UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-K /A





x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE


ACT OF 1934





For the fiscal year ended June 30, 2015





or





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


EXCHANGE ACT OF 1934





For the transition period from __________ to __________








AFTERMASTER, INC.


(FORMERLY STUDIO ONE MEDIA, INC.) (Name of Small Business Issuer as specific in its Charter)





DELAWARE

23-2517953(State or other jurisdiction of

(IRS EmployerIncorporation or organization)

Identification No.)




6671 Sunset Blvd., Suite 1520


Hollywood, CA 90028  (Address of Principal Executive Offices) (Zip Code)





(310) 657-4886  (Registrant’s telephone number, including area code)





Securities registered pursuant to Section 12(b) of the Act: None





Securities registered pursuant to Section 12(g) of the Act:





Common Stock, $.001 par value  (Title of Class)











Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o No x





Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes oNo x





Indicate by check mark whether the issuer (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 periods that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes xNo o





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o





1


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 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
oNon-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). Yes oNo x





As of September 28, 2015, the number of shares of Registrant’s Common Stock outstanding was 95,589,701.











DOCUMENTS INCORPORATED BY REFERENCE








































2




AFTERMASTER, INC.


(FORMERLY STUDIO ONE MEDIA, INC.)





FORM 10-K /A





FOR THE FISCAL YEAR ENDED


JUNE 30, 2015





INDEX




The Company is amending its Annual Report on Form 10-K for the year ended June 30, 2015, originally filed on September 28, 2015, to address comments from the Securities and Exchange Commission in a letter dated April 15, 2016. This report incorporates responses to those comments where relevant.





PART I
PageItem 1.
Business
5Item 1A.
Risk Factors
9Item 1B.
Unresolved Staff Comments
15Item 2.
Properties
15Item 3.
Legal Proceedings
15Item 4.
Submission of Matters to a Vote of Security Holders
15PART IIItem 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
15Item 6.
Selected Financial Data
16Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
16Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
19Item 8.
Financial Statements and Supplementary Data
19Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
20Item 9A(T).
Controls and Procedures
20Item 9B.
Other Information
21PART IIIItem 10.
Directors, Executive Officers and Corporate Governance
21Item 11.
Executive Compensation
24Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
26Item 13.
Certain Relationships and Related Transactions, and Director Independence
28Item 14.
Principal Accounting Fees and Services
29PART IVItem 15.
Exhibits, Financial Statement Schedules
30




















3





FORWARD-LOOKING AND CAUTIONARY STATEMENTS





This Annual 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;
  ·
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 Annual Report.





All references in this report to “we,” “our,” “us,” the “Company” or “AfterMaster” refer to AfterMaster, Inc., and its subsidiary and predecessors.


4





PART I




ITEM 1. DESCRIPTION OF BUSINESS.





General





Corporate Background





We are a Delaware public company traded on the Over-The-Counter Bulletin Board (ticker symbol: SOMD).  As of June 30, 2015, there were 95,280,257 shares of Common Stock issued and outstanding.  The Company's office and principal place of business, research, recording and mastering studios are located at 6671 Sunset Blvd., Suite 1520, Hollywood, CA 90028, and its telephone number is (310) 657-4886. The Company also has an office at 7650 E. Evans Road, Suite C, Scottsdale, Arizona 85260 USA, and its telephone number is (480) 556-9303.





Business




AfterMaster, Inc., formerly Studio One Media, Inc.(“the Company") is an audio technology company located in Hollywood, California and Scottsdale, Arizona. The Company's wholly-owned subsidiaries include AfterMaster HD Audio Labs, Inc. and MyStudio, Inc.




The Company and its subsidiaries are engaged in the development and commercialization of proprietary (patents issued and pending), leading-edge audio and video technologies for professional and consumer use, including AfterMasterTM HD Audio Inc., ProMaster HDTM and MyStudio® HD Recording Studios. In addition, the company operates music recording and mastering studios.




Summary
 
 The year ending June 30, 2015 has been transformative for the Company on many levels.
 
 During the year, our proprietary (patents pending) AfterMaster semiconductor chip and accompanying software was completed pursuant to our joint development partnership with On Semiconductor ("ON"). Our new micro-size, low power, high output DSP chip and software will allow the Company and ON to provide audio solutions for OEM consumer electronics manufacturers worldwide on a competitive basis.
 
 Our much awaited ProMasterHD on-line music mastering product is now in the final stages of beta testing and will formally launch during the fourth calendar quarter of 2015. ProMasterHD will provide hundreds of millions of independent musicians around the world an easy way to access affordable professional music mastering to make their music competitive and radio ready.
 
 We also strengthened our executive and ownership group with the addition of Justin Timberlake and Rodney "Darkchild" Jerkins two of the most respected and successful people in the music industry. Larry Ryckman, AfterMaster co-founder also joined the Company as President and CEO. Together they round off a world-class team of audio engineers and music industry specialists who represent one of the most formidable groups ever assembled in the audio technology industry.
 
 During the year we also designed and successfully tested the first of our new AfterMaster branded consumer electronics products, which will be launching during the fourth calendar quarter of this year.
 
 Our financial results reflect our best year on record with gains in a majority of our key financial sectors.
  AfterMaster HD Audio




AfterMaster technology was created and developed pursuant to a multi-year, multi-million dollar development effort to make all digital audio sound substantially better.The Company's AfterMaster Audio Labs team is comprised of a unique group of award-winning leaders in music, technology and audio engineering including Rodney Jerkins, Larry Ryckman, Justin Timberlake, Paul Wolff and Shelly Yakus. www.AfterMasterHD.com/team.




AfterMaster is an internally-developed, proprietary (patents-pending) mastering, remastering and audio processing technology which makes any audio source soundsignificantly louder, fuller, deeper and clearer. AfterMaster is a groundbreaking technology which eliminates the weaknesses found in other audio enhancement and processing technologies while offering a much superior audio experience.




We believe that our AfterMaster audio technology is one of the most significant breakthroughs in digital audio processing technology and has the potential to create significant revenues for the Company. The broad commercialization of this technology is a top priority for the Company.






5




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 advantage for consumer electronics manufacturers by offering their customers a superior audio experience. AfterMaster technology can be incorporated into any audio capable device through the addition of an AfterMaster DSP chip or AfterMaster software. Such uses are intended to include phones (mobile, home, business and VoIP); headphones; televisions; stereo speakers; stereos (home, portable, commercial and automobile); and computers (desktop, laptop and tablets).




AfterMaster audio is also the only commercial audio enhancement technology available that is used for professional music mastering because it enhances the entire frequency range without distortion or changing the underlying intent of the music. The technology has been used to master music created by such artists as Lady Gaga, Nick Cannon, Janet Jackson, and many others.Further information on AfterMaster Audio Labs and AfterMaster products can be found atwww.AfterMasterHD.com.




Financial highlights
 
 The Company saw notable improvements in almost all key financial sectors including an increase in its cash position, increase in assets, decrease of current liabilities, decrease in accounts payable and an increase in revenue. Net cash used in operations increased as the Company continues to ramp up for its product launches.
  Financial highlights for the year ended June 30, 2015, over the year ended June 30, 2014 include:
  •
Net cash increased to $2,185,702 from $77,876.


•
Assets increased to $6,817,980 from $385,802.
  •
Accounts payable and other accrued expenses were reduced from $951,563 to $344,451.
  •
Revenues increased 60% to $302,600.
  •
Current liabilities increased to $18,537,235 from $6,686,314. Excluding derivative liabilities and non-cash items, current liabilities were reduced $1,019,394 in 2015 to $5,722,294, as compared to 2014.
  •
Losses including derivative liabilities and non-cash items, increased to $11,244,458 from $5,333,915. Excluding non-cash items, actual net cash used in operating activities increased to $2,808,837 from $1,582,712 reflecting additional costs for upcoming product launches.
  The substantial increases in debt and losses were due to non-cash derivative liabilities of $12,814,941 and $2,069,699 which added to our debt and losses respectively. The derivative liabilities were created by calculating the share value of warrants, shares or options that were issued above the Company’s authorized capital ceiling of 100 million shares.
  On August 28, 2015, at a special shareholders meeting, shareholders voted to amend the authorized capital ceiling to 250 million shares which extinguished all of the derivative liabilities including the $12,814,941 in debt and $2,069,699 in losses. The Company has filed the amendment with the State of Delaware and the adjustment will be reflected in the Company’s upcoming quarterly 10-Q filing for the three month period ending September 30, 2015.
  Name Change




On August 28, 2015, at a special meeting of shareholders, shareholders approved to change the Company’s name from Studio one Media, Inc. to AfterMaster, Inc., to better reflect the business of the Company.




On September 10, 2015, the Company filed the name change with the State of Delaware and on September 24, 2015, received acceptance of the renewal. The Company has filed the amendment with FINRA and expects the Company’s name and stock symbol to change in the very near future.




Changes in Directors and Officers




On October 23, 2014, Joe Desiderio resigned as a Director.





On July 28, 2015, Kenneth R. Pinckard resigned from his position on the Board and as the Vice President and General Counsel of the Company to pursue other interests and opportunities.






6




On July 28, 2015, the Board appointed David L. Reynolds as a Director and Chairman of the Company’s audit committee.Mr. Reynolds is the Partner-in-Charge of MARCUM LLP’s New Haven, Connecticut Accounting Services Group and also a Partner in the Assurance Services division. Prior to joining the firm in 1984 he was an auditor/investigator for a commodity futures exchange and held various accounting positions.He is licensed in the State of Connecticut as a Certified Public Accountant (CPA) and holds a Certified Fraud Examiner (CFE) designation.





On August 28, 2015, Frank Perrotti resigned as Chairman and Director of the Company, Preston Shea resigned as President, Secretary and Director of the Company, and Barry Goldwater resigned as a Director of the Company, all to pursue other business opportunities.




On August 28, 2015, the Company’s Board of Directors appointed Lawrence (Larry) Ryckman as a Director, President, Chief Executive Officer (CEO) and Interim Chairman of the Company. Also, on that date, Mirella Chavez, the Company’s CFO was appointed Treasurer and Secretary of the Company.




Larry Ryckman, 56, is an award-winning executive with extensive experience in the music, audio and entertainment industries. Mr. Ryckman co-founded AfterMaster Audio Labs, Inc. and MyStudio, Inc., both of which are wholly owned subsidiaries of the Company. Mr. Ryckman has served as President and CEO of both subsidiaries since their inception in in 2009 and 2004 respectively. The Company is currently negotiating a compensation agreement with Mr. Ryckman. Mr. Ryckman will serve as a Director, President, Interim Chairman and CEO until termination or resignation.




Mirella Chavez, 30, has been Chief Financial Officer (CFO) of the Company since April 16, 2013. Prior to her appointment as CFO, Ms. Chavez was the Company’s Chief Accountant since October 1, 2006. Ms. Chavez holds a Bachelor of Science in Accounting and a Business, Management and Marketing degree from DeVry University.




On September 18, 2015, Mr Robert Kite joined the Board of Directors and as Chairman of the Board. Mr. Kite is a graduate of Southern Methodist University and received a Bachelor of Arts in Business and a Bachelor of Science in Psychology and Political Science. Since 1981, Mr. Kite has served as President and Chief Operating Officer of KFC, Inc., and Managing Partner of KFT, LLP. Holdings in these companies include real estate, stocks and bonds, MRI clinics, residential housing and resort hotels. Mr. Kite has over 35 years of experience investing, consulting, and advising numerous small-cap and micro-cap public companies and has served on numerous Boards.




Music Industry Icons Join AfterMaster




On November 19, 2014, music and entertainment superstar Justin Timberlake joined the Company as a co-owner and consultant.Mr. Timberlake is an internationally recognized actor, businessman and recording artist who enjoys recognition and credibility with consumers worldwide. The Company believes that Mr. Timberlake's involvement can maximize product value and accelerate the roll out of its audio products.




On July 30, 2015, renowned entrepreneur, music mogul and multiple Grammy Award winning producer, Rodney “Darkchild” Jerkins joined the company as a senior member of the executive team. Known around the globe as one of the most influential producers, songwriters and musicians in the history of popular music, Jerkins has worked with the likes of Sam Smith, Rihanna, Lady Gaga, Beyonce, Madonna, Jennifer Lopez, Michael Jackson, Whitney Houston, and many more.





ON Semiconductor/AfterMaster Audio Chip





In April of 2014, the Company entered into a multi-year joint development and marketing agreement with ON Semiconductor ("ON") of Phoenix, Arizona, to commercialize its technology through audio semiconductor chips. ON is a multi-billion dollar, multi-national semiconductor designer and manufacturer.





The agreement calls for ON to implement our AfterMaster technology in a Digital Signal Processor (DSP) semiconductor chip that will be marketed to their current OEM customers, distributors and others. We selected ON for its technical capabilities, sales support and deep customer pool.





In conjunction with ON, we have completed the development of an AfterMaster software algorithm that is designed to be used in semiconductor chips or as a standalone software product. We believe the sound quality from our algorithm provides a superior audio experience relative to other products on the market.





On April 29, 2015, ON and the Company announced the completion of an AfterMaster encoded semiconductor chip based on the ON BelaSigna 300 DSP chip. Now branded the BelaSigna 300 AM chip, it is one of the smallest, high power/low voltage DSP chips available. It is small enough to fit into a hearing aid but equally effective in any size device with audio capability.







7




Since entering into the agreement, both the Company and ON have identified a large number of prospective customers that will be key targets for this new and unprecedented technology. The algorithm and chips allow consumer product manufacturers an opportunity to offer a significantly improved and differential audio experience in their products without having to significantly change hardware and form factor designs. Through the combined relationships of the Company and ON, we hope to generate significant revenues for both parties through the sale of the ON/AfterMaster chips and software licensing. In September 2015, ON officially launched a broad sales effort to market AfterMaster/ON audio chips.





AfterMaster Consumer Hardware Products





The Company intends to complement its ON/AfterMaster DSP chips, ProMasterHD service and the licensing of its AfterMaster software with the design, manufacturing and marketing of unique consumer electronics hardware products branded as AfterMaster products. The prototypes for its first consumer electronic hardware product was completed in the second quarter of 2015 and will be unveiled in the fourth calendar quarter of 2015.





ProMasterHD





ProMaster HD is an online music mastering, streaming, and storage service designed for independent artists which utilizes proprietary audio technologies developed by AfterMaster.  ProMaster HD will master a user’s uploaded music and allow them to compare up to 90 seconds of their original to the newly mastered songs so they can make a decision to purchase.





Tens of millions of songs are produced, distributed, played on the Internet each month around the world by independent artists.  However, many of these artists lack the financial and technical means to master, or “finish” their composition, as a professional mastering session can cost over $500 per song. Now, with the ProMaster online platform, musicians can transmit their music directly to the ProMaster HD website, where it can be mastered with AfterMaster Technology 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.





ProMasterHD.com was released in beta in the second quarter of 2015 and will be finalized and formally launched in the fourth quarter of 2015.





Intellectual Property and Licensing





The Company has been awarded five patents and six trademarks with numerous others pending. The Company has an aggressive intellectual property strategy to protect the AfterMaster and the related technologies it has developed. 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.
 
 On September 30th, 2014, the Company entered into a licensing and option term sheet for the licensing of its MyStudio related Intellectual Property for a total consideration of $1,250,000 in cash and $300,000 in stock of bBooth, Inc., payable over 18 months. To date, the Company has received $200,000 and has been issued 600,000 shares of bBooth currently valued at $1,800,000. The amount of this stock was valued at $1,800,000 because on September 3, 2015, bBooth’s stock was trading at $3.00 per share according to the historical stock on Nasdaq.com. The agreement also provides an option to purchase certain studio assets in the future. bBooth is a Los Angeles-based public company which intends to install interactive recording booths in the U.S. and internationally.
 
 The consideration for the license of these assets related to the bBooth agreement entered into on November 10, 2014 of 600,000 shares of bBooth’s common stock was not received by the Company until September 3, 2015. The stock certificate is dated November 11, 2014, but remained in the possession of bBooth until September of 2015 when it was delivered to the Company’s possession. The amount of this stock was valued at $1,800,000 because on September 3, 2015, bBooth’s stock was trading at $3.00 per share according to the historical stock on Nasdaq.com ($3.00 x 600,000 shares = $1,800,000).  According to ASC 320-10-25-1, equity securities with readily determinable fair values are subject to ASC 320 and as such are to be carried at fair value. When determining whether a security is in the scope of ASC 320, an entity should be careful not to look through the form of its investment to the nature of the securities held by an investee.
 
 Advisory Board





Recognizing the significance of our technologies, we have been able to attract leading music and entertainment executives to our Advisory Board. The Advisory Board is an important resource for the Company in terms of thought leadership and strategic introductions. This distinguished group includes:





·
Bret Zahn - Executive with ON Semiconductor, a nearly $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.


·
Gary Goldstein – Prominent film producer of movies which have grossed over $1 billion including Pretty Woman, Under Seige and Mothman Prophecies.


·
Jason Flom - Former CEO of Atlantic Records, Virgin Music, Capitol Music Group and Lava Records.


·
Sheila Jaffe - Emmy Award winning casting director; Jaffe Casting; casting for notable shows as Entourage, The Sopranos, Ballers, Ted 1 and 2 and Rocky Balboa.


·
Richard Perry - World renown record producer and winner of seven Grammy Awards; clients include Barbra Streisand and Cher.


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


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







8




Employees





As of June 30, 2015 we employed ten full-time and one 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.





Facilities





We lease offices in Hollywood, California for corporate, research, engineering and mastering services. The 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, 2015 were approximately $271,800





Pursuant to a lease originally dated January, 2006, we currently occupy approximately 11,800 square feet of office and warehouse 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 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 are dependent upon our management, certain shareholders and investors for fundraising.  We expect additional operating losses will occur until revenues are sufficient to offset our costs for marketing, sales, general and administrative and product and services development.  We are subject to all of the risks inherent in establishing an early stage business enterprise.  Since we have limited operations, there can be no assurance that our business plan will be successful.  The potential for our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered with an early stage business and the competitive environment in which we will operate.  A prospective investor should be aware that if we are not successful in achieving our goals and achieving profitability, any money invested in us will likely be lost.  Our management team believes that our potential near-term success depends on our success in, manufacturing, marketing and selling our products and services. As an early stage company, we are particularly susceptible to the risks and uncertainties described herein, and we will be more likely to incur the expenses associated with addressing them.  Our business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in early stages of development.  These risks are particularly severe among companies in new markets, such as those markets in which we expect we will operate.  Accordingly, shareholders will bear the risk of loss of their entire investment in our shares.





New Business Model.





We have a relatively new business model in an emerging and rapidly evolving market.  Accordingly, this makes it difficult to evaluate our future prospects and may increase the risk that we will not continue or be successful.  We will encounter risks and difficulties as a company operating in a new and rapidly evolving market.  We may not be able to successfully address these risks and difficulties, which could materially harm our business and operating results.




We Have Limited Capital and Will Need Additional Financing.


As of June 30, 2015, we had an accumulated deficit of $58,165,447 and negative working capital of $13,027,775.  In addition, for the year ended June 30, 2015, we had a loss of approximately $11,180,318 and negative cash flow from operating activities of approximately $2,808,837. The Company has not declared dividends on its common stock, but the Company does have cumulative dividends in arrears through June 30, 2015, of approximately $648,236 for its outstanding Series A Convertible Preferred Stock.
  Revenues generated from our current operations are not sufficient to pay our ongoing operating expenses.  Therefore, we will have to obtain additional funding from the sale of our securities or from strategic transactions in order to fund our current level of operations.  In order to fund our working capital needs and our operational costs during 2015, we entered into eighteen (18) separate promissory notes, two (2) conversions of warrants for cash, and one hundred forty-nine (149) Share Purchase Agreements with individual accredited investors resulting in net proceeds of $5,128,632 to the Company.




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 we 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 continue Aftermaster operations. Although we intend to engage in subsequent debt and equity offerings of our securities to raise additional working capital for 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 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.







9




Lack of Diversification.
  Our current size and financial condition makes it unlikely that we will be able to commit our funds to diversify the business until we have a proven track record in our current markets. However, we do not have any plans nor have we identified any areas or markets in which we would seek diversification in our Company's business. We acknowledge that limiting our product offerings carries a risk of limiting revenues, which may impact our ability to continue operations.
  Competition.
  Aftermaster has developed an audio enhancement technology that it believes is unique and competitive in the audio enhancement industry. However, there are many more well established and financially successful brands in the audio enhancement industry, with more name recognition and financial resources such as, SRS and Dolby Labs. Although we believe that our technology differentiates us from competitor technologies, there is no assurance that we will be successful in gaining any consumer acceptance of our technology.
  While we believe that the technologies behind AfterMaster and ProMaster HD are unique in the industry, other companies within the industry may develop or have developed audio enhancement technologies that are equal to or better than our technologies and could become our competitors. Potential competitors may have greater name recognition, access to financing, industry contacts and more extensive customer bases that could be leveraged to accelerate their competitive activity.  Further, 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.
  To protect our Company against competitors, we have embarked on an aggressive intellectual property protection program which we believe will be a significant barrier to market entry to potential competitors for our current product offerings.  In addition, we strive to employ individuals who have long standing relationships and expertise in various segments of the entertainment, marketing, finance and communications industries, which we hope will help facilitate the negotiation of favorable partnerships, sponsorships and industry support for AfterMaster and ProMaster HD.
  However, any investor must recognize that AfterMaster is unproven as a commercially viable audio technology and that many other companies dominate and are successful in licensing their audio products, which compete in the market within which AfterMaster is attempting to establish itself.
 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 its 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.







10




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.





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 of our consumer electronics products.  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 consumer products 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.





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. The Company and its subsidiaries have filed numerous patent applications relating to AfterMaster and other audio and video 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 numerous patents and have received allowance for five of them. We have filed numerous 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.





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 consumer electronics products.  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.







11




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 effect of such legislation cannot be predicted until it is proposed. 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:





●
Ability to broadly commercialize and expand AfterMaster and/or ProMaster HD●
Changes in entertainment technology;●
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.







12




Uncertainty as a Going Concern.





Our future existence remains uncertain and the report of our independent auditors on our financial statements for the year ended June 30, 2015 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 June 30, 2015, we had 95,280,257 shares of Common Stock, $0.001 par value, issued and outstanding.  We had options outstanding that would permit, if exercised, the issuance of 25,000 additional shares of common stock at an exercise price of $0.15. We may also issue further shares to certain of our management, directors, officers, employees and consultants in the immediate future.  We also had 1,140,044 shares of various classes of Convertible Preferred Stock outstanding, which can be converted to 1,247,092 shares of Common Stock.  We had outstanding convertible debt with a face value of $4,497,400,which can be converted into approximately 11,923,792 shares of Common Stock. In addition, we had warrants outstanding that would permit, if exercised, the issuance of 22,554,165 additional shares of Common Stock at an average exercise price of $0.44.  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.





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 (OTCQB) 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 we obtain revenues from our online music mastering service, ProMaster HD, or by licensing our AfterMaster HD audio and selling AfterMaster HD chip proprietary technology to consumer device manufacturers.  There are no assurances that significant revenues from ProMaster 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 growth-rate of our online user base and the amount of engineering expertise needed to maintain and build our IP portfolio.  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 AfterMaster and ProMaster HD 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.






13




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.
  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.





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 AfterMaster 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.
 
  14
  ITEM 1B.  UNRESOLVED STAFF COMMENTS.
 
 None.
 
 ITEM 2. DESCRIPTION OF PROPERTIES.
 
 We lease offices in Hollywood, California for corporate, research, engineering and mastering services. The 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, 2015 were approximately $260,100.
 
 Pursuant to a lease originally dated January, 2006, we currently occupy approximately 11,800 square feet of office and warehouse 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 3. LEGAL PROCEEDINGS.





The Company may become involved in certain legal proceedings and claims which arise in the normal course of business. The Company is not a party to any litigation. To the best of the knowledge of our management, there are no material litigation matters pending or threatened against us.




In November 2012, the Company entered into a finance agreement totaling $100,000 by its former CFO. Subsequently, the Company disagreed on the validity and terms of the agreement. The Lender filed suit in the state court in Dade County, Florida, seeking to enforce the agreement. The Company vigorously opposed the litigation and it was settled on for $17,500 on August 6, 2015.





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




On August 28, 2015, the Company held a special meeting of the shareholders. At the meeting, the shareholders approved (i) an amendment to the Company’s Certificate of Incorporation to increase the Company’s authorized common stock, par value $0.001, from one hundred million (100,000,000) to two hundred and fifty million (250,000,000) shares, (ii) authorizing the Company’s





Board of Directors to amend the Company’s Certificate of Incorporation to effect a reverse stock split of the Company’s common stock at the discretion of the Board of Directors, at a ratio of three (3) shares of pre-split common stock into one (1) shares of common stock, and (iii) an amendment to the Company’s Certificate of Incorporation to change the name of the Company from Studio One Media, Inc. to AfterMaster, Inc. The Company has no current plans to reverse stock split its shares.








PART II





ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.





Market Information





AfterMaster’s Common Stock is traded on the Over-The-Counter Bulletin Board System (OTCBB) under the symbol “SOMD”.  The following table sets forth the range of high and low bid quotations for each fiscal quarter for the last two fiscal years.  These quotations reflect inter-dealer prices without retail mark-up, markdown, or commissions and may not necessarily represent actual transactions.





For the Fiscal Year Ending on June 30, 2015
High
LowQuarter Ended June 30, 2015
0.92
0.51Quarter Ended March 31, 2015
0.83
0.56Quarter Ended December 31, 2014
0.94
0.42Quarter Ended September 30, 2014
0.45
0.21For the Fiscal Year Ending on June 30, 2014
High
LowQuarter Ended June 30, 2014
0.27
0.23Quarter Ended March 31, 2014
0.28
0.18Quarter Ended December 31, 2013
0.33
0.22Quarter Ended September 30, 2013
0.32
0.21






15




Stockholders
 
 As of June 30, 2015, the number of stockholders of record according to our transfer agent was approximately 502.  Because many of our shares are held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of stockholders represented by these record holders.  Consequently, the actual number of stockholders of record as of the date of this Report was not available. The Company believes, however, that it has approximately 1,500 stockholders in total.
 
 Dividends
 
 The Company has paid no dividends on its Common Stock since its inception and does not anticipate or contemplate paying cash dividends in the foreseeable future.
 
 Pursuant to the terms of our Series A Convertible Preferred Stock, a 5% annual dividend is due and owing. Pursuant to the terms of our Series B Convertible Preferred Stock, an 8% annual dividend is due and owing.  Pursuant to the terms of our Series A-1 Senior Convertible Redeemable Preferred Stock, a 6% annual dividend is due and owing.  As of June 30, 2015, we had not declared dividends on Series A, Series B or its Series A-1 Preferred Stock.  We have, however, for those shares of Series A-1 Preferred Stock that were converted, calculated the dividends through the date of conversion and issued shares of common stock in payment of those dividends.  The unpaid cumulative dividends totaled approximant $648,236.  See Note 8 of Notes to Consolidated Financial Statements.
  Supplemental Disclosure of Non-Cash Investing and Financing Activities for Fiscal Years 2015 and 2014





Fiscal Year 2015





During fiscal year ended June 30, 2015, we accepted subscriptions for 12,017,259 shares of unregistered restricted shares of Common Stock at an average price per share of $0.36 for a total of $4,401,632.





Fiscal Year 2014





During fiscal year ended June 30, 2014, we accepted subscriptions for 9,591,750 shares of unregistered restricted shares of Common Stock at an average price per share of $0.10 for a total of $966,565.





ITEM 6 - SELECTED FINANCIAL DATA.





Not required by Form 10-K for smaller reporting companies.





ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





RESULTS OF OPERATIONSRevenues
  Year EndedJune 30,2015

2014Session Revenues

$
11,030


$
36,192AfterMaster Revenues


91,570



146,307Licensing Revenues


200,000



-Total Revenues

$
302,600


$
182,499







16





We currently generate revenue from our operations through three activities: session revenues, AfterMaster revenues, and licensing revenues.
 
 Session revenues are generated from our ProMaster HD online music mastering service. The session revenues totaled $11,030 and $36,192, for the years ended June 30, 2015 and 2014, respectively.  The decrease in session revenues was primarily due to ProMaster being taken offline for redesign and operational development.
 
 AfterMaster revenues are generated primarily from AfterMaster audio services provided to producers and artists on a contract basis. We hope this source of revenue grows in coming years, and the Company is expecting to generate additional revenues in this category from on-line mastering downloads and the development of the AfterMaster software algorithm and chip, although such growth and additional revenues are not assured and may not occur. AfterMaster revenues for the fiscal year ended June 30, 2015, decreased to $91,570, as compared to $146,307 for the comparable fiscal year ended June 30, 2014. This decrease was due primarily to a decrease in the mastering and remastering of music and licensing by our customers.
 
 Licensing revenues are generated by licensing certain technologies, intellectual property, and patents to third parties.  Our licensing revenues increased to $200,000 during the fiscal year ended June 30, 2015, as compared to the $0 for the comparable fiscal year ended June 30, 2014, due primarily to a licensing contract with bBooth.
 
 In the aggregate, total Company revenues increased to $302,600 for the year ended June 30, 2015, as compared to total revenues of $182,499 for the year ended June 30, 2014, due to an increase in licensing revenues partially offset by decreases in session revenues and AfterMaster revenues.


Cost of Revenues  Year EndedJune 30,2015


2014Cost of Sales (excluding depreciation and amortization)

$
306,868


$
381,780
 
 Cost of revenues consists primarily of AfterMaster Studio Rent, Consultants, and Internet connectivity and excludes depreciation and amortization on the studios. The decrease in cost of sales for the fiscal year ended June 30, 2015 over the comparable fiscal year is attributable primarily discounting the use of the MyStudio Recording Studio.


Other Operating Expenses  Year EndedJune 30,2015

2014Depreciation and Amortization Expense

$
67,414


$
114,330General and Administrative Expenses


6,956,826



3,212,694Total

$
7,024,240


$
3,327,024





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 research development and professional fees related to AfterMaster.





Professional fees, travel expenses, and office expenses increased from $746,867, $127,201, and $63,776 during the fiscal year ended June 30, 2015 to $4,787,166, $280,255, and $252,644 and during the fiscal year ended June 30, 2014.  The increase in professional fees is primarily attributable to our issuing more Common Stock and warrants to various employees and consultants for services rendered during the year.




Other Income and Expenses  Year EndedJune 30,2015


2014Interest Expense

$
(2,401,761
)

$
(1,579,617
)Derivative Expense


(524,518
)


-Change in Fair Value of Derivative


(1,545,181
)


-Gain (Loss) on Extinguishment of Debt


319,650



(25,787
)Impairment of assets


-



(202,206
)Total

$
(4,151,810
)

$
(1,807,610
)




The other income and expenses during the fiscal year ended June 30, 2015, totaling $4,151,810 of net expenses consisted almost entirely of interest and derivative expense.  During the comparable period in 2014, other income and expenses totaled $1,807,610.  Interest expense has increased primarily due to non-cash interest expense relating to warrants attached to recent debt issuances, as well as conversion features included in recent convertible debt issuances.  These additional borrowings have been used in the development of the AfterMaster HD.
   17
  Net Income (Loss)  Year EndedJune 30,2015

2014Net Income (Loss)

$
(11,180,318
)

$
(4,952,135
)
 
 Due to the Company’s cash position, we use our Common Stock and warrants to pay many employees, vendors and consultants as well as to raise capital through incentives attached to our debt offerings.  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”and ASC 505-50 “Equity Based Payments to Non-employees”, these non-cash issuances are expensed at the equity instruments fair market value.  Absent these large stock-based compensation of $2,527,056 and $1,206,885 for the fiscal years ended June 30, 2015 and 2014, our net loss would have been $8,653,262 and $4,127,030 for fiscal years ended June 30, 2015 and 2014, respectively.
  LIQUIDITY AND CAPITAL RESOURCES
 
 The Company had revenues of $302,600 during the fiscal year ended June 30, 2015 as compared to $182,499 in the comparable period in 2014.  The Company has incurred losses since inception of $58,165,447.At June 30, 2015, the Company had negative working capital of $13,027,775, which was a decrease in working capital of $6,443,236 from June 30, 2014.
  The Company had revenues of $302,600 during the fiscal year ended June 30, 2015, as compared to $182,499 in the comparable period in 2014.  The Company has incurred losses since inception of $58,165,447.  At June 30, 2015, the Company had negative working capital of $13,027,775, which was a decrease in working capital of $6,443,236 from June 30, 2014.
 
 The Company had cash of $2,185,702 as of June 30, 2015, as compared to $77,876 as of June 30, 2014.  This increase is due primarily to the company entering into eighteen (18) separate promissory notes, two (2) conversions of warrants for cash, and one hundred and forty-nine (149) Share Purchase Agreements with individual accredited investors resulting in net proceeds of $5,128,632 to the Company. This amount was partially offset by operational costs, purchases of assets, and payments of obligations from convertible notes, notes, and lease payables.
 The Company had prepaid expense of $3,319,258 as of June 30, 2015, as compared to $20,499 as of June 30, 2014.  The increase is due to the Company issuing 2,550,000 warrants in conjunction with five financial advisory agreements entered into during the fiscal year and the issuance of 10,579,665 warrants in conjunction with a consulting agreement resulting in an increase in prepaid expense of $6,930,262, partially offset by amortization of prepaid expenses.
 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.





As of June 30, 2015, 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, 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.
  18
  CRITICAL ACCOUNTING POLICIES
 
 Revenue Recognition
 
 The Company applies the provisions of FASB ASC 605, “Revenue Recognition in Financial Statements,” which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. ASC 605 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue related to goods and services provided when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.
 
 The Company's revenues are generated from AfterMaster products and services, and licensing fees.  Revenues related to licensing fees generated per a term sheet with bBooth are recorded when payment is received as there is no current executed agreement in place and the term of use is indefinite, pursuant to which bBooth agreed to acquire exclusive rights to license certain technologies, intellectual property, and patents from AfterMaster.
 
 Valuation of Long-lived Assets – Long-lived tangible assets and definite-lived intangible assets are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company uses an estimate of undiscounted future net cash flows of the assets over the remaining useful lives in determining whether the carrying value of the assets is recoverable. If the carrying values of the assets exceed the expected future cash flows of the assets, the Company recognizes an impairment loss equal to the difference between the carrying values of the assets and their estimated fair values. Impairment of long-lived assets is assessed at the lowest levels for which there are identifiable cash flows that are independent from other groups of assets. The evaluation of long-lived assets requires the Company to use estimates.
  Stock-based Compensation – The Company follows the provisions of FASB ASC 718, “Share-Based Payment,” which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Equity instruments issued to non-employees for goods or services are accounted for at fair value and are marked to market until service is complete or a performance commitment date is reached, whichever is earlier. The Company uses the Black-Scholes pricing model for determining the fair value of stock-based compensation. The Company also follows the provisions of FASB ASC 505-50, “Equity-Based Payments to Non-Employees,” which addresses the accounting and reporting for both the issuer (that is, the purchaser or grantor) and recipient (that is, the goods or service provider or grantee) for a subset of share-based payment transactions.





Convertible Securities and Derivatives – The Company estimates the fair values of the debt and warrants, and allocates the proceeds pro rata based on these values.  The allocation of proceeds to the warrants results in the debt instrument being recorded at a discount from the face amount of the debt and the value allocated to the warrant is recorded to additional paid-in capital.





When the convertible debt or equity instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds from the convertible host instruments are first allocated to the bifurcated derivative instruments.  The remaining proceeds, if any, are then allocated to the convertible instruments themselves, resulting in those instruments being recorded at a discount from their face value.





Derivative Liabilities-The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company has a sequencing policy regarding share settlement wherein instruments with the earliest issuance date would be settled first. The sequencing policy also considers contingently issuable additional shares, such as those issuable upon a stock split, to have an issuance date to coincide with the event giving rise to the additional shares.





Using this sequencing policy, all instruments convertible into common stock, including warrants and the conversion feature of notes payable, issued subsequent to August 14 2014 are derivative liabilities.




The Company values these convertible notes payable using the multinomial lattice method that values the derivative liability within the notes based on a probability weighted discounted cash flow model. The resulting liability is valued at each reporting date and the change in the liability is reflected as change in derivative liability in the statement of operations.
 
 ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
 Not required for smaller reporting companies.
 
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
 Our financial statements as of and for the fiscal year ended June 30, 2015 and June 30, 2014 have been audited to the extent indicated in the report by Sadler, Gibb & Associates , independent certified public accountants, and have been prepared in accordance with generally accepted accounting principles and pursuant to Regulation S-X as promulgated by the SEC.
 
 The aforementioned financial statements are presented in a separate section of this Report following Part IV.
 
  19
  ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
 
 None.
 
 ITEM 9A. 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 June 30, 2015 and June 30, 2014, 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 with consultants with expertise in U.S. GAAP and SEC financial reporting standards to review and compile all financial information prior to filing that information with the SEC.  However, even with the added expertise of these consultants, we still expect to be deficient in our internal controls over disclosure and procedures until sufficient capital is available to hire the appropriate internal accounting staff and individuals with requisite GAAP and SEC financial reporting knowledge.  There 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.





Management Annual Report on Internal Control over Financial Reporting





Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  Management used the “Internal Control over Financial Reporting Integrated Framework” issued by COSO to conduct an extensive review of the Company’s internal controls over financial reporting to make that evaluation.  As of June 30, 2015 and June 30, 2014, the Company had identified deficiencies in internal controls that constituted material weaknesses in internal controls. Due to these material weaknesses, management concluded that internal controls over financial reporting as of June 30, 2015 and June 30, 2015 were not effective, based on COSO’s framework.





The deficiencies are attributed to the fact that the Company does not have adequate resources to address complex accounting issues, as well as an inadequate number of persons to whom it can segregate accounting tasks within the Company so as to ensure the segregation of duties between those persons who approve and issue payment from those persons who are responsible to record and reconcile such transactions within the Company’s accounting system.  These control deficiencies will be monitored and attention will be given to the matter as we continue to accelerate through our current growth stage.




Management has concluded that these control deficiencies constitute a material weakness that continued throughout fiscal year 2015.  In order to reduce the impact of these weaknesses to an acceptable level, we have contracted with consultants with expertise in U.S. GAAP and SEC financial reporting standards to review and compile all financial information prior to filing that information with the SEC.  However, even with the added expertise of these consultants, we still expect to be deficient in our internal controls over disclosure and procedures until sufficient capital is available to hire the appropriate internal accounting staff and individuals with requisite GAAP and SEC financial reporting knowledge.  There were no significant changes in our internal control over financial reporting or in other factors that occurred during our most recent fiscal year that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
 
 This Annual Report does not include attestation reports of the Company’s registered public accounting firms regarding internal controls over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
 
 Changes in Internal Control over Financial Reporting
  The Board of Directors (the “Board”) of Studio One Media, Inc. (the “Registrant”) received written notice of the resignation, effective July 28, 2015, of Kenneth R. Pinckard from his position on the Board and as the Vice President and General Counsel of the Registrant, including all Board committees and positions with the Registrant’s subsidiaries.
   20
 On July 27, 2015, the Board appointed David L. Reynolds to its Board of Directors and to the position of Chairman of the Company’s Audit Committee.
 
 On August 28, 2015, Frank Perrotti resigned as Chairman and Director of Studio One Media, Inc. (the “Company”), Preston Shea resigned as President, Secretary and Director of the Company, and Barry Goldwater resigned as Director of the Company, all to pursue other business opportunities. The Company thanks Messrs. Mr. Perrotti, Goldwater and Shea for their service to the Company. Mr. Perrotti will serve on the Company’s Advisory Board.
 
 Also on August 28, 2015, the Company’s Board of Directors appointed (i) Lawrence Ryckman as President, Chief Executive Officer (CEO), Interim Chairman and Director of the Company. Mr. Ryckman was appointed as a Director to fill one of the vacancies left by the Director resignations described above, and (ii) Mirella Chavez was appointed as Treasurer and Secretary of the Company.
 
 On September 23, 2015, Lawrence Ryckman resigned as interim Chairman of the Board of Directors of Studio One Media, Inc. (the “Company”) only. Mr. Ryckman became interim Chairman on August 28, 2015, and upon his resignation from that position, Mr. Ryckman remains President, CEO, and a member of the Board of Directors of the Company.
 
 On September 23, 2015, the Company’s Board of Directors of the Company appointed Robert Kite as a member of the Company’s Board of Directors to fill a vacancy on the Board.  Mr. Kite was also appointed Chairman of the Board of Directors.
  Except as set forth above, there were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




ITEM 9B.  OTHER INFORMATION.





None.





PART III





ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





The directors and executive officers of the Company as of June 30, 2015 were as follows:




Name
Age
PositionPreston J. Shea
67
Director, President, CEO, SecretaryMirella Chavez
31
CFO,  Secretary, TreasurerKenneth R. Pinckard
69
Director, Legal CounselBarry M. Goldwater, Jr.
77
DirectorFrank Perrotti, Jr.
76
Director, ChairmanSheldon Yakus
70
Vice PresidentMatthew R. Long
49
Vice President





The directors and officers of our wholly-owned operating subsidiary, MyStudio, Inc., at June 30, 2015 were:





Name
Age
PositionLawrence G. Ryckman
56
Director, President, CEO, SecretaryKenneth R. Pinckard
69
Director, Vice President





The directors and officers of our wholly-owned operating subsidiary, AfterMaster HD Audio Labs, Inc., at June 30, 2015 were:





Name
Age
PositionLawrence G. Ryckman
56
Director, President, CEO, SecretaryKenneth R. Pinckard
69
Director, Vice President








21





The directors and senior executive officers of the Company as of filing date of September 28, 2015 were as follows:





Name
Age
PositionLawrence G. Ryckman
56
Director, President, CEOMirella Chavez
31
CFO,  Secretary, TreasurerDavid L. Reynolds
58
Director,Robert Kite
77
Director, Chairman





The directors and officers of our wholly-owned subsidiary, MyStudio, Inc., as of filing date of September 28, 2015 were:





Name
Age
PositionLawrence G. Ryckman
56
Director, President, CEO, Secretary





The directors and officers of our wholly-owned operating subsidiary, AfterMaster HD Audio Labs, Inc., as of filing date of September 28, 2015 were:





Name
Age
PositionLawrence G. Ryckman
56
Director, President, CEO, Secretary





The significant Employees of the Company as of filing date of September 28, 2015 were as follows:





Name
PositionSheldon Yakus
Senior Vice President, EngineeringMatthew R. Long
Vice President, Video Production and EngineeringRon Gillyard
Senior Vice President of Music and MarketingPaul Wolff
Senior Vice President of Product Development





Directors serve until the next annual meeting or until their successors are qualified and elected. Officers serve at the discretion of the Board of Directors.




Lawrence (Larry) Ryckman is a Director and President and CEO of the Company. Mr. Ryckman was the Founder, President & CEO of AfterMaster HD Audio, Inc. and MyStudio, Inc., both wholly-owned subsidiaries of AfterMaster, Inc. He is an award-winning businessman with extensive experience in the music, audio and entertainment industries. He served as President & CEO of American Artists, Inc., a film, video and music production and distribution company; as Owner and President of the Calgary Stampeder Football Club of the Canadian Football League; and was Co-Founder, President & CEO of QSound, Inc., which develops proprietary audio technologies for the entertainment industry. QSound grew from a start-up to a NASDAQ-listed, internationally recognized participant in the entertainment audio technology industry with numerous patents. His personal mastering and corporate mixing credits include some of the most popular artists including Lady Gaga, Madonna, Michael Jackson, Sting and many others. Mr. Ryckman has negotiated partnerships with many national and international companies including ON Semiconductor, Simon Cowell’s “The X-Factor, Mark Burnett Productions, Guitar Center, JVC, Nintendo, Coca-Cola, Hard Rock International and the GRAMMY Foundation.




Robert Kite is a Director and Chairman of the Board of the Company. Mr. Kite is a graduate of Southern Methodist University and received a Bachelor of Arts in Business and a Bachelor of Science in Psychology and Political Science. Since 1981, Mr. Kite has served as President and Chief Operating Officer of KFC, Inc., and Managing Partner of KFT, LLP. Holdings in these companies include real estate, stocks and bonds, MRI clinics, residential housing and resort hotels. Mr. Kite has over 35 years of experience investing, consulting, and advising numerous small-cap and micro-cap public companies and has served on numerous Boards.




David L. Reynolds is a Director and Chairman of the Company’s Audit Committee. Mr. Reynolds is the Partner in Tax & Business Services division MARCUM LLP’s New Haven, Connecticut Accounting Services Group and also a Partner in the Assurance Services division. Prior to joining the firm in 1984 he was an auditor/investigator for a commodity futures exchange and held various accounting positions.  He is licensed in the State of Connecticut as a Certified Public Accountant (CPA) and holds a Certified Fraud Examiner (CFE) designation.






22




Sheldon “Shelly” Yakus is Senior Vice President, Audio Engineering.  He is a renowned music producer, audio engineer/mixer and recording studio designer. He has engineered and mixed recordings for some of the world’s best known artists including John Lennon, Stevie Nicks, Alice Cooper, Van Morrison, Tom Petty, Dire Straits, Blue Oyster Cult, Bob Seger, Amy Grant, Don Henley, U2 and Madonna. Known as “Golden Ears,” he is also widely respected for his expertise in recording studio design and acoustics. Mr. Yakus co-designed, equipped and supervised construction of the industry leading A&M Music recording studios in Los Angeles and served as vice-president of A&M studios. He was previously vice president of the Record Plant recording studios in New York and a partner at Tongue and Groove Studios in Philadelphia. The music that Mr. Yakus has engineered, produced or mixed has grossed over a billion dollars in sales and in 1999 he was nominated for induction into the Rock and Roll Hall of Fame. Mr. Yakus’ career and accomplishments are widely covered in publications such asRolling Stone,Mix Magazine,Audio Engineer andSpin .





Mirella Chavez is Chief Financial Officer, Secretary and Treasurer of the Company. Ms. Chavez has a Bachelor of Science in Accounting and Marketing from DeVry University.  She has been with AfterMaster, Inc. since October 2006.





Paul Wolff  is Senior Vice President of Product Development. Paul has been intimately involved in the professional music and audio industries as an audio engineer and product designer and manufacturer of professional audio products for more than 35 years. He is known within the industry as an expert in engineering, electronic design, DSP processing, mechanical design and packaging for the audio industry. Paul owned and operated two highly coveted and successful audio product companies, API Audio and Tonelux. At API Audio, Paul designed, manufactured and marketed API’s legendary recording/mixing consoles to recording studios and production facilities worldwide. At Tonelux, Paul was responsible for the conceptual design, physical design, marketing and manufacturing of some of the world’s best sounding and most coveted audio recording and processing hardware components used in high end recording studios (equalizers, compressors, mixers, consoles, etc.). His equipment and technologies have been used in many of the worlds top recording and engineering studios for the production of hundreds of hit records.




Ron Gillyard is the Senior Vice President of Music and Marketing. A GRAMMY award winner, Ron Gillyard is a highly respected music industry veteran who has experience in all aspects of the music industry. Ron was formerly President of Urban Music at Interscope Records, Head of Urban Music at Clive Davis’, J Records and General Manager of Bad Boy Entertainment and Motown. Over the course of his career, Ron has worked with such artists as Stevie Wonder, Alicia Keys, Mary J. Blige, Sean “Diddy” Combs, 50 Cent and Eminem.




Matthew R. Long is Vice President, Video Production and Engineering.  Matt is an Emmy Award winner and has enjoyed an extensive career as a producer, director, editor, director of photography and writer for television, feature film and video productions.  Mr. Long is responsible for developing, producing and managing AfterMaster technology with film and video content.




Indemnification of Directors and Officers





The Certificate of Incorporation and Bylaws of the Company provide that the Company will indemnify and advance expenses, to the fullest extent permitted by the Delaware General Corporation Law, to each person who is or was a director, officer or agent of the Company, or who serves or served any other enterprise or organization at the request of the Company (an “Indemnitee”).  Under Delaware law, to the extent that an Indemnitee is successful on the merits of a suit or proceeding brought against him or her by reason of the fact that he or she was a director, officer or agent of the Company, or serves or served any other enterprise or organization at the request of the Company, the Company will indemnify him or her against expenses (including attorneys’ fees) actually and reasonably incurred in connection with such action.  If unsuccessful in defense of a third-party civil suit or a criminal suit, or if such a suit is settled, an Indemnitee may be indemnified under Delaware law against both (i) expenses, including attorneys’ fees, and (ii) judgments, fines and amounts paid in settlement if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action, had no reasonable cause to believe his other conduct was unlawful.  If unsuccessful in defense of a suit brought by or in the right of the Company, where the suit is settled, an Indemnitee may be indemnified under Delaware law only against expenses (including attorneys’ fees) actually and reasonably incurred in the defense or settlement of the suit if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company except that if the Indemnitee is adjudged to be liable for negligence or misconduct in the performance of his or her duty to the Company, he or she cannot be made whole even for expenses unless a court determines that he or she is fully and reasonably entitled to indemnification for such expenses.  Also under Delaware law, expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding may be paid by the Company in advance of the final disposition of the suit, action or proceeding upon receipt of an undertaking by or on behalf of the officer or director to repay such amount if it is ultimately determined that he or she is not entitled to be indemnified by the Company.  The Company may also advance expenses incurred by other employees and agents of the Company upon such terms and conditions, if any, that the Board of Directors of the Company deems appropriate.  Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, in the opinion of the Commission, such indemnification is against public policy as expressed in Delaware law and is therefore unenforceable.





On July 21, 2009, the Company approved a Directors and Officers Indemnity Agreement for its directors and principal officers.  It has since entered into agreements with Messrs. Barry M. Goldwater, Preston J. Shea, Kenneth R. Pinckard, Lawrence G. Ryckman, Sheldon Yakus, Matthew Long and Anna L. Madrid.  Subsequently, we entered into a similar agreement with former director Frank Perrotti, Jr.  A copy of the Directors and Officers Indemnity Agreement was attached as an exhibit to our Annual Report for the fiscal year ended June 30, 2009, filed October 15, 2009.






23


Compliance with Section 16(a) of the Exchange Act





Section 16(a) of the Exchange Act, requires the Company’s directors and named executive officers, and persons who beneficially own more than ten percent of our common stock, to file initial reports of ownership and reports of changes in ownership of our common stock and our other equity securities with the SEC. Based on a review of the public record, we believe that during the year ended June 30, 2015 and before, certain former Officers and Directors did not file the required reports on a timely basis under Section 16(a) of the Exchange Act. One Form 3 was filed for former director Barry M Goldwater Jr. on June 08, 2015, with respect to becoming a director on March 30, 2006; one Form 4 was filed for Barry M Goldwater Jr. on June 08, 2015; with respect to transactions occurring on December 21, 2007, August 29, 2007, November 18, 2008, June 11, 2009, July 22, 2009, November 20, 2009, December 23, 2009, January 22, 2010, April 23, 2010, July 22, 2010,October 08, 2010, December 30, 2010, March 01, 2011, May 05, 2011, July 25, 2011, November 03, 2011, November 19, 2012, February 22, 2013, May 08, 2013, July 22, 2013, October 22, 2013, January 28, 2014, April 16, 2014, May 06, 2014, July 18, 2014, February 12, 2015, and  May 04, 2015. One Form 3 was filed for officer Mirella Chavez on January 25, 2014, with respect to becoming a officer on April 26, 2013 One Form 3 was filed for former director Frank Jr. Perrotti on May 26, 2015, with respect to becoming a director on November 29, 2011; one Form 4 was filed for Frank Jr. Perrotti on May 26, 2015; with respect to transactions occurring on March 01, 2011, April 01, 2011, May 01, 2011, May 04, 2011, June 01, 2011, June 30, 2011, July 25, 2011, July 30, 2011, August 19, 2011, September 30, 2011, October 13, 2011, October 17, 2011, November 03, 2011, November 15, 2011, December 02, 2011, December 8, 2011, December 15, 2011, December 30, 2011, February 03, 2012, February 16, 2012, March 02, 2012, March 16, 2012, March 21, 2012, April 17, 2012, May 03, 2012, June 05, 2012, June 20, 2012, July 03, 2012, August 09, 2012, September 10, 2012, September 11, 2012, October 10, 2012, October 17, 2012, October 25, 2012, November 13, 2012, November 19, 2012, November 23, 2012, November 28, 2012, December 17, 2012, January 14, 2013, January 31, 2013, February 05, 2013, February 14, 2013, February 22, 2013, March 06, 2013, April 08, 2013, May 08, 2013, May 30, 2013, July 22, 2013, October 22, 2013, January 28, 2014, April 16, 2014, February 05, 2015, May 04, 2015, May 18, 2015, July 20, 2015. Former Director Joseph Desiderio, with respect to becoming a director on March 19, 2012 did not file a Form 3 or 4, and filed a Form 5 on January 28, 2015, detailing late filings for transactions on September 18, 2014, September 19, 2014, September 22, 2014, September 23, 2014, September 24, 2014, September 25, 2014September 26, 2014, September 29, 2014, September 30, 2014, October 01, 2014, October 02, 2014, October 06, 2014, October 07, 2014, October 08, 2014, October 09, 2014, October 10, 2014, October 13, 2014, October 14, 2014, October 15, 2014, October 16, 2015. No Form’s 3 or 4’s were filed by former Director, Preston Shea, during his tenure between February 9, 2004 and August 28, 2015 and no Form 3 or 4’s were filed by former Director, Kenneth Pinckard, during his tenure between March 30, 2006 and July 28, 2015.
 
 Code of Ethics





The Company maintains a Code of Ethics (the “Code”) that was filed as Exhibit 14 with its Annual Report on Form 10-KSB for 2004 filed on November 15, 2004.  The Code applies to the Chief Executive, financial and accounting officers, controller and persons performing similar functions.  If the Company amends the Code or grants a waiver from the Code with respect to the foregoing persons, it will post that amendment or waiver on its website.





Audit Committee





The Company’s Audit Committee consists of David Reynolds and Robert Kite. David Reynolds been designated by the Board or the Audit Committee as an “audit committee financial expert.”





ITEM 11. EXECUTIVE COMPENSATION





Summary Compensation Table





The following table sets forth the total compensation earned by or paid to the Company’s officers for the last two fiscal years.





Long Term CompensationAnnual Compensation


Awards








PayoutsName and Principal Position
Fiscal Year

Salary ($)


Bonus ($)


Other Annual Compensation ($)


Restricted Stock Awards ($)


Underlying Options/Shares ($)


LTIP Payout ($)


All Other Compensation ($)Preston J. Shea,
2015

$
-


$
-


$
-





$
-


$
-


$
-President, Secretary
2014

$
-


$
-


$
-


$
94,130


$
-


$
-


$
-Mirella Chavez,
2015

$
80,000


$
-


$
-






$
-


$
-


$
-CFO
2014

$
87,916


$
-


$
-


$
106,527


$
-


$
-


$
-Kenneth R. Pinckard,
2015

$
-


$
-


$
-






$
-


$
-Vice-President, Treaurer
2014

$
2,500


$
-


$
-


$
94,130


$
-


$
-


$
-Sheldon Yakus,
2015

$
88,167


$
-


$
-


$
-


$
-Vice President
2014

$
62,375


$
-


$
-


$
-


$
-


$
-


$
-Matthew R. Long,
2015

$
4,500


$
-


$
-


$
-


$
-


$
-


$
-Vice President
2014

$
15,583


$
-


$
-


$
-


$
-


$
-


$
-Lawrence G. Ryckman,
2015

$
243,465


$
-


$
-


$
-


$
-


$
-


$
-President & CEO, MyStudio, Inc.& AfterMaster HDAudio Inc.
2014

$
209,100


$
-


$
-


$
-


$
-


$
-


$
-







24




Outstanding Equity Awards at Fiscal Year-EndName

Option Awards

Stock AwardsNumber of Securities Underlying Unexercised Options (#) Exercisable


Number of Securities Underlying Unexercised Options (#) Unexercisable


Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)


Option Exercise Price ($)

Option Expiration Date

Number of Shares or Units of Stock that have not Vested (#)


Market Value of Shares or Units of Stock that have not Vested ($)


Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that have not Vested (#)


Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that have not Vested ($)Barry M. Goldwater Jr.


50,000



-



-



0.52

8/29/2017


-



-



-



-75,000



-



-



0.52

11/18/2018


-



-



-



-Preston J. Shea


50,000



-



-



0.52

8/29/2017


-



-



-



-75,000



-



-



0.52

11/18/2018


-



-



-



-Kenneth R. Pinckard


300,000



100,000



-



0.52

9/11/2019


-



-



-



-150,000



-



-



1.35

4/5/2021


-



-



-



-Lawrence G. Ryckman


375,000



125,000



-



0.52

9/11/2019


-



-



-



-200,000



-



-



1.35

4/5/2021


-



-



-



-





Compensation of Directors





Our non-employee Directors receive reimbursement for expenses of attendance for each scheduled meeting that requires physical attendance.  Effective July 1, 2010, each Director receives restricted common shares valued at the greater of (i) fifteen thousand (15,000) shares of Common Stock, or (ii) such number of shares as shall be determined by dividing the sum of fifteen thousand dollars ($15,000) by the per share price calculated at seventy five percent (75%) of the average of the closing prices of the Company’s Common Stock for the ten (10) trading days prior to the date such payment is due, for each quarter year service to the Company.  Compensation for our directors for our last completed fiscal year is set forth below, with the exception of Directors who are also Officers whose compensation is disclosed above.




Director CompensationFees Earned or Paid in Cash ($)


Stock Awards ($)


Option Awards ($)


Non-Equity Incentive Plan Compensation ($)


Non-Qualified Deferred Compensation Earnings ($)


All Other Compensation ($)


Total ($)NameBarry M. Goldwater Jr.


-


$
121,540


$
-


$
-


$
-


$
-


$
121,540Frank Perrotti, Jr.


-


$
121,540


$
-


$
-


$
-


$
-


$
121,540




Employment and Related Agreements





The Company has no employment agreements with any of its current management.





Change in Control





The Company is not aware of any arrangements which may result in a change in control of the Company.





Equity Compensation Plans





As of June 30, 2015 our equity compensation plans were as follows:







25





2009 Long-Term Stock Incentive Plan





On June 10, 2009, the Board of Directors approved the 2009 Long-Term Stock Incentive Plan (the “2009 Plan”).  The purpose of the 2009 Plan was 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 Plan was 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 was reserved for issuance under stock options to be issued under the 2009 Plan.  The Plan permits the grant of Incentive Stock Options, Non-Statutory Stock Options and Restricted Stock Awards.  The 2009 Plan is administered by the Board of Directors or, at its direction, the Compensation Committee comprised of officers of the Company.   As of June 30, 2011, the Company had granted options to fifteen employees to purchase, in the aggregate, 727,000 shares of the Company’s Common Stock.  The exercise period for each of the grants was two to five years from the date of grant and the average exercise price was $0.88.  During the year ended June 30, 2010, one employee exercised the option to purchase 28,571 shares for $10,000.  During the year ended June 30, 2011, one employee exercised the option to purchase 20,000 shares for $10,400, or $0.52 per share. During the year ended June 30, 2013, 85,000 shares expired. No Grants were made under the Plan during the fiscal year ended June 30, 2013. During the year ended June 30, 2014, 257,000 shares expired and 25,000 Grants were made under the Plan. The number of unexercised, outstanding options at June 30, 2014 was 381,429 at an average exercise price of $0.87 per share.During the year ended June 30, 2015, 301,429 shares expired and 0 Grants were made under the Plan. The number of unexercised, outstanding options at June 30, 2015 was 80,000 at an average exercise price of $0.66 per share.





ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.





The following table sets forth certain information, as of June 30, 2015, concerning shares of the Company’s Common Stock held by (1) each stockholder known to own beneficially more than five percent of any class of the Company’s voting securities as of June 30, 2015, with the number of outstanding common shares at 95,280,257 at such time, (2) each of the Company’s directors, (3) each of the executive officers, and (4) all of the directors and executive officers as a group:
 
 Title of Class

Amount and Nature of Beneficial Ownership (1)(2)
Percent of Class (1)Beneficial OwnerMirella Chavez
1,021,125
1.07%Common
5911 W Shangri LaGlendale, AZ 85301Barry M. Goldwater Jr.
1,207,042 (3)
1.27%Common
3219 E. Camelback Rd., #552Phoenix, AZ 85018Matthew R. Long
115,000
0.12%Common
17197 N 54th AvenueGlendale, AZ 85308Frank Perrotti, Jr.
10,067,496 (4)
10.57%Common
305 Spruce Bank RoadHamden, CT 06518Kenneth R. Pinckard
2,178,888 (5)
2.28%Common
3104 E. Camelback Rd. #245Phoenix, AZ 85016Lawrence G. Ryckman
7,434,807 (6)
7.76%Common
20202 Pacific Coast Highway#5Malibu, California 90265Preston J. Shea
862,310 (7)
0.90%Common
1 Youge Street, Suite 1801Toronto, ON Canada M5E 1W7Common
Tennman Brands, LLC
10,579,665 (8)
9.99%1801 Century Park WestLos Angeles, CA 90067Common
Sheldon Yakus
7,385
0.01%1778 Lantana DriveMiden, NV 89423Series A Convertible Preference Stock
Murray B. Day
5,000
32.26%549 W. CresentPalo Alto, CA  94301Series A Convertible Preference Stock
Elliot Leferts
3,000
19.35%60 McNear DriveSan Rafael, CA  9490Series A Convertible Preference Stock
Harriet Lloyd
2,500
16.13%1200 California St.San Francisco, CA  94109Series A Convertible Preference Stock
Richard Matza
2,500
16.13%454 Burr Rd.Southbury, CT  06488Series A Convertible Preference Stock
Richard Oliver
2,500
16.13%25466 Adobe LaneLos Altos, CA  94022  26
   Series B Senior Redeemable Convertible Preference Stock
J. Patrick Carter
1,500
42.86%2448 E. 81st Street, #4550Tulsa, OK  74137Series B Senior Redeemable Convertible Preference Stock
Robert Stillman
2,000
57.14%2440 Virginia Ave NW, Apt. D 1206Washington, DC  20037Series C Convertible Preferred Stock
John Arrilaga, TTEE
2,068
15.43%2560 Mission College Blvd., #101Santa Clara, CA  95054Series C Convertible Preferred Stock
Paul Essi
1,171
8.74%2450 One Cleveland CenterCleveland, OH  44114Series C Convertible Preferred Stock
Thomas Fersti
3,592
26.80%P.O. Box 284761 State St. Millington, MI  48746Marton & Kjellaaug Klepp
1,825
13.62%12 Day RoadArmonk, NY  10504Series C Convertible Preferred Stock
Gustavo Nicolich
1,097
8.18%P.O. Box 60040Palo Alton, CA  94306Series C Convertible Preferred Stock
Richard Perry, TTEE
2,068
15.43%2200 Cowper StreetPalo Alto, CA  94301Series P Convertible Participating Preferred Stock
Robert Huskins
67,741
78.19%42 Shady Vista Rd.Rolling Hills Estates, CA  90274Series P Convertible Participating Preferred Stock
Roderick Thompson
18,899
21.81%Address unknownOfficers and Directors as a Group
33,712,120
33.96%


27




1.
The number and percentage of shares beneficially owned is determined under rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares, which the individual has the right to acquire within 60 days through the exercise of any stock option or other right. The persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and the information contained in the footnotes to this table.
 2.
The above table is based on 95,280,257 shares of Common Stock outstanding as of June 30, 2015, andbased on the following shares of other voting stock outstanding as of such date:  (i) 15,500 shares of Series A Convertible Preference Stock; (ii) 3,500 shares of Series B Senior Redeemable Convertible Preference Stock; (iii) 13,404 shares of Series C Convertible Preferred Stock; and (iv) 86,640 shares of Series P Convertible Participating Preferred Stock.  Shares of Common Stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.
 3.
Includes an option to purchase 125,000 shares of Common Stock at $0.20 per share.
 4.
Mr. Perrotti owns these shares personally and through an entity, FPJ Investments, in which he serves as the manager and has voting control.
 5.
Includes an option to purchase 400,000 shares of Common Stock at $.20 per share.
 6.
Mr. Ryckman owns these shares personally and through two entities, Maverick Investments and Sundance. The amount listed here includes an option to purchase 500,000 shares of Common Stock at $.20 per share.
 7.
Includes an option to purchase 125,000 shares of Common Stock at $.20 per share.
 8.
Tennman Brands, LLC owns 10,579,665 warrants to purchase shares of Common Stock at an exercise price of $0.18 per share. Justin Timberlake is the beneficial owner of Tennman Brands, LLC and, upon exercise of the warrants, would exercise voting control of the common stock underlying the warrants.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





From February 2010 to April 2013, the Company issued convertible notes to Frank Perrotti, Jr., a director of the Company, in the aggregate amount of $3,675,000. The notes bear an average interest rate of 11.34% per annum and are convertible, along with all accrued interest, into shares of the Company’s Common Stock at $0.50 per share.
 
 On November 3, 2011, the Company issued a convertible note to Frank Perrotti, Jr., a director of the Company, in the amount of $250,000. 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.
 
 From April 2011 to October 2011, the Company issued notes to Frank Perrotti, Jr., a director of the Company, for $575,000. The note bears an average interest rate of 14% per annum.
  Future Transactions





All future affiliated transactions are expected to be made or entered into on terms that are no less favorable to the Company than those that can be obtained from any unaffiliated third party. A majority of the independent, disinterested members of the Company’s Board of Directors are asked to approve future affiliated transactions. The Company believes that of the transactions described above have been on terms at least as favorable to it as could have been obtained from unaffiliated third parties as a result of arm’s length negotiations.





Conflicts of Interest





In accordance with the laws applicable to the Company, its Directors are required to act honestly and in good faith with a view to the Company’s best interests. In the event that a conflict of interest arises at a meeting of the Board of Directors, a Director who has such a conflict is expected to disclose the nature and extent of his interest to those present at the meeting and to abstain from voting for or against the approval of the matter in which he has a conflict.





Director Independence





Our Common Stock trades on the OTC Bulletin Board.  As such, we are not currently subject to corporate governance standards of listed companies, which require, among other things, that the majority of the board of directors be independent.





Since we are not currently subject to corporate governance standards relating to the independence of our directors, we choose to define an “independent” director in accordance with the NASDAQ Global Market’s requirements for independent directors (NASDAQ Marketplace Rule 4200).  The NASDAQ independence definition includes a series of objective tests, such as that a director is not an employee of the company and has not engaged in various types of business dealings with the company. We presently do not have a compensation committee, nominating committee, executive committee of our Board of Directors, stock plan committee or any other committees, except for an Audit Committee.





28





ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.





The following is a summary of the aggregate fees billed to Registrant by its principal accountant(s) for professional services rendered for the fiscal years ended June 30, 2015 and 2014:




2015


2014Audit Fees (1)

$
116,000


$
89,000Audit-Related Fees (2)

$
-


$
-Tax Fees (3)

$
-


$
-All Other Fees (4)

$
-


$
-Total Fees

$
116,000


$
89,000





1. Audit Fees.  Consists of fees billed for professional services rendered for the audits of Registrant’s financial statements for the fiscal years ended June 30, 2015 and 2014 and for review of the financial statements included in Registrant’s Quarterly Reports on Form 10-Q for those fiscal years.





2. Audit-Related Fees.  Consists of fees billed for services rendered to Registrant for audit-related services, which generally include fees for audit and review services in connection with proposed spin-off transactions, separate audits of employee benefit and pension plans, and ad hoc fees for consultation on financial accounting and reporting standards.





3. Tax Fees.  Consists of fees billed for services rendered to Registrant for tax services, which generally include fees for corporate tax planning, consultation and compliance.





4. All Other Fees.  Consists of fees billed for all other services rendered to Registrant, which generally include fees for consultation regarding computer system controls and human capital consultations.  No services were performed related to financial information systems design and implementation for the fiscal years ended June 30, 2015 and 2014.





No “audit-related,” “tax” and “all other” services in 2015 or 2014, as defined above, were approved by the Audit Committee in reliance on the de minimums exception to the preapproval requirements under federal securities laws and regulations.





Pre-Approval of Services of Principal Accounting Firm





The Audit Committee’s written policy is to pre-approve all audit and permissible non-audit services provided by Registrant’s principal accounting firm (independent auditor).  These services may include audit services, audit-related services, tax services and other permissible non-audit services.  Any service incorporated within the independent auditor’s engagement letter, which is approved by the Audit Committee, is deemed pre-approved.  Any service identified as to type and estimated fee in the independent auditor’s written annual service plan, which is approved by the Audit Committee, is deemed pre-approved up to the dollar amount provided in such annual service plan.





During the year, the principal accounting firm may also provide additional accounting research and consultation services required by, and incident to, the audit of Registrant’s financial statements and related reporting compliance. These additional audit-related services are pre-approved up to the amount approved in the annual service plan approved by the Audit Committee.  The Audit Committee may also pre-approve services on a case-by-case basis during the year.





The Audit Committee’s approval of proposed services and fees are noted in the meeting minutes of the Audit Committee and/or by signature of the Audit Committee on the engagement letter.  The principal accounting firm of Registrant and management are periodically requested to summarize the principal accounting firm services and fees paid to date, and management is required to report whether the principal accounting firm’s services and fees have been pre-approved in accordance with the required pre-approval process of the Audit Committee.




Non-Audit Services





The Audit Committee of the Board of Directors has considered whether the provision of non-audit services by the Registrant’s principal accountants is compatible with maintaining auditor independence.







29





ITEM 15. EXHIBITS





The following Exhibits are incorporated by reference:





Exhibit No.
Description3.1
Articles of Incorporation, dated May 12, 1988. (a)3.1
Certificate of Amendment of Articles of Incorporation of Dimensional Visions Incorporated, dated January 16, 2006. (f)3.2
Certificate of Amendment of Articles of Incorporation of Elevation Media, Inc., dated March 24, 2006. (f)3.2
Bylaws. (a)3.3
Certificate of Amendment of Certificate of Incorporation of Dimensional Visions Incorporated dated January 22, 2004. (f)4.1
Certificate of Designation of Series A Convertible Preferred Stock, dated December 12, 1992. (a)4.1
Form of Warrant issued to Participants in 2007 Private Placements. (g)4.2
Certificate of Designation of Series B Convertible Preferred Stock, dated December 22, 1993. (a)4.3
Certificate of Designation of Series P Convertible Preferred Stock, dated September 11, 1995. (a)4.4
Certificate of Designation of Series S Convertible Preferred Stock, dated August 28, 1995. (a)4.5
Certificate of Designation of Series C Convertible Preferred Stock, dated November 2, 1995. (a)4.6
Certificate of Designation of Series D and Series E Convertible Preferred Stock, dated August 25, 1999. (a)4.7
Form of Warrant Agreement to Debt Holders, dated January 15, 1998. (a)4.8
Form of Warrant Agreement to Debt Holders, dated April 8, 1998. (a)4.9
Form of Warrant Agreement to Participants in Private Placement, dated April 8, 1998. (a)4.10
Pledge Agreement with Dale Riker and Russ Ritchie, dated January 11, 2001. (b)4.11
Investment Agreement with Swartz Private Equity, LLC, dated December 13, 2000. (b)4.12
Merrill Lynch Portfolio Reserve Loan and Collateral Account Agreement, dated January 12, 2002. (b)10.1
1996 Equity Incentive Plan. (a)10.1
Stock Purchase Agreement between Studio One Entertainment, Inc. and Dimensional Visions Incorporated, dated March 29, 2006 (g)10.2
1999 Stock Option Plan. (a)10.2
Exchange Agreement between AfterMaster, Inc., and Studio One Entertainment, Inc., dated April 16, 2007. (g)10.3
Employment Agreement with John D. McPhilimy, dated January 1, 2001. (c)10.3
Accord and Satisfaction between Dimensional Visions, Inc. and Russell H. Ritchie, Dale E. Riker, Suntine Enterprises, LLC, and Cornerstone Wireless Communications, LLC, dated October 11, 2006. (g)10.4
Employment Agreement with Bruce D. Sandig, dated July 1, 2001. (c)10.5
Settlement Agreement and Release between the Company and Russell H. Ritchie, Dale E. Riker, Suntine Enterprises, LLC, and Cornerstone Wireless Communications, LLC, dated April 30, 2003. (d)10.6
2009 Long-Term Incentive Plan.10.7
Form of Directors and Officers Indemnity Agreement.14
Dimensional Visions, Inc. Code of Ethics. (e)21.1
Subsidiaries of the Registrant (h)





(a)
Incorporated by reference from the Company’s Registration Statement on Form SB-2, dated June 19, 2000 (Registration No. 333-30368).(b)
Incorporated by reference from the Company’s Registration Statement on Form SB-2, dated July 10, 2001 (Registration No. 333-56804).(c)
Incorporated by reference from the Company’s Amendment No. 1 to Annual Report on Form 10-KSB, dated February 22, 2002.(d)
Incorporated by reference from the Company’s Annual Report, Form 10-KSB for fiscal year ended June 30, 2003, filed October 15, 2003.(e)
Incorporated by reference from the Company’s Annual Report, Form 10-KSB for fiscal year ended June 30, 2004, filed November 15, 2004.(f)
Incorporated by reference from the Company’s Annual Report, Form 10-KSB for fiscal year ended June 30, 2006, filed September 29, 2006.(g)
Incorporated by reference from the Company’s Annual Report, Form 10-KSB for fiscal year ended June 30, 2007, filed September 28, 2007, and Form 10-K/A for the fiscal year ended June 30, 2007, filed May 27, 2008.(h)
Incorporated by reference from the Company’s Annual Report, Form 10-KSB for fiscal year ended June 30, 2008, filed September 29, 2008.(i)
Incorporated by reference from the Company’s Annual Report, Form 10-KSB for fiscal year ended June 30, 2009, filed October 15, 2009.(j)
Incorporated by reference from the Company’s Annual Report, Form 10-KSB for fiscal year ended June 30, 2010, filed October 12, 2010







30




The following Exhibits are filed herewith:





31.1
Certification of Chief Executive Officer pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
Certification of Chief Financial Officer pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
Certification of Chief Executive Officer pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and15d-14 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
Certification of Chief Financial Officer pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and15d-14 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.101.INS*
XBRL Instance Document101.SCH*
XBRL Taxonomy Extension Schema101.CAL*
XBRL Taxonomy Extension Calculation Linkbase101.DEF*
XBRL Taxonomy Extension Definition Linkbase101.LAB*
XBRL Taxonomy Extension Label Linkbase101.PRE*
XBRL Taxonomy Extension Presentation Linkbase





* Previously filed






































31




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.





AFTERMASTER, INC.Date:  April 25, 2016
By:
/s/ Larry RyckmanLarry RyckmanPresident & Chief Executive Officer











Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.





Signature
Title
Date/s/ Larry Ryckman

President and Director
April 25, 2016Larry Ryckman

(Principal Executive Officer)/s/ Mirella Chavez

Chief Financial Officer
April 25, 2016Mirella Chavez/s/ David Reynolds

Director
April 25, 2016David Reynolds/s/ Robert Kite

Director
April 25, 2016Robert Kite
















































































32











AFTERMASTER, INC.





FINANCIAL STATEMENTS





INDEX TO THE FINANCIAL STATEMENTS
PAGE

NUMBERReport of Independent Registered Public Accounting Firm
F-2Financial Statements
F-3Consolidated Balance Sheets
F-3Consolidated Statements of Operations
F-4Consolidated Statements of Stockholders' Deficit
F-5Consolidated Statements of Cash Flows
F-6Notes to Financial Statements
F-7 - F-23






















































































F-1











REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the Board of Directors
 Studio One Media, Inc.
 
  We have audited the accompanying consolidated balance sheet of Studio One Media, Inc. as of June 30, 2015 and 2014, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended. Studio One Media, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
  In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Studio One Media, Inc. as of June 30, 2015 and 2014, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
 
 The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the footnotes to the financial statements, the Company has incurred losses since inception and has a negative working capital as of June 30, 2015 which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in the footnotes to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
 /s/ Sadler, Gibb & Associates, LLC
 
 Salt Lake City, UT
 September 28, 2015














F-2
  AFTERMASTER, INC.(FORMERLY STUDIO ONE MEDIA, INC.)Consolidated Balance SheetsJune 30,


June 30,2015


2014ASSETSCurrent AssetsCash

$
2,185,702


$
77,876Accounts receivable


4,500



3,400Prepaid expenses


3,319,258



20,499Total Current Assets


5,509,460



101,775Property and equipment, net


169,954



133,730Property and equipment, yet to be placed in service


-



31,250Intangible assets, net


22,853



11,990Note receivable


10,000



-Deposits


13,675



107,057Prepaid expenses, net of current


1,092,038



-Total Assets

$
6,817,980


$
385,802LIABILITIES AND STOCKHOLDERS' DEFICITCurrent LiabilitiesAccounts payable and other accrued expenses

$
344,451


$
951,563Accrued interest


93,762



74,483Deferred revenue


2,500



3,500Consulting services - related party


82,267



278,568Lease payable


36,426



30,768Derivative Liability


12,814,941



-Notes payable - related party


625,000



610,000Notes payable


40,488



40,488Convertible notes payable - related party, net of discount of $0 and $1,761 , repectively


3,925,000



3,932,239Convertible notes payable, net of discount of $0 and $161,043, repectively


572,400



764,705Total Current Liabilities


18,537,235



6,686,314Long-Term LiabilitiesLease Payable, net of current portion


-



55,374Total Liabilities


18,537,235



6,741,688Stockholders' DeficitConvertible preferred stock, Series A; $0.001 par value; 100,000 shares authorized, 15,500 shares issued and outstanding


16



16Convertible preferred stock, Series A-1; $0.001 par value; 3,000,000 shares authorized, 616,000 and 696,000 shares issued and outstanding, respectively


616



696Convertible preferred stock, Series B; $0.001 par value; 200,000 shares authorized, 3,500 shares issued and outstanding


3



3Convertible preferred stock, Series C; $0.001 par value; 1,000,000 shares authorized, 13,404 shares issued and outstanding


13



13Convertible preferred stock, Series D; $0.001 par value; 375,000 shares authorized, 130,000 shares issued and outstanding


130



130Convertible preferred stock, Series E; $0.001 par value; 1,000,000 shares authorized, 275,000 shares issued and outstanding


275



275Convertible preferred stock, Series P; $0.001 par value; 600,000 shares authorized, 86,640 shares issued and outstanding


87



87Convertible preferred stock, Series S; $0.001 par value; 50,000 shares authorized, -0- shares issued and outstanding


-



-Common stock, authorized 250,000,000 shares,par value $0.001; 95,280,257 and 70,296,203 shares issuedand outstanding, respectively


95,287



70,297Subscription payable


35,000



-Additional paid In capital


46,314,765



40,557,726Accumulated Deficit


(58,165,447
)


(46,985,129
)Total Stockholders' Deficit


(11,719,255
)


(6,355,886
)Total Liabilities and Stockholders' Deficit

$
6,817,980


$
385,802The accompanying notes are an integral part of these consolidated financial statements.
  F-3
 AFTERMASTER, INC.(FORMERLY STUDIO ONE MEDIA, INC.)Consolidated Statements of OperationsFor the Years EndedJune 30,2015


2014REVENUESSession Revenues

$
11,030


$
36,192AfterMaster Revenues


91,570



146,307Licensing Revenues


200,000



-Total Revenues


302,600



182,499COSTS AND EXPENSESCost of Revenues (Exclusive of Depreciation and Amortization)


306,868



381,780Depreciation and Amortization Expense


67,414



114,330General and Administrative Expenses


6,956,826



3,212,694Total Costs and Expenses


7,331,108



3,708,804Loss from Operations


(7,028,508
)


(3,526,305
)Other ExpenseInterest Expense


(2,401,761
)


(1,579,617
)Derivative Expense


(524,518
)


-Change in Fair Value of Derivative


(1,545,181
)


-Gain (Loss) on Extinguishment of Debt


319,650



(25,787
)Impairment of assets


-



(202,206
)Total Other Expense


(4,151,810
)


(1,807,610
)Loss Before Income Taxes


(11,180,318
)


(5,333,915
)NET LOSS

$
(11,180,318
)

$
(5,333,915
)Preferred Stock Accretion and Dividends


(64,140
)


(68,064
)NET LOSS AVAILABLE TO COMMON SHAREHOLDERS

$
(11,244,458
)

$
(5,401,979
)Basic and Diluted Loss Per Share of Common Stock

$
(0.13
)

$
(0.09
)Weighted Average Number of Shares Outstanding


83,438,960



60,147,906The accompanying notes are an integral part of these consolidated financial statements.
  
 
  F-4
  AFTERMASTER, INC.(FORMERLY STUDIO ONE MEDIA, INC.)Consolidated Statements of Stockholders' Equity (Deficit)Additional








TotalPreferred Stock


Common Stock


Paid In


Subscription


Accumulated


Stockholders'Shares


Amount


Shares


Amount


Capital


Payable


Deficit


EquityBalance, June 30, 2013


1,220,044


$
1,220



51,244,242


$
51,243


$
36,564,046


$
-


$
(41,651,214
)

$
(5,034,705
)Common Stock Sold for Cash, net of offering costs of $15,935


-



-



9,951,750



9,952



956,613



-



-



966,565Share-Based Compensation to Directors and Employees- Common shares


-



-



2,272,495



2,272



614,518



-



-



616,790Share-Based Compensation for Consulting Services and Rent


-



-



1,862,399



1,862



466,530



-



-



468,392Common stock issued as incentive with Convertible debt


-



-



229,250



230



46,053



-



-



46,283Common stock issued for conversion of debt


-



-



1,271,534



1,272



125,881



-



-



127,153Common stock issued for conversion of cashless warrants/options


-



-



43,758



44



(44
)


-



-



-Common stock issued for interest expense


-



-



3,040,775



3,041



769,268



-



-



772,309Common stock issued to extend the maturity dates on debt


-



-



380,000



381



104,844



-



-



105,225Beneficial Conversion Feature


-



-



-



-



620,226



-



-



620,226Share-Based Compensation - Warrants and options


-



-



-



-



289,791



-



-



289,791Net loss for the year ended June 30, 2014


-



-



-



-



-



-



(5,333,915
)


(5,333,915
)Balance, June 30, 2014


1,220,044


$
1,220



70,296,203


$
70,297


$
40,557,726


$
-


$
(46,985,129
)

$
(6,355,886
)Common Stock Sold for Cash, net of offering costs of $286,720


-



-



12,017,259



12,017



4,354,615



35,000



-



4,401,632Share-Based Compensation to Directors and Employees- Common shares


-



-



2,934,804



2,940



1,028,000



-



-



1,030,940Total Stock Issued for Consulting Services and Rent


-



-



385,221



385



165,973



-



-



166,358Common stock issued as incentive with Convertible debt


-



-



43,500



45



10,216



-



-



10,261Common stock issued for conversion of debt


-



-



5,889,105



5,889



737,196



-



-



743,085Common stock issued for cash conversion of warrants/options


-



-



750,000



750



149,250



-



-



150,000Common stock issued for conversion of cashless preferred stock and dividends


(80,000
)


(80
)


214,119



214



43,638



-



-



43,772Common stock issued for interest expense


-



-



2,700,046



2,700



1,739,351



-



-



1,742,051Common stock issued to extend the maturity dates on debt


-



-



50,000



50



15,700



-



-



15,750Beneficial conversion feature


-



-



-



-



527,000



-



-



527,000Derivative liability


-



-



-



-



(4,343,658
)


-



-



(4,343,658
)Share-Based Compensation - Warrants and options


-



-



-



-



1,329,758



-



-



1,329,758Net loss for the year ended June 30, 2015


-



-



-



-



-



-



(11,180,318
)


(11,180,318
)Balance, June 30, 2015


1,140,044


$
1,140



95,280,257


$
95,287


$
46,314,765


$
35,000


$
(58,165,447
)

$
(11,719,255
)The accompanying notes are an integral part of these consolidated financial statements.
 F-5
 
 (FORMERLY STUDIO ONE MEDIA, INC.)Consolidated Statements of Cash FlowsFor the Years EndedJune 30,2015


2014OPERATING ACTIVITIESNet Loss

$
(11,180,318
)

$
(5,333,915
)Adjustments to reconcile net loss to cash from operating activities:Depreciation and amortization


67,415



114,330Share-based compensation - Common Stock


1,030,940



616,790Share-based compensation - warrants


1,329,758



289,791Common stock issued for services and rent


166,358



468,392Common stock issued as incentive with Convertible debt


10,261



20,446Common stock issued for preferred dividends


15,255



-Common stock issued to extend the maturity dates on debt


15,750



105,225Amortization of debt discount and issuance costs


659,803



635,602(Gain)/Loss on extinguishment of debt


(319,650
)


25,837Penalties accrued on convertible notes


-



120,348Derivative expense


524,518



-Gain (loss) on derivative


1,545,181



-Impairment on long lived assets and intangibles


-



202,206Changes in Operating Assets and Liabilities:Other receivables


(11,099
)


12,840Other assets


2,104,169



53,220Accounts payable and accrued expenses and deferred revenue


1,232,822



1,086,176Net Cash Used in Operating Activities


(2,808,837
)


(1,582,712
)INVESTING ACTIVITIESPurchase of property and equipment


(83,253
)


(58,500
)Net Cash Used in Investing Activities


(83,253
)


(58,500
)FINANCING ACTIVITIESCommon Stock issued for cash, net of offering costs of $286,720 and $15,935, respectively


4,516,632



966,565Proceeds from notes payable - related party


50,000



44,000Proceeds from convertible notes payable


527,000



624,000Repayments of convertible notes payable


(9,000
)


(72,000
)Repayments of notes payable


(35,000
)Lease Payable


(49,716
)


(8,735
)Net Cash Provided by Financing Activities


4,999,916



1,553,830NET INCREASE (DECREASE) IN CASH


2,107,826



(87,382
)CASH AT BEGINNING OF PERIOD


77,876



165,258CASH AT END OF PERIOD

$
2,185,702


$
77,876SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:CASH PAID FOR:Interest

$
6,881


$
918NON CASH FINANCING ACTIVITIES:Common Stock issued to extinguish debt and liabilities

$
-


$
-Conversion of notes and Interest into common stock

$
2,485,137



127,153Conversion of preferred stock for common stock

$
160


$
-Common Stock and warrants issued for prepaid services

$
-


$
28,000Common Stock and warrants issued for interest

$
527,000


$
607,000Finders fee payable

$
35,000


$
-Conversion of Derivative Liability

$
462,983


$
-Derivative Liability

$
11,208,225


$
-Warrants and beneficial conversion feature on issuance of convertible debt

$
-


$
1,392,535The accompanying notes are an integral part of these consolidated financial statements.
 F-6





AFTERMASTER, INC.


(FORMERLY STUDIO ONE MEDIA, INC.)


Notes to Consolidated Financial Statements


June 30, 2015 and 2014





NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Description of Business


AfterMaster, Inc., formerly Studio One Media, Inc. (the “Company” or “AfterMaster”) was originally organized in Delaware on May 12, 1988, as Dimensional Visions Group, Ltd. The name was changed on January 15, 1998 to Dimensional Visions Incorporated. On February 8, 2006, it changed its name to Elevation Media, Inc., and on March 28, 2006 the Company’s name was changed to Studio One Media, Inc. as part of its overall plan to implement its revised business plan.





In April 2006, the Company entered into an agreement to purchase MyStudio HD Recording Studios, Inc. (formerly known as Studio One Entertainment, Inc.), a privately-held Scottsdale, Arizona-based company that designed and manufactured the recording studios currently in use by the Company (the “MyStudio Agreement”).





On April 17, 2007, the Company announced that it had finalized the reverse merger of MyStudio HD Recording Studios, Inc. through an all-stock transaction. The purchase was pursuant to an agreement entered into by the companies dated March 29, 2006. The reverse merger included the exchange of 7,000,000 restricted Common Shares of AfterMaster, Inc. for 100% of the issued and outstanding shares of MyStudio HD Recording Studios, Inc. The substance of the transaction resulted in a reverse merger wherein MyStudio HD Recording Studios, Inc. became the accounting acquirer of AfterMaster. Therefore, historical financial data reflects the operations and accumulated deficit of MyStudio HD Recording Studios, Inc. The transaction essentially is a recapitalization of MyStudio HD Recording Studios, Inc. The reverse merger includes all right, title and interest to MyStudio HD Recording Studio, Inc.’s proprietary interactive recording studios, business plan and intellectual property, including pending patents, foreign patent rights and federal trademark applications. MyStudio, Inc. continues to operate as a wholly owned subsidiary of AfterMaster. Accordingly, the financial statements present on a consolidated basis the operations of AfterMaster and MyStudio HD Recording Studios, Inc., as well it’s other wholly-owned subsidiary, AfterMaster HD Audio, Inc.


Accounting Basis


The Company’s financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States.  The Company has elected a June 30 fiscal year end.


Principles of Consolidation


The consolidated financial statements include the accounts of AfterMaster and its subsidiaries. All significant inter-company accounts and transactions have been eliminated.


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.





Notes and Other Receivables


Notes and other receivables are stated at amounts management expects to collect. An allowance for doubtful accounts is provided for uncollectible receivables based upon management's evaluation of outstanding accounts receivable at each reporting period considering historical experience and customer credit quality and delinquency status. Delinquency status is determined by contractual terms. Bad debts are written off against the allowance when identified.




Cash and Cash Equivalents


Cash and cash equivalents include all cash balances and highly liquid investments with an original maturity of three months or less. As of June 30, 2015 and 2014, the Company’s cash balances were within the FDIC insurance coverage limits.





Fair Values, Inputs and Valuation Techniques for Financial Assets and Liabilities Disclosures


The fair value measurements and disclosure guidance defines fair value and establishes a framework for measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In accordance with this guidance, the Company has categorized its recurring basis financial assets and liabilities into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique.





The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.






F-7




The levels of the fair value hierarchy are described below:





•

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.•

Level 2 inputs utilize other than quoted prices included in Level 1 that are observable for the asset, either directly or indirectly, for substantially the full term of the asset. Level 2 inputs include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active and inputs other than quoted prices that are observable in the marketplace for the asset. The observable inputs are used in valuation models to calculate the fair value for the asset.





•

Level 3 inputs are unobservable but are significant to the fair value measurement for the asset, and include situations where there is little, if any, market activity for the asset. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset.





A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.





Disclosures for Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis


The Company’s financial instruments mainly consist of cash, receivables, current assets, accounts payable and accrued expenses and debt. The carrying amounts of its cash, receivables, current asserts, accounts payable, accrued expenses and current debt approximates fair value due to the Short-Term nature of these instruments. The debt consists of lease payable and notes payables, the lease payables, which is due 24 months after June 30, 2015, therefore its carrying amount also approximates fair value.


Concentration of Risk


Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash.  Our cash balances are maintained in accounts held by major banks and financial institutions located in the United States.  The Company occasionally maintains amounts on deposit with a financial institution that are in excess of the federally insured limits. The risk is managed by maintaining all deposits in high quality financial institutions.
 
 For the year ended June 30, 2015 there were no customers that accounted for a material portion of total revenues, and 2014 there was no customer that accounted for a material portion of total revenues.


Property and Equipment


Property and equipment is recorded at cost less accumulated depreciation. Depreciation and amortization is calculated using the straight-line method over the expected useful life of the asset, after the asset is placed in service. The Company generally uses the following depreciable lives for its major classifications of property and equipment:


Description
Useful LivesOffice Equipment and Computers
5 yearsComputer Software
5 yearsFurniture and Office Equipment
5 yearsVehicles
5 yearsLeasehold Improvements
Shorter of Useful Life or Lease TermStudios
5 years
 
 Expenditures associated with upgrades and enhancements that improve, add functionality, or otherwise extend the life of property and equipment are capitalized, while expenditures that do not, such as repairs and maintenance, are expensed as incurred.


Property and Equipment Yet to be Placed in Service


The Company capitalizes direct costs associated with the production of a new studio as it is being built.  Depreciation of these assets does not begin until the studio is complete and placed into service.


F-8
  Intangible Assets


Intangible assets consist of intellectual property, website costs, video backgrounds, and patterns and molds. The Company’s intellectual property includes purchased patents and trademarks as well as other proprietary technologies.  Website costs are costs incurred to develop the Company’s website. Video backgrounds are the costs incurred to develop video backgrounds for use in the Company’s recording studios. Patterns and molds are for the design and construction of the studios. The Company amortizes intangible assets over the following useful lives:





Description
Weighted-Average Amortization PeriodIntellectual Property
5 yearsWebsite Costs
5 yearsVideo Backgrounds
5 yearsPatterns and Molds
5 years


Valuation of Long-Lived Assets


Long-lived tangible assets and definite-lived intangible assets are reviewed for possible impairment annually or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company uses both an estimate of undiscounted future net cash flows of the assets over the remaining useful lives and a replacement cost method when determining their fair values. If the carrying values of the assets exceed the fair value of the assets, the Company recognizes an impairment loss equal to the difference between the carrying values of the assets and their fair values. Impairment of long-lived assets is assessed at the lowest levels for which there are identifiable cash flows that are independent from other groups of assets. The evaluation of long-lived assets requires the Company to use estimates of future cash flows. However, actual cash flows may differ from the estimated future cash flows used in these impairment tests.


Revenue Recognition


The Company applies the provisions of FASB ASC 605, Revenue Recognition in Financial Statements, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. ASC 605 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue related to goods and services provided when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.


The Company's revenues are generated from AfterMaster products and services, and licensing fees. Revenues related to licensing fees generated per a term sheet with bBooth are recorded when payment is received as there is no current executed agreement in place and the term of use is indefinite, pursuant to which bBooth agreed to acquire exclusive rights to license certain technologies, intellectual property, and patents from AfterMaster. The key terms of the letter agreement consist of the following:


·
bBooth agreed to pay the Company $1,250,000 over 18 months, for a conditional perpetual license of intellectual property (including related patents and other assets), of which, to date, $200,000 has been received;
 ·
bBooth agreed to grant 600,000 shares of our common stock to Studio One, which shares where received subsequent to year end on September 3, 2015 and;
 ·
upon full receipt of the $1,250,000 cash consideration, bBooth will have the option to purchase  six complete MyStudio booths, one fully operational mobile studio and truck, and an interest in its MyStudio TV show, for nominal additional consideration.





The letter agreement with Studio One is intended to be superseded by a definitive license agreements, which the Company expect to execute within 60 days of the date of this annual report. The balance of the $1,250,000 cash consideration will be payable as follows: $200,000 will be payable on execution of the definitive license agreements; $100,000 will be payable on the date that is 90 days following the execution of such agreements; $250,000 will be payable on the date that is 180 days following the execution of such agreements; $250,000 will be payable on the date that is nine months following the execution of such agreements; and $250,000 will be payable on or before the date that is 18 months following the execution of such agreements.




Cost of Revenues


The Company’s cost of revenues includes studio lease expense, employee costs, and other nominal amounts.  Depreciation is not included within cost of sales.


Research and Development


The Company follows the policy of expensing its research and development costs in the period in which they are incurred in accordance with ASC 730, Accounting for Research and Development Costs. The Company incurred research and development expenses of $67,742 and $31,450 during the years ended June 30, 2015 and 2014, respectively.


F-9
  Advertising Expenses


The Company expenses advertising costs in the period in which they are incurred. Advertising expenses were $1,389 and $85,810 for the years ended June 30, 2015 and 2014, respectively, and have been included within general and administrative expenses.


Share-Based Compensation


The Company follows the provisions of ASC 718, Share-Based Payment, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.  The Company uses the Black-Scholes pricing model for determining the fair value of share-based compensation.
 
 The Company also follows the provisions of FASB ASC 505-50, “Equity-Based Payments to Non-Employees,” which addresses the accounting and reporting for both the issuer (that is, the purchaser or grantor) and recipient (that is, the goods or service provider or grantee) for a subset of share-based payment transactions. ASC 505-50 requires equity instruments issued to non-employees for goods or services are accounted for at fair value and are marked to market until service is complete or a performance commitment date is reached, whichever is earlier.


Derivative Liabilities-The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company has a sequencing policy regarding share settlement wherein instruments with the earliest issuance date would be settled first. The sequencing policy also considers contingently issuable additional shares, such as those issuable upon a stock split, to have an issuance date to coincide with the event giving rise to the additional shares.





Using this sequencing policy, all instruments convertible into common stock, including warrants and the conversion feature of notes payable, issued subsequent to August 14 2014 are derivative liabilities.





The Company values these convertible notes payable using the multinomial lattice method that values the derivative liability within the notes based on a probability weighted discounted cash flow model. The resulting liability is valued at each reporting date and the change in the liability is reflected as change in derivative liability in the statement of operations.


Loss Per Share


Basic earnings (loss) per Common Share is computed by dividing losses attributable to Common shareholders by the weighted-average number of shares of Common Stock outstanding during the period. The losses attributable to Common shareholders was increased for accrued and deemed dividends on Preferred Stock during the years ended June 30, 2015 and 2014 of $64,141 and $68,064, respectively.





Diluted earnings per Common Share is computed by dividing income (loss) attributable to Common shareholders by the weighted-average number of Shares of Common Stock outstanding during the period increased to include the number of additional Shares of Common Stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding convertible Preferred Stock, stock options, warrants, and convertible debt. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s Common Stock can result in a greater dilutive effect from potentially dilutive securities.





For the years ended June 30, 2015 and 2014, all of the Company’s potentially dilutive securities (warrants, options, convertible preferred stock, and convertible debt) were excluded from the computation of diluted earnings per share as they were anti-dilutive.  The total number of potentially dilutive Common Shares that were excluded were 28,028,612 and 15,895,075 at June 30, 2015 and 2014, respectively.


Income Taxes


The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The charge for taxation is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.





In July, 2006, the FASB issued ASC 740, Accounting for Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a return. ASC 740 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties.  Under this pronouncement, the Company recognizes the financial statement benefit of a tax position only after determining that a position would more likely than not be sustained based upon its technical merit if challenged by the relevant taxing authority and taken by management to the court of the last resort. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon settlement with the relevant tax authority.
   F-10
  The Company’s policy is to recognize both interest and penalties related to unrecognized tax benefits in income tax expense. Interest and penalties on unrecognized tax benefits expected to result in payment of cash within one year are classified as accrued liabilities, while those expected beyond one year are classified as other liabilities. The Company has not recorded any interest and penalties since its inception.





The Company files income tax returns in the U.S. federal tax jurisdiction and various state tax jurisdictions. The tax years for 2012 to 2015 remain open for federal and/or state tax jurisdictions. The Company is currently not under examination by any other tax jurisdictions for any tax years.


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 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 an accumulated deficit of $58,165,447, negative working capital of $13,027,775, and currently has revenues which are insufficient to cover 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, (c) placing in service additional studios (d) more widely commercializing the AfterMaster and ProMaster products, and (e) identifying and executing on additional revenue generating opportunities.
 
 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 – PROPERTY AND EQUIPMENT


The Company’s property and equipment are comprised of the following as of June 30, 2015 and 2014:


2015


2014Furniture and Office Equipment

$
28,812


$
25,912Office Equipment and Computers


233,564



233,564Studios


185,824



123,324Vehicles


60,524



60,524Leasehold Improvements


21,072



23,472Computer Software


56,232



56,166Accumulated Depreciation


(416,074
)


(357,982
)Net Property and Equipment

$
169,954


$
164,980
 
 The Company also had $0 and $31,250 in equipment that was yet to be placed in service as of June 30, 2015 and 2014, respectively.  Depreciation expense for the years ended June 30, 2015 and 2014 was $58,092 and $104,127, respectively.


F-11


NOTE 4 – INTANGIBLE ASSETS


The Company’s intangible assets are comprised of the following on June 30, 2015 and June 30, 2014:





2015


2014Patterns and Molds

$
18,916


$
18,916Website Costs


120,595



100,410Video Backgrounds


16,172



16,172Accumulated Amortization


(132,830
)


(123,508
)Intangible Assets, Net

$
22,853


$
11,990





Amortization expense for the years ended June 30, 2015 and 2014 was $9,322 and $10,193, respectively.  The Company’s future estimated amortization for the above intangible assets are as follows:





Year

Amortization2016

$
5,8602017


5,8442018


5,8442019


4,4882020


817Total

$
22,853


NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES


A summary of accounts payable and accrued expenses as of June 30, 2015 and 2014 follows:





2015


2014Accounts Payable

$
344,451


$
951,563Accrued Interest


93,762



74,483Deferred Revenue


2,500



3,500Consulting Services-Related Party


82,267



278,568Total

$
522,980


$
1,308,113





Other accrued expenses consist primarily of accrued payroll liabilities, consulting fees payable and other fees payable.


NOTE 6 – NOTES PAYABLE
 
 Convertible Notes Payable


In accounting for its convertible notes payable, proceeds from the sale of a convertible debt instrument with Common Stock purchase warrants are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portions of the proceeds allocated to the warrants are accounted for as paid-in capital with an offset to debt discount. The remainder of the proceeds are allocated to the debt instrument portion of the transaction as prescribed by ASC 470-25-20.  The Company then calculates the effective conversion price of the note based on the relative fair value allocated to the debt instrument to determine the fair value of any beneficial conversion feature (“BCF”) associated with the convertible note in accordance with ASC 470-20-30.  The BCF is recorded to additional paid-in capital with an offset to debt discount.  Both the debt discount related to the issuance of warrants and related to a BCF is amortized over the life of the note.


Convertible Notes Payable – Related Parties
 Convertible notes payable due to related parties consisted of the following as of June 30, 2015 and 2014, respectively:
  June 30,


June 30,2015


2014Various term notes with total face value of $3,925,000 issued from February 2010 to April 2013, interest rates range from 10% to 15%, net of unamortized discount of $0 and $1,761 as of June 30, 2015 and 2014, respectively.

$
3,925,000


$
3,924,439$9,000 face value,of which all of the note has been paid back.


-



7,800Total convertible notes payable – related parties


3,925,000



3,932,239Less current portion


3,925,000



3,932,239Convertible notes payable – related parties, long-term

$
-


$
-


F-12
 The notes were amended on June 30, 2014 to extend the maturity date to September 30, 2014, amended again on September 30, 2014 to December 31, 2014, amended again on December 31, 2014 to June 30, 2015, amended again on June 30, 2015 to August 31, 2015 and amended again August 28, 2015 to September 30, 2015. 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.





Convertible Notes Payable - Non-Related Parties
 Convertible notes payable due to non-related parties consisted of the following as of June 30, 2015, and 2014, respectively:


June 30,


June 30,2015


2014$100,000 face value, of which $100,000 has been converted.

$
-


$
100,000$15,000 face value, issued in October 2011, interest rate of 10%, matures in June 2012, net of unamortized discount of $0 and $0 as of June 30, 2015 and June 30, 2014, respectively.


15,000



15,000$75,000 face value, of which $75,000 has been converted.


-



75,000$50,000 face value, issued in August 2012, interest rate of 10%, matures in February 2013, net of unamortized discount of $0 and $0 as of June 30, 2015 and June 30, 2014, respectively.


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 and $0 as of June 30, 2015 and June 30, 2014, respectively.


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 10%, matures in November 2013 and an additional penalties were added to the principal of $120,348 bringing the face value to $160,748, which were forgiven subsequent to 2015 as part of a settlement agreement, net of unamortized discount of $0 and $0 as of June 30, 2015 and June 30, 2014, respectively.


40,400



160,748$30,000 face value, issued in February 2013, interest rate of 0%, matures in November 2013, net of unamortized discount of $0 and $0 as of June 30, 2015 and June 30, 2014, respectively.


30,000



30,000$20,000 face value, issued in April 2013, interest rate of -0-%, matures in October 2013, net of unamortized discount of $0 and $0 as of June 30, 2015 and June 30, 2014, respectively.


20,000



20,000$100,000 face value, of which $100,000 has been converted.


-



100,000$50,000 face value, of which $50,000 has been converted.


-



50,000$50,000 face value, of which $50,000 has been converted.


-



50,000$50,000 face value, of which $50,000 has been converted.


-



46,132$30,000 face value, issued in March 2014, interest rate of 0%, matures in September 2014, net of unamortized discount of $0 and $7,011 as of June 30, 2015 and June 30, 2014, respectively.


30,000



22,989$20,000 face value, of which $20,000 has been converted.


-



20,000$25,000 face value, of which $25,000 has been converted.


-



9,563$15,000 face value, issued in June 2014, interest rate of 6%, matures December 2014, net unamortized discount of $0 and $14,098 as of June 30, 2015 and June 30, 2014, respectively.


15,000



902$20,000 face value, issued in June 2014, interest rate of 6%, matures December 2014, net unamortized discount of $0 and $18,798 as of June 30, 2015 and June 30, 2014, respectively.


20,000



1,202$30,000 face value, of which $30,000 has been converted.


-



1,967$20,000 face value, issued in June 2014, interest rate of 6%, matures December 2014, net unamortized discount of $0 and $18,798 as of June 30, 2015 and June 30, 2014, respectively.


20,000



1,202$25,000 face value, issued in June 2014, interest rate of 6%, matures September 2014, net unamortized discount of $0 and $25,000 as of June 30, 2015 and June 30, 2014, respectively.


25,000



-$15,000 face value, of which $15,000 has been converted.


-



-$10,000 face value, issued in July 2014, interest rate of 6%, matures October 2014, net unamortized discount of $0 as of June 30, 2015.


10,000



-$10,000 face value,  of which $10,000 was converted.


-



-$7,000 face value, issued in July 2014, interest rate of 6%, matures October 2014, net unamortized discount of $0 as of June 30, 2015.


7,000



-$5,000 face value, issued in July 2014, interest rate of 6%, matures October 2014, net unamortized discount of $0 as of June 30, 2015.


5,000



-$10,000 face value,  of which $10,000 was converted.


-



-$25,000 face value, of which $25,000 was converted.


-



-$10,000 face value,  of which $10,000 was converted.


-



-$30,000 face value, of which $30,000 was converted.


-



-$100,000 face value, issued in August 2014, interest rate of 6%, matures December 2014, net unamortized discount of $0 as of June 30, 2015.


100,000



-$100,000 face value, issued in August 2014, interest rate of 6%, matures December 2014, net unamortized discount of $0 as of June 30, 2015.


100,000



-$40,000 face value, of which $40,000 was converted.


-



-
  F-13
  $40,000 face value, of which $40,000 was converted.


-



-$40,000 face value, issued in October 2014, interest rate of 6%, matures January 2015, net unamortized discount of $40,000 as of June 30, 2015.


40,000



-$25,000 face value, of which $25,000 has been converted.


-



-$25,000 face value, of which $25,000 has been converted.


-



-$35,000 face value, issued in November 2014, interest rate of 6%, matures January 2015, net unamortized discount of $0 as of June 30, 2015.


35,000



-Total convertible notes payable – non-related parties


572,400



764,705Less current portion


572,400



764,705Convertible notes payable – non-related parties, long-term

$
-


$
-


On August 15, 2014, the Company amended the convertible notes dated September 29, 2011 for $100,000 and January 6, 2012 for $75,000 to extend the maturity date to November 15, 2014 and issued 50,000 shares of the Company’s common stock valued at $15,750, as well as 50,000 warrants valued at $12,767. The Company evaluated amendment under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension did result in significant and consequential changes to the economic substance of the debt. The Company recorded a loss on extinguishment of debt of $28,517. On October 20, 2014, the note holder elected to convert the entire note of $175,000.
 
 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 August 14, 2014, the note holder elected to convert the entire note of $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 $25,787. On August 14, 2014, the note holder elected to convert the entire note of $50,000.
 
 On February 3, 2014, the Company issued a convertible note to an unrelated individual for $50,000 that matures on April 10, 2014. The note bears an interest rate of 10% 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. On July 19, 2014, the note holder elected to convert the entire note of $50,000 and $3,041 in accrued interest.





On February 21, 2014, the Company issued a convertible note to an unrelated individual for $50,000 that matures on August 21, 2014. The note bears an interest rate of 6% 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. On August 14, 2014, the note holder elected to convert the entire note of $50,000.
 
 On March 31, 2014, the Company issued a convertible note to an unrelated individual for $20,000 that matures on June 28, 2014. The note bears an interest rate of 10% 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. On July 19, 2014, the note holder elected to convert the entire note of $20,000 and $603 in accrued interest.
 
 On April 21, 2014, the Company issued a convertible note to an unrelated individual for $25,000 that matures on October 21, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share. On August 14, 2014, the note holder elected to convert the entire note of $25,000.
 
 On June 18, 2014, the Company issued a convertible note to an unrelated individual for $30,000 that matures on December 18, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share. On August 14, 2014, the note holder elected to convert the entire note of $30,000.





On July 9, 2014, the Company issued a convertible note to an unrelated individual for $15,000 that matures on October 10, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share. On March 31, 2015, the note holder elected to convert the entire note of $15,000 and $653 in accrued interest.





In conjunction with the note, the Company issued to the holder 7,500 shares of restricted Common Stock. The value of the BCF recorded was $13,333 and the debt discount related to the attached relative fair value of the restricted Common Stock was $1,667, for a total debt discount of $15,000.





On July 10, 2014, the Company issued a convertible note to an unrelated individual for $10,000 that matures on October 10, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share.





In conjunction with the note, the Company issued to the holder 5,000 shares of restricted Common Stock. The value of the BCF recorded was $8,889 and the debt discount related to the attached relative fair value of the restricted Common Stock was $1,111, for a total debt discount of $10,000.






F-14




On July 14, 2014, the Company issued a convertible note to an unrelated individual for $10,000 that matures on October 14, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share. On March 31, 2015, the note holder elected to convert the entire note of $10,000 and $427 in accrued interest.





In conjunction with the note, the Company issued to the holder 5,000 shares of restricted Common Stock. The value of the BCF recorded was $8,929 and the debt discount related to the attached relative fair value of the restricted Common Stock was $1,071, for a total debt discount of $10,000.





On July 14, 2014, the Company issued a convertible note to an unrelated individual for $7,000 that matures on October 14, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share.





In conjunction with the note, the Company issued to the holder 3,500 shares of restricted Common Stock. The value of the BCF recorded was $6,222 and the debt discount related to the attached relative fair value of the restricted Common Stock was $778, for a total debt discount of $7,000.





On July 18, 2014, the Company issued a convertible note to an unrelated individual for $5,000 that matures on October 18, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share.





In conjunction with the note, the Company issued to the holder 2,500 shares of restricted Common Stock. The value of the BCF recorded was $4,444 and the debt discount related to the attached relative fair value of the restricted Common Stock was $556, for a total debt discount of $5,000.





On August 18, 2014, the Company issued a convertible note to an unrelated individual for $10,000 that matures on November 18, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share. On February 16, 2015, the note holder elected to convert the entire note of $10,000 and $299 in accrued interest.





In conjunction with the note, the Company issued to the holder 5,000 shares of restricted Common Stock. The Company booked a debt discount related to the derivative liability of $10,000.





On August 22, 2014, the Company issued a convertible note to an unrelated individual for $25,000 that matures on September 22, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.15 per share. On September 30, 2014, the note holder elected to convert the entire note of $25,000 and $160 in accrued interest.





In conjunction with the note, the Company issued to the holder 12,500 shares of restricted Common Stock. The Company booked a debt discount related to the derivative liability of $25,000.





On September 5, 2014, the Company issued a convertible note to an unrelated individual for $10,000 that matures on December 5, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The company valued a BCF related to the note valued at $10,000. On March 5, 2015, the note holder elected to convert the entire note of $10,000 and $281 in accrued interest.





On September 10, 2014, the Company issued a convertible note to an unrelated individual for $30,000 that matures on December 5, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The Company booked a debt discount related to the derivative liability of $30,000.





On September 11, 2014, the Company issued a convertible note to an unrelated individual for $100,000 that matures on December 11, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The Company booked a debt discount related to the derivative liability of $100,000.





On September 19, 2014, the Company issued a convertible note to an unrelated individual for $100,000 that matures on December 19, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The Company booked a debt discount related to the derivative liability of $100,000.





On September 30, 2014, the Company issued a convertible note to an unrelated individual for $40,000 that matures on December 29, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. Company booked a debt discount related to the derivative liability of $40,000.






F-15





On October 3, 2014, the Company issued a convertible note to an unrelated individual for $40,000 that matures on December 2, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The Company booked a debt discount related to the derivative liability of $40,000.





On October 6, 2014, the Company issued a convertible note to an unrelated individual for $40,000 that matures on January 6, 2015. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The Company booked a debt discount related to the derivative liability of $40,000.





On October 20, 2014, the Company issued a convertible note to an unrelated individual for $25,000 that matures on April 20, 2015. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The Company booked a debt discount related to the derivative liability of $25,000. On October 24, 2014, the note holder elected to convert the entire note of $25,000.





On October 16, 2014, the Company issued a convertible note to an unrelated individual for $25,000 that matures on January 16, 2015. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The Company booked a debt discount related to the derivative liability of $25,000.





On November 24, 2014, the Company issued a convertible note to an unrelated individual for $35,000 that matures on May 24, 2015. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.35 per share. The Company booked a debt discount related to the derivative liability of $35,000.





Notes Payable – Related Parties


Notes payable due to related parties consisted of the following as of June 30, 2015 and 2014:


June 30,


June 30,2015


2014Various term notes with total face value of $610,000 issued from April 11 to January 2014, interest rates range from 0% to 15%, net of unamortized discount of $0  as of June 30, 2015 and June 30, 2014, respectively, of which $35,000 has been paid.

$
575,000


$
610,000Face value of $50,000, issued in December 2014, matures in January 2015, note bears interest at 0%.


50,000



-Total notes payable – related parties


625,000



610,000Less current portion


625,000



610,000Notes payable - related parties, long term

$
-


$
-


Notes Payable–Non-Related Parties
 Notes payable due to non-related parties consisted of the following as of June 30, 2015 and 2014:


June 30,


June 30,2014


2014Various term notes with total face value of $40,488 due upon demand, interest rates range from 0% to 14%.

$
40,488


$
40,488Total note payable – non-related parties


40,488



40,488Less current portion


40,488



40,488Notes payable – non-related parties, long-term

$
-


$
-


F-16
 
 NOTE 7 – 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


LiquidationAllocated


Outstanding


PreferenceSeries A Convertible Preferred


100,000



15,500



-Series A-1 Convertible Preferred


3,000,000



616,000



684,251Series B Convertible Preferred


200,000



3,500



79,099Series C Convertible Preferred


1,000,000



13,404



-Series D Convertible Preferred


375,000



130,000



130,000Series E Convertible Preferred


1,000,000



275,000



275,000Series P Convertible Preferred


600,000



86,640



-Series S Convertible Preferred


50,000



-



-Total Preferred Stock


6,325,000



1,140,044


$
1,168,350


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. Preferred Shares may be redeemed by the Company at any time after the second anniversary date of their issue by Studio One at the price of $5.00 per share. 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.  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.
   F-17
  The activity surrounding the issuances of the Preferred Stock is as follows:
 
 During the fiscal years ended June 30, 2015 and 2014 the Company issued -0- shares of Series A-1 Preferred Stock for $-0- in cash, net of $-0- of issuance costs, respectively. The Company had three conversions of 80,000 shares of Series A-1 Preferred Stock for 160,000 shares of Common Stock, and issued 43,772 shares of Common Stock of payment of $18,988 in accrued dividends.


During the fiscal years ended June 30, 2015 and 2014, the outstanding Preferred Stock accumulated $64,410 and $68,064 in dividends on outstanding Preferred Stock. The cumulative dividends in arrears as of June 30, 2015 were approximately $648,236.
 
 NOTE 8 – COMMON STOCK


The Company has authorized 100,000,000 shares of $0.001 par value per share Common Stock, of which 95,280,257 and 70,296,203 were issued outstanding as of June 30, 2015 and 2014, respectively. The Company subsequently amended its articles of incorporation on August 28, 2015 to increase the number of authorized shares to 250,000,000, see footnote 15. The activity surrounding the issuances of the Common Stock is as follows:


Fiscal Year Ended June 30, 2015





The Company issued 12,767,259 common shares for net cash proceeds of $4,551,632. The Company paid as offering costs $286,720 in cash offering costs, of which, $35,000 remained payable as of June 30, 2015. Offering costs have been recorded as reductions to additional paid-in capital from common stock proceeds and an increase in professional fees. Attached to the Common Shares, the Company issued 12,017,259 warrants to purchase shares of the Company’s Common Stock.The Company recognized $1,329,758 for the amortization of warrants issued in prior periods.





The Company also issued 43,500 shares of Common Stock as incentive to notes valued at $10,261 to extend terms on two convertible notes payable and recorded $527,000 in beneficial conversion features related to new issuances of debt.





The Company also issued 5,889,105 shares of Common Stock for the conversion of notes and accrued interest valued at $743,085.





The Company also issued 160,000 shares of Common Stock for the conversion of 80,000shares of Series A-1 Preferred Stockand issued 54,119 shares of Common Stock of payment of $43,772 in accrued dividends.





The Company issued 385,221 shares of Common Stock as payment for services and rent valued at $166,358.





As share-based compensation to employees and non-employees, the Company issued 2,934,804 shares of common stock valued at $1,030,940, based on the market price of the stock on the date of issuance. As interest expense on outstanding notes payable, the Company issued 2,700,046 shares of common stock valued at $1,742,051 based on the market price on the date of issuance.





Fiscal Year Ended June 30, 2014


The Company issued 9,825,000 shares of Common Stock for net cash proceeds of $966,565. The Company paid $15,935 in cash offering costs and issued 126,750 in stock 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 1,366,016 warrants to purchase shares of the Company’s Common Stock.The Company recognized $289,791 in employee stock option expense and for the amortization of warrants issued in prior periods.


The Company also issued 1,271,534 shares of Common Stock for conversion of notes payable for $127,153, issued 229,250 shares as incentive to convertible debt for $46,283, and issued 380,000 shares of Common Stock to extend the maturity dates on debt for $105,225.  The Company also issued 43,758 shares of Common Stock conversion of warrants for $0 and recorded $620,226 in beneficial conversion features related to new issuances of debt.





As share-based compensation to employees and non-employees, the Company issued 4,134,894 shares of common stock valued at $1,085,182, based on the market price of the stock on the date of issuance.   As interest expense on outstanding notes payable, the Company issued 3,040,775 shares of common stock valued at $772,309 based on the market price on the date of issuance.


F-18





NOTE 9 – 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, nonstatutory 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 fiscal year ended June 30, 2015, the Company did not issue any stock purchase options.
 
 During the fiscal year ended June 30, 2014, the Company issued 25,000 stock purchase options for a value of $6,045.  The Company did recognize $10,713 in employee stock option expense during the fiscal year ended June 30, 2014 for options vested during the period that were issued in prior periods.
 
 The following table summarizes the changes in options outstanding of the Company during the fiscal year ended June 30, 2015.


Date Issued

Number of Options


Weighted Average Exercise Price


Weighted Average Grant Date Fair Value


Expiration Date (yrs)


Value if ExercisedBalance June 30, 2014


381,429


$
0.55


$
0.12



0.62


$
209,643Granted


-



-



-



-



-Exercised


-



-



-



-



-Cancelled/Expired


(301,429
)


(0.52
)


-



-



(156,743
)Outstanding as of June 30, 2015


80,000


$
0.66


$
0.59



1.20


$
52,900





The following table summarizes the changes in options outstanding of the Company during the fiscal year ended June 30, 2015.





Date Issued

Number of Options


Weighted Average Exercise Price


Weighted Average Grant Date Fair Value


Expiration Date (yrs)


Value if ExercisedBalance June 30, 2013


613,429


$
0.85


$
1.20



1.95


$
522,843Granted


25,000



0.15



0.24



5.00



3,750Exercised


-



-



-



-



-Cancelled/Expired


(257,000
)


(1.23
)


-



-



(316,950
)Outstanding as of June 30, 2014


381,429


$
0.55


$
0.12



0.62


$
209,643





Stock Purchase Warrants


During the fiscal year ended June 30, 2015, the Company issued warrants to purchase a total of 26,434,199. The Company issued 50,000 warrants in conjunction to extended two convertible note payables and issued 5,876,133 warrants in conjunction to a consulting agreement entered into in July 2014 and 150,000 warrants issued in conjunction with a financial advisory agreement entered into on January 2015. The Company also issued 1,000,000 warrants related to the bBooth agreements which were expensed during the current year.  The company also issued 8,657,701 warrants as part of a private placement to extend the terms during the period, which were converted for cash proceed of $75,000 in exchange for 750,000 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.






F-19




During the fiscal year ended June 30, 2014, the Company issued warrants to purchase a total of 1,366,016 and expired 498,500 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 311,616 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 Company issued 100,000 warrants in conjunction with a consulting agreement entered into January 2014. The Company issued 300,000 warrants in conjunction with an employment agreement entered into January 2014. The Company also issued 100,000 warrants as compensation for references purchased. 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.
 
 The following table presents the assumptions used to estimate the fair values of the stock warrants and options granted:
  2015

2014Expected volatility

71-142%

113-132%Expected dividends

0%

0%Expected term

.25-10 Years

2-10 YearsRisk-free interest rate

0.00-2.35%

0.35-1.75%
 
 The following table summarizes the changes in warrants outstanding issued to employees and non-employees of the Company during the fiscal year ended June 30, 2015.


Number of Warrants


Weighted Average Exercise Price


Weighted Average Grant Date Fair Value


Expiration Date (yrs)


Value if ExercisedOutstanding as of June 30, 2014


8,332,579


$
0.76


$
0.70



2.96


$
6,370,432Granted


26,464,199



0.24



0.25



5.56



9,821,607Exercised


(750,000
)


-



-



-



(160,000
)Cancelled/Expired


(2,065,000
)


-



-



-



(2,446,750
)Outstanding as of June 30, 2015


31,981,778


$
0.76


$
0.70



2.96


$
13,585,289
 
 The following table summarizes the changes in warrants outstanding issued to employees and non-employees of the Company during the fiscal year ended June 30, 2014.


Number of Warrants


Weighted Average Exercise Price


Weighted Average Grant Date Fair Value


Expiration Date (yrs)


Value if ExercisedOutstanding as of June 30, 2013


7,530,063


$
0.67


$
2.45



4.17


$
4,770,713Granted


1,366,016



1.30



0.23



5.00



1,774,467Exercised


(65,000
)


(0.25
)


0.14



-



(16,250
)Cancelled/Expired


(498,500
)


(0.70
)


-



-



(158,498
)Outstanding as of June 30, 2014


8,332,579


$
0.76


$
0.70



2.96


$
6,370,432
 
 NOTE 10 – INCOME TAXES





The components of the income tax (benefit) provision are as follows:





As ofJune 30,


June 30,2015


2014CurrentFederal

$
-


$
-State


-



-Total Current


-



-DeferredFederal


-



-State


-



-Total Deferred


-



-Income tax provision

$
-


$
-


F-20
 A reconciliation of the expected income tax benefit (provision) computed using the federal statutory income tax rate of 34% to the Company’s effective income tax rate is as follows:





As ofJune 30,

June 30,2015

2014Income tax benefit based on federal statutory rate

$
(3,187,000
)

$
(1,123,000
)State income tax benefit, net of federal income tax


(516,000
)


(444,000
)Change in deferred tax valuation allowance


3,703,000



1,567,000Other, net


-



-Income tax provision

$
-


$
-





The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and deferred tax liabilities are presented below:





As ofJune 30,


June 30,2015


2014Deferred tax assets:Debt extinguishment

$
-


$
918,000Impairment of fixed assets


-



604,000Domestic net operating loss carryforwards


11,345,000



9,828,000Total gross deferred tax assets


11,345,000



11,350,000Less valuation allowance on deferred tax assets


(11,345,000
)


(11,350,000
)Net deferred tax assets


-



-Deferred tax liabilities:Deferred costs


-



-Total deferred tax liabilities


-



-Net deferred taxes

$
-


$
-





Deferred income taxes result from temporary differences between income tax and financial reporting computed at the effective income tax rate. The Company has established a valuation allowance against its net deferred tax assets due to the uncertainty surrounding the realization of such assets. Management periodically evaluates the recoverability of the deferred tax assets. At such time it is determined that it is more likely than not that deferred tax assets are realizable, the valuation allowance will be reduced.
 
 The Company files U.S. federal and Arizona income tax returns. Our major tax jurisdictions are U.S. federal and the State of Arizona and are subject to tax examinations for the open years from 2009 through 2012. As of the date of this filing, the Company has not filed its tax return for the fiscal year ended 2012.  While none are anticipated, fines and/or penalties may be associated with the delinquent filing.
 
 As of June 30, 2015 and 2014, the Company had net operating loss carry-forwards for federal and state income tax purposes of approximately $24.7 million and $26.4 million, respectively.  Such carryforwards may be used to reduce taxable income, if any, in future year subject to limitations of Section 382 of the Internal Revenue Code for federal income and Arizona tax purposes.  The Company believes an ownership change may have occurred, as defined by Sections 382 and 383 of the Internal Revenue Code, which could result in the forfeiture of a significant portion of its net operating loss carry-forwards. The Company is not using any tax attributes in the current year, but will analyze whether a change occurred and the related impact on its gross deferred tax assets, if needed. As the Company's analysis is not complete, the impact to its gross deferred tax assets is uncertain.  If not utilized, the federal and state net operating loss carry-forwards will begin expiring in 2015.






F-21




NOTE 11 – FINANCIAL INSTRUMENTS
 
 The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company has estimated the fair value of these embedded derivatives for convertible debentures and associated warrants using a multinomial lattice model as of June 30, 2015, and 2014. The fair values of the derivative instruments are measured each quarter, which resulted in a gain (loss) of $(1,545,181) and $0, and derivative expense of $524,518 and $0 during the fiscal years ended June 30, 2015 and 2014, respectively. As of June 30, 2015 and 2014, the fair market value of the derivatives aggregated $12,814,941 and $0, respectively, using the following assumptions: estimated 10-0.10 year term, estimated volatility of 141.46 -70.62%, and a discount rate of 2.35-0.00%.
 
 NOTE 12 – FAIR VALUE MEASUREMENTS
 
 For asset and liabilities measured at fair value, the Company uses the following hierarchy of inputs:


●
Level one — Quoted market prices in active markets for identical assets or liabilities;●
Level two — Inputs other than level one inputs that are either directly or indirectly observable; and●
Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.


Liabilities measured at fair value on a recurring basis at June 30, 2015, are summarized as follows:


Level 1


Level 2


Level 3


TotalFair value of derivatives

$
-


$
12,814,941


$
-


$
12,814,941


Liabilities measured at fair value on a recurring basis at June 30, 2014, are summarized as follows:


Level 1


Level 2


Level 3


TotalFair value of derivatives

$
-


$
-


$
-


$
-





Fair value is calculated using the multinomial lattice method.





NOTE 14 – COMMITMENTS AND CONTINGENCIES





Legal Proceedings




The Company may become involved in certain legal proceedings and claims which arise in the normal course of business. The Company is not a party to any litigation. To the best of the knowledge of our management, there are no material litigation matters pending or threatened against us.




In November 2012, the Company entered into a finance agreement totaling $100,000 by its former CFO. Subsequently, the Company disagreed on the validity and terms of the agreement. The Lender filed suit in the state court in Dade County, Florida, seeking to enforce the agreement. The Company vigorously opposed the litigation and it was settled the outstanding balance as of June 30, 2015 of $210,748 in principal and $32,241 in accrued interest for $17,500 on August 6, 2015.




Lease Agreements


We lease offices in Hollywood, California for corporate, research, engineering and mastering services. The 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, 2015 were approximately $260,100.





Pursuant to a lease originally dated January, 2006, we currently occupy approximately 11,800 square feet of office and warehouse 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.


F-22
  Rent expense for the year ended June 30, 2015 was $258,796, of which $175,399 was paid in cash and $83,397 was paid in Common Stock.  Rent expense for the year ended June 30, 2014 was $282,453, of which $202,287 was paid in cash and $80,166 was paid in Common Stock.
 
 Below is a table summarizing the annual operating lease obligations over the next 5 years:
 
 Year

Lease Payments2015

$
107,4932016


110,877Thereafter


56,430Total

$
274,800
 
 Other


The Company has not declared dividends on Series A or B Convertible Preferred Stock or its Series A-1 Convertible Preferred Stock. The cumulative dividends in arrears through June 30, 2015 were approximately $648,236.


As of the date of this filing, the Company has not filed its tax return for the fiscal year ended 2014 and 2015.





NOTE 15 - SUBSEQUENT EVENTS





In accordance with ASC 855, Company’s management reviewed all material events through the date of this filing and determined that there were the following material subsequent events to report:





On July 1, 2015, the Company issued 100,000 warrants that have an exercise price of $.25 over a five year period as part of an employment agreement. The warrants were valued using Black-Scholes pricing model under the assumptions of: an expected volatility of 247.01%, Expected dividends of 0, expected term of 5 years, stock price of $.70, and risk-free rate of 1.70%. The Company apportioned value to the warrants based on the relative fair market value of the Common Stock and warrants was $60,784, which was recorded as an expense and included in the derivative liability.
  On July 30, 2015, the Company issued 53,115 shares of Common stock as part of debt conversion of a note dated July 18, 2014 for $5,000 of principal and $312 of accrued interest converted at $.10 per share.


On July 30, 2015, the Company issued 106,329 shares of Common stock as part of debt conversion of a note dated July 10, 2014 for $10,000 of principal and $633 of accrued interest converted at $.10 per share.


On August 28, 2015, the Company held a special meeting of the shareholders. At the meeting, the shareholders approved the following:


(i)
An amendment to the Company’s Certificate of Incorporation to increase the Company’s authorized common stock, par value $0.001, from one hundred million (100,000,000) to two hundred and fifty million (250,000,000) shares,





(ii)
To authorize the Company’s Board of Directors to amend the Company’s Certificate of Incorporation to effect a reverse stock split of the Company’s common stock at a ratio of three (3) shares of pre-split common stock into one (1) shares of common stock at their discretion. The Company has no plan to effect a reverse stock split at this time.





(iii)
An amendment to the Company’s Certificate of Incorporation to change the name of the Company from Studio One Media, Inc. to AfterMaster, Inc.


On August 28, 2015, the Company issued 150,000 shares of Common stock as part of an Investor Relation Agreement valued at $75,000 according to market price of $.50 per share. The Company recorded the issuances as a prepaid expense to be amortized over a six month period.


On September 3, 2015, the Company received 600,000 shares of bBooth stock as part of an Asset License term sheet with bBooth valued as an available for sale security at $3 per share for a total value of $1,800,000.


F-23