Protagenic Therapeutics Inc (PTIX) 2008 Q4 法說會逐字稿

Thank you for standing by and welcome to the Atrinsic Inc. fourth-quarter 2008 earnings conference call. At the request of Mr. Sam [Rinsinello], all participants are in a listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Rinsinello. Please go ahead, sir.

Good morning, and welcome to be Atrinsic conference call to discuss the Company's fiscal 2008 financial results. All participants have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation.

I would like to point out that during the course of the conference call there may be statements made relating to future results of the Company that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Actual results, performance, or achievements could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those set forth in the Company's filings with the Securities and Exchange Commission.

It should also be noted that the webcast of today's conference call may be found on the Internet by visiting the Atrinsic corporate website at www.Atrinsic.com and then selecting Investor Relations at the top of the web page and then clicking on Events and Presentations. Also on that website you'll find a link to the news release we issued to announce the Company's fiscal 2008 financial results and webcast. An archived version of the webcast will shortly be accessible from our Investor Relations site and will be available for at least the next 12 months, pursuant to SEC guidelines.

Finally, those interested in reviewing the Company's recently filed annual report on Form 10-K, which contains all of the financial information being discussed today, can find that document via Atrinsic's corporate website by selecting Investor Relations and under that heading, financial reporting, where all of the Company's recent SEC filings can be found. You can also search the EDGAR database directly at www.SEC.gov and then search for company filings.

Joining me on the call today is Burton Katz, Chief Executive Officer of Atrinsic and Andrew Zaref, the Company's Chief Financial Officer. I would now like to turn the call over to Mr. Zaref.

Thank you, Sam, and thanks to all of you for joining us this morning to discuss the Company's 2008 operating results.

Let me start off by again mentioning that the press release has been made available for your review prior to the call. The 10-K is on the EDGAR database and our website. If it is not there already, it will be there shortly. I hope that you have had the opportunity to review the documents. I encourage you to review the 10-K and our other SEC filings as they are fully comprehensive and contain all of the facts and a comprehensive discussion of all related topics.

I'm going to take a few minutes and review for you some of the material which has been made available, certain financial highlights of the quarter and for the year, and briefly discuss some of the initiatives that the Company has launched. I will then turn the call over to Burton, who will provide some commentary and color on the many operating matters, strategic initiatives, including our recent investments, and more specific remarks regarding our goals for 2009.

Let me take a moment to walk you through the overall construct of the press release and remind you of what information is presented. There's a lot of information presented in a variety of ways with some very specific vernacular.

First, we have included information regarding our reported operating results on a GAAP or as reported basis. There is a complete balance sheet, income statement and statement of cash flows included within the press release. The commentary in the press release generally refers to the reported amounts, as reported means the inclusion of the operating results of the acquired entities from the date of acquisition, a US GAAP accounting principles-based methodology. That means February 4, 2008 and forward in the case of Traffix and June 30, 2008 and forward in the case of Ringtone.com.

Second, we have also included certain non-GAAP measures with the corresponding reconciliations to the related GAAP amounts that some of you might look at for comparative purposes. Please pay attention to the definition where we compute EBITDA and take into consideration certain noncash and non-operating type items and further compute adjusted EBITDA to also include an add-back for noncash equity-based compensation. You should specifically take note that for 2008, we have considered the somewhat sizable noncash impairment charge as an add-back in the computation of EBITDA, and therefore, adjusted EBITDA.

You also have been provided both the GAAP and non-GAAP amounts on a pro forma basis, pro forma meaning the inclusion of the results of the two business combinations for Traffix and Ringtone as if they were acquired at the beginning of the period presented, so this makes it fully comparative of similar businesses.

Let me take a minute to address the $114 million noncash impairment charge, a topic addressed by many companies in 2008. To summarize, we are required under Generally Accepted Accounting Principles to compare the book value of the Company to the fair value of the Company. Remember that goodwill was largely created in connection with the acquisition of Traffix early in 2008 when the market when the market conditions were significantly different.

In doing so at the end of the year, we performed our own analysis of fair value, using several methodologies, including a discounted cash flow analysis, market comparable analysis, and a comparison to recent transactions involving similar companies. Using a weighted average of the different outcomes, heavily weighted towards our market cap, we derived an enterprise value in the resulting noncash impairment charge. In summary, for this particular topic, the impairment is a noncash charge. It does not directly correlate to the underlying activities of the Company and is not necessarily indicative of the Company's perception of its own fair value, evidenced in part by the significant share repurchase activity. Rather, this is a required process and takes into consideration the current trends towards a market-determined fair value approach.

One other item to note is the changes we have made to our income statement classifications. In previous conference calls, and in ongoing dialogue with our investors, trade partners and employees, we have determined that the metric of gross profit is not reflective of the underlying business model. Simply put, Atrinsic aggregates audiences and traffics for monetization via a number of available platforms.

Sometimes we buy traffic from third parties, which are presented on the income statement as a line item, but equally, if not more importantly, we create audiences via our product and content offerings. It is our technology and methodologies that serve to achieve the appropriate balance of buying and generating audience. The cost to create that audience are presented virtually in all other captions on the income statement.

Now let me review some financial highlights of the fourth quarter and full year 2008. First, on a pro forma basis, so including Traffix and [Ringtone's], as if they occurred at the beginning of the period, revenue for the fourth quarter and full year 2008 totaled $22.9 million and $128.4 million, resulting in pro forma adjusted EBITDA of $337,000 and $7.7 million for the year. On a year-over-year basis, pro forma revenues increased $6.2 million or 5%. That's on a pro forma basis, comparable assets year over year.

In particular, the Company's revenues derived from subscription-based activities for 2008 increased $6.3 million or 14%. Pro forma adjusted EBITDA increased from $4.9 million in 2007 to $7.7 million in 2008. That's an increase of 57%. These results represent growth accomplished during a period of post-merger integration, reinvestment in many new initiatives, coupled with the other marketplace challenges facing our growing and dynamic company.

On an as-reported basis for the fourth quarter and full year 2008, reported revenues totaled $22.9 million and $113.9 million, resulting in adjusted EBITDA of $337,000 and $4.8 million, respectively.

Total operating expenses on a pro forma basis, excluding the noncash impairment charge, totaled $26 million and $132 million for the fourth quarter and full year 2008, respectively, compared with $38.8 million and $140.8 million for the fourth quarter and full year 2007. We believe that sizable efficiencies totaling almost $4.0 million annually are being achieved following the transaction with Traffix, including the related integration period.

Prospectively, we are continuously monitoring the marketplace and our operating performance and will make investments where necessary to accomplish our goals, but at the current reduced run rate, excluding noncash equity-based compensation and depreciation and amortization, is reflective of many of those efficiencies gained.

Now, turning to the balance sheet, the Company ended the year with $24.7 million in cash, cash equivalents, and marketable securities and over $23.7 million in available working capital. The primary uses of our cash during the year included approximately $4.0 million in share repurchases, $2.5 million to fund strategic investments, approximately $2 million in CapEx, which were required necessary to complete our facility consolidations and invest in the technology necessary to improve our product and gain operating efficiencies.

We believe our capital resources are sufficient, coupled with our belief in the Company's ability to generate positive cash flows, to execute on our goals and objectives for the remainder of this year and beyond. As you would expect, we will continuously monitor our capital structure and deploy our capital where prudent on prospective business combinations or accretive investments organic growth initiatives and activities or continued share repurchase, whichever yields the highest prospect for the creation and maintenance of long-term shareholder value.

To date, under previously deployed repurchase programs, the Company has repurchased approximately 2.4 million shares at a cost of a little bit more than $4.5 million, so that is to date.

Some commentary on current trends and the 2009 prospective goals of the Company. The near-term business climate is challenging. Some of our products directly or indirectly rely on consumer demand. Consumer demand from a macro perspective is volatile. However, we have specific initiatives to combat more obvious trends which we can control, including new product introductions, initiatives to retain the subscribers we have, continued initiatives to reposition ourselves with business partners and advertisers. We are not retrenching, but rather continue to improve performance wherever possible.

As for advertisers, they are cautious. We have a backlog from our key accounts, but they are watching their own progress on a day-to-day basis and are making modifications to their plans as they see fit.

Number two, better operating management. We have carefully been monitoring our customers, vendor relationships, product mix, service offerings with a renewed emphasis in these turbulent times on profitability. Better management of our existing relationships, more efficient procurement, cross selling our products offerings and process improvements are allowing us to focus on margins, operating margins and trying to improve them.

It's a balancing act. We need to make the right investments in the right people, processes, and systems to grow. We continue to eliminate anything considered discretionary or wasteful, non-core or not profitable enough to meet our investment return criteria.

Number four, strategic investment. Actually an advance to Shopit. Our codevelopment with the principles is going well and when complete, this investment will provide a proprietary opportunity to procure social media inventory and unique and compelling opportunities for our advertising clients. Resources to date are focused on the development and technological initiatives, but at this time, we expect operating activities in the second quarter of 2009.

Kazaa, where the Company is the exclusive sales and marketing partner, expanding the Company's reach into the music category. Product development continues and we have slowly started marketing the product. Burton will expand a little bit on those initiatives in a minute.

Number six, the international marketing of our content offerings. So far in 2009, we have worked to develop the appropriate contractual relationships, develop the appropriate infrastructure to operate in an international environment, leveraging much of our ability and history in the US.

Lastly, TBR, The Billing Resource, is the acronym. Continued product development and marketing initiatives have centered around the group products and we continue to have high expectations for future success.

So in the end, 2008, we leave it with a strong balance sheet, a very good place to be in these uncertain times. We are prepared and willing to take advantage of strategic and accretive opportunities as they present themselves. With certain investments already established, we remain focused on execution regarding those investments already made.

Let me now turn the call over to Burton to discuss our strategic, operational and new product initiatives.

Thank you, Andrew. During the fourth quarter of 2008, Atrinsic continued its transformation from a young, mobile content upstart into a diversified Internet marketing and mobile media company. Most important in what is a challenging external business environment, the Company was able to produce positive cash flow from its operation and expects to continue doing so throughout fiscal year 2009.

As Andrew noted, we ended the fourth quarter with approximately $25 million in available cash and marketable securities while repurchasing approximately 10% of the Company's common stock. The Company's cash position was preserved while also making several continuing strategic investments in our future growth, which I will detail shortly.

For the full 2008 fiscal year, total pro forma revenues grew over 5% with adjusted EBITDA growing by 57%. This top-line year-over-year pro forma revenue growth was driven by an increase in our media business's premium billed subscription revenue and our interactive agency producing strong results in both search engine marketing and search engine optimization services for branded advertisers.

Notwithstanding the Company's strong year-over-year performance, our media business's growth slowed during the second half of 2008 including the fourth quarter due to a combination of constantly changing market regulation, nonrecurring industry-wide operational challenges and general economic uncertainty. Over the past several months, our team has worked to structurally address these specific challenges and I will share with you the positive action steps already taken on our go-forward plan to reignite subscriber growth, a lifetime value, and advertising revenue on our extensive media network.

Looking ahead to 2009 as a whole, we do anticipate continued headwinds from the macroeconomic environment. But we believe our flexible business model, combined with our refocused service offering, key new products, expanded billing capability, international reach, and new technology platform will enable the Company to continue to generate positive adjusted EBITDA while competitively positioning it as a long-run leader in addressing two significant growth markets -- online, performance-based advertising and mobile premium-billed content services.

The past fourth quarter was indeed a busy one for the Company, and I will walk you through the key highlights, relevant updates and current business outlook. First, we have now fully completed our operational integration of Traffix Inc., strengthened our leadership team and assembled a world-class Board of Directors who own approximately 40% of the Company's equity.

Second, we continue to make prudent investments in our organic business, including new products, expanded billing capabilities, and development of our next generation technology platform.

Third, amidst the current external environment, we are closely managing our risks by diversifying our revenue base, lowering fixed overhead and continuing to protect our strong balance sheet.

Finally, the Company has repurchased a significant amount of common stock and will continue to evaluate both strategic and accretive business combinations on an ongoing basis.

I will now detail many of the above-mentioned points, starting with organic investments the Company has undertaken aiming to reignite sequential growth in margins and top-line revenue.

If you remember, over its formative years, Atrinsic invested heavily building a large-scale domestic media and distribution network that generates well over 20 million unique visitors per month, is acquiring 25,000 new user registrations each day and has over 40 million cell phone records in its database. The Company is now beginning to transition its investment focus from primarily audience creation and sales promotions to high-quality content and new products, increasing the lifetime value and associated gross profit of the online impressions we serve each day. We are making strong progress in this area.

First, a beta version of the Kazaa music service was successfully launched with our exclusive partner, Brilliant Digital, delivering a full-track, fully-licensed music subscription service with associated mobile content delivered on the handset. The service will be monetized leveraging our alternative billing infrastructure, paid on a consumer's mobile or fixed line phone, which will allow us to acquire customers at a much lower cost than competitive music subscription services.

The ongoing test results are positive and quite encouraging. The next version of this service aims to include a social discovery and community sharing application, alongside a portable application a consumer can access when on the go. According to Forrester, US digital music sales account for only 18% of the market today, but will increase exponentially to 41% of the next few years providing a significant and growing opportunity for the Company.

Second, in this fiscal year's second quarter, we will relaunch the Ringtone.com property, loaded with user-generated content and social community tools. We believe the strength of the well traffic-ed Ringtone.com domain name coupled with our formal [SCO] capabilities will enable the Company to fuel the growth of this media property in terms of both audience size and content quality during the back half of 2009, helping attract net additional subscribers to our proprietary mobile subscription products.

Third, we have been codeveloping a fast-growing social commerce application called Shopit, which is similar to eBay but for a social network. Shopit, where users across well-known social media applications like Facebook and MySpace can quickly set up individual items for sale for entire stores to merchandise to friends in their network. The first version of this application has already attracted over 750,000 people to download a Shopit widget while the Shopit publishing network is growing by millions of consumer impressions each week.

The next version of this product, launching in the second quarter, will have a premium value-added subscription service, where consumers are given default storefronts to merchandise to friends in their network. Consistent with our business model, most of the billing will take place on the user's land line or mobile phone.

Fourth, in addition to investments in high-valued products like Kazaa or Ringtone.com, and Shopit, the Company has invested in expanding its alternative billing capabilities to land line phones, in addition to its mobile phone billing infrastructure. Our 36% minority investment in the billing resource, known as TBR, provides the ability to bill consumers for direct-to-consumer digital entertainment products like games, music, or membership clubs through their home phone bills. Only a few companies in the US own and operate the underlying contract with the local exchange carriers since they typically take years and cost millions to obtain.

Subsequently, The Billing Resource, which is already operating profitably, gives Atrinsic a significant barrier to entry against competitors while providing us the fastest, least expensive and lowest risk way to enter this market. With these new billing assets, we will be able to further monetize our existing audience with limited additional investments, taking advantage of the fixed line phone data we already capture from many of our customers. Already in Q1, we expect to add approximately 90,000 new subscribers billed on their land line phones when compared to Q4 2008.

Fifth, in addition to investments made in three key products and expanded billing capabilities, we continue to prudently establish our global operations, which aims to sequentially grow our direct-to-consumer business over the following quarters. During the current quarter, we built the operational capabilities to acquire mobile content customers in several international markets with a determined goal to organically build this operation throughout 2009. We're doing so through leveraging our existing infrastructure and adding limited overhead to our cost base.

The Company does anticipate reenergizing growth in its direct-to-consumer media business through each of these steps and we plan to update shareholders with specific progress on the previously outlined new products, new premium billing capabilities, and international distribution over the coming quarters.

Finally, I'd like to turn to our most relevant capital investment made over the past several months, the Company's new technology platform. Over the past 2.5 years, Atrinsic grew quickly through both organic means and business combinations. Through this process, the Company has built and inherited several technology platforms to support and operate its core business.

Recently, we began development on our second generation open source technology platform that will give us a 360-degree view into all our content, media in distribution assets, making it easier and transparent for advertisers to work with us, provide support for all types of performance-based media metrics, and be more efficient in how we deploy our technology resources. Most important, the platform, which has been well-received by new and existing advertisers, expands our ability beyond lead generation services to delivering actual order transactions for our clients.

We expect the first phase of the platform to be operational and in production in late April, early May, and serve as a catalyst to integrate our multiple technology applications into a single common framework. Doing so will not only enable the Company to operate with faster speed-to-market and a unique proprietary technology platform to all forms of performance-based marketing, but do so while decreasing the ratio of technical resources when compared to sales and marketing personnel within the Company.

Let me now turn to how we are managing external risks, given the commercial and capital markets most businesses are currently operating in. As I previously noted, the macroeconomic environment we are operating within poses some challenges to our near-term growth prospects. Subsequently, we have focused first and foremost on remaining EBITDA profitable and generating cash from our core operations. We believe our strong balance sheet gives the Company a strong tool in operating its business through any future economic headwind and positions us well within a nascent industry, where many young companies are seeking additional capital to grow their businesses.

Second, we have diversified our revenue streams from premium subscriptions only at the end of 2007 to over 50% transactional and ad supported during fiscal year 2008.

Third, we have lowered our annualized overhead by over $4 million when evaluating personal cost today versus one year ago and implemented tighter credit policies with both our advertisers and our commercial partners. These moves have enabled us to preserve a strong balance sheet even while making investments we anticipate will provide future growth opportunities and uniquely position us as a leader in our respective market sectors.

The Company will continue to manage risks aggressively and preserve EBITDA in exchange for chasing near-term revenue growth. Notwithstanding, we intend to use our capital to invest in organic growth, acquire external assets and businesses, and from time to time in our own Company's equity. I believe we have demonstrated our ability to successfully deploy capital across all three areas and will continue to evaluate where we will achieve the best return on future growth.

My comments today have mostly described the organic investments we are making and the risk management employed aimed to preserve our mid-term cash position, help expand the Company's future business and return it to sequential top-line growth. Now I want to turn the attention to other investments, including prospective business combinations, asset purchases, mergers and acquisitions, and Company stock repurchases.

The Company has created a formidable customer acquisition and monetization platform here in the domestic US market. We believe international distribution, owning proprietary online media, and deploying innovative mobile products and applications will allow us to scale the business while improving our operating margins. These three areas drive our analysis of all prospective business combinations we currently evaluated. The current business climate creates unique opportunities to invest in or fully acquire valuable media assets, and we will continue to proactively review these.

In addition, let me briefly discuss the stock repurchase program previously approved by our Board of Directors. As I mentioned on our last call, our Board continues to believe our current stock price is not reflective of ongoing year-over-year business performance and growth prospects from a leading Company in a long-term growth sector.

To date, meaning common stock we repurchased by the end of the fourth quarter and subsequent to it, we have repurchased nearly 3 million shares or approximately 10% of the outstanding equity, leaving the Company with just over 20 million common shares outstanding. We still have over $5 million available under the Board-approved plan for additional purchases and we will evaluate investing in the Company's own equity on a go-forward basis.

In summary, we believe the macroeconomic environment will remain challenging during the first half of this year and for the remainder of 2009. While we have posted a 5% year-over-year growth in pro forma revenues and 57% year-over-year increase in pro forma just EBITDA, we have witnessed a decline in our sequential growth. Subsequently, we have moved aggressively to reduce our fixed cost infrastructure, remain focused on our most profitable areas of business, generate positive EBITDA and protect our balance sheet. The digital media market we operate in alongside our competitive positions within it offers a strong, long-term opportunity even if current trends in the external environment create near-term challenges.

During this period, we anticipate maintaining the ability to generate cash from core operations while continuing to make prudent investments to grow both the Company's media and agency businesses. We remain confident in doing so with the formidable franchise we've created. I want to thank you all for your time and attention. We would be happy to answer any questions you may have. Operator?

(Operator Instructions). David [Bench].

Wanted to ask you about, first of all, on the strategic side, noticed that you've been moving quite upstream from bid for prizes and related types of products and services to more of a rich media focus, talking about like Kazaa and Shopit. Can you talk a little bit about how you see that transition going, what the time period is that it takes to get full transition from one to the other?

Second question is more technical. Florida attorney general issues, you didn't really mention on the call. Can you explain whether that's a one-off or whether you see that potentially happening in other states?

I'll answer the first question, David, and then hand the second one to Andrew. I think yes, you notice that clearly in the evolution of the Company, we've clearly moved from what I would call mobile 1.0 products to transitioning to mobile and Web 2.0 products. We developed the Company and began it during the infancy of mobile content here in the domestic US market. And at that time, given the handset capabilities, the speeds of the network, really the approach was lowest common denominator services, so mostly text services and basic kind of mock polyphonic ring tones that we were offering to consumers.

As we sort of transitioned, what's happened here in the US rather quickly, it's gone from a laggard in the mobile content space to a global leader. Network speeds are faster. Handsets are getting better and better and demographic are -- the demographic expansion of people using these services is certainly in play.

If you notice, only in Q4 of last year, 25% of handsets sold in the US were actually smartphones, so that says a lot about where the overall market is headed.

If you look at the underlying operating system of Web 2.0, it tends to be more social media focused. And if you look at the underlying operating system of mobile 2.0, which we are very much in an early transition phase, it tends to be more about handset speeds, device capabilities and whatnot. So we have actually really tried to manage that transition pretty aggressively.

We welcome the transition in that when you tie mobile 2.0 and Web 2.0 together, you really have this theme of convergence taking hold that was the biggest theory and thesis of the Company when we initially put it together 3.5 years ago. So we are making large investments now away from some of those early products that don't have as high a value to an end user over a life and moving more and investing more into products like Shopit.com, products like Kazaa, updating the Ringtone.com Web property so that we can actually get ahead of and address those trends.

We feel real confident about our ability to do this. Obviously the transition period is the one that needs to be managed closely, but one that again, we welcome and that clearly we are making investments toward.

Again, our underlying business model hasn't changed. We create big audiences cost efficiently and we know how to monetize them better than most. So when the time comes where we are actually able to put these rich media applications on top that have a higher value to a consumer, we would expect our margins to be able to expand significantly.

And I will let Andrew address the question regarding the Florida Attorney General.

Thanks, Burton. Good morning, David. I'll just summarize for a second what that issue is, David. I know you're more familiar with it than most since you cover us.

This is a situation that dates back quite some time, in fact, pre business combination back into the prior year, where the Florida Attorney General performed what they characterize as an investigation, not of our Company, of our Company, but of virtually everybody in the industry. So we got dragged into it just like everybody else. We fully cooperated; in fact, think of ourselves as more of a leader in the efforts to cooperate with the Florida Attorney General, in resolving that matter and dealing with it from a compliance perspective, and on a go-forward basis. So we think we're well-positioned. We actually think that we have a great compliance department and have beefed up our infrastructure in that regard.

I think our philosophy and for those of you who subscribe to our products understand the double opt in philosophy and how we require you to have active participation in the process, and I actually think the way we are solving this problem relates back to your first part of your question that Burton answered as we are getting away from bid for prizes and moving into Kazaa, we're trying to move upstream both in our processes coupled along with our products, thinking that that's what the users demand, and we think of ourselves as a leader who can reflect that financially later on.

Lastly, with regard to the Florida Attorney General issue, any cost associated with it is in our balance sheet. It has been fully disclosed, has been in our balance sheet for a long time. And I guess just to very specifically answer your question, that is the one and only issue of its type that we have experienced so far.

Great. And I appreciate that. Also, can you guys talk about for a second just as a follow-up, you talked about the M&A environment a little bit. But it seems to me there would be a lot of low hanging fruit out there. What strategically are you looking at? Is there anything in particular that would be considered a good opportunity for you guys at this juncture?

Well, maybe I will start and then I'll turn it over to Burton. I think we are sitting here and as Burton said, and as I've said, we are sitting here at a stock price that we don't think is reflective of the fair value of the Company and the assets and resources and strategy that it brings to the table. So anytime you are sitting talking to somebody in the context of a business combination, it becomes a conversation of relative value.

We are sitting here buying back our stock under a share repurchase program, so far program to date at a weighted average price of about $1.90. And we are not necessarily interested in issuing significant amounts of equity at any price where it is today that's significantly undervalued. So it certainly does become a conscious effort of relative value as far as cash goes. We understand the fortunate resources that we have. It's your capital. We treat it like it is your capital and obviously we have a risk-adjusted return that is going to have to come with it.

More strategically and product-wise, I'll turn it over to Burton.

David, again, I noted in my prepared remarks that we believe international distribution, owning proprietary online media and deploying innovative mobile products and applications are all things that we want to seek and evaluate on an ongoing basis. Some of these things in terms of using, at least in terms of using our balance sheet can be done organically; some of them can be done through very structured commercial partnerships; and some of them can be done through outright business combinations and M&A activity.

I will say and be a little bit more aggressive in Andrew's remarks in that I don't think a week goes by where we don't see at least three or four things without even having a banker represent us in seeking them. Clearly in the market right now, there are a lot of companies with valuable assets that are having a hard time either growing their businesses because of lack of working capital or lack of access to working capital, or they are innovative assets that are not -- haven't been fully commercialized at this point in time.

Again, a lot of conversations are coming back to relative values, as Andrew stated, and that is always where we will hold every conversation. We believe we are undervalued, hence and subsequent -- hence the stock repurchase program where we have bought back 10% of the common stock, and we will -- and so we will balance that, invest in our own equity versus acquiring other businesses. But what I will say and just be very clear about is we are actively looking at things right now, but being very prudent and careful in the manner in which we do it.

Thanks a lot, guys.

Michael Weiss. Please state your company name followed by your question.

Joslynda Capital. One question I was going to ask is your book value now looks to be about $2.58 a share. And you mentioned something about you looked at the DCF analysis, market comps and M&A analysis. Does that mean that that is your current view in this market what this Company is worth? I don't know the new rules exactly how that gets calculated.

Sure, Michael. It's Andrew. Good morning. It's a great question. Let me tell you exactly what we did. Your -- some of what you said. I want to make sure it is clear. What we did was we performed a pure market value approach to determine the enterprise value since we are a single segment company. We prepared a DCF as you would expect, which resulted in a value. We looked at the multiple of what we thought were comparable company, applied it to our cash flows, came up with value number two.

We then looked at comparable company transactions, and, as you are probably pretty familiar, those are few and far between, not necessarily most indicative of the last let's call it two quarters worth of fair value or marketplace activity, and what we did in the end, it's all based on fair value; really has nothing to do with book value, although we will get back to book value and a second. We took a weighted average approach, the last being our market cap, of all of those approaches to derive an enterprise value, which determines A, the amount of the write-off; and B, virtually what does end up left on our balance sheet.

The problem where we ran into a little bit of stickiness as you're reading in the newspaper every day and it sort of relates back to us, the regulators are very much pushing the concept of fair value. So they say Andrew, Burton, we think it's great you went and did a DCF, but we think the market is right. And as Burton and I have told you several times during the call, we don't think that's true.

That's why the Board of Directors is buying back stock. We think that we deserve a multiple on $7.7 million worth of adjusted EBITDA. We think the fact that we have cash and products and things that are generating positive cash flow, we certainly deserve more than trading at virtually cash. The unfortunate reality is we had to weight that formula more heavily towards the market cap than what we otherwise would have wanted to because that's sort of the regulatory environment that we are in.

So yes, the resulting answer is the book value. So what I think you can derive from that formula is obviously our DCF ended up with a value higher than the book value because the market weight is lower than the book value, and, therefore, you ended up at a number in between which just happens to be $2.58.

Okay.

Does that clarify the --?

Yes, it does. Can I have a -- you haven't really mentioned anything on we are already -- we're almost late March. Can you give us any indication how '09 is shaping up?

Sure. I think our approach to '09 and where we certainly tried to gear our remarks is discuss with you many initiatives, many of which are new, many of which are extensions on what we did. So we are not sitting around idle. We're not just cutting expenses to try to save our way through difficult economic times. We actually think that we are somewhat aggressive launching several new products in this marketplace, but doing it in a very guarded way.

The ability to predict how and when and in which particular 90-day period of time we are really going to be able to go and push those products a little bit more aggressively is very, very difficult for us to do. So I can tell you the first quarter looks a lot like the fourth quarter, general directions. There's risks out there, but we're not sitting around. We're launching initiatives. The specific quarter and year in which we are really able to measure the return is a little bit difficult. Do you have anything to add, Burton?

Yes. And Michael, as I sort of articulated somewhat in my comments, Q1, as Andrew said, will look somewhat similar to Q4. But with all the reinvestments that we have made, we believe, and in doing so in a guarded fashion as Andrew states, we effectively are saying look, the one thing that our goal is always particular through these volatile times is even with all these investments, to protect our balance sheet and to continue to create cash from our operations.

We haven't issued formal guidance for all of 2009. We plan to update everybody quarter to quarter on each call to this year and that is our commitment back to you.

Okay, thank you.

(Operator Instructions). There appear to be no further questions. Please continue with any other points you wish to raise.

I'd like to thank everybody for joining the conference call to review our fourth-quarter results and our full 2008 results and look forward to touching base and communicating with you on Q1 in the time period ahead. Thank you again for joining us on this early morning phone call.

This concludes the Atrinsic fourth-quarter 2008 earnings conference call. Thank you for participating. You may now disconnect.