opmg_10q.htm

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 June 30, 2010

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 ofincorporation 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 o 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
(Do not check if a smaller reporting company)		Smaller reporting company	þ

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 August 10, 2010
Common Stock, $0.001 par value per share		263,378,350 shares

OPTIONS MEDIA GROUP HOLDINGS, INC.

TABLE OF CONTENTS

		PAGE
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements		1
	Consolidated Balance Sheets at June 30, 2010 (Unaudited) and December 31, 2009		1
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009. (Unaudited)		2
	Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2010 and 2009 (Unaudited)		3
	Notes to Consolidated Financial Statements (Unaudited)		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		22
Item 4.	Controls and Procedures		22

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings		23
Item 1A	Risk Factors		23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		23
Item 3.	Defaults Upon Senior Securities		24
Item 4.	(Removed and Reserved)		24
Item 5.	Other Information		24
Item 6.	Exhibits		25
Signature			26

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

OPTIONS MEDIA GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30, 2010			December 31, 2009
	(Unaudited)
ASSETS
Current Assets:
Cash	$	87,166		$	1,316,067
Accounts receivable, net		418,054			371,696
Prepaid expenses		194,463			39,444
Other current assets		2,100			12,000
Total Current Assets		701,783			1,739,207

Property and equipment, net		153,951			219,516
Software, net		2,584,950			33,594
Goodwill		4,805,539			6,372,230
Intangible Assets, net		199,383			303,361
Other assets		36,422			36,421

Total assets	$	8,482,028		$	8,704,329

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank Overdraft	$	-		$	27,721
Accounts payable		441,097			788,689
Accounts payable, due to related parties		-			32,104
Accrued expenses		314,024			566,523
Notes payable, related parties, net of discount		-			287,000
Notes payable		-			60,000
Deferred revenue		30,554			21,025
Obligations under capital leases		-			976
Other current liabilities		78,830			80,369

Total Current Liabilities		864,505			1,864,407

Total liabilities	$	864,505		$	1,864,407

Commitments and contingencies (Note 9)
Stockholders' Equity:
Preferred stock; $0.001 par value, 10,000,000 shares authorized
Series A, none and 7,830 issued and outstanding at June 30, 2010 and December 31, 2009, respectively	$	-		$	8
Preferred stock; $0.001 par value Series B, none and 7,087 issued and outstanding at June 30, 2010 and December 31, 2009, respectively		-			7
Preferred stock; $0.001 par value, Series C, none issued and outstanding at June 30, 2010 and December 31, 2009, respectively		-			-
Preferred stock; $0.001 par value, Series D, 2,850,000 issued and outstanding at June 30, 2010 and none at December 31, 2009		2,850			-
Common stock; $0.001 par value, 700,000,000 shares authorized, 238,047,567 and 97,713,210 issued and outstanding, at June 30, 2010 and December 31, 2009, respectively		238,048			97,713
Additional paid-in capital		23,579,818			19,626,357
Accumulated Deficit		(16,203,193	)		(12,884,163	)
Total Stockholders' Equity		7,617,523			6,839,922

Total Liabilities and Stockholders' Equity	$	8,482,028		$	8,704,329

See accompanying unaudited notes to consolidated financial statements.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the Three Months						For the Six Months
	Ended						Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net revenues	$	1,137,869		$	2,246,125		$	2,355,867		$	4,432,371
Cost of revenues		300,299			707,044			659,576			1,361,050

Gross profit		837,570			1,539,081			1,696,291			3,071,321

Operating expenses:
Server hosting and technology services		178,513			252,799			313,521			484,789
Compensation and related cost		836,095			1,086,872			1,679,983			2,682,356
Commissions		187,272			285,947			349,032			588,082
Advertising		51,374			16,479			86,061			50,841
Bad Debt		71,906			79,103			77,606			97,561
Goodwill impairment		1,566,691			-			1,566,691			-
Rent		54,927			52,337			109,855			105,163
Other general and administrative		633,477			827,845			1,097,295			1,391,895

Total operating expenses		3,580,255			2,601,382			5,280,044			5,400,687

Income (loss) from operations		(2,742,685	)		(1,062,301	)		(3,583,753	)		(2,329,366	)
Other income (expense):
Other income		-			-			-			4,204
Settlement gain		7,029			-			267,031			-
Interest expense		(482	)		(162,803	)		(2,309	)		(302,687	)
Total other income (expense), net		6,547			(162,803	)		264,722			(298,483	)
Net income (loss)	$	(2,736,138	)	$	(1,225,104	)	$	(3,319,031	)	$	(2,627,849	)

Net Loss Per Share Basic and Diluted	$	(0.01	)	$	(0.02	)	$	(0.02	)	$	(0.04	)

Weighted Average Shares Outstanding		233,114,112			59,134,522			214,190,641			58,683,844

See accompanying unaudited notes to consolidated financial statements.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Six			For the Six
	Months Ended			Months Ended
	June 30, 2010			June 30, 2009
	(Unaudited)			(Unaudited)
Operating Activities:
Net Loss	$	(3,319,031	)	$	(2,627,849	)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Stock Granted For Services To Non-Employees		42,000			60,000
Stock Granted For Employee Settlement		––			4,500
Stock Granted For Services To Employees		29,538			66,600
Stock Options Granted For Services To Employees		295,455			369,450
Stock Options Granted For Settlement		29,200			––
Stock Granted For Settlement of Debt		268,608			––
Amortization Of Debt Discount		––			258,811
Amortization Of Prepaid Expenses		122,376			179,583
Depreciation		192,634			64,892
Impairment Of Goodwill		1,566,691			––
Amortization Of Intangibles		139,478			282,177
Bad Debt		77,606			97,561
Changes in operating assets and liabilities:
Accounts Receivable		(123,964	)		(611,151	)
Prepaid		(21,910	)		(11,587	)
Other Current Assets		9,899			(3,164	)
Accounts Payable		(347,593	)		574,997
Accrued Expenses		(252,499	)		506,670
Deferred Revenues		9,528			(2,315	)
Due To Related Parties		(32,104	)		39,519
Other Current Liabilities		(1,539	)		26,057
Net Cash Used In Operations		(1,315,627	)		(725,249	)

Investing Activities
Purchase Of Property And Equipment		(5,000	)		(2,714	)
Purchase of intangible asset		(20,000	)		––
Purchase of software		(53,425	)		––
Net Cash Used In Investing Activities		(78,425	)		(2,714	)

Financing Activities
Bank Overdraft		(27,721	)		(154	)
Proceeds from Warrants Exercises		12,465			—
Repayments of Loans		(237,100	)		—
Proceeds From Sales of Common Stock		—			53,571
Proceeds From Sales of Series B Preferred Stock		568,480			—
Proceeds From Loans		––			815,000
Financing Cost		(150,000	)		––
Principal Payments on Capital Lease Obligations		(963	)		(8,679	)

Net Cash Provided by Financing Activities		165,161			859,738

Net Increase (Decrease) In Cash		(1,228,901	)		131,775
Cash Beginning Of Period		1,316,067			122,165
Cash End Of Period	$	87,166		$	253,940

See accompanying unaudited notes to consolidated financial statements.

OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(UNAUDITED)

	For the six		For the Six
	Months Ended		Months Ended
	June 30, 2010		June 30, 2009
	(Unaudited)		(Unaudited)

Supplemental Disclosure of Cash Flow Information:

Cash Paid For Interest	$	2,309	$	11,223
Cash Paid For Taxes	$	--	$	--

Supplemental Disclosure Of Non-Cash Investing
and Financing Activities:

Refinancing Of Promising Notes	$	--	$	680,000
Common Stock issued for debt discount	$	--	$	15,000
Prepaid common stock issued for services	$	255,484	$	343,958
Common stock issued for asset acquisition	$	2,635,500	$	--
Common stock issued for conversion of convertible debt	$	109,900	$	--

See accompanying unaudited notes to consolidated financial statements.

OPTIONS MEDIA GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(UNAUDITED)

NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Description of Business

Options Media Group Holdings, Inc. (the “Company”), was incorporated in the state of Nevada on June 27, 2007. Prior to June 23, 2008, the Company was in the development stage since its formation, without material assets or activities. Upon the consummation of the June 23, 2008 business combination discussed below, the Company exited the development stage.

On June 23, 2008, the Company completed a merger with Options Acquisition Sub, Inc., a Delaware corporation (“Options”).

In connection with this merger, the Company discontinued its former business and succeeded to the business of Options as its sole line of business.

Options was originally formed in Florida on February 22, 2000, under the name Options Newsletter, Inc. and is engaged in the design of custom email delivery solutions for commercial customers. On January 4, 2008, Options Newsletter, Inc. merged with and into Options Acquisition Sub, Inc., a newly formed, wholly-owned Delaware subsidiary of Customer Acquisition Network Holdings, Inc., a Delaware company (“CAN”), with Options being the surviving corporation. Options began selling advertising space within free electronic newsletters that it published and emailed to subscribers. Options also generated leads for customers by emailing its customers’ advertisements to various email addresses from within its database. Options is also an email service provider (“ESP”) and offers customers an email delivery platform to create, send and track email campaigns. Options also manages and markets its customers’ lists and makes them available to advertisers who are trying to reach customers similar to theirs. During the years ended December 31, 2009 and 2008, the majority of Options’ revenue was derived from being an ESP, but it continues to provide email customer advertisements on a cost per lead generated basis.

On September 19, 2008, the Company completed a merger with 1 Touch Marketing, LLC (“1 Touch”). 1 Touch is an online direct marketing and data services company. 1 Touch was formed on October 23, 2003 as a Limited Liability Corporation, in the State of Florida. 1 Touch offers its products and services to traditional advertising agencies and online marketing agencies. These resellers/agencies offer the 1 Touch’s products and services to their clients as a stand-alone marketing effort or as part of a larger multi-channel marketing campaign. 1 Touch also offers its products and services to a network of list brokers. These organizations market postal lists and offer its email marketing lists. 1 Touch generates revenue from its product lines, which include email marketing campaigns, lead generation and direct mail and postal lists.

On April, 16, 2010, through its wholly owned subsidiary PhoneGuard, Inc., (“PG”), the Company entered into an asset purchase agreement and sublicense agreement with Cellular Spyware Inc. The asset acquisition gave the company title to the name PhoneGuard whereby the Company then entered the mobile and smart phone application market. PhoneGuard is the exclusive licensee for the United States and Canada of software which safeguard cells and smart phones from the ever increasing risk posed by hackers and cyber criminals. Options Media Group acquired all of the assets of PhoneGuard and became the exclusive marketer within the United States and Canada. In addition to anti-virus and anti-malware software, the Company also acquired PhoneGuard's rights to a state-of-the-art product that, when installed on a mobile device, prevents the user from texting while driving. PhoneGuard's Mobile Anti-Texting software prevents texting while driving, thereby allowing them to focus on the road. PhoneGuard's new Anti-Texting application is designed to keep teenagers and family members safe while driving by disabling texting, instant messaging, calling, Web browsing and other phone-based distractions that should not be used while sitting behind the wheel of a moving vehicle. PhoneGuard protects drivers from the dangerous temptation to use their phone while driving. (See Note 4)

Basis of Presentation

The interim condensed 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) necessary to present fairly our results of operations and cash flows for the three and six months ended June 30, 2010 and our financial position as of June 30, 2010 have been made. 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 interim financial statements.

Going Concern

As reflected in the accompanying unaudited consolidated financial statements for the three and six months ended June 30, 2010, the Company had a net loss of $3,319,031 and $1,315,627 of net cash used in operations. At June 30, 2010, the Company had a working capital deficit of $162,722. Additionally, at June 30, 2010, the Company had an accumulated deficit of $16,203,193. 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, Series B Preferred Stock (“Series B”), warrant exercises, issuance of short term debt securities and sales of advertising and data services. On July 28, 2010, the Company commenced a private placement of up to $1,100,000 of common stock at $0.01 per share. As of August 12, 2010, $240,000 has been raised from this private placement. The Company continues to aggressively manage operating expenses and the growth strategy is focused toward those product initiatives with high margins and strong cash flows.

Based on actions being taken to improve liquidity as discussed above, management believes that the Company will meet its expected needs required to continue as a going concern through June 30, 2011.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, Options, 1 Touch Marketing, LLC, Icon Term Life, Inc. and PG. All material inter-company balances and transactions have been eliminated in consolidation.

Use of Estimates

The 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 and valuation of property and equipment, valuation of discounts on debt, valuation of beneficial conversion features in convertible debt, valuation and amortization periods of intangible assets, valuation of goodwill, valuation of stock based compensation and the deferred tax valuation allowance.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Fair Value of Financial Instruments

We measure our financial assets and liabilities in accordance with generally accepted accounting principles. 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.

Effective January 1, 2008, we adopted accounting guidance (ASC 820) for financial assets and liabilities. The adoption did not have a material impact on our results of operations, financial position or liquidity. 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. 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 are 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.

On January 1, 2009, we adopted a newly issued accounting standard for fair value measurements of all nonfinancial assets and nonfinancial liabilities not recognized or disclosed at fair value in the financial statements on a recurring basis. The Company has significant nonfinancial assets for the years ended December 31, 2009 that require recognition and disclosure at fair value.

We currently measure and report at fair value our intangible assets and goodwill. The fair value of intangible assets has been determined using the present value of estimated future cash flows method. For goodwill, the Company compares the implied fair value of the reporting unit, using the market capitalization method, with the carrying amount of the goodwill. As a result of the periodic goodwill test, the Company recorded impairment in 2010. The following table summarizes our non-financial asses and liabilities measured at fair value on a non-recurring basis as of June 30, 2010:

	Balance at			Quoted Prices in			Significant other			Significant
	June 30,			Active Markets for			Observable			Unobservable
	2010			Identical Assets			Inputs			Inputs
				(Level 1)			(Level 2)			(Level 3)
Assets:
Goodwill		$	4,805,539		$	-		$	-		$	4,805,539
Intangible assets			199,383			-			-			199,383
Total financial		$	5,004,922		$	-		$	-		$	5,004,922

The following is a summary of activity for non-financial assets measured under level 3 through June 30, 2010:

Goodwill:
Balance at January 1, 2010	$	6,372,230
Goodwill Impairment		(1,566,691	)
Ending balance at June 30, 2010	$	4,805,539

Intangible assets:
Balance at January 1, 2010	$	303,361
Fiscal 2010 additions		35,500
Amortization of intangible assets		(139,478	)
Ending balance at June 30, 2010	$	199,383

Net Earnings (Loss) Per Share

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. As of June 30, 2010, there were 93,103,097 options, 6,495,665 warrants, and 316,333 shares of unvested restricted stock which may dilute future earnings per share.

OPTIONS MEDIA GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(UNAUDITED)

Segments

The Company follows ASC 280-10 for, "Disclosures about Segments of an Enterprise and Related Information." Prior to April 2010, the Company operated in one segment; therefore, segment information is presented for only three months and six months ended June 30, 2010 (See Note 8).

Recently Issued Accounting Standards

In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements”. This update provides amendments to Topic 820 that will provide more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. The adoption of ASU 2010-06 did not have a material impact on the Company’s consolidated results of operations or financial condition.

In February 2010, the FASB issued ASU 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements”. This update addresses both the interaction of the requirements of Topic 855, “Subsequent Events”, with the SEC’s reporting requirements and the intended breadth of the reissuance disclosures provision related to subsequent events (paragraph 855-10-50-4). The amendments in this update have the potential to change reporting by both private and public entities, however, the nature of the change may vary depending on facts and circumstances. The adoption of ASU 2010-09 did not have a material impact on the Company’s consolidated results of operations or financial condition.

In April 2010, the FASB issued ASU No. 2010-13, “Compensation – Stock Compensation”. This update will clarify the classification of an employee share based payment award with an exercise price denominated in the currency of a market in which the underlying security trades. This update will be effective for the first fiscal quarter beginning after December 15, 2010, with early adoption permitted. The Company does not expect the provisions of ASU 2010-13 to have a material effect on the Company’s consolidated results of operations or financial condition.

NOTE 3 – NOTES PAYABLE AND NOTES PAYABLE, RELATED PARTIES

On December 3, 2008, the Company borrowed $50,000, $80,000 and $100,000 from three related parties pursuant to Board authorized bridge loans with warrants. The Notes bear interest of 6% and becomes due in 6 months or pro rata as funds from a planned equity financing are received. The Company issued 230,000 three-year warrants with the notes exercisable at $0.75 per share. The warrants contain a cashless exercise provision. The relative fair value of the warrants was not material. On December 31, 2009, two of the note holders converted $180,000 of notes payable and accrued interest to Series A convertible preferred stock. In January 2010, the remaining $50,000 balance due to related parties was sold and converted into shares of the Company’s Common Stock and the accrued interest was paid in full. As of June 30, 2010, the Company had paid or the investors converted all notes from related party from the December 2008 borrowings.

In January 2010, $59,900 of principal of a previously issued unrelated party note was sold and converted into common stock of the Company. The $100 remaining principal balance of the unrelated party note and $1,657 of accrued interest was paid.

In January 2010, the Company repaid $237,000 due under previously issued convertible notes.

At March 31, 2010 the Company had paid all the related and unrelated party notes.

Activity for notes payable, related parties was as follows for the six months ended June 30, 2010:

Ending balance as of December 31, 2009	$	287,000
Note Conversions		(50,000)
Note Repayments		(237,000)
Balance as of June 30, 2010	$	--

Activity for notes payable, unrelated parties was as follows for the six months ended June 30, 2010:

Ending balance as of December 31, 2009	$	60,000
Note Conversions		(59,900)
Note Repayments		(100)
Balance as of June 30, 2010	$	--

NOTE 4 –ASSET ACQUISITION

In April, 2010, PG a wholly-owned subsidiary of the Company, entered into an Asset Purchase Agreement and Sublicense Agreement (the “Agreement”) with Cellular and Mr. Sasso, the majority shareholder of Cellular.

Under the Agreement, PG acquired an exclusive sublicense to distribute, sell and sublicense certain anti-virus software marketed under the name PhoneGuard (the “Software”) in the United States and Canada and a non-exclusive license to distribute, sell and sublicense the Software over the Internet. The Agreement shall remain effective for a five-year period unless PG fails to sell an increasing amount of Software each year.

In consideration for entering into the Agreement, the Company issued 2,850,000 shares of Series D Preferred Stock (the “Series D”) to Cellular. The Series D has a liquidation preference equal to $1.00 per share, is convertible into common stock at a rate of 26.315789 per share of Series D and votes on an as converted basis with the common stock. Once the Company’s authorized capital is increased to at least 700,000,000 shares, the Series D were to automatically convert into shares of the Company’s common stock. Although the Company has amended its articles to increase the authorized shares, the Series D has not converted to common stock as of June 30, 2010; however we expect that this will be accomplished in the fourth quarter. The fair value of this licensing agreement is $2,625,000 (based on contemporaneous private placement sales price of $0.035 per share) and for accounting purposes is being amortized over the estimated life of 5 years. Cellular will receive a royalty on the renewals of the Software equal to 20% of the net profit for each renewal.

In accordance with the Agreement, Mr. Sasso entered into a two-year employment agreement with PG to perform sales and marketing services. Mr. Sasso will receive a base salary of $240,000 per year and the Company issued to him 1,750 shares of Series C Preferred Stock (the “Series C”). The Series C is restricted and vesting is subject to certain performance milestones of the sales of the Software being met. Of the Series C: (i) 1,500 shares vest upon PG selling 1,000,000 units of the Software, (ii) another 200 shares vest upon PG selling 1,100,000 units of the Software and (iii) the remaining Series C vest upon PG selling 1,125,000 units of the Software. The Series C has the same liquidation rights as the shares of the Company’s common stock and each share of Series C is convertible into 100,000 shares of the Company's common stock. Once the Company’s authorized capital is increased to at least 700,000,000 shares, the holder of the Series C is entitled to convert its shares of Series C into common stock. A holder of Series C cannot exercise their shares until such time as the holder would not beneficially own, after such exercise, more than 4.99% of the outstanding shares of common stock of the Company. Additionally, a holder of Series C cannot vote any shares beneficially owned by the holder in excess of 4.99% of the outstanding shares of common stock of the Company. At June 30, 2010 none of the Series C Preferred Stock has vested. Based on recent transactions, if all the milestones are met, the fair value of these 1,750 Series C Preferred shares as determined on April 16, 2010 was 175,000,000 shares of common stock at $0.035 or $6,125,000 (based on contemporaneous private placement sales price). This amount will be expensed over time based on our periodic estimate of the probability of achieving these milestones.

OPTIONS MEDIA GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(UNAUDITED)

NOTE 5 - STOCKHOLDERS’ EQUITY

Capital Structure

The Articles of Incorporation authorized the issuance of 10,000,000 shares of preferred stock having a par value of $0.001 per share.

In April 2010, the shareholders approved to increase the authorized common shares to 700,000,000 par value $0.001 per share; in April 2010, the Company amended its Articles of Incorporation to reflect this increase.

Common stock

In January 2010, the Company issued 358,333 shares of common stock upon the exercise of 358,333 warrants and received proceeds of $12,465.

In January 2010, the Company issued 1,500,000 shares of common stock valued at $0.035 per share (based on a contemporaneous private placements sales price) or $52,500 to settle outstanding liabilities to suppliers.

In January 2010, the Company issued 1,896,800 shares of common stock valued at $0.035 per share (based on a contemporaneous private placements sales price) or $66,388 to settle outstanding liabilities for legal fees.

In January 2010, the Company issued 3,140,000 shares of common stock to convert $109,900 of convertible debt.

In January 2010, the Company issued 2,500,595 shares of common stock related to anti-dilution protection clauses.

In January 2010, the Company entered into a six month investor relations agreement and agreed to issue a total of 3,300,000 shares of common stock of which 2,004,500 immediately vested and were issued as of March, 31, 2010. The remaining balance was issued in May, 2010 and vested upon issuance. The shares were valued at $0.035 per share (based on a contemporaneous private placement sales price) or $70,158.

In January 2010, the Company entered into a one year investor relations agreement and agreed to issue 200,000 immediately vested shares of common stock. The shares were valued at $0.035 per share (based on a contemporaneous private placement sales price) or $7,000.

In March 2010, the Company issued 2,250,000 shares of common stock valued at $0.035 per share (based on a contemporaneous private placement sales price) or $78,750 to settle an outstanding liability to a supplier.

In March 2010, the Company issued 300,000 immediately vested shares of common stock at $0.035 per unit or $10,500 (based on a contemporaneous private placement sales price) related to an asset purchase.

In April 2010 the Company entered into a two month consulting services agreement and issued 1,000,000 shares of restricted common stock valued at $0.035 per share (based on contemporaneous private placement sales price) or $35,000 for the services.

In May 2010, the Company issued 1,295,500 shares of common stock valued at $0.035 per share (based on contemporaneous private placements sales price) or $45,343 for an investor relation agreement.

In May 2010, the Company issued 2,027,700 shares of common stock valued at $0.035 per share (based on a contemporaneous private placements sales price) or $70,970 to settle outstanding liabilities to suppliers. No gain or loss was recorded as the conversion price was equal to the fair market value of the common stock.

In May 2010, the Company entered into a new six month investor relations agreement and agreed to issue a total of 4,000,000 immediately vested shares of common stock. The shares were valued at $0.035 per share (based on a contemporaneous private placement sales price) or $140,000.

In June 2010, the Company issued 600,000 shares of common stock to an existing investor for no consideration effectively reducing the per share purchase price of the investors original investment in common stock. The shares we issued to an investor as an incentive to provide additional funding to the Company.

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

JUNE 30, 2010

(UNAUDITED)

Series A Convertible preferred stock

In January 2010, the Company completed a private placement of Series A. The Company issued 2,800 shares and received $8,000 gross proceeds. The Series A shares were subsequently converted into 8,000,000 shares of common stock.

In January 2010, the Company issued 22,371,429 shares of common stock for the conversion of 7,830 previously issued Series A.

Series B preferred stock

In January 2010, the Company issued 70,880,000 shares of common stock sold in connection with the conversion of 7,087 previously issued Series B.

In January 2010, the Company in a private placement sold Series B. The Company issued 1,301 shares and received $455,480 gross. In January 2010, the preferred shares automatically converted to 13,010,000 shares of common stock. The conversion formula to common stock was as follows: Series B shares (1,301) x $350/0.035= 13,010,000 common stock par value $0.001. The Company paid $150,000 in offering costs related to the Series B offering.

In February 2010, the Company completed its private placement of Series B. The Company issued 300 shares and received $105,000 net. In February 2010, the preferred shares automatically converted to 3,000,000 shares of common stock. The conversion formula was the same as the above paragraph.

Series C preferred stock

In 2010, the Company authorized the issuance of Series C in conjunction with the asset acquisition as described in Note 4. As of June 30, 2010, no Series C shares have been issued or accounted for as the contingent requirements for issuance had not yet been met.

Series D preferred stock

As a result of the Company entering into the asset acquisition as described in Note 4, the Company issued 2,850,000 shares of Series D to Cellular. The Series D has a liquidation preference equal to $1.00 per share, is convertible into common stock at a rate of 26.315789 per share of Series D (total of 75 million common shares) and votes on an as converted basis with the common stock. When the Company’s authorized capital increased to 700,000,000 shares, the Series D were to automatically convert into shares of the Company’s common stock. Although the Company has amended its articles to increase the authorized shares, the Series D has not converted to common stock as of June 30, 2010. The fair value of the preferred stock grant is $2,625,000 or $0.035 per share (based on contemporaneous private placement sales price). Based on a recent amendment to the Certificate of Designation, the Series D is convertible on or after October 20, 2010. The holder (Cellular) voluntarily exchanged the common stock for the same Series D with identical terms except for the delayed conversion.

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.

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.

On March 9, 2010, the Company granted 1,000,000 stock options to a former employee in connection with a liability settlement. The options have an exercise price of $0.035 and were valued on the grant date at $0.029 per option for a total of $29,200 using a Black-Sholes option pricing model with the following assumptions: stock price at $0.035 (based on the grant date quoted trading price of the Company’s common stock), volatility of 121% (based on historical volatility), expected term of five years, and a risk free interest rate of 2.34%.

Vesting based on the future performance of the asset agreement described in Note 4, our CEO was granted 70,000,000 five year non-Plan unvested stock options with an exercise price of $0.036 per option using a Black-Sholes option price model with the following assumptions: Stock price $0.035 per share (based on contemporaneous private placement sales price), volatility of 204% (based on recent historical volatility), expected term 5 years, and a risk free interest rate of 2.56%.

On July 28, 2010, these options were cancelled by our CEO (see Note 10).

For the six months ended June 30, 2010, the Company recorded a stock based compensation expense of $295,455. At June 30, 2010, there was approximately $496,907 of unrecognized compensation expense to non-vested options based compensation.

A summary of the Company’s stock option activity during the six months ending June 30, 2010, is presented below:

	No. of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Balance Outstanding December 31, 2009		22,865,097		$	0.27		6.6	$	––
Granted		* 71,000,000		$	0.036		3.67	$	––
Exercised		––		$	––		––	$	––
Fortified		(762,000	)	$	0.035		––	$	––
Expired		––		$	––		––	$	––
Balance Outstanding June 30, 2010		93,103,097		$	0.047		5.01	$	––
Exercisable June 30, 2010		10,519,836		$	0.10		5.01	$	––

*- See Note 10 for cancellation of 70,000,000 options

A summary of the quantity of employee common stock unvested, granted, vested and cancelled for the six months ended June 30, 2010, is presented below:

Unvested shares outstanding December 31, 2009			457,667
Shares vested in 2010			(141,334)
Unvested shares cancelled in 2010			--
Unvested shares at June 30, 2010			316,333

As of June 30, 2010, there was $85,890 of total unrecognized compensation costs related to unvested common stock.

Warrants

During 2010, the Company issued warrants pursuant to a private placement. Activity during 2010 was as follows:

	No. of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Balanced Outstanding December 31, 2009	6,520,665	$	0.038	3.16 Years
Granted	333,333	$	0.035	2.95 Years
Exercised	(358,333)	$	0.035	3.05 Years
Expired	--	$	--	--
Balance Outstanding at June 30, 2010	6,495,665	$	0.38	2.91 Years
Exercisable, June 30, 2010	6,495,665	$	0.38	2.91 Years

In April 2010, the Company authorized to reduce the exercise price to $0.035 per share of those outstanding warrants selected by the Company’s management.

NOTE 6 – 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. No amounts exceeded the federally insured limits at June 30, 2010.

Concentration of Revenues

During the six months ended June 30, 2010, one customer represented more than 10% of the subsidiary revenue. In the quarter ended June 30, 2009 we had no 10% customers.

Concentration of Accounts Receivable

As of June 30, 2010, one client accounted for 26% of the total consolidated accounts receivable. In the quarter ended June 30, 2009, we had no 10% customers.

NOTE 7 – RELATED PARTY TRANSACTIONS

On March 31, 2009, the Company terminated an officer without cause. Additionally, on May 20, 2009, the Company terminated an officer with cause. The Company recognized $250,000 severance expense. The unpaid portion of the severance payments at March 31, 2010 is $0 as the Company repaid one officer in 2009 and settled with the other officer in 2010. The terms of the 2010 settlement are as follows; the Company paid $30,000 and issued 1,000,000 five year stock options with an exercise price of $0.035, the options were valued on the grant date at $0.029 per option for a total of $29,200 using a Black-Sholes option pricing model. The Company recognized a $27,803 gain on this settlement.

During the first six months of 2010, the Company repaid $237,000 of related parties convertible promissory notes and a related party investor converted $50,000 of a convertible promissory note. (See Note 3)

NOTE 8 – SEGMENTS

The Company operates under two business segments, which are evaluated on a revenue and net income basis. Expenses for professional services, stock compensation and certain interest costs are considered corporate expenses. The direct marketing segment includes revenues and associated costs for E-Mail/CPM, SMS, Leads and ESP. PhoneGuard is the sales of anti-virus and anti-text cellular software. Prior to the acquisition of PhoneGuard in April 210, the Company operated under one business segment.

The tables below presents certain financial information by business segment for the six months and three months ended June 30, 2010.

SIX MONTHS ended June 30, 2010	Direct Marketing			PhoneGuard			Segment Totals			Corporate			Consolidated Totals
Revenue from external customers	$	2,355,503		$	364		$	2,355,867		$	—		$	2,355,867
Interest expense	$	(1,136	)	$	—		$	(1,136	)	$	(1,173	)	$	(2,309	)
Depreciation and amortization	$	(220,512	)	$	(111,601	)	$	(332,113	)	$	—		$	(332,113	)
Income tax expense	$	—		$	—		$	—		$	—		$	—
Net income (loss)	$	(2,206,074	)	$	(322,527	)	$	(2,528,601	)	$	(790,430	)	$	(3,319,031	)

Segment fixed assets, intangibles & goodwill	$	5,156,558		$