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EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - AFTERMASTER, INC.exhibit_32-1.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934, RULES 13A-14 AND 15D-14, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - AFTERMASTER, INC.exhibit_31-2.htm
EXCEL - IDEA: XBRL DOCUMENT - AFTERMASTER, INC.Financial_Report.xls
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934, RULES 13A-14 AND 15D-14, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - AFTERMASTER, INC.exhibit_31-1.htm

U.S. SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2012
 
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 001-10196
 
STUDIO ONE MEDIA, INC.

(Exact name of Registrant as specified in its charter)
 
  DELAWARE
  23-2517953
  (State or other jurisdiction of incorporation or organization)
  (IRS Employer Identification No.)
 
7650 E. Evans Rd., Suite C
Scottsdale, Arizona  85260

(Address of principal executive offices) (Zip Code)
 
(480) 556-9303
(Registrant’s telephone number, including area code)

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.  

x Yes     o No
 
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). 

o  Yes     o  No   (Not required)

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
x
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

o Yes     x No
 
At February 14 , 2013, the number of shares outstanding of Common Stock, $0.001 par value, was 39,834,598 shares.
 

 

 
 
 
1

 



 
STUDIO ONE MEDIA, INC.
 
     
 
  INDEX
 
 
PART I - FINANCIAL INFORMATION
 
   
 PAGE NUMBER
Item 1.
Financial Statements
  3
     
 
Consolidated Balance Sheets - December 31, 2012 (unaudited) and June 30, 2012
  3
     
 
Consolidated Statements of Operations - For the three and six months ended December 31, 2012 and 2011 (unaudited)
  4
     
 
Consolidated Statements of Stockholders’ Deficit - For the year ended June 30, 2012 and the six months ended December 31, 2012 (unaudited)
  5
     
 
Consolidated Statements of Cash Flows - For the six months ended December 31, 2012 and 2011 (unaudited)
  7
     
 
Notes to Consolidated Financial Statements (unaudited)
  8
     
Item 1. Description of Business  22
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  34
     
Item 3.
Quantitative and Qualitative Disclosure About Market Risks
  36
     
Item 4T.
Controls and Procedures
  36
 
 
 
PART II - OTHER INFORMATION
 
     
Item 1.
Legal Proceedings
  37
     
Item 1A.
Risk Factors
 45
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
  45
     
Item 3.
Defaults Upon Senior Securities
  45
     
Item 4.
Submission of Matters to a Vote of Security Holders
  45
     
Item 5.
Other Information
  45
     
Item 6.
Exhibits
  46
     
 
SIGNATURES
  47
   

 
 
 
 
2

 

 
STUDIO ONE MEDIA, INC.
Consolidated Balance Sheets
 
             
 
December 31,
 
June 30,
 
    2012     2012  
 
(Unaudited)
       
ASSETS
 
             
Current Assets
           
Cash
  $ 7,352     $ 99,637  
Other Receivable
    22,635       11,870  
Other Current Assets
    50,877       96,383  
                 
Total Current Assets
    80,864       207,890  
                 
Property and Equipment, net
    443,933       445,235  
Property and Equipment, yet to be placed in service
    93,357       93,357  
                 
Intangible Assets, net
    35,131       42,499  
                 
Other Assets
               
Deposits
    93,016       93,016  
Other assets
    -       69,573  
                 
Total Other Long-term Assets
    93,016       162,589  
                 
Total Assets
  $ 746,301     $ 951,570  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
                 
Current Liabilities
               
Accounts Payable and Accrued Expenses
  $ 1,250,075     $ 1,161,989  
Lease Payable, net of current portion.
    16,042       -  
Notes Payable - Related Party
    575,000       575,000  
Notes Payable
    40,488       40,488  
Convertible Notes Payable - Related Party, net of discountof $337,445 and $335,817, respectively
    1,862,406       1,064,183  
Convertible Notes payable, net of discount of $35,918 and $-0-, respectively
    314,082       225,000  
                 
Total Current Liabilities
    4,058,093       3,066,660  
                 
Long-Term Liabilities
               
Lease Payable
    53,958       -  
Convertible related party notes payable, net of discount of $5,929 and $321,300, respectively
    1,394,071       1,328,700  
                 
Total Liabilities
    5,506,122       4,395,360  
                 
Stockholders' Deficit
               
Convertible Preferred Stock, authorized 10,000,000 shares,
               
par value $0.001; 1,220,044 and 1,220,044 issued and
               
outstanding, respectively
    1,220       1,220  
Common Stock, authorized 100,000,000 shares,
               
par value $0.001; 39,834,598 and 36,412,601 shares issued
               
and outstanding, respectively
    39,834       36,413  
Additional Paid In Capital
    34,722,781       33,696,207  
Accumulated Deficit
    (39,523,656 )     (37,177,630 )
                 
Total Stockholders' Deficit
    (4,759,821 )     (3,443,790 )
                 
Total Liabilities and Stockholders' Deficit
  $ 746,301     $ 951,570  
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
   
 
 
 
 
3

 
 
 
 
STUDIO ONE MEDIA, INC.
 
Consolidated Statements of Operations
 
   
   
For the Three Months Ended
   
For the Six Months Ended
 
   
December 31,
   
December 31,
 
   
2012
   
2011
   
2012
   
2011
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
REVENUES
                       
Session Revenues
  $ 39,807     $ 41,211     $ 48,132     $ 51,961  
Advertising Revenues
    -       20       2,000       2,016  
AfterMaster Revenues
    21,590       24,500       32,490       56,900  
Total Revenues
    61,397       65,731       82,622       110,877  
                                 
COSTS AND EXPENSES
                               
Cost of Revenues (Exclusive of Depreciation and Amortization)
    68,415       221,894       193,061       410,329  
Cost of Barter Exchanges
    -       23,500       -       23,500  
Depreciation and Amortization Expense
    53,603       120,750       81,023       231,630  
General and Administrative Expenses
    603,397       1,043,391       1,483,001       2,138,355  
                                 
Total Costs and Expenses
    725,415       1,409,535       1,757,085       2,803,814  
                                 
Loss from Operations
    (664,018 )     (1,343,804 )     (1,674,463 )     (2,692,937 )
                                 
Other Income (Expense)
                               
Interest Expense
    (340,395 )     (338,045 )     (671,563 )     (581,419 )
Gain (Loss) on Extinguishment of Debt
    -       (122 )     -       191  
                                 
Total Other Income (Expense)
    (340,395 )     (338,167 )     (671,563 )     (581,228 )
                                 
Loss Before Income Taxes
    (1,004,413 )     (1,681,971 )     (2,346,026 )     (3,274,165 )
Income Tax Expense
    -       -       -       -  
                                 
NET LOSS
  $ (1,004,413 )   $ (1,681,971 )   $ (2,346,026 )   $ (3,274,165 )
                                 
Preferred Stock Accretion and Dividends
    (17,016 )     (42,435 )     (34,032 )     (356,039 )
                                 
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
  $ (1,021,429 )   $ (1,724,406 )   $ (2,380,058 )   $ (3,630,204 )
                                 
Basic and Diluted Loss Per Share of Common Stock
  $ (0.03 )   $ (0.05 )   $ (0.06 )   $ (0.11 )
                                 
Weighted Average Number of Shares Outstanding
    38,200,199       32,954,355       38,214,428       32,603,089  
                                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
   
 
 
 
 
 
4

 
 
 
STUDIO ONE MEDIA, INC.
 
Consolidated Statements of Stockholders' Equity (Deficit)
 
   
   
               
Additional
         
Total
 
   
Preferred Stock
   
Common Stock
   
Paid In
   
Accumulated
   
Stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Equity
 
Balance, June 30, 2011
    1,636,044     $ 1,636       30,916,182     $ 30,916     $ 30,748,186     $ (29,672,287 )   $ 1,108,451  
                                                         
Common Stock issued as dividend on preferred stock
    -       -       45,550       46       23,026       (23,072 )     -  
                                                         
Common Stock issued in conversion of preferred stock
    (416,000     (416     832,000       832       (416 )     -       -  
                                                         
Common Stock issued for cash, net of offering costs of $45,098
    -       -       925,600       926       435,943       -       436,869  
                                                         
Common Stock  issued in conversion of debt and extinguishment of liabilities
    -       -       505,856       506       268,781       -       269,287  
                                                         
Share-based compensation - Common Stock
    -       -       1,642,078       1,642       732,303       -       733,945  
                                                         
Share-based compensation - warrants and options
    -       -       -       -       11,707       -       11,707  
                                                         
Warrants and Common Stock  issued in advance of services
    -       -       775,103       775       460,515       -       461,290  
                                                         
Warrants and Common Stock  issued for interest expense
    -       -       770,232       770       374,425       -       375,195  
                                                         
Beneficial conversion feature on issuance of convertible debt
    -       -       -       -       388,443       -       388,443  
                                                         
Warrants issued in connection to issuance of convertible debt
    -       -       -       -       253,294       -       253,294  
                                                         
Net loss for the year ended
                                                       
June 30, 2012
    -       -       -       -       -       (7,482,271 )     (7,482,271
                                                         
Balance, June 30, 2012
    1,220,044     $ 1,220       36,412,601     $ 36,413     $ 33,696,207     $ (37,177,630 )   $ (3,443,790 )
                                                         
Common Stock Sold for Cash, net of offering costs of $3,300
    -       -       450,800       451       106,249       -       106,700  
                                                         
Share-Based Compensation - Common shares
    -       -       1,839,453       1,838       476,642       -       478,480  
                                                         
Share-Based Compensation - Warrants and options
    -       -       -       -       6,912       -       6,912  
                                                         
Shares Issued for Conversion of Debt and Interest
    -       -       40,625       41       10,211       -       10,252  
                                                         
Warrants issued in advance of services
    -       -       -       -       37,840       -       37,840  
                                                         
Warrants and common shares issued for interest expense
    -       -       1,006,119       1,006       275,262       -       276,268  
                                                         
Beneficial Conversion Feature
    -       -       85,000       85       108,279       -       108,364  
                                                         
Debt discount on extension of debt
    -       -       -       -       5,179       -       5,179  
                                                         
Net loss for the six months ended December 31, 2012
    -       -       -       -       -       (2,346,026 )     (2,346,026
                                                         
Balance, December 31, 2012
    1,220,044     $ 1,220       39,834,598     $ 39,834     $ 34,722,781     $ (39,523,656 )   $ (4,759,821 )
                                                         
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
 
 
 
 
5

 
 
 
STUDIO ONE MEDIA, INC.
Consolidated Statements of Cash Flows
 
             
   
For the Six Months Ended
 
   
December 31,
       
   
2012
   
2011
 
   
(Unaudited)
   
(Unaudited)
 
OPERATING ACTIVITIES
           
             
Net Loss
  $ (2,346,026 )   $ (3,274,165 )
Adjustments to reconcile to cash from operating activities:
               
Depreciation and amortization
    81,023       231,630  
Share-based compensation - Common Stock
    478,480       358,859  
Share-based compensation - warrants
    10,089       7,706  
Common Stock and warrants issued for interest
    276,268       142,922  
Amortization of debt discount and issuance costs
    386,040       371,451  
(Gain)/Loss on extinguishment of debt
    2,002       (191 )
Changes in Operating Assets and Liabilities:
               
Other receivables
    (10,765 )     (2,091 )
Other assets
    152,919       288,907  
Lease payable
    70,000          
Accounts payable and accrued expenses
    88,338       181,782  
                 
Net Cash Used in Operating Activities
    (811,632 )     (1,693,190 )
                 
INVESTING ACTIVITIES
               
                 
Purchase of property and equipment
    (72,353 )     (91,142 )
                 
Net Cash Used in Investing Activities
    (72,353 )     (91,142 )
                 
FINANCING ACTIVITIES
               
                 
Common Stock issued for cash, net of offering costs of $3,300 and $41,296, respectively
    106,700       371,664  
Proceeds from notes payable - related party
    600,000       375,000  
Proceeds from convertible notes payable - related party
    -       900,000  
Proceeds from convertible notes payable
    -       250,000  
Repayments of convertible notes payable
    85,000       (25,000 )
                 
Net Cash Provided by Financing Activities
    791,700       1,871,664  
                 
NET DECREASE IN CASH
    (92,285 )     87,332  
CASH AT BEGINNING OF PERIOD
    99,637       250,478  
                 
CASH AT END OF PERIOD
  $ 7,352     $ 337,810  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
               
                 
NON CASH FINANCING ACTIVITIES:
               
Common Stock issued to extinguish debt and liabilities
  $ 37,840     $ 266,812  
Common Stock and warrants issued for prepaid services
    10,252       408,790  
Warrants and beneficial conversion feature on issuance of convertible debt
    108,364       478,165  
Common stock issued as dividend on preferred stock
    -       2,296  
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
   
 
 

 
 
 
6

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and June 30, 2012

NOTE 1 – UNAUDITED INTERIM FINANCIAL INFORMATION

The accompanying financial statements have been prepared by the Company without an audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at December 31, 2012, and for all periods presented herein, have been made.
 
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2012 audited financial statements.  The results of operations for the periods ended December 31, 2012 and 2011 are not necessarily indicative of the operating results for the full years.
 
NOTE 2 – GOING CONCERN
 
The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred losses since inception of $39,523,656 and currently has revenues which are insufficient to covering its operating costs which raises substantial doubt about its ability to continue as a going concern. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern.
 
The future of the Company as an operating business will depend on its ability to (1) obtain sufficient capital contributions and/or financing as may be required to sustain its operations and (2) to achieve adequate revenues from its MyStudio and AfterMaster businesses. Management's plan to address these issues includes, (a) continued exercise of tight cost controls to conserve cash, (b) obtaining additional financing, and (c) place in service additional personal recording kiosks.
 
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
 
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates are made in relation to the allowance for doubtful accounts and the fair value of certain financial instruments.  Actual results could differ from those estimates.
 
Principles of Consolidation
The consolidated financial statements include the accounts of Studio One Media, Inc. and its subsidiaries. All significant inter-company accounts and transactions have been eliminated.
 
Fair Value Instruments
Cash is the Company’s only financial asset or liability required to be recognized at fair value and is measured using quoted prices for active markets for identical assets (Level 1 fair value hierarchy).  The carrying amounts reported in the balance sheets for notes receivable and accounts payable and accrued expenses approximate their fair market value based on the short-term maturity of these instruments.
 
The fair value of the Company’s notes payable at December 31, 2012 is approximately $4,565,488 (carrying value of $4,186,047).  Market prices are not available for the Company’s loans due to related parties or its other notes payable, nor are market prices of similar loans available.  The Company determined that the fair value of the notes payable approximated its amortized cost basis due to the short term nature and current borrowing terms available to the Company for these instruments.
 
Income Taxes
There is no income tax provision for the six months ended December 31, 2012 and 2011 due to net operating losses for which there is no benefit currently available.
 
At December 31, 2012, the Company had deferred tax assets associated with state and federal net operating losses. The Company has recorded a corresponding full valuation allowance as it is more likely than not that some portion of all of the deferred tax assets will not be realized.

 
 
 
7

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and June 30, 2012

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
 
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements issued since the last audit of our consolidated financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s consolidated financial statements.
 
NOTE 4 – NOTES PAYABLE

Convertible Notes Payable – Related Parties
           
   
December 31,
   
June 30,
 
   
2012
   
2012
 
   
(Unaudited)
       
$250,000 face value, issued in February 2010, interest rate of 12%, matures in February 2013, net of unamortized discount of $12,320 and $137,774 at December 31, 2012 and June 30, 2012, respectively.
  $ 237,680     $ 195,710  
                 
$250,000 face value, issued in May 2010, interest rate of 12%, matures in May 2013, net of unamortized discount of $28,286 and $153,741 at December 31, 2012 and June 30, 2012, respectively.
    221,714       179,744  
                 
$250,000 face value, issued in August 2010, interest rate of 12%, matures in August 2013, net of unamortized discount of $73,368 and $222,848 at December 31, 2012 and June 30, 2012, respectively.
    176,632       127,180  
                 
$250,000 face value, issued in December 2010, interest rate of 12%, matures in December 2013, net of unamortized discount of $81,434 and $206,888 at December 31, 2012 and June 30, 2012, respectively.
    168,566       126,596  
                 
$250,000 face value, issued in November 2011, interest rate of 15%, matures in November 2012, net of unamortized discount of $0 and $49,285 as of December 31, 2012 and June 30, 2012, respectively.
    250,000       200,715  
                 
$250,000 face value, issued in December 2011, interest rate of 15%, matures in June 2013, net of unamortized discount of $12,735 and $63,955 as of December 31, 2012 and June 30, 2012, respectively.
    237,265       186,045  
                 
$100,000 face value, issued in December 2011, interest rate of 15%, matures in June 2013, net of unamortized discount of $29,037 and $26,851 as of December 31, 2012 and June 30, 2012, respectively.
    70,963       73,149  
                 
$300,000 face value, issued in December 2011, interest rate of 15%, matures in June 2013, net of unamortized discount of $35,296 and $71,180 as of December 31, 2012 and June 30, 2012, respectively.
    264,704       228,820  
                 
$100,000 face value, issued in February 2012, interest rate of 15%, matures in August 2013, net of unamortized discount of $7,389 and $13,713 as of December 31, 2012 and June 30, 2012, respectively.
    92,611       86,287  
                 
$100,000 face value, issued in February 2012, interest rate of 15%, matures in August 2013, net of unamortized discount of $7,344 and $13,272 as of December 31, 2012 and June 30, 2012, respectively.
    92,656       86,728  
 
 
 
8

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and June 30, 2012
 
NOTE 4 – NOTES PAYABLE - continued
 
$150,000 face value, issued in March 2012, interest rate of 15%, matures in September 2013, net of unamortized discount of $4,251 and $7,443 as of December 31, 2012 and June 30, 2012, respectively.
    145,749       142,557  
                 
$200,000 face value, issued in March 2012, interest rate of 15%, matures in September 2013, net of unamortized discount of $6,021 and $10,927 as of December 31, 2012 and June 30, 2012, respectively.
    193,979       189,703  
                 
$200,000 face value, issued in April 2012, interest rate of 10%, matures in October 2013, net of unamortized discount of $6,518 and $10,652 as of December 31, 2012 and June 30, 2012, respectively.
    193,482       189,348  
                 
$150,000 face value, issued in May 2012, interest rate of 10%, matures in November 2013, net of unamortized discount of $4,099 and $6,557 as of December 31, 2012 and June 30, 2012, respectively.
    145,901       143,443  
                 
$125,000 face value, issued in June 2012, interest rate of 10%, matures in December 2013, net of unamortized discount of $4,069 and $6,277 as of December 31, 2012 and June 30, 2012, respectively.
    120,931       118,723  
                 
$125,000 face value, issued in June 2012, interest rate of 10%, matures in December 2013, net of unamortized discount of $4,517 and $6,865 as of December 31, 2012 and June 30, 2012, respectively.
    120,483       118,135  
                 
$50,000 face value, issued in August 2012, interest rate of 10%, matures in February 2014, net of unamortized discount of $1,515 as of December 31, 2012.
    48,485       -  
                 
$50,000 face value, issued in September 2012, interest rate of 10%, matures in March 2014, net of unamortized discount of $2,320 as of December 31, 2012.
    47,680       -  
                 
$100,000 face value, issued in October 2012, interest rate of 10%, matures in April 2014, net of unamortized discount of $4,435 as of December 31, 2012.
    95,565       -  
                 
$100,000 face value, issued in October 2012, interest rate of 10%, matures in April 2014, net of unamortized discount of $4,590 as of December 31, 2012.
    95,410       -  
                 
$50,000 face value, issued in October 2012, interest rate of 10%, matures in April 2014, net of unamortized discount of $1,914 as of December 31, 2012.
    48,086       -  
                 
$75,000 face value, issued in November 2012, interest rate of 10%, matures in May 2014, net of unamortized discount of $2,834 as of December 31, 2012.
    72,166       -  
                 
$25,000 face value, issued in November 2012, interest rate of 10%, matures in May 2014, net of unamortized discount of $1,801 as of December 31, 2012.
    23,199       -  
                 
$50,000 face value, issued in November 2012, interest rate of 10%, matures in May 2014, net of unamortized discount of $3,643 as of December 31, 2012.
    46,357       -  
                 
 
 
 
9

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and June 30, 2012
 
NOTE 4 – NOTES PAYABLE - continued
 
$50,000 face value, issued in December 2012, interest rate of 10%, matures in June 2014, net of unamortized discount of $3,783 as of June 2014.
    46,213       -  
                 
Total convertible notes payable – related parties
    3,256,477       2,392,883  
                 
Less current portion
    1,862,406       1,064,183  
                 
Convertible notes payable – related parties, long-term
  $ 1,394,071     $ 1,328,700  
 
Convertible Notes Payable – Related Parties
           
   
December 31,
   
June 30,
 
   
2012
   
2012
 
   
(Unaudited)
       
$250,000 face value, issued in February 2010, interest rate of 12%, matures in February 2013, net of unamortized discount of $12,320 and $137,774 at December 31, 2012 and June 30, 2012, respectively.
  $ 237,680     $ 195,710  
                 
$250,000 face value, issued in May 2010, interest rate of 12%, matures in May 2013, net of unamortized discount of $28,286 and $153,741 at December 31, 2012 and June 30, 2012, respectively.
    221,714       179,744  
                 
$250,000 face value, issued in August 2010, interest rate of 12%, matures in August 2013, net of unamortized discount of $73,368 and $222,848 at December 31, 2012 and June 30, 2012, respectively.
    176,632       127,180  
                 
$250,000 face value, issued in December 2010, interest rate of 12%, matures in December 2013, net of unamortized discount of $81,434 and $206,888 at December 31, 2012 and June 30, 2012, respectively.
    168,566       126,596  
                 
$250,000 face value, issued in November 2011, interest rate of 15%, matures in November 2012, net of unamortized discount of $0 and $49,285 as of December 31, 2012 and June 30, 2012, respectively.
    250,000       200,715  
                 
$250,000 face value, issued in December 2011, interest rate of 15%, matures in June 2013, net of unamortized discount of $12,735 and $63,955 as of December 31, 2012 and June 30, 2012, respectively.
    237,265       186,045  
                 
$100,000 face value, issued in December 2011, interest rate of 15%, matures in June 2013, net of unamortized discount of $29,037 and $26,851 as of December 31, 2012 and June 30, 2012, respectively.
    70,963       73,149  
                 
$300,000 face value, issued in December 2011, interest rate of 15%, matures in June 2013, net of unamortized discount of $35,296 and $71,180 as of December 31, 2012 and June 30, 2012, respectively.
    264,704       228,820  
                 
$100,000 face value, issued in February 2012, interest rate of 15%, matures in August 2013, net of unamortized discount of $7,389 and $13,713 as of December 31, 2012 and June 30, 2012, respectively.
    92,611       86,287  
                 
$100,000 face value, issued in February 2012, interest rate of 15%, matures in August 2013, net of unamortized discount of $7,344 and $13,272 as of December 31, 2012 and June 30, 2012, respectively.
    92,656       86,728  
                 
$150,000 face value, issued in March 2012, interest rate of 15%, matures in September 2013, net of unamortized discount of $4,251 and $7,443 as of December 31, 2012 and June 30, 2012, respectively.
    145,749       142,557  
                 
$200,000 face value, issued in March 2012, interest rate of 15%, matures in September 2013, net of unamortized discount of $6,021 and $10,927 as of December 31, 2012 and June 30, 2012, respectively.
    193,979       189,703  
                 
$200,000 face value, issued in April 2012, interest rate of 10%, matures in October 2013, net of unamortized discount of $6,518 and $10,652 as of December 31, 2012 and June 30, 2012, respectively.
    193,482       189,348  
                 
 
 
 
10

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and June 30, 2012
 
NOTE 4 – NOTES PAYABLE - continued
 
$150,000 face value, issued in May 2012, interest rate of 10%, matures in November 2013, net of unamortized discount of $4,099 and $6,557 as of December 31, 2012 and June 30, 2012, respectively.
    145,901       143,443  
                 
$125,000 face value, issued in June 2012, interest rate of 10%, matures in December 2013, net of unamortized discount of $4,069 and $6,277 as of December 31, 2012 and June 30, 2012, respectively.
    120,931       118,723  
                 
$125,000 face value, issued in June 2012, interest rate of 10%, matures in December 2013, net of unamortized discount of $4,517 and $6,865 as of December 31, 2012 and June 30, 2012, respectively.
    120,483       118,135  
                 
$50,000 face value, issued in August 2012, interest rate of 10%, matures in February 2014, net of unamortized discount of $1,515 as of December 31, 2012.
    48,485       -  
                 
$50,000 face value, issued in September 2012, interest rate of 10%, matures in March 2014, net of unamortized discount of $2,320 as of December 31, 2012.
    47,680       -  
                 
$100,000 face value, issued in October 2012, interest rate of 10%, matures in April 2014, net of unamortized discount of $4,435 as of December 31, 2012.
    95,565       -  
                 
$100,000 face value, issued in October 2012, interest rate of 10%, matures in April 2014, net of unamortized discount of $4,590 as of December 31, 2012.
    95,410       -  
                 
$50,000 face value, issued in October 2012, interest rate of 10%, matures in April 2014, net of unamortized discount of $1,914 as of December 31, 2012.
    48,086       -  
                 
$75,000 face value, issued in November 2012, interest rate of 10%, matures in May 2014, net of unamortized discount of $2,834 as of December 31, 2012.
    72,166       -  
                 
$25,000 face value, issued in November 2012, interest rate of 10%, matures in May 2014, net of unamortized discount of $1,801 as of December 31, 2012.
    23,199       -  
                 
$50,000 face value, issued in November 2012, interest rate of 10%, matures in May 2014, net of unamortized discount of $3,643 as of December 31, 2012.
    46,357       -  
                 
$50,000 face value, issued in December 2012, interest rate of 10%, matures in June 2014, net of unamortized discount of $3,783 as of June 2014.
    46,213       -  
                 
Total convertible notes payable – related parties
    3,256,477       2,392,883  
                 
Less current portion
    1,862,406       1,064,183  
                 
Convertible notes payable – related parties, long-term
  $ 1,394,071     $ 1,328,700  

On November 3, 2011, the Company issued a convertible note to a related party for $250,000 that matures one year after issuance. The note bears an interest rate of 15% per annum and is convertible, along with all accrued interest, into shares of the Company’s Common Stock at $0.40 per share. This note includes the following priority repayment provisions: 1) the Company agrees to apply 50% of the first $600,000 of capital raised by the Company in the near term toward all outstanding notes the lender has outstanding with the Company; 2) the Company agrees to apply the first $825,000 of proceeds raised beyond the $600,000 to any outstanding notes the lender has outstanding with the Company; and 3) if the Company is unable to raise additional capital but a large marketing or sales agreement is entered into which provide for revenue in excess of $50,000, all funds received above $50,000 shall be applied to any notes the lender has outstanding with the Company at the time. As of the date of the filing of this report, this note is in default.
 
In conjunction with the note, the Company issued detachable warrants to purchase 60,000 shares of the Company’s Common Stock. The warrant has an exercise price of $0.40 per share and a contractual life of 5 years from the issuance date. The value of BCF recorded was $118,455 and the debt discount related to the attached warrants was $24,705, for a total debt discount of $143,160.

 
 
 
11

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and June 30, 2012

NOTE 4 – NOTES PAYABLE - continued
 
On December 2, 2011, the Company issued a convertible note to a related party for $250,000 that matures in June 2013. The note bears an interest rate of 15% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share. In the event the Company enters into a revenue sharing agreement as specified in the note, the holder, at its option, may accelerate payment of the note up to 50% of the gross revenues received by the Company under the revenue sharing agreement.
 
In conjunction with the note, the Company issued detachable warrants to purchase 112,500 shares of the Company’s Common Stock. The warrant has an exercise price of $0.50 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $61,998 and the debt discount related to the attached warrants was $41,998, for a total debt discount of $103,996.
 
On December 15, 2011, the Company issued a convertible note to a related party for $100,000 that matures in June 2013. The note bears an interest rate of 15% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share. In the event the Company enters into a revenue sharing agreement as specified in the note, the holder, at its option, may accelerate payment of the note up to 50% of the gross revenues received by the Company under the revenue sharing agreement.
 
In conjunction with the note, the Company issued detachable warrants to purchase 50,000 shares of the Company’s Common Stock. The warrant has an exercise price of $0.50 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $24,020 and the debt discount related to the attached warrants was $18,020, for a total debt discount of $40,040.
 
On December 30, 2011, the Company issued a convertible note to a related party for $300,000 that matures in June 2013. The note bears an interest rate of 15% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share. In the event the Company enters into a revenue sharing agreement as specified in the note, the holder, at its option, may accelerate payment of the note up to 50% of the gross revenues received by the Company under the revenue sharing agreement.
 
In conjunction with the note, the Company issued detachable warrants to purchase 150,000 shares of the Company’s Common Stock. The warrant has an exercise price of $0.50 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $54,934 and the debt discount related to the attached warrants was $51,934, for a total debt discount of $106,868.
 
On February 3, 2012, the Company issued a convertible note to a related party for $100,000 that matures in August 2013. The note bears an interest rate of 15% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share. In the event the Company enters into a revenue sharing agreement as specified in the note, the holder, at its option, may accelerate payment of the note up to 50% of the gross revenues received by the Company under the revenue sharing agreement.
 
In conjunction with the note, the Company issued detachable warrants to purchase 25,000 shares of the Company’s Common Stock. The warrant has an exercise price of $0.40 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $9,400 and the debt discount related to the attached warrants was $9,400, for a total debt discount of $18,800.
 
On February 16, 2012, the Company issued a convertible note to a related party for $100,000 that matures in August 2013. The note bears an interest rate of 15% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share. In the event the Company enters into a revenue sharing agreement as specified in the note, the holder, at its option, may accelerate payment of the note up to 50% of the gross revenues received by the Company under the revenue sharing agreement.
 
In conjunction with the note, the Company issued detachable warrants to purchase 25,000 shares of the Company’s Common Stock. The warrant has an exercise price of $0.40 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $8,310 and the debt discount related to the attached warrants was $9,310, for a total debt discount of $17,620.
 
On March 2, 2012, the Company issued a convertible note to a related party for $150,000 that matures in September 2013. The note bears an interest rate of 15% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share. In the event the Company enters into arevenue sharing agreement as specified in the note, the holder, at its option, may accelerate payment of the note up to 50% of the gross revenues received by the Company under the revenue sharing agreement.

 
 
 
12

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and June 30, 2012

NOTE 4 – NOTES PAYABLE - continued
 
In conjunction with the note, the Company issued detachable warrants to purchase 37,500 shares of the Company’s Common Stock. The warrant has an exercise price of $0.40 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $-0- and the debt discount related to the attached warrants was $9,525, for a total debt discount of $9,525.
 
On March 16, 2012, the Company issued a convertible note to a related party for $200,000 that matures in September 2013. The note bears an interest rate of 15% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share. In the event the Company enters into a revenue sharing agreement as specified in the note, the holder, at its option, may accelerate payment of the note up to 50% of the gross revenues received by the Company under the revenue sharing agreement.
 
In conjunction with the note, the Company issued detachable warrants to purchase 50,000 shares of the Company’s Common Stock. The warrant has an exercise price of $0.40 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $-0- and the debt discount related to the attached warrants was $12,761, for a total debt discount of $12,761.
 
On April 17, 2012, the Company issued a convertible note to a related party for $200,000 that matures in October 2013. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share.
 
In conjunction with the note, the Company issued detachable warrants to purchase 25,000 shares of the Company’s Common Stock. The warrant has an exercise price of $0.40 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $-0- and the debt discount related to the attached warrants was $12,315, for a total debt discount of $12,315.
 
On May 3, 2012, the Company issued a convertible note to a related party for $150,000 that matures in November 2013. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share.
 
In conjunction with the note, the Company issued detachable warrants to purchase 25,000 shares of the Company’s Common Stock. The warrant has an exercise price of $0.40 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $-0- and the debt discount related to the attached warrants was $7,331, for a total debt discount of $7,331.
 
On June 5, 2012, the Company issued a convertible note to a related party for $125,000 that matures in December 2013. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share.
 
In conjunction with the note, the Company issued detachable warrants to purchase 25,000 shares of the Company’s Common Stock. The warrant has an exercise price of $0.40 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $-0- and the debt discount related to the attached warrants was $6,577, for a total debt discount of $6,577.
 
On June 20, 2012, the Company issued a convertible note to a related party for $125,000 that matures in December 2013. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share.
 
In conjunction with the note, the Company issued detachable warrants to purchase 25,000 shares of the Company’s Common Stock. The warrant has an exercise price of $0.40 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $-0- and the debt discount related to the attached warrants was $6,993, for a total debt discount of $6,993.
 
On August 9, 2012, the Company issued a convertible note to a related party for $50,000 that matures in February 9, 2014. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share.
 
In conjunction with the note, the Company issued detachable warrants to purchase 50,000 shares of the Company’s Common Stock. The warrant has an exercise price of $0.25 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $2,356 and the debt discount related to the attached warrants was $2,356, for a total debt discount of $4,712.
 
On September 10, 2012, the Company issued a convertible note to a related party for $50,000 that matures in March 10, 2014. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share.
 
In conjunction with the note, the Company issued detachable warrants to purchase 50,000 shares of the Company’s Common Stock. The warrant has an exercise price of $0.25 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $17,060 and the debt discount related to the attached warrants was $3,505, for a total debt discount of $20,120.

 
 
 
13

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and June 30, 2012

NOTE 4 – NOTES PAYABLE - continued 
 
On October 10, 2012, the Company issued a convertible note to a related party for $100,000 that matures in April 10, 2014. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share.
 
In conjunction with the note, the Company issued detachable warrants to purchase 25,000 shares of the Company’s Common Stock. The warrant has an exercise price of $0.40 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $-0- and the debt discount related to the attached warrants was $5,126, for a total debt discount of $5,126.
 
On October 17, 2012, the Company issued a convertible note to a related party for $100,000 that matures in April 17, 2014. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share.
 
In conjunction with the note, the Company issued detachable warrants to purchase 25,000 shares of the Company’s Common Stock. The warrant has an exercise price of $0.40 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $-0- and the debt discount related to the attached warrants was $5,236, for a total debt discount of $5,236.
 
On October 25, 2012, the Company issued a convertible note to a related party for $50,000 that matures in April 25, 2014. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share.
 
In conjunction with the note, the Company issued detachable warrants to purchase 12,500 shares of the Company’s Common Stock. The warrant has an exercise price of $0.40 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $-0- and the debt discount related to the attached warrants was $2,181, for a total debt discount of $2,181.
 
On November 13, 2012, the Company issued a convertible note to a related party for $75,000 that matures in May 13, 2014. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share.
 
In conjunction with the note, the Company issued detachable warrants to purchase 18,750 shares of the Company’s Common Stock. The warrant has an exercise price of $0.40 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $-0- and the debt discount related to the attached warrants was $3,107, for a total debt discount of $3,107.
 
On November 23, 2012, the Company issued a convertible note to a related party for $25,000 that matures in May 23, 2014. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share.
 
In conjunction with the note, the Company issued detachable warrants to purchase 6,250 shares of the Company’s Common Stock. The warrant has an exercise price of $0.40 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $-0- and the debt discount related to the attached warrants was $1,936, for a total debt discount of $1,936.
 
On November 28, 2012, the Company issued a convertible note to a related party for $50,000 that matures in May 28, 2014. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share.
 
In conjunction with the note, the Company issued detachable warrants to purchase 12,500 shares of the Company’s Common Stock. The warrant has an exercise price of $0.40 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $-0- and the debt discount related to the attached warrants was $3,877, for a total debt discount of $3,877.
 
On December 17, 2012, the Company issued a convertible note to a related party for $50,000 that matures in June 17, 2014. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, after 180 days into shares of the Company’s Common Stock at $0.50 per share.
 
In conjunction with the note, the Company issued detachable warrants to purchase 12,500 shares of the Company’s Common Stock. The warrant has an exercise price of $0.40 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $-0- and the debt discount related to the attached warrants was $3,886, for a total debt discount of $3,886.
 



 
 
 
14

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and June 30, 2012

NOTE 4 – NOTES PAYABLE - continued

On September 29, 2011, the Company issued a convertible note for $100,000 with an original maturity date 90 days after issuance. All or any amount of the principal amount of the note together with the accrued interest may be converted into shares of the Company’s Common Stock at a conversion price of $0.50 per share. In lieu of interest payments during the 90 day term, the Company issued to the holder a warrant to purchase 50,000 shares of the Company’s Common Stock. The warrant has an exercise price of $0.50 per share and a contractual life of 5 years from the issuance date. At the option of the Company, the due date of this note could be extended for three consecutive thirty-day periods. In lieu of interest during the extension periods, the Company was required to grant the holder 16,667 five year warrants with a $0.50 exercise price. The value of the BCF recorded was $57,845 and the debt discount relate to the attached warrants was $21,844, for a total debt discount of $79,689. As of the date of the filing of this report, this note is in default.
 
Prior to December 29, 2011, the Company elected to extend the maturity date of the note in accordance with the extension provisions which extended the due date to March 28, 2012. On April 1, 2012, the Company negotiated an extension on the note to July 28, 2012. On September 29, 2012, the Company negotiated an extension on the note to May 1, 2013. In accordance with ASC 470-50, the Company performed an analysis of the note extension to determine if the note was substantially modified and therefore requires debt extinguishment accounting, or if the due date extension is to be accounted for as modification. The Company determined that there is less than a 10 percent difference between the present value of the future cash flows associated with the modified note and the original note. Thus the Company has recorded the modification as a debt modification.
 
On October 13, 2011, the Company issued a convertible note for $10,000 that matures 90 days after issuance. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, into shares of the Company’s Common Stock at $0.50 per share. The maturity date of the note can be extended, at the option of the holder, for two consecutive 30 day periods in exchange for a warrant equal to 20% of the initial amount of the note issued with a strike price of $0.50 per share for 5 years. As additional compensation, the Company issued to the holder a warrant to purchase 5,000 shares of the Company’s Common Stock. The warrant has an exercise price of $0.50 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $3,970 and the debt discount related to the attached warrants was $1,970, for a total debt discount of $5,940. As of the date of the filing of this report, this note is in default.
 
On April 1, 2012, the note holder agreed to extend the maturity date of the note to June 30, 2012. The Company evaluated amendment under ASC 470, “Debt - Modification and Extinguishment”, and concluded that the extension did not result in significant and consequential changes to the economic substance of the debt and thus resulted in a modification of the debt and not extinguishment of the debt. As of the date of the filing of this report, this note is in default.
 
On October 13, 2011, the Company issued a convertible note for $15,000 that matures 90 days after issuance. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, into shares of the Company’s Common Stock at $0.50 per share. The maturity date of the note can be extended, at the option of the holder, for two consecutive 30 day periods in exchange for a warrant equal to 20% of the initial amount of the note issued with a strike price of $0.50 per share for 5 years. As additional compensation, the Company issued to the holder a warrant to purchase 7,500 shares of the Company’s Common Stock. The warrant has an exercise price of $0.50 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $5,956 and the debt discount related to the attached warrants was $2,956, for a total debt discount of $8,912. As of the date of the filing of this report, this note is in default.
 
On April 1, 2012, the note holder agreed to extend the maturity date of the note to June 30, 2012. The Company evaluated amendment under ASC 470, “Debt - Modification and Extinguishment”, and concluded that the extension did not result in significant and consequential changes to the economic substance of the debt and thus resulted in a modification of the debt and not extinguishment of the debt. As of the date of the filing of this report, this note is in default.
 
On December 9, 2011, the Company issued a convertible note to an unrelated individual for $15,000 that matures 90 days after issuance. The note bears an interest rate of 12% per annum and is convertible, along with all accrued interest, into shares of the Company’s Common Stock at $0.50 per share. The maturity date of the note can be extended, at the option of the holder, for a single 90 day period. As additional compensation, the Company issued to the holder a warrant to purchase 7,500 shares of the Company’s Common Stock. The warrant has an exercise price of $0.50 per share and a contractual life of five (5) years from the issuance date. The value of the beneficial conversion feature recorded was $2,003 and the debt discount relate to the attached warrants was $1,703, for a total debt discount of $3,706. As of the date of the filing of this report, this note is in default.
 
On February 29, 2012, the note holder agreed to extend the maturity date of the note to May 29, 2012. The Company evaluated amendment under ASC 470, “Debt - Modification and Extinguishment”, and concluded that the extension did not result in significant and consequential changes to the economic substance of the debt and thus resulted in a modification of the debt and not extinguishment of the debt. As of the date of the filing of this report, this note is in default.
 

 
 
 
15

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and June 30, 2012

NOTE 4 – NOTES PAYABLE - continued
 
On December 14, 2011, the Company issued a convertible note for $10,000 that matures 90 days after issuance. The note bears an interest rate of 12% per annum and is convertible, along with all accrued interest, into shares of the Company’s Common Stock at $0.50 per share. The maturity date of the note can be extended, at the option of the holder, for a single 90 day period. As additional compensation, the Company issued to the holder a warrant to purchase 5,000 shares of the Company’s Common Stock. The warrant has an exercise price of $0.50 per share and a contractual life of 5 years from the issuance date. The value of the BCF recorded was $1,222 and the debt discount related to the attached warrants was $1,122, for a total debt discount of $2,344. As of the date of the filing of this report, this note is in default.
 
On March 15, 2012, the note holder agreed to extend the maturity date of the note to June 13, 2012. The Company evaluated amendment under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension did not result in significant and consequential changes to the economic substance of the debt and thus resulted in a modification of the debt and not extinguishment of the debt. As of the date of the filing of this report, this note is in default.
 
On January 6, 2012, the Company issued a convertible note for $75,000 that matures 90 days after issuance. In lieu of interest payments during the 90 day term, the Company issued to the holder a warrant to purchase 37,500 shares of the Company’s Common Stock. The warrant has an exercise price of $0.50 per share and a contractual life of 5 years from the issuance date. At the option of the Company, the due date of this note may be extended for three consecutive thirty-day periods by issuing a warrant to purchase 12,500 shares of the Company’s Common Stock. The warrant will have an exercise price of $0.50 per share and a contractual life of 5 years from the issuance date. The value of the warrants issued was $15,477 and has been capitalized as prepaid interest expense to be amortized over the 90 day life of the note. As of the date of the filing of this report, this note is in default.
 
On October 1, 2012, the note holder agreed to extend the maturity date of the note to June 30, 2013 The Company evaluated amendment under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension did not result in significant and consequential changes to the economic substance of the debt and thus resulted in a modification of the debt and not extinguishment of the debt.
 
On August 16, 2012, the Company issued a convertible note to an unrelated individual for $10,000 that matures 30 days after issuance. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, into shares of the Company’s Common Stock at $0.50 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period.
 
As additional compensation, the Company issued to the holder 10,000 shares of restricted Common Stock. The note holder elected to convert the note and accrued interest on November 14, 2012.   The value of the debt discount relate to the attached common stock was $2,063.
 
On August 21, 2012, the Company issued a convertible note to an unrelated individual for $50,000 that matures six months after issuance. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, into shares of the Company’s Common Stock at $0.25 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period.
 
As additional compensation, the Company issued to the holder 50,000 shares of restricted Common Stock. The value of the debt discount related to the attached Common Stock was $10,000.
 
On September 4, 2012, the Company issued a convertible note to an unrelated individual for $15,000 that matures six months after issuance. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, into shares of the Company’s Common Stock at $0.25 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period.
 
As additional compensation, the Company issued to the holder 15,000 shares of restricted Common Stock. The value of debt discount relate to the attached common stock was $3,889.
 
On September 4, 2012, the Company issued a convertible note to an unrelated individual for $10,000 that matures six months after issuance. The note bears an interest rate of 10% per annum and is convertible, along with all accrued interest, into shares of the Company’s Common Stock at $0.25 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period.
 
As additional compensation, the Company issued to the holder 10,000 shares of restricted common stock. The value of the debt discount relate to the attached Common Stock was $2,481.
 
On November 28, 2012, the Company issued a convertible note to an unrelated individual for $50,000 that matures a year after issuance. The note bears an interest rate of 0% for the first 90 days and 10% after 90 days per annum and is convertible, along with all accrued interest, into shares of the Company’s Common Stock at the lesser of $0.18 per share or 60% of the lowest trade price in the 25 trading days previous to conversion. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period. The value of the BCF recorded was $33,333.

 
 
 
16

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and June 30, 2012
 
NOTE 4 – NOTES PAYABLE - continued
 
Non-Convertible Notes Payable – Related Parties
           
             
 
December 31,
 
June 30,
 
 
2012
 
2011
 
 
(Unaudited)
       
Face value of $200,000, issued in April 2011, original maturity date of August 2011 extended to June 2013, 30,000 warrants per month were granted in lieu of interest through June 2011, warrants increased to 50,000 shares per month through August 2011, from September until maturity, the note bears interest at 12%.
  $ 200,000     $ 200,000  
                 
Face value of $250,000, issued in September 2011, matures in September 2012, 25,000 warrants per month issued for first 90 days, note bears interest at 15% from December 2011 through maturity.
    250,000       250,000  
                 
Face value of $125,000, issued in October 2011, matures in October 2012, 30,000 warrants issued in lieu of interest through December 2011, note bears interest at 15% from December 2011 through maturity.
    125,000       125,000  
                 
Total non-convertible notes payable – related parties
    575,000       575,000  
                 
Less current portion
    575,000       575,000  
                 
Non-convertible notes payable - related parties, long term
  $ -     $ -  
 
In April 2011, the Company executed a $200,000 note payable with a related party that matured 90 days following the date of the note. This note includes the following priority repayment provisions: 1) the Company agrees to apply 50% of the first $600,000 of capital raised by the Company in the near term toward all outstanding notes the lender has outstanding with the Company; 2) the Company agrees to apply the first $200,000 of proceeds raised beyond the $600,000 to any outstanding notes the lender has outstanding with the Company; and 3) if the Company is unable to raise additional capital but a large marketing or sales agreement is entered into which provide for revenue in excess of $50,000, all funds received above $50,000 shall be applied to any notes the lender has outstanding with the Company at the time. As of the date of the filing of this report, this note is in default.
 
The note provides for no interest but required the Company to issue to the lender, for each thirty day period of the original term, a warrant to purchase 30,000 shares of the Company’s common stock at a price of $0.60 per share over a contractual life of five years. The Company may also elect, at its option, to extend the maturity date for two 30-day periods upon notice of such election to the lender and the issuance of a warrant to purchase up to 50,000 shares of the Company’s Common Stock at a price of $0.60 per share with a contractual life of 5 years for each such extension. The note is not convertible and no warrant was issued in connection with the issuance of the note so there is no beneficial conversion feature value or debt discount applicable to the origination of the note.
 
On June 30, 2011 and July 30, 2011, the Company exercised its options on the above notes to extend the maturity dates, each time for 30 days, pursuant to the provision contained in the original financing agreement. Upon final maturity of the note payable at August 29, 2011, the Company and lender agreed to amend the original financing agreement in which the maturity date was extended to June 30, 2012 with an interest rate of 12% per annum. The lender could choose to have the accrued interest outstanding on the note be repaid in shares of the Company’s common stock in lieu of cash. For each instance where such election was made, the number of shares of the Company’s common stock to be issued was to be calculated at a discount based on seventy-five percent (75%) of the average of the closing prices of the Company’s Common Stock as reported by Bloomberg, L.P., or other independent reporting services acceptable to the lender and the Company for 10 trading days prior to the date such payment was due.
 
The Company evaluated the above amendment to extend the maturity date from August 29, 2011 to June 30, 2012 under the guidance of ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that such extension of the maturity date of the note did not result in a 10% or more change in the present value of the cash flow, and thus did not result in an extinguishment of the note.

 
 
 
17

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and June 30, 2012

NOTE 4 – NOTES PAYABLE - continued
 
On June 30, 2012, the note holder agreed to extend the maturity date of the note to June 30, 2013. No consideration was paid to extend the maturity date.
 
On September 2011, the Company entered into a one-year note payable for $250,000 with a related party. The note provided for 0% interest per annum for the first 90 days. In lieu of interest for the first 90 days, the Company granted the lender a warrant to purchase 25,000 shares of Company’s Common Stock at an exercise price of $0.40 for a contractual period of 5 years for each 30 days or portion thereof the note remains outstanding. If the note remained outstanding beyond the first 90 days, the note provided for an interest rate of 15% per annum. This note includes the following priority repayment provisions: 1) the Company agrees to apply 50% of the first $600,000 of capital raised by the Company in the near term toward all outstanding notes the lender has outstanding with the Company; 2) the Company agrees to apply the first $450,000 of proceeds raised beyond the $600,000 to any outstanding notes the lender has outstanding with the Company; and 3) if the Company is unable to raise additional capital but a large marketing or sales agreement is entered into which provide for revenue in excess of $50,000, all funds received above $50,000 shall be applied to any notes the lender has outstanding with the Company at the time.
 
The Company was also required to provide to the lender or its representative online access, for viewing purposes only, to the accounting and financial data maintained by the Company. Online access shall be terminated once the loan and other funds advanced by the lender to the Company, including any accrued interest, have been fully paid.
 
Further, per the terms of the agreement, if the note was not fully repaid by October 31, 2011, which was subsequently extended to November 15, 2011, and the Company had not deployed and made operational certain designated studios, the Company would be obligated to issue to the lender a warrant to purchase 25,000 shares of the Company’s Common Stock at an exercise price of $0.40 per share with a contractual life of 5 years. Such warrant was issued in accordance with the terms of the note.
 
On October 1, 2012, the note holder agreed to extend the maturity date of the note to June 30, 2013. No consideration was paid to extend the maturity date.
 
In October 2011, the Company entered into a one-year note payable for $125,000 with a related party. The note provided for 0% interest per annum for the first 45 days. In lieu of interest for the first 45 days, the Company granted the lender a warrant to purchase 30,000 shares of Company’s Common Stock at an exercise price of $0.40 for a contractual period of 5 years. Effective December 1, 2011, the note bears interest of 15% per annum until paid.
 
This note includes the following priority repayment provisions: 1) the Company agrees to apply 50% of the first $600,000 of capital raised by the Company in the near term toward all outstanding notes the lender has outstanding with the Company; 2) the Company agrees to apply the first $575,000 of proceeds raised beyond the $600,000 to any outstanding notes the lender has outstanding with the Company; and 3) if the Company is unable to raise additional capital but a large marketing or sales agreement is entered into which provide for revenue in excess of $50,000, all funds received above $50,000 shall be applied to any notes the lender has outstanding with the Company at the time.
 
Non-Convertible Notes Payable – Non-Related Parties
           
 
December 31,
 
June 30,
 
 
2012
 
2012
 
 
(Unaudited)
       
Various term notes with total face value of $40,488 due upon demand, interest rates range from 12% to 14%.
  $ 40,488     $ 40,488  
Total non-convertible note payable – non-related parties
    40,488       40,488  
Less current portion
    40,488       40,488  
Non-convertible notes payable – non-related parties, long-term
  $ -     $ -  
 
NOTE 5 – CONVERTIBLE PREFERRED STOCK
 
The Company has authorized 10,000,000 shares of $0.001 par value per share Preferred Stock, of which 1,220,044 were issued and outstanding as of December 31, 2012 and June 30, 2012.
 
NOTE 6 – COMMON STOCK
 
The Company has authorized 100,000,000 shares of $0.001 par value per share Common Stock, of which 39,775,601 and 33,570,770 were issued outstanding as of December 31, 2012 and 2011, respectively.  The activity surrounding the issuances of the Common Stock is as follows: 
 

 
 
 
18

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and June 30, 2012

NOTE 6 – COMMON STOCK - continued
 
For the Six months Ended December 31, 2012
The Company issued 450,800 common shares for net cash proceeds of $106,700.  The Company paid as offering costs $3,300 in cash offering costs. Offering costs have been recorded as reductions to additional paid-in capital from common stock proceeds. Attached to the Common Shares, the Company issued 430,000 warrants to purchase shares of the Company’s Common Stock. The Company recognized $9,180 in employee stock option expense and for the amortization of warrants issued in prior periods.
 
As share-based compensation to employees and non-employees, the Company issued 1,839,453 shares of common stock valued at $478,480, based on the market price of the stock on the date of issuance.   As interest expense on outstanding notes payable, the Company issued 1,006,119 shares of common stock valued at $307,106 based on the market price on the date of issuance.
 
For the Six months Ended December 31, 2011
The Company issued 635,335 shares of Common Stock for net cash proceeds of $371,664. The Company paid $41,266 in cash offering costs. Offering costs have been recorded as reductions to additional paid-in capital from Common Stock proceeds.
 
The Company issued 625,103 shares of Common Stock valued at $371,664 to non-employees in advance of services. The shares of common stock were valued based on the quoted market price on the date of issuance. The Company also issued 500,856 shares of Common Stock to convert $100,000 in convertible notes payable and $167,003 in accrued liabilities. The difference between the fair market value of the stock on the date of conversion of the accrued liabilities resulted in a gain on conversion of these liabilities of $191. An additional 136,000 shares of Common Stock were issued to convert 66,000 shares of Convertible Preferred Stock and accrued dividends of $2,296.
 
As share-based compensation to employees and non-employees, the Company issued 585,626 shares of Common Stock valued at $358,859, based on the market price of the stock on the date of issuance. As interest expense on outstanding notes payable, the Company issued 171,668 shares of Common Stock valued at $142,922 based on the market price on the date of issuance.
 
NOTE 7 – STOCK PURCHASE OPTIONS AND WARRANTS
 
During the six months ended December 31, 2012, the Company did not issue any stock purchase options. The Company did recognize $9,180 in employee stock option expense and for the amortization of warrants issued in prior periods.
 
The Company issued warrants to purchase a total of 662,500 shares of the Company’s common stock. As described in Note 6, the Company issued 430,000 warrants attached to Common Stock. The warrants were valued using the Black-Scholes pricing model under the assumptions noted below. The Company apportioned value to the warrants based on the relative fair market value of the Common Stock and warrants.
 
An additional 137,500 warrants were issued in conjunction with related party convertible notes payable. The warrants were valued using the Black-Scholes pricing model under the assumptions noted below. The fair market value of the warrants has been accounted for as debt discount.
 
An additional 95,000 warrants valued at $20,163, were issued in advance for services to be amortized over the term of the service period. The warrants were valued using the Black-Scholes pricing model under the assumptions noted below.
 
The following table presents the weighted average assumptions used to estimate the fair values of the stock options granted:
 
   
2012
 
Expected volatility
    106 – 126 %
Expected dividends
    0 %
Expected term
 
3-5 Years
 
Risk-free interest rate
    0.57 – .78 %
 
The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s Common Stock issued to employees and non-employees of the Company during the six months ended December 31, 2012. These warrants were granted to investors, lenders and, in other instances, in lieu of cash compensation for services performed.

 
 
 
19

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and June 30, 2012
 
NOTE 7 – STOCK PURCHASE OPTIONS AND WARRANTS - continued
 
    Number of     Weighted Average     Weighted Average     Expiration Date     VAlue if  
    Warrants     Exercise Price     Grant Date Fair     (yrs)     Exercized  
 Ouststanding as of June 30, 2012     6,529,331     $ 2.84     $ 3.55       1.94     $ 4,835,028  
 Granted     662,500       0.41       0.26       3.14       272,650  
 Canceled/Expired     (175,000 )     (1.95 )     -       -       (170,000 )
 Outstanding as of Dec 31, 2012     7,016,831     $ 0.70     $ 2.96       3.14     $ 4,937,678  
 
NOTE 8 – COMMITMENTS AND CONTINGENCIES
 
Lease Agreements
Pursuant to a lease originally dated January 2006, we currently occupy approximately 11,800 square feet of office space located at 7650 E. Evans Rd., Suite C, Scottsdale, Arizona on a month-to-month basis. The total lease expense is approximately $9,600 per month, payable in cash and Common Stock of the Company.
 
We are leasing office space on a month-to-month basis in West Hollywood, California. We also lease an office in Los Angeles for use by our audio team in connection with our AfterMaster product under a lease expiring on August 31, 2013. The total lease expense for both facilities is approximately $4,305 per month, and the total remaining obligations under these leases at December 31, 2012 were approximately $0.
 
We lease space at mall locations for MyStudio generally pursuant to one-year leases. The monthly rent for these spaces is at market rates commensurate with other kiosk operations. As we expand, we will continue to secure space for our recording studios at various venues and locations throughout the country.
 
Rent expense for the period ended December 31, 2012 was $79,943, of which $21,481 was paid in cash and $38,822 was paid in Common Stock. Rent expense for period ended December 31, 2011 was $55,104 of which $54,979 was paid in cash $125 was paid in Common Stock.
 
Below is a table summarizing the annual operating lease obligations over the next 5 years:
 
Year
 
Lease Payments
 
2013
 
$
42,660
 
Thereafter
   
-
 
Total
 
$
42,660
 
 
NOTE 9 - SUBSEQUENT EVENTS
 
In accordance with ASC 855 Company management reviewed all material events through the date of this filing and determined that there are no material subsequent events to report.
 
 
 
 

 

 

 

 

 

 

 

 

 

 
 
 
20

 

FORWARD-LOOKING AND CAUTIONARY STATEMENTS
 

 
This Quarterly Report (the “Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended, and as contemplated under the Private Securities Litigation Reform Act of 1995.  These forward-looking statements may relate to such matters as  the Company’s (and its subsidiaries) business strategies, continued growth in the Company’s markets, projections, and anticipated trends in the Company’s business and the industry in which it operates anticipated financial performance, future revenues or earnings, business prospects, projected ventures, new products and services, anticipated market performance and similar matters.  All statements herein contained in this Report, other than statements of historical fact, are forward-looking statements.
 
When used in this Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” “budget,” “budgeted,” “believe,” “will,” “intends,” “seeks,” “goals,” “forecast,” and similar words and expressions are intended to identify forward-looking statements regarding events, conditions, and financial trends that may affect our future plans of operations, business strategy, operating results, and financial position. These forward-looking statements are based largely on the Company’s expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company’s control.  We caution our readers that a variety of factors could cause our actual results to differ materially from the anticipated results or other matters expressed in the forward looking statements, including those factors described under “Risk Factors” and elsewhere herein.  In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Report will in fact transpire or prove to be accurate.  These risks and uncertainties, many of which are beyond our control, include:
 
 
·
the sufficiency of existing capital resources and our ability to raise additional capital to fund cash requirements for future operations;
 
 
·
uncertainties involved in growth and growth rate of our operations, business, revenues, operating margins, costs, expenses and acceptance of any products or services;
 
 
·
volatility of the stock market, particularly within the technology sector;
 
 
·
our dilution related to all equity grants to employees and non-employees;
 
 
·
that we will continue to make significant capital expenditure investments
 
 
·
that we will continue to make investments and acquisitions;
 

 
 
 
21

 
 
FORWARD-LOOKING AND CAUTIONARY STATEMENTS - continued
 
 
·
the sufficiency of our existing cash and cash generated from operations;
 
 
·
the increase of sales and marketing and general and administrative expenses in the future;
 
 
·
the growth in advertising revenues from our websites and studios will be achievable and sustainable;
 
 
·
that seasonal fluctuations in Internet usage and traditional advertising seasonality are likely to affect our business; and
 
 
·
general economic conditions. 
 
Although we believe the expectations reflected in these forward-looking statements are reasonable, such expectations cannot guarantee future results, levels of activity, performance or achievements.  We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report.
 
All references in this report to “we,” “our,” “us,” the “Company” or “Studio One” refer to Studio One Media, Inc. and its subsidiaries and predecessors.
 
 
PART I
 
ITEM 1. DESCRIPTION OF BUSINESS
 
General
 
Corporate Background
 
We are a Delaware public company traded on the Over-The-Counter Bulletin Board (ticker symbol: SOMD).  As of December 31, 2012, there were 38,620,207 shares of Common Stock issued and outstanding.   From April 2006 to June December 31, 2012, we have raised approximately $16.51 million in the form of equity for purposes of research and development, the launch of MyStudio and AfterMaster and general corporate purposes. The Company's office and principal place of business is located at 7650 E. Evans Road, Suite C, Scottsdale, Arizona 85260 USA, and its telephone number is (480) 556-9303.
 
 Business
 
Studio One Media, Inc. (“Studio One” or the “Company”) is a diversified media and technology company. The Company’s wholly-owned subsidiaries include MyStudio HD Recording Studios, Inc. and AfterMaster HD Audio Labs, Inc.
 
Over the past several years, the Company and its subsidiaries have been engaged in the development and commercialization of proprietary (patents issued and pending), leading-edge audio and video technologies for professional and consumer use, including MyStudio® HD Recording Studios, AfterMaster™ HD Audio and ProMaster HD™.
 
The Company has the ability to generate revenue from four primary sources: (1) MyStudio recording sessions; (2) digital advertising and sponsorship opportunities; (3) website advertising revenues; and (4) mastering or “AfterMastering”/”ProMastering” of audio.  The Company believes that Studio One’s award winning and groundbreaking audio/video technologies and unique business models have the potential to have a significant impact in the entertainment and social media sectors.
 
Business Update
 
The financial results for the first quarter of fiscal 2013 were below our targets as the Company continued to embark on several key initiatives, which included redefining our product, staffing, pricing, marketing and demographics. These initiatives included testing of off-site session purchases, promotional sessions, multiple fee changes, testing new locations and staffing, all of which had varying effect on sales. In addition, the Company experienced a decline in studio revenues as it was not able to launch studios in new Hard Rock locations until it fulfilled among other things existing lease arrangements.   
 
The information collected through the various initiatives has led the company to a new operational plan for its recording studios. The plan includes locating studios at venues which will offer cost and revenue sharing arrangements, as well as promotional and marketing support. Such partnerships eliminate rents and direct staffing costs for the Company, resulting in significant operational cost savings while providing new promotional and sales opportunities for revenue generation.
 

 
 
 
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The Company recently entered into a revenue sharing agreement with Hard Rock International to relocate up to five of its existing seven studios to Hard Rock venues in the United States. The first Hard Rock/MyStudio opened in Las Vegas in October 2012. In addition, the Company entered into a revenue sharing and marketing agreement for its Nashville based studio with Warner Music Nashville (“WMN”). The agreement calls for WMN to use the studio to create awareness for its popular artists and look for new talent through contests and other interactive initiatives at the studio.
 
As a result of the new initiatives and realignment on our objectives, we believe that the Company is positioned to capitalize on its MyStudio and AfterMaster technologies in the upcoming year.  We are encouraged by the growing interest in using MyStudio for casting purposes for national television shows and believe that MyStudio provides a compelling technological breakthrough for talent seekers. Additionally, we remain very positive on the opportunity for AfterMaster to provide significant future revenues for the Company and its potential to greatly improve digital audio for music, motion pictures and television.
 
The X Factor
 
The second season of The X Factor saw MyStudio make a significant contribution to the show with a positively disproportionate number of MyStudio auditioners making it to all X Factor elimination levels. Despite conducting less than 10% of the total auditions, two of the final four contestants, Carly Rose Soneclar and Emblem 3 came from My Studio auditions.
 
All seven MyStudios plus a newly introduced mobile Pepsi/MyStudio unit were used by aspiring musicians to audition for the show.  The mobile Pepsi/MyStudio unit was utilized in nine cities throughout the United States.  The mobile studio was a successful opportunity for us to showcase the quality and ease of use of the studios, as well as build brand awareness for MyStudio.  
 
As background, we announced in 2011 that we had entered into a multi-year strategic partnership with The X Factor in the United States.  Led by Simon Cowell, a highly acclaimed entertainment entrepreneur and music producer with a notable ability to identify some of the world’s top musical talent, The X Factor had tremendous success in Europe before being introduced into the U.S. last year.  Mr. Cowell recognized the significant opportunity MyStudio offered in terms of broadening the audition base.  Mr. Cowell and other reality television producers understand that their shows are only as good as the talent identified and MyStudio provides a revolutionary new technology for finding talent in a cost-effective, operationally-efficient manner.
 
The success of The X Factor auditions led to the company to host auditions for "America's Next Top Model" late in the year.
 
Television Production Agreement
 
In late 2011, the Company signed an agreement with one of North America’s largest television and movie production companies for the co-development of a television show for national broadcast. The plan for the television show is to use content produced by MyStudio users to showcase their talents in a variety of categories (e.g., music and comedy). Since the signing, the Company and production company have worked closely on the development process to ensure a fresh and exciting concept that will capture national audiences.    
 
We are pleased to be working with the aforementioned television production company as it has had a great rate of success in getting television shows produced and aired on major television networks. Its stature and reach as an international television “powerhouse” provides additional credibility to the quality of our studios and the opportunity for the show to be a success.
 
While we had hoped that the new show would begin airing in calendar 2012, both parties have agreed that additional investment in the content development process would be prudent and enhance the likelihood for the show’s success.  We are currently working to finalize agreements for the show’s hosts and executive producers, which are expected to be internationally renowned entertainers.  We believe that the unique content of the show, coupled with the substantial fan base of the executive producers, will be of great interest to one of the national networks and accelerate the timing for the show’s debut.  
 
The production of a national television show such as this has been a long-time goal of the Company’s management team. We believe that such a show will allow for significant national and international exposure for MyStudio and thus drive substantially higher studio revenues. Based on the success of the show and the low cost of production, there is a significant possibility of rolling out such a format into many international markets.  
 
 
 
 
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Hard Rock
 
We recently announced a strategic partnership with globally-recognized Hard Rock International, the owner and operator of over 175 restaurants, hotels and casinos around the world.  The partnership provides for us to install studios in Hard Rock locations. Three initial sites were announced, including the Hard Rock Café – Las Vegas, Hard Rock Café – Chicago and the Seminole Hard Rock Hotel Casino – Hollywood, Florida.  We expect to announce additional locations in the future.
 
We believe this is a very important development for the company.  First, we have always sought to partner with leading companies in their respective fields where there will be a synergistic value for both parties.  With the strong global brand of Hard Rock and the breadth of its properties around the world, the partnership should significantly enhance the brand awareness of MyStudio.  Secondly, this should create an important revenue stream for the company due to the high traffic of visitors at Hard.
 
The agreement provides for the companies to share in the revenues generated from the studio sessions, as well as on-studio advertising. In exchange for placing studios in the Hard Rock venues, a Hard Rock affiliate will be responsible for overhead costs of the studios, which includes labor and rent.  Additionally, Hard Rock will expected to promote the studios in its marketing campaigns, which could provide an additional uplift in session revenue for other non-Hard Rock MyStudio locations.   Hard Rock intends to seek sponsors and other partners to further compliment the MyStudio/Hard Rock partnership to drive additional traffic to those venues.
 
The partnership underscores Hard Rock’s commitment to its customers of offering high quality food in fun and entertaining environment.  The studios located on Hard Rock properties will also participate in other nationally sponsored contests and auditions that are coordinated through Studio One. 
 
Warner Music Nashville
 
The Company entered into an exclusive promotion agreement with Warner Music Nashville ("WMN") for the Company's Nashville based studio. WMN is one of the most important country and music labels with superstars such as Blake Shelton, Dwight Yoakam, Faith Hill and Big & Rich. The revenue sharing agreement calls for WMN to utilize MyStudio as an exciting and innovative way to promote its artists as well as connect with their fans by way of interaction with the studio at the mall and through online video contests.  Country music fans will have the opportunity to create a variety of high definition videos and enter them into contests hosted by Warner Music Nashville and MyStudio. The Company expects the arrangement to raise awareness of its brand and generate increased revenues from promotions initiated by such a high profile partner in the Tennessee market.
 
Additional Strategic Opportunities
 
Since the introduction of the first studio, one of the primary objectives of the management team has been to develop strategic relationships with industry leaders in the music and entertainment fields.  The Company has successfully partnered with leading names, such as The X Factor, that have allowed it to gain national branding exposure without having to expend significant capital for marketing.
 
As a result of favorable exposure from The X Factor and positive feedback from other partnerships, we have received a significant number of in-bound enquires about using the studios for other reality television shows, live theater and a host of other auditions and contests.  The studios have recently been used for casting for the upcoming new reality series entitled America’s Most Eligible and Tyra Banks' America's Next Top Model.   Earlier in the fiscal year, the studios were also used for casting and featured in the new series called Remodeled, which was led by supermodel agent Paul Fisher. The show centered around building a national network of new modeling talent.  Mr. Fisher is also an important member of the Company’s Advisory Board. Numerous other contests using the MyStudio technologies have been hosted in the current and prior years, including music, modeling and comedy.
 
MyStudio represents a revolutionary change in how auditioning/casting can be performed.  The quality of the audio and videos, coupled with a standardized easy-to-use viewing platform for casting agents, creates a compelling reason for widespread adoption of the technology.  Additionally, production companies can realize substantial cost savings from the use of the studios as they may no longer have to hold “cattle calls”, which require significant expenses for venue rental and associated labor.  As management teams at television and motion picture companies face greater pressure to contain costs for their productions, MyStudio provides a compelling new technology that could very favorably impact their bottom lines as they seek top talent.
 
Our stated goal has been to ultimately gain a national footprint of studios throughout the United States.  The recently announced Hard Rock partnership and other initiatives should aid in the rollout of new studios in the U.S. and abroad.  We continue to believe that there is a tremendous opportunity for MyStudio in Asia as karaoke plays a significant role in the culture and entertainment.  We continue to receive interest by foreign parties seeking to introduce MyStudio in various markets.  We will continue to evaluate those opportunities as we identify key partners that have the financial and operational wherewithal to support a large rollout of studios in the region.
 

 
 
 
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Based on the high cost of creating a national marketing campaign, the Company to date has had to identify unique and alternative means of marketing its products without incurring major cash outlays. However, based on greater brand awareness from our high profile partnerships and increased inbound interest by prospective advertising partners, we have recently engaged a proven marketing firm with broad relations with major consumer brands to create revenue-generating partnerships and advertising for the Company. This new marketing firm was played an important role in one of recently announced partnerships. Accordingly, we expect to substantially increase advertising and sponsorship revenues in future quarters.
 
Studios
 
We are currently in the process of relocating up to five studios in accordance with our agreement with Hard Rock International. When those studios are relocated, we will have a total of seven studios available for use by the general public.  
 
 During the year, we also built and successfully deployed the first mobile MyStudio, which was used throughout the country for The X Factor auditions. There has been significant interest in mobile studios for several years.  Pepsi was a sponsor of this studio for the recent X Factor auditions.  Based on the success of this mobile studio, we believe that mobile studios could offer a significant revenue opportunity for the Company from both the session revenues, as well as the ability to sell advertising on the studios as they travel the United States promoting various contests and auditions.
 
In addition to our installed studio base noted above, we have taken possession of two additional studio chassis for future manufacture and installation. Additionally, we have identified and begun to utilize alternative suppliers for other studio components which have and will allow us to lower the costs of manufacturing studios.  
 
AfterMaster
 
We continue to believe that AfterMaster is one of the most significant breakthroughs in digital audio and that it has the potential to create significant revenues for the Company.  The feedback from music industry executives, leading artists, mastering houses and top consumer products companies has been exceptional.  The broad commercialization of this technology is a top priority for the management and Board of Directors of the Company.
 
AfterMaster was an internally-developed, proprietary (patents-pending) mastering and remastering technology that makes music and other audio files sound significantly louder, fuller and clearer than traditionally mastered music.  The technology can be applied to virtually all audio sources including music, radio, motion pictures and television.  The technology has been used to enhance music created by such artists as Lady Gaga, Janet Jackson, and many others.  
 
Like all newly introduced technologies, the adoption period can take longer than expected. This too has been the case for AfterMaster despite the very favorable feedback from music industry leaders (e.g., record label executives, producers and musicians).   With significant external forces adversely affecting the music industry, including industry consolidation and digital piracy, music industry executives have focused their resources on addressing such challenges.  With recent stabilization within the industry, executives are now able to refocus their efforts on new revenue-enhancing opportunities.  We believe that AfterMaster provides the record labels with such a significant opportunity as they are able to remonetize their catalogs by offering high definition (“HD”) audio through the use of our technology.   As such, we are in discussions with several leaders in music about utilizing our technology for the re-release of the HD versions of their catalogs.  Such songs can be released in physical format (e.g., CDs) or digital downloads through leading online music retailers.
 
Further supporting our beliefs about the public’s desire for higher quality audio is a growing grassroots movement by some of the top musicians who have publicly stated they are unhappy with the quality of the current state of digital audio.   As we begin “AfterMastering” music for top selling and influential artists and they have an opportunity to experience the significant difference from our technology, we believe that the musician-led movement to improve the sound of their music could grow significantly. Additionally, artists recognize that they can greatly benefit through future royalties from the re-release in the HD format of their music.   
 
 

 
 
 
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In addition to the record labels, we are in discussions with other potential users of the technology.  Such discussions include several consumer electronics companies that see the opportunity to differentiate their products with enhanced audio capabilities offered through the use of an AfterMaster chip in their products.   We believe this represents an enormous market for the Company to have its product integrated into phones, televisions, radios and a host of other products.   As the convergence of features for such consumer electronics continues, it can be difficult for leading consumer electronics companies to differentiate their products. We believe that AfterMaster provides a unique and significant competitive opportunity for one or more of the leading consumer audio OEMs.
 
The Company’s Advisory Board of influential leaders in the music and motion picture industry are a critical element of the Company’s marketing strategy for AfterMaster.
 
ProMaste
 
Utilizing technologies created in the development of AfterMaster, the Company has recently introduced a consumer version of AfterMaster which it has branded as ProMaster HD.
 
The ProMaster product was recently introduced through a new relationship with music retail giant Guitar Center.  Guitar Center has over 225 stores nationally and caters to recreational, amateur/aspiring and professional musicians.  The ProMaster product will be marketed by Guitar Center in-store and through its catalogs, mailers and online advertising.   Musicians are able to upload their files and have them mixed, mastered and/or remastered by ProMaster at an affordable price and a short turnaround period.  
 
Alternatively, musicians can send their music directly to our www.ProMasterHD.com.   We have recently begun a viral marketing campaign for the product on various websites frequented by amateur musicians.  Key individuals for the campaign include our VP of Audio and Rock and Roll Hall of Fame nominee Shelly Yakus and music producers Rodney Jerkins, Richard Perry and Andrew Dawson.  
 
Music industry sources have stated that over 10 million independent songs are produced each month around the world, most of which will never be heard by anyone.  The expense of mastering such music for the amateur musician is often cost prohibitive, as it can cost over $500 per song.  At a price of $34.99 per song, ProMaster creates a compelling offering for those seeking to significantly enhance the quality of their music for personal use or with intent to showcase their music in hopes of advancing their career aspirations.
 
Based on the enormous addressable market for such a product, we believe that ProMaster has the potential to generate significant revenues for the Company.
 
Corporate
 
In November 2011, Board member Frank Perrotti, Jr. was elected to the position of Chairman of the Board of Directors of Studio One.  Mr. Perrotti is a successful and well regarded businessman with proven experience in building corporations organically and through acquisitions. Mr. Perrotti has provided the Company with more than $3,600,000 in loans to date to assist in the financing needs required to build and install additional studios.
 
In March 2012, Joseph Desiderio was hired as the Company’s new chief financial officer and was also elected to the Board of Directors.  Mr. Desiderio brings more than 25 years of financial and operational experience to the Company having worked with both public and private companies.  The Company’s then CFO, Kenneth Pinckard, was named as General Counsel and remains on the Board of Directors.
 
The Company has been awarded three patents over the past year.  The Company has a very aggressive intellectual property strategy to protect the MyStudio, AfterMaster and related technologies it has developed.  The Company has a number of other patents pending. Over the past several years, the weak capital markets have constrained our growth and the full implementation of our business plan for the roll-out of new studios.  Despite these difficulties, the Company has and continues to raise capital for studio operations and advancement of AfterMaster. We expect to continue raising required capital through both equity and debt financings to further our corporate objectives.
 
As capital markets improve and we begin to see fruits of new and pending revenue opportunities, we believe that we will be able to raise substantial additional capital to execute our full business plan and create significant shareholder value through our MyStudio and AfterMaster products.  Such funds are in addition to the aforementioned credit facility.
 

 
 
 
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Advisory Board
 
Recognizing the significance of our technologies, we have been able to attract some of the leading music and entertainment executives to our Advisory Board. The Advisory Board is an important resource for the Company in terms of thought leadership and strategic introductions. This distinguished group includes:
 
Ted Field – Chairman & CEO of Radar Pictures (over 60 motion pictures generating over $7 billion in gross revenues); co-founder of Interscope Records; former owner of Panavision.
 
Frank Perrotti, Jr. - Founder, Chairman and Chief Investment Officer of FPJ Investments (“FPJ”), a private investment firm based in New Haven, CT.
 
● 
Paul Fisher – internationally recognized modeling agent; CEO of The Network.
 
● 
Jason Flom – former CEO of Atlantic Records, Virgin Music, Capitol Music Group and Lava Records.
 
Sheila Jaffe – Emmy Award winning casting director; partner in Walken/Jaffe Casting; casting for notable shows as Entourage and The Sopranos.
 
Rodney Jerkins – Grammy Award winning music producer/song writer; clients include Janet Jackson, Madonna, Lady Gaga among others.
 
● 
Allan Kaplan – serial entrepreneur and venture capitalist; Director of Clearview Capital Partners.
 
● 
Andrew Knight – Director of News Corporation; former Editor of The Economist.
 
Paul Oreffice – former Chairman & CEO of The Dow Chemical Company; served on the Boards of The Coca-Cola Company, Morgan Stanley, CIGNA and Nortel.
 
Richard Perry – world renown record producer and winner of seven Grammy Awards; clients include Barbra Streisand and Cher.
 
● 
Diane Warren – considered to be the world’s most prolific songwriter; Golden Globe and Grammy Award winner.
 
● 
Charles Weber – former CEO of Lucas Films; former COO of Embassy Communications.
 
MyStudio HD Recording Studios
 
Studio One Media, Inc. has developed MyStudio, a self contained, state-of-the-art, high definition (“HD”) interactive audio/video recording studio designed for installation in shopping malls and other high traffic areas.
 
 MyStudio offers consumers true professional recording studio-quality audio and HD broadcast-quality video with an ease, economy and convenience never before available to the public. MyStudio and its accompanying website www.MyStudio.net incorporate into a single entertainment venue some of the best elements of the world’s leading Internet and entertainment properties including video sharing, social networking and talent-related television programming. MyStudio eliminates the high cost and technological and logistical barriers inherent in the creation of high quality production and uploading of video content onto the Internet for both amateurs and professionals alike.
 

 
 
 
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MyStudio enables users, for a fee, to record up to a five-minute personalized video with professional-quality backdrop, lighting and sound. The studios feature Hollywood-style green screen technology, and users can select from over a thousand HD virtual backgrounds (static and dynamic) and thousands of licensed karaoke tracks from Sony/ATV Music Publishing, EMI Music Publishing, Universal Music Group, BMG and others. The studio lighting is custom programmed for each virtual background, and the sound quality is derived from a specially engineered acoustic design and a proprietary audio signal sequencing process. Professional users, such as musicians and entertainers, often pay hundreds or thousands of dollars for comparable professionally produced audio and video.
 
 Finished videos are available for viewing within minutes of completion of the recording at www.MyStudio.net. Videos are protected with a privacy pass-code, and uses can decide whether to make their videos available to the public or keep them private. The website offers users the opportunity to share videos and create member profile pages in a dynamic social networking environment. Users may also create links between our website and other social networking sites or their own websites, such as their own small businesses.  MyStudio members can enter contests, order free DVDs or CDs of their videos, download MP3 audio files (restrictions apply), access embedded codes or print high resolution photos from their video.
 
 MyStudio has been used to create videos for music, modeling, comedy, dating, job resumes, auditions, and personal messages and greetings. Users can also enter their videos into industry-sponsored music, casting, modeling and comedy contests. In addition, the Company has offered various themed holiday greetings, as well as greetings to U.S. troops overseas.
 
Currently there are MyStudio locations included in the greater metropolitan areas of Phoenix, Nashville and Las Vegas. Four additional studios are in various stages of moving to Hard Rock locations.
 
MyStudio Business Strategy
 
We plan to continue installing MyStudios into key markets throughout the U.S. followed by a roll-out into international markets. The ease and quality of the studios have created repeat users and increase traffic to the Company’s website, www.mystudio.net.We believe that MyStudio offers a service never before available to the public - a professional quality recording experience at an affordable price. The HD virtual backgrounds, professional lighting and specially engineered sound cannot be replicated by users at home or outside a professional studio.
 
Connect Talent to Talent Seekers. MyStudio provides the aspiring artist or entertainer with a cost-effective, professional quality platform to showcase his or her talent. Entertainers often pay hundreds or thousands of dollars for comparable professionally produced audio and video products. Users can often afford to make numerous videos to showcase their talents due to relative minimal price point for using MyStudio. There have been several incidents where users’ videos have allowed them to be discovered by talent agents. MyStudio played an integral part of the casting process to find talent for both seasons of The X Factor in the United States, as well as for other reality television shows.
 

 
 
 
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The studios provide entertainment recruiters with an entirely new method for locating talent. Using MyStudio’s software casting applications, casting directors are able to review a standardized and efficient format for judging talent prospects. This contrasts with the inefficiencies of them receiving, loading and screening numerous formats of video (e.g., VHS and DVDs) for talent.
 
Additionally, MyStudio allows prospective contestants the ability to perform their auditions on their own time and in unlimited quantities versus the current casting call standard of having only a few moments and a single opportunity in front of a casting agent. Reality television producers understand that their shows are only as good as the talent. MyStudio will allow for a greater number of contestants to try-out for these shows which provides producers with a much deeper well of talent. MyStudio has the ability to set a new standard and create a new marketplace for sellers and buyers of talent.
 
We have focused significant efforts on this aspect of our business model and have formed strategic partnerships with Simon Cowell’s The X Factor, Hard Rock International, Back Stage Casting and RealityWanted.com.
 
Build an Online Community Featuring User-Generated Content. Our website www.mystudio.net captures the social networking phenomena Facebook and video sharing of YouTube and combines it with a superior audio/visual experience. Our website allows users to create personal profiles, share videos with family and friends and make their videos available to the public, all of which encourage user loyalty and viral growth opportunities.
 
Expand the MyStudio Concept into New Vertical Industries. The potential utilization of the recording studios extends well beyond the entertainment industry. The studios can facilitate efficiency, personalization and differentiation in many industries including professional recruitment and staffing, Internet dating, corporate training, online greeting cards and business promotion. We expect to develop future partnerships for content and users with recruiting, dating and greeting card companies among others.
 
MyStudio Business Model
 
Our “bricks and clicks” business model is currently based upon three primary sources of revenue: recording session fees from MyStudio and advertising/sponsorship revenue from the individual studios and advertising on www.MyStudio.net. We plan to continue driving recording session revenue through the use of industry-sponsored music, modeling and talent contests with new and repeat users, as well as the installation of additional studios. Additional studios are expected to drive exponential traffic to the MyStudio website as each new video generates unique website visitors due to the viral effect of our video sharing offering. We believe that the success of the studios depends on our ability to raise additional capital, deploy multiple studios and continue to create strategic partnerships that drive traffic to the studios. Our current installed base of studios is insufficient to generate adequate revenues to achieve overall profitability for the Company. By deploying multiple studios and gaining “critical mass”, we believe that we will be able to successfully implement our business plan, attract a greater number of strategic partnerships and achieve profitability.
 
 Recording Session Revenue. Each studio is designed to record videos during a mall or store’s operating hours, which can average 11 hours per day. MyStudio charges a fee per session for use of the studio. Each session lasts up to five minutes. There are two pay stations on the studio to expedite the song and background selection and payment process. Additionally, users may prepay their sessions from home and have an opportunity to select from a greater variety of songs and backgrounds. These payment options increase throughput for those using the studio.
 
 MyStudio offers over 1,000 HD backgrounds from which to select, or users may provide their own custom backgrounds. Additionally, MyStudio currently offers thousands of songs licensed from Sony/ATV Music Publishing, EMI Music Publishing, Universal Music Group and others for karaoke usage. In many instances, users perform their own songs using their guitar, keyboard or other instruments, which may be plugged into the studios for a professionally sounding quality video.
 
On-Studio Advertising and Sponsorship Revenue. The exterior of the studios contain eight (8) 37” LCD flat screen monitors that are used to display videos produced through MyStudio and promote advertising messages from selected sponsors and third party advertisers. We have sold advertising on the studios, and we believe that we will be able to secure national advertising sponsors when we have a greater number of studios in operation and through our partnership with Hard Rock International. Website Advertising Revenue. The number of visitors, visitor demographics and the time spent on a website are the primary drivers behind advertising-based revenue models for Internet properties. The user-generated content created through MyStudio is the primary traffic generator for the MyStudio website.
 

 
 
 
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We expect web traffic to grow substantially as additional studios are launched. We believe that our web property can create significant value for our shareholders. The leading social media websites, such as Facebook, have created substantial valuations for themselves based on website advertising. Unlike a number of other social media and Internet companies, we are not solely dependent upon website advertising to generate revenues. Our more diverse “bricks and clicks” business model allows our shareholders to benefit from multiple revenue streams, with the website being just one of the Company’s valuation drivers.
 
MyStudio Marketing and Promotion Strategy
 
Our business plan calls for the establishment of regular events, auditions and contests to drive traffic to the studios; this revenue strategy has been confirmed by a marked increase in studio traffic when contests and promotions have been offered. Our marketing and promotion strategy is designed to drive traffic through the studios which in turn drives traffic to our website.
 
To date, we have not invested significant dollars for marketing as we believe such marketing efforts would not have been prudent without a national footprint for MyStudio. We expect to significantly increase our national marketing efforts to drive sponsorship and advertising revenues later in the future.  We did, however, recently engage a national marketing agency to assist us in securing advertising and sponsorship opportunities. With a broader installed studio base in major metropolitan markets and continued favorable feedback from the high profile auditions that we have and are hosting, we believe that we will have a much greater opportunity to gain national attention of large sponsors who understand the opportunity to partner with MyStudio for contests and auditions to favorably market their own businesses. To date, we have sold sponsorships that have led to increased utilization of the studio, as well as advertising monies.
 
We remain focused on forming strategic partnerships at the local, regional and national level with talent seekers (the television, music, film, performing arts and modeling industries), the media (radio and television stations and printed media) and corporate sponsors who may seek access to our expanding user base. Such partnerships are designed to generate industry-sponsored music, modeling and talent contests to stimulate trial of and demand for the studios.
 
MyStudio has successfully partnered with some of the top names in the entertainment business, as described below.
 
In 2011, we announced a multi-year partnership with Simon Cowell’s The X Factor, which has been one of the most successful new music-centric show introductions in the United States over the past few years. We believe that this agreement, among others, demonstrates that the Company has established its ability to partner with some of the leading producers in the music and entertainment business.
 
Led by Mr. Cowell, a highly acclaimed entertainment entrepreneur and music producer with a notable ability to identify some of the world’s top musical talent, The X Factor has had tremendous success in Europe. The show debuted last fall on the FOX Network and has recently begun its second season.  In its inaugural season, the show quickly generated a very significant following throughout the United States. The high quality of the talent selected to participate in the show has been a key source of fan enthusiasm for the show since its debut.
 
It has been reported that over 75,000 people auditioned for the show’s first season, including several thousand who participated in such auditions through MyStudio. Mr. Cowell recognized the significant opportunity provided by MyStudio in broadening the contestant base for his show. MyStudio allowed for contestants to visit the MyStudio locations in addition to the primary casting cities where “cattle calls” were held. Despite the enormous number of persons auditioning for the show, three of the acts using MyStudio made it into the show’s final 32 to date, as well as one of those acts advancing as a final three female’s finalist.
 
The studios were used again this year for Season 2 with both the fixed location and new Pepsi/MyStudio mobile unit being utilized.  Through the first four shows of the current season, there were 21 contestants that had been approved to go to the next level called “boot camp”. Of those 21, three were contestants who auditioned at MyStudio. The studios were used for two other reality television shows recently, including America’s Most Eligible and Remodeled.
 
The partnership with The X Factor demonstrated that the MyStudio recording studios are an efficient means for allowing for a large number of people in multiple cities to try-out for reality television shows and finding top talent. Accordingly, we expect television, theater and motion pictures to begin to follow Mr. Cowell’s lead in utilizing this technology to enhance their casting processes and thereby creating the potential for a number of other strategic partnerships for the Company as we install additional studios.
 

 
 
 
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Our partnership with The X Factor has also allowed the Company to gain national attention for its studios without having to expend significant amounts of internal funds to achieve a comparable level of positive exposure and brand development.
 
We recently announced a strategic partnership with globally-recognized Hard Rock International, the owner and operator of over 175 restaurants, hotels and casinos around the world.  The partnership provides for us to install studios in Hard Rock locations. Three initial sites were announced, including the Hard Rock Café – Las Vegas, Hard Rock Café – Chicago and the Seminole Hard Rock Hotel Casino – Hollywood, Florida.  We expect to announce additional locations in the future.
 
We believe this is a very important development for the company.  First, we have always sought to partner with leading companies in their respective fields where there will be a synergistic value for both parties.  With the strong global brand of Hard Rock and the breadth of its properties around the world, the partnership should significantly enhance the brand awareness of MyStudio.  Secondly, this should create an important revenue stream for the company due to the high traffic of visitors at Hard Rock locations.  The agreement provides for the companies to share in the revenues generated from the studio sessions, as well as on-studio advertising. In exchange for placing studios in the Hard Rock venues, they will be responsible for overhead costs of the studios, which includes labor, utilities and rent.  Additionally, Hard Rock will promote the studios in its marketing campaigns, which could provide an additional uplift in session revenue for other non-Hard Rock MyStudio locations.   Hard Rock intends to seek sponsors and other partners to further compliment the MyStudio/Hard Rock partnership to drive additional traffic and generate revenue at those venues.
 
Hard Rock’s management views MyStudio as an important element of its new customer acquisition strategy.  The partnership underscores Hard Rock’s commitment to its customers of offering high quality food and fun in an entertaining environment.  The placement of the studios within the Hard Rock venues allows patrons to live out their own fantasies and aspirations as “rock stars” through the creation of their own music videos using MyStudio.
 
The studios located on Hard Rock properties will also participate in other nationally sponsored contests and auditions that are coordinated through Studio One.
 
Mark Burnett Productions (“MBP”) has used MyStudio in the casting of its shows, including Are You Smarter Than a Fifth Grader and Bully Beatdown. MBP is a leading production company for primetime television, cable and the Internet, and has produced over 1,100 hours of television programming which regularly air in over 70 countries around the world. 
 
MyStudio has been used by entertainment leaders Simon Fuller, Perez Hilton and Jamie King in their casting for Boy Band, a contest to identify five males between the ages of 13 and 21 with outstanding dance and vocal talent to form a high profile band. Mr. Fuller is the producer of American Idol. Mr. Hilton is a famous celebrity gossip columnist with a very extensive following. Mr. King is a world renowned choreographer. MyStudio was selected by Boy Band for the convenience and ease by potential contestants and was responsible for finding one of the Boy Band members. In addition to Boy Band, Mr. Fuller, through 19 Entertainment and MySpace, used MyStudio for the auditions of If I Can Dream, a reality television show offered through Hulu.com. The studios were used by a number of aspiring artists to perform their audition demos in hopes of being selected to join the cast of the show.
 
We have an ongoing partnership with RealityWanted.com, a leading source for reality TV casting calls in the U.S.  The partnership provides for members of both companies to create audition videos for hundreds of top reality television shows. Most reality TV applicants are missing one of the most critical components to being selected - the video. This partnership created a turnkey reality TV casting platform to help complete the casting process. Users can easily supplement their RealityWanted.com profiles with a high-quality video that better promotes their talents and unique personality traits, thus giving them a greater chance of being selected for a reality television show.  We also have a partnership with Back Stage Casting, the entertainment industry’s most recognized resource for real-time casting and audition information, acting advice, job listings and entertainment news. Utilizing MyStudio, Back Stage is able to offer its members and audition pieces for specific casting calls. Film, theater and television productions are asking actors to submit audition videos specific to their projects to streamline the casting process and identify the most talented candidates. MyStudio offers actors a high quality, convenient and inexpensive way to create their professional videos and increase their chances of being selected.  A number of contests using MyStudio have been sponsored by some high-profile music, modeling and comedy companies. We expect to continue entering into additional strategic partnerships with other high profile companies in the music, television, modeling and comedy fields to further traffic to our studios.
 

 
 
 
31

 

ITEM 1. DESCRIPTION OF BUSINESS - continued

We continue to aggressively pursue additional reality TV, music, modeling and comedy audition opportunities.
 
AfterMaster HD Audio
 
We have developed a revolutionary audio mastering technology branded AfterMaster, for which the technology is held by AfterMaster HD Audio Labs, Inc., a wholly-owned subsidiary of the Company. We believe that the AfterMaster process for mastering audio makes music significantly louder, fuller and clearer than traditionally mastered music. The technology is a proprietary, patents-pending combination of hardware and software which was developed by our audio engineering team. It can be applied on virtually all audio sources including, music, radio, television and film.
 
The AfterMaster process can be used to create both a master from a master audio mix or to “AfterMaster” existing music that has already been mastered. The technology allows any mastered audio to be remastered without the need to access the master mix. The business model includes the mastering and “AfterMastering” of both new music releases as well as catalog music. We believe that AfterMaster can be the technological impetus that can revitalize the music industry by providing consumers with a new leap in sound quality and added value. Some music industry experts who have recently been introduced to our technologies have equated it with high definition television: this technology has the opportunity to do for music what HD has done for television.
 
We continue to believe that AfterMaster is one of the most significant breakthroughs in digital audio and that it has the potential to create significant revenues for the Company.  The feedback from music industry executives, leading artists, mastering houses and top consumer products companies has been exceptional.  The broad commercialization of this technology is a top priority for the management and Board of Directors of the Company.
 
AfterMaster was an internally-developed, patents-pending mastering and remastering technology that makes music and other audio files sound significantly louder, fuller and clearer than traditionally mastered music.  The technology can be applied to virtually all audio sources including music, radio, motion pictures and television.  The technology has been used to enhance music created by such artists as Lady Gaga, Janet Jackson, Madonna and many others.
 
We are in discussions with several leaders in music about utilizing our technology for the re-release of the HD versions of their catalogs.  Such songs can be released in physical format (e.g., CDs) or digital downloads through leading online music retailers.  In addition to the record labels, we are in discussions with other potential users of the technology.  Such discussions include several consumer electronics companies that see the opportunity to differentiate their products with enhanced audio capabilities offered through the use of AfterMaster.   We believe this represents an enormous market for the Company to have its product integrated into phones, televisions, radios and a host of other products.
 
The Company’s Advisory Board of influential leaders in the music and motion picture industry are a critical element of the Company’s marketing strategy for AfterMaster.
 
 ProMaster
 
Utilizing technologies created in the development of AfterMaster, the Company has recently introduced a consumer version of AfterMaster which it has branded as ProMaster HD.
 
The ProMaster product was recently introduced through a new relationship with music retail giant Guitar Center.  Guitar Center has over 225 stores nationally and caters to recreational, amateur/aspiring and professional musicians.  The ProMaster product will be marketed by Guitar Center through its catalogs, mailers and online advertising.    Musicians are able to upload their files and have them mixed, mastered and/or remastered by ProMaster at an affordable price and a short turnaround period.    Alternatively, musicians can send their music directly to our website www.ProMasterHD.com.
 
Music industry sources have stated that over 10 million songs are produced each month around the world, most of which will never be heard by anyone.  The expense of mastering such music for the amateur musician is often cost prohibitive, as it can cost over $500 per song.  At a price of $34.99 per song, ProMaster creates a compelling offering for those seeking to significantly enhance the quality of their music for personal use or with intent to showcase their music in hopes of advancing their career aspirations.
 
Based on the enormous addressable market for such a product, we believe that ProMaster has the potential to generate significant revenues for the Company.
 
 

 
 
 
32

 
 
ITEM 1. DESCRIPTION OF BUSINESS - continued
 
Intellectual Property and Licensing
 
We have implemented an aggressive intellectual property program including the filing of numerous foreign and domestic patent applications and trademark applications with the U.S. Patent and Trademark Office, all of which are designed to protect what we believe is innovative and proprietary technology. We also enter into confidentiality and invention assignment agreements with our employees and consultants and confidentiality agreements with third parties, and we rigorously control access to proprietary technology. We currently have three patents approved with numerous patents and trademarks pending.  
 
Employees
 
As of December 31, 2012 we employed ten full-time and three part-time employees, including attendants at the MyStudio locations.  We expect to seek additional employees in the next year to handle anticipated potential growth.
 
We believe that our relationship with our employees is good.  None of our employees are members of any union nor have they entered into any collective bargaining agreements.
 
Facilities
 
Pursuant to a lease originally dated January, 2006, we currently occupy approximately 11,800 square feet of office space located at 7650 E. Evans Rd., Suite C, Scottsdale, Arizona on a month-by month basis.  The total lease expense is approximately $9,609 per month, payable in cash and Common Stock of the Company.
 
We lease an office in Los Angeles for use by our audio team in connection with our AfterMaster product.  This lease expires on August 31, 2013.  The total lease expense for the facility is approximately $4,305 per month, and the total remaining obligations under these leases at December 31, 2012 were approximately $34,440.
 
We also lease one retail location in Opry Mills Mall Nashville, Tennessee in connection with our MyStudio Kiosk.  This lease expires on February 01, 2013.  The total lease expense for the facility is approximately $3,000 per month, and the total remaining obligations under these leases at December 31, 2012 were approximately $3,000.
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
33

 
 

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

Revenues
 
Six months Ended
December 31,
 
 
2012
 
2011
 
Session Revenues
 
$
18,132
   
$
51,961
 
Advertising Revenues
   
2,000
     
2,016
 
AfterMaster Revenues
   
32,490
     
56,900
 
Mobile Bus Revenues
   
30,000
     
-
 
Total Revenues
 
$
82,622
   
$
110,877
 
   
Our business model currently generates revenues from four primary sources:
 
1)
Paid user fees from customers who utilize the Fixed and Model studios to create an audio/video recording;
2)
Advertising revenue from the external monitors located on each MyStudio facility;
3)
Advertising revenue from our website;
4)
AfterMaster revenue; and
5) 
Revenues from mobile tour.

The revenues from each of the first two of these sources as well as the fifth source are expected to increase proportionally to the number of studios we place in operation. The revenue from advertising on the website will depend on the number and length of visits to our website by MyStudio users and other viewers. Revenues from AfterMaster services resulted primarily from audio services provided to producers and artists on a contract basis. This source of revenue is expected to grow in coming years, and the Company is expecting to generate additional revenues from pay-per-play downloads.
 
The revenue for the six months ended December 31 2012 decreased by $82,622 to $28,255 from $110,877 over the comparable six month period ended December 31, 2011 due to a decrease in Session and AfterMaster income this period and a decrease in Mobile Bus Revenues.
  
Cost of Sales
   
Six Months Ended
 
   
December 31,
 
   
2012
   
2011
 
Cost of Sales (excluding depreciation and amortization)
  $ 193,061     $ 410,329  

Cost of sales consists primarily of studio rent, attendant labor and Internet connectivity and excludes depreciation and amortization on the studios. The decrease in cost of sales for the six months ended December 31, 2012, over the comparable period for the prior fiscal year, is attributable, primarily, to the Company operating fewer studios in the current year.
 
Other Operating Expenses
           
             
 
Six Months Ended
 
 
December 31,
 
 
2012
 
2011
 
Cost of Barter Exchanges
  $ -     $ 23,500  
Depreciation and Amortization Expense
    81,023       231,630  
General and Administrative Expenses
    1,483,001       2,138,355  
Total
  $ 1,564,024     $ 2,393,485  

 
 
 
34

 
 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
 
General and administrative expenses consist primarily of compensation and related costs for personnel and facilities to our finance, human resources, facilities, information technology, advertising, and expenses related to the issuance of stock compensation.  
 
General and administrative expenses decreased in the six-month period ended December 31, 2012 compared to the six months ended December 31, 2011 due to a decrease in advertising expenses from $33,352 in 2011 to $7,739 in 2012. The decrease in advertising expenses is due to the fact that our efforts during the period were focused primarily on the X Factor auditions and the relocation of studios after the auditions were completed.  Professional fees also decreased from $1,372,808 in 2011 to $794,213 in 2012.  The decrease in professional fees is primarily attributable to our issuing less Common Stock and warrants to various employees and consultants for services rendered during the period.  Director fees also decreased from $106,270 in 2011 to $39,233 in 2012.  The decrease in director fees is primarily attributable to decrease in stock based compensation during the period.  Other general and administrative expenses also decrease in 2012, when compared to the same period in 2011, as a result of the Company installing and deploying new studios, which did not occur in the current period.   
 
Other Income and Expenses
 
Six Months Ended
 
 
December 31,
 
 
2012
 
2011
 
Interest Expense
  $ (671,563 )   $ (581,419 )
Gain (Loss) on Extinguishment of Debt
    -       191  
Total
  $ (671,563 )   $ (581,228 )

The other income and expenses during the six months ended December 31, 2012, totaled $671,563 of net expenses, which consists of interest expense. During the comparable period in 2011, other income and expenses totaled $581,228 of net expenses, which was a combination of interest expense ($581,419) and other income ($191).  Interest has increased due to additional financing secured during the period.
 
   
Six Months Ended
 
   
December 31,
 
   
2012
   
2011
 
Net Income (Loss)
  $ (2,346,026 )   $ (3,274,165 )

Due to the Company’s cash position, we use our Common Stock as currency to pay many employees, vendors and consultants.  Once we have raised additional capital from outside sources, as well as generated cash flows from operations, we expect to reduce the use of Common Stock as a significant means of compensation. Under FASB ASC 718, “Accounting for Stock-Based Compensation”, these non-cash issuances are expensed at the equity instruments fair market value.  Absent these large non-cash expenses, our net loss would be $1,195,149 and $2,393,227 for the periods ended December 31, 2012 and 2011, respectively.

LIQUIDITY AND CAPITAL RESOURCES
 
The Company had revenues of $82,622 during the six months ended December 31, 2012 as compared to $110,877 in the comparable period of 2011.  The Company has incurred losses since inception of $39,523,656.  At December 31, 2012, the Company has negative working capital of $3,977,229, which is a decrease in working capital of $1,118,459 from June 30, 2012.  The decrease in the working capital was primarily due to lower cash balances and additional short-term borrowings.
 
The future of the Company as an operating business will depend on its ability to obtain sufficient capital contributions and/or financing as may be required to sustain its operations.  Management’s plan to address these issues includes a continued exercise of tight cost controls to conserve cash and obtaining additional debt and/or equity financing.
  
As we continue our activities, we will continue to experience net negative cash flows from operations, pending receipt of significant revenues that generate a positive sales margin.  

 
 
 
35

 
 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
 
The Company expects that additional operating losses will occur until net margins gained from sales revenue is sufficient to offset the costs incurred for marketing, sales and product development. Until the Company has achieved a sales level sufficient to break even, it will not be self-sustaining or be competitive in the areas in which it intends to operate. 
 
In addition, the Company will require substantial additional funds to continue production and installation of the additional studios and to fully implement its marketing plans.  
 
The Company’s management team believes that its success depends on the Company’s ability to raise additional capital, deploy multiple studios and create strategic partnerships that drive traffic to the studios.  The Company’s current seven studios are insufficient to generate adequate revenues to achieve overall profitability for the Company.  By deploying multiple studios, the Company believes that it will be able to successfully implement its business plan, attract a greater number of strategic partnerships and achieve profitability.
 
As of December 31, 2012, the existing capital and anticipated funds from operations were not sufficient to sustain Company operations or the business plan over the next twelve months.  We anticipate substantial increases in our cash requirements which will require additional capital to be generated from the sale of Common Stock, the sale of Preferred Stock, equipment financing, debt financing and bank borrowings, to the extent available, or other forms of financing to the extent necessary to augment our working capital.  In the event we cannot obtain the necessary capital to pursue our strategic business plan, we may have to significantly curtail our operations.  This would materially impact our ability to continue operations. There is no assurance that the Company will be able to obtain additional funding when needed, or that such funding, if available, can be obtained on terms acceptable to the Company.  
 
Recent global events, as well as domestic economic factors, have recently limited the access of many companies to both debt and equity financings. As such, no assurance can be made that financing will be available, or available on terms acceptable to the Company, and, if available, it may take either the form of debt or equity. In either case, any financing will have a negative impact on our financial condition and will likely result in an immediate and substantial dilution to our existing stockholders.  
 
Although the Company intends to engage in a subsequent equity offering of its securities to raise additional working capital for operations and studio manufacturing, the Company has no firm commitments for any additional funding, either debt or equity, at the present time.  Insufficient financial resources may require the Company to delay or eliminate all or some of its development, marketing and sales plans, which could have a material adverse effect on the Company’s business, financial condition and results of operations.  There is no certainty that the expenditures to be made by the Company will result in a profitable business proposed by the Company.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.


ITEM 4T.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer, President, and Chief Financial Officer (the “Certifying Officers”) are responsible for establishing and maintaining disclosure controls and procedures for the Company.  The Certifying Officers have designed such disclosure controls and procedures to ensure that material information is made known to them, particularly during the period in which this Report was prepared.
 
 The Certifying Officers responsible for establishing and maintaining adequate internal control over financial reporting for the Company used the “Internal Control over Financial Reporting Integrated Framework” issued by Committee of Sponsoring Organizations (“COSO”) to conduct an extensive review of the Company’s “disclosure controls and procedures” (as defined in the Exchange Act, Rules 13a-15(e) and 15-d-15(e)) as of the end of each of the periods covered by this Report (the “Evaluation Date”).  Based upon that evaluation, the Certifying Officers concluded that, as of December 31, 2012 and June 30, 2012, our disclosure controls and procedures were ineffective in ensuring that the information we were required to disclose in reports that we file or submit under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms.
 
The Certifying Officers based their conclusion on the fact that the Company has identified material weaknesses in controls over financial reporting, detailed below.  In order to reduce the impact of these weaknesses to an acceptable level, hawse have contracted with consultants with expertise in U.S. GAAP and SEC financial reporting standards to review and compile all ITEM financial information prior to filing that information with the SEC.  However, even with the added expertise of these consultants, we still expect to be deficient in our internal controls over disclosure and procedures until sufficient capital is available to hire the appropriate internal accounting staff and individuals with requisite GAAP and SEC financial reporting knowledge.  There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 
 
 
36

 
 

ITEM 4T. CONTROLS AND PROCEDURES – continued

Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  Management used the “Internal Control over Financial Reporting Integrated Framework” issued by COSO to conduct an extensive review of the Company’s internal controls over financial reporting to make that evaluation.  As of December 31, 2012 and June 30, 2012, the Company had identified deficiencies in internal controls that constituted material weaknesses in internal controls. Due to these material weaknesses, management concluded that internal controls over financial reporting as of December 31, 2012 and June 30, 2012 were ineffective, based on COSO’s framework.  
 
The deficiencies are attributed to the fact that the Company does not have adequate resources to address complex accounting issues, as well as an inadequate number of persons to whom it can segregate accounting tasks within the Company so as to ensure the segregation of duties between those persons who approve and issue payment from those persons who are responsible to record and reconcile such transactions within the Company’s accounting system.  These control deficiencies will be monitored and attention will be given to the matter as we continue to accelerate through our current growth stage.
 
Management has concluded that these control deficiencies constitute a material weakness that continued throughout fiscal year 2012.  In order to reduce the impact of these weaknesses to an acceptable level, we have contracted with consultants with expertise in U.S. GAAP and SEC financial reporting standards to review and compile all financial information prior to filing that information with the SEC.  However, even with the added expertise of these consultants, we still expect to be deficient in our internal controls over disclosure and procedures until sufficient capital is available to hire the appropriate internal accounting staff and individuals with requisite GAAP and SEC financial reporting knowledge.  There were no significant changes in our internal control over financial reporting or in other factors that occurred during our most recent fiscal year that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
 
 
PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company may become involved in certain legal proceedings and claims which arise in the normal course of business. In addition, from time to time, third parties may assert intellectual property infringement claims against the Company in the form of letters and other forms of communication. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the Company’s results of operations, prospects, cash flows, financial position and brand.  
 
The Company was a defendant in a suit brought by one if its suppliers.  The Company has defended the claim alleging that the vendor failed to deliver the goods and services contracted for.  A tentative settlement agreement has been negotiated pursuant to which, if executed, will result in the Company paying the vendor approximately $75,000 in equal payments, without interest, over a period of eighteen months.
 
Except as described in the preceding paragraph, to the best knowledge of the Company’s management, at December 31, 2012, there are no legal proceedings which the Company believes will have a material adverse effect on its business, results of operations, cash flows or financial condition.
 
 
ITEM 1A - RISK FACTORS
 
You should carefully consider the risk factors and other uncertainties set forth below and all other information contained in this Report, as well as the public disclosure documents incorporated by reference herein.  If any of the events contemplated by the following risks actually occurs, then our business, financial condition, or results of operations could be materially adversely affected. As a result, the trading price of our Common Stock could decline, and you may lose all or part of your investment. The risks and uncertainties below are not the only risks facing our company.   Additional risks and uncertainties, including those that are not yet identified or that we currently believe are immaterial, may also adversely affect our business, financial condition or operating results.  
  



 
 
 
37

 
 

ITEM 1A - RISK FACTORS - continued
 
History of Operations and Dependence on Future Developments.
 
We own proprietary audio/video recording technologies, patents, patent and trademark applications, studio design, methods and related concepts for the MyStudio HD Recording Studios and AfterMaster.  
 
MyStudio is a self-contained interactive video recording studio designed for installation in shopping malls and other pedestrian high traffic public areas.  The studios enable the public, for a fee, to record their video and voice images in a stand alone, state-of-the-art recording studio and enter their MyStudio performances in music, modeling and other talent related contests.  In addition, MyStudio can be used to record video resumes, dating profiles and personal messages.  We believe the MyStudio methods, processes and business model are proprietary and a unique opportunity in the entertainment industry. 
 
We opened our first studio in September 2008 and have since installed multiple studios in the U.S.  We intend to continue placing our studios in malls across America, as well as expand into other high traffic locations and theme parks.  Ultimately, MyStudio intends to be a one-stop accessible facility that acts as a link between an entertainment hopeful and the acting, fashion and music industries.  Our revenues are generated by services provided by the studio, as well as through website advertising. 
 
Subsequently, we have introduced our audio mastering technologies, AfterMaster and ProMaster.  The AfterMaster technology has been utilized by some of the top name artists within the music industry.  We are in discussions with record labels about adopting the technology for use in re-monetizing their music catalogues, as well as engaging in discussions with consumer electronics companies interested in utilizing the technology for their products.  ProMaster was recently introduced to the public. 
 
We have a history of losses and will likely realize future losses.  Both MyStudio and AfterMaster have limited operations and are currently generating modest revenues.  
 
We are dependent upon our management, certain shareholders and investors for fundraising.  We expect additional operating losses will occur until revenues are sufficient to offset our costs for marketing, sales, general and administrative and product and services development.  We are subject to all of the risks inherent in establishing an early stage business enterprise.  Since we have limited operations, there can be no assurance that our business plan will be successful.  The potential for our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered with an early stage business and the competitive environment in which we will operate.  A prospective investor should be aware that if we are not successful in achieving our goals and achieving profitability, any money invested in us will likely be lost.  Our management team believes that our potential near-term success depends on our success in manufacturing, marketing and selling our products and services. 
 
As an early stage company, we are particularly susceptible to the risks and uncertainties described herein, and we will be more likely to incur the expenses associated with addressing them.  Our business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in early stages of development.  These risks are particularly severe among companies in new markets, such as those markets in which we expect we will operate.  Accordingly, shareholders will bear the risk of loss of their entire investment in our shares.  
  
New Business Model.
 
We have a relatively new business model in an emerging and rapidly evolving market.  Accordingly, this makes it difficult to evaluate our future prospects and may increase the risk that we will not continue or be successful.  We will encounter risks and difficulties as a company operating in a new and rapidly evolving market.  We may not be able to successfully address these risks and difficulties, which could materially harm our business and operating results.  

Limited Capital and Need for Additional Financing.
 
The funds currently available to us are inadequate to fully implement our business plan.  Until we have achieved revenues sufficient for us to break-even, we will not be a self-sustaining entity, which could adversely impact our ability to be competitive in the areas in which do and intend to operate.  We require additional funding for continued operations and will therefore be dependent upon our ability to raise additional funds through bank borrowing, equity or debt financing or asset sales. We expect to access the public and private equity and/or debt markets periodically to obtain the funds we need to support our operations and continued growth.  There is no assurance that we will be able to obtain additional funding when needed, or that such funding, if available, can be obtained on terms acceptable to us.  If we require, but are unable to obtain, additional financing in the future on acceptable terms, or at all, we will not be able to continue our business strategy, respond to changing business or economic conditions, withstand adverse operating results or compete effectively.  If we cannot obtain needed funds, we may be forced to curtail, in whole or in part, or cease its activities altogether.  When additional shares are issued to obtain financing, current shareholders will suffer a dilutive effect on their percentage of stock ownership.   

 
 
 
38

 
 

ITEM 1A - RISK FACTORS - continued
 
We require substantial capital to manufacture our recording studios.  Although we intend to engage in subsequent debt and equity offerings of our securities to raise additional working capital for operations, studio manufacturing and the AfterMaster operations, we have no firm commitments for any additional funding, either debt or equity, at the present time.  Insufficient financial resources may require us to delay or eliminate all or some of our sales and marketing efforts to generate revenues for both MyStudio and AfterMaster, which could have a material adverse effect on our business, financial condition and results of operations.  There is no certainty that our expenditures will result in a profitable business as proposed.
  
Lack of Diversification.

Our size makes it unlikely that we will be able to commit our funds to diversify the business until we have a proven track record, and we may not be able to achieve the same level of diversification as larger entities engaged in this type of business.
  
Competition.
 
We know of no competitors offering a similar high-quality, in-mall HD recording studio experience.  We believe that we are first to market with a recording studio with such functionality and quality combined with a groundbreaking website.  It would require a competitor significant time and capital to design, develop and manufacture a recording studio with similar functionality and features, giving us valuable time to gain consumer recognition and a foothold in the market.  Additionally, we have pursued an aggressive intellectual property strategy, including the recent approval of a patent that provides additional competitive barriers.
 
Additionally, based on feedback from executives within the music industry, we have not been made aware of any significant competitors offering an audio enhancement technology of the same quality level as AfterMaster.
 
While the technologies surrounding MyStudio and AfterMaster are cutting edge and unique, we believe there are other factors that will separate us from competitors.  We have embarked on an aggressive intellectual property protection program which we believe will be significant barriers to market entry to potential competitors for our current product offerings.  In addition, we employ individuals who have long standing relationships and expertise in various segments of the entertainment, marketing, finance and communications industries, which we expect will help facilitate the negotiation of favorable partnerships, sponsorships and industry support for MyStudio and AfterMaster.
 
Nonetheless, many potential competitors have greater name recognition, industry contacts and more extensive customer bases that could be leveraged to accelerate their competitive activity.  Moreover, potential competitors may establish future cooperative relationships among themselves and with third parties to enhance their products and services in this market space in which we propose to operate.  Consequently, competitors or alliances may emerge and rapidly acquire significant market share.  We cannot assure you
 
that we will be able to compete effectively with any competitor should they arise or that the competitive pressures faced by us will not harm our business. Such intense competition will limit our opportunities and have a materially adverse effect on our profitability or viability.
 
Our web property competes in a growing social media market with companies like Facebook, YouTube and MySpace.  We believe our HD-quality and user-generated content is unique and may allow us to differentiate ourselves from other social media.

Performance - Market Acceptance

The quality of our products, services, its marketing and sales ability, and the quality and abilities of our personnel are among the operational keys to our success.  We are heavily dependent upon successfully completing our product development, gaining market acceptance and subsequently recruiting and training a successful sales and marketing force.  There can be no assurance that we will be successful in attracting, training or retaining the key personnel required to execute the business plan.  Also, there can be no assurance that we can complete development of new technologies so that other companies possessing greater resources will not surpass it.  There can be no assurance that we can achieve our planned levels of performance.  If we are unsuccessful in these areas, it could have a material adverse effect on our business, results of operations, financial condition and forecasted financial results.  The entertainment industry may resist our business plan and refuse to participate in contests and other sponsorship events.   In that case we would be forced to fund and sponsor our own contests which would affect operating capital, liquidity and revenues.   The music industry may also resist the adoption of our AfterMaster technology for new and catalogue releases.

 
 
 
 
39

 
 

ITEM 1A - RISK FACTORS - continued

Dependence on Intellectual Property - Design and Proprietary Rights.
 
Our success and ability to compete depends to a degree on our intellectual property.  We will rely on copyright, trademark and patent filings as well as confidentiality arrangements, to protect our intellectual property locally and internationally.  Studio One and its subsidiaries have filed numerous patent applications relating to MyStudio, AfterMaster and related technologies and processes, and while we believe the technologies, methods and processes merit patent protection, there is no assurance that any patent will be issued.  If circumstances make it impossible to try to adequately protect our intellectual property, that intellectual property could be used by others without our consent and there could be material adverse consequences to us. We have filed several trademark applications and have received Notices of Allowance on four of those applications. Effective protection may not be available for our service marks. Although we plan to continue to register our service marks in the United States and in countries in which we do business or expect to do business, we cannot assure you that we will be able to secure significant protection for these marks. Our competitors, if any exist, or others may adopt product or service names similar to ours, thereby impeding our ability to build brand identity and possibly leading to client confusion. If circumstances make it impossible to adequately protect the name and brand, this could seriously harm our business.
 
Policing unauthorized use of our intellectual property is made especially difficult by the global nature of the high technology industry and difficulty in controlling hardware and software.  The laws of other countries may afford us little or no effective protection for our intellectual property.  We cannot assure you that the steps we take will prevent misappropriation of our intellectual property or that agreements entered into for that purpose will be enforceable. In addition, litigation may be necessary in the future to enforce our intellectual property rights; determine the validity and scope of the proprietary rights of others; or defend against claims of infringement or invalidity.  Such litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources, either of which could seriously harm our business.  There can be no assurance that our competitors, some of which have substantially greater resources, will not obtain patents or other intellectual property protection that will restrict our ability to make and sell our products.  If we are unsuccessful in protecting proprietary and intellectual property rights to the MyStudio and/or AfterMaster related business methods and websites, it could have a material adverse effect on our business, results of operations, financial condition and value, and financial results.
   
Economic Downturn.
 
We are susceptible to adverse impacts caused by domestic and/or international economic downturns (including the current challenging economic landscape) in the markets in which do or propose to operate, as well as broader economic downturns affecting a region, or a particular industry sector in which we propose to operate.  There can be no assurance that we will survive any such economic downturn, or if we do survive, that we will be capable of executing or furthering, to any meaningful degree, the originally conceived business plans.
  
Some of Our Markets are Cyclical.
 
Some of our markets are cyclical, and a decline in any of these markets could have a material adverse effect on our operating performance.   Our business is cyclical and dependent on consumer and business spending and is therefore impacted by the strength of the economy generally, interest rates, and other factors, including national, regional and local slowdowns in economic activity and job markets, which can result in a general decrease in product demand from professional contractors and specialty distributors.  For example, a slowdown in economic activity that results in less discretionary income for entertainment and music can have an adverse effect on the demand for some or all of our products.  In addition, unforeseen events, such as terrorist attacks or armed hostilities, could negatively affect our industry or the industries in which our customers operate, resulting in a material adverse effect on our business, results of operations and financial condition.

Disaster.
 
A disaster that disables our operations will negatively impact our ability to perform for a period of time.
 
Dependency on Foreign Components for our Products.
 
We do and expect to continue sourcing components for our products from both inside and outside of the United States, which may present additional risks to our business.  International sourcing of components subject to various risks, including political, religious and economic instability, local labor market conditions, the imposition of foreign tariffs and other trade restrictions, the impact of foreign government regulations, and the effects of income and withholding tax, governmental expropriation, and differences in business practices.  We may incur increased costs and experience delays or disruptions in product deliveries and payments in connection with component manufacturers, thus causing a potential loss of revenues. Unfavorable changes in the political, regulatory, and business climate could have a material adverse effect on our financial condition, results of operations, and cash flows.

Exposure to Product Liability Lawsuits.
  
Our results of operations may be negatively impacted by product liability lawsuits.   While we expect to maintain what we believe to be suitable product liability insurance once we have commenced operations of services with the general public, we cannot assure you that we will be able to maintain this insurance on acceptable terms or that this insurance will provide adequate protection against potential liabilities.  A series of successful claims against us could materially and adversely affect our ITEM reputation and our financial condition, results of operations, and cash flows.

 
 
 
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ITEM 1A - RISK FACTORS - continued

Dependency on Key Suppliers and Product Availability.
 
Loss of key suppliers, lack of product availability or loss of delivery sources could delay product development, manufacturing and decrease sales and earnings.  Our ability to manufacture our studios is dependent upon our ability to obtain adequate product supply from manufacturers or other suppliers. While in many instances we have agreements, including supply agreements, with our suppliers, these agreements are generally terminable by either party on limited notice.  The loss of, or a substantial decrease in the availability of, products from certain of our suppliers, or the loss of key supplier agreements, could have a material adverse effect on our business, results of operations and financial condition.  In addition, supply interruptions could arise from shortages of raw materials, labor disputes or weather conditions affecting products or shipments, transportation disruptions or other factors beyond our control.
  
Dependency on Long Supply Chains.
 
In some cases we are dependent on long supply chains, which may subject us to interruptions in the supply of many of the products or components used in the manufacturing and assembly of MyStudio.   The length and complexity of these supply chains make them vulnerable to numerous risks, many of which are beyond our control, which could cause significant interruptions or delays in delivery of our products.  Factors such as labor disputes, changes in tariff or import policies, severe weather or terrorist attacks or armed hostilities may disrupt these supply chains.  A significant interruption in our supply chains caused by any of the above factors could result in increased costs or delivery delays and have a material adverse effect on our business, results of operations and financial condition.
  
Fluctuations in Cost of Raw Materials.
 
Our results of operations could be adversely affected by fluctuations in the cost of raw materials.   The manufacturing process is subject to world commodity pricing for some of the raw materials used in the manufacture of our studios.  Such raw materials are often subject to price fluctuations, frequently due to factors beyond our control, including changes in supply and demand, general U.S. and international economic conditions, labor costs, competition, and government regulation.  Inflationary and other increases in the costs of raw materials have occurred in the past and may recur in the future.  Any significant increase in the cost of raw materials could reduce our profitability and have a material adverse effect on our business, results of operations and financial condition.
  
Regulatory Factors.

Our business model includes a component involving the Internet.  As such, we are subject to a number of foreign and domestic laws and regulations that effect business on the Internet.  We must contend with laws and regulations relating to user privacy, freedom of expression, content, advertising, information security and intellectual property rights of others.  Possible future consumer legislation, regulations and actions could cause additional expense, capital expenditures, restrictions and delays in the activities undertaken in connection with our business, the extent of which cannot be predicted.  The exact affect of such legislation cannot be predicted until it is proposed.

Terms of Subsequent Financings.
 
Terms of subsequent financings may adversely impact your investment.  We will engage in common equity, debt, and/or preferred stock financings in the future.  Your rights and the value of your investment in Preferred or Common Stock could be reduced.  Interest on debt securities could increase costs and negatively impacts operating results.  Shares of our Preferred Stock may be issued in series from time to time with such designations, rights, preferences, and limitations as needed to raise capital. The terms of Preferred stock could be more advantageous to those investors than to the holders of Common Stock. In addition, if we need to raise more equity capital from the sale of common or preferred stock, institutional or other investors may negotiate terms at least as, and possibly more, favorable than the terms of your investment. Shares of Common Stock which we sell could be sold into the market, which could adversely affect the market price.

Rapid Technological Change.
 
The industries in which we operate are characterized by rapid technological change that requires us to implement new technologies on an ongoing basis.  Our future will depend upon our ability to successfully implement new technologies in a rapidly changing technological environment.  We will likely require additional capital to develop new technologies to meet changing customer demands.  Moreover, expenditures for technology and product development are generally made before the commercial viability for such developments can be assured.  As a result, we cannot assure that we will successfully implement new technologies, that any implementations will be well received by customers, or that we will realize a return on the capital expended to develop such technology.

 
 
 
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ITEM 1A - RISK FACTORS - continued

Effect of Fluctuations in Operations on the Price of Common Stock.
 
Our future operating results may fluctuate and cause the price of our Common Stock to decline, which could result in substantial losses for investors.   Our limited operating history makes it difficult to predict accurately our future operations.  We expect that our operating results will fluctuate significantly from quarter to quarter, due to a variety of factors, many of which are beyond our control.  If our operating results fall below the expectations of investors or securities analysts, the price of our Common Stock could decline significantly.  The factors that could cause our operating results to fluctuate include, but are not limited to:
 
 
Ability to broadly commercialize and expand MyStudio and/or AfterMaster;
 
Changes in entertainment technology;
 
Price and availability of alternative entertainment available to the public;
 
Availability and cost of technology and marketing personnel;
 
Our ability to establish and maintain key relationships with industry partners;
 
The amount and timing of operating costs and capital expenditures relating to maintaining our business, operations, and infrastructure; and
 
General economic conditions and economic conditions specific to the entertainment industry.
 
These and other external factors have caused and may continue to cause the market price and demand for our Common Stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of Common Stock and may otherwise negatively affect the liquidity of our Common Stock. In the past, securities class action litigation has often been brought against companies following periods of volatility in the market price of their securities.  If securities class action litigation were to be brought against us, it could result in substantial costs and a diversion of our management’s attention and resources, which could hurt our business.
  
Our Common Stock is Subject to Penny Stock Regulations.
 
Our Common Stock is subject to regulations of the SEC relating to the market for penny stocks.  These regulations generally require that a disclosure schedule explaining the penny stock market and the risks associated therewith be delivered to purchasers of penny stocks and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors.  The regulations applicable to penny stocks may severely affect the market liquidity for our Common Stock and could limit your ability to sell your securities in the secondary market.
 
Uncertainty as a Going Concern.
 
Our future existence remains uncertain and the report of our independent auditors on our financial statements for the year ended June 30, 2012 included an explanatory paragraph relating to our ability to continue as a going concern.  We have suffered substantial losses from operations and require additional financing.  Ultimately we need to generate additional revenues and attain profitable operations.  These factors raise substantial doubt about our ability to continue as a going concern. There can be no assurance that we will be able to develop commercially viable products or an effective marketing system. Even if we are able to develop commercially viable products, there is no assurance that we will be able to attain profitable operations.
 
Dilution; Dilutive Effect of Future Transactions.
 
As of December 31, 2012, we had 39,834,598 shares of Common Stock, $0.001 par value, issued and outstanding.  We have granted options to purchase 698,429 shares of Common Stock pursuant to our 2009 Long-Term Incentive Plan approved by the Board on June 10, 2009, and contemplate issuing options to purchase a maximum of 773,000 additional shares of Common Stock under this Plan.  We may also issue further shares to certain of our management, directors, officers, employees and consultants in the immediate future.  We also had 1,220,044 shares of various classes of Convertible Preferred Stock outstanding, which can be converted to 1,407,092 shares of Common Stock.  We had outstanding convertible debt with a face value of $3,950,000, which can be converted into approximately 1,883,850 shares of Common Stock. In addition, we had warrants outstanding that would permit, if exercised, the issuance of 7,016,830 additional shares of Common Stock at an average exercise price of $0.70.  Issuing additional shares will result in further dilution to existing shareholders, which could be significant; meaning your percentage ownership of any such merged entity will be significantly less than your percentage ownership in us.  If we issue additional shares either outright or through any future options or warrants programs or requires additional financing, further dilution in value and in the percentage ownership represented by the purchaser’s investment will occur.

Future debt or equity transactions, as well as related grants and subsequent exercise of associated Common Stock warrants, could result in dilution.  From time to time, we sell restricted preferred or common stock, warrants, and convertible debt to investors in other private placements.  Because such stock is restricted, the stock is sold at a greater discount to market prices compared to a public stock offering, and the exercise price of related warrants, if any, sometimes is at or even lower than market prices.  These transactions cause dilution to existing stockholders.  Also, from time to time, options are issued to officers, directors, or employees, with exercise prices equal to the market price.  Warrants may also be issued to advisors and vendors at times in lieu or in addition to other compensation. Exercises of options and warrants will result in dilution to existing stockholders.  The amount of dilution will depend on the spread between the market and exercise price, and the number of shares involved, which could be significant.

 
 
 
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ITEM 1A - RISK FACTORS - continued

Restrictions on Transfer - No Public Market for Preferred Shares or Restricted Common Shares.
 
Our shares of Common Stock are traded on the Over-The-Counter Bulletin Board System (OTCBB) under the ticker symbol SOMD.  However, for shares that have been issued and are restricted pursuant to SEC Rule 144 of the Securities Act of 1933 (the “Act”), there is presently no public or private market for such shares.  Such shares may only be offered or sold pursuant to registration under or an exemption from the Act and have not been registered under the Act, as amended, or any State securities laws and would be issued under Section 4(2) of the Act and Rule 506 of Regulation D promulgated under the Act. 
  
Expect to Incur Losses for the Foreseeable Future.
 
We expect to incur losses for the foreseeable future and we may never become profitable.   Our business model requires that additional studios be deployed and operating for us to generate enough revenues to reach break-even.  There are no assurances that significant revenues from MyStudio and/or AfterMaster necessary for the Company to become break-even will occur. We expect our expenses to increase significantly as we continue to develop the infrastructure necessary to fully implement our business strategy.  Our expenses will continue to increase as we: hire additional employees; implement our marketing plans; pursue further research and development; expand our information technology systems; and lease and purchase more space to accommodate our operations.
 
Costs associated with designing, developing, manufacturing, marketing and developing the infrastructure we will need to support our customers will depend upon many factors, including the number of MyStudio locations.  Therefore, we cannot now determine the amount by which our expenses will increase as we grow.
  
Possible Claims That the Company Has Violated Intellectual Property Rights of Others.
 
We are not subject to any dispute, claim or lawsuit or threatened lawsuit alleging the violation of intellectual property rights of a third party.  We believe MyStudio and AfterMaster are not in violation of any patents claimed by others.  To the extent that the

Company is ever alleged to have violated a patent or other intellectual property right of a third party, it may be prevented from operating its business as planned, and it may be required to pay damages, to obtain a license, if available, to use the patent or other right or to use a non-infringing method, if possible, to accomplish its objectives. Any of these claims, with or without merit, could subject us to costly litigation and the diversion of our technical and management personnel. If we incur costly litigation and our personnel are not effectively deployed, the expenses and losses incurred will increase, and our profits, if any, will decrease.
  
Business Plans and Operational Structure May Change.
 
We continually analyze our business plans and operations in light of market conditions and developments.  As a result of our ongoing analyses, we may decide to make substantial changes in our business plan and organization.  In the future, as we continue our internal analyses and as market conditions and our available capital change, we may decide to make organizational changes and/or alter some or all of our overall business plans.
 
Reliance on Management.
 
We believe that our present management has the experience and ability to successfully implement our business plans for the foreseeable future.  However, it is likely that we will continue to add to our management and therefore will recruit additional persons to key management positions in the future.  Should we be unsuccessful in recruiting persons to fill the key positions or in the event any of these individuals should cease to be affiliated with us for any reason before qualified replacements can be hired, there could be material adverse effects on our business and prospects.  Each officer, director, and other key personnel has or will have an employment agreement with us which will contain provisions dealing with confidentiality of trade secrets, ownership of patents, copyrights and other work product, and non-competition.  Nonetheless, there can be no assurance that these personnel will remain employed for the entire duration of the respective terms of such agreements or that any employee will not breach covenants and obligations owed to us. 

In addition, all management decisions will be made exclusively by our officers and directors.  Investors will only have rights associated with minority ownership interest rights to make decisions that affect the Company.  Our success, to a large extent, will depend on the quality of our directors, officers and senior management.

 
 
 
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ITEM 1A - RISK FACTORS - continued

Inability to Attract and Retain Qualified Personnel.
  
Our future success depends in significant part on its ability to attract and retain key management, technical and marketing personnel.  Competition for highly qualified professional, technical, business development, and management and marketing personnel is intense.  We may experience difficulty in attracting new personnel, may not be able to hire the necessary personnel to implement our business strategy, or we may need to pay higher compensation for employees than we currently expect.  A shortage in the availability of required personnel could limit our ability to grow.  We cannot assure you that we will succeed in attracting and retaining the personnel we need to grow.
  
Inability to Manage Rapid Growth.
 
We expect to grow rapidly.  Rapid growth often places considerable operational, managerial and financial strain on a business.  To successfully manage rapid growth, we must accurately project its rate of growth and:
 
 
Rapidly improve, upgrade and expand our business infrastructure;
 
Deliver our product and services on a timely basis;
 
Maintain levels of service expected by clients and customers;
 
Maintain appropriate levels of staffing;
 
Maintain adequate levels of liquidity; and
 
Expand and upgrade our technology, transaction processing systems and network hardware or software or find third parties to provide these services.
 
Our business will suffer if we are unable to successfully manage our growth.
 
Effects of Amortization Charges/Stock Based Compensation. 
 
Our losses will increase, or our earnings, if applicable, will be reduced by charges associated with the issuance of options and/or warrants.  We have adopted a stock incentive plan for the benefit of our directors, officers and employees.  We may also compensate consultants and vendors with restricted stock and/or warrants in lieu of, or in addition to, cash for services provided. The total unearned stock-based compensation will be amortized as a stock-based compensation expense in our consolidated financial statements over the applicable vesting periods, generally two to ten years in the case of options granted to employees, officers and directors and two years in the case of warrants granted to consultants and other third parties.  These types of charges may increase in the future.  The future value of these potential charges cannot be estimated at this time because the charges will be based on the future value of our stock and the related exercises of the aforementioned options and warrants.
  
Dividend Policy.
 
There can be no assurance that our operations will result in future significant revenues or any level of profitability.  We have not, and do not, anticipate paying cash dividends on our Common Stock in the foreseeable future.  We plan to retain all future earnings and cash flows, if any, to finance our operations and for general corporate purposes.  Any future determination as to the payment of cash dividends will be at our Board of Directors’ discretion and will depend on our financial condition, operating results, current and anticipated cash needs, plans for expansion and other factors that our Board of Directors considers relevant.
 
Conflicts of Interest.
 
Existing and future officers and directors may have other interests to which they devote time, either individually or through partnerships and corporations in which they have an interest, hold an office, or serve on boards of directors, and each may continue to do so.  As a result, certain conflicts of interest may exist between the Company and its officers and/or directors that may not be susceptible to resolution.  All potential conflicts of interest will be resolved only through exercise by the directors of such judgment as is consistent with their fiduciary duties to the Company, and it is the intention of management to minimize any potential conflicts of interest.
 
Loss of Services of Key Members of Our Senior Management Team.
 
Our future success depends in a large part upon the continued services of key members of our senior management team.  These persons are critical to the overall management of Studio One as well as the development of our technology, our culture and our strategic direction.  We do not maintain any key-person life insurance policies.  The loss of any of our management or key personnel could seriously harm our business.




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

We issued the following equity securities during the six months ended December 31, 2012.  We believe that the sale of the unregistered restricted Common Stock (the “Units”) noted above was exempt from registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Sections 4(2), and/or Regulation D, Rule 506. The Units were sold directly by us to accredited investors and did not involve a public offering or general solicitation. The purchasers of the Units were afforded an opportunity for effective access to files and records of our Company that contained the relevant information needed to make their investment decision, including our financial statements and 34 Act reports. We reasonably believed that the purchasers, immediately prior to purchasing the shares, had such knowledge and experience in our financial and business matters that they were capable of evaluating the merits and risks of their investment. The purchasers had the opportunity to speak with our management on several occasions prior to their investment decision.  All proceeds from the sale of these securities were used to continue the Company’s capital expenditures related to MyStudio, as well as for working capital and general corporate purposes.  Following is a summary of the shares of Common Stock issued during the six months ended December 31, 2012.

Common Stock:

 
·
450,800 shares of Common Stock for net cash proceeds of $106,700;

 
·
1,839,453 shares of Common Stock as share-based compensation to employees and non-employees;

 
·
1,046,744 shares of Common Stock as interest expense on outstanding notes payable; and

 
·
85,000 shares issued as related to the beneficial conversion feature.
 
The value of the share-based compensation was based on the market price of the stock on the day of issuance.
 
Warrants to Purchase Common Stock:
 
 
·
662,500 warrants issued with financing;

The estimated value of the Common Stock purchase warrants granted to such individuals was determined using the Black-Scholes pricing model.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the six months ended December 31, 2012, no matters were submitted to the shareholders for a vote.
 
 
ITEM 5. OTHER INFORMATION

Subsequent Events

None

 

 
 
 
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ITEM 6. EXHIBITS
 
a) The following Exhibits are filed herein:
 
NO.
TITLE
 
 
 
 
 

 




 
 
 
















 

 
 
 
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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
   

     
 
STUDIO ONE MEDIA, INC.
     
Date: February 19, 2013
By:  
/s/ Preston J. Shea
 
Preston J. Shea,
 
Title:   President and Chief Executive Officer


In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


     
 
STUDIO ONE MEDIA, INC.
     
Date: February 19, 2013
By:  
/s/ Preston J. Shea
 
Preston J. Shea,
 
Title:  Director, President, Chief Executive Officer, Secretary
 
     
 
STUDIO ONE MEDIA, INC.
     
Date: February 19, 2013
By:  
/s/ Joseph A Desiderio
 
Joseph A Desiderio
 
Title:   Chief Financial Officer
 
 
 




47