U.S. SECURITIES AND EXCHANGE COMMISSION





WASHINGTON, D.C. 20549





FORM 10-Q





(Mark One)





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





For the quarterly period ended December 31, 2010





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).





oYes     x No





At December 31, 2010, the number of shares outstanding of common stock, $0.001 par value, was 27,483,768 shares.





1







STUDIO ONE MEDIA, INC.INDEXPART I - FINANCIAL INFORMATIONPAGE NUMBERItem 1.
Financial Statements
3Consolidated Balance Sheets – December 31, 2010 (unaudited) and June 30, 2010
3Consolidated Statements of Operations - For the three and six months ended December 31, 2010 and 2009 (unaudited)
4Consolidated Statements of Stockholders’ Equity (Deficit) -- For the year ended June 30, 2010 and the six months ended December 31, 2010 (unaudited)
5 - 6Consolidated Statements of Cash Flows - For the six months ended December 31, 2010 and 2009 (unaudited)
7Notes to Consolidated Financial Statements (unaudited)
8Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
11Item 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
32Item 3.
Defaults Upon Senior Securities
33Item 4.
Submission of Matters to a Vote of Security Holders
33Item 5.
Other Information
33Item 6.
Exhibits
34SIGNATURES
34














2







PART I - FINANCIAL INFORMATION




STUDIO ONE MEDIA, INC.Consolidated Balance SheetsDecember 31,

June 30,2010

2010(Unaudited)ASSETSCurrent AssetsCash

$
301,683


$
632,980Prepaid Expenses


304,101



329,406Other Receivable


3,069



16,968Notes Receivable


125,000



127,500Total Current Assets


733,853



1,106,854Property and Equipment, net


873,757



673,384Property and Equipment, yet to be placed in service


1,122,837



605,644Intangible Assets, net


280,391



310,673Other AssetsDeposits


99,863



102,863Prepaid Expenses


48,146



49,188Debt Issuance Costs


60,341



23,692Total Other Assets


208,350



175,743Total Assets

$
3,219,188


$
2,872,298LIABILITIES AND STOCKHOLDERS' EQUITYCurrent LiabilitiesAccounts Payable and Accrued Expenses

$
1,388,193


$
815,686Notes Payable - Related Party


50,000



90,000Notes Payable, net of discount of $39,682 and $0, respectively


383,216



120,398Total Current Liabilities


1,821,409



1,026,084Long-Term LiabilitiesConvertible Notes Payable, net of discount of $813,347 and $458,029, respectively


186,653



41,971Total Liabilities


2,008,062



1,068,055Stockholders' EquityConvertible Preferred Stock, authorized 10,000,000 shares,par value $0.001; issued and outstanding are 744,044and 549,044, respectively


744



549Common Stock, authorized 100,000,000 shares,par value $0.001; issued and outstanding are 27,483,768 and25,891,768 shares, respectively


27,484



25,892Additional Paid In Capital


24,768,699



22,346,842Accumulated Deficit


(23,585,801
)


(20,569,040
)Total Stockholders' Equity


1,211,126



1,804,243Total Liabilities and Stockholders' Equity

$
3,219,188


$
2,872,298The 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 Ended


For the Six Months EndedDecember 31,


December 31,2010


2009


2010


2009REVENUESSession Revenues

$
113,340


$
26,385


$
206,510


$
45,085Advertising Revenues


1,500



10,643



9,000



21,286AfterMaster Revenues


16,600



-



18,800



-Total Revenues


131,440



37,028



234,310



66,371COSTS AND EXPENSESCost of Revenues (Exclusive of Depreciation and Amortization)


118,601



39,973



239,806



81,228Cost of Barter Exchanges


102,800



24,643



177,050



46,286Depreciation and Amortization Expense


83,246



45,987



157,624



84,409General and Administrative Expenses


1,051,161



1,122,331



2,291,638



2,550,458Total Costs and Expenses


1,355,808



1,232,934



2,866,118



2,762,381Loss from Operations


(1,224,368
)


(1,195,906
)


(2,631,808
)


(2,696,010
)Other Income (Expense)Interest Expense


(278,711
)


(5,372
)


(365,741
)


(15,548
)Interest Income


-



3,739



-



8,061Gain on Disposal of Property


-



-



73,502



-Loss on Extinguishment of Debt


(92,714
)


-



(92,714
)


-Total Other Income (Expense)


(371,425
)


(1,633
)


(384,953
)


(7,487
)Loss Before Income Taxes


(1,595,793
)


(1,197,539
)


(3,016,761
)


(2,703,497
)Income Tax Expense


-



-



-



-NET LOSS

$
(1,595,793
)

$
(1,197,539
)

$
(3,016,761
)

$
(2,703,497
)Preferred Stock Accretion and Dividends


(51,484
)


-



(54,384
)


-NET LOSS AVAILABLE TO COMMON SHAREHOLDERS

$
(1,647,277
)

$
(1,197,539
)

$
(3,071,145
)

$
(2,703,497
)Basic and Diluted Loss Per Share of Common Stock

$
(0.06
)

$
(0.06
)

$
(0.12
)

$
(0.15
)Weighted Average Number of Shares Outstanding


27,011,922



19,616,270



26,290,376



18,475,203The accompanying notes are an integral part of these consolidated financial statements.















4
 
  
 STUDIO ONE MEDIA, INC.Consolidated Statements of Stockholders' Equity (Deficit)Common





TotalAdditional


Common


Stock

Issued in





Stockholders'Preferred Stock


Common Stock


Paid In


Shares


Advance


Accumulated


EquityShares


Amount


Shares


Amount


Capital


to be Issued


for Services


Deficit


(Deficit)Balance, June 30, 2009


774,044


$
774



16,417,447


$
16,417


$
15,039,491


$
24,000


$
(48,153
)

$
(15,237,122
)

$
(204,593
)Common shares issued in conversionof preferred shares


(296,429
)


(296
)


628,995



629



(333
)


-



-



-



-Common shares issued for assets


-



-



250,000



250



249,750



-



-



-



250,000Common shares issued for cash


-



-



4,280,422



4,281



2,397,362



-



-



-



2,401,643Warrants and options exercised for cash


-



-



399,989



400



239,309



-



-



-



239,709Common shares issued in conversion of debt andextinguishment of liabilities


-



-



1,233,456



1,233



709,452



-



-



-



710,685Share-based compensation - common shares


-



-



2,401,689



2,402



1,949,224



(24,000
)


48,153



-



1,975,779Share-based compensation - warrants


-



-



-



-



764,614



-



-



-



764,614Share-based compensation - shares to be issued


-



-



279,770



280



156,150



-



-



-



156,430Common shares issued in advance of services


-



-



-



-



129,968



-



-



-



129,968Warrants issued in advance of services


-



-



-



-



197,176



-



-



-



197,176Beneficial conversion feature on issuanceof convertible debt


-



-



-



-



421,150



-



-



-



421,150Warrants issued in connection to issuance


-



-



-



-



82,850



-



-



-



82,850of convertible debtPreferred shares issued for cash


96,429



96



-



-



60,654



-



-



-



60,750Preferred shares repurchased


(25,000
)


(25
)


-



-



(49,975
)


-



-



-



(50,000
)Net Loss for the Year EndedJune 30, 2010


-



-



-



-



-



-



-



(5,331,918
)


(5,331,918
)Balance, June 30, 2010


549,044



549



25,891,768



25,892



22,346,842



-



-



(20,569,040
)


1,804,243
   5
  Consolidated Statements of Stockholders' Equity - continued
  Preferred shares issued for cash (unaudited)


195,000



195



-



-



194,805



-



-



-



195,000Common shares issued for cash (unaudited)


-



-



92,500



93



42,601



-



-



-



42,694Warrants and options exercised for cash (unaudited)


-



-



235,833



235



118,931



-



-



-



119,166Common shares issued in conversionof debt and extinguishment of liabilities (unaudited)


-



-



440,406



441



327,921



-



-



-



328,362Share-based compensation - common shares (unaudited)


-



-



792,397



792



715,733



-



-



-



716,525Share-based compensation - warrants (unaudited)


-



-



-



-



124,367



-



-



-



124,367Warrants and common shares issued in advance of services (unaudited)


-



-



30,864



31



380,876



-



-



-



380,907Beneficial conversion feature on issuanceof convertible debt (unaudited)


-



-



-



-



447,894



-



-



-



447,894Warrants issued in connection to issuanceof convertible debt (unaudited)


-



-



-



-



68,729



-



-



-



68,729Net Loss for the Six Months endedDecember 31, 2010 (unaudited)


-



-



-



-



-



-



-



(3,016,761
)


(3,016,761
)Balance, December 31, 2010 (unaudited)


744,044


$
744



27,483,768


$
27,484


$
24,768,699


$
-


$
-


$
(23,585,801
)

$
1,211,126The accompanying notes are an integral part of these consolidated financial statements.


6
  STUDIO ONE MEDIA, INC.Consolidated Statements of Cash Flows(Unaudited)For the Six Months EndedDecember 31,2010


2009OPERATING ACTIVITIESNet Loss

$
(3,016,761
)

$
(2,703,497
)Adjustments to reconcile to cash from operating activities:Depreciation and amortization


157,624



84,409Share-based compensation


840,892



1,490,338Amortization of debt discount and issuance costs


121,623



-Loss on extinguishment of debt


92,714



9,939Gain on conversion of preferred shares


-



(36,475
)Changes in Operating Assets and Liabilities:Accrued interest receivable


-



(8,061
)Other receivables


16,399



-Prepaid expenses


370,605



(3,372
)Deposits


3,000



(2,454
)Accounts payable and accrued expenses


783,155



(303,744
)Net Cash Used in Operating Activities


(630,749
)


(1,472,917
)INVESTING ACTIVITIESPurchase of property and equipment


(935,107
)


(39,732
)Proceeds from disposal of property


90,199



-Net Cash Used in Investing Activities


(844,908
)


(39,732
)FINANCING ACTIVITIESPreferred stock issued for cash


195,000



67,500Common stock issued for cash


57,584



855,500Warrants and options exercised for cash


119,166



163,042Investment banking fees paid


(14,890
)


-Repayments of notes payable - related party


(40,000
)


-Repayment of notes payable


(40,000
)


-Proceeds from notes payable


867,500



125,000Net Cash from Financing Activities


1,144,360



1,211,042NET DECREASE IN CASH


(331,297
)


(301,607
)CASH AT BEGINNING OF PERIOD


632,980



439,474CASH AT END OF PERIOD

$
301,683


$
137,867SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:CASH PAID FOR:Interest

$
5,525


$
696Income Taxes


-



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

$
328,321


$
666,812Stock and warrants issued for prepaid services


380,907



-Warrants and beneficial conversion feature on issuance of convertible debt


516,623



-Common stock issued for intangible assets


-



250,000The accompanying notes are an integral part of these consolidated financial statements.
 7
 
 STUDIO ONE MEDIA, INC
 Notes to Consolidated Financial Statements
 December 31, 2010 and June 30, 2010


NOTE 1 – CONDENSED FINANCIAL STATEMENTS
 
 The accompanying financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at December 31, 2010, 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, 2010 audited financial statements.  The results of operations for the periods ended December 31, 2010 and 2009 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 $23,585,801 and currently has revenues which are insufficient to covering its operating costs which raises substantial doubt about its ability to continue as a going concern. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern.
 
 The future of the Company as an operating business will depend on its ability to (1) obtain sufficient capital contributions and/or financing as may be required to sustain its operations and (2) to achieve adequate revenues from its MyStudio and AfterMaster businesses. Management's plan to address these issues includes, (a) continued exercise of tight cost controls to conserve cash, (b) obtaining additional financing, and (c) place in service additional personal recording kiosks.
 
 The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
 
 NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Use of Estimates
 The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
 
 Reclassification of Financial Statement Accounts
 Certain amounts in the December 31, 2009 financial statements have been reclassified to conform to the presentation in the December 31, 2010 financial statements.
 
 Recent Accounting Pronouncements
 Management has considered all recent accounting pronouncements issued since the last audit of the Company’s financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
 
 
 
 
  8
 
 STUDIO ONE MEDIA, INC
 Notes to Consolidated Financial Statements
 December 31, 2010 and June 30, 2010
  
 NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Fair Value Instruments
 Cash is the Company’s only financial asset or liability required to be recognized at fair value and is measured using quoted prices for active markets for identical assets (Level 1 fair value hierarchy).  The carrying amounts reported in the balance sheets for notes receivable and accounts payable and accrued expenses approximate their fair market value based on the short-term maturity of these instruments.
 
 The fair value of the Company’s notes payable at December 31, 2010 is approximately $1,472,898 (carrying value of $619,869).  Market prices are not available for the Company’s loans due to related parties or its other notes payable, nor are market prices of similar loans available.  The Company determined that the fair value of the notes payable based on its amortized cost basis due to the short term nature and current borrowing terms available to the Company for these instruments.
 
 Income Taxes
 There is no income tax provision for the six months ended December 31, 2010 and 2009 due to net operating losses for which there is no benefit currently available.
 
 At December 31, 2010, the Company had deferred tax assets associated with state and federal net operating losses (“NOLs”). 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.
 
 NOTE 4 – NOTES PAYABLE
 
 On December 20, 2010 the Company entered into a note payable with an unrelated party for $75,000.  The note bears interest at 12%, is unsecured and is due on February 28, 2011.
 
 On November 9, 2010, the Company entered into a note payable with an unrelated party for $10,000.  The note bears interest at 15%, is unsecured and is due on November 30, 2010.  The note plus all accrued interest was paid in full by November 30, 2010.
 On November 17 and 30, 2010 the Company entered into three convertible notes payable with unrelated parties totaling $132,500.  The notes bear interest at 12%, are unsecured and are due six months from origination.
 In accordance with ASC 470, the Company’s management evaluated the conversion terms of these notes and has concluded that a beneficial conversion feature (“BCF”) exists. The value of the BCF was determined based on the stock price on the day of commitment, the number of convertible shares, and the difference between the effective conversion price and the fair value of the Common Stock. The value of the BCF of the three notes has been estimated at $48,923.
 
 On September 28, 2010 the Company entered into a note payable with an unrelated party for $50,000.  The note bears interest at 8%, is unsecured and is due on March 31, 2011.
 
 On September 29, 2010 the Company entered into a note payable with an unrelated party for $100,000.  The note was due on October 28, 2010, is unsecured, and in lieu of interest, the lender has agreed to accept warrants to purchase 10,000 shares of the Company’s Common Stock.  The warrants have an exercise price of $0.75 per share and a five year maturity.  These warrants were valued using the Black-Scholes valuation model under the assumptions disclosed in Note 6 resulting in a fair value of $7,839.  This amount has been recorded as a discount to the face value of the note and is being amortized over the life of the note and recorded as interest expense.
 The Company also entered into a financing agreement with an unrelated third party to fund up to $1,000,000 in four equal increments. The proceeds of each advance by the lender to Studio One are to be used to manufacture, ship, install and operate MyStudios serving as collateral for such advances. Each advance is evidenced by a promissory note, bearing interest at 12% per annum and due in 3 years from the advance dates, and a security agreement granting the lender a first lien on specified studios. The principal and interest on these notes may be converted at the lender’s option into Common Stock based on a conversion price of fifty cents ($0.50) per share.  As of December 31, 2010 the lender had advanced the entire $1,000,000 under this financing agreement.  Additionally, the Company granted 200,000 warrants to the lender, which have an exercise price of $0.40 to $0.50 and expire in 5 years.
 
 In conjunction with this financing, the Company entered into a put agreement with the note holder to repurchase up to 500,000 shares of its Common Stock at $0.60 per share.  The original expiration date of the put option was October 19, 2010.  The Company agreed to extend the put option until January 15, 2011.  In consideration of extending the terms of the put option, the Company issued to the holder and holder’s agent warrants to purchase 145 shares of Common Stock.  The warrants were valued using the Black-Scholes model at $134,587 using the assumptions disclosed in Note 6.  The Company recorded the value of the warrants issued as interest expense.
 9
 
 STUDIO ONE MEDIA, INC
 Notes to Consolidated Financial Statements
 December 31, 2010 and June 30, 2010
  NOTE 4 – NOTES PAYABLE (CONTINUED)
 
 In accordance with ASC 470, the Company’s management evaluated the conversion terms of these notes and has concluded that a beneficial conversion feature (“BCF”) exists. The value of the BCF was determined based on the stock price on the day of commitment, the number of convertible shares, and the difference between the effective conversion price and the fair value of the Common Stock, after allocating the proportionate amount of the debt proceeds to the fair value of the warrants. The value of the BCF of the four notes has been estimated at $820,121 and the fair value allocated to the warrants has been estimated at $151,579.
 
 The $1,016,623 combined value of the BCF and the fair value of the warrants from all notes have been recorded as a debt discount against the carrying value of the loans and to additional paid-in capital. The Company is amortizing the debt discount over the life of the notes and records the amortization as interest expense. As of December 31, 2010 the remaining debt discount is $853,029 and during the six months ended December 31, 2010 the Company recorded $121,623 in interest expense associated with the amortization of the debt discount.
 
 NOTE 5 – PREFERRED STOCK
 
 During the six months ended December 31, 2010, the Company issued 195,000 shares of Series A-1 Senior Convertible Preferred Stock (“Series A-1 Preferred Stock”) for cash totaling $195,000.  The Company’s Series A-1 Preferred Stock is convertible at the rate of 2 shares of Common Stock per share of Series A-1 Preferred beginning 180 days after issuance. The dividend rate of the Series A-1 Preferred Stock is 6% per share per annum in cash, or commencing on June 30, 2009 in shares of the Company’s Common stock (at the option of the Company).
 In accordance with ASC 470, the Company’s management evaluated the conversion terms of the Series A-1 Preferred Stock and has concluded that a beneficial conversion feature (“BCF”) exists. The value of the BCF was determined based on the Common Stock price on the day of commitment, the number of convertible shares, and the difference between the effective conversion price and the fair value of the Common Stock. The value of the BCF of the Series A-1 Preferred Stock has been estimated at $155,400.  The Company is amortizing the value of the BCF over the 180 day period prior to the Series A-1 Preferred Stock becoming convertible.  The amortized amount is recorded in Preferred Stock Accretion thereby reducing net loss available to common shareholders in the Company’s statement of operations.
 
 The Preferred Stock have a liquidation preference of $738,752 at December 31, 2010.
 NOTE 5 – COMMON STOCK
 
 During the six months ended December 31, 2010, the Company issued 92,500 Common shares for $42,694 in net cash proceeds and issued 792,397 shares of the Company’s Common Stock to employees and non-employees for services rendered to the Company valued at $716,525, based on the market price of the stock on the day of issuance.  The Company also issued 235,833 shares of common stock for warrants exercised for cash totaling $119,166 and 440,406 shares of Common Stock to extinguish accounts payable, notes payable and accrued interest totaling $328,362. The Company also issued 30,864 common shares for services valued at $35,618 based on the quoted market price on the date of issuance which have been recorded as prepaid expenses.
 
 NOTE 6 – STOCK PURCHASE OPTIONS AND WARRANTS
 
 During the six months ended December 31, 2010, the estimated value of the compensatory Common Stock purchase warrants and stock options granted to employees and non-employees in exchange for services and financing expenses was determined using the Black-Scholes pricing model and the following assumptions: expected term of 2-5 years, a risk free interest rate of 0.26%-2.09%, a dividend yield of 0% and volatility of 77%-293%%. The amount of the stock-based compensation charged to expenses for compensatory options and warrants granted in exchange for services was $124,367 and is included in General and Administrative Expenses.
 
 NOTE 7 - SUBSEQUENT EVENTS
 
 In accordance with ASC 855 Company management reviewed all material events through the date of this Report and determined that there are no material subsequent events to report.




10


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 and six months ended December 31, 2010 and 2009. 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





In addition to historical information, 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 the 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;





·
that 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.





11


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


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 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.





General





Corporate Background





We are a Delaware public company traded on the Over-The-Counter Bulletin Board (ticker symbol: SOMD).  As of December 31, 2010, there were 27,483,768 shares issued and outstanding.   Since April 2006, we have raised approximately $11.5 million in the form of equity for purposes of research, development, manufacturing, deployment and operation of MyStudio and AfterMaster.





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





We are a diversified media and technology company based in Scottsdale, Arizona.  Our subsidiaries and divisions include MyStudio, Inc., MyStudio Audio Labs, Inc., MyStudio Music and MyStudio Management.





Over the last seven years, Studio One and its wholly-owned subsidiary, MyStudio, Inc., have been engaged in the research and development of proprietary, leading-edge audio and video technologies for professional and consumer use.





Studio One introduced its first MyStudio in September 2008 with the installation of its first MyStudio HD Recording Studio. Studios have subsequently been installed in multiple locations with the expectation of additional studios being added in the near future.





The MyStudio business model and website featuring user generated content (“UGC”) are highly differentiated from leading companies in the entertainment and Internet industries. MyStudio offers a unique “bricks and clicks” business model of cash-generating studios (paid session revenues and on-studio monitor advertising) and Internet-based advertising revenues (website advertising). Currently, all major video sharing and social networking websites receive little or no revenue from the creation of the UGC hosted on their websites, forcing them to rely almost exclusively on revenue from website advertisers.





In addition, the Company expects additional future revenue to be generated from AfterMaster, as described herein, as well as music sales and talent management arising from UGC on the MyStudio.net website. Subject to the availability and timing of capital, Studio One expects to install and operate many MyStudios both nationally and internationally.





Quarterly Update





Following is a summary of corporate activities since September 30, 2010:
  MyStudio® HD Recording Studios
  We have recently evaluated alternatives to the MyStudio business model to increase our revenue opportunities.   Historically, we have charged users $20 in advance to perform their videos.   Recognizing the ongoing effect of the economy, coupled with the potential for people to be reluctant to perform in front of a camera or try a new technology, we are finalizing the elements to create a risk-free opportunity for the public to use the studio without an upfront fee.  The public is invited to use the studio for no upfront fee and then will have the opportunity to view their videos in advance of purchasing them – similar to many amusement parks that allow users to view photos in advance of purchasing them. Based on pre-marketing research performed by the Company during the second quarter of fiscal 2011, we believe we will be able to drive a significantly greater number of users to the studio and therefore increase overall revenues.


12


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS- continued
 We currently have four studios in operation: Hollywood, Phoenix, Miami and Dallas.  The Hollywood studio has been used for the past year to showcase the studio and its technologies to the entertainment and music industries.  Having successfully showcased the studio and begun discussions with various strategic parties, we have decided to find a permanent location for the studio, which will allow us to open the studio to the general public.  We expect to finalize a lease agreement on such a space in the Hollywood area, which will serve as a flagship store for MyStudio.  Based on the significant pedestrian traffic passing by this location, we believe this location will provide significant revenue and branding opportunities for the Company and further advance our efforts to “bring Hollywood to Main Street”.
 
 In addition to the aforementioned four studios, we have completed an additional studio.  Following a protracted insurance settlement process, we are also nearing completion of the restoration of the Nashville studio, which was damaged by flooding.  Upon restoration of the Nashville studio, we will have six operational studios.
 
 The Company is in discussions with several potential strategic partners related to the deployment of studios both in the U.S. and internationally.  As a result of such discussions and the expected favorable implications for the Company thereof, the Company has awaited guidance on studio placement from such strategic partners.  We expect to conclude some of these discussions and thus deploy such studios in the near future and begin our planned national marketing campaign in the near future.
  Preparing for anticipated substantial growth, we recently placed an order for 15 additional MyStudio chassis. We have since taken possession of the first of the new chassis and have begun the process to prepare it for future deployment.  We expect to receive the balance of the studios included in the initial purchase during calendar 2011. Our new manufacturing partner provides for significant cost savings for the overall studio thus providing for a shorter payback period on our capital investment.   We are also evaluating our other suppliers of studio components for cost savings opportunities.
 
 Subject to the availability of adequate capital, we expect to accelerate the rollout of its studios in the U.S. and continue focus on gaining critical mass.  Such critical mass should allow us to attract a far greater number of strategic partners who can use the studios for large quantities of contestants for auditions and contests.
  We have received significant inbound interest for MyStudio from potential partners in foreign markets.  We are in active discussions with several potential strategic partners for the rollout of MyStudio into foreign locations. These potential partners have the available capital to pursue many studios within their proposed geographies and anticipate capitalizing on the studios’ functionality for auditions, original music and karaoke.  Assuming the successful completion of such agreements, we anticipate increasing our purchase order with our current manufacturing partner for additional studio chasses.


AfterMasterTM HD Audio
  During the second quarter of fiscal 2011, the Company began generating revenues from its AfterMaster HD Audio product.  While such revenues represent a small percentage of the Company’s total revenues for the quarter, we expect such revenues to continue to grow as we work with major and independent record labels, motion picture and television houses and others that utilize the technology to enhance the audio quality for their productions.  The feedback on AfterMaster from the music industry remains very favorable.


13


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-continued
 
 AfterMaster is a revolutionary audio technology that makes music significantly louder, fuller and more exciting than traditionally mastered music. The technology is a proprietary, patents-pending combination of hardware and software which was developed over the last five years by the MyStudio 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. AfterMaster allows any mastered audio to be remastered without the need to access the master mix. The near-term focus of AfterMaster is on new music releases as well as catalogue music; subsequent efforts will focus on television and motion pictures. We believe that the technology can be the technological impetus that can revitalize the music industry by providing consumers an unprecedented leap in sound quality and added value.
  We continue to have favorable discussions with several major record labels to AfterMaster new and existing catalog music.   AfterMaster has been utilized on music by Janet Jackson, Lady Gaga, Ray J, among others And the opening segment, “Born to Run” on this year’s Primetime Emmy Awards.  We expect to announce other significant musical releases using our technology in the near future.
 
 The Advisory Board has and will continue to play a significant role in gaining broad adoption for AfterMaster within the music, motion picture and television industries.
  Corporate
  In November 2010, the Company won the prestigious Technical Achievement Award from the Hollywood Music in Media Awards (“HMMA”).  The award recognized the Company’s achievements for both MyStudio and AfterMaster. The HMMA recognizes leading edge music in visual mediums, entertainment technologies and top music of both mainstream and independent artists from around the globe.
 
 During fiscal 2010, the Company added a number of leaders in the music and entertainment industries to its Advisory Board to assist in the development, promotion and strategic direction of its core products.    The Company continues to add additional Advisory Board members with the fiscal 2011 additions of Jason Flom and Charles Weber.
  Mr. Flom has served as CEO of Atlantic Records, Virgin Records, Capitol Music Group and Lava Records.  His labels have represented music superstars Katy Perry, Jewel, Hootie & The Blowfish, Stone Temple Pilots, Matchbox 20, Kid Rock, Blue Man Group and many others.
 Mr. Weber is an accomplished entertainment executive who served as the first CEO of George Lucas’ famous Lucasfilms Ltd., the producer of the Star Wars and Indiana Jones series among others.  During Mr. Weber’s tenure, he oversaw the production of The Empire Strikes Back and Raiders of the Lost Ark. In addition to Lucasfilms he served as COO at Embassy Communications, a company owned by television super-producers Norman Lear and Jerry Perenchio, where he oversaw the production of cult classic Blade Runner.
  In January 2011, the Company announced a licensing agreement with Advisory Board member and legendary song writer Diana Warren.  The agreement provides for the ability of MyStudio to utilize her music for use by the general public using the studios. The music included in the agreement includes some of the top pop songs of our time. Ms. Warren has been named “Top Songwriter of the Year” by Billboardfour times.  Her work has been repeatedly recognized including six Academy Awards, five Golden Globe Awards (one win) and four Grammy Awards (one win).


14


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




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 exclusively licensed karaoke tracks from EMI Music Publishing 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. 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.





As of December 31, 2010, MyStudio locations included Hollywood, Miami, Dallas and Phoenix. We have completed an additional studio and are finalizing the restoration of the original Nashville studio. We have placed an order for 15 studio chassis with an Arizona-based manufacturing company.  We have since taken possession of the first studio from this new manufacturer and are in the process of preparing this studio for future installation.





MyStudio Business Strategy





The Company plans to introduce its MyStudios into key markets throughout the U.S. followed by a rollout into international markets.  The ease and quality of the studios have created significant repeat users and increasing traffic to the Company’s MyStudio.net website.


15


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


Provide High Quality Interactive Recording Studios to the Public.   The Company believes 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.





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.





The Company announced a strategic partnership with RealityWanted.com.  RealityWanted.com is the leading source for reality TV casting calls in the U.S.  The partnership provides opportunities 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 creates 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. A similar partnership was formed with Back Stage Casting, a leading source for casting opportunities for live productions.





We partnered with entertainment moguls Simon Fuller, Perez Hilton and Jamie King in the 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 the hit show American Idol.  Mr. Hilton is a famous celebrity gossip columnist with a very extensive following.  Mr. King is a world renowned choreographer.





We partnered with Boy Band to provide for convenient and easy auditions.  The principals behind the contest understand how MyStudio can be successfully utilized for auditions without spending hundreds of thousands of dollars and months on the road auditioning large numbers of potential entertainers.


Build an Online Community Featuring User-Generated Content.    MyStudio.net captures the social networking phenomena of MySpace, Facebook and 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.  The Company expects to develop future partnerships for content and users with recruiting, dating and greeting card companies among others.





MyStudio Business Model





The Company’s “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 Company’s MyStudio.net website. The Company plans to drive 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 in turn will 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 the Company’s video sharing offering.


16


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





MyStudio Recording Session Revenue. Each studio is designed to record videos during a mall’s operating hours, which can average 11 hours per day.  The Company 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.





The Company has 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 EMI Music Publishing and others for karaoke usage and expects to have additional 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.





MyStudio 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.  The Company has successfully sold advertising on its studios, and the Company believes that it will secure national advertising sponsors when it has multiple studios in operation.





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 Company’s 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, the Company is 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 assumption 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. Upon the successful installation of our sixth studio, we expect to significantly increase our national marketing efforts to drive sponsorship and advertising revenues. With six studios 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.


17


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





Despite the lack of a major marketing campaign to date, we have successfully partnered with some of the top names in the entertainment business.





In December 2008, we finalized multi-year partnerships with Mark Burnett Productions for reality television casting and The GRAMMY Foundation to host auditions for various GRAMMY Foundation programs.  Our MyStudio recording studios and our accompanying website,MyStudio.net, have and are being 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.





Our agreement with Mark Burnett Productions (“MBP”) provides for the use of MyStudio to augment the casting of MBP television shows, such as Are You Smarter Than a Fifth Grader.  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.  We believe the agreement is a significant development in encouraging trial and utilization of MyStudio and creating national exposure for our brand.





In November 2009, we announced our strategic partnership with RealityWanted.com, the leading source for reality TV casting calls in the U.S.  The partnership provides opportunities 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.





In January 2010, we partnered with entertainment moguls Simon Fuller, Perez Hilton and Jamie King for the auditions for their new Boy Band project, 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 the hit show American Idol.  Mr. Hilton is a famous celebrity gossip columnist with a very extensive following.  Mr. King is a world renowned choreographer.  We partnered with Boy Band to provide for convenient and easy auditions for their search.  In addition, MyStudio was responsible for developing the website for the contest: www.boybandsearch.com.





In February 2010, we announced our partnership with Back Stage Casting.  Back Stage is 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 can now 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.  The Back Stage partnership complements our existing partnerships with Mark Burnett Productions and RealityWanted.com.





In August 2010, we again associated ourselves with Mr. Fuller through 19 Entertainment’s and MySpace’s auditions for If I Can Dream, a new post-reality television concept offered through Hulu.com.  MyStudio was used by a number of aspiring artists to perform their audition demos in hopes of being selected to join this show.





A number of other high-profile organizations have hosted contests using MyStudio.  We expect to continue to enter into partnerships with other high profile entertainment companies to ensure steady studio traffic.





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. We believe this licensing agreement is unique in the user-generated content industry.


18


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS- continued
  The Company has recently signed an agreement for additional musical content to supplement its existing karaoke offerings and is in discussions with additional parties to further offer the MyStudio users a broad selection of contemporary and popular karaoke songs from which to choose.





We are in discussions with several reality television companies about using the studios for casting.  These companies recognize the casting efficiencies from using MyStudio in terms of screening a greater number of candidates on an expedited basis to provide producers with the best on-screen personalities possible.





We continue to aggressively solicit additional reality TV, music, modeling and comedy audition opportunities and expect to make additional partnership announcements in the future.





AfterMaster HD Audio





We have recently introduced a new audio mastering technology branded AfterMaster. The AfterMaster technology is held by MyStudio 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 crisper than traditionally mastered music. The AfterMaster process achieves its sound without adding compression distortion or exceeding recording industry limits of digital zero. The technology is a proprietary, patents-pending combination of hardware and software which was developed over the last five years by the MyStudio 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, recent Advisory Board addition Charles Weber, the first CEO of Lucasfilms, will be instrumental in the marketing and adoption of AfterMaster for motion pictures and television.





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





Manufacturing





In July 2010, we announced that we had contracted for the manufacture of 15 of its proprietary studio chassis.  We have since taken possession of the first chassis and expect the balance of this order over the coming months. This agreement allows the Company to realize substantial cost savings on the studio relative to the prior manufacturer.  We intend to finance the additional studios through a combination of existing capital resources, raising additional capital and utilization of one existing credit facility.
 
 We are evaluating our other vendors of studio components to lower the production cost of the studios.


19


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


Intellectual Property and Licensing





We have embarked on an aggressive intellectual property program including the filing of numerous foreign and domestic patent applications and trademark applications with the U.S. Patent and Trademark Office all designed to protect what we believe is innovative and proprietary technology. We also enter into confidentiality and invention assignment agreements with our employees and consultants and confidentiality agreements with third parties, and we rigorously control access to proprietary technology.





With respect to licensed content, we will be responsible for paying for all underlying music-related licensing rights including publishing, synchronization and internet performance rights, for karaoke music used in MyStudio videos.





Employees





As of December 31, 2010, we employed twenty full-time employees and twelve part-time employees at the MyStudio recording studio.  We expect to hire additional employees in the next year to handle anticipated 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 space on a month-to-month basis in West Hollywood, California, which serves as both office space and a showroom for MyStudio.  We also lease an office in Los Angeles for use by our audio team in connection with our AfterMaster product.  This is a one-year lease expiring on August 31, 2011.  The total lease expense for both facilities is approximately $10,000 per month, and the total remaining obligations under these leases at December 31, 2010 is approximately $27,500.





We lease space at mall locations for MyStudio 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 its recording studios at various venues and locations throughout the country.





RESULTS OF OPERATIONS





Revenues


Three Months Ended

Six Months EndedDecember 31,

December 31,

December 31,

December 31,2010

2009

2010

2009Session Revenues

$
113,340


$
26,385


$
206,510


$
45,085Advertising Revenues


1,500



10,643



9,000



21,286AfterMaster Revenue


16,600



-



18,800



-Total Revenues

$
131,440


$
37,028


$
234,310


$
66,371





Total revenues for the three months ended December 31, 2010 increased to $131,440 from $37,028 or 255% over the comparable three month period in the prior year.   Total revenues for the six months ended December 31, 2010 increased to $234,310 from $66371 or 253% over the comparable six month period in the prior year.





20


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


Of the $114,840 of studio session and advertising income for the three months ended December 31, 2010, $102,800 was barter and the remaining $12,040 was in cash.  For the comparable three months ended December 31, 2009, of the $37,028 in studio session and advertising income, $12,385 was cash and $24,643 was in barter.


Of the $215,510 of studio session and advertising income for the six months ended December 31, 2010, $38,460 was cash and the remaining $177,050 was in barter.  For the comparable six months ended December 31, 2009, of the $66,371 in studio session and advertising income, $20,085 was cash and $46,286 was in barter.





While the Hollywood studio opened in August 2009, it is used to showcase MyStudio to the music and entertainment industry in Los Angeles. The Company expects to begin generating revenues from this studio at a future date.





The Company’s 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 its website; and

Revenues generated from the sale of AfterMastered audio products.





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.  AfterMaster has only recently been introduced for commercial purposes and is expected to generate more substantial revenues in the future.





Cost of Revenues


Three Months Ended


Six Months EndedDecember 31,


December 31,


December 31,


December 31,2010


2009


2010


2009Cost of Revenues

$
118,061


$
39,973


$
239,806


$
81,228





Cost of revenues consists primarily of studio rent, attendant labor and Internet connectivity and excludes depreciation and amortization on the studios. The increase in cost of revenues for the three and six month periods ended December 31, 2010 over the comparable periods for the prior fiscal year, is attributable, primarily, to the opening of additional  studios.




Other Costs and ExpensesThree Months Ended


Six Months EndedDecember 31,


December 31,


December 31,


December 31,2010


2009


2010


2009Advertising Expenses

$
95,432


$
16,470


$
234,181


$
108,377Cost of Barter Exchanges


102,800



24,643



177,050



46,236Depreciation and Amortization Expenses


83,246



45,987



157,624



84,409Professional Fees


753,213



623,708



1,567,156



1,590,350General and Administrative Expenses


128,266



472,336



490,301



832,057Other Costs and Expenses

$
1,162,957


$
1,183,144


$
2,626,312


$
2,661,479




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


21


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


Total other costs and expenses decreased in the three month period ended December 31, 2010 by $20,187 compared to the same three months of the prior year.  Total other costs for the six month period decreased by $35,167 compared to the same six month period of the prior year.  The decrease in each period is due to a decrease in general and administrative expenses.  This decrease was offset by an increase in professional fees, cost of barter exchanges, advertising expense and depreciation and amortization. The increase in professional fees is primarily attributable to non-cash expenses from shares issued to various employees and consultants for services rendered and for options warrants to employees and consultants for services during the period.  The increase in depreciation and advertising costs is due to new studios place in service during the year while the increase in cost of barter exchange is due to increased barter sales.




Due to the Company’s cash position, we use our 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 stock as a primary means of compensation. We elected to use the Black-Scholes option-pricing model to determine the fair value of stock option based awards under FASB ASC 718 consistent with that used for disclosures under FASB ASC 718, “Accounting for Stock-Based Compensation”.





Net Income/(Loss)


Three Months Ended


Six Months EndedDecember 31,


December 31,


December 31,


December 31,2010


2009


2010


2009Net Income/(Loss)

$
(1,595,793)


$
(1,197,539)


$
(3,016,761)


$
(2,703,497)




The increase in the net loss for the three and six months ended December 31, 2010 as compared to the comparable periods in the prior fiscal year was primarily due to the above mentioned increase in professional fees, cost of barter sales, advertising and depreciation and amortization.





LIQUIDITY AND CAPITAL RESOURCES





The Company had revenues of $234,310 during the six months ended December 31, 2010 as compared to $66,371 for the comparable period in the prior year.  The Company has incurred losses since inception of $23,585,801.  At December 31, 2010, the Company has a working capital deficit of $1,097,556 compared to working capital surplus of $80,770, a decrease of $1,178,326 from June 30, 2010.  The decrease in the working capital was primarily due to the Company using the cash raised through debt and equity financing to build and place in service additional studios.
 
 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 operates.





In addition, the Company will require substantial additional funds to continue production and installation of additional MyStudios 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 current number of studios in operation 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.


22


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


As of December 31, 2010, 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 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. Any financing may result in an immediate and substantial dilution to our existing stockholders.





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





ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS





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 controls over financial reporting for the Company used the “Internal Control over Financial Reporting Integrated Framework” issued by Committee of Sponsoring Organizations (“COSO”) to conduct an extensive review of the Company’s “disclosure controls and procedures” (as defined in the Exchange Act, Rules 13a-15(e) and 15-d-15(e)) as of the end of each of the periods covered by this Report (the “Evaluation Date”).  Based upon that evaluation, the Certifying Officers concluded that, as of December 31, 2010 and 2009, 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 mitigate these weaknesses, the Company has contracted with consultants with expertise in U.S. GAAP and SEC financial reporting standards to review and compile all financial information prior to filing that information with the SEC.  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.





23


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


(b)
Changes in internal control over financial reporting





This deficiency is 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 separation 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.  This control deficiency will be monitored and attention will be given to the matter as the Company begins operations as an active business entity. Management has concluded that this control deficiency constituted material weaknesses that continued throughout December 31, 2010 and beyond.  In order to mitigate this risk, the Company has contracted with consultants with expertise in U.S. GAAP and SEC financial reporting standards to review and compile all financial information prior to filing that information with the SEC.  There were no significant changes in our internal control over financial reporting or in other factors that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.





This Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this Report.





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 December 31, 2010, 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 technology, 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.





24


ITEM 1A - RISK FACTORS - continued


We opened our first studio in September 2008 and intend to place our studios in malls across America, as well as expand into other high traffic locations, theme parks, airport terminals and theaters.  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.





We have a history of losses and will likely realize future losses.  MyStudio has limited operations and is currently generating modest revenues.





We are dependent upon our management, certain shareholders and investors for fundraising.  We expect additional operating losses will occur until revenue is sufficient to offset the level of costs to be incurred 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.  This makes it difficult to evaluate our future prospects and may increase the risk that we will not continue or be successful.  We will encounter risks and difficulties as a company operating in a new and rapidly evolving market.  We may not be able to successfully address these risks and difficulties, which could materially harm our business and operating results.





Limited Capital and Need for Additional Financing.





The funds currently available to us are inadequate to fully implement our business plan.  Until we have achieved a sales level sufficient to break-even, we will not be self-sustaining or be competitive in the areas in which we 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 and studio manufacturing, 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 studio rollout, marketing and sales plans, 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.


25


ITEM 1A - RISK FACTORS- continued


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 its 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. While the technology surrounding MyStudio is 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 a significant barrier to market entry to potential competitors.  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.





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 ourself 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.





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.


26


ITEM 1A - RISK FACTORS- continued


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 its products.  If we are unsuccessful in protecting proprietary and intellectual property rights to MyStudio 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 economic downturns locally and in the markets in which we propose to operate, as well as broader economic downturns affecting a region, or the 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 plan.





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 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 can have an adverse effect on the demand for some 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 the Company’s operations will negatively impact our ability to perform for a period of time.





Dependency on Foreign Components for our Products.





We expect to source components for our products from both inside and outside 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 international manufacturing and sales that could cause loss of revenue. 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.





27


ITEM 1A - RISK FACTORS- continued


Exposure to Product Liability Lawsuits.





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





Dependency on Key Suppliers and Product Availability.





Loss of key suppliers, lack of product availability or loss of delivery sources could delay product development, manufacturing and decrease sales and earnings.  Our ability to manufacture 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 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 market price.


28


ITEM 1A - RISK FACTORS- continued





Rapid Technological Change.





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





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





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





●
Ability to broadly commercialize and expand 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, 2010 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.


29


ITEM 1A - RISK FACTORS- continued





Dilution; Dilutive Effect of Future Transactions.





As of December 31, 2010, we had 27,483,768 shares of Common Stock, $0.001 par value, issued and outstanding.  We have granted options to purchase 521,000 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 1,034,000 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 744,044 shares of various classes of Convertible Preferred Stock outstanding, which can be converted to 454,814 shares of Common Stock.  In addition, we had warrants outstanding that would permit, if exercised, the issuance of 3,915,750 additional shares of Common Stock at an average exercise price of $0.89.  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 equity transactions, including exercise of options or warrants, could result in dilution.  From time to time, we sell restricted stock, warrants, and convertible debt to investors in other private placements.  Because the 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 the warrants 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 in-the-money 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.





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 such revenues will occur. We expect our expenses to increase significantly as we develop the infrastructure necessary to implement our business strategy.  Our expenses will continue to increase as we: hire additional employees; 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 their 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.


30


ITEM 1A - RISK FACTORS- continued




Business Plans and Operational Structure May Change.





We will continually analyze our business plans and internal operations in light of market developments.  As a result of this ongoing analysis, we may decide to make substantial changes in our business plan and organization.  In the future, as we continue our internal analysis 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 plan 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 found, 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 its officers and directors.  Investors will only have rights associated with minority ownership interest rights to make decisions that affect the Company.  Our success, to a large extent, will depend on the quality of our directors, officers and senior management.





Inability to Attract and Retain Qualified Personnel.





Our future success depends in significant part on its ability to attract and retain key management, technical and marketing personnel.  Competition for highly qualified professional, technical, business development, and management and marketing personnel is intense.  We may experience difficulty in attracting new personnel, may not be able to hire the necessary personnel to implement our business strategy, or we may need to pay higher compensation for employees than we currently expect.  A shortage in the availability of required personnel could limit our ability to grow.  We cannot assure you that we will succeed in attracting and retaining the personnel we need to grow.





Inability to Manage Rapid Growth.





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





●
Rapidly improve, upgrade and expand our business infrastructure;●
Deliver our product and services on a timely basis;●
Maintain levels of service expected by clients and customers;●
Maintain appropriate levels of staffing;●
Maintain adequate levels of liquidity; and●
Expand and upgrade its 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 its growth.





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ITEM 1A - RISK FACTORS-continued
  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 options and/or warrants.  We have adopted a stock incentive plan for the benefit of our directors, officers, employees and consultants.  The total unearned stock-based compensation will be amortized as a stock-based compensation expense in our consolidated financial statements over the vesting period of the applicable options or shares, generally two to ten years in the case of options granted to employees, officers and directors and two years in the case of options granted to non-employee directors, consultants and 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.





Dividend Policy.





There can be no assurance that our proposed operations will result in 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, 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





(a)
During the six months ended December 31, 2010, the Company issued 70,000 shares of Common Stock for $45,500 in cash.  The Company also issued 30,000 shares of Common Stock for warrants exercised for cash for a total of $15,000 and 204,165 shares of Common Stock to extinguish notes payable and accrued interest totaling $189,086.  We believe that the sale of the unregistered restricted Common Stock (the “Units”) noted above was exempt from registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Sections 4(2), and/or Regulation D, Rule 506. The Units were sold directly by us to accredited investors and did not involve a public offering or general solicitation. The purchasers of the Units were afforded an opportunity for effective access to files and records of our Company that contained the relevant information needed to make their investment decision, including our financial statements and 34 Act reports. We reasonably believed that the purchasers, immediately prior to purchasing the shares, had such knowledge and experience in our financial and business matters that they were capable of evaluating the merits and risks of their investment. The purchasers had the opportunity to speak with our management on several occasions prior to their investment decision.  All proceeds from the sale of these securities were used to continue the Company’s capital expenditures related to MyStudio, as well as for working capital and general corporate purposes.





32







(b)
During the six months ended December 31, 2010, the Company agreed to issue 255,000 shares of Common Stock pursuant to warrants granted in connection with financial transactions and services provided by third-party consultants at an average exercise price of $0.69 per share.  Generally, the warrants may be exercised at any time within a two to five-year period beginning on the date of the respective grant dates.  The estimated value of the common stock purchase warrants granted to such individuals was determined using the Black-Scholes pricing model.(c)
In addition to options and warrants, the Company recognized $716,525 of share-based compensation expense for 962,957 shares of Common Stock issued to employees and non-employees for services, which is included in General and Administrative Expenses. The value of the share-based compensation was based on the market price of the stock on the day of issuance.





(d)
In June 2009, the Company adopted the 2009 Long-Term Incentive Plan intended to aid the Company in attracting and retaining key employees and consultants, to stimulate the efforts of such individuals and to strengthen their desire to remain with the Company.   During the six months ended December 31, 2010, the Company granted options for an additional 55,000 shares of Common Stock pursuant to this Plan at an average exercise price of $0.81 per share.  As of December 31, 2010, the Company had granted options under this Plan to sixteen eligible participants to purchase, in the aggregate, 521,000 shares of the Company’s Common Stock.  The exercise period for each of the grants ranges from two to three years from the date of grant and the average exercise price in each instance is $0.60.  The estimated value of the compensatory common stock options granted to qualified individuals under the Plan was determined using the Black-Scholes pricing model.





ITEM 3.  DEFAULTS UPON SENIOR SECURITIES





None.








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





During the six months ended December 31, 2010, no matters were submitted to the shareholders for a vote.





ITEM 5.  OTHER INFORMATION





Change of Independent Accountants





On August 13, 2010, we terminated Mantyla McReynolds, LLC as our independent registered public accounting firm.   On August 17, 2010, we engaged SingerLewak LLP as our independent auditor.  Our financial statements as of and for the fiscal year ended June 30, 2010 have been audited to the extent indicated in the report of SingerLewak dated October 7, 2010 and have been prepared in accordance with generally accepted accounting principles and pursuant to Regulation S-X as promulgated by the SEC.  During the period prior to the engagement of SingerLewak, neither the Registrant nor anyone on its behalf consulted SingerLewak regarding the application of accounting principles to a specific completed or contemplated transaction, the type of audit opinion that might be rendered on our financial statements, or any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event as described in Item 304(a)(1)(v) of Regulation S-K.  Further, SingerLewak has not provided written or oral advice to us that was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issues.





Subsequent Events:





None.





33


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





SIGNATURES





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








STUDIO ONE MEDIA, INC.Date: February 14, 2011
By:
/s/ Preston J. SheaPreston J. SheaTitle:  President and Chief Executive Officer








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








STUDIO ONE MEDIA, INC.Date: February 14, 2011
By:
/s/ Preston J. SheaPreston J. SheaTitle: Director, President, Chief Executive, Secretary





STUDIO ONE MEDIA, INC.Date: February 14, 2011
By:
/s/ Kenneth R. PinckardKenneth R. PinckardTitle: Director, Vice President, Chief Financial Officer, Chief Accounting Officer





34