COMMON STOCK

Call Option Agreements

In connection with a May 9, 2005 settlement with Leslie Rotman regarding the value paid and the value received in a 2001 transaction the Company received a call option for 2,000,000 shares of the Company's common stock at $.001 per share. Leslie Rotman is the mother, of Gregory Rotman, President of the Company, and Richard Rotman, Vice President and Secretary of the Company. The option was assignable by the Company. During 2009 and prior years the Company assigned options to purchase 2,000,000 shares of common stock in exchange for $725,979. The proceeds from the assignments of these options were added to the paid in capital of the Company. At December 31, 2009 there were no remaining call options outstanding.

Warrants

During the year ended December 31, 2005, the Company entered into an Agreement and sold a warrant to purchase common stock ("Warrant") to an investor. The investor paid the Company $110,000 in deposits ("Deposits") for the right to acquire up to 2,000,000 shares of unregistered common stock. On June 28, 2009 the Warrant was exercised with a remaining $200,000 of consideration paid in the form of $80,000 of cash and an agreement for $120,000 for future consulting services valued at $120,000. At December 31, 2009 the unused portion of consulting services included in stock subscription receivable was $70,000. During the year ended December 31, 2010 the investor provided the balance of the consulting services.

During the second and third quarters of 2008, in connection with $1,100,000 of short term notes payable, the Company granted warrants for 1,100,000 shares of common stock exercisable at $.25 per share. All of these warrants expired during the second and third quarter of 2011.

Share-based Incentive Plans

During the years ended December 31, 2011, 2010, and 2009, the Company had three stock option plans that include both incentive and non-qualified options to be granted to certain eligible employees, non-employee directors, or consultants of the Company.

Issuance of Common Stock

During 2009 the Company had agreements with certain individual artists of a single band, the Company issued 4,826,924 shares of common stock and guaranteed the individual artists that those shares would sell for a minimum of $1,600,000. If the shares sold for less than the minimum agreed upon amount the artists would receive cash or additional shares to make up the difference. The shares and guaranteed amounts were based upon a minimum number of tour dates. A portion of the related tour was canceled after only approximately 35% of the dates were performed. Consequently, in 2009 the Company included approximately $565,000 related to the portion of the tour that was completed in the cost of revenues. The artists sold the related shares, and as a result of an unanticipated increase in the market value of the Company's stock, and the tour cancellation, received in excess of the guaranteed amounts. Consequently, the Company agreed to receive back $1,346,220 representing the amount of the original advance payment associated with the canceled portion of the tour totaling $346,876 plus $999,344 representing the amount in excess of the guaranteed payment for the tour dates performed. These transactions are reported in the 2009 statement of changes in stockholders' equity as issuance of common stock.

At December 31, 2009, there remained outstanding receivables related to this arrangement totaling approximately $421,200. In January 2010, $115,000 was collected and the balance totaling $306,200 was reclassified to prepaid royalties. As of December 31, 2011 those royalties were earned and fully recouped.

Share-based Incentive Plans

Active Plans:

2011 Plan

On February 1, 2011, the Company adopted the 2011 Non-Qualified Stock Option Plan (the "2011 Plan"), to replace the 2001 Plan discussed below, and has filed Registration Statements on Form S-8 to register 30,000,000 shares of its common stock. Under the 2011 Plan, employees and consultants may elect to receive their gross compensation in the form of options, exercisable at $.001 per share, to acquire the number of shares of the Company's common stock equal to their gross compensation divided by the fair value of the stock on the date of grant. Information with respect to stock options granted under this plan during the year ended December 31, 2011 is as follows:



	Number of shares		Weighted average exercise price per share
Options outstanding at December 31, 2010	—		$	—
Granted	12,027,653		0.037
Exercised	(9,027,653	)	0.001
Options outstanding at December 31, 2011	3,000,000		$	0.145

A summary of the awards under this plan during the year ended December 31, 2011 is as follows:



	Number of shares	Gross Compensation
	2011
Employee payroll	2,262,367	$	522,400
Consulting and professional fees	6,154,472	1,440,800
Total	8,416,839	$	1,963,200

At December 31, 2011 there were 19,047,447 shares reserved for issuance under this plan.

2002 Plan

The 2002 Stock Option Plan (“2002 Plan”) provides for the award of qualified and non-qualified options for up to 30,000,000 shares. The options granted have a ten-year contractual term and have a vesting schedule of either immediately, two years, or four years from the date of grant. Information with respect to stock options granted under this plan during the years ended December 31, 2011, 2010, and 2009 is as follows:



	Number of shares		Weighted average exercise price per share
Options outstanding at December 31, 2008	28,250,000		$	1.080
Forfeited	(3,000,000	)	0.415
Options outstanding at December 31, 2009	25,250,000		$	0.115
Granted	—		—
Exercised	(9,378,048	)	0.041
Options outstanding at December 31, 2010	15,871,952		$	0.159
Granted	3,000,000		0.145
Exercised	(5,750,000	)	0.041
Options outstanding at December 31, 2011	13,121,952		$	0.104

There are currently no shares reserved for issuance under this plan.

Option Repricing

In November 2011 the Board of Directors approved a vote to reprice 5,000,000 employee stock options. The options were originally issued on January 2008, and had an original grant price $0.415. The grant price was lowered to $0.145, which reflects the market value of the stock as of the reprice date. The repriced options continue to vest according to the original grant date. The Company recorded an additional compensation charge of $148,415 at December 31, 2011, using the Black-Scholes option pricing model with the following weighted average assumptions:



Expected term (plain-vanilla)	3 years
Expected volatility	104.12	%
Expected dividends	None
Risk free interest rate	0.01	%

The intrinsic value of options exercised during the years ended December 31, 2011 and, 2010, was $1,066,963, and $4,743,392 in exchange for $236,712, and $384,500 of cash respectively. The intrinsic value of option exercised during the year ended December 31, 2009 was $2,387,424 in exchange for no cash, since they were all exercised under the 2001 Plan.

Fair value of issuances

The fair value of the Company's option grants under the 2011, 2002 and 2001 Plans was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:



	2011		2010		2009
Expected term (based upon historical experience)	<1 week		<1 week		<1 week
Expected volatility	103.26	%	107.24	%	108.31	%
Expected dividends	None		None		None
Risk free interest rate	0.02	%	0.13	%	3.40	%

The stock volatility for each grant is determined based on a review of the experience of the weighted average of historical daily price changes of the Company's common stock over the expected option term. The expected term was determined using the simplified method for estimating expected option life, which qualify as “plain-vanilla” options; and the risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.

The fair value of options granted under all plans in 2011 was $694,179 which, assuming no forfeiture rate, resulted in $97,618, in additional compensation expense being charged to operations during 2011. The Company used the Black-Scholes option pricing model with the following weighted average assumptions:



Expected term (plain-vanilla)	5.75 years
Expected volatility	104.12	%
Expected dividends	None
Risk free interest rate	0.01	%

All but 10,500,000 options outstanding at December 31, 2011 are fully vested and exercisable. Information pertaining to options outstanding at December 31, 2011 is as follows:



Exercise Prices	Number of shares	Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
0.001	1,061,332	6.73	$	200,600
0.041	5,121,952	0.78	763,200
0.145	11,000,000	8.12	495,000
	17,183,284

2001 Plan

The 2001 Non-Qualified Stock Option Plan (the "2001 Plan") expired on January 31, 2011. The Company adopted the 2001 Plan on February 1, 2001 and filed Registration Statements on Form S-8 to register 120,000,000 shares of its common stock. Under the 2001 Plan, employees and consultants could have elected to receive their gross compensation in the form of options, exercisable at $.001 per share, to acquire the number of shares of the Company's common stock equal to their gross compensation divided by the fair value of the stock on the date of grant. Information with respect to stock options granted under this plan during the years ended December 31, 2011, 2010, and 2009 is as follows:



	Number of shares		Weighted average exercise price per share
Options outstanding at December 31, 2008	1,527,625		$	1.08
Granted	15,301,583		0.415
Exercised	(14,805,596	)	0.001
Options outstanding at December 31, 2009	2,023,612		$	0.001
Granted	8,896,821		0.001
Exercised	(8,896,821	)	0.001
Options outstanding at December 31, 2010	2,023,612		$	0.001
Granted	1,075,090		0.001
Exercised	(2,037,370	)	0.001
Options outstanding at December 31, 2011	1,061,332		$	0.001

A summary of the awards under this plan during the years ended December 31, 2011, 2010, and 2009 is as follows:



	Number of shares	Gross Compensation
	2011
Employee payroll	17,977	$	4,200
Consulting and professional fees	1,057,113	253,100
Total	1,075,090	$	257,300

	2010
Employee payroll	910,239	$	288,900
Consulting and professional fees	7,986,582	2,383,000
Total	8,896,821	$	2,671,900

	2009
Employee payroll	1,098,272	$	282,000
Consulting and professional fees	13,707,324	3,827,600
Total	14,805,596	$	4,109,600

There are currently no shares reserved for issuance under this plan.

Expired Plans

During July 1999, the Company's Board of Directors adopted the 1999 Plan (“1999 Plan”) which provided for the award of non-qualified options for up to 1,000,000 shares. The 1999 Plan expired in July 2009 as did all 37,000 options that were outstanding with an exercise price of $1.62 per share.

Also during July 1999, the Company's Board of Directors adopted, subject to stockholders' approval, the 1999 Omnibus Share Plan (the "Omnibus Plan") that provided for both incentive and non-qualified stock options, stock appreciation rights and other awards to directors, officers, and employees of the Company to purchase or receive up to 1,000,000 shares of the Company's stock. The Omnibus Plan also expired in July 2009. No options were ever granted under the Omnibus Plan.