U.S. SECURITIES AND EXCHANGE COMMISSION





WASHINGTON, D.C. 20549





FORM 10-Q





(Mark One)





x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended September 30, 2011





o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from _______ to __________








Commission file number 001-10196







STUDIO ONE MEDIA, INC.





(Exact name of Registrant as specified in its charter)





DELAWARE
23-2517953(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)





7650 E. Evans Rd., Suite C


Scottsdale, Arizona  85260


(Address of principal executive offices) (Zip Code)





(480) 556-9303


(Registrant’s telephone number, including area code)








Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.





x Yes     o No





Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).





o  Yes     o  No   (Not required)





Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer
o
Accelerated filer
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).





o Yes     x No





At November 21, 2011, the number of shares outstanding of Common Stock, $0.001 par value, was 32,825,986 shares.











1





STUDIO ONE MEDIA, INC.INDEXPART I - FINANCIAL INFORMATIONPAGE NUMBERItem 1.
Financial Statements
3Consolidated Balance Sheets - September 30, 2011 (unaudited) and June 30, 2011
3Consolidated Statements of Operations - For the three months ended September 30, 2011 and 2010 (unaudited)
4Consolidated Statements of Stockholders’ Equity - For the year ended June 30, 2011 and the three months ended September 30, 2011 (unaudited)
5Consolidated Statements of Cash Flows - For the three months ended September 30, 2011 and 2010 (unaudited)
6Notes to Consolidated Financial Statements (unaudited)
7Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
12Item 3.
Quantitative and Qualitative Disclosure About Market Risks
23Item 4T.
Controls and Procedures
23PART II - OTHER INFORMATIONItem 1.
Legal Proceedings
24Item 1A.
Risk Factors
24Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
30Item 3.
Defaults Upon Senior Securities
31Item 4.
Submission of Matters to a Vote of Security Holders
31Item 5.
Other Information
31Item 6.
Exhibits
31SIGNATURES
32
































2


PART I - FINANCIAL INFORMATION





ITEM 1.  FINANCIAL STATEMENTS












STUDIO ONE MEDIA, INC.Consolidated Balance SheetsSeptember 30,


June 30,2011


2011ASSETS

(Unaudited)Current AssetsCash

$
108,057


$
250,478Other Receivable


21,447



20,347Other Current Assets


248,422



142,951Total Current Assets


377,926



413,776Property and Equipment, net


1,297,600



1,384,992Property and Equipment, yet to be placed in service


499,620



484,462Intangible Assets, net


221,943



237,085Other AssetsDeposits


103,016



104,016Other Assets


104,057



77,934Total Other Long-Term Assets


207,073



181,950Total Assets

$
2,604,162


$
2,702,265LIABILITIES AND STOCKHOLDERS' EQUITYCurrent LiabilitiesAccounts Payable and Accrued Expenses

$
1,050,644


$
1,042,964Notes Payable - Related Party


450,000



-Notes Payable


40,488



240,488Convertible Notes Payable, net of discount of $79,689 and $68,387, respectively


20,311



31,613Total Current Liabilities


1,561,443



1,315,065Long-Term LiabilitiesConvertible Notes Payable, net of discount of $632,016 and $721,251, respectively


367,984



278,749Total Liabilities


1,929,427



1,593,814Stockholders' EquityConvertible Preferred Stock, authorized 10,000,000 shares,par value $0.001; 1,570,044 and 1,636,044 shares issued andoutstanding, respectively


1,570



1,636Common Stock, authorized 100,000,000 shares,par value $0.001; 32,798,436 and 30,916,182 shares issuedand outstanding, respectively


32,798



30,916Additional Paid-In Capital


31,907,144



30,748,186Accumulated Deficit


(31,266,777
)


(29,672,287
)Total Stockholders' Equity


674,735



1,108,451Total Liabilities and Stockholders' Equity

$
2,604,162


$
2,702,265The accompanying notes are an integral part of these consolidated financial statements.








3




STUDIO ONE MEDIA, INC.Consolidated Statements of Operations(Unaudited)For the Three Months EndedSeptember 30,2011


2010REVENUESSession Revenues

$
10,750


$
93,170Advertising Revenues


1,996



7,500AfterMaster Revenues


32,400



2,200Total Revenues


45,146



102,870COSTS AND EXPENSESCost of Revenues (Exclusive of Depreciation and Amortization)


188,435



121,205Cost of Barter Exchanges


-



74,250Depreciation and Amortization Expense


110,880



74,378General and Administrative Expenses


1,094,964



1,240,477Total Costs and Expenses


1,394,279



1,510,310Loss from Operations


(1,349,133
)


(1,407,440
)Other Income (Expense)Interest Expense


(243,374
)


(87,030
)Gain on Disposal of Property


-



73,502Gain on Extinguishment of Debt


313



-Total Other Income (Expense)


(243,061
)


(13,528
)Loss Before Income Taxes


(1,592,194
)


(1,420,968
)Income Tax Expense


-



-NET LOSS

$
(1,592,194
)

$
(1,420,968
)Preferred Stock Accretion and Dividends


(313,604
)


(2,900
)NET LOSS AVAILABLE TO COMMON SHAREHOLDERS

$
(1,905,798
)

$
(1,423,868
)Basic and Diluted Loss Per Share of Common Stock

$
(0.06
)

$
(0.05
)Weighted Average Number of Common Shares Outstanding


32,095,905



26,107,817The accompanying notes are an integral part of these consolidated financial statements.






4






STUDIO ONE MEDIA, INC.Consolidated Statements of Stockholders' Equity (Deficit)Additional





TotalPreferred Stock


Common Stock


Paid-In


Accumulated


Stockholders'Shares


Amount


Shares


Amount


Capital


Deficit


EquityBalance, June 30, 2010


549,044


$
549



25,891,768


$
25,892


$
22,346,842


$
(20,569,040
)

$
1,804,243Preferred shares issued for cash


1,187,000



1,187



-



-



1,185,813



-



1,187,000Common shares issued for cash, net of offering costs of $139,102


-



-



1,847,501



1,848



1,000,064



-



1,001,912Warrants and options exercised for cash


-



-



351,983



352



129,215



-



129,567Common shares issued in conversion of debt and extinguishment of liabilities


-



-



1,232,452



1,232



701,048



-



702,280Common shares issued in conversion of preferred stock


(100,000
)


(100
)


206,099



206



(106
)


-



-Share-based compensation - common shares


-



-



1,322,182



1,322



1,615,677



-



1,616,999Share-based compensation - warrants


-



-



-



-



1,864,764



-



1,864,764Warrants and common shares issued in advance of services


-



-



64,197



64



496,965



-



497,029Warrants and common shares issued for interest expense


-



-



-



-



131,913



-



131,913Beneficial conversion feature on issuance of convertible debt


-



-



-



-



1,181,281



-



1,181,281Warrants issued in connection to issuance of convertible debt


-



-



-



-



94,710



-



94,710Net loss for the year endedJune 30, 2011


-



-



-



-



-



(9,103,247
)


(9,103,247
)Balance, June 30, 2011


1,636,044



1,636



30,916,182



30,916



30,748,186



(29,672,287
)


1,108,451Common stock issued as dividends on preferred stock


-



-



4,000



4



2,292



(2,296
)


-Common shares issued for cash, net of offering costs of $41,296


-



-



635,335



635



371,029



-



371,664Common shares issued in conversion of debt and extinguishment of liabilities


-



-



386,238



387



203,385



-



203,772Common shares issued in conversion of Preferred Stock


(66,000
)


(66
)


132,000



132



(66
)


-



-Share-based compensation - common shares


-



-



259,234



259



171,408



-



171,667Share-based compensation - warrants and options


-



-



-



-



5,705



-



5,705Warrants and common shares issued in advance of services


-



-



400,103



400



239,182



-



239,582Warrants and common shares issued for interest expense


-



-



65,344



65



86,334



-



86,399Beneficial conversion feature on issuance of convertible debt


-



-



-



-



57,845



-



48,262Warrants issued in connection with issuance of convertible debt


-



-



-



-



21,844



-



31,427Net loss for the three months endedSeptember 30, 2011


-



-



-



-



-



(1,592,194
)


(1,592,194
)Balance, September 30, 2011


1,570,044


$
1,570



32,798,436


$
32,798


$
31, 907,144


$
(31,266,777
)

$
674,735The accompanying notes are an integral part of these consolidated financial statements.





5




STUDIO ONE MEDIA, INC.Consolidated Statements of Cash FlowsFor the Three Months EndedSeptember 30,2011


2010OPERATING ACTIVITIESNet Loss

$
(1,592,194
)

$
(1,420,968
)Adjustments to reconcile to cash from operating activities:Depreciation and amortization


110,878



74,378Share-based compensation - Common Stock


171,667



241,545Share-based compensation - warrants


5,705



56,763Common Stock and warrants issued for interest


86,399



-Amortization of debt discount and issuance costs


157,622



41,442Gain on extinguishment of debt


(313
)


-Gain on disposal of property


-



(73,502
)Changes in Operating Assets and Liabilities:Other receivables


(1,100
)


(11,139
)Other assets


108,988



159,228Accounts payable and accrued expenses


111,765



786,775Net Cash Used in Operating Activities


(840,583
)


(145,478
)INVESTING ACTIVITIESPurchase of property and equipment


(23,502
)


(848,205
)Proceeds from disposal of property


-



90,199Net Cash Used in Investing Activities


(23,502
)


(758,006
)FINANCING ACTIVITIESCommon stock issued for cash, net of offering costs of $41,296


371,664



14,626Warrants and options exercised for cash


-



104,166Proceeds from notes payable - related party


250,000Repayments of notes payable - related party


-



(40,000
)Proceeds from notes payable


100,000



400,000Repayment of notes payable


-



(30,000
)Net Cash Provided by Financing Activities


721,664



448,792NET DECREASE IN CASH


(142,421
)


(454,692
)CASH AT BEGINNING OF PERIOD


250,478



632,980CASH AT END OF PERIOD

$
108,057


$
178,288SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:CASH PAID FOR:Interest

$
-


$
5,388Income Taxes


-



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

$
203,772


$
139,277Common Stock and warrants issued for prepaid services


239,582



94,097Warrants and beneficial conversion feature on issuance of convertible debt


79,689



217,700Common Stock issued as dividend on Preferred Stock


2,296



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







6
 
 STUDIO ONE MEDIA, INC.
 Notes to Consolidated Financial Statements
 September 30, 2011 and June 30, 2011





NOTE 1 – CONDENSED FINANCIAL STATEMENTS





The accompanying financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at September 30, 2011, and for all periods presented herein, have been made.


Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's June 30, 2011 audited financial statements.  The results of operations for the periods ended September 30, 2011 and 2010 are not necessarily indicative of the operating results for the full years.





NOTE 2 – GOING CONCERN





The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred losses since inception of $31,266,777 and currently has revenues which are insufficient to covering its operating costs which raises substantial doubt about its ability to continue as a going concern. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern.





The future of the Company as an operating business will depend on its ability to (1) obtain sufficient capital contributions and/or financing as may be required to sustain its operations and (2) to achieve adequate revenues from its MyStudio and AfterMaster businesses. Management's plan to address these issues includes, (a) continued exercise of tight cost controls to conserve cash, (b) obtaining additional financing, and (c) place in service additional recording studios.


The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations.





NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Use of Estimates


The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates are made in relation to the allowance for doubtful accounts and the fair value of certain financial instruments.  Actual results could differ from those estimates.





Principles of Consolidation


The consolidated financial statements include the accounts of Studio One Media, Inc. and its wholly-ownedsubsidiaries. All significant inter-company accounts and transactions have been eliminated.





Fair Value Instruments


Cash is the Company’s only financial asset or liability required to be recognized at fair value and is measured using quoted prices for active markets for identical assets (Level 1 fair value hierarchy).  The carrying amounts reported in the balance sheets for notes receivable and accounts payable and accrued expenses approximate their fair market value based on the short-term maturity of these instruments.








7
 
 STUDIO ONE MEDIA, INC.
 Notes to Consolidated Financial Statements
 September 30, 2011 and June 30, 2011





NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued


The fair value of the Company’s notes payable at September 30, 2011 is approximately $1,590,488 (carrying value of $428,783).  Market prices are not available for the Company’s loans due to related parties or its other notes payable, nor are market prices of similar loans available.  The Company determined that the fair value of the notes payable based on its amortized cost basis due to the short-term nature and current borrowing terms available to the Company for these instruments.





Income Taxes
 There is no income tax provision for the three months ended September 30, 2011 and 2010 due to net operating losses for which there is no benefit currently available.
 
 At September 30, 2011, the Company had deferred tax assets associated with state and federal net operating losses. The Company has recorded a corresponding full valuation allowance as it is more likely than not that some portion of all of the deferred tax assets will not be realized.





Recent Accounting Pronouncements


Management has considered all recent accounting pronouncements issued since the last audit of our consolidated financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s consolidated financial statements.





Reclassification of Financial Statement Accounts
 Certain amounts in the September 30, 2010 consolidated financial statements have been reclassified to conform to the presentation in the September 30, 2011 consolidated financial statements.





NOTE 4 – NOTES PAYABLE





Convertible Notes Payable


Convertible notes payable consisted of the following as of September 30, 2011 and June 30, 2011, respectively:




September 30,


June 30,2011


2011$250,000 face value, issued in February 2010, interest rate of 12%, matures in February 2013, net of unamortized discount of $116,788 and $137,774 at September 30, 2011 and June 30, 2011, respectively.

$
133,212


$
112,226$250,000 face value, issued in May 2010, interest rate of 12%, matures in May 2013, net of unamortized discount of $132,755 and $153,741 at September 30, 2011 and June 30, 2011, respectively.


117,245



96,259$250,000 face value, issued in August 2010, interest rate of 12%, matures in August 2013, net of unamortized discount of $196,570 and $222,848 at September 30, 2011 and June 30, 2011, respectively.


53,430



27,152$250,000 face value, issued in December 2010, interest rate at 12%, matures in December 2013, net of unamortized discount of $185,903 and $206,889 as of September 30, 2011 and June 30, 2011, respectively.


64,097



43,111$100,000 face value, issued in June 2011, interest rate of 8%, matures in December 2013, net of unamortized discount of $63,387 as of June 30, 2011.


-



31,614$100,000 face value, issued in September 2011, interest rate of 0%, matures in December 2011, net of unamortized discount of $79,689 as of September 30, 2011.


20,311



-Total


388,295



310,362Less current portion


20,311



31,613Notes payable-convertible, long-term

$
367,984


$
278,749










8
 
 STUDIO ONE MEDIA, INC.
 Notes to Consolidated Financial Statements
 September 30, 2011 and June 30, 2011





NOTE 4 – NOTES PAYABLE





In September 2011, the Company issued a convertible note to an unrelated individual for $100,000 that matures in 90 days on December 2011.  All or any amount of the principal amount of the note together with the accrued interest may be converted into the Company’s Common Stock at a conversion price of $0.50 per share.  In lieu of interest payments during the 90 day term, the Company issued to the note holder a warrant to purchase 50,000 shares of the Company’s Common Stock.  The warrant has an exercise price of $0.50 per share and a contractual life of five (5) years from the issuance date.  The intrinsic value of the beneficial conversion feature (“BCF”) and the debt discount associated with the warrant issued in connection with the convertible debt were recorded based on the relative fair value of the warrants in relation to the debt in accordance with ASC 470-20-25-2.  The total initial beneficial conversion feature recorded was $57,845 and the debt discount of the warrant allocated based on relative fair value of warrant in relation to the debt was $21,844.  The recorded intrinsic value of the beneficial conversion feature and the debt discount shall be amortized to interest expense over the life of the note.
 
 In June 2011, the Company issued a convertible note to an unrelated individual for $100,000 that matures in December 2011.  The note provided for an interest rate of 8% per annum and was convertible into the Company’s Common Stock at $0.50 per share.  The Company calculated the intrinsic beneficial conversion feature value of $80,000 which is amortized over the life of the note.  In July 2011, the principal amount and the accrued interest for the above note was converted into 201,622 shares of the Company’s Common Stock pursuant to the conversion rate provision in the agreement.  Upon conversion, the remaining unamortized beneficial conversion feature amount of $62,796 was charged to interest expense and recorded in the other income (expense) section of statement of operations for the three months ended September 30, 2011.
 
 Non-Convertible Notes Payable
 Non-convertible notes payable consisted of the following as of September 30, 2011 and June 30, 2011:


September 30,


June 30,2011


2011Various term notes with total face value of $65,398, due upon demand, interest rates range from 12% to 14%.

$
40,488


$
40,398Term note, face value of $200,000, original maturity date of August 2011 extended to December 2011, 30,000 warrants per month are granted in lieu of interest through June 2011, warrant issuance increased to 50,000 shares per month through August 2011, then beginning in September 2011, the note bears interest at 12% through maturity.


200,000



200,000Term note, face value of $250,000, maturity date of September 2012, 25,000 warrants issued per month issued for first 90 days; thereafter, note bears interest at 15% (cash-pay) through maturity.


250,000



-Total


490,398



240,398Less current portion


490,398



240,398Notes Payable – non-convertible, long-term

$
-


$
-
 
 In September 2011, the Company entered into a one-year loan agreement for $250,000 with an unrelated lender.  The loan bears no cash-pay interest for the first 90 days.  In lieu of such interest for the first 90 days, the Company granted to the lender a warrant to purchase 25,000 shares of Company’s Common Stock at an exercise price of $0.40 for a contractual period of five years, for each 30 days or portion thereof the loan remains outstanding.  If the loan remains outstanding after the first 90 days, the loan shall bear an interest rate of fifteen percent per annum.
 
 Additional conditions of the loan require that the Company deploy and make operational certain designated studios by October 31, 2011.  Failure to do so will require the Company to issue to the lender a warrant to purchase 25,000 shares of the Company’s Common Stock at an exercise price of $0.40 per share with a contractual life of five years.  The Company and the lender subsequently agreed to extend the deadline from October 31, 2011 to November 30, 2011.
 
 The Company also agreed to provide to the lender or its representative online access, for viewing purposes only, to the accounting and financial data maintained by the Company.  Online access shall be terminated once the loan and other funds advanced by the lender to the Company, including any accrued interest, have been fully paid.  Failure to provide access would have required the Company to issue a warrant to purchase 50,000 shares of the Company’s Common Stock at an exercise price of $0.40 per share with a contractual life of five years.   Online access was made available to the lender before September 30, 2011.




9
 
 STUDIO ONE MEDIA, INC.
 Notes to Consolidated Financial Statements
 September 30, 2011 and June 30, 2011





NOTE 4 – NOTES PAYABLE - continued


In April 2011, the Company entered into a 90 day note for $200,000 with a related party.  The note bears no cash-pay interest but requires the Company to issue to the lender, for each thirty day period of the original term, a warrant to purchase 30,000 shares of the Company’s Common stock at a price of $0.60 per share over a contractual life of five years.  The Company may also elect, at its option, to extend the maturity date for two thirty day periods upon notice of such election to the lender and the issuance of a warrant to purchase up to 50,000 shares of the Company’s Common Stock at a price of $0.60 per share with a contractual life of five years for each such extension.  The note is not convertible and no warrant was issued in connection with the issuance of the note so there is no beneficial conversion feature value or debt discount applicable to the origination of the note.
 
 In both June 30, 2011 and July 30, 2011, the Company exercised its option to extend the maturity date each time for 30 days, pursuant to the provision contained in the aforementioned financing agreement, upon reaching the maturity dates of the June 30, 2011 and July 30, 2011.  Upon final maturity of the loan on August 29, 2011, the Company and lender agreed to amend the original financing agreement in which the maturity date was extended to December 31, 2011 with an interest rate of twelve percent per annum.  The lender, at its option and from time to time, may choose to have the accrued interest outstanding on the bridge loan be repaid in shares of the Company’s Common Stock in lieu of cash.  For each instance where such election is made, the number of shares of the Company’s common stock to be issued shall be calculated at a discount based on seventy-five percent of the average of the closing prices of the Company’s Common Stock as reported by Bloomberg, L.P. or other independent reporting services acceptable to the lender and the Company for ten trading days prior to the date such payment is due.
 
 The Company evaluated the above amendment to extend the maturity date from August 29, 2011 to December 31, 2011 under the guidance of ASC 470-50, Debt - Modification and Extinguishment, and concluded that such extension of the maturity date of the loan to December 31, 2011 did not result in a ten percent (or more change in the present value of the cash flow, and thus did not result in an extinguishment of the loan.
 
 NOTE 5 – CONVERTIBLE PREFERRED STOCK
 
 During the three months ended September 30, 2011, the Company converted 66,000 shares of convertible Preferred Stock and accrued dividends of $2,296 into 136,000 shares of Common Stock.
 
 NOTE 6 – COMMON STOCK
 
 The Company has authorized 100,000,000 shares of $0.001 par value per share Common Stock, of which 32,798,436 were issued outstanding as of September 30, 2011.  The activity surrounding the issuances of the Common Stock is as follows:
 
 For the Three Months Ended September 30, 2011
 The Company issued 635,335 shares of Common Stock for net cash proceeds of $371,664.  The Company paid $41,266 in cash offering costs. Offering costs have been recorded as reductions to additional paid-in capital from Common Stock proceeds.







10





NOTE 6 – COMMON STOCK - continued





The Company issued 400,103 shares of Common Stock valued at $239,582 to non-employees in advance of services.  The shares of Common Stock were valued based on the quoted market price on the date of issuance.  The Company also issued 386,238 shares of Common Stock to convert $100,000 in convertible notes payable and $104,085 in accrued liabilities.  The difference between the fair market value of the stock on the date of conversion of the accrued liabilities of $103,772 resulted in a gain on conversion of these liabilities of $313.  An additional 136,000 shares of Common Stock were issued to convert 66,000 shares of Preferred Stock and accrued dividends of $2,296.
 
 As share-based compensation to employees and non-employees, the Company issued 259,234 shares of Common Stock valued at $171,667, based on the market price of the Common Stock on the date of issuance.   As interest expense on outstanding notes payable, the Company issued 65,344 shares of Common Stock valued at $43,770 based on the market price on the date of issuance.
 
 NOTE 7 – STOCK PURCHASE OPTIONS AND WARRANTS
 
 During the three months ended September 30, 2011, the Company did not issue any stock purchase options.  However, during such period, the Company did recognize $5,705 in employee stock option expense for the amortization of warrants issued in prior periods.  The Company issued warrants to purchase a total of 338,532 shares of the Company’s Common Stock.  The following table presents the weighted average assumptions used to estimate the fair values of the stock options granted during the period:


2011Expected volatility


88 – 111
%Expected dividends


0
%Expected term

6 months – 5 yearsRisk-free interest rate


0.09 – 0.98
%





In conjunction with Common Stock issued for cash during the period, the Company issued warrants to purchase 63,532 shares of the Company’s Common Stock as stock offering costs.  The value of these warrantstotaled $32,664. Offering costs have been recorded as reductions to additional paid-in capital from Common Stock proceeds.


An additional 75,000 warrants valued at $42,629 were issued in lieu of interest on outstanding notes payable and 50,000 warrants, valued at $31,427, were issued as in conjunction with convertible debt financing as a beneficial conversion feature.


The Company agreed to modify 150,000 warrants issued in conjunction with a prior equity financing agreement where in the maturity date was extended.





The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s Common Stock issued to employees and non-employees of the Company during the three months ended September 30, 2011. These warrants were granted to investors, lenders and, in other instances, in lieu of cash compensation for services performed.





Number of Warrants


Weighted Average Exercise Price


Weighted Average Grant Date Fair ValueOutstanding as of June 30, 2011


5,756,380


$
0.86


$
1.06Granted


338,532



0.54



0.41Exercised


-



-



-Cancelled


(487,000
)


0.50



1.06Outstanding as of September 30, 2011


5,607,912


$
0.84


$
1.02





NOTE 8 - SUBSEQUENT EVENTS





In accordance with ASC 855, Company management reviewed all material events through the date of this filing and determined that there are no material subsequent events to report.




























11


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





The discussion and financial statements contained herein are for the three months ended September 30, 2011 and 2010. The following discussion regarding the financial statements of the Company should be read in conjunction with the financial statements of the Company included herewith.





FORWARD-LOOKING AND CAUTIONARY STATEMENTS





This Quarterly Report (the “Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended, and as contemplated under the Private Securities Litigation Reform Act of 1995.  These forward-looking statements may relate to such matters as  the Company’s (and its subsidiaries) business strategies, continued growth in the Company’s markets, projections, and anticipated trends in the Company’s business and the industry in which it operates anticipated financial performance, future revenues or earnings, business prospects, projected ventures, new products and services, anticipated market performance and similar matters.  All statements herein contained in this Report, other than statements of historical fact, are forward-looking statements.





When used in this Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” “budget,” “budgeted,” “believe,” “will,” “intends,” “seeks,” “goals,” “forecast,” and similar words and expressions are intended to identify forward-looking statements regarding events, conditions, and financial trends that may affect our future plans of operations, business strategy, operating results, and financial position. These forward-looking statements are based largely on the Company’s expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company’s control.  We caution our readers that a variety of factors could cause our actual results to differ materially from the anticipated results or other matters expressed in the forward looking statements, including those factors described under “Risk Factors” and elsewhere herein.  In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Report will in fact transpire or prove to be accurate.  These risks and uncertainties, many of which are beyond our control, include:





·
the sufficiency of existing capital resources and our ability to raise additional capital to fund cash requirements for future operations;


·
uncertainties involved in growth and growth rate of our operations, business, revenues, operating margins, costs, expenses and acceptance of any products or services;


·
volatility of the stock market, particularly within the technology sector;


·
our dilution related to all equity grants to employees and non-employees;


·
that we will continue to make significant capital expenditure investments;


·
that we will continue to make investments and acquisitions;


·
the sufficiency of our existing cash and cash generated from operations;


·
the increase of sales and marketing and general and administrative expenses in the future;


·
the growth in advertising revenues from our websites and studios will be achievable and sustainable;


·
that seasonal fluctuations in Internet usage and traditional advertising seasonality are likely to affect our business; and


·
general economic conditions.





Although we believe the expectations reflected in these forward-looking statements are reasonable, such expectations cannot guarantee future results, levels of activity, performance or achievements.  We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report.





All references in this report to “we,” “our,” “us,” the “Company” or “Studio One” refer to Studio One Media, Inc. and its subsidiaries and predecessors.





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 September 30, 2011, there were 32,798,436 shares of Common Stock issued and outstanding.   From April 2006 to June 30, 2011, we have raised approximately $20.2 million in the form of equity for purposes of research and development, the launch of MyStudio and AfterMaster and general corporate purposes. The Company's office and principal place of business is located at 7650 E. Evans Road, Suite C, Scottsdale, Arizona 85260 USA, and its telephone number is (480) 556-9303.





Business





Studio One Media, Inc. ("Studio One" or the "Company") is a diversified media and technology company. The Company's wholly-owned subsidiaries include MyStudio, Inc. and AfterMaster HD Audio Labs, Inc.


12


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





Over the past several years, the Company and its subsidiaries have been engaged in the research and development of proprietary (numerous patents pending), leading-edge audio and video technologies for professional and consumer use, including MyStudio® HD Recording Studios and AfterMasterTM HD Audio.





The Company has the ability to generate revenue from four key sources: (1) MyStudio recording sessions; (2) digital advertising and sponsorship opportunities; (3) website advertising revenues; and (4) mastering or "AfterMastering" of new music as well as existing catalog music.





The Company believes that Studio One's award winning and groundbreaking audio/video technologies and unique business models have the potential to have a significant impact in the entertainment and social media sectors.





Business Update





First quarter results were far below our previous quarter as the Company embarked on several initiatives over the summer, relating to defining its product, staffing, pricing, marketing and demographics. This substantially impacted our overall sales and included testing of off-site session purchases, promotional sessions, multiple fee changes and staffing. In addition, the Company did not undertake barter or marketing initiatives during this reporting period. However, with new initiatives in place, the Company is currently on-track to report increased sales for the second quarter ending December 31, 2011.
  The Company also relocated its Anchorage, Alaska studio back to its Los Angeles showroom and expects to install such studio in a major Los Angeles area mall by the end of the calendar year. The Company also completed the assembly of its seventh studio which is currently being deployed in the Westfield Garden State Plaza in New Jersey to service the New York/Tri-State area and is scheduled to open November 23, 2011.
  Strategic Partnerships
  We have devoted a substantial amount of time and resources to the development of high-profile strategic partnerships that will create national exposure for MyStudio and thereby ultimately drive paying traffic to the studios. MyStudio requires broad-based consumer awareness that can only come from strategic alliances and partnerships which will bring exposure to our product and brand on television and other mainstream mediums.
  When we initially installed a studio in our corporate showroom in Hollywood, our objective was to bring entertainment and music executives to our office to allow them to experience MyStudio and understand its quality and capabilities. This effort has created significant opportunities for the Company. The quality and functionality have always been well received by such executives, as well as an understanding of the efficiencies and cost savings opportunities available from using MyStudio to identify talent. However, the greatest challenges to date have been introducing a new technology to an existing longstanding audition process to the entertainment industry and general public while having a minimal number of studios. We believe we are making great headway into greater brand awareness by installing more studios and gaining exposure through partnerships with some of the biggest names in the entertainment industry.
  In April 2011, we announced our strategic partnership with The X Factor for its inaugural season in the United States. Led by Simon Cowell, a highly acclaimed entertainment entrepreneur and music producer with a notable ability to identify some of the world's top musical talent, The X Factor has had tremendous success in Europe. The X Factor is one of the most successful TV shows internationally and has received wide acclaim from American audiences since its debut in September.  The U.S. show debuted in September on the Fox Network and has quickly generated a significant following and the high quality of the talent selected to participate in the show has been a key source of fan enthusiasm for the show.
  Mr. Cowell recognized the significant opportunity provided by MyStudio in broadening the contestant base for his show. MyStudio allowed for contestants to visit six additional venues beyond the primary casting cities to participate in the audition process. The studios were so successful in identifying top quality talent that Mr. Cowell twice extended the audition process via the studios. As we install additional studios throughout the U.S. during fiscal 2012 and beyond, we believe MyStudio will play an even greater role in the identification of top talent for such television shows.
  The X Factor partnership allowed the Company to conduct its first high-profile, multi-week audition program for a major television show and test the effectiveness of its proprietary technologies and audition process. The MyStudio/X Factor auditions conclusively proved MyStudio's statistical and operational advantages over the highly publicized large scale open auditions conducted by The X Factor. The absence of promotional lead-time and marketing support for the MyStudio auditions made the metrics even more significant.
  The X Factor auditions provided the Company with valuable empirical data that demonstrates the advantages that MyStudio's unique audition system has in discovering and organizing quality talent over large scale open auditions. The quality of talent is the backbone of all television talent-based programs, and the Company believes that the metrics it achieved for The X Factor will be impetus that leads to more widespread use of MyStudio in talent-related entertainment programs.
  It has been reported that over 75,000 people auditioned for the show, including several thousand who participated in such auditions through MyStudio. A positively disproportionate number of MyStudio auditionees made it to all X Factor elimination levels, including three of the MyStudio acts making it into the top 32 nationally televised contestants.  Since then, one of the MyStudio contestants, “Drew”, has since made it into the top 9 remaining contestants, which is the total number of contestants currently remaining in the contest as of the date of this Report.
   13
  ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS- continued
 
 The availability of the studio audition process seven days a week, 12 hours a day and the high-quality of the videos, high fidelity audio of the studios and the less stressful auditioning environment all contributed to the success of those auditioning using MyStudio.  The locations and mall hours of the studios allowed for greater flexibility for those unable to attend the broader "open calls" due to other commitments, such as work and family.
  Partnering with one of the most successful television franchises in the world has allowed us to gain national brand recognition not otherwise available to a company of our size whilst giving us an opportunity to prove out our technologies.
  Word of MyStudio's success with The X Factor auditions has recently been recognized by other companies in the television industry, and we have subsequently been contacted by major television producers about utilizing MyStudio in their upcoming shows and for the production of a stand-alone TV show based on MyStudio's general content. We believe that the adoption of our technology by The X Factor and the success of the MyStudio auditions will initiate a favorable change in the way talent is identified and underscores the importance of our multi-year marketing effort to the entertainment industry.
  As we embark upon on an accelerated roll-out plan, we believe that MyStudio can play an even greater role and produce an even higher percentage of top talent for The X Factor and other productions if provided with the proper marketing, exposure and resources. The television exposure expected through the X Factor relationship will be valuable to creating brand recognition and awareness for MyStudio.
  We have also been in discussions with various other parties interested in using MyStudio's content as part of a yet to be created variety show that would feature the videos. We view this as an exciting opportunity to broaden the brand awareness of MyStudio and drive additional traffic to the studios.
  Numerous other contests using the MyStudio technologies were hosted during the year, including music, modeling and comedy, and discussions are being held with other interested parties about using the studios for their upcoming productions.
  Studios
  We are currently in the process of installing our seventh studio in the Garden State Mall in Paramus, New Jersey, which is one of the largest shopping malls in the greater New York City area.  This mall boasts over 20 million annual patrons, many of which commute in from Manhattan.  This new site was selected based on its access to the New York area and the large number of persons that shop at this mall each year.  The location provides ease of access by musicians, models and other aspiring entertainers throughout this highly populated area, and thus has the potential to be the most frequented studio in the Company’s system.   We expect to open this studio later this week in advance of the upcoming holidays.
  During the past year, we installed studios in additional locations throughout the United States, which currently include Phoenix, Honolulu, Nashville, Kansas City, Denver and Hollywood. Upon the installation of these studios, we had six installed studios.  Some of these new locations were selected in concert with our partner, The X Factor. Each of these locations generated a significant number of persons auditioning for The X Factor.
  In addition to our installed studio base and the soon to be opened studio in the New York area, we have taken possession of three additional studio chassis and are in the process of preparing them for installation in early 2012. Our manufacturing partner for the studio chassis is working to complete the production of an additional 11 units. Our new manufacturing relationship has allowed us to realize significant cost savings in the overall studio construction costs. Subject to the availability of adequate capital, we expect to accelerate the roll-out of the studios.  The Company would like to have at least 25 studios installed by the end of calendar year 2012.
  We continue to receive significant inbound interest for MyStudio from around the globe. Our near-term focus has been gaining critical mass of studios in the United States to allow us to attract key strategic partners, such as The X Factor. We are evaluating opportunities from international parties, as well as other means of accelerating the broad roll-out of MyStudio.
  AfterMaster
  Over the past year, we have also generated substantial interest in AfterMaster among music and consumer electronics companies. The feedback from music industry executives, leading artists, mastering houses and top consumer products companies has been exceptional. Many have stated that AfterMaster is one of the most exciting new developments in digital audio technology. We are working closely with such parties in the broad adoption of AfterMaster to make it the standard in the digital music industry. It is our belief that 2012 will be a significant turning point in the broad commercialization of our technologies.
  The AfterMaster process for mastering audio makes music significantly louder, fuller and clearer than traditionally mastered music. The technology is a proprietary, patents-pending combination of hardware and software and can be applied on virtually all audio sources including, music, radio, television and film.
  In the past fiscal year, the Company began generating revenues from this new product. The AfterMaster technology has been used on music by Janet Jackson and Lady Gaga and many others.
   14
  ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS- continued
 
 We believe AfterMaster creates three new revenue opportunities for the Company:
  • The mastering ("AfterMastering") of music created by professional musicians, as well as sounds and dialogues in motion pictures and television;
  • A consumer-based version of AfterMaster for music created by amateur musicians that could not otherwise afford to have such music professionally mastered.
  • Embedding the AfterMaster technology into a chip for use in consumer electronics.
  We believe our technology has the potential for record labels to generate significant additional revenue from the re-releases of their catalogues, while providing listeners with a significantly better listening experience. The feedback from the record labels has been very favorable. We are in discussions with major record labels and music distribution companies regarding the use of our technologies for broad commercial use.
  In addition to our focus on utilizing AfterMaster for professional use by the music industry, we are in the process of introducing a consumer version of our technology for use by amateur musicians and other consumers. Consumers will be able to upload their music to a specially designed consumer AfterMaster website and have it mastered with unprecedented quality at an affordable price point. We priced this product to appeal to a very broad audience, both domestically and internationally.
  A third and very significant opportunity for the AfterMaster technology relates to its use in consumer products for which there is an audio component (e.g., headphones, speakers, televisions). We have received growing interest in the co-development of further technology that will allow AfterMaster to be embedded into such consumer electronics. We have recently entered into discussions with several companies to explore the possibility of the development of such technology. We expect that such a technology could result in a significant and recurring licensing revenue opportunity for the Company.
  Corporate
  First quarter results were far below our previous quarter as the Company embarked on several initiatives over the summer, relating to defining its product, staffing, pricing, marketing and demographics. This substantially impacted our overall sales and included testing of off-site session purchases, promotional sessions, multiple fee changes and staffing. In addition, the Company did not undertake barter or marketing initiatives during this reporting period. However, with new initiatives in place, the Company is currently on-track to report increased sales for the second quarter ending December 31, 2011.
  We expect to gain further marketing exposure from The X Factor in one or more episodes this season, creating additional brand awareness for the Company. Moreover, our association with The X Factor and having multiple locations in key markets has generated substantial interest by advertisers in renting the on-studio advertising space. Such advertising represents an important revenue opportunity for the Company and its profitability. Management is devoting resources to capitalize on this advertising interest. We expect to have 10 studios installed in major US markets in early calendar 2012 and believe that this further strengthens our ability to generate significant revenue from national advertisers.
  Despite the overall difficulty of the capital markets over the past several years, the Company has and continues to raise capital to launch additional studios and further the advancement of AfterMaster. Unfortunately, the weak capital markets have constrained our growth and the full implementation of our business plan for the roll-out of the studios. We expect to continue raising capital through both equity and debt financing's to further our corporate objectives and create significant shareholder value through our MyStudio and AfterMaster products.


MyStudio HD Recording Studios





Studio One has developed MyStudio, a self contained, state-of-the-art, high definition (“HD”) interactive audio/video recording studio designed for installation in shopping malls and other high traffic areas.








15


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








MyStudio offers consumers true professional recording studio-quality audio and HD broadcast-quality video with an ease, economy and convenience never before available to the public. MyStudio is designed for installation in malls and other high traffic areas. MyStudio and its accompanying website, MyStudio.net, incorporate into a single entertainment venue some of the best elements of the world's leading Internet and entertainment properties including video sharing, social networking and talent-related television programming. MyStudio eliminates the high cost and technological and logistical barriers inherent in the creation of high quality production and uploading of video content onto the Internet for both amateurs and professionals alike.





MyStudio enables users, for a fee, to record up to a five-minute personalized video with professional-quality backdrop, lighting and sound. The studios feature Hollywood-style green screen technology, and users can select from over a thousand HD virtual backgrounds (static and dynamic) and thousands of licensed karaoke tracks from Sony/ATV Music Publishing, EMI Music Publishing, Universal Music Group, BMG and others. The studio lighting is custom programmed for each virtual background, and the sound quality is derived from a specially engineered acoustic design and a proprietary audio signal sequencing process. Professional users, such as musicians and entertainers, often pay hundreds or thousands of dollars for comparable professionally produced audio and video.





Finished videos are available for viewing within minutes of completion of the recording at MyStudio.net. Videos are protected with a privacy pass-code, and uses can decide whether to make their videos available to the public or keep them private. The MyStudio.net website offers users the opportunity to share videos and create member profile pages in a dynamic social networking environment. Users may also create links between MyStudio.net and other social networking sites or their own websites, such as their own small businesses. MyStudio.net members can enter contests, order free DVDs or CDs of their videos, download MP3 audio files (restrictions apply), access embedded codes or print high resolution photos from their video.





MyStudio has been used to create videos for music, modeling, comedy, dating, job resumes, auditions, and personal messages and greetings. Users can also enter their videos into industry-sponsored music, casting, modeling and comedy contests. In addition, the Company has offered various themed holiday greetings, as well as greetings to U.S. troops overseas.





Currently there are MyStudio locations included in the greater metropolitan areas of Phoenix, Honolulu, Nashville, Hollywood, Kansas City and Denver. We are in the process of completing the installation of the Company’s seventh studio in the greater New York area.  Earlier in the current fiscal year, we placed an order for the manufacturing of fifteen additional studio chassis to further our roll-out plans. We have since taken possession of the four of those studio chassis, one of which is being installed in the New York area, and the balance are in the process of being prepared for future installation. We expect to receive the balance of the aforementioned studio chassis during fiscal 2012.





MyStudio Business Strategy





We plan to continue installing MyStudio's into key markets throughout the U.S. followed by a roll-out into international markets. The ease and quality of the studios have created repeat users and increase traffic to the Company's MyStudio.net website.


16


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





We believe MyStudio offers a service never before available to the public - a professional quality recording experience at an affordable price. The HD virtual backgrounds, professional lighting and specially engineered sound cannot be replicated by users at home or outside a professional studio.





Connect Talent to Talent Seekers. MyStudio provides the aspiring artist or entertainer with a cost-effective, professional quality platform to showcase his or her talent. Entertainers often pay hundreds or thousands of dollars for comparable professionally produced audio and video products. Users can often afford to make numerous videos to showcase their talents due to relative minimal price point for using MyStudio. There have been several incidents where users' videos have allowed them to be discovered by talent agents. MyStudio played an integral part of the casting process to find talent for the recently introduced The X Factor in the United States.





The studios provide entertainment recruiters with an entirely new method for locating talent. Using MyStudio's software casting applications, casting directors are able to review a standardized and efficient format for judging talent prospects. This contrasts with the inefficiencies of them receiving, loading and screening numerous formats of video (i.e., VHS and DVDs) for talent.





Additionally, MyStudio allows prospective contestants the ability to perform their auditions on their own time and in unlimited quantities versus the current casting call standard of having only a few moments and a single opportunity in front of a casting agent. Reality television producers understand that their shows are only as good as the talent. MyStudio will allow for a greater number of contestants to try-out for these shows which provides producers with a much deeper well of talent. MyStudio has the ability to set a new standard and create a new marketplace for sellers and buyers of talent.





We have focused significant efforts on this aspect of our business model and have formed strategic partnerships with Simon Cowell's The X Factor, Mark Burnett Productions, Back Stage Casting and RealityWanted.com. Each of these partnerships is discussed in greater detail herein.





Build an Online Community Featuring User-Generated Content. MyStudio.net captures the social networking phenomena Facebook and video sharing of YouTube and combines it with a superior audio/visual experience. The MyStudio.net website allows users to create personal profiles, share videos with family and friends and make their videos available to the public, all of which encourage user loyalty and viral growth opportunities.





Expand the MyStudio Concept into New Vertical Industries. The potential utilization of the recording studios extends well beyond the entertainment industry. The studios can facilitate efficiency, personalization and differentiation in many industries including professional recruitment and staffing, Internet dating, corporate training, online greeting cards and business promotion. We expect to develop future partnerships for content and users with recruiting, dating and greeting card companies among others.





MyStudio Business Model





Our "bricks and clicks" business model is currently based upon three primary sources of revenue: recording session fees from MyStudio and advertising revenue from both the individual studios and the MyStudio.net website. We plan to continue driving recording session revenue through the use of industry-sponsored music, modeling and talent contests with new and repeat users, as well as the installation of additional studios. Additional studios are expected to drive exponential traffic to the MyStudio.net website as each new video generates a greater number of unique website visitors due to the viral effect of our video sharing offering.





Our management team believes that the Company's success depends on our ability to raise additional capital, deploy multiple studios and continue to create strategic partnerships that drive traffic to the studios. Our current installed base of six studios is insufficient to generate adequate revenues to achieve overall profitability for the Company. By deploying multiple studios and gaining "critical mass", we believe that we will be able to successfully implement our business plan, attract a greater number of strategic partnerships and achieve profitability.





Recording Session Revenue. Each studio is designed to record videos during a mall's operating hours, which can average 11 hours per day. MyStudio charges a fee per session for use of the studio. Each session lasts up to five minutes. There are two pay stations on the studio to expedite the song and background selection and payment process. Additionally, users may prepay their sessions from home and have an opportunity to select from a greater variety of songs and backgrounds. These payment options increase throughput for those using the studio.





MyStudio offers over 1,000 HD backgrounds from which to select or users may provide their own backgrounds. Additionally, MyStudio currently offers thousands of songs licensed from Sony/ATV Music Publishing, EMI Music Publishing, Universal Music Group and others for karaoke usage and expects to announce additional music licensing agreements in the future. In many instances, users perform their own songs using their guitar, keyboard or other instruments, which may be plugged into the studios for a professionally sounding quality video.





On-Studio Advertising Revenue. The exterior of the studios contain eight (8) 37" LCD flat screen monitors that are used to promote MyStudio and display advertising messages from selected sponsors and third party advertisers. We have successfully sold advertising on the studios, and we believe that we will be able to secure national advertising sponsors when we have a greater number of studios in operation. As a result of recent high-profile partnerships, we are in discussions with numerous parties that have expressed an interest in advertising on the studios. Such parties recognize the high traffic of the studios based on their placement within their respective malls.


17


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





Website Advertising Revenue. Visitors, visitor demographics and time spent on a website are the primary drivers behind advertising-based revenue models for Internet properties. The user-generated content created in MyStudio is the traffic generator for the MyStudio.net website.





We expect web traffic to grow substantially as additional studios are launched. We believe that our web property can create significant value for our shareholders. The leading social media websites, such as Facebook, have created substantial valuations for themselves based on website advertising. Unlike a number of other social media and Internet companies, we are not solely dependent upon website advertising to generate revenues. Our more diverse "bricks and clicks" business model allows our shareholders to benefit from multiple revenue streams, with the website being just one of the Company's valuation drivers.





MyStudio Marketing and Promotion Strategy





Our business plan calls for the establishment of regular events, auditions and contests to drive traffic to the studios; this has been confirmed by a marked increase in studio traffic when contests and promotions have been offered. Our marketing and promotion strategy is designed to drive traffic through the studios which in turn drives traffic to the MyStudio.net website.





To date, we have not invested significant dollars for marketing as we believe such marketing efforts would not have been prudent without a national footprint for MyStudio. We expect to significantly increase our national marketing efforts to drive sponsorship and advertising revenues later in the current calendar year. With a broader installed studio base in major metropolitan markets, we believe that we will have a much greater opportunity to gain national attention of large sponsors who understand the opportunity to partner with MyStudio for contests and auditions to favorably market their own businesses. To date, we have successfully sold sponsorships that have led to increased utilization of the studio, as well as advertising monies.





We remain focused on forming strategic partnerships at the local, regional and national level with talent seekers (the television, music, film, performing arts and modeling industries), the media (radio and television stations and printed media) and corporate sponsors who may seek access to our expanding user base. Such partnerships are designed to generate industry-sponsored music, modeling and talent contests to stimulate trial of and demand for the studios.





MyStudio has successfully partnered with some of the top names in the entertainment business, as described below.





In April 2011, we announced a groundbreaking multi-year partnership with Simon Cowell's The X Factor, the most significant partnership yet announced by the Company. We believe that the agreement represents a very significant milestone for the Company and demonstrates that the Company has established its ability to partner with some of the most important entities in the music and entertainment businesses.





Led by Mr. Cowell, a highly acclaimed entertainment entrepreneur and music producer with a notable ability to identify some of the world's top musical talent, The X Factor has had tremendous success in Europe. The show debuted in September on the Fox Network and has quickly generated a very significant following throughout the U.S. The high quality of the talent selected to participate in the show has been a key source of fan enthusiasm for the show.





It has been reported that over 75,000 people auditioned for the show, including several thousand who participated in such auditions through MyStudio. Mr. Cowell recognized the significant opportunity provided by MyStudio in broadening the contestant base for his show. MyStudio allowed for contestants to visit six additional venues beyond the primary casting cities to participate in the audition process. As we install additional studios throughout the U.S. during fiscal 2012 and beyond, we believe MyStudio will play an even greater role in the identification of top talent for such television shows.





We are pleased to report that of the enormous group auditioning for the show, three of the acts using MyStudio made it into the show's final 32 to date, as well as one of those acts advancing to the final 9 remaining contestants – the total remaining number of contestants as of the date of this Report. We believe this further validates that MyStudio creates an important platform for those seeking to audition for reality television shows or any other music, acting, comedy or modeling-related opportunities.


The partnership with The X Factor demonstrated that the MyStudio recording studios are an efficient means for allowing for a broad number of people in multiple cities to try out for reality television shows. Accordingly, we expect television, theater and motion pictures to begin to follow Mr. Cowell's lead in utilizing this technology to enhance their casting processes and thereby creating the potential for a number of other strategic partnerships for the Company.





Our participation with The X Factor has allowed the Company to gain national attention for its studios without having to expend significant amounts of internal funds to achieve a comparable level of positive exposure and brand development.





Prior to the recently announced auditions for The X Factor, we completed a multi-year agreement with Mark Burnett Productions ("MBP"), which provided for the use of MyStudio to augment the casting of the MBP television shows. MBP has used MyStudio in the casting of its shows, including Are You Smarter Than a Fifth Grader and Bully Beatdown. MBP is a leading production company for primetime television, cable and the Internet, and has produced over 1,100 hours of television programming which regularly air in over 70 countries around the world.


18


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





MyStudio was used by entertainment leaders Simon Fuller, Perez Hilton and Jamie King in their casting for Boy Band, a contest to identify five males between the ages of 13 and 21 with outstanding dance and vocal talent to form a high profile band. Mr. Fuller is the producer of American Idol. Mr. Hilton is a famous celebrity gossip columnist with a very extensive following. Mr. King is a world renowned choreographer. MyStudio was selected by Boy Band for the convenience and ease by potential contestants and was responsible for finding one of the Boy Band members.
 
 In addition to Boy Band, Mr. Fuller, through 19 Entertainment and MySpace, used MyStudio for the auditions of If I Can Dream, a reality television show offered through Hulu.com. The studios were used by a number of aspiring artists to perform their audition demos in hopes of being selected to join this show.
 
 We have completed a strategic partnership with RealityWanted.com, a leading source for reality TV casting calls in the U.S. The partnership provides for members of both companies to create audition videos for hundreds of top reality television shows. Most reality TV applicants are missing one of the most critical components to being selected - the video. This partnership created a turnkey reality TV casting platform to help complete the casting process. Users can easily supplement their RealityWanted.com profiles with a high-quality video that better conveys their talents and unique personality traits giving them a greater chance of being selected for a reality television show. As MyStudio offers over 1,000 high definition backgrounds, users can pick an environment to best suit their audition.





We have also established a partnership with Back Stage Casting., the entertainment industry's most recognized resource for real-time casting and audition information, acting advice, job listings and entertainment news. Utilizing MyStudio, Back Stage is able to offer its members and audition pieces for specific casting calls. Film, theater and television productions are asking actors to submit audition videos specific to their projects to streamline the casting process and identify the most talented candidates. MyStudio offers actors a high quality, convenient and inexpensive way to create their professional videos and increase their chances of being selected.





In addition to casting for television and stage, we completed a multi-year partnership with The GRAMMY Foundation to host auditions for various GRAMMY Foundation programs. The studios were used for auditions and promotions relating to several GRAMMY Foundation programs for young people including GRAMMY Camp®, GRAMMY® Signature Schools and the GRAMMY Jazz Ensembles.





A number of contests using MyStudio have been sponsored by some high-profile music, modeling and comedy companies. We expect to continue entering into additional strategic partnerships with other high profile companies in the music, television, modeling and comedy fields to further traffic to our studios.





Licensed musical content is another facet in our marketing and promotional strategy. In July 2008, we entered into a multi-year licensing agreement with EMI Music Publishing ("EMI") which grants us access to EMI's extensive music catalog. Notable EMI artists include Madonna, Stevie Wonder, Reba McEntire, Beyonce, Kelly Clarkson, Alicia Keyes and Elvis Presley. The agreement allows users to legally incorporate popular music from one of the world's largest music publishers into their creative endeavors, synchronizing music, voice and video into a single format. Subsequent agreements with Sony/ATV Music Publishing, BMG and Universal Music Group have since been signed to further expand the karaoke catalog.





We continue to aggressively pursue additional reality TV, music, modeling and comedy audition opportunities.





AfterMaster HD Audio





We have developed a revolutionary audio mastering technology branded AfterMaster, for which the technology is held by AfterMaster HD Audio Labs, Inc., a wholly-owned subsidiary of the Company. We believe that the AfterMaster process for mastering audio makes music significantly louder, fuller and clearer than traditionally mastered music. The technology is a proprietary, patents-pending combination of hardware and software which was developed by our audio engineering team. It can be applied on virtually all audio sources including, music, radio, television and film.





The AfterMaster process can be used to create both a master from a master audio mix or to "AfterMaster" existing music that has already been mastered. The technology allows any mastered audio to be remastered without the need to access the master mix. The business model includes the mastering and "AfterMastering" of both new music releases as well as catalog music. We believe that AfterMaster can be the technological impetus that can revitalize the music industry by providing consumers with a new leap in sound quality and added value. Some music industry experts who have recently been introduced to our technologies have equated it with high definition television: this technology has the opportunity to do for music what HD has done for television.





The first commercial music release utilizing the AfterMaster technology was Janet Jackson's hit single, "Make Me". This song was released by Universal Music and produced by nationally recognized record producer Rodney Jerkins. Additional songs, including music by Lady Gaga, Ray J and Shontelle have since been released using our technologies. Advisory Board members Rodney Jerkins, Richard Perry and Jason Flom are very influential in the music community and are instrumental to the execution of the AfterMaster business plan. Additionally, Advisory Board member Charles Weber, the first CEO of Lucasfilms, will be instrumental in the marketing and adoption of AfterMaster for motion pictures and television.


19


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





We have spent much of our time to date primarily focused on employing the AfterMaster technology for music - both existing catalogue and new releases. We believe our technology has the potential for the record labels to generate significant additional revenue from the re-release of their catalogues, while providing listeners with a better listening experience. The feedback from the record labels has been very favorable. We are in discussions with major record labels regarding the use of our technologies for broad commercial use.





In addition to our focus on utilizing AfterMaster for professional use by the music industry, we are introducing a version of the technology for use by amateur musicians and other consumers. Consumers will be able to upload their music through a specially designed AfterMaster website and have it mastered with unprecedented quality at an affordable price point. We priced this product to appeal to a very broad audience, both domestically and internationally.





A third and very significant opportunity for the AfterMaster technology relates to its use in consumer products for which there is an audio component (e.g., phones, stereo speakers, car speakers). We have received growing interest in the co-development of further technology that will allow AfterMaster to be embedded into consumer electronics. We have recently entered into an agreement with a leading consumer electronics company to explore the possibility of the development of such technology. We expect that such a technology would result in a significant and recurring licensing revenue opportunity for the Company.





Manufacturing





Last fiscal year, we announced that we had contracted for the manufacture of 15 of its proprietary studio chassis. We have since taken possession of the first four of such chassis. This agreement has allowed us to realize substantial studio cost savings relative to the prior manufacturer. We have and intend to continue financing additional studios through a combination of existing capital resources, raising additional capital and utilization of one existing credit facility.





We continue to evaluate our other vendors to identify additional cost savings for the studios.





Intellectual Property and Licensing





Last fiscal year, we announced that we had contracted for the manufacture of 15 of its proprietary studio chassis. We have since taken possession of the first four of such chassis. This agreement has allowed us to realize substantial studio cost savings relative to the prior manufacturer. We have and intend to continue financing additional studios through a combination of existing capital resources, raising additional capital and utilization of one existing credit facility.


Employees





As of September 30, 2011, we employed eighteen full-time and twenty four part-time employees, including attendants at the MyStudio locations.  We expect to seek additional employees in the next year to handle anticipated potential growth.





We believe that our relationship with our employees is good.  None of our employees are members of any union nor have they entered into any collective bargaining agreements.





Facilities





Pursuant to a lease originally dated January, 2006, we currently occupy approximately 11,800 square feet of office space located at 7650 E. Evans Rd., Suite C, Scottsdale, Arizona on a month-by month basis.  The total lease expense is approximately $9,609 per month, payable in cash and Common Stock of the Company.





We are leasing office space on a month-to-month basis in West Hollywood, California.  We also lease an office in Los Angeles for use by our audio team in connection with our AfterMaster product.  This is a two-year lease expiring on July 31, 2013.  The total lease expense for both facilities is approximately $13,500 per month, and the total remaining obligations under these leases at September 30, 2011 were approximately $297,000.


We lease space at mall locations for MyStudio generally pursuant to one-year leases. The monthly rent for these spaces is at market rates commensurate with other kiosk operations.  As we expand, we will continue to secure space for our recording studios at various venues and locations throughout the country.














20


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





RESULTS OF OPERATIONS





Revenues


Three Months Ended

September 30,2011

2010Session Revenues

$
10,750


$
93,170Advertising Revenues


1,996



7,500AfterMaster Revenues


32,400



2,200Total Revenues

$
45,146


$
102,870





Our business model currently generates revenues from four primary sources:


-
Paid user fees from customers who utilize the studios to create an audio/video recording;-
Advertising revenue from the external monitors located on each MyStudio facility;-
Advertising revenue from our website; and-
AfterMaster revenue
 The revenues from each of the first two of these sources is expected to increase proportionally to the number of studios we place in operation. The revenue from advertising on the website will depend on the number and length of visits to our website by MyStudio users and other viewers. Revenues from AfterMaster services resulted primarily from audio services provided to producers and artists on a contract basis. This source of revenue is expected to grow in coming years, and the Company is expecting to generate additional revenues from pay-per-play downloads.
 
 The revenue for the three months ended September 30, 2011 decreased to $45,146 from $102,870 over the comparable three month period ended September 30, 2010 due to a decrease in barter income this quarter.





Of the $100,670 of studio session and advertising revenue for the three months ended September 30, 2010, $26,420 was cash and the remaining $74,250 was in barter.  We had no barter transactions during the three months ended September 30, 2011.





Cost of Sales





Three Months Ended

September 30,2011


2010Cost of Sales (excluding depreciation and amortization)

$
188,435


$
121,205





Cost of sales consists primarily of studio rent, attendant labor and Internet connectivity and excludes depreciation and amortization on the studios. The increase in cost of sales for the three months ended September 30, 2011, over the comparable period for the prior fiscal year, is attributable, primarily, to the opening of additional studios.





Other Costs and Expenses





Three Months EndedSeptember 30,2011


2010Cost of barter exchanges

$
-


$
74,250Depreciation and amortization expense


110,880



74,378General and administrative expenses


1,094,964



1,240,477Total

$
1,394,279


$
1,389,105





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





As a result of not engaging in any barter transactions during the quarter ended September 30, 2011, we did not incur any costs of barter exchanges.  Depreciation and amortization increased due to additional studios placed in service.
 
 General and administrative expenses consist primarily of compensation and related costs for personnel and facilities to our finance, human resources, facilities, information technology, advertising, and expenses related to the issuance of stock compensation.  General and administrative expenses decreased in the three-month period ended September 30, 2011 compared to the three months ended September 30, 2009 due to a decrease in advertising expenses from $138,749 in 2010 to $23,856 in 2011. The decrease in advertising expenses is due to the fact that our efforts during the quarter were focused primarily on the X Factor auditions and the relocation of studios after the auditions were completed.  Professional fees also decreased from $813,943 in 2010 to $699,782 in 2011.  The decrease in professional fees is primarily attributable to our issuing less Common Stock and warrants to various employees and consultants for services rendered during the period.  This decrease in professional fees and advertising was partially offset by an increase in other general and administrative expenses resulting from the installation and deployment of the new studios.


21





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


The other income and expenses during the quarter ended September 30, 2011, totaling $243,061 of net expenses, is a combination of interest expense ($243,374) and other income ($313).  During the comparable period in 2010, other income and expenses totaled $13,528 and was comprised of interest expense ($87,030) and a gain on the disposal of property ($73,502).  Interest has increased due to additional borrowings used to build and deploy additional studios.
 
 Net Income/(Loss)





Three Months Ended

September 30,2011


2010Net Income/(Loss)

$
(1,592,194
)

$
(1,420,968
)





Due to the Company’s cash position, we use our Common Stock as currency to pay many employees, vendors and consultants.  Once we have raised additional capital from outside sources, as well as generated cash flows from operations, we expect to reduce the use of Common Stock as a significant means of compensation. Under FASB ASC 718, “Accounting for Stock-Based Compensation”, these non-cash issuances are expensed at the equity instruments fair market value.  Absent these large non-cash expenses, our net loss would be $1,170,801 and $1,081,218 for the periods ended September 30, 2011, respectively.


LIQUIDITY AND CAPITAL RESOURCES





The Company had revenues of $45,146 during the three months ended September 30, 2011 as compared to $102,870 in the comparable quarter of 2010.  The Company has incurred losses since inception of $31,266,777.  At September 30, 2011, the Company has negative working capital of $1,155,567, which is a decrease in working capital of $254,278 from June 30, 2011.  The decrease in the working capital was primarily due to lower cash balances and additional short-term borrowings.





The future of the Company as an operating business will depend on its ability to obtain sufficient capital contributions and/or financing as may be required to sustain its operations.  Management’s plan to address these issues includes a continued exercise of tight cost controls to conserve cash and obtaining additional debt and/or equity financing.





As we continue our activities, we will continue to experience net negative cash flows from operations, pending receipt of significant revenues that generate a positive sales margin.





The Company expects that additional operating losses will occur until net margins gained from sales revenue is sufficient to offset the costs incurred for marketing, sales and product development. Until the Company has achieved a sales level sufficient to break even, it will not be self-sustaining or be competitive in the areas in which it intends to operate.





In addition, the Company will require substantial additional funds to continue production and installation of the additional studios and to fully implement its marketing plans.





The Company’s management team believes that its success depends on the Company’s ability to raise additional capital, deploy multiple studios and create strategic partnerships that drive traffic to the studios.  The Company’s current six studios are insufficient to generate adequate revenues to achieve overall profitability for the Company.  By deploying multiple studios, the Company believes that it will be able to successfully implement its business plan, attract a greater number of strategic partnerships and achieve profitability.
 
 As of September 30, 2011, 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.


22


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





Although the Company intends to engage in a subsequent equity offering of its securities to raise additional working capital for operations and studio manufacturing, the Company has no firm commitments for any additional funding, either debt or equity, at the present time.  Insufficient financial resources may require the Company to delay or eliminate all or some of its development, marketing and sales plans, which could have a material adverse effect on the Company’s business, financial condition and results of operations.  There is no certainty that the expenditures to be made by the Company will result in a profitable business proposed by the Company.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not required.





ITEM 4T.  CONTROLS AND PROCEDURES





(a)
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 September 30, 2011 and September 30, 2010, our disclosure controls and procedures were ineffective in ensuring that the information we were required to disclose in reports that we file or submit under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms.





The Certifying Officers based their conclusion on the fact that the Company has identified material weaknesses in controls over financial reporting, detailed below.  In order to reduce the impact of these weaknesses to an acceptable level, hawse have contracted with consultants with expertise in U.S. GAAP and SEC financial reporting standards to review and compile all 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.





(b)
Internal Controls 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 September 30, 2011 and September 30, 2010, 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 September 30, 2011 and September 30, 2010 were ineffective, based on COSO’s framework.





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





Management has concluded that these control deficiencies constitute a material weakness that continued throughout September 30, 2001 and beyond.  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 Quarterly 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 Quarterly Report.


23


PART II - OTHER INFORMATION





ITEM 1. LEGAL PROCEEDINGS





The Company may become involved in certain legal proceedings and claims which arise in the normal course of business.  At September 30, 2011, there are no legal proceedings which the Company believes will have a material adverse effect on its financial position.





ITEM 1A - RISK FACTORS





You should carefully consider the risk factors and other uncertainties set forth below and all other information contained in this Report, as well as the public disclosure documents incorporated by reference herein.  If any of the events contemplated by the following risks actually occurs, then our business, financial condition, or results of operations could be materially adversely affected. As a result, the trading price of our Common Stock could decline, and you may lose all or part of your investment. The risks and uncertainties below are not the only risks facing our company.  Additional risks and uncertainties, including those that are not yet identified or that we currently believe are immaterial, may also adversely affect our business, financial condition or operating results.





History of Operations and Dependence on Future Developments.





We own proprietary audio/video recording technologies, patent and trademark applications, studio design, methods and related concepts for the MyStudio HD Recording Studios.  MyStudio is a self-contained interactive video recording studio designed for installation in shopping malls and other pedestrian high traffic public areas.  The studios enable the public, for a fee, to record their video and voice images in a stand alone, state-of-the-art recording studio and enter their MyStudio performances in music, modeling and other talent related contests.  In addition, MyStudio can be used to record video resumes, dating profiles and personal messages.  We believe MyStudio methods, processes and business model are proprietary and a unique opportunity in the entertainment industry.





We opened our first studio in September 2008 and have since installed multiple studios in the U.S.  We intend to continue placing our studios in malls across America, as well as expand into other high traffic locations and theme parks.  Ultimately, MyStudio intends to be a one-stop accessible facility that acts as a link between an entertainment hopeful and the acting, fashion and music industries.  Our revenues are generated by services provided by the studio, as well as through website advertising.





Subsequently, we have introduced our audio mastering technology, AfterMaster.  The technology has been utilized by some of the top name artists within the music industry, albeit such utilization has resulted in limited revenues to date.  We are in discussions with record labels about adopting the technology for use in re-monetizing their music catalogues.





We have a history of losses and will likely realize future losses.  Both MyStudio and AfterMaster have limited operations and are currently generating modest revenues.





We are dependent upon our management, certain shareholders and investors for fundraising.  We expect additional operating losses will occur until revenues are sufficient to offset our costs for marketing, sales, general and administrative and product and services development.  We are subject to all of the risks inherent in establishing an early stage business enterprise.  Since we have limited operations, there can be no assurance that our business plan will be successful.  The potential for our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered with an early stage business and the competitive environment in which we will operate.  A prospective investor should be aware that if we are not successful in achieving our goals and achieving profitability, any money invested in us will likely be lost.  Our management team believes that our potential near-term success depends on our success in, manufacturing, marketing and selling our products and services.





As an early stage company we are particularly susceptible to the risks and uncertainties described herein, and we will be more likely to incur the expenses associated with addressing them.  Our business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in early stages of development.  These risks are particularly severe among companies in new markets, such as those markets in which we expect we will operate.  Accordingly, shareholders will bear the risk of loss of their entire investment in our shares.





New Business Model.





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








24





ITEM 1A - RISK FACTORS - continued





Limited Capital and Need for Additional Financing.





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





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





Lack of Diversification.





Our size makes it unlikely that we will be able to commit our funds to diversify the business until we have a proven track record, and we may not be able to achieve the same level of diversification as larger entities engaged in this type of business.





Competition.





We know of no competitors offering a similar high-quality, in-mall HD recording studio experience.  We believe that we are first to market with a recording studio with such functionality and quality combined with a groundbreaking website.  It would require a competitor significant time and capital to design, develop and manufacture a recording studio with similar functionality and features, giving us valuable time to gain consumer recognition and a foothold in the market.  Additionally, we have pursued an aggressive intellectual property strategy, including the recent approval of a patent that provides additional competitive barriers.





Additionally, based on feedback from executives within the music industry, we have not been made aware of any significant competitors offering an audio enhancement technology of the same quality level as AfterMaster.





While the technologies surrounding MyStudio and AfterMaster are cutting edge and unique, we believe there are other factors that will separate us from competitors.  We have embarked on an aggressive intellectual property protection program which we believe will be significant barriers to market entry to potential competitors for our current product offerings.  In addition, we employ individuals who have long standing relationships and expertise in various segments of the entertainment, marketing, finance and communications industries, which we expect will help facilitate the negotiation of favorable partnerships, sponsorships and industry support for MyStudio and AfterMaster.





Nonetheless, many potential competitors have greater name recognition, industry contacts and more extensive customer bases that could be leveraged to accelerate their competitive activity.  Moreover, potential competitors may establish future cooperative relationships among themselves and with third parties to enhance their products and services in this market space in which we propose to operate.  Consequently, competitors or alliances may emerge and rapidly acquire significant market share.  We cannot assure you that we will be able to compete effectively with any competitor should they arise or that the competitive pressures faced by us will not harm our business. Such intense competition will limit our opportunities and have a materially adverse effect on our profitability or viability.





Our web property competes in a growing social media market with companies like Facebook, YouTube and MySpace.  We believe our HD-quality and user-generated content is unique and may allow us to differentiate ourselves from other social media companies.





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.





25


ITEM 1A - RISK FACTORS - continued





Dependence on Intellectual Property - Design and Proprietary Rights.





Our success and ability to compete depends to a degree on our intellectual property.  We will rely on copyright, trademark and patent filings as well as confidentiality arrangements, to protect our intellectual property locally and internationally.  Studio One and its subsidiaries have filed numerous patent applications relating to MyStudio, AfterMaster and related technologies and processes, and while we believe the technologies, methods and processes merit patent protection, there is no assurance that any patent will be issued.  If circumstances make it impossible to try to adequately protect our intellectual property, that intellectual property could be used by others without our consent and there could be material adverse consequences to us. We have filed several trademark applications and have received Notices of Allowance on four of those applications. Effective protection may not be available for our service marks. Although we plan to continue to register our service marks in the United States and in countries in which we do business or expect to do business, we cannot assure you that we will be able to secure significant protection for these marks. Our competitors, if any exist, or others may adopt product or service names similar to ours, thereby impeding our ability to build brand identity and possibly leading to client confusion. If circumstances make it impossible to adequately protect the name and brand, this could seriously harm our business.





Policing unauthorized use of our intellectual property is made especially difficult by the global nature of the high technology industry and difficulty in controlling hardware and software.  The laws of other countries may afford us little or no effective protection for our intellectual property.  We cannot assure you that the steps we take will prevent misappropriation of our intellectual property or that agreements entered into for that purpose will be enforceable. In addition, litigation may be necessary in the future to enforce our intellectual property rights; determine the validity and scope of the proprietary rights of others; or defend against claims of infringement or invalidity.  Such litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources, either of which could seriously harm our business.  There can be no assurance that our competitors, some of which have substantially greater resources, will not obtain patents or other intellectual property protection that will restrict our ability to make and sell our products.  If we are unsuccessful in protecting proprietary and intellectual property rights to the MyStudio and/or AfterMaster related business methods and websites, it could have a material adverse effect on our business, results of operations, financial condition and value, and financial results.





Economic Downturn.





We are susceptible to adverse impacts caused by domestic and/or international economic downturns (including the current challenging economic landscape) in the markets in which do or propose to operate, as well as broader economic downturns affecting a region, or a particular industry sector in which we propose to operate.  There can be no assurance that we will survive any such economic downturn, or if we do survive, that we will be capable of executing or furthering, to any meaningful degree, the originally conceived business plans.





Some of Our Markets are Cyclical.





Some of our markets are cyclical, and a decline in any of these markets could have a material adverse effect on our operating performance.   Our business is cyclical and dependent on consumer and business spending and is therefore impacted by the strength of the economy generally, interest rates, and other factors, including national, regional and local slowdowns in economic activity and job markets, which can result in a general decrease in product demand from professional contractors and specialty distributors.  For example, a slowdown in economic activity that results in less discretionary income for entertainment and music can have an adverse effect on the demand for some or all of our products.  In addition, unforeseen events, such as terrorist attacks or armed hostilities, could negatively affect our industry or the industries in which our customers operate, resulting in a material adverse effect on our business, results of operations and financial condition.





Disaster.





A disaster that disables our operations will negatively impact our ability to perform for a period of time.





Dependency on Foreign Components for our Products.





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





Exposure to Product Liability Lawsuits.





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


26


ITEM 1A - RISK FACTORS - continued





Dependency on Key Suppliers and Product Availability.





Loss of key suppliers, lack of product availability or loss of delivery sources could delay product development, manufacturing and decrease sales and earnings.  Our ability to manufacture our studios is dependent upon our ability to obtain adequate product supply from manufacturers or other suppliers. While in many instances we have agreements, including supply agreements, with our suppliers, these agreements are generally terminable by either party on limited notice.  The loss of, or a substantial decrease in the availability of, products from certain of our suppliers, or the loss of key supplier agreements, could have a material adverse effect on our business, results of operations and financial condition.  In addition, supply interruptions could arise from shortages of raw materials, labor disputes or weather conditions affecting products or shipments, transportation disruptions or other factors beyond our control.





Dependency on Long Supply Chains.





In some cases we are dependent on long supply chains, which may subject us to interruptions in the supply of many of the products or components used in the manufacturing and assembly of MyStudio.   The length and complexity of these supply chains make them vulnerable to numerous risks, many of which are beyond our control, which could cause significant interruptions or delays in delivery of our products.  Factors such as labor disputes, changes in tariff or import policies, severe weather or terrorist attacks or armed hostilities may disrupt these supply chains.  A significant interruption in our supply chains caused by any of the above factors could result in increased costs or delivery delays and have a material adverse effect on our business, results of operations and financial condition.





Fluctuations in Cost of Raw Materials.





Our results of operations could be adversely affected by fluctuations in the cost of raw materials.   The manufacturing process is subject to world commodity pricing for some of the raw materials used in the manufacture of our studios.  Such raw materials are often subject to price fluctuations, frequently due to factors beyond our control, including changes in supply and demand, general U.S. and international economic conditions, labor costs, competition, and government regulation.  Inflationary and other increases in the costs of raw materials have occurred in the past and may recur in the future.  Any significant increase in the cost of raw materials could reduce our profitability and have a material adverse effect on our business, results of operations and financial condition.





Regulatory Factors.





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





Terms of Subsequent Financings.





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





Rapid Technological Change.





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





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ITEM 1A - RISK FACTORS - continued





Effect of Fluctuations in Operations on the Price of Common Stock.


Our future operating results may fluctuate and cause the price of our Common Stock to decline, which could result in substantial losses for investors.   Our limited operating history makes it difficult to predict accurately our future operations.  We expect that our operating results will fluctuate significantly from quarter to quarter, due to a variety of factors, many of which are beyond our control.  If our operating results fall below the expectations of investors or securities analysts, the price of our Common Stock could decline significantly.  The factors that could cause our operating results to fluctuate include, but are not limited to:





·
Ability to broadly commercialize and expand MyStudio and/or AfterMaster;


·
Changes in entertainment technology;


·
Price and availability of alternative entertainment available to the public;


·
Availability and cost of technology and marketing personnel;


·
Our ability to establish and maintain key relationships with industry partners;


·
The amount and timing of operating costs and capital expenditures relating to maintaining our business, operations, and infrastructure; and


·
General economic conditions and economic conditions specific to the entertainment industry.





These and other external factors have caused and may continue to cause the market price and demand for our Common Stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of Common Stock and may otherwise negatively affect the liquidity of our Common Stock. In the past, securities class action litigation has often been brought against companies following periods of volatility in the market price of their securities.  If securities class action litigation were to be brought against us, it could result in substantial costs and a diversion of our management’s attention and resources, which could hurt our business.





Our Common Stock is Subject to Penny Stock Regulations.





Our Common Stock is subject to regulations of the SEC relating to the market for penny stocks.  These regulations generally require that a disclosure schedule explaining the penny stock market and the risks associated therewith be delivered to purchasers of penny stocks and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors.  The regulations applicable to penny stocks may severely affect the market liquidity for our Common Stock and could limit your ability to sell your securities in the secondary market.





Uncertainty as a Going Concern.





Our future existence remains uncertain and the report of our independent auditors on our financial statements for the year ended June 30, 2011 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 September 30, 2011, we had 31,907,144 shares of Common Stock, $0.001 par value, issued and outstanding.  We have granted options to purchase 678,429 shares of Common Stock pursuant to our 2009 Long-Term Incentive Plan approved by the Board on June 10, 2009, and contemplate issuing options to purchase a maximum of 773,000 additional shares of Common Stock under this Plan.  We may also issue further shares to certain of our management, directors, officers, employees and consultants in the immediate future.  We also had 1,570,044 shares of various classes of Convertible Preferred Stock outstanding, which can be converted into approximately 3,140,000 shares of Common Stock.  We had outstanding convertible debt with a face value of $1,340,488,which can be converted into approximately 2,680,000 shares of Common Stock. In addition, we had warrants outstanding that would permit, if exercised, the issuance of 5,607,912 additional shares of Common Stock at an average exercise price of $0.84.  Issuing additional shares will result in further dilution to existing shareholders, which could be significant; meaning your percentage ownership of any such merged entity will be significantly less than your percentage ownership in us.  If we issue additional shares either outright or through any future options or warrants programs or requires additional financing, further dilution in value and in the percentage ownership represented by the purchaser’s investment will occur.





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





28


ITEM 1A - RISK FACTORS - continued





Restrictions on Transfer - No Public Market for Preferred Shares or Restricted Common Shares.
 
 Our shares of Common Stock are traded on the Over-The-Counter Bulletin Board System (OTCBB) under the ticker symbol SOMD.  However, for shares that have been issued and are restricted pursuant to SEC Rule 144 of the Securities Act of 1933 (the “Act”), there is presently no public or private market for such shares.  Such shares may only be offered or sold pursuant to registration under or an exemption from the Act and have not been registered under the Act, as amended, or any State securities laws and would be issued under Section 4(2) of the Act and Rule 506 of Regulation D promulgated under the Act.





Expect to Incur Losses for the Foreseeable Future.





We expect to incur losses for the foreseeable future and we may never become profitable.   Our business model requires that additional studios be deployed and operating for us to generate enough revenues to reach break-even.  There are no assurances that significant revenues from MyStudio and/or AfterMaster necessary for the Company to become break-even will occur. We expect our expenses to increase significantly as we continue to develop the infrastructure necessary to fully implement our business strategy.  Our expenses will continue to increase as we: hire additional employees; implement our marketing plans; pursue further research and development; expand our information technology systems; and lease and purchase more space to accommodate our operations.





Costs associated with designing, developing, manufacturing, marketing and developing the infrastructure we will need to support our customers will depend upon many factors, including the number of MyStudio locations.  Therefore, we cannot now determine the amount by which our expenses will increase as we grow.





Possible Claims That the Company Has Violated Intellectual Property Rights of Others.





We are not subject to any dispute, claim or lawsuit or threatened lawsuit alleging the violation of intellectual property rights of a third party.  We believe MyStudio and AfterMaster are not in violation of any patents claimed by others.  To the extent that the Company is ever alleged to have violated a patent or other intellectual property right of a third party, it may be prevented from operating its business as planned, and it may be required to pay damages, to obtain a license, if available, to use the patent or other right or to use a non-infringing method, if possible, to accomplish its objectives. Any of these claims, with or without merit, could subject us to costly litigation and the diversion of our technical and management personnel. If we incur costly litigation and our personnel are not effectively deployed, the expenses and losses incurred will increase, and our profits, if any, will decrease.





Business Plans and Operational Structure May Change.





We continually analyze our business plans and operations in light of market conditions and developments.  As a result of our ongoing analyses, we may decide to make substantial changes in our business plan and organization.  In the future, as we continue our internal analyses and as market conditions and our available capital change, we may decide to make organizational changes and/or alter some or all of our overall business plans.





Reliance on Management.





We believe that our present management has the experience and ability to successfully implement our business plans for the foreseeable future.  However, it is likely that we will continue to add to our management and therefore will recruit additional persons to key management positions in the future.  Should we be unsuccessful in recruiting persons to fill the key positions or in the event any of these individuals should cease to be affiliated with us for any reason before qualified replacements can be hired, there could be material adverse effects on our business and prospects.  Each officer, director, and other key personnel has or will have an employment agreement with us which will contain provisions dealing with confidentiality of trade secrets, ownership of patents, copyrights and other work product, and non-competition.  Nonetheless, there can be no assurance that these personnel will remain employed for the entire duration of the respective terms of such agreements or that any employee will not breach covenants and obligations owed to us.





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





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.





29


ITEM 1A - RISK FACTORS - continued




Inability to Manage Rapid Growth.
 
 We expect to grow rapidly.  Rapid growth often places considerable operational, managerial and financial strain on a business.  To successfully manage rapid growth, we must accurately project its rate of growth and:


·
Rapidly improve, upgrade and expand our business infrastructure;


·
Deliver our product and services on a timely basis;


·
Maintain levels of service expected by clients and customers;


·
Maintain appropriate levels of staffing;


·
Maintain adequate levels of liquidity; and


·
Expand and upgrade our technology, transaction processing systems and network hardware or software or find third parties to provide these services.





Our business will suffer if we are unable to successfully manage our growth.





Effects of Amortization Charges/Stock Based Compensation.





Our losses will increase, or our earnings, if applicable, will be reduced by charges associated with the issuance of options and/or warrants.  We have adopted a stock incentive plan for the benefit of our directors, officers and employees.  We may also compensate consultants and vendors with restricted stock and/or warrants in lieu of, or in addition to, cash for services provided. The total unearned stock-based compensation will be amortized as a stock-based compensation expense in our consolidated financial statements over the applicable vesting periods, generally two to ten years in the case of options granted to employees, officers and directors and two years in the case of warrants granted to consultants and other third parties.  These types of charges may increase in the future.  The future value of these potential charges cannot be estimated at this time because the charges will be based on the future value of our stock and the related exercises of the aforementioned options and warrants.





Dividend Policy.





There can be no assurance that our operations will result in future significant revenues or any level of profitability.  We have not, and do not, anticipate paying cash dividends on our Common Stock in the foreseeable future.  We plan to retain all future earnings and cash flows, if any, to finance our operations and for general corporate purposes.  Any future determination as to the payment of cash dividends will be at our Board of Directors’ discretion and will depend on our financial condition, operating results, current and anticipated cash needs, plans for expansion and other factors that our Board of Directors considers relevant.





Conflicts of Interest.





Existing and future officers and directors may have other interests to which they devote time, either individually or through partnerships and corporations in which they have an interest, hold an office, or serve on boards of directors, and each may continue to do so.  As a result, certain conflicts of interest may exist between the Company and its officers and/or directors that may not be susceptible to resolution.  All potential conflicts of interest will be resolved only through exercise by the directors of such judgment as is consistent with their fiduciary duties to the Company, and it is the intention of management to minimize any potential conflicts of interest.





Loss of Services of Key Members of Our Senior Management Team.





Our future success depends in a large part upon the continued services of key members of our senior management team.  These persons are critical to the overall management of Studio One as well as the development of our technology, our culture and our strategic direction.  We do not maintain any key-person life insurance policies.  The loss of any of our management or key personnel could seriously harm our business.





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





We issued the following equity securities during the three months ended September 30, 2011.  Webelieve that the sale of the unregistered restricted Common Stock (the “Units”) noted above was exempt from registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Sections 4(2), and/or Regulation D, Rule 506. The Units were sold directly by us to accredited investors and did not involve a public offering or general solicitation. The purchasers of the Units were afforded an opportunity for effective access to files and records of our Company that contained the relevant information needed to make their investment decision, including our financial statements and 34 Act reports. We reasonably believed that the purchasers, immediately prior to purchasing the shares, had such knowledge and experience in our financial and business matters that they were capable of evaluating the merits and risks of their investment. The purchasers had the opportunity to speak with our management on several occasions prior to their investment decision.  All proceeds from the sale of these securities were used to continue the Company’s capital expenditures related to MyStudio, as well as for working capital and general corporate purposes.  Following is a summary of the shares of Common Stock issued during the quarter ended September 30, 2011.
 
 Common Stock:
 ·
635,335 shares of Common Stock for net cash proceeds of $371,664;
 ·
400,103 shares of Common Stock to non-employees in advance of services;
 ·
259,234 shares of Common Stock as share-based compensation to employees and non-employees;
 ·
386,238 shares of Common Stock to convert $100,000 in convertible notes payable and $104,085 in accrued liabilities;
 ·
65,344 shares of Common Stock as interest expense on outstanding notes payable;
 ·
132,000 shares issued as a conversion of Preferred Stock; and
 ·
4,000 shares of common stock as dividends on Preferred Stock.


30





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





The value of the share-based compensation was based on the market price of the stock on the day of issuance.





Warrants to Purchase Common Stock:
 
 ·
75,000 warrants in lieu of interest;
 ·
50,000 warrants as prepaid interest;
 ·
150,000 warrants were modified to extend the maturity date; and
 ·
63,532warrants as finder’s fees for equity financing.
 
 The estimated value of the Common Stock purchase warrants granted to such individuals was determined using the Black-Scholes pricing model.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES





None.





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





During the three months ended September 30, 2011, no matters were submitted to the shareholders for a vote.





ITEM 5. OTHER INFORMATION





Subsequent Events





None





ITEM 6. EXHIBITS





a) The following Exhibits are filed herein:





NO.
TITLE





31.1
Certification of Chief Executive Officer pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002





31.2
Certification of Chief Financial Officer pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002





32.1
Certification of Chief Executive Officer and of Chief Financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002








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.








STUDIO ONE MEDIA, INC.Date: November 21, 2011
By:
/s/ Preston J. SheaPreston J. Shea,Title:   President and Chief Executive Officer








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








STUDIO ONE MEDIA, INC.Date: November 21, 2011
By:
/s/ Preston J. SheaPreston J. Shea,Title:  Director, President, Chief Executive Officer, Secretary





STUDIO ONE MEDIA, INC.Date: November 21, 2011
By:
/s/ Kenneth R. PinckardKenneth R. PinckardTitle:  Director, Vice President, Chief Financial Officer, Chief Accounting Officer












32