- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from ________________ to ________________

Commission file number: 333-147245

OPTIONS MEDIA GROUP HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Nevada		26-0444290
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

123 NW 13th Street, Ste. 300 Boca, Raton, FL		33432
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (561) 368-5067

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Class		Outstanding at May 18, 2012
Common Stock, $0.001 par value per share		1,118,457,045 shares

OPTIONS MEDIA GROUP HOLDINGS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	3

ITEM 1.	FINANCIAL STATEMENTS	3

	Consolidated Balance Sheets as of March 31, 2012 (Unaudited) and December 31, 2011	3

	Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2012 and 2011	4

	Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2012 and 2011	5

	Notes to Consolidated Financial Statements (Unaudited)	7

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	34

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	46

ITEM 4.	CONTROLS AND PROCEDURES	46

PART II.	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	47

ITEM 1A.	RISK FACTORS	47

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	47

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	47

ITEM 4.	MINE SAFETY DISCLOSURES	47

ITEM 5.	OTHER INFORMATION	47

ITEM 6.	EXHIBITS	47

SIGNATURES		48

EXHIBIT INDEX		49

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OPTIONS MEDIA GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	Mar. 31, 2012			Dec. 31, 2011
ASSETS	(unaudited)
Current assets:
Cash	$	181,891		$	15,232
Accounts receivable, net of allowance for doubtful accounts of $200,311 at March 31, 2012 and December 31, 2011		–			–
Prepaid expenses		120,534			131,532
Prepaid marketing expense		425,165			425,165
Other current assets		185,061			58,800
Total current assets		912,651			630,729
Property and equipment, net of accumulated depreciation of $101,295 and $90,183 at March 31, 2012 and December 31, 2011, respectively		40,609			51,721
Prepaid marketing expense, net of current portion		471,225			577,516
Intangible assets, net of accumulated amortization of $ 187,500 at March 31, 2012 and December 31, 2011		20,000			20,000
Other non-current assets		37,672			37,368
Total assets	$	1,482,157		$	1,317,334

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$	953,322		$	717,926
Accrued expenses		722,121			453,293
Customer deposits		241,035			241,035
Deferred revenue		84			849
Warrant liabilities		4,247,894			2,414,168
Embedded conversion option liabilities		468,946			206,817
Convertible notes payable, net of discount of $117,837 and $0 at March 31, 2012 and December 31, 2011, respectively		647,163			240,000
Note payable		275,000			225,000
Bridge notes payable, net of discount of $1,869 and $0 at March 31, 2012 and December 31, 2011, respectively		209,631			–
Due to related parties		215,745			165,726
Other current liabilities		42,637			44,345
Dividends payable		56,351			32,558
Total current liabilities		8,079,929			4,741,717
Notes payable, net of current portion		87,500			137,500
Total liabilities		8,167,429			4,879,217

Commitments and contingencies (Note 12)

Options Media Group Holdings, Inc. (OPMG) stockholders’ (deficit) equity:
Preferred stock; $0.001 par value, 10,000,000 shares authorized
Preferred stock; $0.001 par value Series A, 13,850 and 16,650 issued and outstanding at March 31, 2012 and December 31, 2011 respectively (liquidation value of $1,443,843 as of March 31, 2012 )		14			17
Preferred stock; $0.001 par value Series B, C, E, F, G none issued and outstanding at both March 31, 2012 and December 31, 2011		–			–
Preferred stock; $0.001 par value Series D, 483,633 issued and outstanding at March 31, 2012 and December 31, 2011 (liquidation value of $483,633 as of March 31, 2012 )		484			484
Preferred stock; $0.001 par value Series H, 250 and none issued and outstanding at March 31, 2012 and December 31, 2011, respectively (liquidation value of $250,000 as of March 31, 2012 )		3			–
Common stock; $0.001 par value, 1,500,000,000 shares authorized, 1,049,412,607 and 993,859,509 issued and outstanding at March 31, 2012 and December 31, 2011, respectively		1,049,413			993,860
Additional paid-in capital		30,255,575			30,938,191
Accumulated deficit		(37,990,761	)		(35,494,435	)
Total stockholders’ (deficit) equity		(6,685,272	)		(3,561,883	)
Total liabilities and stockholders’ (deficit) equity	$	1,482,157		$	1,317,334

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

OPTIONS MEDIA GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31,
	2012			2011
Net revenues	$	1,020		$	324,760
Cost of revenues		–			187,816
Gross profit		1,020			136,944
Operating expenses:
Compensation and related costs		686,495			355,927
Commissions		–			24,875
Advertising		45,495			113,061
Rent		38,368			49,290
General and administrative		453,769			465,236
Total operating expenses		1,224,127			1,008,389
Loss from continuing operations		(1,223,107	)		(871,445	)
Other income (expense):
Change in fair market value of derivative liabilities		(809,330	)		–
Loss on extinguishment of debt		(360,386	)		–
Interest expense		(100,294	)		(10,559	)
Settlement gain		22,952			–
Total other expense		(1,247,058	)		(10,559	)
Loss from continuing operations		(2,470,165	)		(882,004	)
Discontinued operations:
Income (loss) from discontinued operations		–			(79,894	)
Gain from sale of discontinued operations		–			116,218
Income from discontinued operations, net		–			36,324
Net loss	$	(2,470,165	)	$	(845,680	)
Preferred stock dividends		(26,161	)		–
Net loss available to common stockholders	$	(2,496,326	)	$	(845,680	)
Loss per share, basic and diluted – continuing operations	$	(0.00	)	$	(0.00	)
Earnings per share, basic and diluted – discontinued operations, net	$	–		$	0.00
Loss per share, basic and diluted	$	(0.00	)	$	(0.00	)
Weighted average number of common shares outstanding:
Basic		1,017,347,786			424,183,247
Diluted		1,017,347,786			426,000,991

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

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31,
	2012			2011
Operating activities
Net loss	$	(2,470,165	)	$	(845,680	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Gain on stock granted to non-employees for services		(22,323	)		–
Stock granted to non-employees for services		10,500			40,000
Stock options granted to employees		114,539			–
Vesting of Series E preferred stock		44,827			–
Stock issued voluntarily as ratchet		42,838			–
Stock granted to employees		–			5,178
Stock options granted for services		–			40,154
Warrants granted to non-employees for service		17,111			–
Change in fair market value of derivative liabilities		809,330			–
Loss on extinguishment of debt		360,386			–
Amortization of prepaid equity instruments		119,040			–
Amortization of software		–			135,588
Amortization of debt discount		81,645			10,848
Depreciation		11,112			10,179
Bad debt		–			36,589
Changes in operating assets and liabilities:
Accounts receivable		–			257,365
Prepaid expenses		(1,751	)		35,177
Other current assets		(11,814	)		(10,444	)
Accounts payable		235,396			26,583
Accrued expenses		328,442			(15,726	)
Deferred revenues		(765	)		23,973
Due to related parties		50,019			37,907
Other current liabilities		(1,708	)		(8,988	)
Cash used in continuing operating activities		(283,341	)		(221,296	)
Cash used in discontinued operating activities		–			(108,108	)

Investing activities
Purchases of property and equipment, net		–			–
Proceeds from sale of intangible asset		–			175,000
Cash provided by continuing investing activities		–			175,000

Financing activities
Bank overdraft		–			1,063
Proceeds from sales of preferred stock Series H		250,000			–
Proceeds from loans		211,500			145,500
Financing costs		(11,500	)		(10,000	)
Cash provided by financing activities		450,000			136,563

Net increase (decrease) in cash and cash equivalents		166,659			(17,841	)
Cash at beginning of period		15,232			35,756
Cash at end of period	$	181,891		$	17,915

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – continued

(UNAUDITED)

	Three Months Ended March 31,
	2012		2011
Supplemental disclosure of cash flow information:
Cash paid for interest	$	5,066	$	–
Cash paid for taxes	$	–	$	–
Supplemental disclosure of non-cash investing and financing activities:
Converted preferred stock Series A to common stock	$	36,497	$	–
Dividends declared on Series A	$	26,161	$	–
Issued warrants with derivative characteristics	$	883,907	$	–
Issued convertible debt with derivative characteristics	$	432,213	$	40,671
Note payable – funds received in April 2012	$	114,750	$	–
Capitalization of accrued interest to note balance	$	14,614	$	–
Common stock issued for accrued expense settlement	$	22,677	$	–
Reclassification of derivative instruments to equity	$	29,595	$	–
Common stock and warrant loan fees recorded as debt discounts	$	154,601	$	–
Common stock issued for payment of accrued dividends	$	2,368	$	–
Settlement of accounts payable in exchange for an intangible asset	$	–	$	14,000

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

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(UNAUDITED)

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Description of Business

Options Media Group Holdings, Inc. or the “Company”, “we”, “us", or “our” was incorporated in the state of Nevada and is the holding company for its operating subsidiaries.

In April 2010, through our wholly-owned subsidiary PhoneGuard, Inc., the Company entered into an asset purchase agreement and sublicense agreement with Cellular Spyware, Inc. (“CSI”). The asset acquisition gave the company rights to the name PhoneGuard whereby the Company then entered the mobile and smart phone application market. PhoneGuard acquired certain assets of CSI for an anti-virus and anti-malware software product and at the time became the exclusive marketer of the anti-virus and anti-malware software product within the United States and Canada. During August 2010 (in addition to anti-virus and anti-malware software), the Company acquired an exclusive license for CSI's rights to a state-of-the-art anti-texting product in North, Central, and South Americas (see below). The Company did not commercialize the anti-virus product.

In May 2011, the Company entered into an agreement with Bieber Brands to promote the sale of the PhoneGuard product, see Note 8. In June 2011, the Company changed its focus from the sale of its anti-virus software to the sale of anti-texting software. In July 2011, the Company entered into an Asset Purchase Agreement (the “Agreement”) with CSI. In connection with the Agreement, the Company purchased all of the intellectual property to the anti-texting software owned by CSI (the “Software”). The Company had previously licensed the Software and had all rights to North, Central, and South Americas. As a result of the Agreement, the Company now owns all worldwide rights to the Software; see Note 3 for additional information.

The Company sells its PhoneGuard software, via the following offerings:

·	PhoneGuard : this version is offered to the consumer free and provides standard product offerings. It is an advertising supported model.

·	PhoneGuard Premium : this version is offered to the consumer via an annual subscription cost. It is a step up from the PhoneGuard model as it provides additional functionality via a web portal that is not included within the PhoneGuard model. It is not an advertising supported model.

PhoneGuard Enterprise : this version is targeted towards businesses and is offered via an annual subscription cost. It is a model that has access to the all of the product’s available offerings and is customizable to meet the specific needs of each of our client’s business. It is not an advertising supported model.

In February 2011, the Company discontinued its e-mail business (see Note 11). Continuing operations consist primarily of the PhoneGuard business and with a decreasing focus on the lead-generation business.

Basis of Presentation

The unaudited interim consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and certain non-recurring adjustments and reclassifications) have been made that were deemed necessary to present fairly the results of operations, for the three months ended March 31, 2012, the cash flows for the three months ended March 31, 2012, and the financial position as of March 31, 2012. The results of operations for such interim periods are not necessarily indicative of the operating results to be expected for the full year.

Certain information and disclosures normally included in the notes to the annual consolidated financial statements have been condensed or omitted from these unaudited interim financial statements.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

Going Concern

As reflected in the accompanying unaudited consolidated financial statements for the three months ended March 31, 2012, the Company had a net loss available to common stockholders of $2,496,326 and used $283,341 of net cash in continuing operations. At March 31, 2012, the Company had a working capital deficit of $7,167,278, which included derivative liabilities of $4,716,840 (see Note 2). Without derivative accounting treatment, our working capital deficit would have been $2,450,438.

Additionally, at March 31, 2012, the Company had a stockholders’ deficit and an accumulated deficit of $6,685,272 and $37,990,761, respectively. These matters and the Company’s expected needs for capital investments and working capital required to support operational growth raise substantial doubt about its ability to continue as a going concern. The Company’s unaudited consolidated financial statements do not include any adjustments to reflect the possible effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from its inability to continue as a going concern.

The Company has financed its working capital and capital expenditure requirements primarily from the sales of common stock; preferred stock; issuances of short-term and long-term debt securities; and sales of advertising, data services, and mobile software. From January through April 2012, the Company raised approximately $660,000 (net of costs) from private placements of its Series H preferred stock and issuances of convertible notes and repaid $200,000 of outstanding debt. The Company continues to aggressively manage its operating expenses. The Company’s growth strategy is focused towards expanding the presence of its PhoneGuard’s software.

As of March 31, 2012, management believes that the Company will meet its expected needs required to continue as a going concern through March 31, 2013, either through cash provided by equity, cash provided by debt, cash generated from operations, or a combination of each. Options Media is dependent on raising additional capital to be able to continue its operations. There can be no assurance that Options Media will be able to do so, or that it will be able to do so on acceptable terms. There can also be no assurance that Options Media will be able to achieve and sustain profitable operations or continue as a going concern.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, PhoneGuard, Inc. (“PhoneGuard” or “PG”), Inc., I Acq Corp. (currently inactive operationally), Options Acquisition Sub, Inc. (currently inactive operationally), 1 Touch Marketing, LLC, , Mobile Connections, Inc. (“MCI”), Mobile Innovations, Inc. (“MII”); and Icon Term Life Inc. d/b/a The Lead Link. MCI and MII were incorporated in July 2011 for the purposes of researching and developing the Company’s mobile billing model for the PhoneGuard software. All material inter-company balances and transactions have been eliminated in consolidation.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

Use of Estimates

The accompanying unaudited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. The Company believes that the estimates, judgments, and assumptions (upon which the Company relies) are reasonable based upon information available at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of our unaudited consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our unaudited consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.

The most significant estimates include the valuation of accounts receivable, estimates of depreciable lives, valuation of property and equipment, valuation of beneficial conversion features in convertible debt, valuation of derivative liabilities, valuation and amortization periods of intangible assets and software, valuation of goodwill, valuation of stock-based compensation, and the deferred tax valuation allowance.

Accounting for Derivatives

The Company evaluates its convertible instruments, options, warrants, or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging . Under the provisions of ASC 815-40, convertible instruments and warrants, which contain terms that protect holders from declines in the stock price (“reset provisions”), are also required to be accounted for in accordance with derivative accounting treatment under ASC 815-10. Additionally, the Company evaluates whether the amount of common stock on an as converted basis is in excess of its authorized share total which, if in excess, would result in derivative accounting treatment. The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to a liability at the fair value of the instrument on the reclassification date.

Fair Value of Financial Instruments and Fair Value Measurements

We measure our financial assets and liabilities in accordance with GAAP. For certain of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, the carrying amounts approximate fair value due to their short maturities. Amounts recorded for notes payable, also approximate fair value because current interest rates available to us for debt with similar terms and maturities are substantially the same .

We adopted accounting guidance (ASC 820), Fair Value Measurements and Disclosures , for financial and non-financial assets and liabilities not recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. These guidelines define fair value, provide guidance for measuring fair value, and require certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

The following is a brief description of those three levels:

Level 1:	Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2:	Inputs other than quoted prices that is observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3:	Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

The Company has significant financial assets and liabilities at March 31, 2012 and December 31, 2011 that requires recognition and disclosure at fair value.

We measure and report fair values of our intangible assets and derivative instruments. The fair value of intangible assets has been determined using the present value of estimated future cash flows method. The following table summarizes our financial and non-financial assets and liabilities measured at fair value on a non-recurring basis as of March 31, 2012 and December 31, 2011:

					Fair Value Measurements at Mar. 31, 2012 using:
	Total Carrying Value at March 31,		Total Carrying Value at December 31,		Quoted Prices in Active Markets		Significant Other Observable Inputs		Significant Unobservable Inputs
	2012		2011		(Level 1)		(Level 2)		(Level 3)
Assets:
Goodwill	$	–	$	–	$	–	$	–	$	–
Intangible assets – trade names	$	20,000	$	20,000	$	–	$	–	$	20,000
Intangible assets – software	$	–	$	–	$	–	$	–	$	–
Liabilities:
Warrant liability	$	4,247,894	$	2,414,168	$	–	$	–	$	4,247,894
Embedded conversion option liability	$	468,946	$	206,817	$	–	$	–	$	468,946

The following is a roll-forward from December 31, 2010 to December 31, 2011, and from December 31, 2011 through March 31, 2012 of the fair value liability of level 3 assets and liabilities:

	Intangible Assets		Intangible Assets			Warrant		Embedded Conversion Option
	– Trade names		– Software			Liability		Liabilities
Balance at December 31, 2010	$	20,000	$	–		$	–	$	–
Asset acquisition		–		1,125,000			–		–
Amortization expense		–		(187,500	)		–		–
Impairment of intangible asset		–		(937,500	)		–		–
Initial implementation of derivative accounting		–		–			1,931,594		192,652
Change in fair value		–		–			482,574		14,165
Balance at December 31, 2011	$	20,000	$	–		$	2,414,168	$	206,817
Initial implementation of derivative accounting		–		–			883,907		432,213
Extinguishment of convertible note		–		–			–		(29,595	)
Change in fair value		–		–			949,819		(140,489	)
Balance at March 31, 2012	$	20,000	$	–		$	4,247,894	$	468,946

Changes in fair value of the warrant derivative liability and the embedded conversion option liability are included in other income (expense) in the accompanying unaudited consolidated statements of operations.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

The Company estimates the fair value of the warrant derivative liability and the embedded conversion option liability utilizing the Black-Scholes pricing model, which is dependent upon several variables such as the expected term (based on contractual term), expected volatility of our stock price over the expected term (based on historical volatility), expected risk-free interest rate over the expected term, and the expected dividend yield rate over the expected term. The Company believes this valuation methodology is appropriate for estimating the fair value of the derivative liability.

The following table summarizes the assumptions the Company utilized to estimate the fair value of the warrant derivative liabilities at March 31, 2012:

Assumed	242,321,498			74,000,000			100,000,000			820,000			549,072,000			3,000,000
Variables:	Warrants(1)			Warrants(2)			Warrants(3)			Warrants			Warrants(4)			Warrants
Expected term		2.11			0.11			0.11			1.79			2.18			2.09
Expected volatility		202	%		218	%		218	%		205	%		202	%		202	%
Risk-free interest rate		0.25	%		0.02	%		0.02	%		0.25	%		0.31	%		0.31	%
Dividend yield		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%

(1)	Due to anti-dilution provisions within the agreement, the original warrant grant to purchase 121,160,749 shares of common stock at an exercise price of $0.01 per share, were increased during the first quarter of 2012 to 242,321,498 with an exercise price of $0.005 per share.
(2)	Due to anti-dilution provisions within the agreement, the original warrant grant to purchase 37,000,000 shares of common stock at an exercise price of $0.01 per share, were increased during the first quarter of 2012 to 74,000,000 with an exercise price of $0.005 per share.
(3)	Due to anti-dilution provisions within the agreement, the original warrant grant to purchase 25,000,000 shares of common stock at an exercise price of $0.02 per share, were increased during the first quarter of 2012 to 100,000,000 with an exercise price of $0.005 per share.
(4)	Due to anti-dilution provisions within the agreement, the original warrant grant to purchase 66,960,000 shares of common stock at an exercise price of $0.041 per share, were increased during the first quarter of 2012 to 549,072,000 with an exercise price of $0.005 per share.

Assumed	5,000,000			20,000,000			1,500,000			20,000,000			30,000,000			90,000,000
Variables:	Warrants			Warrants			Warrants			Warrants			Warrants			Warrants
Expected term		2.75			2.76			2.76			2.90			2.93			5.00
Expected volatility		202	%		202	%		202	%		202	%		202	%		205	%
Risk-free interest rate		0.36	%		0.36	%		0.36	%		0.36	%		0.36	%		1.04	%
Dividend yield		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%

The following table summarizes the assumptions the Company utilized to estimate the fair value of the convertible debts’ embedded conversion option liability at March 31, 2012:

	$140,000 debt			$150,000 debt			$475,000 debt
	Convertible into			Convertible into			Convertible into
Assumed Variables:	12,727,273 Shares			30,000,000 Shares			95,000,000 Shares
Expected term		1.00			1.00			1.00
Expected volatility		218	%		218	%		218	%
Risk-free interest rate		0.12	%		0.12	%		0.12	%
Dividend yield		0.00	%		0.00	%		0.00	%

There were no changes in the valuation techniques during the three months ended March 31, 2012.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

Net Earnings (Loss) Per Share

	3 months ended
	March 31,			March 31,
	2012			2011
Basic numerator:
Loss from continuing operations	$	(2,470,165	)	$	(882,004	)
Less: preferred stock dividends		(26,161	)		–
Numerator for basic loss per share – continuing operations		(2,496,326	)		(882,004	)
Numerator for basic earnings per share – discontinued operations, net		–			36,324
Numerator for basic earnings (loss) per share – available to common shareholders	$	(2,496,326	)	$	(845,680	)
Diluted numerator:
Numerator for basic loss per share – continuing operations	$	(2,496,326	)	$	(882,004	)
Add: preferred stock dividends		26,161			–
Numerator for diluted loss per share – continuing operations		(2,470,165	)		(882,004	)
Numerator for diluted earnings per share – discontinued operations, net		–			36,324
Numerator for diluted loss per share – available to common shareholders	$	(2,470,165	)	$	(845,680	)
Basic weighted average common shares		1,017,347,786			424,183,247
Dilutive instruments
Options		–			1,817,744
Diluted weighted average common shares		1,017,347,786			426,000,991
Basic EPS:
Basic loss per share – continuing operations	$	(0.00	)	$	(0.00	)
Basic earnings per share – discontinued operations, net		–			0.00
Basic loss per share	$	(0.00	)	$	(0.00	)
Diluted EPS:
Diluted loss per share – continuing operations	$	(0.00	)	$	(0.00	)
Diluted earnings per share – discontinued operations, net		–			0.00
Diluted loss per share	$	(0.00	)	$	(0.00	)

Basic earnings (loss) per common share is based on the weighted-average number of all common shares outstanding. The computation of diluted earnings (loss) per share does not assume the conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on earnings (loss) per share.

For the three months ended March 31, 2012: (i) 94,900,007 incremental options; (ii) 1,134,816,218 incremental warrants; (iii) 352,223,219 incremental Series of preferred stock; and (iv) 137,727,273 incremental shares from convertible debt; for an aggregate incremental total of 1,719,666,717; were excluded from the denominator for diluted income per share as the impact of their conversion was anti-dilutive.

For the three months ended March 31, 2011, 14,182,256 incremental options were excluded from the denominator for diluted income per share as the impact of their conversion was anti-dilutive. At March 31, 2011, there would be an aggregate 415,602,048 additional shares of common stock if all of the following items converted to their common stock equivalents: (i) 167,889,849 incremental options; (ii) 245,588,330 incremental warrants; and (iii) 2,113,868 incremental shares of restricted stock.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

Revenue Recognition

The Company will recognize revenue when: (i) persuasive evidence exists of an arrangement with the customer reflecting the terms and conditions under which products or services will be provided; (ii) delivery has occurred or services have been provided; (iii) the fee is fixed or determinable; and (iv) collection is reasonably assured.

In accordance with ASC 605-45-05 Reporting Revenue Gross as a Principal vs. Net as an Agent , we report revenues for transactions in which we are the primary obligor on a gross basis and revenues in which we act as an agent on and earn a fixed percentage of the sale on a net basis, net of related costs. Credits or refunds are recognized when they are determinable and estimable.

The Company’s revenue from its PhoneGuard Software will principally be derived from advertising services and subscription fees.

Advertising Revenue . The Company expects to generate advertising revenue primarily from display, audio and video advertising. The Company will generate its advertising revenue through the delivery of advertising impressions sold on a cost per thousand, or CPM, basis. In determining whether an arrangement exists, the Company ensures that a binding arrangement, such as an insertion order or a fully executed customer-specific agreement, is in place. The Company generally recognizes revenue based on delivery information from its campaign trafficking systems. In addition, the Company will also generate referral revenue from performance-based arrangements, which may include a user or recipient of an “auto reply” performing some action such as clicking on an advertisement and signing up for a membership with that advertiser. The Company records revenue from these performance-based actions when it receives third-party verification reports supporting the number of actions performed in the period. The Company generally has audit rights to the underlying data summarized in these reports.

Subscription and Other Revenue . The Company will generate subscription services revenue through the sale of its PhoneGuard’s anti-texting software. For annual subscription fees, subscription revenue will be recognized on a straight-line basis over the subscription period.

The Company offers lead generation programs to assist a variety of businesses with customer acquisition for the products and services they are selling. The Company pre-screens the leads to meet its clients' exact criteria. Revenue from generating and selling leads to customers is recognized at the time of delivery and acceptance by the customer.

PhoneGuard previously sold an older version of anti-texting mobile software under a licensing agreement. Sales to distributors and retailers were recognized at the time of shipment as the software licenses had an indefinite term except if the sale was under a consignment arrangement in which case, we recognize the sale only upon the distributor reselling the software. Sales to consumers over the Internet are recognized on a pro rata basis over the term of the subscription period.

The Company sold its e-mail business in February 2011 and receives commission from the purchaser on sales made to the Company’s previous customers. Revenue is recorded when commission is received as there is not enough collection history to record accruals with true-ups to actual. These commissions are reported in discontinued operations. During the three months ended March 31, 2012, the Company has not received any commissions from the purchaser.

Segments

The Company follows ASC 280-10 for, Disclosures about Segments of an Enterprise and Related Information . Segment information is provided in Note 10.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

Software Costs

Purchased software is initially recorded at cost, which is considered to be fair value at the time of purchase. Amortization is provided for on a straight-line basis over the estimated useful lives of the assets of three to five years. Costs associated with upgrades and enhancements to existing Internal-use software that result in additional functionality are capitalized if they can be separated from maintenance costs, whereas costs for maintenance are expensed as incurred.

The anti-texting software acquired from CSI is not considered to be internally developed software as the anti-texting software did not meet the provisions of ASC Topic 350, Intangibles – Goodwill and Other, since the Company purchased such software with the intent to market it to the public. As such, the Company notes that treatment of the cost of the software and future product enhancements are governed by the provisions of ASC 985, Software. At the time the software purchase was finalized, the Company had a free version of the software released in the Android and Blackberry “app” markets. Thus, the Company determined that it had met the provisions of ASC 985, as (i) it deemed the software to be technologically feasible; and (ii) there was no on-going research and development (“R&D”). Accordingly the Company recorded the cost of the software in the line item “Intangible assets, net”.

Pursuant to the provisions of ASC 985, the Company will amortize the capitalized cost utilizing the straight-line method over the three-year estimated useful life of the software. Amortization commenced at the acquisition date, as a free “lite” version of the product was available to customers. Future product maintenance and customer support, for the software, will be expensed as incurred. Should the Company begin to enter a product enhancement phase, it will determine at that time if post-R&D phase costs should be capitalized. See Notes 3 and 4 for additional information on the intangible asset “Software”.

Recently Issued Accounting Standards

In May 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-04 regarding ASC Topic 820, Fair Value Measurement . This ASU updates accounting guidance to clarify how to measure fair value to align the guidance surrounding Fair Value Measurement within Generally Accepted Accounting Principles (“GAAP”) and International Financial Reporting Standards (“IFRS”). In addition, the ASU updates certain requirements for measuring fair value and for disclosure around fair value measurement. It does not require additional fair value measurements and the ASU was not intended to establish valuation standards or affect valuation practices outside of financial reporting. This ASU was effective for the Company’s fiscal year beginning January 1, 2012. Early adoption was not permitted. The adoption of this guidance did not have a material impact on the Company’s unaudited financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income . This ASU amends the ASC to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments to the ASC in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The adoption of this guidance did not have a material impact on the Company’s unaudited financial statements.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

3. ASSET ACQUISITION OF CSI SOFTWARE

On July 15, 2011, the Company entered into an Agreement with Cellular Spyware, Inc. (“CSI”) and Mr. Anthony Sasso. In connection with the Agreement, the Company purchased all of the intellectual property to the anti-texting Software owned by CSI for an aggregate amount of $1,125,000. The Company had previously licensed the Software and had all rights to North, Central, and South Americas. As a result of the Agreement, the Company now owns all worldwide rights to the PhoneGuard software. As consideration for the Assets, the Company paid CSI $300,000 in cash, a $450,000 promissory note, and 25,000,000 shares of the Company’s common stock (subject to a Lock-Up/Leak-Out Agreement as described below) (the “Consideration Shares”), valued at $375,000 based on a blended, pro rata, price per share of two recent private placements. The note payable stipulated 18 equal monthly installments of $25,000 beginning in August 2011. The $1,125,000 acquisition of the Software was treated as an asset purchase and the consideration was recorded in the line item “Intangible Assets, net” on the Company’s consolidated balance sheet, though the amount was deemed impaired during the fiscal year 2011 annual impairment testing. As such, as of March 31, 2012, there was no net carrying value of the intangible asset, software.

On July 15, 2011, the Company entered into a Settlement and Release Agreement with Sasso (the “Release Agreement”) whereby Sasso released the Company from any claims arising from his employment, including any potential severance. In consideration for entering into the Release Agreement, the Company immediately vested 337.5 shares of Sasso’s 675 shares of outstanding Series C (which was convertible into 42,749,787 shares of common stock). Sasso agreed to a Lock-Up/Leak-Out Agreement (the “Lock-Up”) which limits the sales of Sasso’s shares to: (i) 10,000,000 shares during the first month after entering into the Lock-Up and (ii) beginning August 1, 2011 (and in every calendar month thereafter), 10% of the total trading volume of the Company’s common stock for the prior calendar month. In connection with the Release Agreement and Lock-Up, the Company filed a registration statement on Form S-8 registering 20,000,000 of Mr. Sasso’s shares. Additionally, CSI and Sasso agreed to a Lock-Up/Leak-Out Agreement which limits the sales of the Consideration Shares to 10% of the average trading volume for the Company’s common stock for the prior 30 day period beginning on August 15, 2011, and every 30 day period thereafter. As discussed further in Note 5, in February 2012, the Company agreed to release the shares from the lock-up agreement in exchange for a modification to the payment terms of the $450,000 promissory note.

4. INTANGIBLE ASSETS, NET

As of March 31, 2012 and December 31, 2011, intangible assets, net, were comprised of the following:

	March 31, 2012			December 31, 2011
Intangible assets subject to amortization:
Software (3 years)	$	187,500		$	187,500
Less: accumulated amortization		(187,500	)		(187,500	)
Total intangible assets subject to amortization		–			–
Intangible assets not subject to amortization:
Trademark		20,000			20,000
Total intangible assets, net	$	20,000		$	20,000

As aforementioned in Note 3, in the asset acquisition of CSI Software, the Company purchased the Software for $1,125,000 during the third quarter of 2011. The Company tests intangible assets for impairment in accordance with ASC 350-30 Goodwill and Other Intangible Assets . Accordingly, intangible assets are tested for impairment at least annually or whenever events or circumstances indicate that intangible assets might be impaired. The Company has elected to test for intangible asset impairment annually. In accordance with ASC 350, the Company performed an annual review for impairment during the fourth quarter of 2011 and determined that the carrying value was not recoverable as it was in excess of supportable future discounted cash flows and accordingly the Company recorded an impairment loss of $937,500 in the fourth quarter of 2011.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

5. NOTES PAYABLE

A summary of notes as of March 31, 2012 and December 31, 2011 is as follows:

	March 31, 2012			December 31, 2011
Convertible notes payable, gross	$	765,000		$	240,000
Note payable to CSI		362,500			362,500
Bridge notes payable, gross		211,500			–
Total notes payable, gross		1,339,000			602,500
Less amount classified as current		(1,131,794	)		(465,000	)
Less discount		(119,706	)		–
Long-term notes payable , net of current portion	$	87,500		$	137,500

The following is a roll-forward of notes payable from December 31, 2011 through March 31, 2012:

Balance as of December 31, 2011	$	602,500
Increase in face value of note payable		375,000
Notes payable financing		361,500
Debt discount – Convertible Note Payable, gross		(119,104	)
Debt discount – Convertible Promissory Note		(82,247	)
Amortization of debt discounts		81,645
Balance as of March 31, 2012	$	1,219,294

Convertible Promissory Notes

RVH, Inc. :

In February 2011, the Company issued a $150,000, 6 month 12% promissory note due in August 2011. The note is secured with a priority lien on all the Company’s rights, titles, and interest in its assets, together with the proceeds thereof. The Company incurred $4,500 of an original issue discount which was deducted from the loan proceeds and was recorded as a debt discount and was being amortized over the loan term. In addition, the Company paid the lender $10,000 of legal fees which was recorded as a debt discount and was being amortized over the loan term and issued 6,000,000 warrants (with a cashless exercise provision) exercisable at $0.01 per share for a term of 2.5 years. The fair value of the warrants was $55,800, calculated using the Black-Scholes option pricing model with the following assumptions: stock price of $0.01 (based on the grant date quoted trading price of the Company's common stock), expected term of two and one-half years, volatility of 230% (based on historical volatility), and a risk-free interest rate of 1%. The relative fair market value of the warrants was $40,671 which was recorded as debt discount and was being amortized over the term of the note. The Company recorded the aggregate debt discounts of $55,171 for this note (which consisted of the loan fee, legal fees and warrant discount) and amortized $39,054 to interest expense through June 2011.

In July 2011, the Company amended this note to add a conversion feature making the note convertible at $0.01 per share. All other terms remained the same. The debt modification was treated as a debt extinguishment under ASC 470-50. Accordingly, the remaining unamortized discount at the time of modification of $16,117 was written-off to loss on extinguishment of debt. There was no beneficial conversion value of the new note as the conversion price was deemed to be equal to the fair value of the common stock. In December 2011, the amount of common stock on an as converted basis exceeded our authorized share amount which resulted in the Company treating the convertible note embedded conversion feature as a derivative liability in the consolidated financial statements; see Note 2 “Fair Value of Financial Instruments and Fair Value Measurements”.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

In September 2011, as a result of the above mentioned note modification, the note holder converted $50,000 of the promissory note’s principal along with $10,675 of accrued interest into 6,067,561 shares of common stock, see Note 6.

As of December 31, 2011, $100,000 of principal remained outstanding and there was approximately $8,600 of accrued interest. While the note matured in August 2011, the note holder has neither converted the note into common stock nor notified the Company that it was in default. A provision in the note allows the note holder to convert the note into common stock at $0.001 per share upon a default.

In March 2012, the Company increased the amount of the convertible promissory note outstanding principal balance from $100,000 to $475,000, extended the maturity date from August 2011 to May 21, 2012 and the conversion price was set at $0.005 per share (with full anti-dilution provisions). This modification qualified as a debt extinguishment for accounting purposes under ASC 470-50-40-10. There was no intrinsic value of the repurchased beneficial conversion feature as the note’s conversion price exceeded the market price of the common stock on the modification date. The Company recorded a loss on the extinguishment of debt of $360,386 in the first quarter of 2012. In a separate transaction arranged by the Company, the note holder intended to assign the note to another party and the assigned note was to have its maturity date extended to March 30, 2013. As discussed further in Note 13, on May 16, 2012, the existing note holder, who had fulfilled all of their obligations under the assignment agreement, officially notified the Company, that as a result of the assigning party not fulfilling all of its requirements (including payment) under the assignment agreement, that the assignment agreement had been officially withdrawn. The parties have agreed to a 10 day extension from the May 21, 2012 maturity date, in order to negotiate the terms of the note. The note holder has not waived any other defaults that may have occurred under the note and they have not waived any of their rights or remedies available to them under the note, including the reimbursement of legal fees incurred by the note holder. The Company can give no assurances as to the resolution of the note.

Cape One Financial :

In March 2012, the Company entered into a $150,000, three- month 10% convertible secured note that is payable July 2, 2012 and is convertible into common stock at $0.005 per share. Due to the authorized share shortage, the embedded conversion option is accounted for as a bifurcated derivative. The Company paid loan fees of $15,000, a structuring fee of $15,000 and loan origination fees of $5,250. The Company also issued five-year warrants to purchase an aggregate 90,000,000 shares of common stock at $0.005 per share, valued at its relative fair value of $14,613 and issued the lender 53,575,715 shares of common stock (as part of a voluntary reduction in the conversion price of previously converted securities into common stock) valued at its relative fair value of $69,241. Total discounts to be amortized over the three-month debt term are $119,104, with a balance of $117,837 remaining at March 31, 2012. The Company received the net proceeds of $114,750 in April 2012; as such, the amount is included in the line item “Other current assets” on the Company’s consolidated balance sheet as of March 31, 2012.

Law firm :

In May 2011, the Company issued to a law firm a $210,000 convertible note which is payable on demand of which $43,687 was repaid and $26,313 was converted into 2,392,044 shares of common stock, leaving a balance of $140,000 as of December 31, 2011. The principal and interest on this note is convertible into common stock at $0.011 per share. Additionally, the Company issued the law firm 3,000,000, three-year warrants exercisable at $0.011. The note and warrants were issued in satisfaction of accounts payable due to the law firm. The warrants were valued using the Black-Scholes option pricing model with the following assumptions, stock price of $0.0085 (based on the grant date quoted trading price of the Company's common stock), expected terms of three years, volatility of 159% (based on historical volatility), and a risk-free interest rate of 1.84%. The relative fair value of these warrants, approximately $19,000, was fully expensed due to the note being payable on demand. There was no intrinsic value for the embedded conversion feature because the conversion rate of the note equaled the trading price of the Company’s common stock. In December 2011, the amount of common stock on an as converted basis exceeded our authorized share amount which resulted in the Company treating the convertible note embedded conversion feature as a derivative liability in the consolidated financial statements; see Note 2 “Fair Value of Financial Instruments and Fair Value Measurements”.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

Note Payable to CSI

In July 2011, the Company issued a $450,000 note in connection with the CSI Agreement and it stipulated 18 equal monthly installments of $25,000 beginning in August 2011; see Note 4 for additional information. During 2011, the Company repaid $87,500, leaving $362,500 outstanding as of December 31, 2011. The Company made a partial payment of the November 2011 payment and did not make its December 2011 payment. In February 2012, the Company amended the terms of this note payable such that equal monthly payments in the amount of $25,000 will commence in April 2012 and continue through June 2013. As such, the Company is presenting the payments that are scheduled to occur within the next twelve months, or $275,000, as current, with the remaining $87,500 classified as long-term. The Company did not make its April 2012 payment of $25,000. To date, the note holder has not notified the Company in writing that it is in default.

Bridge Notes Payable

In January 2012, the Company issued two $105,750, 3 month 15% secured promissory notes due in April 2012. The notes each include principal of $100,000, loan origination fees of $4,000, and documentation preparation fees of $1,750. The Company also issued five-year warrants to purchase an aggregate 20,000,000 shares of common stock at $0.01 per share, valued at $70,747. Total discounts to be amortized over the three-month debt term are $82,247, with a balance of $1,869 remaining at March 31, 2012. In April 2012, the Company repaid $200,000 of the notes.

6. STOCKHOLDERS’ DEFICIT

Common Stock

Fiscal Year 2011 activity :

In February 2011, the Company issued 4,000,000 shares of common stock for prior services rendered. The shares were valued at $0.01 per share or $40,000 based on a recent private placement sales price and the services were fully expensed.

In April 2011, the Company issued 628,571 shares of common stock for a $15,000 investment, at a rate of $0.024 per share, which was received in early 2010 and was recorded as a current liability until appropriate documentation was received. The $15,000 was reclassified to equity at the date of issuance of the common stock.

In May 2011, the Company issued 2,000,000 shares of common stock to its new Board Chairman for services rendered. The shares were valued at $0.0125 per share or $25,000 (based on the grant date quoted trading price of the Company's common stock) and were fully expensed as they related to prior services performed. Additionally, the Company recognized $15,074 relating to 71,400 of previously issued unvested shares that vested in 2011.

In connection with the Bieber deal discussed in Note 8, the Company issued 18,000,000 shares of common stock with a fair value of $153,000 based on the grant date’s market closing price of $0.0085. The fair value of the grant was recorded as a prepaid asset and is being amortized over the 3 year term of the agreement.

In June 2011, the Company issued 68,035,953 shares of common stock upon the automatic conversion of the Series F preferred stock as described below.

In June 2011, the Company issued 5,647,458 shares of common stock for a cashless exercise of 6,000,000 warrants.

In July 2011, all 675 shares of Series C preferred stock were converted to 87,499,575 shares of common stock.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

In July 2011, 337.5 shares of Series E preferred stock were converted to 43,749,787 shares of common stock.

In July 2011, the Company issued 25,000,000 shares of common stock in connection with the Asset Purchase Agreement discussed in Note 3.

In July 2011, the Company issued 3,420,000 shares of common stock for a $34,200 investment, $0.01 per share, which was received in May 2011 and was recorded as a current liability until appropriate documentation was received. The $34,200 was reclassified to equity at the date of issuance.

In July 2011, an investor exercised 6,000,000 warrants on a cashless basis for 5,101,257 shares of common stock.

In July 2011, the Company received $200,000 (less $16,000 commission fees) in a private placement for the sale of 20,000,000 shares of common stock.

In July 2011, the Company issued 1,253,026 shares of common stock as a settlement to a shareholder. The shares were valued at $0.015 per share, or $18,795 (based on a blended, pro rata, price per share of two recent placements).

In August 2011, the Company’s Board consented to the issuance of 3,000,000 shares of common stock for services to be rendered from April through October 2011. The shares were valued at $0.013 per share or $39,000 (based on the grant date quoted trading price of the Company’s common stock at the commencement of the service period) and is being amortized over the period of services rendered.

In August 2011, 42.1875 shares of Series E preferred stock were automatically converted to 5,468,723 shares of common stock.

In September 2011, there were 71,400 shares of restricted common stock that vested (see “Restricted Stock Grant” section within this footnote for additional details).

In September 2011, as a result of the note modification discussed at Note 8, the note holder converted $60,676 ($50,000 principal and $10,676 accrued interest) into 6,067,561 shares of common stock, of which 5,000,000 were for principal and 1,067,561 were for interest.

In November 2011, 42.1875 shares of Series E preferred stock were automatically converted to 5,468,723 shares of common stock.

In December 2011, the Company issued 3,000,000 shares of common stock for services rendered. The shares were valued at $0.01 or $30,000 based on a closing price at the time the shares were issued and the services were fully expensed in the year ended December 31, 2011.

In December 2011, the Company issued 1,000,000 shares of common stock for services rendered. The shares were valued at $0.023 or $23,000 based on a closing price at the time of service and the services were fully expensed in the year ended December 31, 2011.

In December 2011, the Company issued 2,392,044 shares of common stock for the conversion of $26,313 of outstanding convertible debt, see Note 5.

As of December 31, 2011, the Company issued 9,357,570 shares of common stock. The shares were issued among various investors as a result of agreements which required the Company to effectively re-price their shares (currently held from prior offerings) to $0.02 per share and, related to stock options granted in February 2011, at $0.008 per share.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

During 2011, the Company issued 19,500,000 shares of common stock for the conversion of 1,950 previously issued shares of Series A preferred stock, as stated below.

During 2011, the Company issued 32,309,740 shares of common stock for the conversion of 1,373,164 previously issued shares of Series D preferred stock, as stated below.

During 2011, the Company received $2,074,966 for the issuance of 20,750 shares of Series G preferred stock, which, as of September 30, 2011, were all converted into 207,500,000 shares of common stock.

Fiscal Year 2012 activity :

In January 2012, five holders of Series A converted 1,950 shares of Series A into 19,500,000 shares of common stock.

In January 2012, the Company issued 1,000,000 shares of common stock to a third-party consultant for prior services rendered to the Company. The shares were valued at $10,500 and were fully expensed at the time of issuance.

In February 2012, 42.1875 shares of Series E preferred stock owned by our CEO vested and were immediately converted into 5,468,723 shares of common stock.

The Company had an agreement to pay a vendor $20,000 a month for services commencing November 15, 2011. The Company paid half in cash, or $15,000 during the period of November 15, 2011 through December 31, 2011 and accrued the remaining $15,000 in the line item “Accrued expenses” on the Company’s consolidated balance sheet as of December 31, 2011. In February 2012, the Company amended the agreement such that the portion of the monthly fees that were being accrued and not paid in cash, were to be settled in common stock. As such, in February 2012, the Company issued 3,543,308 shares of common stock in exchange for the accrued amount of $25,000 as of February 2012 and the prepayment of $20,000 of services for the period of February 2012 through March 2012. The shares were valued on the amendment date’s closing stock price of $0.0064 per share, resulting in the Company recording a gain on settlement of $22,323.

In March 2012, the Company reduced the cost basis of a prior conversion of secured debt into common stock (original conversion was $0.01 per share, this conversion reduces the cost basis to $0.005 per share) by issuing 6,067,561 shares of common stock. The additional shares were valued at $30,338 and were immediately expensed.

In March 2012, two holders of Series A converted 850 shares of Series A into 17,000,000 shares of common stock. Additionally, one of the holders of Series A, converted accrued dividends of $2,368 into 473,506 shares of common stock.

In March 2012, the Company voluntarily reduced the cost basis of a prior Series A conversion to common stock (original conversion was $0.01 per share, this conversion reduces the cost basis to $0.005 per share) by issuing 2,500,000 shares of common stock. The additional shares were valued at $12,500 and were immediately expensed.

See Note 13 for additional information on shares to be issued in connection with the $150,000 convertible note payable and conversions of Series A to common stock.

See below for additional discussion of conversions of preferred stock to common stock.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

Series A Preferred Stock

In June 2011, the Company closed a private placement offering with accredited investors and sold an aggregate of 18,600 shares of Series A Convertible Preferred Stock (“Series A”) and five-year warrants to purchase an aggregate of 62,000,000 shares of common stock at $0.040933 per share. This offering raised $1,686,200 in net proceeds after payment of commissions and fees to the placement agent. The Series A is convertible at $0.03 per shares. The Series A provides for a liquidation preference, voting rights equal to the number of shares of common stock that the holder would be entitled to if the Series A were converted, and a 7% dividend per annum. Additionally, the Series A contains anti-dilution protection and piggyback registration rights. The Company did the following actions with regards to a company that assisted in raising the proceeds for the Series A private placement: (i) voluntarily increased an existing warrant grant of 2,304,000 with an exercise price of $0.035 per share to 8,064,000 with an exercise price of $0.01 per share, or by 5,760,000, resulting in an increase in the warrant value of $200,423; and (ii) issuing five-year warrants to purchase an aggregate of 4,960,000 shares of common stock at $0.040933 per share, valued at $194,870.

In December 2011, in order to encourage conversion, the Company voluntarily reduced the conversion price of the Series A to $0.01 per share from $0.03. During 2011, 1,950 shares of Series A preferred stock were converted into 19,500,000 shares of common stock.

In January 2012, five holders of Series A converted 1,950 shares of Series A into 19,500,000 shares of common stock.

In March 2012, pursuant to the terms of the Series A, the conversion price of the outstanding Series A was reduced to $0.005 per share in order to match the conversion price of the Series H Preferred Stock we issued in a private placement.

As discussed in Note 13, in March 2012, pursuant to the terms of the Series A, the conversion price of the outstanding Series A was reduced to $0.001 per share in order to match the conversion price of the Series J Preferred Stock we issued in a private placement.

Series C Preferred Stock

In May 2011, the Company amended the vesting terms of Series C granted to Mr. Sasso. Previously, the preferred stock could be converted into common stock based upon software sales. The Company’s Board modified the conversion provision set forth in the Certificate of Designations of the Series C so that (i) one-half of the shares could be immediately converted into common stock upon execution of the Bieber Agreement; and (ii) the remaining shares would become convertible into common stock in equal quarterly increments over a two-year period with the first conversion date being three months from the date of the Bieber Agreement, subject to continued employment by each, as applicable, on each applicable conversion date. The 675 shares of Series C preferred stock were valued at $0.0085 per share of common stock (based on the quoted trading price of the Company's common stock on the day the milestone was met) which when converted, amounts to 87,499,575 shares of common stock valued at $743,746. At the time, the 337.5 unvested shares were to be expensed over the conversion terms as applicable. In May 2011, the Company issued the 337.5 shares of Series C preferred stock and immediately recorded $371,873 of stock-based compensation expense.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

During July 2011, the Company’s Board resolved that as consideration for the Settlement and Release Agreement (discussed in Note 4), the Company’s Board permitted the remaining 337.5 shares of Series C held by Mr. Sasso to be immediately convertible into common stock. Accordingly, the Company recorded the remaining $345,882 ($25,991 was amortized prior to the settlement agreement) in stock-based compensation expense for a cumulative total of $743,746. At this time, all 675 shares of vested Series C preferred stock were converted into 87,499,575 shares of common stock.

Series D Preferred Stock

During 2012, there were no conversions of Series D into common stock. During 2011, 1,373,164 shares of Series D preferred stock converted to 32,309,740 shares of common stock.

Series E Preferred Stock

In May 2011, the Company amended the vesting terms of Series E. Previously, the preferred stock converted into common stock based upon software sales. The Company’s Board modified the conversion provision set forth in the Certificate of Designations of the Series E so that (i) one-half of the shares could be immediately converted into common stock upon execution of the Bieber Agreement and (ii) the remaining shares would become convertible into common stock in equal quarterly increments over a two-year period with the first conversion date being three months from the date of the Bieber Agreement, subject to continued employment by each, as applicable, on each applicable conversion date. The 675 shares of Series E preferred stock were valued at $0.0085 per share of common stock (based on the quoted trading price of the Company's common stock on the day the milestone was met) which when converted, amounts to 87,499,575 shares of common stock valued at $743,746. At the time, the 337.5 unvested shares were to be expensed over the conversion terms as applicable. In May 2011, the Company issued the 337.5 shares of Series C preferred stock and immediately recorded $371,873 of stock-based compensation expense.

In July 2011, the 337.5 shares of the 675 shares of Series E preferred stock were converted to 43,749,787 shares of common stock. The remaining 337.5 shares of Series E can be convertible into common stock every three months over a two year period commencing August 2011. Each quarter, 42.1875 shares of Series E convert into 5,468,723 shares of common stock. As of December 31, 2011, an aggregate 421.875 shares of Series E were vested and converted into 54,687,233 shares of common stock, leaving 263.125 shares of Series E that will automatically convert into 32,812,339 shares of common stock in six equal quarterly installments over the next eighteen months.

In February 2012, 42.1875 shares of Series E preferred stock vested and were immediately converted into 5,468,723 shares of common stock.

Series F Preferred Stock

In May 2011, the Board designated 68,035.936 shares of Series F Preferred Stock, par value $0.001 per share (“Series F”). The Series F had a liquidation preference equal to its par value, voting rights that are the same as common stock on an as-converted basis, and automatically convertible to common stock at a ratio of 1,000 common shares for each preferred share upon an increase in the Company’s authorized capital stock. The Series F preferred stock was issued to various prior investors in common stock or other series of preferred stock pursuant to certain full ratchet anti-dilution provisions contained in their respective agreements. As a result of these provisions, the Company effectively re-priced the prior investors’ shares (currently held from prior offerings) to $0.05 per share and $0.02 per share, as applicable. As such, the Company issued approximately 68,036 shares of Series F preferred stock under the ratchet provisions. In June 2011, the Series F automatically converted to 68,035,953 shares of common stock upon the increase in the Company’s authorized capital stock. As of March 31, 2012, there were no shares of Series F outstanding.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

Series G Preferred Stock

In May 2011, the Board designated Series G Preferred Stock (the “Series G”) as a new series of preferred stock consisting of 21,000 shares, par value $0.001 per share. The Series G has a liquidation preference equal to the total consideration paid for all shares issued, voting rights that are the same as common stock on an as-converted basis, and automatically convertible to common stock at a ratio of 10,000 common shares for each preferred share upon increase in the Company’s authorized capital stock. Additionally, the Board approved the sale of up to 21,000 shares of Series G at a price of $100 per share ($0.01 for each common share equivalent) convertible into 210,000,000 shares of common stock at such time the Company has the increased authorized capital. For a period of two-years following the Series G purchase, investors will have full price protection for any issuances of securities below $0.01 per share. As of December 31, 2011, the Company received $2,074,966 and issued 207,500,000 shares of common stock in lieu of issuing Series G certificates.

Series H Preferred Stock

In February 2012, the Board designated Series H Preferred Stock (“Series H”), as a new series of preferred stock consisting of 15,000 shares, par value $0.001 per share. The Series H has a liquidation preference equal to the total consideration paid for all shares issued, voting rights the same as common stock on an as-converted basis, and is automatically convertible into common stock at a ratio of 20,000 common shares for each preferred share upon an increase in the Company’s authorized capital stock. Additionally, the Board approved the sale of up to 15,000 shares of Series H at a price of $0.005 per share, which 15,000 shares would be convertible into 300 million shares of common stock at such time as we have the increased authorized amount of common stock.

In February and March 2012, we issued an aggregate 250 shares of Series H for $250,000 that converts into 50,000,000 shares of common stock along with warrants to purchase an aggregate 50,000,000 shares of common stock at an exercise price of $0.01 per share.

See Note 13, for additional information on additional proceeds received from Series H during the second quarter of 2012.

Series I Preferred Stock

In April 2012, the Board approved Series I preferred stock (“Series I”) as a new series of preferred stock. See note 13 for more information.

Series J Preferred Stock

In May 2012, the Board approved Series J preferred stock (“Series J”) as a new series of preferred stock. See note 13 for more information.

Stock Options

2008 Equity Incentive Plan

On June 23, 2008, our Board of Directors adopted the 2008 Equity Incentive Plan (the “Plan”) under which we may issue up to 8,000,000 shares of restricted stock and stock options to our directors, employees and consultants.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

The Plan is to be administered by a Committee of two or more independent directors, or in their absence by the Board. The identification of individuals entitled to receive awards, the terms of the awards, and the number of shares subject to individual awards, are determined by our Board or the Committee, in their sole discretion. The total number of shares with respect to which options or stock awards may be granted under the Plan and the purchase price per share, if applicable, shall be adjusted for any increase or decrease in the number of issued shares resulting from a recapitalization, reorganization, merger, consolidation, exchange of shares, stock dividend, stock split, reverse stock split, or other subdivision or consolidation of shares.

The Plan provides for the grant of incentive stock options (“ISOs”) as defined by the Internal Revenue Code. For any ISOs granted, the exercise price may not be less than 110% of the fair market value in the case of 10% shareholders. Options granted under the Plan shall expire no later than 10 years after the date of grant, except for ISOs granted to 10% shareholders, which must expire not later than five years from grant. The option price may be paid in United States dollars by check or other acceptable instrument including wire transfer or, at the discretion of the Board or the Committee, by delivery of our common stock having fair market value equal as of the date of exercise to the cash exercise price or a combination thereof.

Our Board or the Committee may from time to time alter, amend, suspend, or discontinue the Plan with respect to any shares as to which awards of stock rights have not been granted. However, no rights granted with respect to any awards under the Plan before the amendment or alteration shall not be impaired by any such amendment, except with the written consent of the grantee.

Under the terms of the Plan, our Board or the Committee may also grant awards, which will be subject to vesting under certain conditions. In the absence of a determination by the Board or Committee, options shall vest and be exercisable at the end of one, two and three years, except for ISOs, which are subject to a $100,000 per calendar year limit on becoming first exercisable. The vesting may be time-based or based upon meeting performance standards, or both. Recipients of restricted stock awards will realize ordinary income at the time of vesting equal to the fair market value of the shares. We will realize a corresponding compensation deduction. Upon the exercise of stock options other than ISOs, the holder will have a basis in the shares acquired equal to any amount paid on exercise plus the amount of any ordinary income recognized by the holder. For ISOs, which meet certain requirements, the exercise is not taxable upon sale of the shares, the holder will have a capital gain or loss equal to the sale proceeds minus his or her basis in the shares.

A summary of the Company’s stock option activity during the three months ended March 31, 2012 is presented below:

				Weighted Average Exercise		Weighted Average Remaining Contractual
	Quantity			Price		Term (Years)
Balance outstanding at December 31, 2011		104,763,333		$	0.025		4.00
Granted		–		$	–		–
Exercised		–		$	–		–
Forfeited (due to personnel terminations)		(9,863,326	)	$	0.022		3.53
Expired		–		$	–		–
Balance outstanding at March 31, 2012		94,900,007		$	0.025		3.78
Exercisable at March 31, 2012		62,777,792		$	0.030		3.74

There was no intrinsic value of all outstanding options for the three months ended March 31, 2012.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

Fiscal Year 2011 activity :

In January 2011, the Company entered into a verbal employment agreement with its President. He was granted a five year option to purchase 7,000,000 shares of common stock at an exercise price of $0.008 per share under the Options Media 2008 Equity Incentive Plan. There were 250,000 shares that vested immediately, and the remaining 6,750,000 shares will vest monthly (beginning March 1, 2011) over a two year period. Unvested shares are subject to continued employment on each applicable vesting date. The options were valued on the grant date at $0.008 per share or $56,000 using the Black Scholes option pricing model with the following assumptions: stock price of $0.008 (based on the grant date quoted trading price of the company's common stock), expected term of five years (using the simplified method), volatility of 230% (based on historical volatility), and a risk-free interest rate of 2.7%.

In February 2011, the Company granted its prior Chief Financial Officer 9,000,000 five year options exercisable at $0.008 per share. There were 250,000 shares that vested immediately, and the remaining 8,750,000 shares will vest monthly (beginning March 1, 2011) over a two year period. Unvested shares are subject to continued employment on each applicable vesting date. The options were valued on the grant date at $0.008 per share or $72,000 using the Black Scholes option pricing model with the following assumptions: stock price of $0.008 (based on the grant date quoted trading price of the company's common stock), expected term of five years (using the simplified method), volatility of 230% (based on historical volatility), and a risk-free interest rate of 2.7%.

In April 2011, the Company granted a total of 1,700,000 five-year non-plan stock options to four employees and one director exercisable at $0.011 per share. The options shall vest over a three year period each June 30 and December 31 with the first vesting date being June 30, 2011. Unvested shares are subject to continued service on each applicable vesting date. The options were valued on the grant date at $0.0106 per share or $18,020 using the Black Scholes option pricing model with the following assumptions: stock price of $0.011 (based on the grant date quoted trading price of the company's common stock), expected term of five years (using the simplified method), volatility of 186% (based on historical volatility), and a risk-free interest rate of 2.24%.

In April 2011, the Company agreed to issue to a consultant 500,000 stock options exercisable at $0.01 per share. The options were valued at $0.0134 per share or $6,700 using the Black Scholes option pricing model with the following assumptions: stock price of $0.01 (based on agreement date’s quoted trading price of the company's common stock), expected term of five years (using the simplified method), volatility of 175% (based on historical volatility), and a risk-free interest rate of 0.02%. The options were fully expensed.

In May 2011, the Company issued to its new Chairman of the Board 10,000,000 five year stock options, exercisable at $0.0085 per share. There were 2,500,000 shares that vested immediately, and the remaining 7,500,000 shares will vest in equal increments over a three year period each June 30 and December 31 with the first vesting date being December 31, 2011. Unvested shares are subject continued employment on each applicable vesting date. The options were valued on the grant date at $0.0074 per share or $74,000 using the Black Scholes option pricing model with the following assumptions: stock price of $0.0085 (based on the grant date quoted trading price of the company's common stock), expected term of 3.625 years (using the simplified method), volatility of 159% (based on historical volatility), and a risk-free interest rate of 1.84%.

In June 2011, the Company issued 40,000,000 five year non-qualified stock options exercisable at $0.0445 per share. There were 20,000,000 shares that vested immediately, and the remaining 20,000,000 shares will vest in equal increments over a three year period each March 31, June 30, September 30, and December 31 with the first vesting date being September 30, 2011. Unvested shares are subject to continued employment on each applicable vesting date. The options were valued on the grant date at $0.04369 per share or $1,747,600 using the Black Scholes option pricing model with the following assumptions: stock price of $0.0445 (based on the grant date quoted trading price of the company's common stock), expected term of five years (using the simplified method), volatility of 210% (based on historical volatility), and a risk-free interest rate of 1.62%.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

In July 2011, the Company granted a total of 12,350,000 five year non-plan stock options to six employees and one director exercisable at $0.05 per share. The options shall vest quarterly over a three year period with the first vesting date being September 30, 2011. Unvested shares are subject to continued service on each applicable vesting date. The options were valued on the grant date at $0.0471 per share or $582,140 using the Black Scholes option pricing model with the following assumptions: stock price of $0.05 (based on the grant date quoted trading price of the company's common stock), expected term of five years (using the simplified method), volatility of 219% (based on historical volatility), and a risk-free interest rate of 0.66%.

In July, 2011, the Company granted its Chairman and CEO a total of 22,500,000 ninety-day non-plan stock options exercisable at $0.01 per share. The options are exercisable upon demand and were to expire in October 2011. The options were valued on the grant date at $0.0087 per share or $194,917 using the Black Scholes option pricing model with the following assumptions: stock price of $0.015 (based on a blended, pro rata, price per share of two recent placements), expected term of 90 days, volatility of 254% (based on historical volatility), and a risk-free interest rate of 0.02%. These options expired prior to being exercised.

In August 2011, the Company issued to its new Chief Financial Officer 3,000,000 five year stock options, exercisable at $0.0365 per share. The options shall vest quarterly over a three year period with the first vesting date being December 31, 2011. Unvested shares are subject to continued service on each applicable vesting date. The options were valued on the grant date at $0.0352 per share or $105,491 using the Black Scholes option pricing model with the following assumptions: stock price of $0.0365 (based on the grant date quoted trading price of the company's common stock), expected term of five years (using the simplified method), volatility of 216% (based on historical volatility), and a risk-free interest rate of 0.01%.

In connection with the appointment of a director to our Board, the Company issued to such director 5,000,000 five year stock options, exercisable at $0.03 per share. 416,674 options were immediately vested on November 7, 2011 and 4,583,326 options vest in eleven equal quarterly increments of 416,666 beginning with the completion of the quarter ended March 31, 2012, subject to continued service as a director on each applicable vesting date. The options were valued on the grant date at $0.0195 per share or $97,392 using the Black Scholes option pricing model with the following assumptions: stock price of $0.02 (based on the grant date quoted trading price of the Company's common stock), expected term of five years (using the simplified method), volatility of 205% (based on historical volatility), and a risk-free interest rate of 0.88%.

In connection with another appointment of a director to our Board, the Company issued to such director 5,000,000 five year stock options, exercisable at $0.0122 per share. 416,674 options were immediately vested on December 7, 2011 and 4,583,326 options vest in eleven equal quarterly increments of 416,666 beginning with the completion of the quarter ended March 31, 2012, subject to continued service as a director on each applicable vesting date. The options were valued on the grant date at $0.0119 per share or $59,735 using the Black Scholes option pricing model with the following assumptions: stock price of $0.0122 (based on the grant date quoted trading price of the Company's common stock), expected term of five years (using the simplified method), volatility of 207% (based on historical volatility), and a risk-free interest rate of 0.36%.

On December 30, 2011, the Company repriced three option grants of 40 million, 3 million and 1.5 million from their respective strike prices of $0.0445, $0.0365 and $0.05, to $0.011. The Company will amortize the incremental aggregate option expense of $22,994 over the remaining term of the respective grant.

In the aggregate, for the three months ended March 31, 2011, the Company recorded stock-based compensation expense of $40,154, related to stock options.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

Fiscal Year 2012 activity:

In the aggregate, for the three months ended March 31, 2012, the Company recorded stock-based compensation expense of $114,538, related to stock options. At March 31, 2012, there was $1,272,448 of unrecognized compensation expense to non-vested options-based compensation, which will be expensed over the applicable term of the respective stock option grants.

Stock Warrants

In connection with the issuance of the bridge notes payable (see Note 5), in January 2012, the Company issued five-year warrants to purchase an aggregate 20,000,000 shares of common stock at $0.01 per share, valued at $70,747, which will be expensed pro rata over the three month term of the bridge notes.

In January 2012, the Company issued three-year warrants to purchase an aggregate 1,500,000 shares of common stock at $0.01 per share, valued at $17,111, which was immediately expensed.

In connection with the Series H private placement, during the first three months of 2012, the Company issued warrants to purchase an aggregate 50,000,000 shares of common stock at an exercise price of $0.005 per share.

In March 2012, in connection with the $0.005 per share conversion price of the Series H private placement, the exercise prices of almost all of the outstanding warrants to purchase common stock of the Company were reduced to $0.005 per share and the number of shares which could be purchased upon exercise of such warrants were increased in order to keep the dollar proceeds from the exercise of such warrant constant per the anti-dilution provisions contained within the respective warrants (see Note 2 for a breakdown of the warrants that were affected).

In connection with a convertible note issued in March 2012, the Company issued five-year warrants to purchase an aggregate 90,000,000 shares of common stock at $0.005 per share, valued at its relative fair value of $14,613 (see Note 5).

Listed below is the activity for the three months ended March 31, 2012

			Weighted Average Exercise		Weighted Average Remaining Contractual
	Quantity		Price		Term (Years)
Balance outstanding at December 31, 2011		258,940,747	$	0.022		2.43
Granted		161,500,000	$	0.007		4.11
Exercised		–	$	–		–
Additions due to repricing provisions		714,375,471	$	0.005		3.17
Expired		–	$	–		–
Balance outstanding at March 31, 2012		1,134,816,218	$	0.006		3.08

In December 2011, the amount of common stock on an as converted basis exceeded our authorized share amount which resulted in the Company treating the warrants as a derivative liability in the consolidated financial statements (See Note 2).

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

7. RELATED PARTY TRANSACTIONS

For the three months ended March 31, 2012, we incurred consulting expense of $60,000 pursuant to an agreement entered into in May 2011 with The Big Company, LLC (“TBC”), wherein one Board member is a partial owner and the Company’s Chairman was previously a manager. As of March 31, 2012, there was $170,000 due to TBC. Effective July 1, 2011, the Company’s Chairman resigned from that position, and this payable is included in the line item “Due to related parties” on the Company’s consolidated balance sheet as of March 31, 2012. As of December 31, 2011, there was $110,000 owed to TBC. During the year ended December 31, 2011, the Company did not accrue for or make any royalty payments to TBC (see Note 8 for the amount of the royalty percentages to be paid to TBC and what they are calculated on).

As of March 31, 2012 and December 31, 2011, the Company owed officers $45,745 and $55,726, respectively, for expenses personally advanced on behalf of the Company. These amounts were included in the line item “Due to related parties” on the Company’s consolidated balance sheet as of March 31, 2012 and December 31, 2011.

As of March 31, 2012 and December 31, 2011, we owed executive officers $252,154 and $58,333, respectively, in past due salary which is included in the line item “Accrued expenses” on the Company’s consolidated balance sheet.

8. BIEBER BRANDS AND ASSOCIATES AGREEMENTS

In May 2011, the Company entered into agreements with Justin Bieber Brands, LLC, and certain associates of Justin Bieber (collectively, the “Bieber Agreements”, and the “Bieber Group”, respectively) as well as a related agreement with a company formerly managed by the Company’s Chairman, Keith St. Clair. The Bieber Agreements provide that Justin Bieber shall act as a spokesman for PhoneGuard’s software and its potential to substantially reduce injuries and save lives from traffic accidents. Bieber has agreed to endorse PhoneGuard’s software in a number of ways, both online and in person over the term of the Bieber Agreement.

The Bieber Agreements are identical except with regard to the number of warrants and sales royalties we are obligated to issue and pay. Each agreement revolves around Justin Bieber’s endorsement of our PhoneGuard software. The key terms of the Bieber Agreements are:

●	Three year terms with Justin Bieber having the right to terminate after one year in which case the other two agreements terminate;
●	Sales royalties based upon a percent of revenues. The aggregate royalties percentage payable to Bieber Group is either: (i) 25% of annual sales of the product; or (ii) 40% on low margin sales (sales on a wholesale basis less than $10.66 per unit);
●	Pursuant to the agreements, the Company issued to the Bieber Group warrants to purchase an aggregate 121,160,749 shares of common stock at $0.01 per share or a total of 16.4% of the Company on a fully diluted basis. The warrants contain full anti-dilution protection rights on both the exercise price and quantity. Subsequent to December 31, 2011, as a result of provisions contained in the warrants protecting the holder against dilution, the exercise price of the warrants was reduced to $0.005 per share and the number shares of common stock for which the warrants could be exercised was increased to 242,321,498;
●	Pre-emptive rights for sales by the Company of equity and common stock equivalents above $0.01 per share so the Bieber Group can purchase such instruments at the same sale price to maintain their 16.4% ownership right;
●	The aggregate fair value of the warrants issued to the Bieber Group is $937,785 based on a Black-Scholes pricing model using a stock price of $0.0085 (based on the grant date quoted trading price of the Company's common stock), expected term of three years based on the contracted term, volatility of 200% (based on historical volatility), and a risk-free interest rate of 0.94%; and
●	The warrants have the right to receive any distributions, either in cash or in property, made by the Company on the prorata ownership percentage as if the warrants had been exercised.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

The Company’s Chairman, Mr. Keith St. Clair played a key role in negotiating the Bieber Agreements. As a result, effective May 2011, the Company also entered into an agreement with the Big Company (“TBC”), a company for which Mr. St. Clair was a manager of at that time. While Mr. St. Clair does not own any equity in TBC, Ervin Braun, a Board member owns a 2% equity interest in TBC. Mr. St. Clair stepped down from TBC shortly after joining the Board as the Company’s Chairman. The key terms of the TBC agreement are:

●	Term of one year to be extended as long as the Bieber Group agreements remain in effect;
●	Sales royalties based upon a percentage of the Company’s adjusted gross profit (“AGP”) after deducting activation and software costs and royalties payable to the Bieber Group. The royalties percentage payable to TBC is calculated based on one of the following scenarios: (i) 30% of AGP on direct annual sales; (ii) 15% of AGP on direct monthly sales where at least two payments have been made (otherwise no royalty shall be due); or (iii) 10% of AGP on wholesale sales;
●	TBC was granted the option to receive up to 50% of sales royalties due in shares of common stock valued at $0.01 per share with a maximum of 25,000,000 shares issuable.
●	The Company issued to TBC 18,000,000 shares of common stock, with a fair value of $153,000 based on the grant date market closing price of the stock which was $0.0085 per share;
●	The Company issued to TBC one year warrants to purchase an aggregate 37,000,000 shares of its common stock exercisable at $0.01 per share with a fair value of $215,710 based on a Black-Scholes pricing model using a stock price of $0.0085 (based on the grant date quoted trading price of the company's common stock), expected term of one year, volatility of 211% (based on historical volatility), and a risk-free interest rate of 0.19%. Subsequent to December 31, 2011, pursuant to provisions of the warrants providing anti-dilution protection to the holder, the exercise price of the warrants was reduced to $0.005 per share and the number of shares of shares of our common stock which may be purchased upon exercise of the warrants was increased to 74,000,000;
●	The Company issued to TBC one year warrants to purchase an aggregate 25,000,000 shares of its common stock exercisable at $0.02 per share; with a fair value of $122,000 based on a Black-Scholes pricing model using a stock price of $0.0085 (based on the grant date quoted trading price of the company's common stock), expected term of one year, volatility of 211% (based on historical volatility), and a risk-free interest rate of 0.19%. Subsequent to December 31, 2011, pursuant to provisions of the warrants providing anti-dilution protection to the holder, the exercise price of the warrants were reduced to $0.005 per share and the number of shares of shares of our common stock which may be purchased upon exercise of the warrants was increased to 100,000,000;
●	The Company granted to TBC similar pre-emptive rights as the Bieber Group, although not keyed to maintaining a specific percentage of the outstanding stock of the Company, and also granted TBC the same anti-dilution protection as in the warrants issued to the Bieber Group; and
●	The Company is obligated to pay TBC a consulting fee of $20,000 per month which accrues until we either raise $500,000 or enter into a factoring agreement, in which case we shall pay $10,000 per month with the balance accruing until we raise $5,000,000. The consulting fees shall reduce the amount of royalties payable to TBC on a dollar for dollar basis.

In May 2011, the Company valued a total of 183,160,749 warrants at $1,275,495 as discussed above and recorded a prepaid asset, allocated to current and non-current, and is being amortized over the 3 year term of the above mentioned agreements. As of March 31, 2012, the unamortized portion was $425,165 current and $471,225 non-current.

Due to the dilution protection provisions in the various warrant grants, the warrant values are treated as derivative liabilities in our consolidated financial statements. This results in the Company incurring non-cash gains or losses each quarter during the term of the warrants. If the price from the first to the last day of a quarter increases, then the Company will report a non-cash loss. Conversely, the Company will report a non-cash gain if the price decreases. (see Note 2).

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

9. CONCENTRATIONS

Concentration of Credit Risk

Financial Instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. Management believes the financial risks associated with these financial instruments are not material. The Company places its cash with high credit quality financial institutions. The Company maintains its cash in bank deposit accounts that, at times, may exceed federally insured limits. At March 31, 2012, the Company had no balances which exceeded the federal insured limits.

Concentration of Revenues

During the three months ended March 31, 2012, no individual customer represented more than 10% of the company’s operating revenue.

Concentration of Accounts Receivable

As of March 31, 2012, the Company had no Accounts Receivable from continuing operations.

10. SEGMENT INFORMATION

The Company operates under two business segments in continuing operations which are evaluated on a revenue and net income basis. Expenses for professional services, stock-based compensation and certain interest costs are considered corporate expenses. The direct marketing segment includes revenue and associated costs for lead generation. The operating results of businesses the Company sold in February 2011 are reported in discontinued operations. PhoneGuard, a single segment, is engaged in the sale of cellular software.

The table below presents certain financial information by business segment for the three months ended March 31, 2012:

	Direct						Segment
	Marketing			PhoneGuard			Totals			Corporate			Consolidated
Revenues	$	–		$	1,020		$	1,020		$	–		$	1,020
Interest expense	$	–		$	–		$	–		$	(100,294	)	$	(100,294	)
Depreciation and amortization	$	(11,112	)	$	–		$	(11,112	)	$	–		$	(11,112	)
Income tax expense	$	–		$	–		$	–		$	–		$	–
Net income (loss)	$	(15,025	)	$	(350,915	)	$	(365,940	)	$	(2,104,225	)	$	(2,470,165	)
Fixed assets and intangibles	$	40,609		$	20,000		$	60,609		$	–		$	60,609
Fixed assets, intangibles and goodwill additions (disposals), net	$	–		$	–		$	–		$	–		$	–
Total assets	$	66,808		$	61,942		$	128,750		$	1,353,407		$	1,482,157

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

The table below presents certain financial information by business segment for the three months ended March 31, 2011:

	Direct						Segment
	Marketing			PhoneGuard			Totals			Corporate			Consolidated
Revenues	$	317,029		$	7,731		$	324,760		$	–		$	324,760
Interest expense	$	–		$	–		$	–		$	(10,559	)	$	(10,559	)
Depreciation and amortization	$	(10,179	)	$	(135,588	)	$	(145,767	)	$	–		$	(145,767	)
Income tax expense	$	–		$	–		$	–		$	–		$	–
Net income (loss)	$	(145,845	)	$	(440,856	)	$	(586,701	)	$	(295,303	)	$	(882,004	)
Fixed assets and intangibles	$	69,172		$	2,155,477		$	2,224,649		$	–		$	2,224,649
Fixed assets, intangibles and goodwill additions (disposals), net	$	–		$	–		$	–		$	–		$	–
Total assets	$	382,463		$	2,155,477		$	2,537,940		$	28,061		$	2,566,001

11. DISCONTINUED OPERATIONS

In February 2011, the Company sold its e-mail business, databases, and its 1 Touch Marketing business for $175,000 in cash and settlement of $14,000 of accounts payable plus a percentage of all revenue generated over a 24 month period from our sales force, most of whom were hired by the purchaser and from customers on a customer list. The maximum additional payment of sales royalties is capped at $1.5 million in the first year and $1.5 million in the second year. The operating amounts associated with these product lines are reported as discontinued operations in the accompanying consolidated financial statements. The Company recorded a net gain on the asset sale of $116,218 which is presented in discontinued operations for the three months ended March 31, 2011. Our continuing operations are from our PhoneGuard subsidiary and lead generation business.

Revenues and pretax loss from discontinued operations for the three months ended March 31, 2012 and 2011, respectively, were as follows:

	Three Months Ended
	March 31		March 31
	2012		2011
Revenue	$	–	$	157,191
Net loss before income taxes	$	–	$	(79,894	)

12. COMMITMENTS AND CONTINGENCIES

Legal Matters

From time to time, the Company may be involved in litigation relating to claims arising out of its operations in the normal course of business.

On December 22, 2011, Bartle Bogle Hegarty LLC (“BBH”), filed suit alleging a breach of contract based on the Company’s failure to pay approximately $145,000 to BBH for advertising services. The Company subsequently filed a countersuit against BBH alleging the lack of performance by BBH adversely impacted the Company. As of March 31, 2012, the $145,000 was included in the line item “Accrued expenses” on the Company’s unaudited consolidated balance sheet. See Note 13 for recent developments subsequent to March 31, 2012.

To our knowledge, no legal proceedings, government actions, administrative actions, investigations, or claims currently pending against or involving the Company that, in the opinion of our management, could reasonably be expected to have material effects on the business and financial condition.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

13. SUBSEQUENT EVENTS

In April 2012, we issued 950 shares of Series H for $95,000 that converts into 19,000,000 shares of common stock and warrants to purchase an aggregate 19,000,000 shares of common stock at an exercise price of $0.01 per share.

In April 2012, the Company received the net proceeds of $114,750 from the convertible note payment. This amount was included in the line item “Other current assets” on the Company’s consolidated balance sheet as of March 31, 2012.

In connection with the $150,000 convertible note payable the Company issued in March 2012, the Company in April 2012, issued the lender 53,575,715 shares of common stock (as part of a voluntary reduction in the conversion price of previously converted securities into common stock) valued at its relative fair value of $69,241.

In April 2012, 500 shares of Series A converted into 10,000,000 shares of common stock.

On April 13, 2012, the Board designated Series I, as a new series of preferred stock consisting of 100 shares, par value $0.001 per share. On April 13, 2012, the Certificate of Designation of the Series I was filed with the Nevada Secretary of State and we issued for a nominal consideration 50 shares of Series I to each of two of its officers and directors. For so long as Series I is issued and outstanding, the holders of Series I shall vote together as a single class with the holders of our Common Stock, and the holders of any other class or series of shares entitled to vote with the Common Stock, with the holders of Series I being entitled to sixty percent (60%) of the total votes on all such matters regardless of the actual number of shares of Series I then outstanding, with the specific intent relating to a potential increase in the number of authorized shares and/or a reverse stock split . Each outstanding share of Series I will automatically convert into one share of our Common Stock upon the effectiveness of a future reverse split of the Company’s Common Stock.

In May 2012, 42.1875 shares of Series E owned by our CEO vested and were immediately converted into 5,468,723 shares of common stock.

In May 2012, the Company agreed to issue 20,000,000 shares of common stock to a law firm in connection with services rendered. The Company will immediately expense the fair value of the shares upon the future grant date. These shares have not yet been issued.

In May 2012, the Company agreed to extend the term of The Big Company’s two warrant grants by an additional two years, resulting in a new maturity date for each grant of May 10, 2014.

In May 2012, the Board designated Series J, as a new series of preferred stock consisting of 40 shares, par value $0.001 per share. The Series J has a liquidation preference equal to the total consideration paid for all shares issued, voting rights the same as common stock on an as-converted basis, and is automatically convertible into common stock at a ratio of 50,000,000 common shares for each preferred share upon an increase in the Company’s authorized capital stock. The Series J Certificate of Designation has not yet been filed with State of Nevada. The Board also approved the Company to issue convertible debt at $0.001 per share.

In May 2012, in connection with the $0.001 per share conversion price of the Board designated Series J private placement, due to anti-dilution provisions within the respective documents, the exercise prices of almost all of the outstanding warrants to purchase common stock of the Company may be reduced to $0.001 per share and the number of shares which would be purchased upon exercise of such warrants would then be increased in order to keep the dollar proceeds from the exercise of such warrant conversions constant per these anti-dilution provisions. As such, there would be warrants to purchase approximately 6 billion shares of the Company’s common stock as of May 16, 2012. Additionally, due to anti-dilution provisions within other documents, the conversion prices for some of the Company’s series of preferred stock, and the notes payable with RVH, Inc. and Cape One, would also be reduced to $0.001 per share, resulting in their potential share conversion in the aggregate, to be approximately 5 billion shares.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

MARCH 31, 2012

(UNAUDITED)

In May 2012, the Company received $50,000 in a private placement for the purchase of one share of a new Series J Convertible Preferred Stock to be created by the Company. The one share of Series J will become convertible into 50,000,000 shares of common stock once the Company increases its authorized common stock to 4,000,000,000 shares.

In May 2012, the Company entered into an agreement with BBH, wherein the Company agreed to pay $50,000 in 5 equal monthly installments of $10,000 commencing June 1, 2012 as settlement for all monies owed. Should the $50,000 not be paid, the Company acknowledged it would owe BBH the full $145,000 amount that was included in the line item “Accrued expenses” on the Company’s unaudited consolidated balance sheet. As such, the Company will record a gain on settlement of $95,000 once the $50,000 payments are completed.

On May 16, 2012, the Company was officially notified by the existing note holder of the Company’s $475,000 senior debt (RVH, Inc.), while they had fulfilled all of their obligations under the assignment agreement, that as a result of the assigning party not fulfilling all of its requirements (including payment) under the assignment agreement, that the assignment agreement had been officially withdrawn. As such, the assignment agreement that would have extended the note’s maturity date to March 30, 2013, never took effect and the existing note’s maturity date of May 21, 2012, is in force. The parties have agreed to a 10 day extension from the May 21, 2012 maturity date, in order to negotiate the terms of the note. The note holder has not waived any other defaults that may have occurred under the note and they have not waived any of their rights or remedies available to them under the note, including the reimbursement of legal fees incurred by the note holder. The Company can give no assurances as to the resolution of the note.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Company Overview

Options Media Group Holdings, Inc. (“Options Media”, or the “Company”) had historically been an Internet marketing company providing e-mail services to corporate customers. Additionally, Options Media has a lead generation business and disposed of its SMS text messaging delivery business as discussed below. In 2010, Options Media transitioned by changing its focus to smart phones and acquiring a robust anti-texting program that prohibits people in vehicles from texting, e-mailing, and reading such communications while moving. As part of its focus on mobile software applications, Options Media has also broadened its suite of products by continuing to improve the features of its anti-texting software. In conjunction with this change of focus, in February 2011, Options Media sold its e-mail and SMS businesses as described below. Options Media retained its lead generation business. The consolidated financial statements contained herein retroactively give effect to the February 2011 sale treating the e-mail and SMS businesses as discontinued operations as if it was sold on January 1, 2010. The Company’s revenues for the year ended December 31, 2011, consisted almost solely of lead generation revenue.

Our PhoneGuard anti-texting software, when active on a mobile phone, prevents the user from texting while driving thereby enabling the user to focus on the road. Our anti-texting application is designed to keep teenagers, family members, and people who drive for businesses safe while driving by disabling texting, instant messaging, calling, web browsing, and other phone-based distractions that should not be used while driving. PhoneGuard protects drivers from the dangerous temptation to use their phone while driving. PhoneGuard also provides a vehicle’s occupants personal safety with the following features: (i) a panic button; (ii) a location finder; (iii) geo fencing; and (iv) speed notifications.

In May 2011, we entered into agreements with Justin Bieber Brands, LLC and certain associates which led to Justin Bieber agreeing to act as spokesperson for PhoneGuard’s anti-texting product. During the second quarter we finalized our marketing strategy in conjunction with Mr. Bieber’s advisors. This led to Options Media offering the base anti-texting product free in order to maximize enrollment in our campaign to reduce the very damaging effects of texting, e-mailing, and talking while driving.

In this soft launch phase, management was extremely encouraged by the fact that there were approximately 15,000 unique downloads of the free product in the first two weeks of launch. At the time of the soft launch, a public safety announcement (“PSA”) video featuring Justin Bieber was broadcast via the Internet. The consumer response was extremely positive as there were more than 500,000 YouTube views of this PSA video and nearly 1,000,000 Facebook page views.

Recent Developments

We recently announced our support for the National Day of Awareness Against Texting & Driving. We will also continue to support a music festival, originally scheduled for April 2012, that has been postponed until the Fall of 2012. The music festival promotes the cause of “texting responsibly”. If our efforts supporting the concert are successful, we expect to turn more of our attentions toward future events, inclusive of additional concerts.

Acquisition of CSI Software

On July 15, 2011, we entered into an agreement with Cellular Spyware, Inc. (“Cellular” or “CSI”) and Anthony Sasso (“Sasso”), a former employee of the Company. In connection with the agreement, we purchased all of the intellectual property for the anti-texting software owned by CSI for an aggregate amount of $1,125,000. The Company had previously licensed the software and had all rights to North, Central, and South Americas. As a result of the agreement, the Company now owns all worldwide rights to the software (the “CSI Assets”). As consideration for the CSI Assets, the Company paid CSI $300,000 in cash, a $450,000 promissory note, and 25,000,000 shares of the Company’s common stock (initially subject to a Lock-Up/Leak-Out Agreement as described below) (the “Consideration Shares”), valued at $375,000 based on a blended, pro rata, price per share of two then recent private placements of our common stock.

The $450,000 note payable provided for the payment by us of 18 equal monthly installments of $25,000 beginning in August 2011. The Company made its August – October payments. However, it made a partial November 2011 payment and did not make its December 2011 payment due to insufficient cash flow. In February 2012, we amended the terms of the $450,000 note, such that the $362,500 unpaid balance at the timing of the signing of the amendment would commence in April 2012 in $25,000 monthly installments until repaid. The acquisition of the CSI Assets was treated as an asset purchase.

Our Product - Saving lives, One Text at a Time

PhoneGuard software is a next-generation, state-of-the-art mobile phone control management software suite designed to prevent texting and e-mailing while driving. The software provides personal safety features and it also offers parents and employers the ability to monitor the driving habits of mobile phone users in order to prevent speeding.

PhoneGuard software automatically turns off certain functionalities of the driver's mobile phone when the phone is in a moving vehicle. Thus, the user will no longer be able to text, e-mail, surf the web, instant message or make outgoing calls while driving. When the car is stopped for more than five seconds, however, the phone will automatically allow texting and other data functions to resume. Any missed text messages will be waiting for the user. Once the user starts driving again, the software will automatically block these activities again.

Our PhoneGuard software allows parents to control when their children can text or browse the Internet while driving in their cars. When a vehicle exceeds 10 mph the keypad locks up preventing texts, e-mails and dial out calls. If a text or e-mail is received while the keypad is in lockdown an auto reply will be sent to the sender that the recipient is driving.

In December 2011, the National Transportation Safety Board (“NTSB”) called for a nationwide ban on the use of cell phones and text messaging while driving. The NTSB said their ban would apply to hands-free as well as hand-held devices, though those installed in the vehicle by the manufacturer would still be allowed. Under the proposed ban, only the driver would be banned, as the passengers’ right to use a cell phone or text message would not be impacted. The National Traffic Highway Safety Administration (“NHTSA”) reported that there were more than 3,000 accidents last year involving distracted driving through the NHTSA believes the actual number is significantly higher. In December 2011, the NHTSA released a study that stated that at any given daylight moment, more than 13 million drivers are on hand-held phones.

PhoneGuard software is currently downloadable to BlackBerry and Android mobile phones. The Company has a version available for iPhones. However, the software’s operations are not as robust as on the other platforms due to limitations with the iPhone operating system. The software uses global positioning satellite tracking of the mobile device in order to calculate the rate of speed of travel. Above certain predetermined speeds the PhoneGuard software will lock the keyboard and touch screen preventing the user from texting or doing anything but receive incoming calls. When we refer to texting, we also refer to e-mailing, web browsing, instant messaging or making outgoing calls. PhoneGuard software also includes an advanced set of features such as Time Out Control, Speed Control, Parental Override and Request Permission.

We expect that revenue from the PhoneGuard software will be principally derived from advertising services and subscription fees via the following offerings:

●	PhoneGuard : this version is offered to the consumer free and provides standard product offerings. It is an advertising supported model.

●	PhoneGuard Premium : this version is offered to the consumer via an annual subscription cost. It is a step up from the PhoneGuard model as it provides additional functionality via a web portal that is not included within the PhoneGuard model. It is not an advertising supported model.

●

The aforementioned offerings have the following functionalities:

		PhoneGuard	PhoneGuard
	PhoneGuard	Family Pro	Enterprise
Text block: Keeps the driver and passengers safe while a vehicle is being driven by preventing the driver from surfing the web, texting, BBMing or reading e-mails	X	X	X
Custom auto-reply: Alerts the person that sends a text message while the vehicle is being driven with a customized message of why you are unavailable to answer.	X	X	X
Panic button: Immediately sends a text message with a panic message and GPS coordinates that will open a map with available administrative phone numbers to call, or 911	X	X	X
Override: Allows administrative user to enter passcode to unblock the phone for 30 minutes, even while driving or in timeout mode	X	X	X
Advertising enabled: Advertisements will occur through auto-reply texts and banners	X
Speed control: Allows administrative user to set a speed limit to help monitor how fast the vehicle is being driven.	X	X	X
Emergency call: Shows a list of administrative phone numbers to call, including 911.	X	X	X
Request permission: Sends a message from the phone to the administrative phone requesting an override to unblock the phone	X	X	X
Administration control: Allows administrative user to enter new administrative phone numbers and remove old ones	X	X	X
Speed violation alert: Sends a message from the phone to the administrative phone with alerts of excessive speed with a map link to the violation location	X	X	X
Remember passcode: Allows administrative user to remember the passcode so the phone will bypass the login for all administrative functions	X	X	X
Custom timeout auto-reply: Allows administrative user to customize timeout messages on the phone	X	X	X
Timeout: Allows administrative user to set timeout periods and custom timeout messages on the phone.	X	X	X
Geo-fencing: The administrator may set perimeters and receive alerts if the cell phone leaves the designated perimeter.	X	X	X
Web portal: Users will have access to additional functionalities offered through a web portal		X	X
Locator/Tracker: Enables the end users to locate/track their mobile phones in the event they are lost or stolen		X	X
Family/Enterprise View: Enables administrator to view the locations of all phones registered to their portal		X	X
Customizable reporting: Enterprise’s administrator will have the ability of customizing canned reports			X

Industry Information

According to CTIA – The Wireless Association, text messaging has experienced a tenfold increase in the past three years. In fact, in 2009, 457 billion text messages crossed the AT&T network alone, compared to approximately 243 billion in 2008 and 88 billion in 2007. It is becoming the way many people communicate today, but while this popular means of communication might be simple, reading or responding to text messages while driving can have serious consequences.

“Texting has increasingly become the way to communicate for many people, and the urge to quickly read and respond — even while driving — can be tempting,” said AT&T Chairman and CEO Randall Stephenson. PhoneGuard software protects drivers from the dangerous temptation to use their phone while driving. Those who text while driving are 23 times more likely to be involved in some type of safety critical event (six times greater than driving while intoxicated) as compared to those drivers who don’t text while driving, according to a study by Virginia Tech Transportation Institute.

“Distracted driving is an epidemic, particularly among teens who are confident in their ability to text while driving,” said U.S. Transportation Secretary Ray LaHood. “Of the 5,500 people killed last year due to distracted driving, the largest proportion of fatalities occurred among young people under the age of 20.”

A recent survey of mobile phone owners showed that mobile phone use and text messaging is highest among those 18-29, and text messaging is the No. 1 mobile phone use by this group. The study did not examine habits of those younger than 18, but it follows that usage for this group is also high. In the “parental” age range of 30-49, text messaging drops by more than half, and even more in the next age category.

A January 2010 Nielsen study of the phone bills of 40,000 US teenagers found that teenagers send text messages an average of 10 times per hour while they are awake -- exceeding 3,100 text message per month. Many teenagers text and drive, which has been proven to be a deadly combination. Even though the American Automobile Association is having success in passing anti-texting while driving laws across the United States, teenagers are still sending texts from behind the wheel of moving cars.

This explosion in text messaging has seen the following:

●	The National Safety Council estimates that 1.6 million crashes annually involve cell phone use with 200,000 due to text messaging.

●	A national insurance study estimates 20% of drivers text; in the 18-24 year old age group, the number is 66%.

●	At least 30 states have banned texting while driving.

●	In October 2009, President Obama issued an executive order banning texting while driving for federal employees.

●	During the 2010 NCAA Men’s College Basketball tournament, AT&T wireless acted as the official wireless carrier. It broadcast public service commercials against texting and driving.

Currently there are thirty-four (34) states along with the District of Columbia that ban text messaging for all drivers. Twelve (12) of these laws were enacted in 2010 alone. Nine (9) states along with the District of Columbia prohibit drivers from using handheld cell phones while driving. New research from the Insurance Institute for Highway Safety shows the number of accidents caused by distracted driving actually increased after these laws were passed. We believe these laws strengthen the public’s need for our anti-texting Software.

Additionally, research on distracted driving, as reported on the United States Department of Transportation’s official US Government website for distracted driving ( http://www.distraction.gov/stats-and-facts/index.html ) reveals some disturbing facts:

●	20 percent of injury crashes in 2009 involved reports of distracted driving (NHTSA).

●	Of those killed in distracted-driving-related crashed 995 involved reports of a cell phone as a distraction (18% of fatalities in distraction-related crashes) (NHTSA).

●	In 2009, 5,474 people were killed on U.S. roadways and an estimated additional 448,000 were injured in motor vehicle crashes that were reported to have involved distracted driving (FARS and GES).

●	The age group with the greatest proportion of distracted drivers was the under-20 age group – 16 percent of all drivers younger than 20 involved in fatal crashes were reported to have been distracted while driving (NHTSA).

●	Drivers who use hand-held devices are four times as likely to get into crashes serious enough to injure themselves (Source: Insurance Institute for Highway Safety).

●	Using a cell phone while driving, whether it’s hand-held or hands-free, delays a driver's reactions as much as having a blood alcohol concentration at the legal limit of .08 percent (Source: University of Utah).

Corporate Fleet Market

Even though most companies and fleets have a policy in place prohibiting employees from texting while driving, there have been a number of lawsuits against corporations who are allegedly negligent for their employees texting while driving accidents. Corporations and fleet managers are scrambling to combat this increase in liability exposure. The Company believes that its PhoneGuard software and services modify employee driving behavior, reduce crashes, and minimize corporate risk and liability.

Employers can also use the PhoneGuard software to control texting by drivers who operate commercial vehicles including trucks, taxis and school buses. Case studies show that texting is a distraction that could likely cause an accident no matter how good a driver may be. The results can range from having a commercial driver's license revoked to costing a driver or innocent bystanders their lives.

In January 2012, a new federal law went into effect that prohibits interstate commercial truck drivers and commercial bus and van drivers carrying more than eight passengers from using hand-held cell phones when driving. The law permits truck, bus and van drivers to use hands-free devices, though. Government workers are also prohibited from texting while driving government-owned vehicles. Thirty-four states and the District of Columbia have banned text messaging for all drivers.

In the more than 30 states that have laws restricting texting and e-mailing while driving, companies and public sector agencies, particularly those whose employees are required to drive as part of their job descriptions, are facing the risk of higher liability for accidents caused by the improper use of mobile devices while driving. PhoneGuard software effectively enforces texting-while-driving bans and can decrease an employer’s risk of being held vicariously responsible in civil court cases.

PhoneGuard software is also effective in reducing corporate liability for vehicular accidents caused by an employee’s improper use of a company-issued mobile phone while driving. Our corporate software provides the ability to track the position of a phone in real time and by location. For more information on our products please visit www.phoneguard.com.

Marketing of PhoneGuard Software

During 2011 and the first quarter of 2012, our senior management team focused on initiating marketing of PhoneGuard software. Although the approach is varied, time was spent seeking to penetrate three key markets – retail stores, wireless phone carriers, and insurance companies. In addition, we initiated an online approach where consumers can download PhoneGuard software and activate it directly from us.

The Company also believes that an important force in fighting texting while driving consists of insurance companies who end up paying the cost of the resulting accidents. We have been engaged in discussions with a major casualty insurance company. We are seeking to obtain its endorsement for it to give its policyholders a discount if all drivers covered under the policy have downloaded PhoneGuard software.

Other marketing opportunities we are pursuing include: (i) discussing the anti-texting portion of the PhoneGuard software with other insurance companies, both nationally and internationally; (ii) bundling the PhoneGuard software with other third party vendor applications; and (iii) expanding the geographical reach of the personal security features of the PhoneGuard software to other countries, especially third world nations that tend to have higher levels of crime.

Lead Generation

During the early part of 2011, our remaining business was from the original business model, a lead generation business. We acquired online leads from an unaffiliated third party which is a supplier of leads relating to educational matters. We employed two people who utilized these leads and supplied them to an additional third party that in turn interfaces with colleges and universities. These two employees were also responsible for soliciting new business. During the first three months of 2012, we focused substantially all of our efforts on the development and marketing of the PhoneGuard software and decreased the amount of attention we have placed our lead generation activities. As such, no revenue was derived from lead generation during the first three months of 2012.

Competition

While there are several other products on the market today that prevent texting while driving using a similar approach, we believe that the PhoneGuard software significantly leapfrogs these products through an additional advanced set of features. We expect that this competition will continue to intensify in the future as a result of industry consolidation, the maturation of the industry and low barriers to entry. We compete with a diverse and large pool of companies.

Our ability to compete depends upon several factors, including the following:

●	The timing and market acceptance of our new solutions and enhancements to existing solutions;

●	Our customer service and support efforts;

●	Our sales and marketing efforts;

●	The ease of use, performance, price and reliability of solutions provided by us; and

●	Our ability to remain price competitive.

Critical Accounting Estimates

This discussion and analysis of our consolidated financial condition presented in this section is based upon our unaudited consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our unaudited consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our unaudited consolidated financial statements and, therefore, consider these to be our critical accounting policies. On an ongoing basis, we evaluate our estimates and judgments, including those related to allowance for accounts receivable, estimates of depreciable lives and valuation of property and equipment, valuation of discounts on debt, valuation of beneficial conversion features in convertible debt, valuation of derivative liabilities, valuation and amortization periods of intangible assets, valuation of goodwill, valuation of stock based compensation and the deferred tax valuation allowance. We based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Accounting for Derivatives

The Company evaluates its convertible instruments, options, warrants, or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, Derivatives and Hedging . Under the provisions of ASC 815-40, convertible instruments and warrants, which contain terms that protect holders from declines in the stock price (“reset provisions”), are also required to be accounted for in accordance with derivative accounting treatment under ASC 815-10. Additionally, the Company evaluates whether the amount of common stock on a as converted basis is in excess of its authorized share total which, if in excess, would result in derivative accounting treatment. The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to a liability at the fair value of the instrument on the reclassification date.

Revenue Recognition

We recognize revenue when: (i) persuasive evidence exists of an arrangement with the customer reflecting the terms and conditions under which products or services will be provided; (ii) delivery has occurred or services have been provided; (iii) the fee is fixed or determinable; and (iv) collection is reasonably assured.

In accordance with ASC 605-45-05, we report revenues for transactions in which we are the primary obligor on a gross basis and revenues in which we act as an agent on and earn a fixed percentage of the sale on a net basis, net of related costs. Credits or refunds are recognized when they are determinable and estimable.

Our revenue will principally be derived from advertising services and subscription fees.

Advertising Revenue . We expect to generate advertising revenue primarily from display, audio and video advertising. The Company will generate its advertising revenue through the delivery of advertising impressions sold on a cost per thousand, or CPT, basis. In determining whether an arrangement exists, we ensure that a binding arrangement, such as an insertion order or a fully executed customer-specific agreement, is in place. We generally recognize revenue based on delivery information from its campaign trafficking systems. In addition, we will also generate referral revenue from performance-based arrangements, which may include a user or recipient of an “auto reply” performing some action such as clicking on an advertisement and signing up for a membership with that advertiser. We record revenue from these performance-based actions when it receives third-party verification reports supporting the number of actions performed in the period. We generally have audit rights to the underlying data summarized in these reports.

Subscription and Other Revenue . We will generate subscription services revenue through the sale of our PhoneGuard’s anti-texting software. For annual subscription fees, subscription revenue will be recognized on a straight-line basis over the subscription period.

We offer lead generation programs to assist a variety of businesses with customer acquisition for the products and services they are selling. We pre-screen the leads to meet its clients' exact criteria. Revenue from generating and selling leads to customers is recognized at the time of delivery and acceptance by the customer.

PhoneGuard previously sold an older version of anti-texting mobile software under a licensing agreement. Sales to distributors and retailers were recognized at the time of shipment as the software licenses has an indefinite term except if the sale is under a consignment arrangement in which case, we recognize the sale only upon the distributor reselling the software. Sales to consumers over the Internet are recognized on a pro rata basis over the term of the subscription period.

Options Media sold its e-mail business in February 2011 and receives commission from the purchaser on sales made to Options Media’s previous customers. Revenue is recorded when commission is received as there is not enough collection history to record accruals with true-ups to actual. These commissions are reported in discontinued operations. During the three months ended March 31, 2012, the Company has not received any commissions from the purchaser.

Software Costs

Stock Based Compensation

Compensation expense for all stock-based employee and director compensation awards granted is based on the grant date fair value estimated in accordance with the provisions of ASC Topic 718, Stock Compensation (“ASC Topic 718”). The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, which is generally the option vesting term. Vesting terms vary based on the individual grant terms.

The Company estimates the fair value of stock-based compensation awards on the date of grant using the Black-Scholes-Merton (“BSM”) option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and are freely transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. The BSM option pricing model considers, among other factors, the expected term of the award and the expected volatility of the Company’s stock price. Expected terms are calculated using the Simplified Method, volatility is determined based on the Company's historical stock price trends and the discount rate is based upon treasury rates with instruments of similar expected terms. Equity grants to non-employees are accounted for in accordance with the measurement and recognition criteria of ASC Topic 505-50, Equity Based Payments to Non-Employees .

Valuation of Long-Lived and Intangible Assets and Goodwill

Pursuant to ASC 350 Intangibles–Goodwill and Other , we assess the impairment of identifiable intangibles, long-lived assets and goodwill annually or whenever events or circumstances indicate that the carrying value of these assets may not be recoverable. Factors we consider include and are not limited to the following:

●	Significant changes in performance relative to expected operating results

●	Significant changes in the use of the assets or the strategy of our overall business

●	Significant industry or economic trends

As determined in accordance with the ASC, if the carrying amount of an intangible asset exceeds its estimated undiscounted future cash flows, the impairment loss is measured as the amount by which the carrying amount exceeds the fair market value of the assets.

The anti-texting software acquired from CSI is not considered to be internally developed software as the anti-texting software did not meet the provisions of the ASC Topic 350 wherein we purchased such software with the intent to market it to the public. As such, we note that treatment of the cost of the software and future product enhancements are governed by the provisions of ASC 985, Software . At the time the software purchase was finalized, we had a free version of the software released in the app markets for Android and Blackberry. Thus, we determined that it had met the provisions of ASC 985, as (i) it deemed the software to be technologically feasible; and (ii) there were no on-going research and development (“R&D”). Accordingly, we recorded the cost of the software in the line item “Intangible assets, net”.

Pursuant to the provisions of ASC 985, we will amortize the capitalized cost utilizing the straight-line method over the three-year estimated useful life of the software. Amortization commenced at the acquisition date, as a free version of the product was available to customers. Future product maintenance and customer support, for the software, will be expensed as incurred. Should the Company begin to enter a product enhancement phase, it will determine at that time if post-R&D phase costs should be capitalized.

New Accounting Pronouncements

See Note 2 to our consolidated financial statements included in this Report for discussion of recent accounting pronouncements.

Results of Operations

Three Months Ended March 31, 2012 Compared to the Three Months Ended March 31, 2011

					Period-over-Period			Period-over-Period
	2012		2011		$ Change			% Change
Revenues	$	1,020	$	324,760	$	(323,740	)		(100	)%

The decrease in revenues was due primarily to lower direct marketing revenues in 2012 compared to 2011. We have turned our attention to the PhoneGuard anti-texting software and have decreased our efforts on direct marketing.

							Period-over-Period			Period-over-Period
	2012			2011			$ Change			% Change
Cost of revenues	$	–		$	187,816		$	(187,816	)		(100	)%
Percentage of revenues		0	%		58	%

There were no costs of revenues in the three month period ended March 31, 2012. The decrease from the comparable prior year period is due to the decrease in direct marketing revenue.

							Period-over-Period			Period-over-Period
	2012			2011			$ Change			% Change
Gross profit	$	1,020		$	136,944		$	(135,924	)		(99	)%
Percentage of revenues		100	%		42	%

The decrease in gross profit was due to the aforementioned decrease in revenue and cost of revenues.

					Period-over-Period			Period-over-Period
Operating expenses:	2012		2011		$ Change			% Change
Compensation and related costs	$	686,495	$	355,927	$	330,568			93	%
Commissions		–		24,875		(24,875	)		(100	)%
Advertising		45,495		113,061		(67,566	)		(60	)%
Rent		38,368		49,290		(10,922	)		(22	)%
General and administrative		453,769		465,236		(11,467	)		(2	)%
Total operating expenses	$	1,224,127	$	1,008,389	$	215,738			21	%

Compensation and related costs include salaries, payroll related taxes, and stock-based compensation. These expenses increased by $330,568 primarily due to an increase in non-cash stock-based compensation of $290,686 from the following items: (i) the vesting of 42.1875 shares of Series E (discussed in Note 6); (ii) amortization of employee stock option grants made during the prior twelve month period; (iii) stock related grants pertaining to the Bieber Agreements and our Chairman, who played a key role in negotiating the Bieber agreements; and (iv) amortization of warrants issued to third parties that assisted in the negotiations of the Bieber Agreements.

Commissions declined $24,875 due to the aforementioned decline in revenues.

Advertising expenses decreased by $67,566 primarily due to a decrease in advertising spending in the first three months of 2012 compared to the amount spend in the comparable prior period.

Rent expense decreased $10,922 due to sublease income.

General and administrative expenses had a nominal decrease of $11,467 from the comparable prior year period.

							Period-over-Period			Period-over-Period
Other income (expense):	2012			2011			$ Change			% Change
Change in fair market value of derivative liabilities	$	(809,330	)	$	–		$	(809,330	)	NM
Loss on extinguishment of debt		(360,386	)		–			(360,386	)	NM
Interest expense		(100,294	)		(10,559	)		(89,735	)		850	%
Settlement gain		22,952			–			22,952		NM
Total other expense, net	$	(1,247,058	)	$	(10,559	)	$	(1,236,499	)		11,710	%

Change in fair market value of derivative liabilities increased $809,330. Due to the price protection provisions in outstanding warrants, the values were treated as derivative liabilities in the consolidated financial statements. Additionally, as the amount of common stock on an as converted basis exceeded our authorized share amount, the remaining warrants and convertible debt were also treated as derivative liabilities in the consolidated financial statements. This results in non-cash gains or losses each period during the term of the warrants and convertible debt. We will report a non-cash loss if our common stock price from the first to last day of a period increases. Conversely, we will report a gain if our common stock price decreases. The losses or gains may be substantial. At March 31, 2012, we had recorded a loss on the change in the fair market value of our derivative liabilities due to the increase in the number of common shares the derivative instruments convert into due to anti-dilution provisions included within the respective instruments (see Note 2), partially offset by an increase in the closing price of our common stock over the respective closing prices at the dates we valued the warrants and convertible debt issued during the year. The change in fair market value of the respective warrant and embedded conversion option liabilities, resulted in the non-cash loss of $809,330. We account for these derivative instruments under guidance of ASC Topic 815.

Loss on extinguishment of debt increased $360,386 due to an amendment made to a convertible secured note payable. The debt modification was treated as a debt extinguishment and is discussed in further detail at Note 5.

Interest expense increased $89,735 due to the Company entering into notes payable during 2011 and the first three months of 2012, see Note 5 for additional details on the various notes the Company issued.

Settlement gain increased $22,952 primarily due to the Company difference between the fair value of common stock issued as part of an agreement compared to the value proscribed to the shares within this agreement.

Income taxes: No tax benefit or expense was recorded for the three months ended March 31, 2012 and 2011.

							Period-over-Period			Period-over-Period
	2012			2011			$ Change			% Change
Loss from continuing operations	$	(2,470,165	)	$	(882,004	)	$	(1,588,161	)		(180	)%

Loss from continuing operations for the three months ended March 31, 2012, increased $1,588,161 from the loss from continuing operations for the comparable prior year period due to the aforementioned factors.

							Period-over-Period			Period-over-Period
Non-cash activity:	2012			2011			$ Change			% Change
Non-cash change in the fair market value of a warrant liability resulting from the change in the trading price of our common stock	$	(809,330	)	$	–		$	(809,330	)	NM
Loss on extinguishment of debt		(360,386	)		–			(360,386		NM
Non-cash charges from amortization of prepaid marketing expense, depreciation, and amortization of debt discount		(211,797	)		(156,615	)		(55,182	)		(35	)%
Non-cash stock compensation related to stock and stock options, vested shares of preferred stock, and warrants issued for services		(186,977	)		(45,332	)		(141,645	)		(312	)%
Voluntary ratchet of previously converted securities		(42,838	)		–			(42,838	)	NM
Settlement gain		22,952			–			22,952		NM
Total non-cash gains (charges), included in income (loss) from continuing operations	$	(1,588,376	)	$	(201,917	)	$	(1,386,459	)		(687	)%

Excluding the non-cash charges, loss from continuing operations for the three months ended March 31, 2012, was $881,789 compared to $680,087 for the comparable prior year period.

					Period-over-Period			Period-over-Period
	2012		2011		$ Change			% Change
Income from discontinued operations, net of income taxes of $0	$	–	$	36,324	$	(36,324	)		(100	)%

There was no income from discontinued operations for the three months ended March 31, 2012, as compared to the income from discontinued operations for the comparable prior year period as there was no activity related to discontinued operations in 2012. This relates to the sale of our email and postal direct marketing business.

Liquidity and Capital Resources

For the three months ended March 31, 2012, we used $283,341 in cash from continuing operations. The cash used in operating activities consisted of our net loss of $2,470,165 offset by a change in operating assets and liabilities of $597,819 and non-cash items comprised of the following (i) change in fair market value of warrant liability of $809,330; (ii); loss on extinguishment of debt of $360,386 (iii) combined stock issuances, warrant issuances and stock option compensation of $326,532; (iv) debt discount of $81,645; and (v) depreciation of $11,112.

For the three months ended March 31, 2012, we had no investing activities.

For the three months ended March 31, 2012, we were provided with $450,000 from financing activities related to: (i) proceeds from Series H preferred stock private placement of $250,000; (ii) proceeds from two bridge notes of $211,500; partially offset by financing costs associated of $11,500.

As of May 18, 2012, we had approximately $20,000 in available cash and no balance in net accounts receivable. We previously issued a convertible note of $150,000 that is due on July 2, 2012 and another note payable has an outstanding balance at March 31, 2012 of $362,500 and it requires monthly payments of $25,000 beginning April 20, 2012. To remain operational through the next 12 months, we will need to complete additional financings through issuance of equity or debt instruments in addition to improving our cash flows. Our management team is focusing on various financing alternatives. In addition to raising additional capital, our management is focused on generating sales from our PhoneGuard Software offerings in addition to reducing our discretionary expenses. Any additional financing may not be available on terms that are favorable to us, if at all. Any additional equity financing may be very dilutive to our existing shareholders. If we are unsuccessful in our efforts to raise capital initially and also increase cash flows from operations to cover our expenditures, we may not remain operational over the next 12 months.

We invest excess cash predominately in liquid marketable securities to support our growing infrastructure. We expect to spend $100,000 on additional capital expenditures for the remainder of 2012 for the development of additional software functions and to purchase equipment.

The unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the inability of Options Media to continue as a going concern. There are no assurances that Option Media will be able to achieve and sustain profitable operations or continue as a going concern.

Options Media is dependent on raising additional capital to be able to continue its operations. There can be no assurance that Options Media will be able to do so, or that it will be able to do so on acceptable terms. There can also be no assurance that Options Media will be able to achieve and sustain profitable operations or continue as a going concern.

Related Party Transactions

For information on related party transactions and their financial impact, see Note 7 to the unaudited consolidated financial statements.

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements including our liquidity and capital expenditures and expectations regarding our revenues.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the impact of intense competition, the continuation or worsening of current economic conditions and the condition of the domestic and global credit and capital markets, failure to gain market acceptance of the software from consumers and retail outlets, any unanticipated changes to the working relationship between Justin Bieber and PhoneGuard, the willingness and the ability of consumers to pay for our PhoneGuard offerings.

Further information on our risk factors is contained in our filings with the SEC, including our Form 10-K for the year ended December 31, 2011. Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures . Our management carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, required by Rule 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) of the effectiveness of our disclosure controls and procedures as defined in Rule 15d-15(e) under the Exchange Act. Based on their evaluation, our management has concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified under SEC rules and forms and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting . There were no changes in our internal control over financial reporting as defined in Rule 15d-15(f) under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There have been no material changes to any previously disclosed litigation.

ITEM 1A. RISK FACTORS

Not applicable to smaller reporting companies.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In addition to those unregistered securities previously disclosed in reports filed with the SEC, we have sold securities without registration under the Securities Act of 1933 (the “Securities Act”), as described below.

Name or Class of Investor	Date of Sale	No. of Securities	Reason for Issuance
Series A holders (1)	1/27/12 through 3/22/12	15,000,000	Conversion of 1,100 shares of Series A preferred stock
Vendors (2)	2/10/12 through 2/13/12	4,543,308	Services rendered
Series A holder (1)	3/22/12	7,473,506	Ratchet of prior conversion of Series A preferred stock and conversion of dividends into common stock
Convertible note holder (1)	3/22/12	6,067,561	Ratchet of prior conversion of debt and accrued interest into common stock
(1) The securities were issued in reliance upon the exemption provided by Section 3(a)(9) under the Securities Act.
(2) The securities were issued in reliance upon the exemption provided by Section 4(2) and Rule 506 under the Securities Act. There was no general solicitation and the investors were accredited.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

On April 27, 2012, Ervin Braun resigned from the Company’s Board of Directors.

ITEM 6. EXHIBITS

See the Exhibit Index.

SIGNATURES

Pursuant to the requirements 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.

		OPTIONS MEDIA GROUP HOLDINGS, INC.


May 21, 2012	By:	/s/ Scott Frohman
		Scott Frohman
		Chief Executive Officer (Principal Executive Officer)


May 21, 2012	By:	/s/ Jeff Yesner
		Jeff Yesner
		Chief Financial Officer (Principal Financial Officer)

Exhibit Index

					Filed or
		Incorporated by Reference			Furnished
Exhibit #	Exhibit Description	Form	Date	Number	Herewith

31.1	Certification of Principal Executive Officer (Section 302)				Filed

31.2	Certification of Principal Financial Officer (Section 302)				Filed

32.1	Certification of Principal Executive Officer and Principal Financial Officer (Section 906)				Furnished

101.INS	XBRL Instance Document **

101.SCH	XBRL Taxonomy Extension Schema Document **

101.CAL	XBRL Taxonomy Calculation Linkbase Document **

101.LAB	XBRL Taxonomy Labels Linkbase Document **

101.PRE	XBRL Taxonomy Presentation Linkbase Document **

101.DEF	XBRL Definition Linkbase Document **

Management Compensatory Plan or Arrangement.

Attached as Exhibit 101 to this report are the Company’s financial statements for the quarter ended September 30, 2011 formatted in XBRL (eXtensible Business Reporting Language). The XBRL-related information in Exhibit 101 to this report shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of those sections.

Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to: Options Media Group Holdings, Inc., 123 NW 1 3th Street, Suite 300, Boca Raton, Florida 33432, Attention: Scott Frohman.

Options Media (CE) (USOTC:OPMG)
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