused on: (i) raising debt or equity capital to fund our immediate cash needs and to finance our longer term growth to further develop the Kazaa business and grow our subscriber base, and (ii) pursuing various means to minimize operating costs and increase cash. We cannot provide assurance that we will be able to realize the cost reductions in our operations, or that we can obtain additional cash through asset sales or the issuance of  debt or equity. If we are unsuccessful in our efforts we will be required to further reduce our operations, including further reductions of our employee base, or we may be required to cease certain or all of our operations in order to offset the lack of available funding.

 
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Direct-to-Consumer Subscription Services
A stockholder’s notice of a proposed nomination for director to be made at an annual meeting must include the following information:
·the name and address of the stockholder proposing to make the nomination and of the person or persons to be nominated;

·a representation that the holder is a stockholder entitled to vote his or her shares at the annual meeting and intends to vote his or her shares in person or by proxy for the person or persons nominated in the notice;

·a description of all arrangements or understandings between the stockholder(s) supporting the nomination and each nominee;

·any other information concerning the proposed nominee(s) that we would be required to include in the proxy statement if the Board of Directors made the nomination; and

·the consent of the nominee(s) to serve as director if elected.

Board Leadership Structure.
The Kazaa digital music serviceCompany has elected to bifurcate the positions of Chairman (held by Mr. Chazen) and Chief Executive Officer (a position formerly held by Mr. Schwartz until his resignation on August 13, 2010). Although our Chief Executive Officer traditionally serves as a member of the Board, we believe that Mr. Chazen’s status as Chairman provides for a meaningful division of leadership between management and the Board. We believe this structure provides Atrinsic with sound corporate governance practices in the management of its business because it allows our Chief Executive Officer to focus on the day-to-day operation of the business, while allowing Mr. Chazen to focus on leadership of the Board of Directors.  The benefits of Mr. Chazen’s leadership of the Board stem from Mr. Chazen’s extensive knowledge and experience in executive management, finance, corporate governance matters, private investing and product marketing.  In addition, Mr. Chazen’s frequent direct contact with the Company’s senior management team enables Mr. Chazen to identify issues, proposals, strategies and other considerations for discussion among board members.
Board Oversight of Risk Management.
Our Board of Directors has responsibility for the oversight of risk management. A fundamental part of risk management is not only understanding the risks our principal premium direct-to-consumer subscription product.  Although we haveCompany faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for our Company. The involvement of our Board of Directors in setting our business strategy is a broad offeringkey part of direct-to-consumer subscription products, Kazaa is centralits assessment of risk management and the determination of what constitutes an appropriate level of risk for our Company. Our Board regularly discusses with management the Company's major risk exposures, including risks relating to our strategyliquidity and operations and the businesses in which we operate, their potential impact on our Company and the steps we take to become a leading direct-to-consumer business and as a result ismanage them.
Although our Board of Directors has ultimate oversight responsibility for the risk management process, our Board committees fulfill an important focusrole in our risk management. In particular, the Audit Committee focuses on assessing and mitigating financial risk, including the adequacy of internal controls and management's internal assessment of our internal control over financial reporting and our Compensation Committee is responsible for management. Kazaa gives users unlimited accessoverseeing the management of risks relating to millionsour executive compensation plans and arrangements.
Code of CD-quality tracks. ForEthics.  Our Board of Directors has adopted a monthly fee users can stream music or download unlimited music filesCode of Ethical Conduct (the “Code of Conduct”) which constitutes a “code of ethics” as defined by applicable SEC rules and play those files on upa “code of conduct” as defined by applicable NASDAQ rules. We require all employees, directors and officers to five separate computers or devices, and 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. Consumers are billed for this service on a monthly recurring basis through a credit card, landline, or mobile device. Royalties are paidadhere to the rights’ holders’ for licensesCode of Conduct in addressing legal and ethical issues encountered in conducting their work. The Code of Conduct requires that these individuals avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner and otherwise act with integrity and in our best interest. The Code of Conduct contains additional provisions that apply specifically to the music utilized by this digital service.

Over an extended periodour Chief Financial Officer and other financial officers with respect to full and accurate reporting. The Code of time, our ability to generate incremental consumer subscription revenues reliesConduct is available on our ability to increase the number of subscriberswebsite at www.atrinsic.com and has been filed as an exhibit to our products as well as to improveOriginal Filing. You may also request a copy of the LTVCode of those subscribers.  In order to increase LTVs, we must improve billing efficiencies and, importantly, enhance the benefits our subscription products provide our customers.

Our strategy is to offer consumers a valuable product to access musicConduct by writing or licensed content and to combine our direct response capability with an Internet-based customer acquisition model, which allowscalling us to generate Internet traffic at what we believe a lower effective cost of acquisition.  The success of our strategy is dependent on acquiring qualified subscribers at a low effective cost, and improving the features and benefits of Kazaa and our other subscription products to increase subscriber LTVs.

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 result of contracts and established relationships with billing aggregators and carriers, further expanding the pool of eligible customers or 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.at:

Atrinsic, Interactive (Transactional Services)Inc.
Attn: Investor Relations
469 7th Ave, 10th Floor
New York, NY 10018

We develop and manage search engine marketing campaigns for our third party advertising clients, as well as for our own services – like Kazaa.  Historically, these services developed asAny waiver of the Code of Conduct pertaining to a resultmember of our in-house expertiseBoard or one of our executive officers will be disclosed in a report on Form 8-K filed with the Securities 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 Click (“PPC”) keywords in real time across each of the major search engines, including Google, Yahoo and 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 paid search team utilizes intelligent search tools to drive sales at the lowest cost for advertisers.  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 are focused on targeting and maintaining clients that participate across all of the services Atrinsic Interactive offers, including SEM, SEO and affiliate marketing.

We also offer advertisers additional online marketing services, including a display media platform, online and business intelligence, and brand protection.  We provide advertisers with brand protection to mount a 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.

Our affiliate platform, the Atrinsic Affiliate Network, offers a full-service solution for branded advertisers.  The platform assists advertisers in increasing their marketing return on investment while protecting their brand in an ever more crowded marketplace.  Using the platform, advertisers create partnerships with publishers to drive website traffic, customer acquisitions, and online sales. Our affiliate network is built on a proprietary software platform which increases transactional transparency between publishers and advertisers, giving both parties access to useful and high quality data.  Through the use of comprehensive reporting, trademark monitoring and our proprietary business intelligence and fraud protection tools, our team is able to identify opportunities and flag potential concerns for or clients.  Our affiliate platform also provides integration features for mobile and social marketing.Exchange Commission.

 
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Section 16(A) Beneficial Ownership Reporting Compliance
Competitive Landscape
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers and the holders of more than 10% of our common stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our equity securities. Executive officers, directors and greater-than-ten percent stockholders are required by SEC regulations to furnish us with all Section 16(a) forms they file. Based solely on our review of the copies of the forms received by us and written representations from certain reporting persons that they have complied with the relevant filing requirements, we believe that, during the year ended December 31, 2010, all of our executive officers, directors and the holders of 10% or more of our common stock complied with all Section 16(a) filing requirements, except one initial statement of beneficial ownership of securities and one statement of changes in beneficial ownership on Form 4 was filed late by Thomas Plotts, reporting one late transaction; one statement of changes in beneficial ownership on Form 4 was filed late by Jerome Chazen, reporting one late transaction; and one statement of changes in beneficial ownership on Form 4 was filed late by Raymond Musci, reporting one late transaction.

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 continuing maturation of the industry 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 compete with a diverse and large pool of advertising, media, Internet companies and wireless and traditional telephone carriers.  Larger, more established companies are increasingly focused on developing and distributing products and services that directly 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 remain price competitive while maintaining our operating margins.  The development, distribution and sale 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 technologies, and a fluid and changing regulatory environment.ITEM 11. EXECUTIVE COMPENSATION

Digital Music:  Although consumers are fundamentally changing the way that they interact with and utilize music content, overall U.S. music sales remain significant, at 1.5 billion units in 2009, the second year above $1.5 billion, according to Nielson SoundScan.  As the format used for digital music distribution is evolving to become more user friendly and increasingly device compatible, digital music penetration is rapidly increasing.  In 2009 there were 1.2 billion digital track downloads in the U.S. according to Nielsen SoundScan and digital music represents approximately 27% of the total market for music, and is growing at double digits, according to IFPI.  In the U.S., digital music adoption is even greater, accounting for 40% of music sales, also according to IFPI. 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 and 4G+ mobile networks, has increased consumer access to digital media and enabled consumers to transfer data more quickly than ever before. According to Morgan Stanley Research, mobile Internet usage is expected to eclipse desktop Internet usage within the next three years.  And according to Nokia, there will be 1.0 billion mobile broadband subscriptions by the end of 2011, and 3.8 billion by 2015.  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 and 4G+ 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, mobile phones, smart phones, tablets and pads.  Portable devices, including smart 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 smart phones, tablets and pads.Summary Compensation Table

Mobile ContentThe following table provides disclosure concerning all compensation earned for services to us in all capacities for our fiscal years ended December 31, 2010 and Marketing Landscape:2009 (i) as to each person serving as our Chief Executive Officer during our fiscal year ended December 31, 2010, and (ii) as to our two most highly compensated executive officers other than our Chief Executive Officer who were serving as executive officers during our fiscal year ended December 31, 2010, whose compensation exceeded $100,000. The wireless market has emergedpeople listed in the table below are referred to as our “named executive officers”.
Name and
Principal Position
 Year Salary  Bonus  
Stock
Awards (5)
  
Option
Awards
    
All Other
Compensation
  Total 
                       
Raymond Musci (1)
 2010 $360,000  $-  $-  $-    $20,919  $380,919 
Executive Vice President, Corporate
Development and Director
 2009 $360,000  $-  $-  $-    $18,618  $378,618 
                             
Thomas Plotts (2) 2010 $250,000  $25,000  $16,750�� $126,250 (6)   $5,835  $423,835 
Chief Financial Officer 2009 $187,947  $13,732  $-  $-    $12,385  $214,064 
                             
Andrew Stollman (3) 2010 $425,000  $-  $-  $-    $36,687  $461,687 
President 2009 $425,000  $-  $77,688  $-    $30,219  $532,907 
                             
Jeffrey Schwartz (4) 2010 $172,916  $-  $-  $422,128 (7)   $12,023  $607,067 
Chief Executive Officer 2009 $167,248  $-  $4,398  $-    $2,332  $173,978 

 (1) Mr. Musci is currently performing the duties of Chief Executive Officer following the resignation of Jeffrey Schwartz, our former Chief Executive Officer, on August 13, 2010. Other compensation in 2010 and 2009 relates to health insurance premiums.

(2) Mr. Plotts was appointed Chief Financial Officer on June 30, 2010 after serving as Interim Chief Financial Officer since December 6, 2009.  Prior to his appointment as Interim Chief Financial Officer, Mr. Plotts was Atrinsic’s Vice President of Finance & SEC Reporting, a position he held since February 2007.  In 2010, Mr. Plotts received 6,250 restricted stock units and options to purchase 62,500 shares of common stock at an exercise price of $3.64. Other compensation consists of $5,835 of health insurance premiums in 2010 and $5,185 of health insurance premiums and $7,200 of auto allowance in 2009.

(3) Andrew Stollman served as Atrinsic’s President from February 4, 2008 until February 28, 2011. Pursuant to the terms of his employment agreement with the Company, other compensation paid to Mr. Stollman consisted of payments of $12,000 and $10,000 in 2010 and 2009, respectively, related to an automobile allowance, life insurance premiums of $4,019 for each of the years ended December 31, 2010 and 2009, as well as $20,668 and $16,200 for 2010 and 2009, respectively, related to health insurance premiums.

(4) Jeffrey Schwartz served as Atrinsic’s Chief Executive Officer from January 27, 2010 until August 13, 2010 and prior to that as Atrinsic’s Interim Chief Executive Officer from October 6, 2009. In the year ended December 31, 2009, Mr. Schwartz received $4,398 of stock awards and $61,000 of cash compensation as a resultdirector in 2009, prior to becoming our Interim Chief Executive Officer and received $106,248 in cash compensation for his service as Interim Chief Executive Officer.  In the year ended December 31, 2010, Mr. Schwartz received options to purchase 250,000 shares of the rapid growthcommon stock at an exercise price of $3.00. Other compensation in 2010 and significant technological advancement in the wireless communications industry.  Wireless carriers are delivering new handsets2009 relates to new and existing subscribers which have the capability to download rich media content.  Due to the increase in advanced mobile phones and smart phones with the capabilities to handle rich media downloads, the potential market for mobile services will increase significantly in the coming years.  We expect that as a result of our mobile billing expertise, Internet marketing experience and unique content offerings that we will be able to capitalize on this rapidly growing market.

Search Marketing Landscape:  The Internet is a global digital medium for commerce, content, advertising and communications. As the online population continues to grow, the Internet is increasingly becoming a tool for research and commerce and for distributing and consuming media. Online users regularly use the Internet to research offline purchases, making the Internet an important channel for both online and offline merchants. Consumers are also using the Internet to access an increasing amount of digital content across media formats including video, music, text and games. As consumers increasingly use the Internet to research and make purchases and to consume digital media, advertisers are shifting more of their marketing budgets to digital channels. Despite the size and growth of the digital marketing sector, the shift of traditional advertising spending to the Internet has yet to match the rate of consumption of online media. Marketers are expected to shift 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 market for search marketing will continue to grow and we believe our business is structured to capitalize on this opportunity.

Technology Platform

We utilize proprietary technologies to generate real-time marketing results for our direct to consumer subscriptions business and for our advertising clients.  Our proprietary technology continually analyzes marketing results to gauge whether we are generating adequate results, and whether the media is being utilized cost-efficiently, and to determine whether different marketing 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 marketing activities. The technology 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 to the application of these technologies.
In order to enhance the value of our leads and data, we utilize proprietary validation technology, including cross-checking and employing service bureau database lookups for our core products and services.health insurance premiums.

 
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Employees(5) The dollar amount is the aggregate grant date fair value of stock awards granted in the fiscal year in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. The fair value of restricted stock units issued was recorded at fair market value at date of grant. For awards subject to performance conditions, the value reported is computed based upon the probable outcome of the performance condition as of the grant date. For further information, refer to Note 12 - "Stock Based Compensation," in our Consolidated Financial Statements in our Original Filing filed with the SEC on April 7, 2011.

As(6) The dollar amount is the aggregate grant date fair value of December 31, 2010, Atrinsic had 41 employees and full-time consultantsoption awards granted in the United Statesfiscal year in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. The fair value of options was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: (a) risk free rate of 2.2% (b) dividend yield of 0.0%, (c) expected option life of 5.6 years, and Canada. We have never had a work stoppage and none(d) expected volatility of 58%. For awards subject to performance conditions, the value reported is computed based upon the probable outcome of the performance condition as of the grant date. For further information, refer to Note 12 - "Stock Based Compensation," in our employees are represented by a labor organization or under any collective bargaining arrangements. We considerConsolidated Financial Statements in our employee relations to be good.Original Filing filed with the SEC on April 7, 2011.

Government Regulation(7) The dollar amount is the aggregate grant date fair value of option awards granted in the fiscal year in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. Mr. Schwartz received 125,000 options to purchase stock from each of the 2007 and 2009 plans.  The fair value of options was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions relating to the awards from the 2007 plan: (a) risk free rate of 2.3% (b) dividend yield of 0.0%, (c) expected option life of 6.3 years, and (d) expected volatility of 59%. The assumptions related to the awards from the 2009 plan were the same as the 2007 plan except the expected option life was 5.8 years.  For awards subject to performance conditions, the value reported is computed based upon the probable outcome of the performance condition as of the grant date. For further information, refer to Note 12 - "Stock Based Compensation," in our Consolidated Financial Statements in our Original Filing filed with the SEC on April 7, 2011.

As a direct-to-consumer marketing company we are subjectNarrative Disclosure 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.Summary Compensation Table

ThereIntroduction

In this section, we describe our compensation objectives and policies as applied to our named executive officers during 2010. The following discussion and analysis is substantial uncertaintyintended to provide a framework within which to understand the actual compensation awarded to, earned or held by each named executive officer during 2010, as toreported in the applicability tosummary compensation table set forth above.

Determination of Compensation

The Compensation Committee of the InternetBoard of existing laws governing issues such as property ownership, copyrightsDirectors (the “Committee”) is responsible for determining the annual salaries and other intellectual property issues, taxation, defamation, obscenitycompensation of directors and privacy. The vast majorityexecutive officers, administering our equity compensation plans and assisting the Board 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, 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 levelsDirectors in fulfilling its oversight responsibilities with respect to management succession and other significant human resources matters.

Among other things, the Internet. ManyCommittee is required to determine and approve the compensation of these laws cover issues suchthe chief executive officer, review and approve the compensation of the Company’s other executive officers, review and approve any incentive compensation plan or equity-based plan for the benefit of executive officers, and review and approve any employment agreement, severance arrangement or change-in-control arrangement for the benefit of executive officers.

Throughout this report, the individuals who served 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,Company’s chief executive officer 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 andthe other individuals included in the Summary Compensation Table above, are currently being considered by Federal, State, Local and foreign legislatures with respectreferred to these issues.as the “named executive officers.”

The application of existing laws orPhilosophy

Our overall compensation program seeks to align executive compensation with the adoption or modification of laws or regulations in the future, together with increased regulatory scrutiny might decrease the growthachievement of the Internet, impose taxes orCompany’s business objectives and with individual performance towards these objectives. It also seeks to enable the Company to attract, retain, and reward executive officers and 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 onkey employees who contribute to our business prospects, financial conditionsuccess and results of operations and could potentially expose us and/or our clients to fines, litigation, cease and desist orders and civil and criminal liability and/or other compliance costs.incentivize them to enhance long-term stockholder value.

 
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ITEM 1A. RISK FACTORSIn setting compensation levels, consideration was given to each executive’s overall responsibilities, professional qualifications, business experience, job performance and technical expertise, and the combined value of these factors to the company’s long-term performance and growth.  The Company’s recent performance was also considered in setting compensation levels.

Investing inObjectives of Executive Compensation

The main objectives of our common stock involvescompensation strategy include the following:

·pay competitively within our industry to attract and retain key employees while taking into account our need to preserve capital;

·pay for performance to motivate and align our executives interests with that of our stockholders; and

·design compensation programs with a balance between short-term and long-term objectives, including encouraging management ownership of our common stock.

The Committee seeks to properly compensate executive officers for their services to the Company and to create incentives to focus on the specific goals identified as significant for the Company. The Committee identifies and considers a high degreewide range of risk. You should carefully considermeasures for individual performance, company performance, and, as appropriate, share price appreciation and develops performance goals based on these measures. In addition, the following risk factors andCommittee endeavors to preserve the Company’s tax deduction for all other information contained in this report before purchasing our common stock. compensation paid, which can be accomplished primarily by conditioning compensation on the achievement of certain performance goals, as discussed below.

Executive Compensation Components

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 anyprimary components of the following risks occur,executive compensation program are:

·base salary;

·annual performance-based cash bonus;

·long-term equity incentive awards in the form of stock options, restricted stock units and/or restricted stock; and

·other benefits.

Annual Base Salary

We strive to provide our executive officers with a level of assured cash compensation in the form of annual base salary that is competitive with companies in the digital entertainment and entertainment content business financial condition, cash flows and/or resultsand similar enterprises and companies that are comparable in size and performance.  We strive to set base salaries at levels which are designed to motivate and retain our executives.  The annual base salary of operations could be materially and adversely affected. In that case,Mr. Musci, our interim Chief Executive Officer, in 2010 was $360,000, which has not changed from the trading priceprior year.  The annual base salary of Mr. Stollman, our President, in 2010 was $425,000 which was negotiated in connection with the closing of our common stock could decline,merger with Traffix, Inc., and stockholdersreflects in part the base compensation that Mr. Stollman was receiving at his company prior to the merger.  The annual base salary of Mr. Plotts in 2010 was $250,000 and was established based on negotiations with the Company. The annual base salary of Mr. Schwartz in 2010 was $275,000 and was established based on negotiations with the Company.

When establishing the base salaries for our named executive officers, the Compensation Committee considered a number of factors including the individual’s duties and responsibilities, their potential for making significant contributions to the company in the future, their backgrounds in the digital entertainment and entertainment content business and other general discretionary considerations as the Compensation Committee deemed appropriate.

Annual Cash Bonuses

Annual cash incentive bonuses create a measurable and predictable connection between total executive compensation and our annual performance. Unlike base salaries, annual incentive bonuses are at risk of losing some or allbased on how well we perform and how our executive officers contribute to that performance.  In 2010, except as noted in the following sentence, no annual cash bonuses were paid to the Company’s named executive officers as a result of the money investedCompany’s performance. Mr. Plotts, however, received a bonus of $25,000 in purchasing our common stock.

There is substantial doubt about our ability to continue as a going concern.

Our consolidated financial statements included2010 in this Annual Reportconnection with the Company’s timely filing of its annual report on Form 10-K are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The historical consolidated financial statements included in this Annual Report on Form 10-K do not include any adjustments that might be necessary if we are unable to continue as a going concern. The report of our independent registered public accountants, KPMG LLP, includes an explanatory paragraph related to our ability to continue as a going concern.

The assessment of our ability to continue as a going concern was made by management considering, among other factors: (i) our current levels of expenditures, including subscriber acquisition costs, operating expense, including product development, and overhead, (ii) our ongoing working capital needs, (iii) the uncertainty concerning the outcome of any financing, (iv) our fiscal year net losses of $19.7 million and $29.5 million for the years ending December 31, 2010 and 2009, respectively, (v) our use of $11.2 million and $3.0 million of cash used for operating activities during the years ending December 31, 2010 and 2009, respectively, (vi) the outstanding balance of cash and cash equivalents of $6.3 million as of December 31, 2010, and (vii) our budgets and financial projections of future operations, including the likelihood of achieving operating profitability without the need for additional financing.

For periods subsequent to December 31, 2010, we expect losses to continue if we maintain expenditures to develop the Kazaa service, acquire subscribers for the Kazaa digital music service, and are not able to reduce other operating expenses and overhead sufficiently to a level in line with our level of revenues.  If we are unable to increase revenues sufficiently or decrease our expenditures to a sustainable level, our financial position, results of operations, cash flows and liquidity will continue to be materially adversely affected. These conditions raise substantial doubt about our ability to continue as a going concern.

Based on current financial projections, we believe the continuation of our Company as a going concern is primarily dependent on our ability to, among other factors: (i) consummate a suitable financing, or obtain financing from the sale of our assets or lines of business, (ii) scale our Kazaa subscriber base to a level where the monthly revenue generated from our subscriber base exceeds subscriber acquisition costs, net of expenses required to operate Kazaa, (iii) continue to generate revenue from our legacy subscription products without billing or service disruption, (iv) eliminate or reduce operating and overhead expenditures to a level more in line with our revenue, (v) improve utilization of the Kazaa digital music service and improve LTVs of subscribers to that service (vi) acquire profitable subscribers to the Kazaa digital music service at cost effective rates(vii) grow our search marketing agency revenue base through the addition of new customers or expansion of business with existing customers, and (viii) expand margins in our search marketing agency and on our affiliate platform.  While we address these operating matters, we must continue to meet expected near-term obligations, including normal course operating cash requirements and costs associated with developing and operating the Kazaa digital music service, as well as funding overhead and the working capital needs of our other businesses.  If we are not able to obtain sufficient funds through a financing, or if we experience adverse outcomes with respect to our operational forecasts, our financial position, results of operations, cash flows and liquidity will continue to be materially adversely affected.

In the near term, we are focused on: (i) raising debt or equity capital to fund our immediate cash needs and to finance our longer term growth to further develop the Kazaa business and grow our subscriber base, and (ii) pursuing various means to minimize operating costs and increase cash. We cannot provide assurance that we will be able to realize the cost reductions in our operations, or that we can obtain additional cash through asset sales or the issuance of debt or equity. If we are unsuccessful in our efforts we will be required to further reduce our operations, including further reductions of our employee base, or we may be required to cease certain or all of our operations in order to offset the lack of available funding.10-K.

 
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We continue to evaluate the sale of certain of our assets and businesses. We cannot provide any assurance that we will be successful in finding suitable purchasers for the sale of such assets.  Even if we are able to find purchasers, we may not be able to obtain attractive terms and conditions for such sales, including attractive pricing. In addition, divestitures of businesses involve a number of risks, including the diversion of management and employee attention, significant costs and expenses, the loss of customer relationships, a decrease in revenues associated with the divested business, and the disruption of operations in the affected business. Furthermore, divestitures potentially involve significant post-closing separation activities, which could involve the expenditure of significant financial and employee resources. An inability to consummate identified asset sales or manage the post-separation transition arrangements could adversely affect our business, financial condition, results of operations and cash flows.

If our purchase of the Kazaa assets does not close, the price of our common stock could decline and our future business and operations could be harmed.Long-Term Equity Incentive Awards

The Company'sCompensation Committee intends to use equity incentive awards to serve as the primary vehicle for providing long-term incentives to our senior executives and Brilliant Digital’s obligations to complete the purchasekey employees. We also regard equity incentive awards as a key retention tool. During 2010, equity incentive awards were available for grant under our 2007 and sale of the Kazaa assets is subject to conditions, many of2009 Plans, which are beyond the control of the parties. If the transaction is not completed for any reason:
·The price of our common stock may decline;
·We will incur costs related to the transaction, such as financial advisory, legal, accounting, proxy solicitation and printing fees, even if the transaction is not completed;
·We will not be able to realize the expected benefits of the acquisition which are a significant component of our growth strategy;
·We may not be able to operate as effectively under the existing Marketing Services Agreement and Master Services Agreement, which agreements are to remain in place if the transaction does not close,

All of which may harm our business and operations.

We have experienced a significant reduction in revenue and have been using cash to fund operations. If we cannot halt this revenue decline and reduce expenditures we may have to cease operations.

The Company has experienced a significant revenue decline and degradation in business prospects over the past two years, and as a result the Company has used a significant amount of cash to fund its operations. The Company’s cash and cash equivalents were $6.3 million as of December 31, 2010, which is a $10.6 million decline from the $16.9 million as of December 31, 2009. If we are unsuccessful at stabilizing or slowing the decline in our revenue, and our associated use of cash to fund operations, or if we cannot raise cash through financing alternatives, then we will need to significantly curtail or cease operations.

The working capital requirements for companies in the digital music industry is significant

The digital music industry is highly competitive and as a result of the industry’s characteristics, subjects market participants to significant working capital requirements, as is evidenced by the numerous companies in the industry that have experienced significant losses.  If we are to attract and retain talented employees, acquire subscribers and enhance and improve the Kazaa digital music service, which we will need to do if we are to be successful, we will have significant capital requirements.  There is no guarantee additional capital will be available on favorable terms or at all.

We will require additional capital to pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances. If capital is not available to us or available to us under adverse circumstances, our business, operating results and financial condition may be harmed.

We will require additional capital to operate or expand our business. In addition, some of our current or future strategic initiatives, including continued growth of the Kazaa line of business, will require substantial additional capital resources before they begin to generate revenue. Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. In addition, volatility in the credit markets may have an adverse effect on our ability to obtain debt or equity financing. If we do not have funds available to enhance our business, maintain the competitiveness of our technology and pursue business opportunities, we may not be able to service our existing subscribers and customers, or acquire new subscribers or customers , which could have an adverse effect on our business, operating results and financial condition.

We face risks in implementing our restructuring plan.

In connection with our announcement to purchase the assets of the Kazaa digital music service, we are undertaking a restructuring of our existing operations. Although the reorganization and consolidation of activities are expected to yield cost savings as a result of the reduction in headcount, the elimination of duplicative activities and combining or eliminating networking and other overhead costs, there can be no assurance that we will achieve the forecasted savings. Our remaining business may also suffer as a result of the restructuring due to the loss of employees, who have been involuntarily terminated, or employees who leave voluntarily. We may also face defections from customers who are unsure of our viability and may also receive less favorable terms than we currently receive from our vendors, as a result of their perception of the restructuring.  There can be no assurance that the restructuring will be completed effectively, with limited negative impact on our business.

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As part of our restructuring plan and in connection with the integration of activities with the Kazaa business, we will be migrating many of our technological assets.  We face risks with such migrations, including disruptions in service.  Also, the costs and time associated with any migration could be substantial, requiring the reengineering of computer systems and telecommunications infrastructure. We may also face 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.

The anticipated benefits of the acquisition of the Kazaa business may not be realizeddescribed more fully or at all or may take longer to realize than expected.

The integration of Atrinsic and the business of Kazaa face challenges as a result of the differing geographical locations of the two businesses. In the event the transactions contemplated by the asset purchase agreement close, the combined company will be required to devote significant management attention and resources to integrating the Kazaa business and the assets into our operations. Delays in this process could adversely affect our business, financial results, financial condition and stock price. Even if we are able to integrate the business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, cost savings, innovation and operational efficiencies that may be possible from this integration or that these benefits will be achieved within a reasonable period of time.

We face intense competition in the sale of our subscription services and transactional and marketing services.

In our subscription service business, which includes the Kazaa music service, and our marketing services business, we compete primarily on the basis of marketing acquisition cost, brand awareness, consumer penetration and carrier and distribution depth and breadth.  We face 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 target markets longer than we have.  In the future, likely competitors may include other major media companies, traditional video game publishers, telephone carriers, content aggregators, wireless software providers and other pure-play 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 and increasing customer penetration in existing markets 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.

We may continue to be impacted by the effects of the current weakness of the United States economy.

Our performance is subject to United States economic conditions and its 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 and marketing services have declined 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, 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 or make sales to new customers 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 downturn in the United States which has impacted our business, and which may continue to affect our results of operations.

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.

We generate a significant portion of our revenues from the sale of our products and services directly to consumers which are billed through 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 obtained 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.

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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.

Many other factors exist that are outside of our control and could impair our carrier relationships, including:
·a carrier’s decision to suspend delivery of our products and services to its customer base;
·a carrier’s decision to offer its own competing subscription applications, products and services;
·a carrier’s decision to offer similar subscription applications, products and services to its subscribers for price points less than our offered price points, or for free;
·a network encountering technical problems that disrupt the delivery of, or billing for, our applications;
·the potential for concentrations of credit risk embedded in the amounts receivable from the aggregator should any one, or group of aggregators encounter financial difficulties, directly or indirectly, as a result of the current period of slower economic growth 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 carriers decide to suspend the offering of 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 Internet and telecommunications providers, over whom we have no control, for the conduct of our subscription business and transactional and marketing 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 marketing 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 and time 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. 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 for the Kazaa music service. We are reliant on such companies to maintain licenses with content providers, including 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. 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 has 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.

We may not fully recoup the expenses and other costs we have expended with respect to the Kazaa music service.

On March 26, 2010, we entered into three-year Marketing Services Agreement and Master Services Agreement with Brilliant Digital, effective July 1, 2009, relating to the operation and marketing of the Kazaa digital music service. Under the agreements, we are responsible for marketing, promotional, and advertising services.  In exchange for these marketing services, the Company is entitled to full recoupment for all pre-approved costs and expenses incurred in connection with the provision of the services plus all other agreed budgeted amounts. On October 13, 2010, Atrinsic entered into amendments to its existing Marketing Services Agreement and Master Services Agreement with Brilliant Digital.  The amendments extend the term of each of the Marketing Services Agreement and Master Services Agreement from three years to thirty years, provide Atrinsic with an exclusive license to the Kazaa trademark in connection with Atrinsic’s services under the agreements, and modify the Kazaa digital music service profit share payable to Atrinsic under the agreements from 50% to 80%. In addition, the amendments remove Brilliant Digital’s obligation to repay up to $2.5 million of advances and expenditures which are not otherwise recovered from Kazaa generated revenues and remove the cap on expenditures that Atrinsic is required to advance in relation to the operation of the Kazaa business.

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As of December 31, 2010, the Company has received the $2.5 million in repayments from Brilliant Digital and we are dependent on the future net cash flow of the Kazaa music service to fully recoup the approximately $11.8 million of advances and expenditures we have made, net of cash received or reimbursed, as of December 31, 2010. There can be no assurance that the future net cash flows from the Kazaa music service will be sufficient to allow us to fully recoup our expenditures, which could materially and adversely affect our financial condition.
If advertising on the internet loses its appeal, our revenue could decline.

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

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

We are subject to continued listing requirements on the NASDAQ Global Market and if we are unable to meet such listing requirements, we could face delisting.

We are subject to continued listing requirements on the NASDAQ Global Market, which includes such criteria as a $1.00 minimum bid price requirement and minimum stockholders’ equity value of $10 million, as set forth in Listing Rule 5450(a)(1).  As of December 31, 2010, the value of our stockholders’ equity is $8.2 million.

The value of our stockholders’ equity can be increased through equity financing or through additions to retained earnings (or reductions in accumulated deficit).  We are actively seeking to engage in an equity financing, but there can be no assurance that we will be successful in this regard. If we are not successful in raising equity capital, or even if we are successful, if we continue to incur net losses (which will negatively impact the value of our stockholders’ equity), we are not likely to be able to meet or maintain the minimum stockholders’ equity value requirement to maintain our listing on the NASDAQ Global Market.

We do not intend to pay dividends on our equity securities.

It is our current and long-term intention that we will use all cash flows to fund operations and maintain excess cash requirements for the possibility of potential future acquisitions.  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.

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. Through the end of 2010, we operated a data center in Canada (which we have begun the process of closing down and transferring data to servers owned by third parties in 2011) 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 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 effect on our financial position and results of operations.below.

As described underin the heading “Commitments and Contingencies,” or "Legal Proceedings" in our periodic reports filed pursuantfootnotes to the Securities Exchange ActSummary Compensation Table, the Compensation Committee has granted long-term equity incentive compensation awards to named executive officers in the form of 1934, from time to time we are namednon-qualified stock option awards as a defendant in litigation matters.well as restricted stock units. 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 effect on our financial position and results of operations.

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 10, “Provision (Benefit) for Income Taxes” to our consolidated financial statements contained in annual report on Form 10-K, we have recorded significant income tax receivables. 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 we were able to carryback somevesting provisions of our 2009 taxable loss, resultingequity awards are established in a refund of $2.7 million, which was received in 2010. In the event that we are not able to successfully defend our tax positions, 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.

If our efforts to attract prospective subscribers and to retain existing subscribers pertaining to our Kazaa business are not successful, our growth prospects and revenue will be adversely affected.
Our ability to grow our business and generate subscriber revenue depends on retaining and expanding our subscriber base. We must convince prospective listeners of the benefits of our service and existing listeners of the continuing value of our service.
Our ability to increase the number of our subscribers depends on effectively addressing a number of challenges and we may fail to do so. Some of these challenges include:
Providing subscribers with a consistent high quality, user-friendly and personalized experience;
continuing to build our catalog of music content that our listeners enjoy; and
continuing to innovate and keep pace with changes in technology and our competitors.
We depend upon third-party licenses for musical works and a change to or loss of these licenses could increase our operating costs or adversely affect our ability to retain and expand our listener base, and therefore could adversely affect our business.

To secure the rights to stream musical works embodied in sound recordings over the internet, Brilliant Digital maintains licenses from or for the benefit of copyright owners and pays royalties to copyright owners or their agents. We reimburse Brilliant Digital for these royalty payments.  These royalty payments represent a substantial cost in operating the Kazaa business.  Those who own copyrights in musical works are vigilant in protecting their rights and seek royalties that are very high in relation to the revenue that can be generated from the public performance of such works. There is no guarantee that the licenses available to Brilliant Digital now will continue to be available in the future or that such licenses will be available at the royalty rates associated with the current licenses. If we or Brilliant Digital are unable to secure and maintain rights to stream musical works or if we cannot do so on terms that are acceptable to us, our ability to stream music content to our listeners, and consequently our ability to attract subscribers, will be adversely impacted.
In order to stream musical works embodied in sound recordingsencourage employee retention and focus management’s attention on sustaining financial performance and building stockholder value over the internet, we must obtain public performance licenses and pay license fees to three performing rights organizations: Broadcast Music, Inc., or BMI, SESAC, Inc., or SESAC, and the American Society of Composers, Authors and Publishers, or ASCAP. These organizations represent the rights of songwriters and music publishers, negotiate with copyright users such as Brilliant Digital, collect royalties and distribute those royalties to the copyright owners they represent, namely songwriters and music publishers. Performing rights organizations have the right to audit our playlists and royalty payments, and any such audit could result in disputes over whether we have paid the proper royalties. If such a dispute were to occur, we could be required to pay additional royalties and the amounts involved could be material.

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If our security systems are breached, we may face civil liability and public perception of our security measures could be diminished, either of which would negatively affect our ability to attract listeners and advertisers.

Techniques used to gain unauthorized access are constantly evolving, and we may be unable to anticipate or prevent unauthorized access to data pertaining to our listeners, including credit card information and other personally identifiable information. If an actual or perceived breach of security occurs of our systems or a vendor’s systems, we may face civil liability and public perception of our security measures could be diminished, either of which would negatively affect our ability to attract subscribers. We also would be required to expend significant resources to mitigate the breach of security and to address related matters.

We cannot control the actions of third parties who may have access to the subscriber data we collect. If such third parties’ use of subscriber data is not in compliance with the terms of our privacy policies, or if they fail to prevent unauthorized access to, or use of or disclosure of, subscriber information, we could be hindered or prevented in our efforts with respect to future growth opportunities.

Any failure, or perceived failure, by us to maintain the security of data relating to our listeners and employees, to comply with our posted privacy policy, laws and regulations, rules of self-regulatory organizations, industry standards, and contractual provisions to which we may be bound, could result in the loss of confidence in us, or result in actions against us by governmental entities or others, all of which could result in litigation and financial losses, and could potentially cause us to lose listeners, advertisers, revenue, and employees.

We are subject to a number of risks related to credit card payments we accept.

We accept payments through credit card transactions. For credit card payments, we pay processing and other fees, which may increase over time. An increase in those fees would require us to either increase the prices we charge for our products, or suffer an increase in our operating expenses, either of which could adversely affect our business, financial condition and results of operations.

If we or any of our processing vendors have problems with our billing software, or the billing software malfunctions, it could have an adverse effect on our subscriber satisfaction and could cause one or more of the major credit card companies to disallow our continued use of their payment products. In addition, if our billing software fails to work properly and, as a result, we do not automatically charge our subscribers’ credit cards on a timely basis or at all, our business, financial condition and results of operations could be adversely affected.

We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it more difficult for us to comply. We must remain fully compliant with the Payment Card Industry, or PCI, Data Security Standard, or PCI DSS, a security standard with which companies that collect, store, or transmit certain data regarding credit, credit card holders, and credit card transactions are required to comply. Our failure to comply fully with PCI DSS may violate payment card association operating rules, federal and state laws and regulations, and the terms of our contracts with payment processors and merchant banks. Such failure to comply fully also may subject us to fines, penalties, damages, and civil liability, and may result in the loss of our ability to accept credit card payments. Further, there is no guarantee that, even if PCI DSS compliance is achieved, we will maintain PCI DSS compliance or that such compliance will prevent illegal or improper use of our payment systems or the theft, loss, or misuse of data pertaining to credit and debit cards, credit and debit card holders and credit and debit card transactions.

If we fail to adequately control fraudulent credit card transactions, we may face civil liability, diminished public perception of our security measures and significantly higher credit card-related costs, each of which could adversely affect our business, financial condition and results of operations.

If we are unable to maintain our chargeback rate or refund rates at acceptable levels, credit card companies may increase our transaction fees or terminate their relationships with us. Any increases in such rates could adversely affect our results of operations, particularly if we elect not to raise our rates for our service to offset the increase. The termination of our ability to process payments on any major credit card would significantly impair our ability to operate our business.
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We currently are operating our business with vacancies in several key executive positions including our Chief Executive Officer.

In order to effectively operate our business and effect the necessary growth to meet our financial needs, the company is required to continuously set key strategic objectives and develop strategies to meet these objectives.  This function requires competent leadership within our organization.  Due to recent turnover of key executives, we are currently operating with several vacancies in executive positions, including our President and Chief Executive Officer.  If we are unable to attract and retain qualified officers to fill these rolls, our business, operating results and growth can be adversely affected.
ITEM 1B UNRESOLVED STAFF COMMENTS
Not applicable

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ITEM 2. PROPERTIES

Atrinsic’s corporate headquarters are located at 469 7th Avenue, New York, NY.extended term.

The following table details the various properties leased and owned by us as of December 31, 2010.

Location
Leased/
Owned
Square
Feet
Expiration
Dieppe, New Brunswick, CanadaOwned17,000N/A
469 7th Avenue, New York, NYLeased17,0009/30/2018
1 Blue Hill Plaza, Pearl River, NY (a)Leased14,22011/15/2011

The spaces listed above are adequate for our current needs and we believe suitable additional or substitute space will be available to accommodate the foreseeable expansiondescriptions 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.

(a)We terminated our lease agreement in the first quarter of 2011 pursuant to the Surrender of Lease Agreement for the former Traffix office located in Pearl River, New York.  In consideration for the lease termination, the Company agreed to pay the landlord a cancellation fee of $0.2 million in the form of an unsecured note payable. The termination of this resulted in a reduction of 2011 operating lease payments of $0.3 million.

ITEM 3. LEGAL PROCEEDINGS.

On March 10, 2010, Atrinsic received final approval of its settlement of the Class Action in the case known as Allen v. Atrinsic, Inc. f/k/a New Motion, Inc., formerly pending in Los Angeles County Superior Court.  This national settlement covers all of our mobile products, web sites and advertising practices through the date the final judgment was entered.  All costs of the settlement and defense were accrued for in 2008; therefore this settlement did not impact our results of operations in 2009 or 2010.  In addition to administrative costs and refunds, during the second quarter of 2010, we paid the $1.0 million settlement for the Class Action.

Because the terms of the settlement applied nationally, all other consumer class action cases pending against us were dismissed without payment of any monies.

On November 1, 2010, we received notice of final award from an arbitration panel relating to a Statement of Claim in an arbitration action against a past aggregator.  As a result of that arbitration award, we recorded an aggregate gain on legal settlement of approximately $1.1 million in the third and fourth quarters of 2010.  The terms of the award are confidential.

In November, 2009, we reached a settlement regarding a suit we had filed earlier that year against Mobile Messenger Americas, Inc. and Mobile Messenger Americas Pty, Ltd. (collectively Mobile Messenger) to recover monies owed us in connection with transaction 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 us a cross complaint, seeking injunctive relief, indemnification for the settlement of the Florida Class Action and other matters.  The terms of the settlement are confidential, but in general resulted in a complete dismissal of the entire action, including the cross-complaint, with prejudice.  Pursuant to the settlement agreement, independent auditors conducted an accounting of payments made to us by Mobile Messenger.  In August, 2010, the independent auditors issued their report detailing their findings which Mobile Messenger disputed, and as dictated by the terms of the settlement agreement, the parties have engaged in arbitration. We expect this matter to be finalized in the second quarter of 2011.  Any payments arising out of the settlement are not expected to have a material impact on our results from operations, beyond what we have already expensed and accrued for in 2009.
In the ordinary course of business, we are involved in various disputes, which are routine and incidental to the business and the industry in which we operate. In our opinion, the results of such disputes will not have a significant adverse effect on our financial position or results of operations. Of the approximately $5.2 million in total accrued expenses as of December 31, 2010, $0.3 million is associated with the legal contingencies disclosed above.

ITEM 4. Removed and Reserved

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Part II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND 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.  The following table sets forth, for the periods indicated, the high and low sales prices for our common stock, as well as the total number of shares of common stock traded during the periods indicated.  The following table reflects the high and low prices as reported by NASDAQ and adjusted for our December 2, 2010 1-for-4 reverse stock split.
        Average 
        Daily 
  High  Low  Volume 
Year Ended December 31, 2010:         
First Quarter  3.80   2.44   4,620 
Second Quarter  4.48   3.28   5,629 
Third Quarter  3.64   1.16   9,536 
Fourth Quarter  2.97   1.44   14,081 
             
Year Ended December 31, 2009:            
First Quarter  5.84   3.00   44,077 
Second Quarter  6.00   3.48   33,344 
Third Quarter  5.68   3.60   14,863 
Fourth Quarter  4.68   2.08   43,920 

As of March 31, 2011, there were approximately 141 record holders of common stock. As of March 31, 2011, the closing sales price of our common stock as reported on the NASDAQ Global Market was $3.59 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 any 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 2010 fiscal year, other than as provided below, we did not sell unregistered securities.
On September 28, 2010, we issued 7,500 shares of our common stock to Barretto Pacific Corporation.  The shares were issued in connection with certain advisory services provided by Barretto Pacific Corporation to us pursuant to a Services Agreement entered into between the parties on October 1, 2010.

On October 13, 2010, as described elsewhere in this report, we entered into amendments to our existing Marketing Services Agreement and Master Services Agreement with Brilliant Digital Entertainment, Inc. and entered into an agreement with Brilliant Digital and Altnet, Inc., a wholly-owned subsidiary of Brilliant Digital (collectively, “BDE”), to acquire all of the assets of BDE that relate to its Kazaa subscription based music service business.  As consideration for entering into the amendments, we issued 1,040,358 shares of our common stock to Brilliant Digital.

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In connection with the above stock issuances, we did not pay any underwriting discounts or commissions. None of the sales of securities described above was registered under the Securities Act of 1933, as amended (the "Securities Act"). No general solicitation or advertising was used in connection with the sales and the sales were made only to accredited investors.  Each investor made representations that the shares were acquired for investment, for its own account, and without an intention of distributing the shares in violation of the Securities Act. In making the sales without registration under the Securities Act, we relied upon one or more of the exemptions from registration contained in Sections 4(2) of the Securities Act, and in Regulation D promulgated thereunder.

ITEM 6. SELECTED FINANCIAL DATA

Not required.

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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 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 Atrinsic, Inc. for the fiscal years ended December 31, 2010 and 2009. 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

Our business is focused on two key areas:

·Direct-to consumer subscriptions, built around the Kazaa brand, and

·Search and affiliate marketing, built around the Atrinsic Interactive brand.

Our direct-to-consumer subscription business is built around a recurring-revenue business model.  We are focused on digital music in the rapidly growing mobile space, and our lead offering, Kazaa, is a recognizable brand in this market.  We also provide alternative billing capabilities, allowing our subscribers to utilize payment methods other than just credit cards, to purchase our services.  Our core strategic focus for Kazaa and our direct-to-consumer subscription business is to build and sustain a large and profitable subscriber base and a growing and engaged audience and to deliver entertainment content to our customers anywhere, anytime and on any device, in a manner our customers choose.

Atrinsic Interactive, our affiliate network and search marketing agency, is a top ten search agency according to Advertising Age (2010) and a top-tier affiliate network.  We offer advertisers an integrated service offering across paid search, or search engine marketing (“SEM”), search engine optimization (“SEO”), display advertising, affiliate marketing, as well as offering business intelligence and brand protection services to our clients.  We work with all types and sizes of advertisers on a performance basis to assist them in acquiring customers at an attractive return on investment.  Our core strategic focus for Atrinsic Interactive is to build a leading independent search marketing agency and a top-five affiliate network.

See Item 1 –“Business,” for information on our history and background, what it is we do, including our financing activities and details on our ability to continue as a going concern, the contents of which are incorporated herein by reference.

Generally, our business principally serves two sets of customers – advertisers and consumers. Advertisers use our products and services to enhance their online marketing programs (Transactional revenue).  Consumers subscribe to our entertainment services, like Kazaa to receive premium content on the Internet and on their mobile device (Subscriptions). Each of these business activities – Transactional and Subscriptions – may utilize the same originating media or derive a customer from the same source (e.g. search); the difference is reflected in the type of customer billing and in the service that is provided.  In the case of Transactional revenue, which is primarily generated from our search marketing agency business, the billing is generally carried out on a service fee, percentage, or on a performance basis.  For Subscriptions, 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 marketing programs to match users with our service offerings or with those of our advertising clients. For Subscriptions, our prospects for growth are dependent on our ability to acquire subscribers in a cost effective manner, have those customers stay as paying subscribers and to provide content and services to those subscribers in a cost effective manner. For our search marketing agency business, our prospects for growth are dependent on our ability to sell our services to new advertisers, expand our existing customer relationships and to improve our margins.  Results may also be impacted by economic conditions and the relative strengths and weakness of the U.S. economy, trends in the online marketing and telecommunications industry, including client spending patterns and increases or decreases in our portfolio of service offerings, including the overall demand for such offerings, competitive and alternative programs and advertising mediums, and risks inherent in our customer database, including customer attrition.

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The principal components of our operating expense are labor, media and media related expenses (including media content costs, lead validation and affiliate compensation), product or content development and royalties or licensing fees, marketing and promotional expense (including sales commissions, customer service and customer retention expense) and corporate general and administrative expense. We consider our third party media cost and a portion of 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 this portion of our cost structure to what we believe to be increases or decreases in revenue and market trends. Conversely, a significant portion of our operating cost structure is considered to be predominantly fixed in nature over a short time horizon, making it more difficult to make modifications to this portion of our cost structure in response to increases or decreases in revenue and market trends.  These factors are important in monitoring our performance in periods when revenues are increasing or decreasing.

In connection with our announcement to purchase the assets of the Kazaa digital music service, in November, 2010, we also undertook a restructuring of our existing operations to rapidly reduce certain expenditures.  The restructuring involves the consolidation of all of our activities in New York and includes the closure of our Canadian technology facility and the retrenchment of approximately 40 employees in the U.S. and in Canada.  In addition to the restructuring of our Canadian operations, which is substantially complete, we intend to transition the Kazaa functions and activities that are currently being carried out by personnel and contractors of Brilliant Digital, including development, backend and marketing operations, to the U.S. from Sydney, Australia.

Kazaa Music Service

Atrinsic and Brilliant Digital Entertainment, Inc. (“Brilliant Digital”) jointly offer the Kazaa digital music service pursuant to a Marketing Services Agreement and a Master Services Agreement between the two companies.  Under the Marketing Services Agreement, we are responsible for marketing, promotional, and advertising services in respect of the Kazaa business. Pursuant to the Master Services Agreement, Atrinsic provides services related to the operation of the Kazaa business, including billing and collection services and the operation of the Kazaa online storefront. Brilliant Digital is obligated to provide certain other services with respect to the Kazaa business, including licensing the intellectual property underlying the Kazaa business to us, obtaining all licenses to the content offered as part of the Kazaa business and delivering that content to subscribers. As part of the agreements, we are required to make advance payments and expenditures in respect of certain expenses incurred in order to operate the Kazaa business. These advances and expenditures are recoverable on a dollar for dollar basis against revenues generated by the business.  Since inception on July 1, 2009, and through December 31, 2010, we have contributed $11.8 million net of revenue and recouped funds.

Also in accordance with the original Marketing Service Agreement and Master Service Agreement, Atrinsic and Brilliant Digital were to share equally in the “Net Profit” generated by the Kazaa music subscription service after all of our costs and expenses have been recouped. For the year ending December 31, 2010, we have presented in our statement of operations, Kazaa revenue of $10.7 million and expenses incurred for the Kazaa music service of $18.7 million, offset by $0.4 million of reimbursements from Brilliant Digital.  For the year ending December 31, 2009, we have presented in our statement of operations, Kazaa revenue of $2.7 million and expenses incurred for the Kazaa music service of $4.9 million, offset by $2.1 million of reimbursements from Brilliant Digital.

On October 13, 2010, we entered into amendments to our existing Marketing Services Agreement and Master Services Agreement with Brilliant Digital and entered into an agreement with Brilliant Digital to acquire all of the assets of Brilliant Digital that relate to its Kazaa subscription based music service business.

Among other things, the amendments extend the term of each of the Marketing Services Agreement and Master Services Agreement from three years to thirty years, provide us with an exclusive license to the Kazaa trademark in connection with our services under the agreements, and modify the Kazaa digital music service profit share payable to us under the agreements from 50% to 80%. In addition, the amendments remove Brilliant Digital’s obligation to repay up to $2.5 million of advances and expenditures which are not otherwise recovered from Kazaa generated revenues and remove the $5.0 million cap on expenditures that we are required to advance in relation to the operation of the Kazaa business. As consideration for entering into the amendments, we issued 1,040,358 unregistered shares of our common stock to Brilliant Digital.

The amendments to the Marketing Services Agreement and Master Services Agreement are part of a broader transaction between us and Brilliant Digital pursuant to which we will acquire all of the assets of Brilliant Digital that relate to its Kazaa digital music service business in accordance with the terms of an asset purchase agreement entered into between the parties. The purchase price for the acquired assets includes the issuance by us of an additional 1,781,416 unregistered  shares of our common stock at the closing of the transactions contemplated by the asset purchase agreement as well as the assumption of certain liabilities related to the Kazaa business. The closing of the transactions contemplated by the asset purchase agreement will occur when all of the assets associated with the Kazaa business, including the Kazaa trademark and associated intellectual property, as well as Brilliant Digital’s content management, delivery and customer service platforms, and licenses with third parties, have been transferred to us. The closing of the transactions contemplated by the asset purchase agreement is subject to approval by our stockholders and the stockholders of Brilliant Digital, receipt of all necessary third party consents as well as other customary closing conditions. There is no guarantee that such approvals will be obtained.  At the closing of the transactions contemplated by the asset purchase agreement, we have agreed to appoint two individuals to be selected by Brilliant Digital to serve on our Board of Directors. In addition, at the closing, each of the Marketing Services Agreement and Master Services Agreement will terminate.

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Our Strategy

In order to build and sustain a large and profitable subscriber base and a growing and engaged audience and to deliver entertainment content to our customers anywhere, anytime and on any device, in a manner our customers choose, we are incurring media, product and distribution and marketing expenses to acquire customers today so that we can build a substantial subscriber base to generate subscription revenue in the future.

Merchandising, Content and Product Development.  Our merchandising and product strategy is geared towards improving customer retention and increasing LTV.  On an ongoing basis, we are enhancing the user experience on Kazaa through preference engine improvements, greater search capabilities and user interface modifications.  Product development initiatives include the development of mobile browser optimization so that users of smart phones and other mobile devices can stream music directly from Kazaa.com without having to download an application.  Our music service offered through Kazaa.com is a fully licensed digital music service.  We pay rights’ holders’ royalties on tracks downloaded or streamed and our subscribers have access to millions of tracks.  On Kazaa.com, subscribers can browse, search and listen to music and get detailed information on tracks and albums and rankings.  Kazaa’s artist radio feature allows users to automatically generate deep and rich playlists based off of listener habits and preferences.  We also utilize social media channels and multiple forms of communications to connect with our users in a relevant way to improve retention and encourage utilization.

Disciplined Approach to Marketing.  We employ a multifaceted approach to generating subscribers for ourselves.  We are focused on  acquiring customers through multiple online distribution channels in a cost effective manner, including affiliate marketing, search, social media, display, email/SMS and organic traffic, or SEO.  We look to optimize our marketing spend with respect to number of subscribers, revenue and costs.  We also have a network of our own media, consisting of music, games and lifestyle websites and proprietary content to attract consumers.  Our strategy is to improve the cost effectiveness of our customer acquisition by improving the attractiveness of our existing web properties and offerings and by employing innovative marketing techniques, to source and expand traffic. Our disciplined approach to marketing enables us to lower our customer acquisition costs, relative to the LTV of our subscribers.

Lead Validation and Billing Efficiency .  We are pursuing a number of value enhancing strategies to increase the conversion of leads into subscribers of our direct-to-consumer subscription services.  By validating the submission of online information through automated data lookups and validation, we are able to increase the value of a lead or visitor to our web sites.  Such lead value enhancement techniques assist us in improving the conversion of users into subscribers to our direct-to-consumer subscription services and the corresponding increases in LTVs 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.

In order to build a leading independent search marketing agency and a top-five affiliate network, we are leveraging our multi-channel marketing expertise and technology to drive advertisers’ results.

Integrated Services and Performance Focus.  In order to be a leading marketing agency, we are deploying innovative search engine optimization and search marketing techniques to attract users to our advertisers’ web sites.  Our paid search team utilizes intelligent search tools to drive sales at the lowest cost for advertisers and our multi-channel path to conversions enables us to see the entire conversion funnel across any online marketing channel.  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 existing and new client base.

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Technology Platforms. In order to be competitive in the area of online marketing services, particularly in search related marketing services and affiliate networking, we are continually improving our technology capabilities.  Our affiliate marketing platform facilitates easy partnerships for advertisers and publishers to drive website traffic and is a transparent software platform, giving both parties access to high quality data.  On our affiliate platform we use comprehensive reporting, trademark monitoring and proprietary business intelligence tools to aid advertisers in customer acquisition.

Results of Operations for the year ended December 31, 2010 compared to the year ended December 31, 2009.

Revenues presented by type of activity are as follows for the year ended December 31:

  (in thousands)    
     Change  Change 
  For the Year Ended December 31,  
Increase 
(Decrease)
  
Increase
(Decrease)
 
  2010  2009   $   % 
              
Subscription $19,021  $22,254  $(3,233)  -15%
Transactional  21,005   46,835   (25,830)  -55%
                 
Total Revenues $40,026  $69,089  $(29,063)  -42%

Revenues decreased approximately $29.1 million, or 42%, to $40.0 million for the year ended December 31, 2010, compared to $69.1 million for the year ended December 31, 2009.

Subscription revenue consists of content applications billed direct to consumers 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 $3.2 million, or 15%, to $19.0 million for the year ended December 31, 2010, compared to $22.2 million for the year ended December 31, 2009. Subscription revenue for the year ended December 31, 2010 includes an increase in Kazaa revenue of $8.0 million compared to the year ended December 31, 2009, without which, our subscription revenue would have decreased by 50%, or $11.0 million year-over-year.  As of December 31, 2010, the Company had approximately 205,000 subscribers, compared to 338,000 as of December 31, 2009.  This decrease in subscribers was partly offset by a 22% increase in average revenue per user (“ARPU”) to approximately $6.11 for the year ended December 31, 2010, compared to the year ended December 31, 2009. The increase in ARPU was the result of the higher retail price point of the Kazaa digital music subscription service and improvements in billing efficiency. As of December 31, 2010, the Company has approximately 77,000 Kazaa subscribers.  Relative to the approximately 80,000 Kazaa subscribers we had at the end of 2009, for all of 2010, we experienced a net decrease of 3,000 Kazaa subscribers (new subscriber additions, net of attrition).

Transactional revenue is principally derived from our search marketing agency business, which consists of targeted and measurable online campaigns and programs for advertisers, to generate qualified customer leads, sales transactions, or increased brand recognition. Transactional revenue decreased by approximately $25.8 million or 55% to $21.0 million for the year ended December 31, 2010 compared to $46.8 million for year ended December 31, 2009. The decrease in revenue was attributable to the loss of accounts and a reduction in discretionary advertising expenditures by our clients, as well as a result of a restructuring of our agency activities. Beginning in the second quarter, and substantially completed by the end of the third quarter, the Company took proactive steps to eliminate any unprofitable or marginally profitable lead generation campaigns and marketing programs from its Transactional offerings. These steps had the effect of curtailing lead generation sales volume, contributing to the decrease in revenue compared to the year ago period. As a result of this restructuring, the bulk of our Transactional revenue now consists of revenue generated from our search agency business, together with higher yielding marketing campaigns.

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Operating Expenses
  (in thousands)    
     Change  Change 
  For the Years Ended December 31,  
Increase
(Decrease)
  
Increase
(Decrease)
 
  2010  2009   $   % 
Operating Expenses             
Cost of Media – 3rd party
 $22,513  $43,313  $(20,800)  -48%
Product and distribution  20,193   10,559   9,634   91%
Selling and marketing  4,038   8,386   (4,348)  -52%
General, administrative and other operating  9,083   14,706   (5,623)  -38%
Depreciation and Amortization  1,644   3,698   (2,054)  -56%
Impairment of Goodwill and Intangible Assets  4,850   17,289   (12,439)  -72%
                 
 Total Operating Expenses $62,321  $97,951  $(35,630)  -36%
Cost of Media

Cost of Media – 3rd party decreased by $20.8 million to $22.5 million for the year ended December 31, 2010 from $43.3 million for the year ended December 31, 2009. Cost of Media – 3rd party includes media purchased for monetization of both Transactional and Subscription revenues. The decrease in Cost of Media – 3rd party was due to two primary factors. First, approximately 85% of the decrease in Cost of Media – 3rd party was due to the decline in Transactional related revenue which resulted in a corresponding reduction in purchased media. Second, the remaining 15% of the decrease in Cost of Media – 3rd party was due to significantly lower subscriber acquisition rates, and in turn, a lower number of subscribers acquired.

The rate of subscriber acquisitions is based on a number of factors, not least of which is subscriber acquisition cost, or “SAC.” During the year ended December 31, 2010, management moderated and limited the rate of subscriber acquisitions in response to (i) the need to preserve cash, (ii) changes in its alternative billing processes, and (iii) anticipated improvements and enhancements to the Kazaa digital music service.

During the year ended December 31, 2010, the Company added approximately 396,000 new subscribers, over half of which were Kazaa subscribers. This level of customer acquisition was not sufficient to replace the Company’s existing subscriber base during the year: “Net Adds,” which represents the number of subscribers acquired, net of subscriber attrition, which was a negative 133,000 for the year ended December 31, 2010. Cost of media for the year ended December 31, 2010 includes an increase in Kazaa-related Cost of Media – 3rd party of $2.3 million compared to the year ended December 31, 2009. We anticipate that  our share of the future cash flows of the Kazaa music service to exceed these Kazaa cost of media expenses, although there can be no assurance of this.

During 2010, the Company estimates that its SAC per subscriber was approximately $15.34, which reflects a 10% increase in SAC from the year ago period. SAC is dependent on a number of factors, including prevailing market conditions, the type of media, and the ability of the Company to convert leads into subscribers. The Company expects that SAC will fluctuate from period to period based on all of these factors. Management will continue to monitor SAC closely to ensure that the Company acquires customers in a cost effective manner for both its transactional and subscription services. Because of its strictly variable nature, this decrease was proportionately correlated to the decline in the related revenue.

Product and Distribution

Product and distribution expense increased by $9.7 million to $20.2 million in the year ended December 31, 2010 as compared to $10.5 million for the year ended December 31, 2009. Product and distribution expenses are costs necessary to provide licensed content and development and support for our products, websites and technology platforms – which drive both our Transactional and Subscription-based revenues. Compared to the year ended December 2009, in the year ended December 31, 2010 we experienced higher product and distribution expenses of $10.2 million as a result of costs incurred to further develop the Kazaa music service and greater royalty and license expense payable to content owners, also associated with Kazaa. We anticipate that our share of the future cash flows of the Kazaa music service to exceed these Kazaa product and distribution expenses, although there can be no assurance of this. This increase in costs related to Kazaa was partly offset by decreases in staffing costs as we have reduced the number of employees companywide during 2010.   Included in product and distribution cost is stock compensation expense of $54,000 and $111,000 for the years ended December 31, 20102005, 2007 and 2009 respectively.

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Selling and marketingStock Incentive Plans:

Selling and marketing expense decreased by $4.4 million to $4.0 million in the year ended December 31, 2010 as compared to $8.4 million for the year ended December 31, 2009. The decrease is primarily due to a reduction in salaries and other marketing costs, in accordance with the decrease in our revenue over the same period. Included in selling and marketing cost is stock compensation expense of $43,000 for the year ended December 31, 2010.

General, Administrative and Other Operating

General and administrative expenses decreased by approximately $5.6 million to $9.1 million for the year ended December 31, 2010 compared to $14.7 million for the year ended December 31, 2009. The decrease is primarily due to a reduction in workforce, and associated savings, a decrease in professional fees and other efforts to reduce the Company’s overall levels of overhead. The rate of decrease in general, administrative and other operating expense, on a year-over-year basis, is slower than for some other components of operating expenses because of the fixed nature of general and administrative costs, relative to the more variable based costs inherent in other categories of operating expense. Included in general and administrative expense is stock compensation expense of $1.0 million and $0.7 million for the year ended December 31, 2010 and 2009.

Depreciation and amortization

Depreciation and amortization expense decreased $2.1 million to $1.6 million for the year ended December 31, 2010 compared to $3.7 million for the year ended December 31, 2009 as a result of a reduction in amortization for intangibles, due to the fact that we recorded an impairment charge of $4.1 million at December 31, 2009.   This was partly offset by an increase in depreciation due to a write-off of $0.4 million in property, plant and equipment related to the decision to shut down the Canada facility.

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 indefinite lived intangible asset impairment testing conducted in the fourth quarter, and for the year ended December 31, 2010, we determined there was impairment of the carrying value of indefinite lived intangible assets and recorded a non-cash charge of $1.5 million compared to an impairment charge of $2.0 million in 2009. In 2009, goodwill of $13.1 million was also impaired. The goodwill and indefinite lived 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.

As a result of significant adverse changes in the business climate, the Company concluded that triggering events had occurred and the Company tested long-lived assets for impairment as of December 31, 2010 and 2009. The Company determined the fair value of such long lived assets and recognized an impairment charge of $3.4 million and $2.2 million for the years ended December 31, 2010 and 2009 respectively.

Loss from Operations

Operating loss decreased to approximately $22.3 million for the year ended December 31, 2010 compared to $28.9 million for the year ended December 31, 2009. Excluding the effect of intangible asset impairment in 2010 and 2009, operating loss increased to approximately $17.4 million for the year ended December 31, 2010, compared to $11.6 million for the year ended December 31, 2009. The higher operating loss is the result of the revenue decrease, together with proportionately higher product and distribution expense offset by an improvement in the Cost of Media – 3rd party margin, selling and marketing expenses and general and administrative expenses.

Interest income and dividends

Interest and dividend income decreased approximately $62,000 to $10,000 for the year ended December 31, 2010, compared to $72,000 for the year ended December 31, 2009. The reduction is mainly due to a decrease in the balances of cash and marketable securities at December 31, 2010 compared to December 31, 2009, as well as a reduction in the rate of return on invested capital.

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Interest expense

Interest expense was $16,000 for the year ended December 31, 2010 compared to $76,000 for the year ended December 31, 2009.

Other Income

Other income was $1.7 million for the year ended December 31, 2010 compared to other income of $5,000 for the year ended December 31, 2009. Other income for 2010 was principally comprised of legal settlements and awards (see “Item 3 – Legal Proceedings”)

Income Taxes

Income tax (benefit) expense, before noncontrolling interest and equity in loss (income) of investee, for the year ended December 31, 2010 and 2009 was $(1.1) million and $0.6 million, respectively and reflects an effective tax rate of (5.2)% and 2.2% respectively. The effective tax rates were computed taking into consideration non-deductible impairment charges of $12.1 million for 2009, and the change in the income tax valuation allowance of $8.2 million and $11.1 million for 2010 and 2009, respectively.

Equity in (Loss) Income of Investee

Equity in loss of investee was $183,000 net of taxes at December 31, 2010 compared to equity in income of $59,000 for the year ended December 31, 2009, and represents our 36% interest in The Billing Resource, LLC (TBR).

Net Loss Attributable to Noncontrolling Interest

Net loss attributable to noncontrolling interest was $28,000 for the year ended December 31, 2009. This related to our investment in MECC which was dissolved in June 2009.

Net Loss Attributable to Atrinsic, Inc.

Net loss attributable to Atrinsic Inc., decreased by $9.8 million to $19.7 million for the year ended December 31, 2010 as compared $29.5 million for the year ended December 31, 2009. This decrease resulted from the factors described above.

Liquidity and Capital Resources

We continually project anticipated cash requirements, which may include business combinations, capital expenditures, and working capital requirements. As of December 31, 2010, we had cash and cash equivalents of approximately $6.3 million and working capital of approximately $2.1 million. We used approximately $11.2 million in cash for operations during the year ended December 31, 2010 and, contingent on prospective operating performance may require reductions in discretionary variable costs and other realignments to permanently reduce fixed operating costs. We generated $0.7 million in cash from investing activities, principally from a return of capital from The Billing Resource. Cash used in financing activities was minimal during the fiscal year ended December 31, 2010.

In order to fund operations, we need to raise additional capital.  We are currently working with an independent financial advisory firm to assist us in structuring a financing and to engage an investment bank to raise debt or equity capital to fund our immediate cash needs and to finance our longer term growth to further develop the Kazaa business and grow our subscriber base.  We currently have no formal arrangements with respect to additional financing in place and there is no guaranty funding will be available on favorable terms or at all. If we cannot obtain such funds, we will need to significantly curtail or cease our operations.  In addition, the sale of additional equity securities or convertible debt could result in dilution to our stockholders.

We continue to evaluate the sale of certain of our assets and businesses.  We cannot provide any assurance that we will be successful in finding suitable purchasers for the sale of such assets.  Even if we are able to find purchasers, we may not be able to obtain attractive terms and conditions for such sales, including attractive pricing. In addition, divestitures of businesses involve a number of risks, including the diversion of management and employee attention, significant costs and expenses, the loss of customer relationships, a decrease in revenues associated with the divested business, and the disruption of operations in the affected business.  Furthermore, divestitures potentially involve significant post-closing separation activities, which could involve the expenditure of significant financial and employee resources. An inability to consummate identified asset sales or manage the post-separation transition arrangements could adversely affect our business, financial condition, results of operations and cash flows.

28

There is substantial doubt about our ability to continue as a going concern. Our consolidated financial statements included in this Annual Report on Form 10-K are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The historical consolidated financial statements included in this Annual Report on Form 10-K do not include any adjustments that might be necessary if we are unable to continue as a going concern. The report of our independent registered public accountants, KPMG LLP, includes an explanatory paragraph related to our ability to continue as a going concern.

The assessment of our ability to continue as a going concern was made by management considering, among other factors: (i) our current levels of expenditures, including subscriber acquisition costs, operating expense, including product development, and overhead, (ii) our ongoing working capital needs, (iii) the uncertainty concerning the outcome of any financing, (iv) our fiscal year net loss of $19.7 million and $29.5 million for the years ending December 31, 2010 and 2009, respectively, (v) our $11.2 million and $3.0 million of cash used for operating activities during the years ending December 31, 2010 and 2009, respectively, (vi) the outstanding balance of cash and cash equivalents of $6.3 million as of December 31, 2010, and (vii) our budgets and financial projections of future operations, including the likelihood of achieving operating profitability without the need for additional financing.

For periods subsequent to December 31, 2010, we expect losses to continue if we continue expenditures to develop the Kazaa service, acquire subscribers for the Kazaa digital music service, and are not able to reduce other operating expenses and overhead sufficiently to a level in line with our level of revenues.  If we are unable to increase revenues sufficiently or decrease our expenditures to a sustainable level, our financial position, results of operations, cash flows and liquidity will continue to be materially adversely affected. These conditions raise substantial doubt about our ability to continue as a going concern.

Based on current financial projections, we believe the continuation of our Company as a going concern is primarily dependent on our ability to, among other factors: (i) consummate a suitable financing, or obtain financing from the sale of our assets or lines of business, (ii) scale our Kazaa subscriber base to a level where the monthly revenue generated from our subscriber base exceeds subscriber acquisition costs, net of expenses required to operate Kazaa, (iii) continue to generate revenue from our legacy subscription products without billing or service disruption, (iv) eliminate or reduce operating and overhead expenditures to a level more in line with our revenue, (v) improve utilization of the Kazaa digital music service and improve LTVs of subscribers to that service, and (vi) acquire profitable subscribers to the Kazaa digital music service at cost effective rates, (vii) grow our search marketing agency revenue base through the addition of new customers or expansion of business with existing customers and, (viii) expand margins in our search marketing agency and on our affiliate platform.  While we address these operating matters, we must continue to meet expected near-term obligations, including normal course operating cash requirements and costs associated with developing and operating the Kazaa digital music service, as well as funding overhead and the working capital needs of our other businesses.  If we are not able to obtain sufficient funds through a financing, or if we experience adverse outcomes with respect to our operational forecasts, our financial position, results of operations, cash flows and liquidity will continue to be materially adversely affected. See Item 1A—“Risk Factors” included in this Annual Report on Form 10-K regarding additional risks we face with respect to these matters.

In the near term, we are focused on: (i) raising debt or equity capital to fund our immediate cash needs and to finance our longer term growth to further develop the Kazaa business and grow our subscriber base, and (ii) pursuing various means to minimize operating costs and increase cash. We cannot provide assurance that we will be able to realize the cost reductions in our operations, or that we can obtain additional cash through asset sales or the issuance of equity. If we are unsuccessful in our efforts we will be required to further reduce our operations, including further reductions of our employee base, or we may be required to cease certain or all of our operations in order to offset the lack of available funding.

Critical 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.

29
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, 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. 

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 and economic 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 and provides for these probable uncollectible amounts through a reduction of recorded revenues in the period for which the sale occurs, based on analyses of historical trends as well as an evaluation of the impact of current and projected economic conditions.

The Company effectuates its subscription revenues through a carrier or distributors who are paid a transaction fee for their services.  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 for the fiscal year ended December 31, 2009, and non-amortizable intangible assets in each of the fiscal years ended December 31, 2010 and 2009 as a result of completing annual impairment analysis for such periods. 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 6 to the Consolidated Financial Statements – “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 intangible assets are amortized in a manner that reflects the pattern of the projected net cash inflows to the Company that are expected to occur, or when such pattern does not exist, using the straight-line basis over their respected estimated useful lives. The Company reviews the recoverability of its finite-lived intangible assets for recoverability whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.
The Company has determined that there was an impairment of intangible assets during the fourth quarters of 2010 and 2009.  The results of this assessment are more fully described in Note 6 of the Company’s Financial Statement – “Goodwill and Intangible Assets.”

30

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 of stock option awards and performance based restricted stock, we use the Black Scholes option pricing model where appropriate. The key assumptions for this models to derive fair value include 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.

Revenue Recognition

In accordance with ASC 605 and SEC 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, during the month, and revenues are recognized upon receipt of information confirming an arrangement in that same month. 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 its 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.

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 basis, from search syndication services; (b) fees earned for the Company's search engine marketing ("SEM") services; and (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 ASC 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 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 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.

Under ASC 740-10-25 the Company classifies interest expense and penalties related to unrecognized tax benefits as income tax expense. ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with ASC 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.

The Company and its subsidiaries file income tax returns in the U.S and Canada. The Company is subject to federal, state and Canadian examinations. The statute of limitations for 2007 through 2009 in all jurisdictions (except California includes 2006 through 2009) remain open and income tax returns filed for such periods are subject to potential examination by tax authorities.

31

Contractual Obligations and Off-Balance Sheet Arrangements

At December 31, 2010, the Company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, the Company is not exposed to any financing, liquidity, market or credit risk that could arise if it had engaged in such relationships.
The following table shows the Company’s future commitments for future minimum lease payments required under operating leases that have remaining 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, 2010:

     Less than   1-3   4-5  More than 
  Total  1 year  years  years  5 years 
                  
Operating leases $7,287  $861  $1,822  $2,004  $2,600 
Employment agreements  973   535   438   -   - 
                     
  $8,260  $1,396  $2,260  $2,004  $2,600 

Subsequent to December 31, 2010, the Company entered into a surrender of lease agreement with its landlord for the former Traffix office located in Pearl River, New York.  In consideration for the lease termination, the Company agreed to pay the landlord a cancellation fee of $0.2 million in the form of an unsecured note payable. The termination of this resulted in a reduction of 2011 operating lease payments of $0.3 million.  The table above does not reflect any obligation relating to this lease.

Recent Accounting Pronouncements

Adopted in 2010

In September 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 are effective as of January 1, 2010 and the adoption of these revisions to ASC 810 had no impact on our results of operations or financial position.

Not Yet Adopted
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 the 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 September 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.

In December 2010, the FASB issued ASU 2010-28, Intangibles - Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (“ASU 2010-28”). Upon adoption of ASU 2010-28, an entity with reporting units that have carrying amounts that are zero or negative is required to assess the likelihood of the reporting units’ goodwill impairment. ASU 2010-28 is effective January 1, 2011 and we do not believe that the adoption of ASU 2010-28 will have a significant impact on our results of operations and financial position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting FirmF-1
Consolidated Balance SheetsF-2
Consolidated Statements of OperationsF-3
Consolidated Statements of Comprehensive LossF-4
Consolidated Statements of EquityF-5
Consolidated Statements of Cash FlowsF-6
Notes to the Consolidated Financial StatementsF-7 – F-29

33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Atrinsic, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Atrinsic, Inc. and subsidiaries, as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity, comprehensive loss, and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Atrinsic, Inc. and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the years then ended in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
New York, New York
April 7, 2011

F-1
ATRINSIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31,
(Dollars in thousands except share data)
  2010  2009 
ASSETS      
Current Assets      
Cash and cash equivalents $6,319  $16,913 
Accounts receivable, net of allowance for doubtful accounts of $1,168 and $4,295  4,994   7,985 
Income tax receivable  437   4,373 
Prepaid expenses and other current assets  565   2,643 
         
 Total Currents Assets  12,315   31,914 
         
 PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1,813 and $1,078  2,692   3,553 
 INTANGIBLE ASSETS, net of accumulated amortization of $3,813 and $8,605  3,083   7,253 
 DEFERRED TAX ASSET  276   - 
 INVESTMENTS, ADVANCES AND OTHER ASSETS  976   1,878 
         
TOTAL ASSETS $19,342  $44,598 
LIABILITIES AND EQUITY        
Current Liabilities        
Accounts payable $4,470  $6,257 
Accrued expenses  5,172   9,584 
Deferred tax liability  347   - 
Deferred revenues and other current liabilities  274   725 
         
Total Current Liabilities  10,263   16,566 
         
DEFERRED TAX LIABILITY, NET  -   1,697 
OTHER LONG TERM LIABILITIES  907   988 
         
TOTAL LIABILITIES $11,170  $19,251 
         
COMMITMENTS AND CONTINGENCIES (see note 13)  -   - 
         
STOCKHOLDERS' EQUITY        
Common stock - par value $.01, 100,000,000 authorized, 6,964,125 and 5,895,895 shares issued at 2010 and 2009, respectively; and, 6,282,616 and 5,210,566 shares outstanding at 2010 and 2009, respectively. $70  $59 
Additional paid-in capital  181,087   178,619 
Accumulated other comprehensive gain (loss)  42   (20)
Common stock, held in treasury, at cost, 681,509 and 685,330 shares at 2010 and 2009, respectively.  (4,981)  (4,992)
Accumulated deficit  (168,046)  (148,319)
         
TOTAL EQUITY  8,172   25,347 
         
TOTAL LIABILITIES AND EQUITY $19,342  $44,598 

All outstanding share amounts have been retroactively restated to reflect Atrinsic, Inc.’s December 2010 1-for-4 Reverse Stock Split. See Note 9, “Stockholders’ Equity”.
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 share and per share data)
  2010  2009 
       
Subscription $19,021  $22,254 
Transactional  21,005   46,835 
         
NET REVENUE  40,026   69,089 
         
OPERATING EXPENSES        
Cost of media-third party  22,513   43,313 
Product and distribution  20,193   10,559 
Selling and marketing  4,038   8,386 
General, administrative and other operating  9,083   14,706 
Depreciation and amortization  1,644   3,698 
Impairment of Goodwill and Intangible Assets  4,850   17,289 
         
   62,321   97,951 
         
LOSS FROM OPERATIONS  (22,295)  (28,862)
         
OTHER (INCOME) EXPENSE        
Interest income and dividends  (10)  (72)
Interest expense  16   76 
Other income  (1,690)  (5)
         
   (1,684)  (1)
         
LOSS BEFORE TAXES AND EQUITY IN LOSS OF INVESTEE  (20,611)  (28,861)
         
INCOME TAXES  (1,067)  640 
         
EQUITY IN LOSS (INCOME) OF INVESTEE, AFTER TAX  183   (59)
         
NET LOSS  (19,727)  (29,442)
         
LESS: NET  LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST,  AFTER TAX  -   28 
         
NET LOSS ATTRIBUTABLE TO ATRINSIC, INC $(19,727) $(29,470)
         
NET LOSS PER SHARE ATTRIBUTABLE TO ATRINSIC COMMON STOCKHOLDERS  ��     
Basic $(3.62) $(5.71)
Diluted $(3.62) $(5.71)
         
WEIGHTED AVERAGE SHARES OUTSTANDING:        
Basic  5,448,366   5,162,232 
Diluted  5,448,366   5,162,232 
All outstanding share and per share amounts have been retroactively restated to reflect Atrinsic, Inc.’s December 2010 1-for-4 Reverse Stock Split. See Note 9, “Stockholders’ Equity”.

The accompanying notes are an integral part of these consolidated statements

F-3
ATRINSIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Years Ended December 31,
(Dollars in thousands)

  2010  2009 
NET LOSS $(19,727) $(29,442)
         
OTHER COMPREHENSIVE LOSS, NET OF TAX:        
Net Currency translation adjustment  62   267 
         
Total Other Comprehensive loss, Net of Tax  (19,665)  (29,175)
Comprehensive loss attributable to noncontrolling interest  -   (28)
         
Comprehensive loss attributable to Atrinsic, Inc $(19,665) $(29,147)

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

F-4
ATRINSIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
Years Ended December 31,
(Dollars in thousands, except 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, 2009  5,748,070  $58  $177,520  $(118,849) $(287)  477,232  $(4,053) $260  $54,649 
Net loss  -   -   -   (29,470)  -   -   -   28   (29,442) 
Foreign currency translation adjustment  -   -   -   -   267   -   -   -   267 
Liquidation of non controlling interest  -   -   -   -   -   -   -   (288)  (288) 
Stock based compensation expense  22,825   -   856   -   -   -   -   -   856 
Issuance of common stock  10,000   -   48   -   -   -   -   -   48 
Tax shortfall on Stock based compensation  -   -   (430)  -   -   -   -   -   (430) 
Purchase of common stock, at cost  -   -   -   -   -   208,098   (939)  -   (939) 
Return of Equity  -   -   138   -   -   -   -   -   138 
Common stock issued in connection with a business combination  115,000   1   487   -   -   -   -   -   488 
                                     
Balance at December 31, 2009  5,895,895  $59  $178,619  $(148,319) $(20)  685,330  $(4,992) $-  $25,347 
Net loss  -   -   -   (19,727)  -   -   -   -   (19,727) 
Foreign currency translation adjustment  -   -   -   -   62   -   -   -   62 
Stock based compensation expense  20,411   1   1,113   -   -   -   -   -   1,114 
Issuance of common stock  7,461   -   12   -   -   -   -   -   12 
Treasury stock issued in connection with employee compensation, net of taxes  -   -   (20)  -   -   (3,821)  11   -   (9) 
Common stock issued in connection with an asset purchase  1,040,358   10   1,363   -   -   -   -   -   1,373 
                                     
Balance at December 31, 2010  6,964,125  $70  $181,087  $(168,046) $42   681,509  $(4,981) $-  $8,172 

All outstanding share and per share amounts have been retroactively restated to reflect Atrinsic, Inc.’s December 2010 1-for-4 Reverse Stock Split. See Note 9, “Stockholders’ Equity”.

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)

  2010  2009 
       
Cash Flows From Operating Activities      
Net loss $(19,727) $(29,442)
Adjustments to reconcile net loss to net cash (used in) operating activities:        
Allowance for doubtful accounts  (233)  1,991 
Depreciation and amortization  1,644   3,698 
Impairment of goodwill and intangible assets  4,850   17,289 
Stock-based compensation expense  1,113   857 
Stock based consulting expense  12   40 
Impairment of investment in Mango Networks  -   225 
Deferred income taxes  (1,539)  3,651 
Equity in loss (income) of investee  183   (108)
Changes in operating assets and liabilities of business, net of acquisitions:        
Accounts receivable  3,202   6,686 
Prepaid income tax  3,968   (1,617)
Prepaid expenses and other current assets  1,990   (359)
Accounts payable  (1,789)  (937)
Other, principally accrued expenses  (4,924)  (4,989)
Net cash used in operating activities $(11,250) $(3,015)
         
Cash Flows From Investing Activities        
Cash received from investee  720   1,940 
Cash paid to investees  -   (914)
Proceeds from sales of marketable securities  -   4,242 
Business combinations  -   (1,740)
Acquisition of loan receivable  -   (480)
Capital expenditures  (41)  (682)
Net cash provided by investing activities $679  $2,366 
         
Cash Flows From Financing Activities        
Repayments of notes payable  -   (1,750)
Liquidation of non-controlling interest  -   (288)
Return of investment - noncontrolling interest  -   138 
Purchase of common stock held in treasury  (9)  (939)
Net cash used in financing activities $(9) $(2,839)
         
Effect of exchange rate changes on cash and cash equivalents  (14)  (9)
         
Net Decrease In Cash and Cash Equivalents  (10,594)  (3,497)
Cash and Cash Equivalents at Beginning of Year  16,913   20,410 
Cash and Cash Equivalents at End of Year $6,319  $16,913 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION        
Cash paid for interest $(8) $(76)
Cash refunded for taxes $3,458  $867 
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 asset purchase and business combination $1,373  $600 

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

F-6

NOTE 1 – Nature of Operations
Atrinsic is a direct marketing company based in the United States.  Atrinsic has two main service offerings, transactional services and subscription services. Transactional services offers full service online marketing and distribution services which are targeted and measurable online campaigns and programs for marketing partners, corporate advertisers, or their agencies, generating qualified customer leads, online responses and activities, or increased brand recognition. Subscription services offer our portfolio of subscription based content applications direct to users working with wireless carriers and other distributors.
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.
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, 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. Transactional Services) largely at the discretion of the Chief Operating Decision Maker 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 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. We include accumulated net translation adjustments in stockholders’ equity as a component of accumulated other comprehensive loss.
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 short-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 and economic 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.

F-7

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 for the fiscal year ended December 31, 2009, and non-amortizable intangible assets in each of the fiscal years ended December 31, 2010 and 2009 as a result of completing annual impairment analysis for such periods. 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 6 – “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 intangible assets are amortized in a manner that reflects the pattern of the projected net cash inflows to the Company that are expected to occur, or when such pattern does not exist, using the straight-line basis over their respected estimated useful lives. The Company reviews the recoverability of its finite-lived intangible assets for recoverability whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company has determined that there was an impairment of intangible assets during the fourth quarter of 2010 and 2009. The results of this assessment are more fully described in Note 6 – “Goodwill and Intangible Assets”.

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 of stock option awards and performance based restricted stock, we use the Black Scholes option pricing model where appropriate. The key assumptions for this model to derive fair value include expected term, rate of risk free returns and volatility. Information about our specific award plans can be found in Note 12.
Revenue Recognition
In 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, during the month, and revenues are recognized upon receipt of information confirming an arrangement in that same month. 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 its subscription service revenues through a carrier or distributors who are paid a transaction fee for their services. In accordance with 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.

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) fees earned for the Company's search engine marketing ("SEM") services; and (c) other fees for marketing services including data and list management services, which can be either periodic or transactional. 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 transactional services revenues are recognized on a gross basis in accordance with the provisions of 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 party Media Cost.
Accumulated Other Comprehensive Loss
Comprehensive  loss consists of two components, net 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 loss consists of foreign currency translation adjustments from our subsidiary that does not use US dollars as their functional currency.
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 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.
Under ASC 740-10-25, the Company classifies interest expense and penalties related to unrecognized tax benefits as income tax expense. ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with ASC 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.

The Company and its subsidiaries file income tax returns in the U.S and Canada. The Company is subject to federal, states and Canadian examinations. The statute of limitations for 2007, 2008 and 2009 in all jurisdictions (except California which includes 2006 through 2009) remain open and income tax returns filed for such periods are subject to potential 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 – Going Concern and Liquidity Considerations

The Company’s consolidated financial statements are prepared using accounting principles generally accepted in the United States applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The accompanying historical consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

The assessment of the Company’s ability to continue as a going concern was made by management considering, among other factors: (i) the Company’s current levels of expenditures, including subscriber acquisition costs, operating expense, including product development, and overhead, (ii) the Company’s ongoing working capital needs, (iii) the uncertainty concerning the outcome of any financing, (iv) the Company’s fiscal year net loss of $19.7 million and $29.5 million for the years ending December 31, 2010 and 2009, respectively, (v) the Company’s use of $11.2 million and $3.0 million of cash used in operating activities for  the years ending December 31, 2010 and 2009, respectively, (vi) the outstanding balance of cash and cash equivalents of $6.3 million as of December 31, 2010, and (vii) the Company’s budgets and financial projections of future operations, including the likelihood of achieving operating profitability without the need for additional financing.

For periods subsequent to December 31, 2010, the Company expects to incur losses if it continues to incur expenditures to develop the Kazaa service, acquire subscribers for the Kazaa digital music service, and is not able to reduce other operating expenses and overhead sufficiently to a level in line with its level of revenues.  If the Company is unable to increase revenues sufficiently or decrease its expenditures to a sustainable level, its financial position, results of operations, cash flows and liquidity will continue to be materially adversely affected. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

Based on current financial projections, management believes the continuation of the Company as a going concern is primarily dependent on its ability to, among other factors: (i) consummate a suitable financing, or obtain financing from the sale of its assets or lines of business , (ii) scale our Kazaa subscriber base to a level where the monthly revenue generated from the Company’s subscriber base exceeds subscriber acquisition costs, net of expenses required to operate Kazaa, (iii) continue to generate revenue from the Company’s legacy subscription products without billing or service disruption, (iv) eliminate or reduce operating and overhead expenditures to a level more in line with the Company’s revenue (v) improve utilization of the Kazaa digital music service and improve LTVs of subscribers to that service, (vi) acquire profitable subscribers to the Kazaa digital music service at cost effective rates, (vii) grow the Company’s search marketing agency revenue base through the addition of new customers or expansion of business with existing customers and, (viii) expand margins in the Company’s search marketing agency and on its affiliate platform.

While the Company addresses these operating matters, it must continue to meet expected near-term obligations, including normal course operating cash requirements and costs associated with developing and operating the Kazaa digital music service, as well as funding overhead and the working capital needs of the Company’s other businesses.  If the Company is not able to obtain sufficient funds through a financing, or if the Company experiences adverse outcomes with respect to its operational forecasts, the Company’s financial position, results of operations, cash flows and liquidity will continue to be materially adversely affected.

In the near term, the Company is focused on: (i) raising debt or equity capital to fund the Company’s immediate cash needs and to finance its longer term growth to further develop the Kazaa business and grow its subscriber base, and (ii) pursuing various means to minimize operating costs and increase cash, including the potential sale of assets.  The Company cannot provide assurance that it will be able to realize the cost reductions in the Company’s operations, or that it can obtain additional cash through asset sales or the issuance of equity or raising debt. If the Company is unsuccessful in its efforts it will be required to further reduce the Company’s operations, including further reductions of its employee base, or the Company may be required to cease certain or all of its operations in order to offset the lack of available funding.

F-10

NOTE 4- Kazaa

Kazaa is a subscription-based digital music service that gives users unlimited access to hundreds of thousands of CD-quality tracks. For a monthly fee users can download unlimited music files and play those files on up to three separate computers and download unlimited ringtones to a mobile phone. Unlike other music services that charge each 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. Consumers are billed for this service on a monthly recurring basis through a credit card, landline, or mobile device. Royalties are paid to the rights’ holders for licenses to the music utilized by this digital service.  Atrinsic and Brilliant Digital Entertainment, Inc. (“Brilliant Digital”) jointly offer the Kazaa digital music service pursuant to a Marketing Services Agreement and a Master Services Agreement between the two companies, each entered into effective as of July 1, 2009.

Under the Marketing Services Agreement, Atrinsic is responsible for marketing, promotional, and advertising services in respect of the Kazaa business. Pursuant to the Master Services Agreement, Atrinsic provides services related to the operation of the Kazaa business, including billing and collection services and the operation of the Kazaa online storefront. Brilliant Digital is obligated to provide certain other services with respect to the Kazaa business, including licensing the intellectual property underlying the Kazaa business to Atrinsic, obtaining all licenses to the content offered as part of the Kazaa business and delivering that content to subscribers. As part of the agreements, Atrinsic is required to make advance payments and expenditures in respect of certain expenses incurred in order to operate the Kazaa business. These advances and expenditures are recoverable on a dollar for dollar basis against revenues generated by the business.  Since inception on July 1, 2009, and through December 31, 2010, the Company has contributed $11.8 million net of revenue and recouped funds in order to support the development of the Kazaa brand.

Also in accordance with the original Marketing Service Agreement and Master Service Agreement, Atrinsic and Brilliant Digital were to share equally in the “Net Profit” generated by the Kazaa music subscription service after all of the Company’s costs and expenses have been recouped. For the year ended December 31, 2010, the Company has presented in its statement of operations, Kazaa revenue of $10.7 million (recorded as part of subscription revenue) and expenses incurred for the Kazaa music service of $18.7 million, offset by $0.4 million of reimbursements from Brilliant Digital.  For the year ended December 31, 2009, the Company has presented in its statement of operations, Kazaa revenue of $2.7 million and expenses incurred for the Kazaa music service of $4.9 million, offset by $2.1 million of reimbursements from Brilliant Digital.

On October 13, 2010, Atrinsic entered into amendments to its existing Marketing Services Agreement and Master Services Agreement with Brilliant Digital and entered into an agreement with Brilliant Digital to acquire all of the assets of Brilliant Digital that relate to its Kazaa subscription based music service business.

Among other things, the amendments extend the term of each of the Marketing Services Agreement and Master Services Agreement from three years to thirty years, provide Atrinsic with an exclusive license to the Kazaa trademark in connection with Atrinsic’s services under the agreements, and modify the Kazaa digital music service profit share payable to Atrinsic under the agreements from 50% to 80%. In addition, the amendments remove Brilliant Digital’s obligation to repay up to $2.5 million of advances and expenditures which are not otherwise recovered from Kazaa generated revenues and remove the $5.0 million cap on expenditures that Atrinsic was required to advance in relation to the operation of the Kazaa business. As consideration for entering into the amendments, Atrinsic issued 1,040,358 shares of its common stock to Brilliant Digital on October 13, 2010.  The issuance of these shares resulted in the Company recording an intangible asset of $1.4 million which is being amortized over 10 years.

The amendments to the Marketing Services Agreement and Master Services Agreement are part of a broader transaction between Atrinsic and Brilliant Digital pursuant to which Atrinsic will acquire all of the assets of Brilliant Digital that relate to its Kazaa digital music service business in accordance with the terms of an asset purchase agreement entered into between the parties. The purchase price for the acquired assets includes the issuance by Atrinsic of an additional 1,781,416 shares of its common stock at the closing of the transactions contemplated by the asset purchase agreement as well as the assumption of certain liabilities related to the Kazaa business. The closing of the transactions contemplated by the asset purchase agreement will occur when all of the assets associated with the Kazaa business, including the Kazaa trademark and associated intellectual property, as well as Brilliant Digital’s content management, delivery and customer service platforms, and licenses with third parties, have been transferred to Atrinsic. The closing of the transactions contemplated by the asset purchase agreement is subject to approval by the stockholders of Atrinsic and Brilliant Digital, receipt of all necessary third party consents as well as other customary closing conditions. At the closing of the transactions contemplated by the asset purchase agreement, Atrinsic has agreed to appoint two individuals to be selected by Brilliant Digital to serve on Atrinsic’s Board of Directors. In addition, at the closing, each of the Marketing Services Agreement and Master Services Agreement will terminate.

F-11

NOTE 5 - Property and Equipment
Property and equipment consists of the following:
    Useful Life December 31,  December 31, 
    in years 2010  2009 
           
Computers and software applications   3 $1,700  $1,874 
Leasehold improvements 10  1,835   1,830 
Land & Building 40  804   766 
Furniture and fixtures   7  166   161 
Gross PP&E    4,505   4,631 
Less: accumulated depreciation      (1,813)  (1,078)
Net PP&E   $2,692  $3,553 

Depreciation expense for the years ended December 31, 2010 and 2009 totaled $1.0 million and $0.8 million respectively and is recorded on a straight line basis. Included in 2010 depreciation expense was accelerated depreciation charges related to a write-off of $0.4 million in property, plant and equipment related to the decision to shut down the Canada facility.

NOTE 6– 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.  As a result of significant adverse changes in the business climate, the Company concluded that triggering events had occurred and the Company tested long-lived assets for impairment as of December 31, 2010 and 2009, and concluded  that the carrying value of certain amortizable intangibles may not be recoverable.

The Company 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 amortizable intangible assets were determined to be 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 $3.4 million and $2.2 million for the years ended December 31, 2010 and 2009, respectively. 
Impairment of Indefinite Lived Intangibles and Goodwill

As part of our annual impairment analysis, it was determined that the carrying amount of certain of the Company’s indefinite lived intangible assets were impaired and a loss of $1.5 million and $2.0 million was recognized for the years ended December 31, 2010 and 2009, respectively. The Company evaluated the remaining useful life of each of its indefinite lived intangible assets to determine whether events and circumstances continue to support an indefinite useful life and determined one of its indefinite lived tradenames to have a useful life of 5 years as of December 31, 2010.  This intangible asset will be amortized prospectively over its estimated remaining useful life of 5 years and accounted for in the same manner as other intangible assets that are subject to amortization.  This intangible asset was tested for impairment as a long-lived asset as of December 31, 2010.
In connection with its annual goodwill impairment testing for the year ended December 31, 2009, the Company determined there was an impairment of the carrying value of goodwill and recorded a non-cash goodwill impairment charge of $13.1 million.  The goodwill impairment is primarily due to reduced market capitalization and valuation multiples which was reflected in our stock price at that time.

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, 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.

F-12

The changes in carrying amount of goodwill for the year ended December 31, 2009 is as follows:

Balance at January 1, 2009 $11,075 
     
Estimate revision in connection with acquisition of Traffix, Inc  906 
Estimate revision in connection with acquisition of Ringtone  115 
Acquisition of ShopIt  1,052 
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.

F-13

The carrying amount and accumulated amortization of intangible assets as of December 31, 2010 and 2009, respectively, are as follows:

  
Weighted
Average
             
  Useful Life  Gross Book  Accumulated     Net Book 
  in Years  Value  Amortization  Impairment  Value 
                
As of December 31, 2010               
                
Indefinite Lived assets               
Tradenames Indefinite  $918  $-  $907  $11 
Domain names Indefinite   1,298   -   525   773 
                 $- 
Amortized Intangible Assets                 - 
Acquired software technology  0.4   2,516   1,968   531  $17 
Domain names  0.1   426   420   -   6 
Tradenames  5   3,966   320   2,841  $805 
Customer lists  0.1   582   570   12   - 
Restrictive covenants  2.1   667   535   34  $98 
Kazaa Marketing Services Agreement  10   1,373   -   -   1,373 
                     
Total     $11,746  $3,813  $4,850  $3,083 
                     
As of December 31, 2009                    
                     
Indefinite Lived assets                    
Tradenames Indefinite  $6,241   -  $1,916  $4,325 
Domain names Indefinite   1,370   -   72   1,298 
                     
Amortized Intangible Assets                    
Acquired software technology  3.6   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  2   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 

Amortization expense for the year ended December 31, 2010 and 2009 was $0.7 million and $2.9 million respectively. Expected annual amortization expense related to amortizable intangibles for fiscal year 2011, 2012, 2013, 2014, 2015 and thereafter are $0.4 million, $0.3 million, $0.3 million, $0.3 million, $0.3 million and $0.7 million, respectively.

F-14

NOTE 7 -   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 (Atrinsic holds no assets that are required to be measured at fair value at December 31, 2010):
  Level I  Level 2  Level 3  Total 
             
2009:            
Liabilities:            
Put options $-  $267  $-  $267 

At December 31, 2009, put option liabilities on our common stock issued in connection with the ShopIt acquisition are included in other current liabilities in our consolidated balance sheet. 

In connection with the ShopIt acquisition, the company issued put options to debt holders. These options had certain exercise requirements and the Company received notices to exercise an aggregate of 48,120 shares underlying options with a strike price of $8.00.  The Company has negotiated with the holders of the put options to cancel the put options and in exchange, the Company is to pay the put option holders cash, over a six- to nine-month period. As of December 31, 2010 the Company had a payable of approximately $0.2 million relating to these agreements recorded in accounts payable on the Company’s consolidated balance sheet.
We also measure goodwill and intangible assets on a non-recurring basis, which is summarized as follows (in thousands):

  Quoted Prices in             
  Active Markets  Significant  Significant       
  for Identical  Unobservable  Unobservable  Total  Total 
  Assets (Level 1)  Inputs (Level 2)  Inputs (Level 3)  Fair Value  Losses 
2010:               
Intangible Assets $-   -  $3,083  $3,083  $4,850 
                     
2009:                    
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.
In 2010, intangible assets with a carrying amount of $7.9 million were written down to their fair value of $3.0 million, resulting in an impairment charge of $4.9 million. In 2009, 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. Impairment charges are included in statement of operations for the periods then ended.
NOTE 8 - Concentration of Business and Credit Risk

Financial instruments which potentially subject the Company to credit risk consist primarily of cash and cash equivalents and accounts receivable.

Atrinsic is currently utilizing several billing aggregators in order to provide content and billings to the end user. These billing aggregators act as a billing interface between Atrinsic and the mobile phone carriers that ultimately bill Atrinsic’s end user subscribers. These billing 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, the Company also has customers other than aggregators that represent significant amounts of revenues and accounts receivable.
F-15
The table below represents the company’s concentration of business and credit risk by customers and aggregators.  
  For the Years Ended 
  December 31, 
  2010  2009 
       
Revenues      
Billing Aggregator A  18%  3%
Customer B  11%  0%
Customer C  6%  3%
Other Customers & Aggregators  65%  94%
         
  2010  2009 
         
Accounts Receivable        
Billing Aggregator A  38%  12%
Customer C  8%  6%
Billing Aggregator D  6%  9%
Other Customers & Aggregators  48%  73%

NOTE 9 - Stockholders' Equity

On December 2, 2010, the Company effected a 1-for-4 reverse stock split which reduced the number of shares of the Company’s common stock outstanding from approximately 20,915,881 to 5,228,970. The Company amended its articles of incorporation to reflect the reverse split, but maintained its authorized shares at 100,000,000 with a par value of $0.01.
On October 13, 2010, the Company issued 1,040,358 shares (on a post reverse stock split basis) to Brilliant Digital Entertainment, Inc. as consideration for entering into amendments of existing marketing and service agreements related to the Kazaa subscription-based digital music service.
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 could take place in the open market or in privately negotiated transactions and could be made under a Rule 10b5-1 plan.
The Company repurchased 208,098 of its common stock at an average price of $4.52 during the year ended December 31, 2009. Total cash consideration for the repurchased stock was $0.9 million which is presented as common stock, held in treasury in the accompanying Consolidated Balance Sheet. The share repurchase program expired in May 2009.

F-16

NOTE 10 – Provision (Benefit) for Income Taxes
The provision (benefit) for income taxes consists of the following components for the periods ended as follows:

  2010  2009 
Current:      
Federal $461  $(3,361)
State  48   19 
Foreign  (63)  331 
Total Current $446  $(3,011)
         
Deferred:        
Federal  (1,185)  2,489 
State  (327)  1,177 
Foreign  (1)  (15)
Total Deferred $(1,513) $3,651 
         
Total Income Tax (Benefit) Provision $(1,067) $640 

Deferred tax assets and liabilities reflect the effect of tax losses, credits, and the future tax effect of temporary differences between consolidated financial statement 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-17

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

  2010  2009 
Deferred Tax Assets:      
Allowance for Doubtful Accounts $522  $1,759 
Deferred Compensation  1,144   687 
Accrued Expenses  485   1,649 
Intangible Assets  6,207   5,642 
Net Operating Loss Carryforward  10,730   1,567 
Foreign Tax Credit  793   1,068 
Capital Loss Carryforward  340   - 
Unrealized Loss in Investment  101   - 
AMT Credit  39   39 
Kazaa Acquisition Cost  89   - 
Total Deferred Tax Assets  20,450   12,411 
Deferred tax asset valuation allowance  (19,277)  (11,091)
Deferred Tax Assets, Net of Valuation Allowance $1,173  $1,320 
         
Deferred Tax Liabilities:        
Prepaid Expenses $(334)  (270)
Fixed Assets  (351)  (714)
Intangible Assets  (416)  (1,946)
Equity Investment in Partnership  (143)  - 
Total Deferred Tax Liabilities $(1,244)  (2,930)
         
Net Deferred Tax (Liabilities) Assets $(71) $(1,610)

Under 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 $19.3 million and $11.1 million should be recorded as of December 31, 2010 and 2009, respectively. However, the Company recorded a deferred tax liability relating to intangibles which are not expected to reverse in the future and therefore cannot be offset against deferred tax assets.
As of December 31, 2010 the Company had $21.8 million of federal net operating loss carryforwards, $30.7 million of New York state loss carryforwards, $0.2 million of California state loss carryforwards and $0.8 million in foreign tax credits. The federal net operating loss will expire by 2029 and 2030, California by 2031 and New York by 2029 and 2030 if not utilized by then. The foreign tax credit will expire from 2015 to 2018.
The Company has $0.4 million and $4.4 million recorded as an income tax receivable on its consolidated balance sheet as of December 31, 2010 and 2009, 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 carried back some of its 2009 taxable loss, resulting in a refund of $2.7 million, which was received in 2010. The Company is subject to audit as a result of this refund.  The $0.4 million is the net receivable for a tax loss carryback and other state and foreign taxes.

F-18

The total income tax provision (benefit) relating to continuing operations differed from income taxes at the statutory federal income tax rates of 35% for 2010 and 2009, respectively, as a result of the following items:

  For the Year Ended December 31, 
  2010  2009 
             
Computed expected income tax benefit at statutory rate $(7,214)  -35.0% $(10,101)  -35.0%
Permanent differences including goodwill impairment  38   0.2%  2,511   8.7%
State taxes, net of federal benefit  (1,938)  -9.4%  (1,612)  -5.6%
Foreign taxes  (33)  -0.2%  (677)  -2.3%
Valuation allowance  8,187   39.7%  11,090   38.4%
Tax contingency  445   2.2%  -   0.0%
Other, net  (552)  -2.7%  (571)  -2.0%
                 
  $(1,067)  -5.2% $640   2.2%

Uncertain Tax Positions
The Company recognizes interest and penalties related to uncertain tax positions as income tax expense.
The Company or its subsidiaries filed income tax returns in U.S. and Canada. In the normal course of business the Company’s open tax years of 2007 and forward are subject to examinations by the taxing authorities (except California is open for 2006 and forward). 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 taxes. Although the timing or the resolution and/or closure of the audits is highly uncertain and may change within 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:

  2010  2009 
Balance at beginning of the year $75  $531 
Additions based on tax positions in prior years  476   220 
Reductions due to settlements and other  (64)  (676)
         
Balance at end of the year $487  $75 

NOTE 11– 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 and warrants.

F-19

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

  For the Year Ended 
  December 31, 
  2010  2009 
EPS Denominator:      
Basic weighted average shares  5,448,366   5,162,232 
Effect of dilutive securities  -   - 
Diluted weighted average shares  5,448,366   5,162,232 
         
EPS Numerator (effect on net income):        
Net loss attributable to Atrinsic, Inc. $(19,727) $(29,470)
Effect of dilutive securities  -   - 
Diluted loss attributable to Atrinsic, Inc. $(19,727) $(29,470)
         
Net loss per common share:        
Basic weighted average loss attributable to Atrinsic, Inc. $(3.62) $(5.71)
Effect of dilutive securities  -   - 
Diluted weighted average loss attributable to Atrinsic, Inc. $(3.62) $(5.71)
Common stock underlying outstanding options and convertible securities were not included in the computation of diluted earnings per share for the years ended December 31, 2010 and 2009, because their inclusion would be anti dilutive when applied to the Company’s net loss per share.
Financial instruments, which may be exchanged for common stock are excluded in periods in which they are antidilutive. The following shares were excluded from the calculation of diluted earnings per share:
Anti Dilutive EPS Disclosure

  December 31, 
  2010  2009 
       
Options  546,200   469,311 
Warrants  78,611   78,611 
Restricted Shares  422   2,918 
Restricted Stock Units  130,502   68,750 

The per share exercise prices of the options excluded were $1.92 - $56.00 at December 31, 2010 and 2009. The per share exercise prices of the warrants excluded were $13.76 - $22.00 at December 31, 2010 and 2009.
See note 12 for further information about the options and warrants.
NOTE 12– Stock Based Compensation
2005 Plan

In 2005, New Motion Mobile, Inc., the Company’s wholly-ownedour wholly owned subsidiary, established its 2005the Stock Incentive Plan (the “2005 Plan”), for eligible employees and other directors and consultants. In connection with the closing of our exchange transaction with New Motion Mobile, Inc. on February 12, 2007, we assumed all of New Motion Mobile’s obligations under the plan. Under the 2005 Plan, officers, employees and non-employees maycould be granted options to purchase common stock at no less than 100% of the market price at the date the option is granted. In February 2007,Upon the Company completed an exchange transaction (“the Exchange”) pursuant to which New Motion 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 Atrinsic and, at the timeapproval of the Exchange, Atrinsic’s board of directors2007 Stock Incentive Plan, our Board adopted a resolution not to grant anyprevent further equitygrants of awards under the 2005 Plan.

F-20

2007 Plan

On February 16, 2007, Atrinsic’s boardour Board of directorsDirectors approved the 2007 Stock Incentive Plan (the “2007 Plan”) which made. The maximum number of shares available for grant up tounder the plan is 350,000 shares of common stock. On March 15, 2007, Atrinsic 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 Atrinsic’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 Atrinsic’sour common stock at no less than 100% of the market price at the date the option is granted. With the approval of our 2009 Stock Incentive Plan by our stockholders, no further awards will be granted under the 2007 Plan, except that any shares of common stock that have been forfeited or cancelled in accordance with the terms of the applicable award under the 2007 Plan may be subsequently again awarded in accordance with the terms of the 2007 Plan prior to its expiration in 2017.

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 687,500 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.

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 or modified after January 1, 2006, since Atrinsic is minimally traded, the Company bases expected volatility on the historical volatility of a peer group of publicly traded entities. Atrinsic 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 5 to 6 years. Atrinsic 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.
The fair value of each option award during the year ended December 31, 2010 was estimated on the date of grant using a Black-Scholes valuation model that used the assumptions noted in the following table:
2010
Strike Price$1.96 - $3.64
Expected life5 to 6 years
Risk free interest rate1.18% - 2.36%
Volatility58% - 62%
Fair market value per share$0.66 - $2.05
 
F-2111
 
 
Stock OptionsOutstanding Equity Awards at December 31, 2010

The following table presents information regarding outstanding option and stock awards held by the company’s named executive officers as of December 31, 2010. None of the named executive officers exercised options during the fiscal year ended December 31, 2010 and neither Mr. Musci nor Mr. Schwartz held any options or stock awards as of December 31, 2010.
     Option Awards     Stock Awards 
       
Number of Securities Underlying
Unexercised Options (#)
          
Name Grant Date Exercisable  Unexercisable  
Option
Exercise Price
($)
  
Option Expiration
Date
  
Number of shares
or Units of Stock
That Have Not
Vested (#)
  
Market Value of
Shares or Units
of Stock That
Have Not Vested
($)
 
                     
Thomas Plotts (1)
 02/04/08  -   -   -  -   424  $1123.60 
  05/31/10  13,888   48,612  $3.64  May 31, 2020   -   - 
                    -   - 
Andrew Stollman(2)
 04/09/10  7,606   -  $14.79  April 9, 2011   -   - 
  04/09/10  7,606   -  $13.67  April 9, 2011   -   - 
  04/09/10  7,606   -  $17.75  April 9, 2011   -   - 
  01/12/01  17,747   -  $33.72  December 1. 2011   -   - 
  03/06/04  68,453   -  $43.43  June 3, 2014   -   - 
  06/25/09  -   -   -      68,750  $182,187.50 
  06/25/09  -   -   -  -   25,000  $ 66,250 
                        - 

(1)On February 4, 2008, Mr. Plotts was granted 7,500 shares of restricted stock, of which 33.3% vested on the February 4, 2009 with the remainder vesting monthly thereafter over the next 24 months.  On May 31, 2010, Mr. Plotts was granted an option to purchase 62,500 shares of common stock at an exercise price of $3.64.  The options vest in equal monthly installments over a period of 36 months commencing on May 31, 2010.

(2)In connection with the merger of Atrinsic and Traffix, Inc., Mr. Stollman’s options to purchase shares of common stock of Traffix were converted into an aggregate of 125,918 options to purchase shares of common stock of Atrinsic at an average exercise price of $36.52 which options were fully vested at the time of the merger.  As of December 31, 2010, 16,900 of these options expired unexercised leaving a balance of 109,018 options at an average exercise price of $35.98. On June 25, 2009, Mr. Stollman was granted 68,750 restricted stock units that were to 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 $30.00. The fair value of these awards reflects a 25% probability of vesting. These RSUs were cancelled upon Mr. Stollman’s departure from the Company.  Also on June 25, 2009, 75,000 of Mr. Stollman’s options were exchanged for 25,000 restricted stock units.  Two thirds of these restricted stock units vested as of February 16, 2011 and the remaining RSUs were cancelled. Mr. Stollman’s role as President ended on February 28, 2011 with the end of his three year employment contract.

Other Benefits

Retirement Benefits

We maintain a 401(k) plan in which all full-time employees, including our named executive officers, who are at least 21 years of age and have one year of service are eligible to participate.  We provide this plan to help our employees save some portion of their cash compensation for retirement in a tax efficient manner.  We do not provide an option for our employees to invest in our stock in the 401(k) plan.

Health and Welfare Benefits

We provide health and welfare benefits for all of our full-time employees, including our named executed officers.  The health and welfare benefits provided to our named executive officers are further described in their respective employment agreements, which are discussed below.

Employment Agreements, Severance Benefits and Change in Control Provisions
Consistent with the above compensation philosophy, we entered into Employment Agreements with each of Jeffrey Schwartz, our former Chief Executive Officer, Thomas Plotts, our Chief Financial Officer and Andrew Stollman, our former President, which include each of the primary compensation components outlined above. The following is a description of the employment agreements with each of the above mentioned named executive officers:

12

Thomas Plotts

On January 29, 2010, we entered into a letter agreement with Thomas Plotts in connection with his appointment as our Interim Chief Financial Officer on December 16, 2009.  Pursuant to the agreement, Mr. Plotts served as our Interim Chief Financial Officer on an “at will” basis and received a salary of $250,000 per annum.  Pursuant to the agreement, Mr. Plotts received a bonus of $25,000 upon our filing of our annual report on Form 10-K.  Upon the execution of the agreement, Mr. Plotts was granted 25,000 restricted stock units (on a pre-reverse stock split basis) pursuant to our 2009 Stock Incentive Plan and a Restricted Stock Unit Agreement. The restricted stock units fully vested as of March 31, 2010.

On June 30, 2010, we entered into an employment agreement with Thomas Plotts pursuant to which Mr. Plotts became our Chief Financial Officer.  Pursuant to the agreement, Mr. Plotts receives a base salary of $250,000 per annum.  Mr. Plotts’ employment agreement has a term of three years, subject to earlier termination in accordance with its terms.  The agreement provides that Mr. Plotts is eligible to receive a target annual bonus equal to 50% of his base salary for each calendar year during the term if our business operations meet or exceed certain financial performance standards to be determined by the compensation committee of our board of directors.

In accordance with the terms of his agreement, on June 30, 2010 Mr. Plotts was granted an option activity underto purchase 62,500 shares of our common stock pursuant to our 2009 Stock Incentive Plan at an exercise price of $3.64 per share.  The options will vest in equal monthly installments over a period of thirty six months commencing on May 31, 2010 and on the 2005, 2007last day of each month thereafter until fully vested.  Any portion of Mr. Plotts’ option that remains unvested at the time of his termination will be extinguished and 2009 Planscancelled, provided, however, that if a change of control (as defined in the agreement) occurs while Mr. Plotts is employed with us, and Mr. Plotts’ employment is terminated by us other than for disability, death or cause within three (3) months before or six (6) months after the effective date of the change of control, all of the options granted to Mr. Plotts will automatically vest immediately prior to the termination of Mr. Plotts’ employment and will remain exercisable for a period of one (1) year after such termination.

If Mr. Plotts’ employment is terminated by us other than for disability, death or cause, we will pay to Mr. Plotts: (a) all base salary and benefits which have accrued through the termination date and (b) a one-time payment equal to six months of his base salary.  If Mr. Plotts’ employment is terminated by Mr. Plotts voluntarily, or by us for cause, or as a result of Mr. Plotts’ disability or death, we will pay to Mr. Plotts all base salary and benefits which have accrued through the termination date.

Andrew Stollman

Prior to Mr. Stollman’s departure from the Company on February 28, 2011, Mr. Stollman was asparty to an Employment Agreement executed in connection with our closing of our merger with Traffix, Inc. on February 4, 2008. The employment agreement had a term of three years, and could be terminated by Atrinsic or Mr. Stollman any time and without any reason. A summary of the material terms of Mr. Stollman’s employment agreement follows:

     Weighted-  Estimated 
     Average  Aggregate 
  Number of  Exercise  Intrinsic 
  Shares  Price  Value 
          
Outstanding at January 1, 2009  477,547  $31.28  $81,527 
Granted  -  $-     
Exercised  -  $-     
Forfeited or cancelled  (99,032) $39.72     
Outstanding at December 31, 2009  378,515  $29.12  $20,671 
Vested or expected to vest at December 31, 2009  374,942  $29.16  $20,671 
Exercisable at December 31, 2009  30,398  $1.92  $20,671 
             
Outstanding at January 1, 2010  378,515  $29.12  $20,671 
Granted  546,276  $3.12     
Exercised  -         
Forfeited or cancelled  (378,591) $8.09     
Outstanding at December 31, 2010  546,200  $17.69  $22,191 
Vested or expected to vest at December 31, 2010  386,614  $23.66  $22,191 
Exercisable at December 31, 2010  30,398  $1.92  $22,191 
Title and Salary. Mr. Stollman served as our President and received a base salary of $425,000 per annum during the term of his agreement.

Grants OutsideSigning Bonus. Upon the execution of Planshis employment agreement, Mr. Stollman received a signing bonus of $250,000, and all options held by Mr. Stollman to purchase equity securities of Atrinsic (aside from the options discussed below) automatically vested.

Annual Bonus. Mr. Stollman was eligible to receive an annual bonus for each calendar year during the term of his agreement if Atrinsic's business operations met or exceeded certain financial performance standards. For the fiscal year ending December 31, 2009 and 2010, none of our named executive officers received a bonus.

Benefits. Mr. Stollman and his family were provided with medical, hospitalization, dental, disability and life insurance during the term of the Agreement.

Stock Options. Upon the closing of our merger with Traffix, Inc., Mr. Stollman was granted an option to purchase 75,000 shares  of Atrinsic's common stock. The option was exercisable at an exercise price equal to $43.68 and was scheduled to expire on February 4, 2018. Except in the event Mr. Stollman was terminated without cause and except in the event of a termination of Mr. Stollman's employment for good reason, any portion of such executive's option that remained unvested at the time of termination was to be extinguished and cancelled. Mr. Stollman’s options were subject to accelerated vesting upon a change of control.  On June 25, 2009, stockholders approved our 2009 Stock Incentive Plan and our one-time option exchange program.  As a result of the option exchange program, the options Mr. Stollman held to purchase 75,000 shares of our common stock were cancelled, and Mr. Stollman received 25,000 restricted stock units in exchange for such options which were to vest on the basis of certain performance metrics.  On February 16, 2011, the Compensation Committee determined that 16,667 shares underlying the restricted stock units had vested and the remaining RSUs were cancelled.

13

Restricted Stock Units. Upon the closing of our merger with Traffix, Inc., Atrinsic agreed to issue Mr. Stollman restricted stock units (“RSUs”) having a term of ten years covering 68,750 shares of common stock conditioned upon the delivery by Mr. Stollman to the company of a Restricted Stock Unit Agreement. Pursuant to the terms of his employment agreement, once issued, Mr. Stollman’s RSUs were to first vest, with respect to 25,000 RSUs after the closing of trading on the date that the average per share trading price of our common stock during any period of 10 consecutive trading days equaled or exceeded $60. The remaining 43,750 RSUs were to vest after the closing of trading on the date that the average per share trading price of our common stock during any period of 10 consecutive trading days equaled or exceeded $80. Except in the event Mr. Stollman was terminated without cause and except in the event of a termination of Mr. Stollman 's employment for good reason, any portion of Mr. Stollman’s restricted stock units that remained unvested at the time of termination were to be forfeited, extinguished and cancelled. Mr. Stollman’s restricted stock units were subject to accelerated vesting upon a change of control.  The vesting terms of Mr. Stollman’s restricted stock units were amended prior to their issuance on June 25, 2009 so that each of the aforementioned RSUs would vest after the closing of trading on the date that the average per share trading price of our common stock during any period of 10 consecutive trading days equaled or exceeded $30.  These RSUs were cancelled upon Mr. Stollman’s departure from the Company.

Payments upon termination. Mr. Stollman’s employment agreement provided that if Mr. Stollman’s employment with us was terminated because of death or disability or cause or if Mr. Stollman voluntarily terminated his employment with us other than for good reason, we would pay or provide to Mr. Stollman all base salary and benefits which have accrued through the termination date. In addition, if Mr. Stollman’s employment was terminated as a result of death or disability, Mr. Stollman would receive a sum equal to a prorated portion of the annual bonus to which Mr. Stollman would have been entitled if his employment had continued until the end of the employment years in which his death or disability occurred.

If Mr. Stollman’s employment was terminated by Mr. Stollman for good reason (which includes a material adverse change in the nature and scope of the duties, obligations, rights or powers of Mr. Stollman’s employment, including those resulting from a change in control of the company), or by us other than for cause, we were required to pay to Mr. Stollman: (a) all base salary and benefits which have accrued through the termination date, (b) a one time payment equal to the sum of (i) two times his base salary and (ii) two times an amount equal to the average of the annual bonus amounts received by Mr. Stollman under the employment agreement for the 2 years prior to such termination, and (c) coverage under the employee benefit plans described above until the earlier of the end of the second anniversary of such termination or Mr. Stollman’s eligibility to receive similar benefits from a new employer. In addition, if Mr. Stollman’s employment was terminated by Mr. Stollman for good reason, or by us other than for cause, all stock options and other equity awards granted to Mr. Stollman pursuant to the employment agreement (other than options and awards that vest upon the achievement of performance objectives) were to automatically vest, and remain exercisable for a period of one year after such termination.

On February 28, 2011, Mr. Stollman’s employment agreement expired pursuant to its terms.  Therefore, none of the payments described in this section were made to Mr. Stollman in connection with his departure from the Company.

Jeffrey Schwartz
 
In 2008,Separation Agreement.
On August 13, 2010, we entered into a Separation and Mutual Release Agreement with Jeffrey Schwartz, which terminated Mr. Schwartz’s employment with the Company issuedcompany.  Pursuant to the agreement, all of Mr. Schwartz’s options to purchase shares of the Company’s common stock were extinguished and cancelled.
Employment Agreement.
Prior to his resignation, Mr. Schwartz was party to an Employment Agreement with us.  The employment agreement had a term of three years, and could be terminated by Atrinsic or Mr. Schwartz at any time and without any reason. A summary of the material terms of Mr. Schwartz’s employment agreement follows:
Title and Salary. Mr. Schwartz's employment agreement provided that he would serve as our Chief Executive Officer and receive a base salary of $275,000 per annum during the term of his agreement.

14
Annual Bonus. Mr. Schwartz was eligible to receive a target annual bonus equal to his base salary for each calendar year during the term of his employment, if the Company’s business operations met or exceeded financial performance standards to be determined by the Board.  No annual bonus was paid to Mr. Schwartz during the term of his agreement.
Benefits. Mr. Schwartz and his family were provided with medical, hospitalization, dental, disability and life insurance during the term of his agreement, with Atrinsic paying all premiums and other costs associated with such policies. Mr. Schwartz was also eligible to participate in any other compensation plan or other perquisites generally made available to executive officers of the company from time to time.
Stock Options. Mr. Schwartz was granted an option to acquire 125,000 shares of the Company’s common stock, par value $0.01 per share pursuant to the Company’s 2009 Stock Incentive Plan and an option to purchase 125,000 shares of the Company’s common stock pursuant to executivesthe Company’s 2007 Stock Incentive Plan. The first option was scheduled to vest in equal monthly installments over a period of 36 months commencing on January 31, 2010 and on the last day of each calendar month thereafter until fully vested. The second option was scheduled to vest over a period of four years, with 25% of the Company. These options were issued outsidesecond option vesting on the first anniversary of the Plan duedate of the agreement and the remaining 75% vesting thereafter in equal monthly installments over a period of 36 months commencing on January 31, 2011.  Any portion of Mr. Schwartz’s option that remained unvested at the time of his termination was to be extinguished and cancelled, provided, however, that if a limitationchange of control (as defined in the numberagreement) occurred while Mr. Schwartz was employed with us, and Mr. Schwartz’s employment was terminated by us other than for disability, death or cause or by Mr. Schwartz for good reason within three (3) months before or six (6) months after the effective date of the change of control, all of the options granted to Mr. Schwartz were to automatically vest immediately prior to the termination of Mr. Schwartz’s employment and remain exercisable for a period of one (1) year after such termination.  In connection with his resignation on August 13, 2010, all options held by Mr. Schwartz to acquire shares available underof the Plan. AsCompany’s common stock were extinguished and cancelled.
Vacation. Mr. Schwartz was entitled to 4 weeks paid vacation during each year of his employment pursuant to the terms of his agreement.
Payments upon termination. Mr. Schwartz’s employment agreement provided that if Mr. Schwartz’s employment was terminated by Mr. Schwartz for good reason, or by us other than for cause, we would pay to Mr. Schwartz: (a) all base salary and benefits which accrued through the termination date and (b) an amount equal to his base salary.  The agreement further provided that if Mr. Schwartz’s employment was terminated by Mr. Schwartz other than for good reason, or by us for cause, we would pay to Mr. Schwartz all base salary and benefits which accrued through the termination date and if Mr. Schwartz’s employment was terminated as a result of his death or disability, we would pay or provide to Mr. Schwartz (i) all base salary and benefits which accrued through the adoptiontermination date and (ii) a sum equal to a prorated portion of the Company’s one-time option exchange program on June 25, 2009, these sharesannual bonus to which Mr. Schwartz would have been entitled if his employment had continued until the end of the employment year in which his death or disability occurred. No severance payments were cancelled. The remaining optionsmade to purchase 90,796 shares of common stock are exercisable until October 5, 2010 as perMr. Schwartz in connection with his resignation from the Company’s Separation and Mutual Release Agreement with Burton Katz. As of October 5, 2010, these options were forfeited.Company.

Awards granted outsideChange in Control Provisions
The prospect of a change in control of the Plan are valuedCompany can cause significant distraction and uncertainty for executive officers and, accordingly, the Committee believes that appropriate change in control provisions in the same manneremployment agreements and/or equity awards of our named executive officers are important tools for aligning executives’ interests in change in control scenarios with those of stockholders.  Please see the above summaries of each executive’s employment agreement with us for a discussion of change of control provisions included within their respective agreements.

Tax and Accounting Implications

Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code limits to $1 million the annual tax deduction for compensation paid to each of the chief executive officer and any of the four highest paid other executive officers.  However, compensation that qualifies as options granted underperformance-based compensation is deductible even in excess of $1 million.  The Board considers these requirements when designing the Plan, includingcompensation program for the methodsnamed executive officers.  The Company believes that the compensation paid to the named executive officers generally is fully deductible for federal income tax purposes.  However, in certain situations, the Compensation Committee may approve compensation that will not meet these requirements in order to ensure competitive levels of deciding upontotal compensation for its executive officers or for other reasons.

Nonqualified Deferred Compensation

On October 22, 2004, the assumptions usedAmerican Jobs Creation Act of 2004 was signed into law, adding section 409A to the Internal Revenue Code, which changed the tax rules applicable to nonqualified deferred compensation arrangements.  A violation of these new rules could result in the Black-Scholes valuation. The fair valueimposition of the option award outside the Plan was estimateda 20% federal penalty tax on the date of grant using a Black Scholes valuation model that usedaffected executives (in addition to possible state penalties as well).  The Company believes it is operating in compliance with the assumptions noted in the following table:statutory provisions and, through its legal counsel, monitors compliance with section 409A.

 
F-2215
 

Stock option activity outsideDirector Compensation for the Plan was as follows:Fiscal Year Ended December 31, 2010

     Weighted-  Estimated 
     Average  Aggregate 
  Number of  Exercise  Intrinsic 
  Shares  Price  Value 
          
Outstanding at January 1, 2009  215,796  $22.96   - 
Granted  -         
Exercised  -         
Forfeited or cancelled  (125,000) $32.88     
Outstanding at December 31, 2009  90,796  $9.36     
Vested or expected to vest at December 31, 2009  90,796  $9.36   - 
Exercisable at December 31, 2009  -       - 
             
Outstanding at January 1, 2010  90,796  $9.36   - 
Granted  -         
Exercised  -         
Forfeited or cancelled  (90,796) $9.36     
Outstanding at December 31, 2010  -       - 
Vested or expected to vest at December 31, 2010  -       - 
Exercisable at December 31, 2010  -         

Summary Option Information
The following table summarizes information concerning currently outstanding and exercisable stock options as of December 31, 2010:

     Weighted  Weighted     Weighted  Weighted 
Range of    Average  Average     Average  Average 
Exercise Options  Remaining  Exercise  Options  Remaining  Exercise 
Prices Outstanding  Life (years)  Price  Exercisable  Life (years)  Price 
                   
2005 Plan :                  
$1.92  30,398   5.2  $1.92   30,398   5.2  $1.92 
                         
2007 Plan :                        
$24.00  68,738   6.1  $24.00   -   -  $- 
$56.00  6,250   6.7  $56.00   -   -  $- 
Traffix Options converted to Atrinsic                     
$0 - $20.00  51,342   0.4  $15.60   -   -  $- 
$20.00 - $40.00  90,157   3.6  $33.28   -   -  $- 
$40.00 - $60.00  70,567   3.4  $43.41   -   -  $- 
                         
2009 Plan :                        
$0 - $20.00  228,748   9.5  $3.22   -   -  $- 

F-23

Restricted Stock
The following table summarizes restricted stock activity for the years ended December 31, 2010 and 2009.
     Weighted Avg. 
     Grant Date 
  Number of  Fair Value 
  Shares  Per Share 
       
Outstanding at January 1, 2009  27,500  $33.32 
Granted  9,588  $4.52 
Exercised  (22,849) $21.24 
Forfeited or cancelled  (11,322) $33.32 
Outstanding at December 31, 2009  2,917  $33.32 
Vested or expected to vest at December 31. 2009  -     
         
Outstanding at January 1, 2010  2,917  $33.32 
Increase due to reverse stock split  4  $- 
Granted  -     
Vested  (2,499) $33.32 
Expired  -     
 Outstanding at December 31, 2010  422  $33.32 
Vested or expected to vest at December 31, 2010  -     

Restricted Stock Units

In 2009, the Company adopted the Atrinsic, Inc. 2009 Stock Incentive Plan. Under this plan, 187,500 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, 118,750 of these restricted stock units were cancelled. The following table summarizes the activity for 2010 and 2009.

  Number of  Fair Value 
  Shares  Per share 
Outstanding at January 1, 2009  -    
Granted  187,500  $1.12 
Exercised  -     
Forfeited or cancelled  (118,750) $1.12 
Outstanding at December 31, 2009  68,750  $1.12 
Vested or expected to vest at December 31 2009  -     
Exercisable at December 31, 2009  -     
         
Outstanding at January 1, 2010  68,750  $1.12 
Granted  89,666  $1.59 
Vested  (24,162) $1.86 
Forfeited or cancelled  (3,752) $0.82 
Outstanding at December 31, 2010  130,502  $1.31 
Vested or expected to vest at December 31 2010  -     

At December 31, 2010, there was $0.7 million of total unrecognized compensation cost related to unvested stock options, restricted stock, and restricted stock units of the 2005, 2007, and 2009 Plan.  That cost is expected to be recognized over a weighted average period of one year.

F-24

Total non-cash equity based compensation expense included in the consolidated Statement of Operations for the years ended December 31, 2010 and 2009 was $1.1 million and $0.9 million, respectively, as follows:

  2010  2009 
       
Product and distribution $54  $111 
Selling and marketing  43   - 
General and administrative and other operating  1,016   746 
         
  $1,113  $857 

For theDuring our fiscal year ended December 31, 2010, our non-employee directors received cash compensation for their services on our board during 2010 and in September 2010, board members that served for the twelve months following our 2009 annual meeting, were issued restricted stock units valued at $42,500 for this service.  These restricted stock units will vest in September, 2011.  In 2010, we paid each of our non-employee directors a cash retainer of $50,000 for their service as board members.  The Chairman of our Board of Director’s received an additional cash retainer of $50,000, and the chairs of each of our audit, compensation expense relating to options was recorded netand nominating and governance committees received a cash retainer of a forfeiture rate of approximately 33%$10,000, $5,000 and 51%$2,500, respectively. No stock-based compensation costs were capitalized as part of the cost of an asset for any of the periods presented. Additionally the tax benefit from the tax deduction related to share-based compensation that is in excess of recognized compensation costs is reported as a financing cash flow rather than an operating cash flow.

Warrants
 
The Company has not had any warrant activity since 2008.  The following table summarizes information concerning currently outstanding and exercisable common stock warrants as ofIn addition, we reimburse directors for travel expenses associated with attendance at Board meetings; during our fiscal year ended December 31, 2010 adjusted for the Company’s 1 for 4 reverse stock split in December 2010:

     Weighted  Weighted       
Range of    Average  Average       
Exercise Warrants  Remaining  Exercise  Warrants  Fair 
Prices Outstanding  Life (years)  Price  Exercisable  Value 
                 
$ 13.76  5,884   1.1  $13.76   5,884  $9.68 
$22.00  72,727   1.2  $22.00   72,727  $17.24 

NOTE 13 - Commitments and Contingencies

On March 10, 2010, Atrinsic received final approval of its settlement of the Class Action in the case known as Allen v. Atrinsic, Inc. f/k/a New Motion, Inc., formerly pending in Los Angeles County Superior Court.  This national settlement covers all of the Company’s mobile products, web sites and advertising practices through the date the Final Judgment was entered.  All costs of the settlement and defensesuch expenses were accrued for in 2008; therefore this settlement did not impact the Company’s results of operations in 2009 or 2010.  In addition to administrative costs and refunds, during the second quarter of 2010 the Company paid the $1.0 million settlement for the Class Action.

Because the terms of the settlement applied nationally, all other consumer class action cases pending against the Company were dismissed without payment of any monies.
On November 1, 2010, the Company received notice of final award from an arbitration panel relating to a Statement of Claim in an arbitration action against a past aggregator for amounts the Company believes were outstanding under a past aggregation agreement, plus fees and other costs.  As a result of this award, the Company recorded a gain on legal settlement which is included in the $1.7 million in other income in the Statement of Operations of approximately $1.1 million in the third and fourth quarters of 2010.  The terms of the award are confidential.

F-25

In November, 2009, the Company reached a settlement regarding a suit it had filed earlier that year against Mobile Messenger Americas, Inc. and Mobile Messenger Americas Pty, Ltd. (collectively Mobile Messenger) to recover monies owed to the Company in connection with transaction 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, seeking injunctive relief, indemnification for the settlement of the Florida Class Action and other matters.  The terms of the settlement are confidential, but in general resulted in a complete dismissal of the entire action, including the cross-complaint, with prejudice.  Pursuant to the settlement agreement, independent auditors conducted an accounting of payments made to the Company by Mobile Messenger.  In August, 2010, the independent auditors issued their report detailing their findings which Mobile Messenger disputed, and as dictated by the terms of the settlement agreement, the parties have engaged in arbitration. We expect this matter to be finalized in the second quarter of 2011.  Any payments arising out of the settlement are not expected to have a material impact on the Company’s financial condition or results from operations, beyond what it has already expensed and accrued for in 2009.immaterial.

In the ordinary courselight of business, the Company is involved in various disputes, which are routine and incidentalour cash flow from operations, our Board elected to the business and the industry in which it operates. The results of such disputes are not expected to have a significant adverse effect on the Company’s financial position or results of operations. Of the approximately $5.2 million in total accrued expenses as of December 31,defer fourth quarter 2010 $0.3 million is associated with the legal contingencies disclosed above.

Lease and Employment Commitmentscash compensation.

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 and future commitments under employment agreements, as of December 31, 2010:

     Less than  1-3  4-5  More than 
  Total  1 year  years  years  5 years 
                
Operating leases $7,287  $861  $1,822  $2,004  $2,600 
Employment agreements  973   535   438   -   - 
  $8,260  $1,396  $2,260  $2,004  $2,600 

Subsequent to December 31, 2010, the Company entered into a surrender of lease agreement with its landlordsets forth information concerning director compensation earned by non-employee directors for the former Traffix office located in Pearl River, New York.  In consideration2010 fiscal year:
  Fees Earned  Restricted          
  or  Stock  Option  All Other    
Name Paid in Cash  
Awards (1)
  Awards  Compensation  Total 
                
Jerome Chazen (2)
 $100,625  $26,306  $-  $-  $126,931 
Lawrence Burstein (3)
 $65,000  $15,421  $-  $-  $80,421 
Robert Ellin (4)
 $50,000  $15,421  $-  $-  $65,421 
Mark Dyne (5)
 $50,000  $15,421  $-  $-  $65,421 
Stuart Goldfarb $51,875  $-  $-  $-  $51,875 
 (1)          On September 28, 2010, we issued 9,403 restricted stock units to each of our non-employee directors as compensation for their service on our Board, with the lease termination, the Company agreed to pay the landlord a cancellation feeexceptions of $0.2 millionMr. Chazen, who received an additional 6,637 restricted stock units for his service as our Chairman, and Mr. Goldfarb who did not receive any restricted stock units.  These restricted stock units vest on September 28, 2011. The compensation in the formtable reflects the grant date fair value computed in accordance with FASB ASC Topic 718.  
(2)           Mr. Chazen held an aggregate of a note payable. The termination of this resulted in a reduction of 2011 operating lease payments of $0.3 million.  The table above does not reflect any obligation relating16,040 restricted stock units and 12,500 option awards to this lease.

Rent expense for all operating leases in 2010 and 2009 was $0.9 million and $1.3 million, respectively. 

NOTE 14 - Employee Benefit Plan
The Company’s employee benefit plan covers all eligible employees 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 years ended December 31, 2010 and 2009, the Company contributed approximately $70,000 and $78,000 to the plan.

F-26

NOTE 15 – 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) 2010  2009 
       
Canada $758  $1,238 
United States  5,017   9,568 
         
  $5,775  $10,806 

NOTE 16 – Recent Accounting Pronouncements

Adopted in 2010

In September 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 are effective as of January 1, 2010 and the adoption of these revisions to ASC 810 had no impact on our results of operations or financial position.

Not Yet Adopted

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 the 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 September 15, 2010. Alternatively, adoption may be on a retrospective basis, and early application is permitted. The Company does not expect the impact of adopting this pronouncement to be material.

In December 2010, the FASB issued ASU 2010-28, Intangibles - Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (“ASU 2010-28”). Upon adoption of ASU 2010-28, an entity with reporting units that have carrying amounts that are zero or negative is required to assess the likelihood of the reporting units’ goodwill impairment. ASU 2010-28 is effective January 1, 2011 and we do not believe that the adoption of ASU 2010-28 will have a significant impact on our results of operations or financial position.

NOTE 17 – Subsequent Events

We have evaluated events subsequent to the balance sheet date for the year ended December 31, 2010 and there has not been any material events that have occurred that would require adjustments to or disclosure in our consolidated financial statements.

F-27

NOTE 18 – 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, 
2010            
Allowance for doubtful accounts $4,295   (233)  (2,894) $1,168 
Deferred tax assets — valuation allowance $11,090   8,187      $19,277 
2009                
Allowance for doubtful accounts $2,938   1,991   (634) $4,295 
Deferred tax assets — valuation allowance $-   11,090   -  $11,090 
In 2010, the Company settled lawsuits with some of its customers leading to settlements of $1.9 million for Motricity and $0.2 million for Mobile Messenger (see note 13).  The company also assigned $0.8 million of its receivable for 1-800 Mattress to a third party.

Supplemental Financial Information (Unaudited)
The following table presents unaudited quarterly results of operations for 2010 and 2009. These quarterly results reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results.

  UNAUDITED 
  March 31,  June 30,  September 30,  December 31, 
  2010  2010  2010  2010 
Total revenues $12,200  $10,813  $9,177  $7,836 
Net loss before income taxes  (3,261)  (4,433)  (3,588)  (9,329)
Provision (benefit) for taxes  64   109   35   (1,275)
Net loss  (3,325)  (4,542)  (3,623)  (8,054)
Equity in loss (income) of Investee  110   (50)  13   110 
Net loss attributable to Atrinsic,Inc. $(3,435) $(4,492) $(3,636) $(8,164)
Earnings loss per share:                
Basic $(0.66) $(0.86) $(0.70) $(1.33)
Diluted $(0.66) $(0.86) $(0.70) $(1.33)
Weighted average number of common shares:                
Basic  5,211,031   5,217,303   5,216,274   6,141,182 
Diluted  5,211,031   5,217,303   5,216,274   6,141,182 

F-28

    UNAUDITED 
    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)  62   (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 $(0.23) $(0.38) $(0.46) $(4.60)
Diluted $(0.23) $(0.38) $(0.46) $(4.60)
Weighted average number of common shares:                
Basic  5,197,736   5,073,717   5,158,640   5,210,333 
Diluted  5,197,736   5,073,717   5,158,640   5,210,333 

F-29

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.
None
ITEM 9A CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Members of the our management, including our Executive Vice President, Raymond Musci, and Chief Financial Officer, Thomas Plotts, have evaluated the effectivenesspurchase shares of our disclosure controls and procedures, as defined by paragraph (e) of Exchange Act Rules 13a-15 or 15d-15, as of December 31, 2010, the end of the period covered by this report.  Based upon that evaluation, Messrs. Musci and Plotts concluded that our disclosure controls and procedures were effectivecommon stock as of December 31, 2010.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing(3)           Mr. Burstein held an aggregate of 9,403 restricted stock units 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 designed19,026 option awards 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 dispositionspurchase shares 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, 2010.  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 effectivecommon stock as of December 31, 2010.
(4)           Mr. Ellin held an aggregate of 9,403 restricted stock units and no option awards to purchase shares of our common stock as of December 31, 2010.  Mr. Ellin resigned as a member of our board of directors on April 20, 2011.
Changes in Internal Control over Financial Reporting(5)           Mr. Dyne held an aggregate of 9,403 restricted stock units and no option awards to purchase shares of our common stock as of December 31, 2010.  Mr. Dyne currently serves as the Chief Executive Officer and Chairman of Europlay Capital Advisors, LLC, a merchant banking and advisory firm.  
 
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, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.

 
3416
 

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 30, 2011.
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 30, 2011.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table presents information required by this item will be includedregarding the beneficial ownership of Atrinsic’s common stock as of April 15, 2011. The number of shares in an amendment to this report on form 10-K or a proxy statement which shall be filedthe table represents the number of shares of common stock owned by:

·each person who is known to us to be the beneficial owner of more than 5% of our outstanding common stock;
·each of our directors;
·each of our named executive officers; and
·all of our directors and named executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission no laterthat deem shares to be beneficially owned by any person who has or shares voting or investment power with respect to such shares.  Shares of common stock under warrants or options currently exercisable or exercisable within 60 days of April 15, 2011 are deemed outstanding for purposes of computing the percentage ownership of the person holding such warrants or options but are not deemed outstanding for computing the percentage ownership of any other person.  As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding at April 15, 2011.  Unless otherwise indicated, the persons named in this table have sole voting and sole investment power with respect to all shares shown as beneficially owned, subject to community property laws where applicable.
The information presented in this table is based on 6,297,236 shares of our common stock outstanding on April 15, 2011, which excludes 681,509 shares held in treasury. Unless otherwise indicated, the address of each of the executive officers and directors and 5% or more shareholders named below is c/o Atrinsic, Inc., 469 7th Avenue, 10th Floor, New York, NY 10018.

  Number of Shares  Percentage of 
  Beneficially  Shares 
Name of Beneficial Owner Owned  Outstanding 
       
Executive Officers and Directors:      
Thomas Plotts (1)
  29,730   * 
Mark Dyne (2)
  1,058,747   16.8%
Robert Ellin (3)
  448,174   7.1%
Andrew Stollman (4)
  214,448   3.4%
Raymond Musci (5)
  123,955   2.0%
Lawrence Burstein (6)
  22,534   * 
Jerome Chazen (7)
  25,809   * 
Jeffrey Schwartz (8)
  -   * 
Stuart Goldfarb  -   * 
         
All Executive Officers and Directors as a Group (9 persons) (9)
  1,923,397   30.5%
         
5% Shareholders:        
MPLC Holdings, LLC & Europlay (2)
  871,182   13.8%
Trinad Capital Master Fund, Ltd. (3)
  448,174   7.1%
Destar LLC  & David Smith (10)
  430,295   6.8%
Mercury Fund IX Ltd (11)
  450,000   7.1%
Briliant Digital Entertainment, Inc. (12)
  1,040,358   16.5%
Outstanding shares      6,297,236 
* Less than April1% of our outstanding shares

(1)Includes 22,568 shares of common stock issuable upon the exercise of options, 7,162 shares of common stock.

(2)Includes 973 shares of Common Stock held directly by Mr. Dyne, 684,590 shares of common stock held by MPLC Holdings, LLC of which Mr. Dyne is Manager, and 186,592 shares held by Europlay Capital Advisors, LLC, of which Mr. Dyne is the Chief Executive Officer and Chairman.  Mr. Dyne disclaims beneficial ownership of the shares of common stock directly beneficially owned by MPLC Holdings, LLC and Europlay Capital Advisors, LLC except to the extent of his pecuniary interests therein. The address of each of Mr. Dyne, MPLC Holdings, LLC and Europlay Capital Advisors, LLC are 15260 Ventura Boulevard, 20th Floor, Sherman Oaks, CA 91403.

17
(3)
Trinad Capital Master Fund, Ltd. is the beneficial owner of 448,174 shares of Common Stock. Trinad Management, LLC (as the manager of the Trinad Capital Master Fund, Ltd. and Trinad Capital LP) and Robert S. Ellin, the managing director of and portfolio manager for Trinad Management, LLC and the managing director of Trinad Advisors II LLC are deemed the beneficial owners of 448,174 shares of the Common Stock held by Trinad Capital Master Fund, Ltd.  Trinad Capital LP (as the owner of 84.53% of the shares of Trinad Capital Master Fund, Ltd. as of November 30, 2009) and Trinad Advisors II, LLC (as the general partner of Trinad Capital LP), are each deemed the beneficial owner of 378,841 (representing 84.53% of the shares of the 448,174 shares of the Common Stock held by Trinad Capital Master Fund, Ltd.). Each of Trinad Management, LLC and Trinad Advisors II, LLC disclaim beneficial ownership of the shares of Common Stock directly and beneficially owned by Trinad Capital Master Fund, Ltd. Robert S. Ellin disclaims beneficial ownership of the shares of Common Stock directly and beneficially owned by Trinad Capital Master Fund, Ltd. except to the extent of his pecuniary interests therein.  Robert S. Ellin has the power to direct the vote and the power to direct the disposition of these shares of common stock.  Mr. Ellin resigned as a member of our board of directors on April 20, 2011.  The address of Trinad Management is 2121 Avenue of the Stars, Suite 2550, Los Angeles, CA 90067.

(4)Includes 111,581 shares of common stock, 16,667 vested restricted stock units and 86,200 shares of common stock issuable upon the exercise of options held by Mr. Stollman.
(5)Consists of 123,955 shares of common stock.

(6)Includes 3,508 shares of common stock and 19,026 shares of common stock issuable upon the exercise of options held by Mr. Burstein.
(7)Includes 13,309 shares of common stock and 12,500 shares of common stock issuable upon the exercise of options held by Mr. Chazen.

(8)Mr. Schwartz resigned from his position as Chief Executive Officer on August 13, 2010.
(9)Includes 1,579,844 shares of common stock, 16,667 restricted share units and 140,294 shares of common stock issuable upon the exercise of options held by our executive officers and directors. See footnotes (1) through (8) above.
(10)Consists of 430,295 shares beneficially owned by David E. Smith and 309,279 shares beneficially owned by Destar, LLC.  David E. Smith exercises sole voting and dispositive power with respect to 121,016 shares and shared voting and dispositive power with respect to 309,279 shares.  Destar LLC does not have sole voting or dispositive power over any shares but shares voting and dispositive power with respect to 309,279 shares.  The address of each of David E. Smith and Destar, LLC is 2450 Colorado Avenue, Suite 100, East Tower, Santa Monica, CA 90404.

(11)Consists of 450,000 shares of Common Stock.  Kevin C. Howe exercises voting and disposition power over such shares on behalf of Mercury Management, L.L.C., the General Partner of Mercury Ventures II, Ltd. ("Mercury Ventures II"), which is the General Partner of Mercury Fund IX, Ltd. ("Mercury IX").  The principal business office of Mercury IX, Mercury Ventures II, Mercury Management and Mr. Howe is 501 Park Lake Drive, McKinney, Texas 75070.

(12)Kevin Bermeister, as Chief Executive Officer of Brilliant Digital Entertainment, Inc. may be deemed to exercise voting and dispositive power over these shares.  The address of Brilliant Digital Entertainment, Inc. is 12711 Ventura Boulevard, Suite 210, Studio City, CA 91604.

Changes in Control
We do not have any arrangements which may at a subsequent date result in a change in control. 

18
Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth certain information regarding our equity compensation plans as of December 31, 2010:
  Number of securities to  Weighted-average  Number of securities 
  be issued upon exercise  exercise price of  remaining available for 
  of outstanding options,  outstanding options,  future issuance under 
  warrants and rights  warrants and rights  equity compensation plans 
         
Equity compensation plans approved by security holders(1)
  546,200  $23.66   746,288 
(1) Includes 1,011,268 options transferred from the acquisition of Traffix, Inc.     
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
Certain Relationships and Related Transactions
Review and Approval of Related Party Transactions.  We have adopted a policy that requires Board approval of transactions with related persons as defined by SEC regulations, including any sales or purchase transaction, asset exchange transaction, operating agreement, or advance or receivable transaction that could put our assets or operating performance at risk. All of our directors and executive officers are required at all times, but not less than annually, to disclose all relationships they have with companies or individuals that have conducted business with, or had an interest in, the Company. Our executive officers monitor our operations giving consideration to the disclosed relationships and refer potential transactions to the Board of Directors for approval. The information required byBoard of Directors considers a related party transaction for its potential economic benefit to the Company, to ensure the transaction is “arms length” and in accordance with our policies and that it is properly disclosed in our reports to stockholders.
Reportable Related Party Transactions.  Other than the employment arrangements described elsewhere in this itemreport and the transactions described below, since January 1, 2009, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or will be includeda party:
·in which the amount involved exceeds $120,000; and
·in which any director, executive officer, stockholder who beneficially owns 5% or more of our common stock or any member of their immediate family had or will have a direct or indirect material interest.
Transactions with Europlay capital Advisors, LLC

Mr. Dyne has served as a director of the company since November 11, 2008.  Mr. Dyne currently serves as the Chief Executive Officer and Chairman of Europlay Capital Advisors, LLC, a merchant banking and advisory firm.  We retained Europlay Capital Advisors on July 23, 2009 to provide consulting services in relation to our acquisition of assets from ShopIt, Inc..  The agreement expired on January 31, 2010.  Pursuant to the terms of the agreement, we paid Europlay Capital Advisors an amendmentaggregate of $99,135 for its services and issued to this reportEuroplay Capital Advisors 10,000 shares of our common stock on form 10-Ka post-reverse stock split basis.

Transactions with Brilliant Digital Entertainment, Inc.

Please see the discussion under “Item 7- Management’s Discussion and Analysis of Financial Condition and Results of Operations—Kazaa Music Service” for a description of transactions between Brilliant Digital Entertainment, Inc. and Atrinsic.
Transactions with Promoters and Control Persons
Prior to February 12, 2007, MPLC (now called Atrinsic, Inc.) existed as a “shell company” with nominal assets whose sole business was to identify, evaluate and investigate various companies to acquire or with which to merge. On February 12, 2007, we consummated an exchange transaction in which we acquired all of the outstanding ownership interests of New Motion Mobile, Inc. (formerly called New Motion, Inc.), a proxy statementDelaware corporation from its stockholders in exchange for an aggregate of 500,000 shares of our Series C Preferred Stock. At the closing of the exchange transaction, New Motion Mobile became our wholly owned subsidiary. The exchange transaction was accounted for as a reverse merger (recapitalization) with New Motion Mobile deemed to be the accounting acquirer, and MPLC the legal acquirer.
19
On October 24, 2006, MPLC and certain of its stockholders entered into a common stock Purchase Agreement with Trinad Capital Master Fund, Ltd (“Trinad”), pursuant to which shall be filed withMPLC agreed to redeem 23,448,870 shares of common stock (on a pre-reverse stock split basis) from the Securitiesstockholders and Exchange Commission no later thansell an aggregate of 69,750,000 shares of our common stock (on a pre-reverse stock split basis), representing 93% of our issued and outstanding shares of common stock on the closing date, to Trinad in a private placement transaction for aggregate gross proceeds to us of $750,000, $547,720 of which was used for the redemption described above, and $202,280 was used to repay all loans to MPLC from Isaac Kier, a former director and the former president, treasurer and secretary of MPLC.  Upon the closing of the transactions, Mr. Ellin, an affiliate of Trinad (please see the section above called “Security Ownership of Certain Beneficial Owners and Management” for further information) was appointed as the Chief Executive Officer and President of MPLC.  Mr. Ellin resigned as an executive officer of MPLC on February 12, 2007 upon the closing of the exchange transaction and from Atinsic’s Board of Directors on April 30,20, 2011.
 
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
(a)           New independent registered public accounting firm
The information requiredAudit Committee of the Board of Directors appointed KPMG, LLP as the Company’s new independent registered public accounting firm on January 30, 2009. During 2007 and 2008 and through January 30, 2009, the Company did not consult with KPMG, LLP regarding any of the following:
·The application of accounting principles to a specific transaction, either completed or proposed or the type of audit opinion that might be rendered on the Company's consolidated financial statements, and neither a written report nor oral advice was provided to the Company by KPMG, LLP that KPMG, LLP concluded was an important factor considered by the Company in reaching a decision as to an accounting, auditing or financial reporting issue;
·Any matter that was the subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K; or
·Any matter that was a reportable event, as that item is defined in Item 304(a)(1)(v) of Regulation S-K.   
(b)           Previous Independent Registered Public Accounting Firms
McGladrey & Pullen, LLP
We engaged McGladrey & Pullen, LLP as our independent registered public accounting firm as of May 7, 2008.  Traffix, Inc., our wholly-owned subsidiary which we acquired on February 4, 2008, engaged McGladrey & Pullen, LLP to audit the financial statements of Traffix, Inc. for the year ended November 30, 2007 and the stub-period from December 1, 2007 to January 31, 2008.  As a result of the acquisition of Traffix, Inc. by this item will be includedAtrinsic, these engagements were not performed by McGladrey and Pullen, LLP.
Our Audit Committee approved a process to evaluate a change in an amendmentour accountants. During the process, McGladrey & Pullen, LLP resigned as our independent registered public accounting firm on January 21, 2009. During the year ended December 31, 2008, and through January 21, 2009, there were no disagreements with McGladrey & Pullen, LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope and procedure, which disagreements, if not resolved to this reportthe satisfaction of McGladrey & Pullen LLP would have caused McGladrey and Pullen, LLP to make reference to the subject matter of the disagreements in connection with its reports.  During our year ended December 31, 2008 and through January 21, 2009, there were no reportable events (as defined in Item 304(a)(I)(v) of Regulation S-K).
The Company furnished McGladrey & Pullen, LLP with a copy of its Report on form 10-K orForm 8-K dated January 21, 2009 prior to filing with the SEC. The Company also requested that McGladrey & Pullen, LLP furnish it with a proxy statement which shall be filed withletter addressed to the Securities and Exchange Commission no later than Aprilstating whether or not it agrees with the above statements. A letter from McGladrey & Pullen, LLP, addressed to the Securities and Exchange Commission, was filed with our Current Report on Form 8-K/A filed with the SEC on January 30, 2011.
2009.
 
 
3520
Fees Paid to KPMG, LLP
The following table sets forth fees billed to us by our auditors, KPMG, LLP relating to fiscal years ended December 31, 2010 and 2009:
 
(In thousands) December 31, 2010  December 31, 2009 
Audit Fees (1)
  403   375 
Audit related fees (2)
  35   5 
Tax Fees (3)
  93   - 
Total  531   380 
(1)           Audit fees include the audit of our annual financial statements and review of financial statements included in our Form 10-Q quarterly reports, and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements for those fiscal years. This category also includes advice on accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.

(2)           Audit related fees consist of assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under audit fees. Audit related fees incurred in 2010 related to forensic internal control matters.  Audit related fees incurred in 2009 related to the company’s preparation and filing of its Registration Statement on Form S-8.

(3)           Tax fees consist of tax services for tax compliance and tax preparation plus tax services relating to a study to determine the extent that research and development credits can be claimed on our corporate tax returns.

Our Audit Committee is directly responsible for interviewing and retaining our independent accountant, considering the accounting firm’s independence and effectiveness, and pre-approving the engagement fees and other compensation to be paid to, and the services to be conducted by, the independent accountant. During each of the fiscal years ended December 31, 2010 and December 31, 2009, respectively, our Audit Committee pre-approved 100% of the services described above.  None of the aforementioned services provided by KPMG, LLP were approved by the audit committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X.
21
Part IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)           Documents filed as part of this report(3)           Exhibits.
Exhibit
Number
Exhibit Title
31.1Certification by Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.
31.2Certification by Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.
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.            Financial Statement Schedules.
All financial statement schedules are omitted because the information is inapplicable or presented in the Notes to Financial Statements.
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.

 
3622

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.

  Atrinsic, Inc.
  
 /s/ Thomas Plotts 
 
By: Thomas Plotts
Its: Chief Financial Officer
  
Date: April 7,May 2, 2011
POWER OF ATTORNEY
The undersigned directors and officers of Atrinsic, Inc. do hereby constitute and appoint Raymond Musci and 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/ Raymond Musci
Executive Vice President & DirectorApril 7, 2011
Raymond Musci(Principal Executive Officer)
/s/ Thomas Plotts
 Chief Financial Officer 
April 7,May 2, 2011
Thomas Plotts (Principal Financial and Accounting  
   Officer)  
/s/ Lawrence Burstein
*   Director 
April 7,May 2, 2011
Raymond Musci(Principal Executive Officer)
*  Director
May 2, 2011
Lawrence Burstein    
     
/s/ Robert S. Ellin
*  		 Director 
April 7, 2011
Robert S. Ellin
/s/ Mark Dyne
Director
April 7,May 2, 2011
Mark Dyne    
     
/s/ Jerome Chazen
*  		 Director 
April 7,May 2, 2011
Jerome A. Chazen    
     
/s/ Stuart Goldfarb
*  		 Director 
April 7,May 2, 2011
Stuart Goldfarb    
*By: /s/ Thomas Plotts
Thomas Plotts
As Attorney-In-Fact

 
S-123
 

EXHIBIT INDEX
 
Exhibit    
No. Title
3.1Restated 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.
3.2Certificate 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.
3.3Certificate 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.
3.4Certificate 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.
3.6Certificate of Amendment to the Restated Certificate of Incorporation, dated December 2, 2010.
3.7Bylaws. 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.
3.8Form of certificate for shares of common stock of 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.
4.12005 Stock Incentive Plan. Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on February 13, 2007.
4.22007 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.
4.3Form 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.
10.1Standard Multi-Tenant Office Lease dated July 6, 2005 between 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.
10.2Messaging Agreement dated November 17, 2003, between Mobliss, Inc. and Cingular Wireless LLC, assigned to 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.
10.3SMS Connectivity Agreement dated January 8, 2004, between Mobliss, Inc. and Cingular Wireless LLC, assigned to 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.
10.4Lease Agreement dated April 14, 2008, between MED 469 LLC, Rector 469, LLC and TPP 469 LLC and Traffix, Inc.  Incorporated by reference to Exhibit 10.20 to the Registrants Annual Report on Form 10-K (File No. 001-12555) filed with the Commission on March 26, 2009.

EX-1

10.5First Lease Modification Agreement dated as of May 14, 2008 between MED 469 LLC, Rector 469, LLC and TPP 469 LLC and Traffix, Inc.  Incorporated by reference to Exhibit 10.21 to the Registrants Annual Report on Form 10-K (File No. 001-12555) filed with the Commission on March 26, 2009.
10.6Employment Agreement dated as of February 1, 2008, by and between 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. *
10.7Employment Agreement dated as of February 1, 2008, by and between 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. *
10.8Employment Agreement by and between Andrew Zaref and 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. *
10.9Atrinsic, 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.
10.10Atrinsic, 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.
10.11Employment Agreement by and between Jeffery Schwartz and Atrinisc, Inc. dated January 27, 2010.  Incorporated by reference to Exhibit 10.20 to the Registrant’s Current Report on Form 10-K (File No. 001-12555) filed with the Commission on March 30, 2010.*
10.12Employment offer by and between Thomas Plotts and Atrinsic, Inc. dated January 29, 2010.  Incorporated by reference to Exhibit 10.21 to the Registrant’s Current Report on Form 10-K (File No. 001-12555) filed with the Commission on March 30, 2010.*
10.13Separation Agreement and Mutual release by and between Burton Katz and Atrinsic, Inc. dated October 20, 2009.  Incorporated by reference to Exhibit 10.22 to the Registrant’s Current Report on Form 10-K (File No. 001-12555) filed with the Commission on March 30, 2010.
10.14Separation and Release Agreement by and between Andrew Zaref and Atrinsic, Inc. dated December 16, 2009.  Incorporated by reference to Exhibit 10.23 to the Registrant’s Current Report on Form 10-K (File No. 001-12555) filed with the Commission on March 30, 2010.
10.15Master Services Agreement between Atrinsic, Inc. and Brilliant Digital Entertainment, Inc. dated March 26, 2010 but effective as of July 1, 2009.  Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-12555) filed with the Commission on May 11, 2010.
10.16Employment Agreement dated June 30, 2010 by and between Atrinsic, Inc. and Thomas Plotts.  Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-12555) filed with the Commission on August 16, 2010.
10.17Asset Purchase Agreement by and between Atrinsic, Inc. and Brilliant Digital Entertainment, Inc. and Altnet, Inc. dated October 13, 2010.  Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-12555) filed with the Commission on November 15, 2010.

EX-2

10.18Amendment No. 1 to the Marketing Services Agreement entered into and between Atrinsic, Inc. and Brilliant Digital Entertainment, Inc. dated October 13, 2010.  Incorporated by Reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No.  001-12555) filed with the Commission on November 15, 2010.
10.19Amendment No. 1 to the Master Services Agreement entered into and between Atrinsic, Inc. and Brilliant Digital Entertainment, Inc. dated October 13, 2010.  Incorporated by Reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q (File No.  001-12555) filed with the Commission on November 15, 2010.
14.1Code of Ethics.  Incorporated by reference to Exhibit 14.1 to the Registrant’s Current Report on Form 8-K (File No. 000-51353) filed with the Commission on August 4, 2007.
21.1
Subsidiaries of the registrant. Incorporated by reference to Exhibit 21.1 of the Registrant’s Annual Report on Form 10-K (File No. 000-12555) filed with the Commission on March 30, 2010.
23.1Consent of Independent Registered Public Accounting Firm.
24.1Power 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.
32.1Certification 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.

 
EX-324