AFTERMASTER, INC. - FORM 10-Q - February 19, 2014

Attached files

file	filename
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
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
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

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, 2013

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).

x Yes o No

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, 2014, the number of shares outstanding of Common Stock, $0.001 par value, was 61,215,239 shares.

	STUDIO ONE MEDIA, INC.

	INDEX
	PART I - FINANCIAL INFORMATION
		PAGE NUMBER
Item 1.	Financial Statements	3

	Consolidated Balance Sheets – December 31, 2013 (unaudited) and June 30, 2013	3

	Consolidated Statements of Operations - For the three and six months ended December 31, 2013 and 2012 (unaudited)	4

	Consolidated Statements of Cash Flows - For the six months ended December 31, 2013 and 2012(unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosure About Market Risks	38

Item 4T.	Controls and Procedures	38
	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 3.	Defaults Upon Senior Securities	47

Item 4.	Submission of Matters to a Vote of Security Holders	47

Item 5.	Other Information	48

Item 6.	Exhibits	48

	SIGNATURES	49

STUDIO ONE MEDIA, INC.
Consolidated Balance Sheets

	December 31,				June 30,
	2013				2013
	(Unaudited)
ASSETS

Current Assets
Cash		$	76,782		$	165,258
Other Receivable			22,621			16,240
Other Current Assets			185			19,547

Total Current Assets			99,588			201,045

Property and Equipment, net			234,507			326,242
Property and Equipment, yet to be placed in service			93,357			93,357

Intangible Assets, net			17,790			16,689

Other Assets
Deposits			100,857			161,229

Total Other Long-term Assets			100,857			161,229

Total Assets		$	546,099		$	798,562

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts Payable		$	919,477		$	753,115
Accrued Expenses			57,630			50,725
Deferred Revenue			3,500			24,182
Consulting Services - Related Party			80,923			167,659
Lease Payable			31,626			21,743
Notes Payable - Related Party			575,000			575,000
Notes Payable			40,488			40,488
Convertible Notes Payable - Related Party			2,188,268			2,096,416
Convertible Notes payable			434,114			306,366

Total Current Liabilities			4,331,026			4,035,694

Long-Term Liabilities
Lease Payable, net of current portion			63,251			73,134
Convertible related party notes payable, net of current portion			1,725,000			1,724,439

Total Liabilities			6,119,277			5,833,267

Stockholders' Deficit
Convertible Preferred stock, Series A; $0.001 par value; 100,000 shares authorized, 15,500 shares issued and outstanding			16			16
Convertible Preferred stock, Series A-1; $0.001 par value; 3,000,000 shares authorized, 696,000 shares issued and outstanding			696			696
Convertible Preferred stock, Series B; $0.001 par value; 200,000 shares authorized, 3,500 shares issued and outstanding			3			3
Convertible Preferred stock, Series C; $0.001 par value; 1,000,000 shares authorized, 13,404 shares issued and outstanding			13			13
Convertible Preferred stock, Series D; $0.001 par value; 375,000 shares authorized, 130,000 shares issued and outstanding			130			130
Convertible Preferred stock, Series E; $0.001 par value; 1,000,000 shares authorized, 275,000 shares issued and outstanding			275			275
Convertible Preferred stock, Series P; $0.001 par value; 600,000 shares authorized, 86,640 shares issued and outstanding			87			87
Convertible Preferred stock, Series S; $0.001 par value; 50,000 shares authorized, -0- shares issued and outstanding			-			-
Common Stock, authorized 100,000,000 shares,
par value $0.001; 61,215,239 and 51,244,242 shares issued
and outstanding, respectively			61,217			51,243
Additional Paid In Capital			38,582,231			36,564,046
Accumulated Deficit			(44,217,846	)		(41,651,214	)

Total Stockholders' Deficit			(5,573,178	)		(5,034,705	)

Total Liabilities and Stockholders' Deficit		$	546,099		$	798,562

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

STUDIO ONE MEDIA, INC.
Consolidated Statements of Operations (Unaudited)

	For the Three Months Ended							For the Six Months Ended
	December 31,							December 31,
	2013				2012			2013			2012

REVENUES
Session Revenues		$	6,240		$	39,807		$	26,922		$	48,132
Advertising Revenues			-			-			-			2,000
AfterMaster Revenues			36,459			21,590			70,893			32,490
Total Revenues			42,699			61,397			97,815			82,622

COSTS AND EXPENSES
Cost of Revenues (Exclusive of Depreciation and Amortization)			122,915			68,415			207,857			193,061
Depreciation and Amortization Expense			26,880			53,603			54,794			81,023
General and Administrative Expenses			797,494			603,397			1,585,574			1,483,001

Total Costs and Expenses			947,289			725,415			1,848,225			1,757,085

Loss from Operations			(904,590	)		(664,018	)		(1,750,410	)		(1,674,463	)

Other Income (Expense)
Interest Expense			(395,066	)		(340,395	)		(798,257	)		(671,563	)
Gain (Loss) on Extinguishment of Debt			27,713			-			27,713			-
Gain (Loss) on Disposal of Property			-			-			(45,676	)		-

Total Other Income (Expense)			(367,353	)		(340,395	)		(816,220	)		(671,563	)

Loss Before Income Taxes			(1,271,943	)		(1,004,413	)		(2,566,630	)		(2,346,026	)

NET LOSS		$	(1,271,943	)	$	(1,004,413	)	$	(2,566,630	)	$	(2,346,026	)

Preferred Stock Accretion and Dividends			(17,016	)		(17,016	)		(34,032	)		(34,032	)

NET LOSS AVAILABLE TO COMMON SHAREHOLDERS		$	(1,288,959	)	$	(1,021,429	)	$	(2,600,662	)	$	(2,380,058	)

Basic and Diluted Loss Per Share of Common Stock		$	(0.02	)	$	(0.03	)	$	(0.05	)	$	(0.06	)

Weighted Average Number of Shares Outstanding			58,416,841			38,200,199			55,464,433			38,214,428

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

STUDIO ONE MEDIA, INC.
Consolidated Statements of Cash Flows (Unaudited)

	For the Six Months Ended
	December 31,
	2013				2012

OPERATING ACTIVITIES

Net Loss		$	(2,566,630	)	$	(2,346,026	)
Adjustments to reconcile to cash from operating activities:
Depreciation and amortization			54,794			81,023
Share-based compensation - Common Stock			379,566			478,480
Share-based compensation - warrants			114,626			10,089
Common stock issued for services and rent			264,961			276,268
Amortization of debt discount and issuance costs			254,160			386,040
(Gain)/Loss on Disposal of assets			45,676			2,002
Changes in Operating Assets and Liabilities:
Other receivables			(6,381	)		(10,765	)
Other assets			107,734			152,919
Lease payable			-			70,000
Accounts payable and accrued expenses			474,289			88,338

Net Cash Used in Operating Activities			(877,205	)		(811,632	)

INVESTING ACTIVITIES

Purchase of property and equipment			(9,836	)		(72,353	)

Net Cash Used in Investing Activities			(9,836	)		(72,353	)

FINANCING ACTIVITIES

Common Stock issued for cash, net of offering costs of $15,935 and $3,300, respectively			581,565			106,700
Proceeds from notes payable - related party			-			500,000
Proceeds from convertible notes payable - related party			-			100,000
Proceeds from convertible notes payable			225,000			85,000
Repayments of convertible notes payable			(8,000	)		-

Net Cash Provided by Financing Activities			798,565			791,700

NET DECREASE IN CASH			(88,476	)		(92,285	)
CASH AT BEGINNING OF PERIOD			165,258			99,637

CASH AT END OF PERIOD		$	76,782		$	7,352

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

CASH PAID FOR:
Interest		$	612		$	-

NON CASH FINANCING ACTIVITIES:
Common Stock issued to extinguish debt and liabilities		$	-		$	37,840
Common Stock and warrants issued for prepaid services		$	28,000		$	10,252
Common Stock and warrants issued for interest		$	251,000		$
Warrants and beneficial conversion feature on issuance of convertible debt		$	408,441		$	108,364

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

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 1 – CONDENSED FINANCIAL STATEMENTS

The accompanying financial statements have been prepared by the Company without 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, 2013, 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, 2013 audited financial statements. The results of operations for the periods ended December 31, 2013and June 2012 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 $44,217,846 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.

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

The fair value of the Company’s notes payable at December 31, 2013 is approximately $5,107,888 (carrying value of $4,962,869). 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 based on 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 three months ended December 31, 2013 and 2012 due to net operating losses for which there is no benefit currently available.

At December 31, 2013, 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.

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

Convertible notes payable consisted of the following as of December 31, 2013 and June 30, 2013, respectively:

Convertible Notes Payable – Related Parties
	December 31,		June 30,
	2013		2013

$250,000 face value, issued in February 2010, interest rate of 12%, matures in February 2013, net of unamortized discount of $0 and $0 at December 31, 2013 and June 30,2013, respectively.	$	250,000	$	250,000
$250,000 face value, issued in May 2010, interest rate of 12%, matures in May 2013, net of unamortized discount of $0 and $0 at December 31, 2013 and June 30,2013, respectively.		250,000		250,000
$250,000 face value, issued in August 2010, interest rate of 12%, matures in August 2013, net of unamortized discount of $0 and $24,559 at December 31, 2013 and June 30,2013, respectively.		250,000		225,441
$250,000 face value, issued in December 2010, interest rate of 12%, matures in December 2013, net of unamortized discount of $0 and $40,148 at December 31, 2013 and June 30,2013, respectively.		250,000		209,852
$250,000 face value, issued in November 2011, interest rate of 15%, matures in November 2012, net of unamortized discount of $0 and $0 as of December 31, 2013 and June 30,2013, respectively.		250,000		250,000
$250,000 face value, issued in December 2011, interest rate of 15%, matures in June 2013, net of unamortized discount of $0 and $0 as of December 31, 2013 and June 30,2013, respectively.		250,000		250,000
$100,000 face value, issued in December 2011, interest rate of 15%, matures in June 2013, net of unamortized discount of $0 and $0 as of December 31, 2013 and June 30,2013, respectively.		100,000		100,000

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 4 – NOTES PAYABLE - continued

$300,000 face value, issued in December 2011, interest rate of 15%, matures in June 2013, net of unamortized discount of $0 and $0 as of December 31, 2013 and June 30, 2013, respectively.	300,000	300,000
$100,000 face value, issued in February 2012, interest rate of 15%, matures in August 2013, net of unamortized discount of $0 and $1,168 as of December 31, 2013 and June 30, 2013, respectively.	100,000	98,832
$100,000 face value, issued in February 2012, interest rate of 15%, matures in August 2013, net of unamortized discount of $0 and $1,514 as of December 31, 2013 and June 30, 2013, respectively.	100,000	98,486
$150,000 face value, issued in March 2012, interest rate of 15%, matures in September 2013, net of unamortized discount of $0 and $1,111 as of December 31, 2013 and June 30, 2013, respectively.	150,000	148,889
$200,000 face value, issued in March 2012, interest rate of 15%, matures in September 2013, net of unamortized discount of $0 and $1,814 as of December 31, 2013 and June 30, 2013, respectively.	200,000	198,186
$200,000 face value, issued in April 2012, interest rate of 10%, matures in October 2013, net of unamortized discount of $0 and $2,450 as of December 31, 2013 and June 30, 2013, respectively.	200,000	197,550
$150,000 face value, issued in May 2012, interest rate of 10%, matures in November 2013, net of unamortized discount of $0 and $1,682 as of December 31, 2013 and June 30, 2013, respectively.	150,000	148,318
$125,000 face value, issued in June 2012, interest rate of 10%, matures in December 2013, net of unamortized discount of $0 and $1,897 as of December 31, 2013 and June 30, 2013, respectively.	125,000	123,103
$125,000 face value, issued in June 2012, interest rate of 10%, matures in December 2013, net of unamortized discount of $0 and $2,208 as of December 31, 2013 and June 30, 2013, respectively.	125,000	122,792
$50,000 face value, issued in August 2012, interest rate of 10%, matures in February 2014, net of unamortized discount of $0 and $0 as of December 31, 2013 and June 30, 2013.	50,000	50,000
$50,000 face value, issued in September 2012, interest rate of 10%, matures in March 2014, net of unamortized discount of $0 and $0 as of December 31, 2013 and June 30, 2013.	50,000	50,000
$100,000 face value, issued in October 2012, interest rate of 10%, matures in April 2014, net of unamortized discount of $938 and $2,662 as of December 31, 2013 and June 30, 2013.	99,062	97,338
$100,000 face value, issued in October 2012, interest rate of 10%, matures in April 2014, net of unamortized discount of $1,024 and $2,786 as of December 31, 2013 and June 30, 2013.	98,976	97,214
$50,000 face value, issued in October 2012, interest rate of 10%, matures in April 2014, net of unamortized discount of $458 and $1,192 as of December 31, 2013 and June 30, 2013.	49,542	48,808
$75,000 face value, issued in November 2012, interest rate of 10%, matures in May 2014, net of unamortized discount of $756 and $1,804 as of December 31, 2013 and June 30, 2013.	74,244	73,196
$25,000 face value, issued in November 2012, interest rate of 10%, matures in May 2014, net of unamortized discount of $507 and $1,159 as of December 31, 2013 and June 30, 2013.	24,493	23,841

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 4 – NOTES PAYABLE - continued

$50,000 face value, issued in November 2012, interest rate of 10%, matures in May 2014, net of unamortized discount of $1,052 and $2,358 as of December 31, 2013 and June 30, 2013.		48,948		47,642
$50,000 face value, issued in December 2012, interest rate of 10%, matures in June 2014, net of unamortized discount of $1,194 and $2,502 as of December 31, 2013 and June 2013.		48,806		47,498
$75,000 face value, issued in January 2013, interest rate of 10%, matures in July 2014, net of unamortized discount of $1,047 and $2,111 as ofDecember 31, 2013 and June 30, 2013.		73,953		72,889
$25,000 face value, issued in January 2013, interest rate of 10%, matures in July 2014, net of unamortized discount of $317 and $637 as of December 31, 2013 and June 30, 2013.		24,683		24,363
$35,000 face value, issued in January 2013, interest rate of 10%, matures in July 2014, net of unamortized discount of $545 and $1,099 as of December 31, 2013 and June 30, 2013.		34,455		33,901
$5,000 face value, issued in February 2013, interest rate of 10%, matures in August 2014, net of unamortized discount of $78 and $156 as of December 31, 2013 and June 30, 2013.		4,922		4,844
$10,000 face value, issued in February 2013, interest rate of 10%, matures in August 2014, net of unamortized discount of $186 and $374 as of December 31, 2013 and June 30, 2013.		9,814		9,626
$50,000 face value, issued in February 2013, interest rate of 10%, matures in August 2014, net of unamortized discount of $1.138 and $2,296 as of December 31, 2013 and June 30, 2013.		48,862		47,704
$50,000 face value, issued in March 2013, interest rate of 10%, matures in September 2014, net of unamortized discount of $872 and $1,746 as of December 31, 2013 and June 30, 2013.		49,128		48,254
$75,000 face value, issued in April 2013, interest rate of 10%, matures in October 2014, net of unamortized discount of $1620 and $2,712 as of December 31, 2013 and June 30, 2013.		73,380		72,288
Total convertible notes payable – related parties		3,913,268		3,820,855
Less current portion		2,188,268		2,096,416
Convertible notes payable – related parties, long-term	$	1,725,000	$	1,724,439

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.

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

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. 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 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. 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 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. The convertible note is in default and has been reclassified as current.

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. The convertible note is in default and has been reclassified as current.

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. The convertible note is in default and has been reclassified as current.

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 4 – NOTES PAYABLE - continued

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 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. The convertible note is in default and has been reclassified as current.

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. The convertible note is in default and has been reclassified as current.

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.

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 4 – NOTES PAYABLE - continued

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.

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.

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 4 – NOTES PAYABLE - continued

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.

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.

On January 14, 2013, the Company issued a convertible note to a related party for $75,000 that matures in July 14, 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.

On January 23, 2013, the Company issued a convertible note to a related party for $25,000 that matures in July 14, 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.

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 4 – NOTES PAYABLE - continued

On January 31, 2013, the Company issued a convertible note to a related party for $35,000 that matures in July 31, 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 8,750 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 $1,644, for a total debt discount of $1,644.

On February 5, 2013, the Company issued a convertible note to a related party for $5,000 that matures in August 5, 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 1,250 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 $234, for a total debt discount of $234.

On February 14, 2013, the Company issued a convertible note to a related party for $10,000 that matures in August 14, 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 2,500 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 $559, for a total debt discount of $559.

On February 22, 2013, the Company issued a convertible note to a related party for $50,000 that matures in August 22, 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.

On March 6, 2013, the Company issued a convertible note to a related party for $50,000 that matures in September 6, 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. The convertible note is in default and has been reclassified as current.

On April 8, 2013, the Company issued a convertible note to a related party for $75,000 that matures in October 8, 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.

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 4 – NOTES PAYABLE - continued

On April 18, 2013, the Company issued a convertible note to a related party for $30,000 that matures in September 18, 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 In May, 2013 the company repaid the full amount of the note and accrued interest.

Convertible Notes Payable - Non-Related Parties

Convertible notes payable due to non-related parties consisted of the following as of December 31, 2013 and June 30, 2013, respectively:

Convertible Notes Payable - Non-Related Parties
	December 31,		June 30,
	2013		2013

$100,000 face value, issued in September 2011, interest rate of 10%, originally matured in December 2011, extended to September 2013, net of unamortized discount of $0 and $4,064 as of December 31, 2013 and June 30,2013.	$	100,000	$	95,936
$10,000 face value, of which $8,000 has been paid back, issued in October 2011, interest rate of 10%, matures in June 2012, net of unamortized discount of $-0- as of December 31, 2013 and June 30,2013.		2,000		10,000
$15,000 face value, issued in October 2011, interest rate of 10%, matures in June 2012, net of unamortized discount of $-0- as of December 31, 2013 and June 30,2013.		15,000		15,000
$75,000 face value, issued in January 2012, interest rate of 12%, originally matured in June 2013, extended to September 2013, net of unamortized discount of $0 and $3,017 as of December 31, 2013 and June 30,2013.		75,000		71,984
$50,000 face value, of which $9,600 has been paid back, issued in August 2012, interest rate of 10%, matures in February 2013, net of unamortized discount of $-0- as of June 30, 2013.		50,000		50,000
$10,000 face value, issued in September 2012, interest rate of 10%, matures in March 2013, net of unamortized discount of $-0- as of December 31, 2013 and June 30,2013.		10,000		10,000
$50,000 face value of which $9,600 was converted leaving a $40,400 face value, issued in November 2012, interest rate of -0-%, matures in November 2013, net of unamortized discount of $0 and $13,789 as of December 31, 2013 and June 30, 2013.		40,400		26,611
$30,000 face value, issued in February 2013, interest rate of -0-%, matures in November 2013, net of unamortized discount of $0 and $10,487 as of December 31, 2013 and June 30, 2013.		30,000		19,513
$20,000 face value, issued in April 2013, interest rate of -0-%, matures in October 2013, net of unamortized discount of $0 and $12,678 as of December 31, 2013 and June 30, 2013.		20,000		7,322
$60,000 face value, of which $60,000 has been paid back, issued in July 2013, interest rate of 6%, matures in September 2013, net of unamortized discount of $0 as of December 31, 2013.		-		-
$100,000 face value, issued in September 2013, interest rate of 6%, matures in September 2013, net of unamortized discount of $8,088 as of December 31, 2013.		60,927		-

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 4 – NOTES PAYABLE - continued

$50,000 face value, issued in October 2013, interest rate of 0%, originally matured in November 2013, with an extended maturity date of May 2014, net of unamortized discount of $37,845 as of December 31, 2013.		12,155		-
$50,000 face value, issued in November 2013, interest rate of 0%, matures in May 2014, net of unamortized discount of $40,608 as of December 31, 2013.		9,392		-
$25,000 face value, issued in November 2013, interest rate of 0%, matures in February 27, 2014, net of unamortized discount of $15,761 as of December 31, 2013.		9,239		-
Total convertible notes payable – non-related parties		434,114		306,366
Less current portion		434,114		306,366
Convertible notes payable – non-related parties, long-term	$	-	$	-

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 5, 2011, the Company issued a convertible note for $100,000 that matures 90 days after issuance. The maturity date of the note can be extended, at the option of the holder, for a single 90 day period. 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 value of the BCF recorded was $26,000.

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. In September, 2013, the company paid 6,000 of the note.

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.

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 4 – NOTES PAYABLE - continued

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 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 note holder elected to convert the note and accrued interest on June 6, 2013.

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 note holder elected to convert the note and accrued interest on June 6, 2013.

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.

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 4 – NOTES PAYABLE - continued

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 $0.50 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 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 $0.50 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 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 one 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. The note holder elected to convert the note and accrued interest on June 3, 2013.

On February 13, 2013, the Company issued a convertible note to an unrelated individual for $30,000 that matures on November 28, 2013. 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 $30,000.

On March 7, 2013, the Company issued a convertible note to an unrelated individual for $65,000 that matures 60 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 $0.25 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 65,000 shares of restricted common stock. The value of the debt discount relate to the attached Common Stock was $8,376.

On June 5, 2013, the company paid the full balance of the note and $1,603 of accrued interest related to the note.

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 4 – NOTES PAYABLE - continued

On April 24, 2013, the Company issued a convertible note to an unrelated individual for $20,000 that matures on October 24, 2013. 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$20,000.

On July 30, 2013, the Company issued a convertible note to an unrelated individual for $60,000 that matures on September 30, 2013. The note bears an interest rate of 6% per annum and is convertible, along with all accrued interest, into shares of the Company’s Common Stock at $0.15 per share. 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 $26,000. Subsequent to period end on October 1, 2013, the Company paid the note and interest in full.

On September 30, 2013, the Company issued a convertible note to an unrelated individual for $100,000 that matures on February 28, 2014. The note bears an interest rate of 0% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. 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 $100,000.

On October 17, 2013, the Company issued a convertible note to an unrelated individual for $50,000 with an original maturity date of November 17, 2013,. The note bears an interest rate of 0% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. 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 original BCF recorded was $50,000. The note was amended on November 17, 2013 to extend the maturity date to May 17, 2014 and issued 25,000 common stock and 25,000 warrants as incentive to extending the maturity date. Under ASC 470-60-55-12, the debt was deemed to be extinguished and the company recognized a loss on extinguishment of debt $27,713 and recoded a BCF on the new terms of $50,000.

On November 5, 2013, the Company issued a convertible note to an unrelated individual for $50,000 that matures on May 5, 2014. The note bears an interest rate of 0% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. 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 $50,000.

On November 27, 2013, the Company issued a convertible note to an unrelated individual for $25,000 that matures on February 27, 2014. The note bears an interest rate of 0% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. 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 $25,000.

Non-convertible Notes Payable

Non-convertible notes payable due to related parties consisted of the following as of December 31, 2013 and June 30, 2013:

Non-Convertible Notes Payable – Related Parties

	December 31,			June 30,
	2013			2013

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

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 4 – NOTES PAYABLE - continued

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.

On October 12, 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 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.

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 4 – NOTES PAYABLE - continued

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

Non-convertible notes payable due to non-related parties consisted of the following as of December 31, 2013 and June 30, 2013:

Non-Convertible Notes Payable – Non-Related Parties
	December 31,			June 30,
	2013			2013

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 the following were issued outstanding:

	Shares		Shares		Liquidation
	Allocated		Outstanding		Preference
Series A Convertible Preferred		100,000		15,500		-
Series A-1 Convertible Preferred		3,000,000		696,000		773,115
Series B Convertible Preferred		200,000		3,500		79,099
Series C Convertible Preferred		1,000,000		13,404		-

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 5 – CONVERTIBLE PREFERRED STOCK - continued

Series D Convertible Preferred	375,000	130,000		130,000
Series E Convertible Preferred	1,000,000	275,000		275,000
Series P Convertible Preferred	600,000	86,640		-
Series S Convertible Preferred	50,000	-		-
Total Preferred Stock	6,325,000	1,220,044	$	1,257,214

The Company's Series A Convertible Preferred Stock ("Series A Preferred") is convertible into Common Stock at the rate of 0.025 share of Common stock for each share of the Series A Preferred. Dividends of $0.50 per share annually from date of issue, are payable from retained earnings, but have not been declared or paid.

The Company’s Series A-1 Senior Convertible Redeemable Preferred Stock (“Series A-1 Preferred”) is convertible at the rate of 2 shares of Common Stock per share of Series A-1 Preferred. The dividend rate of the Series A-1 Senior Convertible Redeemable Preferred Stock is 6% per share per annum in cash, or commencing on June 30, 2009 in shares of the Company’s Common Stock (at the option of the Company).

Due to the fact that the Series A-1 Preferred has certain features of debt and is redeemable, the Company analyzed the Series A-1 Preferred in accordance with ASC 480 and ASC 815 to determine if classification within permanent equity was appropriate. Based on the fact that the redeemable nature of the stock and all cash payments are at the option of the Company, it is assumed that payments will be made in shares of the Company’s Common Stock and therefore, the instruments are afforded permanent equity treatment.

The Company's Series B Convertible 8% Preferred Stock ("Series B Preferred") is convertible at the rate of 0.067 share of Common Stock for each share of Series B Preferred. Dividends from date of issue are payable on June 30 from retained earnings at the rate of 8% per annum but have not been declared or paid.

The Company's Series C Convertible Preferred Stock ("Series C Preferred") is convertible at a rate of 0.007 share of Common Stock per share of Series C Preferred. Holders are entitled to dividends only to the extent of the holders of the Company’s Common Stock receive dividends.

The Company's Series D Convertible Preferred Stock ("Series D Preferred") is convertible at a rate of 0.034 share of Common Stock per share of Series D Preferred. Holders are entitled to a proportionate share of any dividends paid as though they were holders of the number of shares of Common Stock of the Company into which their shares of are convertible as of the record date fixed for the determination of the holders of Common Stock of the Company entitled to receive such distribution.

The Company's Series E Convertible Preferred Stock ("Series E Preferred") is convertible at a rate of 0.034 share of Common Stock per share of Series E Preferred. Holders are entitled to a proportionate share of any dividends paid as though they were holders of the number of shares of Common Stock of the Company into which their shares of are convertible as of the record date fixed for the determination of the holders of Common Stock of the Company entitled to receive such distribution.

The Company's Series P Convertible Preferred Stock ("Series P Preferred") is convertible at a rate of 0.007 share of Common Stock for each share of Series P Preferred. Holders are entitled to dividends only to the extent of the holders of the Company’s Common Stock receive dividends.

In the event of a liquidation, dissolution or winding up of the affairs of the Company, holders of Series A Preferred Stock, Series P Convertible Preferred Stock, Series C Convertible Preferred Stock have no liquidation preference over holders of the Company’s Common Stock. Holders of Second Series B Preferred Stock have a liquidation preference over holders of the Company’s Common Stock and the Company’s Series A Preferred Stock. Holders of Series D Preferred Stock are entitled to receive, before any distribution is made with respect to the Company’s Common Stock, a preferential payment at a rate per each whole share of Series D Preferred Stock equal to $1.00. Holders of Series E Preferred Stock are entitled to receive, after the preferential payment in full to holders of outstanding shares of Series D Preferred Stock but before any distribution is made with respect to the Company’s Common Stock, a preferential payment at a rate per each whole share of Series E Preferred Stock equal to $1.00.

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 5 – CONVERTIBLE PREFERRED STOCK - continued

Holders of Series A-1 Preferred Stock are superior in rank to the Company’s Common Stock and to all other series of Preferred Stock heretofore designated with respect to dividends and liquidation.

The activity surrounding the issuances of the Preferred Stock is as follows:

During the Six Months ended December 31, 2013 and the fiscal year ended June 30, 2013, the Company issued -0- shares of Series A-1 Preferred Stock for $-0- in cash, net of $-0- of issuance costs, respectively.

During the fiscal year ended June 30, 2011, 1,187,000 shares of Series A-1 Preferred Stock, and the dividends accrued thereon, were converted into 206,099 shares of Common Stock. In conjunction with this issuance, the Company recognized an associated beneficial conversion feature based on the convertibility of the Preferred Shares into Common Shares at a ratio of 2 to 1. This resulted in an effective exercise price of $0.50 per share. The value of the BCF was determined based on the stock price on the day of commitment, the number of convertible shares, and the difference between the effective conversion price and the fair value of the Common Stock on the dates of issuance and is capped at the face value of the offering, in this case $1,187,000. The conversion feature was recorded in additional paid-in capital and the Preferred Stock was accreted to face value over six months, the first date the note holder could convert the security. As of June 30, 2012, the BCF was fully amortized.

During the fiscal year ended June, 2012, the Company converted 416,000 shares of Convertible Preferred Stock and accrued dividends of $23,071 into 877,550 shares of Common Stock.

During the fiscal year ended June 30, 2013, the outstanding Preferred Stock accumulated $34,032 in dividends.

During the six months ended December 31, 2013, the outstanding Preferred Stock accumulated $34,032 in dividends; in six months ended December 31, 2012 it accumulated $34,032 in dividends on outstanding Preferred Stock. The cumulative dividends in arrears through December 31, 2013 were approximately $637,115.

NOTE 6 – COMMON STOCK

The Company has authorized 100,000,000 shares of $0.001 par value per share Common Stock, of which 61,215,239 were issued outstanding as of December 31, 2013. The activity surrounding the issuances of the Common Stock is as follows:

For the Six Months Ended December 31, 2013

The Company issued 5,975,000 common shares for net cash proceeds of $581,565. The Company paid as offering costs $15,935 in cash offering costs and 46,000 in common stock offering costs. Offering costs paid in cash have been recorded as reductions to additional paid-in capital from common stock proceeds and common stock issued for offering costs have been expensed as compensation expenses. Attached to the Common Shares, the Company issued 196,804 warrants to purchase shares of the Company’s Common Stock. The Company recognized $114,626 in employee stock option expense and for the amortization of warrants issued in prior periods.

The Company also issued 510,000 shares of Common Stock as additional incentive for notes of $141,049 to convertible notes payable and recorded $251,000 in beneficial conversion features related to new issuances of debt.

As share-based compensation to employees and non-employees, the Company issued 1,970,458 shares of common stock valued at $531,478, based on the market price of the stock on the date of issuance. As interest expense on outstanding notes payable, the Company issued 1,471,784 shares of common stock valued at $408,441 based on the market price on the date of issuance.

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.

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 6 – COMMON STOCK - continued

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.

NOTE 7 – STOCK PURCHASE OPTIONS AND WARRANTS

The Board of Directors on June 10, 2009 approved the 2009 Long-Term Stock Incentive Plan. The purpose of the 2009 Long-term Stock Incentive Plan is to advance the interests of the Company by encouraging and enabling acquisition of a financial interest in the Company by employees and other key individuals. The 2009 Long-Term Stock Incentive Plan is intended to aid the Company in attracting and retaining key employees, to stimulate the efforts of such individuals and to strengthen their desire to remain with the Company. A maximum of 1,500,000 shares of the Company's Common Stock is reserved for issuance under stock options to be issued under the 2009 Long-Term Stock Incentive Plan. The Plan permits the grant of incentive stock options, non-statutory stock options and restricted stock awards. The 2009 Long-Term Stock Incentive Plan is administered by the Board of Directors or, at its direction, a Compensation Committee comprised of officers of the Company.

Stock Purchase Options

During the six months ended December 31, 2013, the Company issued 25,000 common stock purchase options under the Grant Under 2009 Long Term Incentive Plan for a value of $6,045. The Company did recognize $10,047 in employee stock option expense during the quarter ended December 31, 2013 for options vested during the period that were issued in prior periods.

During the fiscal year ended June 30, 2013, the Company did not issue any stock purchase options. The Company did recognize $10,914 in employee stock option expense during the fiscal year ended June 30, 2013 for options vested during the period that were issued in prior periods.

Stock Purchase Warrants

During the six months ended December 31, 2013, the Company issued warrants to purchase a total of 866,016 and expired 0 shares of the Company’s Common Stock. The Company issued 29,400 warrants in conjunction to a default clause in a convertible note payable and issued 316,016 warrants in conjunction to a consulting agreement entered into in July 2013. The Company also issued 500,000 warrants in conjunction to a consulting agreement entered into in October 2013.The Company issued 25,000 warrants in conjunction to an extension in a convertible note payable in conjunction with 50,000 shares of 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.

During the fiscal year ended June 30, 2013, the Company issued warrants to purchase a total of 1,395,732 and expired 395,000 shares of the Company’s Common Stock. As described in Note 6, the Company issued 495,000 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 231,250 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 574,482 warrants valued at $108,660, were issued in for services to be expensed as services were performed.

An additional 95,000 warrants valued at $19,521, were issued in advance for services to be amortized over the term of the service period.

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

NOTE 7 – STOCK PURCHASE OPTIONS AND WARRANTS - continued

The following table presents the assumptions used to estimate the fair values of the stock warrants and options granted:

	2013
Expected volatility		113 – 132%
Expected dividends		0%
Expected term		2 – 10 years
Risk-free interest rate		0.35 – 1.72 %

The following table summarizes the changes in warrants outstanding issued to employees and non-employees of the Company during the six months ended December 31, 2013.

Date Issued	Number of Warrants		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Expiration Date (yrs)		Value if Exercised
Balance June 30, 2013		7,530,063	$	0.67	$	2.45		4.17	$	4,770,713
Granted		866,016		0.21		0.20		5.00		1,684,723
Exercised		(65,000)		-		-		-		-
Cancelled/Expired		(222,500)		-		-		-		-
Outstanding as of June 30, 2013		8,108,579	$	1.14	$	0.71		2.24	$	6,413,750

NOTE 8 – COMMITMENTS AND CONTINGENCIES

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 lease agreement with Westfield Century City with an outstanding balance of $90,000 for unpaid rent plus $68,615 in interest per the rent agreement. Westfield has not taken any legal actions to collect this debt as of December 31, 2013.

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 $74,000 in equal payments, without interest, over a period of eighteen months.

In November 2012, the Company’s former Chief Financial Officer, Joseph Desiderio, signed a promissory note (“Note”) on behalf of the Company in favor of JMJ Financial or its Assignees. The Note provided, among other things, for the right on the part of the Lender to convert part of the debt to stock. Subsequently, the parties have disagreed on the validity and terms of the agreement. The Lender has filed suit in the state court in Dade County, Florida, seeking to enforce the agreement. The Company disputes the Lender’s position on the grounds that (1) the Note contains provisions that violate Florida’s usury laws, (2) there has been no default by Company under the Note, and (3) some provisions of the Note are void and unenforceable. The Company expects the matter to be resolved to its satisfaction. Except as described in the preceding paragraph, to the best knowledge of our management, there are no material litigation matters pending or threatened against us.

The Company is 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.

STUDIO ONE MEDIA, INC.

Notes to Consolidated Financial Statements

December 31, 2013 and June 30, 2013

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, after which, the Company has agreed to lease on a month to month basis, and the total remaining obligations under these leases at June 30, 2013 were approximately $8,610.

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 Six Months ended December 31, 2013 was $39,640, of which $16,684 was paid in cash and $40,256 was paid in Common Stock. Rent expense for the Six Months ended December 31, 2012 was $79,943, of which $21,481 was paid in cash and $38,822 was paid in Common Stock.

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.

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

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;

●

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.

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

Corporate Background

We are a Delaware public company traded on the Over-The-Counter Bulletin Board (ticker symbol: SOMD). As of December 31, 2013, there were 61,215,239 shares of Common Stock issued and outstanding. From April 2006 to December 31 2013, we have raised approximately $20.5 million in the form of equity for purposes of research, development and 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. The Company also operates research, recording and mastering studios located at 6671 Sunset Blvd., Suite 1520, Hollywood, CA 90028, and it's telephone number is (310) 657-4886.

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 several sources including: (1) mastering or “AfterMastering”/”ProMastering” of audio; (2) MyStudio recording sessions; (3) digital advertising and sponsorship opportunities. 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

Summary

MyStudio HD Recording Studios

The Company currently has three MyStudio's installed at (1) SONY Pictures Studios in Los Angeles for the Queen Latifah Show; (2) the Hard Rock Cafe in Las Vegas; and (3) Opry Mills Mall in Nashville, Tennessee. The Company also has four additional studios on stand-by for future deployment, as discussed below.

In addition to the fixed location studios, we have developed a mobile MyStudio recording studio. This twenty-seven foot long mobile studio was built for rental to third party companies and can be viewed at www.MyStudio.net. An example of such intended use was the recent rental by the nationally recognized Coors brand for its "Coors Light, Search for the Coldest" promotional tour. The Company expects the mobile studio to continue to be a revenue leader for its studio operations in the near term. Based on the success of its first mobile studio and ongoing interest by consumer product and entertainment companies, the Company is evaluating the timing and opportunity for additional mobile studios.

The Company has delayed the installation of additional available studios pending the completion of the agreement for the proposed television series with Lionsgate, as noted below. The Company believes that the viability of the MyStudio Recording Studio business lies with national exposure through television programming or a leasing model for a specific use, such as promotional tours. The current studio deployments with The Queen Latifah Show and Warner Music Nashville, as well as the expected use for the 2014 season for The X Factor, are discussed below.

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

Lionsgate Entertainment Television Production Agreement

The Company is party to an agreement with Lionsgate Entertainment, one of North America's largest television and movie production companies for the co-development of a television show based on its MyStudio recording studios 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 Lionsgate Entertainment as it has a high rate of success in producing television shows that air on major television networks. Its stature and reach as a top international film and television producer provides additional credibility to the quality of our studios and the opportunity for the show to be a success. The Company has recently been advised that Lionsgate has finalized an agreement with an internationally recognized television and music celebrity to serve as executive producer of the show. We believe that the unique content of the show, coupled with the substantial fan base of the executive producer, will be of great interest to one of the national networks and accelerate the timing for the shows debut.

The production of a national television show has been a long-time goal of the Company's management team, and 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 international markets.

Assuming the successful sale of the series by Lionsgate to one of the television networks, we expect to place the available studios in strategic locations throughout the U.S. to drive traffic/contestants for the show. With the Executive Producer now in place the Company and Lionsgate expect to complete the sale of the show and install the aforementioned studios in 2014.

The Queen Latifah Show Studio

In July 2013, the Company entered into a one year agreement to install one of its studios at SONY Pictures Studios in Culver City, California for use by The Queen Latifah Show. The Queen Latifah Show is a newly introduced daily talk show produced by SONY and executive producers Will Smith and Jada Pinkett Smith and airs nationally on CBS. The studio is the centerpiece in an exclusive 1,500 square foot VIP audience room located next to the program's production theater. Audience members gather in the room and record videos that can be and are utilized in the daily production of the show. The Company expects to have its video content featured on the show from time to time along with accompanying brand identifiers.

The significance of this agreement was to continue gaining exposure for MyStudio with both directors, producers, casting agents and the general public, while providing another example of how the high quality and ease of use can be employed by a number of other entertainment companies.

The X Factor Auditions

In April 2011, we 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 Company conducted auditions for The X Factor in 2011 and 2012. Both seasons 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 2012 contestants, Carly Rose Sonenclar and Emblem 3 came from MyStudio auditions. The Company's studios were not utilized for 2013 The X Factor auditions as there were not enough MyStudio locations available.

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

The success and exposure of the studios with The X Factor led to subsequent opportunities for the Company to host auditions for America's Next Top Model and most recently The Queen Latifah Show.

Warner Music Nashville Studio

The Company entered into an exclusive promotional 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 provides for WMN to utilize MyStudio as an exciting and innovative way to promote its artists, as well as connect with the artists' fans by way of interaction with the studio at the Opry Mills Mall and through online video contests. Country music fans can create a variety of high definition videos and enter 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.

In 2012, we built and successfully deployed a temporary version of a mobile MyStudio for Pepsi, which was used throughout the country for The X Factor auditions; Pepsi was a sponsor of The X Factor auditions.

Based on the success of that mobile studio, we believed that mobile studios could offer a significant revenue opportunity for the Company from both promotional use, as well as the ability to sell advertising on the studios as they travel the United States promoting various contests and auditions. Accordingly, in January 2013, we successfully designed and built our first dedicated mobile MyStudio. That studio completed a multi-city promotional tour in 2013 for Coors, for which the Company received a fixed monthly leasing fee. We believe this represents the first of many revenue-generating opportunities for the mobile studios.

Based on the success of its first mobile studio and ongoing interest by consumer product and entertainment companies, the Company is evaluating the timing and opportunity for additional mobile studios.

AfterMaster HD

We continue to believe that our AfterMaster audio technology is one of the most significant breakthroughs in digital audio and 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 Company.

AfterMaster is 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 professional and/or high-end audio sources including music, radio, motion pictures and television. The technology has been used to enhance music created by such artists as Lady Gaga, Nick Cannon, Ray J, Aerosmith, AKON, Diddy, Janet Jackson, and many others.

We are in discussions with several potential users of our AfterMaster technology. Such discussions include 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.

AfterMaster Audio Chip

In late calendar 2013, the Company signed a mutual nondisclosure agreement with a large international semiconductor company to explore the technological viability and market opportunity of embedding the AfterMaster technology into semiconductor chips. We have also received interest from other semiconductor partners that have also expressed strong desire to participate in developing such a portfolio of chips. The interest levels of each of these partners recognizes both the unprecedented audio quality in terms of resolution and loudness from the AfterMaster technology and the broad market for such chips.

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

Our stated goal is to work with leading semiconductor companies to develop a very broad portfolio of semiconductor chips that can be used in consumer and industrial products, including but not limited to: phones (mobile, home, and business); headphones; televisions; stereo speakers; stereos (home, portable, commercial and automobile); and computers (desktop, laptop and tablets). Our analysis of the total addressable market for such semiconductor chips is in the hundreds of millions units. Our goal is to license the technology to numerous parties who pay Studio One a licensing or royalty fee for use of the technology. As such, we have recently appointed semiconductor veteran Bret Zahn to the Company's Advisory Board to assist the Company in expediting the development of the chips and related product portfolio and partnership opportunities.

We believe that the development and commercialization of such a product portfolio of semiconductor chips creates the most significant revenue opportunity in the Company's history. We expect to begin the development process in the next couple of months. Concurrent with the development process, we intend to meet with numerous prospective customers for the AfterMaster chips, including those that have already expressed a strong interest in purchasing such semiconductors once available.

As the convergence of features on consumer electronics continues, it is becoming more difficult for leading consumer electronics companies to differentiate their products. We believe that AfterMaster provides a unique and significant competitive opportunity for consumer electronics manufacturers while offering their customers a superior audio product.

ProMasterHD

Utilizing technologies created in the development of AfterMaster, the Company has recently introduced a consumer version of AfterMaster which it has branded as ProMasterHD.

Millions of independent songs are produced each month around the world, however, the expense of mastering such music for the amateur musician is often cost prohibitive, as it can cost over $500 per song. Musicians can transmit their music directly to our www.ProMasterHD.com website, where it can be "ProMastered" for $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 this product, we believe that ProMaster has the potential to generate significant revenues for the Company.

The ProMaster product was also introduced through a relationship with music retail giant Guitar Center. Guitar Center has a national footprint, whose customer base is comprised of recreational, amateur/aspiring and professional musicians. The ProMaster product is being marketed by Guitar Center in-store and through its catalogs, mailers and soon 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. We expect to dedicate greater internal resources in calendar 2014 to maximize the revenue opportunity with Guitar Center.

ReverbNation Agreement

ProMaster is an online music mastering service designed for independent artists which utilizes proprietary AfterMaster audio technologies developed by AfterMaster HD Audio Labs, Inc., a wholly-owned subsidiary of the Company.

In 2013, the Company completed a multi-year agreement with ReverbNation, one of the world's largest independent music websites, to offer its ProMaster mastering services to ReverbNation members. The agreement provides for the Company to ProMaster a minimum of 450,000 songs per month in exchange for ReverbNation marketing those songs to its members for a fee; the agreement provides for various revenue sharing elements between the parties.

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

To date, over 6,000,000 songs have been processed through recently developed technologies that allow us to economically ProMaster large volumes of audio files. Such technologies being used with ReverbNation can and are expected to be used by and for other music services. We are currently pursuing additional partnerships utilizing such technologies.

The Company believes that the significantly enhanced audio quality provides a much better way for artists to showcase their music in hopes of gaining broad exposure and potential stardom. The Company is currently working with ReverbNation to develop an effective plan for marketing the new concept and technology to their members and maximize the revenue opportunities for the parties, including celebrity endorsements.

Independent music mastering in volume represents an exciting revenue opportunity for the Company, a technological proof of the Company's ability to ProMaster a high volume of music on an economical basis and a new platform for other future social media partnerships.

Corporate

The Company has been awarded four patents with other patent applications pending. The Company has an aggressive intellectual property strategy to protect the MyStudio, AfterMaster and the related technologies it has developed. We expect to continue raising capital through both equity and debt financings, as needed, to further our corporate objectives.

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, inclusive of the recent appointment of Mr. Zahn, includes:

●	Bret Zahn - Executive with ON Semiconductor, a $3 billion semiconductor company; formerly held senior roles with Lifelock, Hypercom, ChipPAC and Amkor.

●	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.

●	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.

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

●	Diane Warren - Considered to be the world's most prolific songwriter; Golden Globe and Grammy Award winner.

●	Charlie Weber - Former CEO of Lucas Films; former COO of Embassy Communications.

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 four patents issued with numerous patents and trademarks pending.

Employees

As of December 31, 2013 we employed ten full-time and four part-time employees. 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.

The Company believes that 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.

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.

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.

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

We lease an office in Los Angeles for use by our audio team in connection with our AfterMaster product. This lease expires on December 31, 2017. The total lease expense for the facility is approximately $8,670 per month, and the total remaining obligations under these leases at June 30, 2014 were approximately $52,800.

We also lease one retail location in Opry Mills Mall Nashville, Tennessee in connection with our MyStudio Kiosk on a month-by month basis. The total lease expense for the facility is approximately $3,000 per month.

RESULTS OF OPERATIONS

Revenues
	Three Months Ended
	December 31,
	2013		2012
Session Revenues	$	6,240	$	39,807
AfterMaster Revenues		36,459		21,590
Total Revenues	$	42,699	$	61,397


Revenues
	Six Months Ended
	December 31,
	2013		2012
Session Revenues	$	26,922	$	48,132
Advertising Revenues		-		2,000
AfterMaster Revenues		70,893		32,490
Total Revenues	$	97,815	$	82,622

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; and
4)	AfterMaster revenue.

The revenues from each of the first two of these sources is 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 three months ended December 31, 2013 decrease to $42,699 from $61,397 over the comparable three month period ended December 31, 2012 due primarily to having lease studio at mall locations.

The revenue for the Six months ended December 31, 2013 increase to $97,815 from $82,622 over the comparable six month period ended December 31, 2012 due primarily to ReverbNation.

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

	Three Months Ended
Cost of Revenues	December 31,
	2013		2012
Cost of Revenues (excluding depreciation and amortization)	$	122,915	$	68,415



	Six Months Ended
	December 31,
	2013		2012
Cost of Revenues (excluding depreciation and amortization)	$	207,857	$	193,061

Cost of revenues consists primarily of “the cloud services” for the new ProMaster and AfterMaster Services, and excludes depreciation and amortization on the studios. The increased in cost of sales for the three and six months ended December 31, 2013, over the comparable period for the prior fiscal year, is attributable, primarily, to the Company new partnership with ReverbNation.

Other Operating Expenses

	Three Months Ended
	December 31,
	2013		2012
Depreciation and Amortization Expense	$	26,880	$	53,603
General and Administrative Expenses		797,494		603,397
Total	$	824,374	$	657,000


	Six Months Ended
	December 31,
	2013		2012
Depreciation and Amortization Expense	$	54,794	$	81,023
General and Administrative Expenses		1,585,574		1,483,001
Total	$	1,640,368	$	1,564,024

General and administrative expenses consist primarily of compensation and related costs for our finance, legal, human resources, and information technology personnel; advertising expenses; rent and facilities; and expenses related to the issuance of stock compensation.

The overall increase in general and administrative expenses are primarily a result of increase in web services related to ProMaster and also increase in Employee and Consultant Fees.

Employee and Consultant Fees increase from $70,000 during the six months ended December 31, 2013. Web services Fees increase from $20,000 during the six months ended December 31, 2013.

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

Depreciation and amortization expenses decrease due most of the studio and other assets being fully depreciated.

Other Income and Expenses

	Three Months Ended
	December 31,
	2013			2012
Interest Expense	$	(395,066	)	$	(340,395	)
Gain (Loss) on Extinguishment of Debt		27,713			-
Gain (Loss) on Disposal of Property		-			-
Gain (Loss) on Extinguishment of Debt		-			-
Total	$	(367,353	)	$	(340,395	)


	Six Months Ended
	December 31,
	2013			2012
Interest Expense	$	(798,257	)	$	(671,563	)
Gain (Loss) on Extinguishment of Debt		27,713			-
Gain (Loss) on Disposal of Property		(45,676	)		-
Total	$	(816,220	)	$	(671,563	)

The other income and expenses during the Three months ended December 31, 2013, totaling $367,353 of net expenses, which consists of interest expense. During the comparable period in 2012, other income and expenses totaled $340,395. Interest has increased due to additional borrowings used to develop ProMaster and AfterMaster Services.

The other income and expenses during the six months ended December 31, 2013, totaling $816,220 of net expenses, which consists of interest expense. During the comparable period in 2012, other income and expenses totaled $671,563. Interest has increased due to additional borrowings used to develop ProMaster and AfterMaster Services.

Net Income (Loss)

	Three Months Ended
	December 31,
	2013			2012
Net Income (Loss)	$	(1,271,943	)	$	(1,004,413	)



	Six Months Ended
	December 31,
	2013			2012
Net Income (Loss)	$	(2,566,630	)	$	(2,346,026	)

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

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 $1,553,317 and $1,195,149 for the six months periods ended December 31, 2013 and 2012, respectively.

LIQUIDITY AND CAPITAL RESOURCES

The Company had revenues of $42,699 during the three months ended December 31, 2013 as compared to $61,397 in the comparable quarter of 2012. The Company has incurred losses since inception of $ 44,217,846. At December 31, 2013, the Company has negative working capital of $4,231,438, which was a decrease in working capital of $396,789 from June 30, 2013. 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.

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 six 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, 2013, 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, 2013 and June 30, 2013, our disclosure controls and procedures were not effective 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 the company has contracted an outside consultant 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 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.

Changes in Internal Control over Financial Reporting

During the quarter ended December 31, 2013, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) under the Securities Exchange Act of 1934.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Legal Proceedings

ITEM 1. LEGAL PROCEEDINGS - continued

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.

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.

ITEM 1A - RISK FACTORS - continued

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.

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.

ITEM 1A - RISK FACTORS - continued

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.

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.

ITEM 1A - RISK FACTORS - continued

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 reputation and our financial condition, results of operations, and cash flows.

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.

ITEM 1A - RISK FACTORS - continued

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.

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:

ITEM 1A - RISK FACTORS - continued

	●	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 quarter ended December 31, 2013 includes 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 2013, we had 61,215,239 shares of Common Stock, $0.001 par value, issued and outstanding. We have granted options to purchase 618,429 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 833,000 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 $4,500,000, which can be converted into approximately 2,295,100 shares of Common Stock. In addition, we had warrants outstanding that would permit, if exercised, the issuance of 8,979,605 additional shares of Common Stock at an average exercise price of $0.33. 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.

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.

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.

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

The Company issued multiple equity securities during the six months ended December 31, 2013, as listed in the bullet points below. 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 quarter ended December 31, 2013.

Common Stock:

●

5,975,000 shares of Common Stock for net cash proceeds of $581,565;

●

1,924,455 shares of Common Stock as share-based compensation to employees and non-employees;

●

1,471,784 shares of Common Stock as interest expense on outstanding notes payable; and

	●	1,924,455 shares of Common Stock as conversation of cashless warrant;

	●	1,924,455 shares of Common Stock as share-based compensation for issuance costs;

	●	510,000 shares issued as incentive for convertible debt.

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:

●

311,616 warrants issued as part of advisory agreements;

	●	500,000 warrants issued as part of financial public relations agreement;

	●	25,000 warrants issued as part of an agreement to extend the maturity date of promissory note; and

	●	29,400 warrants issued with financing;

Options to Purchase Common Stock:

●

25,000 options issued as part of an employment agreement;

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 three months ended December 31, 2013, no matters were submitted to the shareholders for a vote.

ITEM 5. OTHER INFORMATION

Subsequent Events

None

ITEM 6. EXHIBITS

a) The following Exhibits are filed herein:

NO.

TITLE

31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and pursuant to Rule 13a-14(a) and Rule 15d-14 under the Securities Exchange Act of 1934

31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and pursuant to Rule 13a-14(a) and Rule 15d-14 under the Securities Exchange Act of 1934

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

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 14, 2014	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 14, 2014	By:	/s/ Preston J. Shea
		Preston J. Shea,
		Title: Director, President, Chief Executive Officer, Secretary


	STUDIO ONE MEDIA, INC.

Date: February 14, 2014	By:	/s/ Mirella Chavez
		Mirella Chavez
		Title: Chief Financial Officer

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