U.S. SECURITIES AND EXCHANGE COMMISSION





WASHINGTON, D.C. 20549





FORM 10-Q /A





(Mark One)





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





For the quarterly period ended March 31, 2011





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





For the transition period from _______ to __________








Commission file number 001-10196








STUDIO ONE MEDIA, INC.





(Exact name of Registrant as specified in its charter)





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





7650 E. Evans Rd., Suite C


Scottsdale, Arizona  85260





(Address of principal executive offices) (Zip Code)





(480) 556-9303





(Registrant’s telephone number, including area code)








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





x Yes     o No





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





o  Yes     o  No   (Not required)





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





Large accelerated filer
o
Accelerated filer
oNon-accelerated filer
o
Smaller reporting company
x





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





oYes     x No





At May 15, 2011, the number of shares outstanding of Common Stock, $0.001 par value, was 29,086,863 shares.








1






EXPLANATORY NOTE
 
 This Amendment on Form 10-Q/A amends the Quarterly Report on Form 10-Q for the period ended March 31, 2011 (the “Original Report”) and is being filed by Studio One Media, Inc. (the “Company”) to correct certain errors that occurred in the filing of the Original Report.
  On November 3, 2011, management became aware of numerous accounting errors that were made in the previously filed SEC Form 10-Q for the period ended March, 31, 2011.  The error relates to the accounting of various note payable agreements that were renegotiated during the period as well as valuations of various stock awards issued to employees and non-employees.  The Company originally recorded the amended agreements as debt modifications.  Subsequently management determined that the amendments should have been recorded as debt extinguishments pursuant to ASC 470.
 
 During the audit of its fiscal year ended June 30, 2011, the Company also determined that it incorrectly recorded $368,392 in accounts payable relating to the purchase of a new studio that was not delivered by March 31, 2011.  Even though an agreement was finalized, because the Company did not take possession of the studio, the amount was not deemed due and payable and the asset should not have been recorded.
  The Company evaluated these errors individually and in the aggregate and determined that a restatement of the Form 10-Q for the aforementioned quarterly period is necessary and required.  See Note 9 – Restatement of Financial Statements for a detailed breakdown of the error made and its effect on the previously filed financials statements.
  Unless expressly noted otherwise, the disclosures in this Form 10-Q/A continue to speak as of the date of the Original Report, and do not reflect events occurring after the filing of the Original Report.  For additional information on subsequent events, the reader should refer to the Forms 10-Q, 10-K and Forms 8-K the Company has filed in 2011.  The filing of this Form 10-Q/A shall not be deemed an admission that the Original Report, when made, included any untrue statement of a material fact or omitted to state a material fact necessary to make a statement not misleading.







































2














STUDIO ONE MEDIA, INC.INDEXPART I - FINANCIAL INFORMATIONPAGE NUMBERItem 1.
Financial Statements
4Consolidated Balance Sheets – March 31, 2011 (unaudited) and June 30, 2010
4Consolidated Statements of Operations - For the three and nine months ended March 31, 2011 and 2010 (unaudited)
5Consolidated Statements of Stockholders’ Equity- For the year ended June 30, 2010 and the nine months ended March 31, 2011 (unaudited)
6 - 7Consolidated Statements of Cash Flows - For the nine months ended March 31, 2011 and 2010(unaudited)
8Notes to Consolidated Financial Statements (unaudited)
9Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
18Item 3.
Quantitative and Qualitative Disclosure About Market Risks
28Item 4T.
Controls and Procedures
28PART II - OTHER INFORMATIONItem 1.
Legal Proceedings
29Item 1A.
Risk Factors
29Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
35Item 3.
Defaults Upon Senior Securities
36Item 4.
Submission of Matters to a Vote of Security Holders
36Item 5.
Other Information
36Item 6.
Exhibits
36SIGNATURES
37




















3





PART I - FINANCIAL INFORMATION





STUDIO ONE MEDIA, INC.Consolidated Balance SheetsMarch 31,


June 30,2011


2010(Unaudited)ASSETSCurrent AssetsCash

$
110,301


$
632,980Prepaid Expenses


220,547



329,406Other Receivable


11,380



16,968Notes Receivable


125,000



127,500Total Current Assets


467,228



1,106,854Property and Equipment, net


813,691



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


936,363



605,644Intangible Assets, net


265,249



310,673Other AssetsDeposits


100,888



102,863Prepaid Expenses


-



49,188Debt Issuance Costs


56,477



23,692Total Other Assets


157,365



175,743Total Assets

$
2,639,896


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

$
1,026,429


$
815,686Notes Payable - Related Party


-



90,000Notes Payable


257,632



120,398Total Current Liabilities


1,284,061



1,026,084Long-Term LiabilitiesNotes Payable, net of discount of $749,238 and $458,029, respectively


214,075



41,971Total Liabilities


1,498,136



1,068,055Stockholders' EquityConvertible Preferred Stock, authorized 10,000,000 shares,par value $0.001; issued and outstanding are 1,611,044and 549,044, respectively


1,611



549Common Stock, authorized 100,000,000 shares,par value $0.001; issued and outstanding are 28,467,158and 25,891,768 shares, respectively


28,467



25,892Additional Paid In Capital


27,210,256



22,346,842Accumulated Deficit


(26,098,574
)


(20,569,040
)Total Stockholders' Equity


1,141,760



1,804,243Total Liabilities and Stockholders' Equity

$
2,639,896


$
2,872,298The accompanying notes are an integral part of these consolidated financial statements.





4


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


For the Nine Months EndedMarch 31,


March 31,2011


2010


2011


2010REVENUESSession Revenues

$
113,230


$
54,320


$
319,740


$
99,405Advertising Revenues


-



11,393



9,000



32,679AfterMaster Revenues


21,900



-



40,700



-Total Revenues


135,130



65,713



369,440



132,084COSTS AND EXPENSESCost of Revenues (Exclusive of Depreciation and Amortization)


118,854



50,269



358,660



131,497Cost of Barter Exchanges


105,000



54,643



282,050



100,929Depreciation and Amortization Expense


79,607



55,722



237,231



140,131General and Administrative Expenses


1,212,989



1,407,669



3,574,462



3,933,027Total Costs and Expenses


1,516,450



1,568,303



4,452,403



4,305,584Loss from Operations


(1,381,320
)


(1,502,590
)


(4,082,963
)


(4,173,500
)Other Income (Expense)Interest Expense


(397,551
)


(38,026
)


(661,625
)


(53,574
)Other Income


2,330



-



2,330



8,062Gain on Disposal of Property


-



-



73,502



-Loss on Extinguishment of Debt


(217,502
)


97,587



(860,778
)


97,587Total Other Income (Expense)


(612,723
)


59,561



(1,446,571
)


52,075Loss Before Income Taxes


(1,994,043
)


(1,443,029
)


(5,529,534
)


(4,121,425
)Income Tax Expense


-



-



-



-NET LOSS

$
(1,994,043
)

$
(1,443,029
)

$
(5,529,534
)

$
(4,121,425
)Preferred Stock Accretion and Dividends


(51,484
)


-



(105,868
)


-NET LOSS AVAILABLE TO COMMON SHAREHOLDERS

$
(2,045,527
)

$
(1,443,029
)

$
(5,635,402
)

$
(4,121,425
)Basic and Diluted Loss Per Share of Common Stock

$
(0.07
)

$
(0.06
)

$
(0.20
)

$
(0.22
)Weighted Average Number of Shares Outstanding

$
28,009,059



22,248,687



27,743,527



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








5


STUDIO ONE MEDIA, INC.Consolidated Statements of Stockholders' Equity (Deficit)CommonStock Issued in AdvanceTotal Stockholders'Preferred Stock


Common Stock


Additional

Paid In


Common Shares




AccumulatedShares


Amount


Shares


Amount


Capital


to be Issued


for Services


Deficit


EquityBalance, 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 conversionof debt and extinguishment 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
)
    6
  Consolidated Statements of Stockholders' Equity (Deficit) - continued
  Balance, June 30, 2010


549,044



549



25,891,768



25,892



22,346,842



-



-



(20,569,040
)


1,804,243Preferred shares issued for cash (unaudited)


1,062,000



1,062



-



-



1,060,938



-



-



-



1,062,000Common shares issued for cash (unaudited)


-



-



201,261



201



25,516



-



-



-



25,717Warrants and options exercised for cash (unaudited)


-



-



300,833



301



129,265



-



-



-



129,566Common shares issued in conversionof debt and extinguishment of liabilities (unaudited)


-



-



906,390



907



617,957



-



-



-



618,864Share-based compensation - common shares (unaudited)


-



-



1,102,709



1,102



1,068,297



-



-



-



1,046,020Share-based compensation - warrants (unaudited)


-



-



-



-



313,749



-



-



-



169,749Warrants and common shares issued in advance of services (unaudited)


-



-



64,197



64



572,591



-



-



-



572,655Beneficial conversion feature on issuanceof convertible debt (unaudited)


-



-



-



-



1,006,372



-



-



-



595,870Warrants issued in connection to issuanceof convertible debt (unaudited)


-



-



-



-



68,729



-



-



-



68,729Net loss for the Nine months endedMarch 31, 2011 (unaudited)


-



-



-



-



-



-



-



(5,529,534
)


(5,529,534
)Balance, March 31, 2011 (unaudited)


1,611,044


$
1,611



28,467,158


$
28,467


$
27,210,256


$
-


$
-


$
(26,098,574
)

$
563,879The accompanying notes are an integral part of these condolidated financial statements.














7


STUDIO ONE MEDIA, INC.Consolidated Statements of Cash Flows(Unaudited)For the Nine Months EndedMarch 31,2011


2010OPERATING ACTIVITIESNet Loss

$
(5,529,534
)

$
(4,121,425
)Adjustments to reconcile to cash from operating activities:Depreciation and amortization


237,231



140,131Share-based compensation - common stock


1,069,399



2,139,000Share-based compensation - warrants


313,749Amortization of debt discount and issuance costs


266,159



8,212(Gain)/Loss on extinguishment of debt


860,778



(97,587
)Gain on conversion of preferred shares


-



(36,475
)Gain on disposal of property


(73,502
)


-Bad debt expense


-



134,885Changes in Operating Assets and Liabilities:Accrued interest receivable


-



(8,061
)Other receivables


8,088



-Prepaid expenses


657,173



(3,228
)Deposits


1,975



(10,454
)Accounts payable and accrued expenses


275,263



(410,842
)Net Cash Used in Operating Activities


(1,913,221
)


(2,265,844
)INVESTING ACTIVITIESPurchase of property and equipment


(679,801
)


(180,096
)Proceeds from disposal of property


90,470



(2,500
)Net Cash Used in Investing Activities


(589,331
)


(182,596
)FINANCING ACTIVITIESPreferred stock issued for cash


1,062,000



67,500Common stock issued for cash


97,624



1,781,625Warrants and options exercised for cash


129,566



163,042Stock offering costs


(71,907
)


-Proceeds from notes payable - related party


10,000



-Repayments of notes payable - related party


(100,000
)


-Repayment of notes payable


(90,000
)


-Proceeds from notes payable


942,590



325,000Net Cash Provided by Financing Activities


1,979,873



2,337,167NET DECREASE IN CASH


(522,679
)


(111,273
)CASH AT BEGINNING OF PERIOD


632,980



439,474CASH AT END OF PERIOD

$
110,301


$
328,201SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:CASH PAID FOR:Interest

$
5,813


$
26,960Income Taxes


-



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

$
618,864


$
739,846Stock and warrants issued for prepaid services


572,655



-Warrants and beneficial conversion feature on issuance of convertible debt


664,599



(250,000
)Common stock issued for intangible assets


-



250,000The accompanying notes are an integral part of these condolidated financial statements.




8
 
 Studio One Media, Inc.
 Notes to Consolidated Financial Statements
 March 31, 2011 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 March 31, 2011, and for all periods presented herein, have been made.




Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's June 30, 2010 audited financial statements.  The results of operations for the periods ended March 31, 2011 and 2010 are not necessarily indicative of the operating results for the full years.




NOTE 2 – GOING CONCERN




The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred losses since inception of $26,098,574 and currently has revenues which are insufficient to cover its operating costs which raises substantial doubt about its ability to continue as a going concern. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern.




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




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 March 31, 2010 financial statements have been reclassified to conform to the presentation in the March 31, 2011 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.




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.






9
 Studio One Media, Inc.
 Notes to Consolidated Financial Statements
 March 31, 2011 and June 30, 2010




NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
  The fair value of the Company’s notes payable at March 31, 2011 is approximately $1,272,988 (carrying value of $471,707).  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 nine months ended March 31, 2011 and 2010 due to net operating losses for which there is no benefit currently available.




At March 31, 2011, the Company had deferred tax assets associated with state and federal net operating losses. The Company has recorded a corresponding full valuation allowance as it is more likely than not that some portion of all of the deferred tax assets will not be realized.




NOTE 4 – NOTES PAYABLE




During fiscal year ended June 30, 2010, the Company entered into a financing agreement with an unrelated third party to fund up to $1,000,000 in four equal increment tranches in exchange for the Company issuing convertible note at each tranche with a conversion rate of $0.50 as well as 50,000 shares of warrant with a contractual life of 5 years to purchase Company’s common stock at $0.50 per share. The proceeds of each advance by the lender to the Company are to be used to manufacture, ship, install and operate MyStudios, which serve as collateral for such advance. 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. As noted above, 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.  At March 31, 2011, the lender had advanced a total of $1,000,000 under this financing agreement, and the Company granted 200,000 warrants to the lender.  The intrinsic value of the beneficial conversion feature and the debt discount associated with the warrants issued in connection with the convertible debts were recorded based on the relative fair value of the warrants in relation to the debt in accordance with ASC 470-20-25-2.  The total initial beneficial conversion feature recorded for all four tranches equaled $827,271 whereas the warrants, which were valued using a Black-Schole valuation model, resulted in a initial total debt discount of $140,429.  The initial recorded beneficial conversion feature and debt discounts for Tranche III included in the above amounts were subsequently adjusted to reflect the modification of the terms embedded in the host debt.




On August 19, 2010, the Company issued a convertible note for $250,000 under the above $1,000,000 financing agreement (Tranche III).  The note contained conversion rate feature and issued a warrant to purchase 50,000 share of the Company’s common stock at $.50 per share exercisable for 5 years pursuant to the umbrella financing agreement discussed above.  The Company recorded a beneficial conversion feature of $186,350 and a debt discount for $31,350 for this financing transaction.  Moreover, in connection with the Tranche III funding, the Company also issued to the lender an option, embedded in the convertible note and at the lender’s discretion, to put the converted common stock back to the Company at $0.60 per share.  The embedded put option was evaluated and deemed to not meet the definition of a derivative and as such, was not bifurcated and accounted for as a derivative.  Subsequent to the origination of the Tranche III, the Company then provided to the lender four separate amendments in which at each amendment, the maturity date of the put option was extended.




For the first amendment, the Company extended the maturity date of the put option with no consideration given to the lender.  For amendments two through four, the Company issued to the lender and its agent warrant to purchase common stocks of the Company.




For amendment two which occurred on November 15, 2010, the Company issued to the lender and its agent warrant with a contract life of 5 year to purchase 25,000 and 10,000 shares, respectively, of the Company’s common stock at $0.40 per share.  The fair value of these warrants issued were $18,558 and $7,423, respectively, calculated using the black-schole valuation model.






10
 Studio One Media, Inc.
 Notes to Consolidated Financial Statements
 March 31, 2011 and June 30, 2010




NOTE 4 – NOTES PAYABLE - continued
  For the third amendment which occurred on November 22, 2010, the Company, the Company issued to the lender and its agent another warrant with a contract life of 5 year to purchase 25,000 and 10,000 shares, respectively, of the Company’s common stock at $0.40 per share.  The fair value of these warrants issued were $21,182 and $8,473, respectively, calculated using the black-schole valuation model.




For the fourth amendment which occurred on December 7, 2010, the Company issued to the lender and its agent warrant with a contract life of 5 year to purchase 50,000 and 25,000 shares, respectively, of the Company’s common stock at $0.40 per share.  The fair value of these warrants issued were $43,843 and $21,922, respectively, calculated using the black-schole valuation model.




The Company evaluated each of the amendments under ASC 470-50, Debt - Modification and Extinguishment, and concluded that while Amendments one and two were not deemed to be significant, Amendments three and four resulted in significant and consequential changes to the economic substance of the debt and thus resulted in extinguishment of the debt.




The extinguishment loss related to each of the amendment is summarized below:




First Amendment – October 29, 2010
$0Second Amendment – November 15, 2010
$0Third Amendment – November 22, 2010
$234,802Fourth Amendment – December 7, 2010
$263,843Total
$498,645




The above extinguishment loss is recorded in other income and expense section of the statement of operations.




On September 28, 2010, the Company, the Company entered into a short term one month financing agreement with an unrelated individual for $50,000 with a maturity date of October 2010.  There were no conversion features provided or warrant issued in connection with this transaction.  On maturity date of the loan, the Company and the lender agreed to extend the maturity date for one additional month to November 30, 2010, and in consideration for the extension, the Company issued to the lender a warrant to purchase 10,000 shares of the Company’s common stock with an exercise price of $0.50 and a contractual life of 3 years.  The Company evaluated the modification of the maturity extension and the issuance of the warrant as consideration for the extension provided under ASC 470-50, Debt - Modification and Extinguishment and concluded the modification was significant and resulted in an extinguishment of the debt.  The loss on the extinguishment was calculated to be $9,500 and is recorded in other income (expense) section of the statement of operations.




Upon maturity of the note on November 30, 2010, the Company and the lender agreed to extend the maturity date for the second time now to March 31, 2011.  In consideration for this second extension of the maturity date, the Company issued to the lender warrant to purchase 100,000 shares of the Company’s common stock with an exercise price of $0.55 and contractual life of 5 years.  The Company evaluated the modification of the maturity extension and the issuance of the warrant as consideration for the extension under ASC 470-50, Debt - Modification and Extinguishment and concluded the modification was significant and resulted in an extinguishment of the debt.  The loss on the extinguishment was calculated to be $89,000 and is recorded in other income (expense) section of the statement of operations.




At maturity of the note on March 31, 2011, the Company and the lender agreed to extinguish the full the outstanding amount of the principal and accrued interest ($52,016) of the debt in exchange for 104,033shares of the Company’s common stock.  The fair market value of these common stocks issued to the lender for full settlement of the outstanding principal and interest balances on the debt was $144,606.  The difference between the fair market value of the common stock issued and the outstanding balances of the principal and interest on the debt was recorded as debt extinguishment loss for approximately $95,000 and is recorded in other income (expense) section of the statement of operations.








11
 Studio One Media, Inc.
 Notes to Consolidated Financial Statements
 March 31, 2011 and June 30, 2010
  NOTE 4 – NOTES PAYABLE - continued
  On September 29, 2010, the Company entered into financing agreement with an unrelated individual for $100,000.  The note was due on October 28, 2010, is unsecured, and in lieu of cash interest payment, the Company agreed to issue warrant to purchase 10,000 share of Company’s common stock.  The warrant has an exercise price of $0.75 per share and a 5 year contractual life.  The warrant was valued using the Black-Scholes valuation model resulting in a fair value of $7,800.  This amount was recorded as a discount to the face amount of the note and has been amortized into interest expense over the life of the note.  The note was repaid in full upon maturity on October 28, 2010.




On September 17, 2010, the Company extinguished an outstanding note plus accrued interest for $27,000 that has been outstanding since September 2009 in exchange for Company’s common stock.  In exchange for full extinguishment of the note, the Company issued 54,000 shares of its common stock at a fair market value of $0.87 per share for a total consideration amount of $46,980.  The difference of $19,980 was recorded as a debt extinguishment loss and recorded in other income (expense) section of the statement of operations for the year ended June 30, 2011.




On November 17 and 30, 2010, the Company issued convertible notes to three unrelated individuals for a total of $132,500.  The notes bear interest at12% per annum and mature six month from the origination date.  The notes are convertible into Company’s common stock at $0.65 per share.  The Company calculated a total intrinsic beneficial conversion feature value of $48,923 for these three convertible notes which is being amortized over the life of the note.  These three notes were all converted into common stock at maturity date pursuant to the original conversion terms.




On December 29, 2010, the Company issued a convertible note for $250,000 under the above financing agreement for $1,000,000 (Tranche IV).  The note contained conversion rate feature and issued a warrant to purchase 50,000 share of the Company’s common stock at $.50 per share exercisable for 5 years pursuant to the umbrella financing agreement discussed.  The Company calculated the black-scholes value of the warrant and recorded the warrant and intrinsic beneficial conversion feature value based on their relative fair value.  The Company notes that the calculated amount exceeds the face amount of the note and as such the allocated amount of the debt discount and beneficial conversion feature was limited to the face amount of the note.  Hence, the Company recorded a beneficial conversion feature of $212,621 and a debt discount for $37.379 for this financing transaction.




On January 4, 2011, the Company extinguished an outstanding note plus accrued interest for $51,548 outstanding since September 2009 in exchange for Company’s common stock.  In exchange for full extinguishment of the note, the Company issued 103,096 shares of its common stock at a fair market value of $0.89 per share for a total consideration amount of $91,755.  The difference of $40,207 was recorded as a debt extinguishment loss and recorded in other income (expense) section of the statement of operations for the year ended June 30, 2011.  During the same period, the Company also extinguished another outstanding note plus accrued interest for $76,011 outstanding since December 2010 in exchange for Company’s common stock.  In exchange for full extinguishment of the note, the Company issued 152,022 shares of its common stock at a fair market value of $0.88 per share for a total consideration amount of $133,779.  The difference of $57,768 was also recorded as a debt extinguishment loss and recorded in other income (expense) section of the statement of operations for the year ended June 30, 2011.




During January 2011, the Company issued short term various small increments of plain-vanilla non-convertible notes for a total borrowing of $85,000 for an average interest rate of 12%.  No warrant was issued in connection with this financing.




NOTE 5 – PREFERRED STOCK




During the nine months ended March 31, 2011, the Company issued 1,062,000 shares of Series A-1 Senior Convertible Redeemable Preferred Stock (“Series A-1 Preferred Stock”) for cash totaling $1,062,000.  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).








12
 Studio One Media, Inc.
 Notes to Consolidated Financial Statements
 March 31, 2011 and June 30, 2010
  NOTE 5 – PREFERRED STOCK - continued
 
 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 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 valued at $1,132,640.  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.  For the nine months ended March 31, 2011 and 2010, the Company recognized $105,868 and $-0-, respectively, in preferred stock accretion and dividends.




NOTE 6 – COMMON STOCK




During the nine months ended March 31, 2011, the Company issued 201,261 Common shares for $25,717 in net cash proceeds and issued 1,102,709 shares of the Company’s Common Stock to employees and non-employees for services rendered to the Company valued at $1,046,020, based on the market price of the stock on the day of issuance.  The Company also issued 300,833 shares of Common Stock for warrants and options exercised for cash totaling $129,566 and 906,390 shares of Common Stock to extinguish accounts payable, notes payable and accrued interest totaling $618,864.




NOTE 7 – STOCK PURCHASE OPTIONS AND WARRANTS




During the nine months ended March 31, 2011, 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 during the nine months ended March 31, 2011 for compensatory options and warrants granted in exchange for services was $169,749 and is included in General and Administrative Expense.




NOTE 8 - SUBSEQUENT EVENTS




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




NOTE 9 – RESTATEMENT OF FINANCIAL STATEMENTS


On November 3, 2011, management became aware of numerous accounting errors that were made in the previously filed SEC Form 10-Q for the period ended March 31, 2011.  The error relates to the accounting of various note payable agreements that were renegotiated during the period.  The Company originally recorded the amended agreements as debt modifications.  Subsequently management determined that the amendments should have been recorded as debt extinguishments pursuant to ASC 470.  While the Management reviewed the accounting surrounding the accounting for its debt, errors surrounding the valuation of certain stock awards to employees and non-employees were discovered that, when viewed separately from the debt modification, do not have a material effect on the financial statements as presented, however the Company has decided to also include corrections for these items.
  During the audit of its fiscal year ended June 30, 2011, the Company also determined that it incorrectly recorded $368,392 in accounts payable relating to the purchase of a new studio that was not delivered by March 31, 2011.  Even though an agreement was finalized, because the Company did not take possession of the studio, the amount was not deemed due and payable and the asset should not have been recorded.
 
 The corrected errors resulting from the modified debt affect the following amounts and balances as of the period end: debt discount associated with the modified debt, the amount of prepaid debt issuance costs, the amortization of the debt discounts, debt discount and beneficial conversion features, additional paid-in capital, interest expense, and the loss on extinguishment of debt.
  The corrected errors resulting from the revaluations of stock awards affect the following amounts and balances as of the period end: prepaid expenses, additional paid-in capital, and general and administrative expenses.
 
 The corrected errors resulting from the accounts payable elimination affect the following amounts and balances as of the period end: accounts payable and accrued expenses and property and equipment, yet to be placed in service.




13
 Studio One Media, Inc.
 Notes to Consolidated Financial Statements
 March 31, 2011 and June 30, 2010




NOTE 9 – RESTATEMENT OF FINANCIAL STATEMENTS - continued
  The Company evaluated these errors individually and in the aggregate and determined that a restatement of the Form 10-Q for the aforementioned quarterly period is necessary and required.  A comparison of the summarized financial statements as revised and as originally presented is a follows:


Consolidated Balance Sheets(Unaudited)March 31,


March 31,


March 31,2011


2011


2011ASSETS

(As Originally Filed)


(Restated)


(Difference)CURRENT ASSETSCash

$
110,301


$
110,301


$
-Prepaid Expenses


224,521



220,547



(3,974
)Other Receivable


11,380



11,380



-Notes Receivable


125,000



125,000



-Total Current Assets


471,202



467,228



(3,974
)Property and Equipment, net


813,691



813,691



-Property and Equipment, yet to be placed in service


1,304,755



936,363



(368,392
)Intangible Assets, net


265,249



265,249



-OTHER ASSETSDeposits


100,888



100,888



-Prepaid Expenses


48,146



-



(48,146
)Debt Issuance Costs


75,826



56,477



(19,349
)TOTAL ASSETS

$
3,079,757


$
2,639,896


$
(439,861
)LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIESAccounts Payable and Accrued Expenses

$
1,394,821


$
1,026,429


$
(368,392
)Notes Payable, net of discount of $39,682 and $0, respectively


257,632



257,632



-Total Current Liabilities


1,652,453



1,284,061



(368,392
)LONG-TERM LIABILITIESConvertible Notes Payable


266,118



214,075



(52,043
)TOTAL LIABILITIES


1,918,571



1,498,136



(420,435
)STOCKHOLDERS' EQUITYPreferred stock


1,611



1,611



-Common stock


28,467



28,467



-Additional paid-in capital


26,632,375



27,210,256



577,881Accumulated deficit


(25,501,267
)


(26,098,574
)


(597,307
)Total Stockholders' Equity


1,161,186



1,141,760



(19,426
)TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
3,079,757


$
2,639,896


$
(439,861
)
    14
 Studio One Media, Inc.
 Notes to Consolidated Financial Statements
 March 31, 2011 and June 30, 2010
  NOTE 9 – RESTATEMENT OF FINANCIAL STATEMENTS - continued


Consolidated Statements of Operations(Unaudited)For the


For the


For theThree Months


Three Months


Three MonthsMarch 31,


March 31,


March 31,2011


2011


2011(Originally Filed)


(Restated)


(Difference)REVENUES

$
135,130


$
135,130


$
-OPERATING EXPENSESCost of Revenues (Exclusive of Depreciation and Amortization)


118,854



118,854



-Cost of Barter Exchanges


105,000



105,000



-Depreciation and Amortization Expense


79,607



79,607



-General and Administrative Expenses


1,205,876



1,212,989



7,113Total Costs and Expenses


1,509,337



1,516,450



7,113LOSS FROM OPERATIONS

$
(1,374,207
)

$
(1,381,320
)

$
(7,113
)OTHER INCOME (EXPENSE)Interest Expense


(543,589
)


(397,551
)


146,038Interest Income


2,330



2,330



-Loss on Extinguishment of Debt


-



(217,502
)


(217,502
)Total Other Income and Expense


(541,259
)


(612,723
)


(71,464
)NET LOSS


(1,915,466
)


(1,994,043
)


(78,577
)Preferred Stock Accretion and Dividends


(51,484
)


(51,484
)


-NET LOSS AVAILABLE TO COMMON SHAREHOLDERS

$
(1,966,950
)

$
(2,045,527
)

$
(78,577
)BASIC LOSS PER SHARE

$
(0.07
)

$
(0.07
)

$
(0.00
)WEIGHTED AVERAGE  NUMBER OF SHARES OUTSTANDING:BASIC AND DILUTED


28,009,059



28,009,059



0




















15
 Studio One Media, Inc.
 Notes to Consolidated Financial Statements
 March 31, 2011 and June 30, 2010
  NOTE 9 – RESTATEMENT OF FINANCIAL STATEMENTS - continued


Consolidated Statements of Operations(Unaudited)For the


For the


For theNine Months


Nine Months


Nine MonthsMarch 31,


March 31,


March 31,2011


2011


2011(Originally Filed)


(Restated)


(Difference)REVENUES

$
369,440


$
369,440


$
-OPERATING EXPENSESCost of Revenues (Exclusive of Depreciation and Amortization)


358,660



358,660



-Cost of Barter Exchanges


282,050



282,050



-Depreciation and Amortization Expense


237,231



237,231



-General and Administrative Expenses


3,497,514



3,574,462



76,948Total Costs and Expenses


4,375,455



4,452,403



(76,948
)LOSS FROM OPERATIONS

$
(4,006,015
)

$
(4,082,963
)

$
76,948OTHER INCOME (EXPENSE)Interest Expense


(909,330
)


(661,625
)


247,705Interest Income


2,330



2,330



-Gain on Disposal of Property


73,502



73,502



-Loss on Extinguishment of Debt


(92,714
)


(860,778
)


(768,064
)Total Other Income and Expense


(926,212
)


(1,446,571
)


(520,359
)NET LOSS


(4,932,227
)


(5,529,534
)


(443,411
)Preferred Stock Accretion and Dividends


(105,868
)


(105,868
)


-NET LOSS AVAILABLE TO COMMON SHAREHOLDERS

$
(5,038,095
)

$
(5,635,402
)

$
(443,411
)BASIC LOSS PER SHARE

$
(0.18
)

$
(0.20
)

$
(0.02
)WEIGHTED AVERAGE  NUMBER OF SHARES OUTSTANDING:BASIC AND DILUTED


27,743,527



27,743,527



0
















16
 Studio One Media, Inc.
 Notes to Consolidated Financial Statements
 March 31, 2011 and June 30, 2010
  NOTE 9 – RESTATEMENT OF FINANCIAL STATEMENTS - continued


Consolidated Statements of Cash Flows(Unaudited)For the


For the


For theNine Months


Nine Months


Nine MonthsMarch 31,


March 31,


March 31,2011


2011


2011(Originally Filed)


(Restated)


(Difference)OPERATING ACTIVITIESNet Loss

$
(4,932,227
)

$
(5,529,534
)

$
(597,307
)Adjustments to reconcile to cash from operating activities:Depreciation and amortization


237,231



237,231



-Share-based compensation - common stock


1,215,769



1,069,399



(146,370
)Share-based compensation - warrants


-



313,749



313,749Amortization of debt discount and issuance costs


373,390



266,159



(107,231
)Loss on extinguishment of debt


92,714



860,778



768,064Gain on disposal of property


(73,502
)


(73,502
)


-Changes in Operating Assets and Liabilities:Other receivables


8,088



8,088



-Prepaid expenses


626,448



657,173



30,725Deposits


1,975



1,975



-Accounts payable and accrued expenses


905,285



275,263



(630,022
)Net Cash Used in Operating Activities


(1,544,829
)


(1,913,221
)


(368,392
)INVESTING ACTIVITIESPurchase of property and equipment


(1,048,193
)


(679,801
)


368,392Proceeds from disposal of property


90,470



90,470



-Net Cash Used in Investing Activities


(957,723
)


(589,331
)


368,392FINANCING ACTIVITIES


1,979,873



1,979,873



-NET DECREASE IN CASH


(522,679
)


(522,679
)


-CASH AT BEGINNING OF PERIOD


632,980



632,980



-CASH AT END OF PERIOD

$
110,301


$
110,301


$
-SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:CASH PAID FOR:Interest


5,813



5,813



-Income Taxes


-



-



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


524,175



618,864



94,689Stock and warrants issued for prepaid services


572,655



572,655



-Warrants and beneficial conversion feature on issuance of convertible debt


666,615



664,599



(2,016
)






17





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 nine months ended March 31, 2011 and 2010. The following discussion regarding the financial statements of the Company should be read in conjunction with the financial statements of the Company included herewith.





FORWARD-LOOKING AND CAUTIONARY STATEMENTS





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 toaffect our business; and


·
general economic conditions.





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








18





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





General





Corporate Background





We are a Delaware public company traded on the Over-The-Counter Bulletin Board (ticker symbol: SOMD).  As of March 31, 2011, there were 28,467,158 shares of Common Stock issued and outstanding.   Since April 2006, we have raised approximately $14 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., AfterMaster HD 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 both domestically and internationally.





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, we expect additional future revenues 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, we expect to install and operate many MyStudios both nationally and internationally.





Quarterly Update





Following is a summary of corporate activities since December 31, 2010:





MyStudio® HD Recording Studios





In April, we announced a groundbreaking multi-year partnership with Simon Cowell’s THE X FACTOR, the most significant partnership yet announced by the Company. THE X FACTOR stakeholders include FOX, Sony, Syco and FremantleMedia. We believe that the agreement represents a very significant milestone for the Company and demonstrates that the company has established its ability to partner with some of the most important entities in the music and entertainment businesses.





Led by Mr. Cowell, a highly acclaimed entertainment entrepreneur and music producer with a notable ability to identify some of the world’s top musical talent, THE X FACTOR has had tremendous success in Europe.  The show will be debuting this fall in the U.S. on the Fox Network.  Entertainment pundits anticipate this new show will become the biggest and mostly widely watched show in America.





Mr. Cowell recognized the significant opportunity provided by MyStudio in broadening the contestant base for his show. Thousands of people auditioned through MyStudio recording studios for THE X FACTOR and auditions were extended twice from the original deadline. The Company deployed a total of six studios for THE X FACTOR auditions in the greater metropolitan areas of Phoenix, Nashville, Kansas City, Anchorage, Honolulu and Denver.





The MyStudio X FACTOR partnership allowed prospective candidates an alternative venue from traditional one day open casting calls.  Using MyStudio, such persons had an ability to create a video showcasing their talents at one of six MyStudio locations over a number of weeks.  The technologies employed by MyStudio, including the high definition video and world class audio, allowed contestants to present their musical talents in the best light possible furthering their chances of being selected to participate in the show.






19





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





Based on the much anticipated success of THE X FACTOR in America, we believe Mr. Cowell’s endorsement and enthusiasm for MyStudio as a casting tool is very significant.  THE X Factor MyStudio partnership demonstrated that the MyStudio recording studios are an efficient means for allowing for a broad number of people in multiple cities to try out for reality television shows.  Accordingly, we expect television, theater and motion pictures to begin to follow Mr. Cowell’s lead in utilizing this technology to enhance their casting processes and thereby creating the potential for a number of other strategic partnerships for the Company.





As a result of the tremendous opportunity to partner with THE X FACTOR, we purposely delayed our formal national marketing launch for several months. As expected, our participation with THE X FACTOR has allowed the Company to gain national attention for its studios without having to expend significant amounts of internal funds to achieve a comparable level of positive exposure and brand development.   This national exposure for MyStudio is expected to further increase by a significant magnitude upon the debut of the show.





As noted previously, we placed an order for an additional fifteen studio chassis earlier in the fiscal year.  We have since taken possession of three of those chassis and have begun the assembly process to deploy them in additional major markets in the near future.  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 roll-out of the studios in the U.S. and continue to gain critical mass.





In addition, we have received significant inbound interest in MyStudio from potential partners in foreign markets.  We are in active discussions with several potential strategic partners for the roll-out 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 chassis.





We recently completed a multi-year agreement for the licensing of the Universal Music Group (“Universal”) record catalog to further increase the size of the karaoke library available to the users of MyStudio. This follows the agreement with EMI Music that was completed in 2008.  Universal has one of the largest record catalogues in the world and has been representing some of the leading artists for over 100 years.   This new agreement allows MyStudio users access to music by some of the world’s top acts, including P. Diddy, Ke$ha, Drake, Nicki Minaj, Ludacris, Britney Spears, Miley Cyrus, Jonas Brothers, 50 Cent and Enrique Inglesias.  We are in discussions with other top record labels to gain access to their catalogues as well to further enhance the MyStudio customer experience and drive additional traffic to the studios.





AfterMasterTM HD Audio





In 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.





AfterMaster is a revolutionary technology that makes audio 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.





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.


20


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




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





MyStudio enables users, for a fee, to record up to a five-minute personalized video with professional-quality backdrop, lighting and sound. The studios feature Hollywood-style green screen technology, and users can select from over a thousand HD virtual backgrounds (static and dynamic) and thousands of licensed karaoke tracks from EMI Music Publishing, Universal Music Group 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.





Currently there are MyStudio locations included in the greater metropolitan areas of Phoenix, Honolulu, Nashville, Anchorage, Kansas City and Denver. Earlier in the current fiscal year, we placed an order for the manufacturing of fifteen additional studio chassis to further our rollout plans.  We have since taken possession of the three of those studio chassis and are in the process of preparing those studios for future installation.  We expect to receive the balance of the aforementioned studio chassis during calendar year 2011.





MyStudio Business Strategy





We plan to introduce our 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.





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





Connect Talent to Talent Seekers.   MyStudio provides the aspiring artist or entertainer with a cost-effective, professional quality platform to showcase his or her talent.  Entertainers often pay hundreds or thousands of dollars for comparable professionally produced audio and video products.  Users can often afford to make numerous videos to showcase their talents due to relative minimal price point for using MyStudio.  There have been several incidents where users’ videos have allowed them to be discovered by talent agents.





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.


21


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


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





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





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





MyStudio Business Model





Our “bricks and clicks” business model is currently based upon three primary sources of revenue: recording session fees from MyStudio and advertising revenue from both the individual studios and the Company’s MyStudio.net website. Our 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 are expected to drive exponential traffic to the MyStudio.net website as each new video generates a greater number of unique website visitors due to the viral effect of our video sharing offering.





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





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.





MyStudio offers over 1,000 HD backgrounds from which to select or users may provide their own backgrounds.   Additionally, MyStudio currently offers thousands of songs licensed from EMI Music Publishing, Universal Music Group and others for karaoke usage and expects to announce 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.  We have successfully sold advertising on the studios, and we believe that we will be able to secure national advertising sponsors when we have a greater number of studios in operation.





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





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








22





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





MyStudio Marketing and Promotion Strategy





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





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





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





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





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





Led by Mr. Cowell, a highly acclaimed entertainment entrepreneur and music producer with a notable ability to identify some of the world’s top musical talent, THE X FACTOR has had tremendous success in Europe.  The show will be debuting this fall in the U.S. on the Fox Network.  Entertainment pundits anticipate this new show will become the biggest and mostly widely watched show in America.





Mr. Cowell recognized the significant opportunity provided by MyStudio in broadening the contestant base for his show. Thousands of people auditioned through MyStudio recording studios for THE X FACTOR and auditions were extended twice from the original deadline.





The MyStudio X FACTOR partnership allowed prospective candidates an alternative venue from traditional one day open casting calls.  Using MyStudio, such persons had an ability to create a video showcasing their talents at one of six MyStudio locations over a number of weeks.  The technologies employed by MyStudio, including the high definition video and world class audio, allowed contestants to present their musical talents in the best light possible furthering their chances of being selected to participate in the show.





Based on the much anticipated success of THE X FACTOR in America, we believe Mr. Cowell’s endorsement and enthusiasm for MyStudio as a casting tool is very significant.  THE X FACTOR MyStudio partnership demonstrated that the MyStudio recording studios are an efficient means for allowing for a broad number of people in multiple cities to try out for reality television shows.  Accordingly, we expect television, theater and motion pictures to begin to follow Mr. Cowell’s lead in utilizing this technology to enhance their casting processes and thereby creating the potential for a number of other strategic partnerships for the Company.





As a result of the tremendous opportunity to partner with THE X FACTOR, we purposely delayed our formal national marketing launch for several months. As expected, our participation with THE X FACTOR has allowed the Company to gain national attention for its studios without having to expend significant amounts of internal funds to achieve a comparable level of positive exposure and brand development.   This national exposure for MyStudio is expected to further increase by a significant magnitude upon the debut of the show





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





MyStudio was used by entertainment leaders Simon Fuller, Perez Hilton and Jamie King in their casting for Boy Band, a contest to identify five males between the ages of 13 and 21 with outstanding dance and vocal talent to form a high profile band.  Mr. Fuller is the producer of American Idol.  Mr. Hilton is a famous celebrity gossip columnist with a very extensive following.  Mr. King is a world renowned choreographer.   MyStudio was selected by Boy Band for the convenience and ease by potential contestants.


23





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





In addition to Boy Band, Mr. Fuller, through 19 Entertainment and MySpace, used MyStudio for the auditions of If I Can Dream, a post-reality television show offered through Hulu.com.  The studios were used by a number of aspiring artists to perform their audition demos in hopes of being selected to join this show.





We have completed a strategic partnership with RealityWanted.com, a leading source for reality TV casting calls in the U.S.  The partnership provides for members of both companies to create audition videos for hundreds of top reality television shows.  Most reality TV applicants are missing one of the most critical components to being selected – the video. This partnership created a turnkey reality TV casting platform to help complete the casting process. Users can easily supplement their RealityWanted.com profiles with a high-quality video that better conveys their talents and unique personality traits giving them a greater chance of being selected for a reality television show. As MyStudio offers over 1,000 high definition backgrounds, users can pick an environment to best suit their audition.





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





In addition to casting for television and stage, we have a multi-year partnership with The GRAMMY Foundation to host auditions for various GRAMMY Foundation programs.  The 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.





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





Licensed musical content is another facet in our marketing and promotional strategy.  In July 2008, we entered into a multi-year licensing agreement with EMI Music Publishing (“EMI”) which grants us access to EMI’s extensive music catalog.  Notable EMI artists include Madonna, Stevie Wonder, Reba McEntire, Beyonce, Kelly Clarkson, Alicia Keyes and Elvis Presley. The agreement allows users to legally incorporate popular music from one of the world’s largest music publishers into their creative endeavors, synchronizing music, voice and video into a single format. We believe this licensing agreement is unique in the user-generated content industry.





We are in discussions with additional parties to further expand our offering of contemporary and popular karaoke songs available to the users of our studios.





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





AfterMaster HD Audio





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





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





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





24


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


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





Manufacturing





Earlier this fiscal year, we announced that we had contracted for the manufacture of 15 of its proprietary studio chassis.  We have since taken possession of the first three of such chassis and expect the balance of this order during calendar year 2011. This agreement has allowed us to realize substantial studio cost savings relative to the prior manufacturer.  We have and intend to continue financing additional studios through a combination of existing capital resources, raising additional capital and utilization of one existing credit facility.





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





Intellectual Property and Licensing





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 March 31, 2011, we employed twenty full-time employees (and twelve part-time employees at the MyStudio recording studios).  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.  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 March 31, 2011 are 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

Nine Months EndedMarch 31,

March 31,

March 31,

March 31,2011

2010

2011

2010Session Revenues

$
113,230


$
54,320


$
319,740


$
99,405Advertising Revenues


-



11,393



9,000



32,679AfterMaster Revenue


21,900



-



40,700



-Total Revenues

$
135,130


$
65,713


$
369,440


$
132,084





Total revenues for the three months ended March 31, 2011 increased to $113,230 from $54,320 or 108% over the comparable three month period in 2010.   Total revenues for the nine months ended March 31, 2010 increased to $369,440 from $132,084 or 180% over the comparable nine month period in 2010.






25





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





Of the $113,230 of studio session and advertising income for the three months ended March 31, 2011, $105,000 was barter and the remaining $8,230 was in cash.  For the comparable three months ended March 31, 2010, of the $65,713 in studio session and advertising income, $54,643 was cash and $11,070 was in barter.





Of the $328,740 of studio session and advertising income for the nine months ended March 31, 2011, $282,050 was cash and the remaining $46,690 was in barter.  For the comparable nine months ended March 31, 2010, of the $132,084 in studio session and advertising income, $31,155 was cash and $100,929 was in barter.





The Company’s business model currently generates revenues from the following 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;

Sponsorship and contest revenues;●

●
Advertising revenue from its website; and

Revenues generated from the sale of AfterMaster products.





The revenues from each of the first three 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


Nine Months EndedMarch 31,


March 31,2011


2010


2011


2010Cost of Revenues

$
118,854


$
50,269


$
358,660


$
131,497





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 nine month periods ended March 31, 2011 over the comparable periods for 2010, is attributable, primarily, to the opening of additional  studios.




Other Costs and Expenses




Three Months Ended


Nine Months EndedMarch 31,


March 31,2011


2010


2011


2010Advertising Expenses

$
64,178


$
8,756


$
298,359


$
95,846Cost of Barter Exchanges


105,000



54,643



282,050



100,929Depreciation and Amortization Expenses


79,607



55,722



237,231



140,131Professional Fees


734,806



911,009



2,301,962



2,609,153Other Sales, General and Administrative Expenses


414,005



487,904



974,141



1,228,028Other Costs and Expenses

$
1,397,596


$
1,518,034


$
4,093,743


$
4,174,087


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.





Total other costs and expenses decreased in the three month period ended March 31, 2011 by $120,438 compared to the same three months of 2010.  Total other costs for the nine month period decreased by $157,292 compared to the same nine month period of the prior year.  The decrease in each period is primarily due to a decrease in general and administrative expenses as well as decreases in professional fees.  This decrease was offset by an increase in cost of barter exchanges, advertising expense and depreciation and amortization. The decrease in professional fees is primarily attributable to a reduction in 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 being placed 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”.






26





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





Other Income and Expenses
  Three Months Ended

Six Months EndedDecember 31,

December 31,

December 31,

December 31,2010

2009

2010

2009Interest Expense

$
(397,551
)

$
(38,026
)

$
(661,625
)

$
(53,574
)Interest Income


2,330



-



2,330



8,062Gain on Disposal of Property


-



-



73,502



-Loss on Extinguishment of Debt


(217,502
)


97,587



(860,778
)


97,587Other Costs and Expenses

$
(612,723
)

$
59,561


$
(1,446,571
)

$
52,075
  The other income and expenses increased in the three month period ended March 31, 2011 by $672,284 and by $1,498,646 in the six month period ended March 31, 2011.  In order to extinguish outstanding liabilities and free up the Company’s cash flow from future debt payments, the Company issued Common Stock at a discounted rate, resulting in non-cash losses on extinguishment of debt. This freed up cash flow allowed us to open new locations.  Increased interest expense is a result of new financing as well as the amortization of debt discounts and beneficial conversion features.
  Net Income/(Loss)
  Three Months Ended


Nine Months EndedMarch 31,


March 31,2011


2010


2011


2010Net Income/(Loss)

$
(1,994,043)


$
(1,443,029)


$
(5,529,534)


$
(4,121,425)
 
 The increase in the net loss for the three and nine months ended March 31, 2011 as compared to the comparable periods in the prior fiscal year was primarily due to the above mentioned increase cost of barter sales, advertising and depreciation and amortization.


LIQUIDITY AND CAPITAL RESOURCES
 
 The Company had revenues of $369,440 during the nine months ended March 31, 2011 as compared to $132,084 for the comparable period in 2010.  The Company has incurred losses since inception of $26,098,574 .  At March 31, 2011, the Company had a working capital deficit of $816,833 compared to working capital surplus of $80,770, a decrease of $897,603 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 as well as increased accounts payable for costs incurred to manufacture 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.





As of March 31, 2011, the existing capital and anticipated funds from operations were not sufficient to sustain Company operations or the business plan over the next twelve months.  We anticipate substantial increases in our cash requirements which will require additional capital 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.






27





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 March 31, 2011, 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.





(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 March 31, 2011 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 rules of the SEC that permit the Company to provide only management’s report in this Report.





































28
  PART II - OTHER INFORMATION
 
 ITEM 1.  LEGAL PROCEEDINGS
 
 We may become involved in certain legal proceedings and claims which arise in the normal course of business.  At March 31, 2011, there are no legal proceedings which we believe will have a material adverse effect on our financial position.
 
 ITEM 1A - RISK FACTORS
 
 You should carefully consider the risk factors and other uncertainties set forth below and all other information contained in this Report, as well as the public disclosure documents incorporated by reference herein.  If any of the events contemplated by the following risks actually occurs, then our business, financial condition, or results of operations could be materially adversely affected. As a result, the trading price of our Common Stock could decline, and you may lose all or part of your investment. The risks and uncertainties below are not the only risks facing our company.  Additional risks and uncertainties, including those that are not yet identified or that we currently believe are immaterial, may also adversely affect our business, financial condition or operating results.
 
 History of Operations and Dependence on Future Developments.
 
 We own proprietary audio/video recording technologies, patent and trademark applications, studio design, methods and related concepts for the MyStudio HD Recording Studios.  MyStudio is a self-contained interactive video recording studio designed for installation in shopping malls and other pedestrian high traffic public areas.  The studios enable the public, for a fee, to record their video and voice images in a stand alone, state-of-the-art recording studio and enter their MyStudio performances in music, modeling and other talent related contests.  In addition, MyStudio can be used to record video resumes, dating profiles and personal messages.  We believe MyStudio methods, processes and business model are proprietary and a unique opportunity in the entertainment industry.
 
 We opened our first studio in September 2008 and have since installed multiple studios in the U.S.  We intend to continue placing our studios in malls across America, as well as expand into other high traffic locations, 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.
 
 Subsequently, we have introduced our audio enhancement technology, AfterMaster.  The technology has been utilized by some of the top name artists within the music industry, albeit such utilization has resulted in limited revenues to date.  We are in discussions with record labels about adopting the technology for use in re-monetizing their music catalogues.
 
 We have a history of losses and will likely realize future losses.  Both MyStudio and AfterMaster have limited operations and are currently generating modest revenues.
 
 We are dependent upon our management, certain shareholders and investors for fundraising.  We expect additional operating losses will occur until revenues are sufficient to offset our costs for marketing, sales, general and administrative and product and services development.  We are subject to all of the risks inherent in establishing an early stage business enterprise.  Since we have limited operations, there can be no assurance that our business plan will be successful.  The potential for our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered with an early stage business and the competitive environment in which we will operate.  A prospective investor should be aware that if we are not successful in achieving our goals and achieving profitability, any money invested in us will likely be lost.  Our management team believes that our potential near-term success depends on our success in, manufacturing, marketing and selling our products and services.
 
 As an early stage company we are particularly susceptible to the risks and uncertainties described herein, and we will be more likely to incur the expenses associated with addressing them.  Our business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in early stages of development.  These risks are particularly severe among companies in new markets, such as those markets in which we expect we will operate.  Accordingly, shareholders will bear the risk of loss of their entire investment in our shares.
 
 New Business Model.
 
 We have a relatively new business model in an emerging and rapidly evolving market.  Accordingly, this makes it difficult to evaluate our future prospects and may increase the risk that we will not continue or be successful.  We will encounter risks and difficulties as a company operating in a new and rapidly evolving market.  We may not be able to successfully address these risks and difficulties, which could materially harm our business and operating results.
 
 
 29
 
 ITEM 1A - RISK FACTORS - continued
  Limited Capital and Need for Additional Financing.
 
 The funds currently available to us are inadequate to fully implement our business plan.  Until we have achieved revenues sufficient for us to break-even, we will not be self-sustaining entity, which could adversely impact our ability to be competitive in the areas in which do and intend to operate.  We require additional funding for continued operations and will therefore be dependent upon our ability to raise additional funds through bank borrowing, equity or debt financing or asset sales. We expect to access the public and private equity and/or debt markets periodically to obtain the funds we need to support our operations and continued growth.  There is no assurance that we will be able to obtain additional funding when needed, or that such funding, if available, can be obtained on terms acceptable to us.  If we require, but are unable to obtain, additional financing in the future on acceptable terms, or at all, we will not be able to continue our business strategy, respond to changing business or economic conditions, withstand adverse operating results or compete effectively.  If we cannot obtain needed funds, we may be forced to curtail, in whole or in part, or cease its activities altogether.  When additional shares are issued to obtain financing, current shareholders will suffer a dilutive effect on their percentage of stock ownership.
 
 We require substantial capital to manufacture our recording studios.  Although we intend to engage in subsequent debt and equity offerings of our securities to raise additional working capital for operations, studio manufacturing and the AfterMaster operations, we have no firm commitments for any additional funding, either debt or equity, at the present time.  Insufficient financial resources may require us to delay or eliminate all or some of our sales and marketing efforts to generate revenues for both MyStudio and Aftermaster, which could have a material adverse effect on our business, financial condition and results of operations.  There is no certainty that our expenditures will result in a profitable business as proposed.
 
 Lack of Diversification.
 
 Our size makes it unlikely that we will be able to commit our funds to diversify the business until we have a proven track record, and we may not be able to achieve the same level of diversification as larger entities engaged in this type of business.
 
 Competition.
 
 We know of no competitors offering a similar high-quality, in-mall HD recording studio experience.  We believe that we are first to market with a recording studio with such functionality and quality combined with a groundbreaking website.  It would require a competitor significant time and capital to design, develop and manufacture a recording studio with similar functionality and features, giving us valuable time to gain consumer recognition and a foothold in the market.
 
 Additionally, based on feedback from executives within the music industry, we have not been made aware of any significant competitors offering an audio enhancement technology of the same quality level as AfterMaster.
 
 While the technologies surrounding MyStudio and AfterMaster are cutting edge and unique, we believe there are other factors that will separate us from competitors.  We have embarked on an aggressive intellectual property protection program which we believe will be significant barriers to market entry to potential competitors for our current product offerings.  In addition, we employ individuals who have long standing relationships and expertise in various segments of the entertainment, marketing, finance and communications industries, which we expect will help facilitate the negotiation of favorable partnerships, sponsorships and industry support for MyStudio and AfterMaster.
 
 Nonetheless, many potential competitors have greater name recognition, industry contacts and more extensive customer bases that could be leveraged to accelerate their competitive activity.  Moreover, potential competitors may establish future cooperative relationships among themselves and with third parties to enhance their products and services in this market space in which we propose to operate.  Consequently, competitors or alliances may emerge and rapidly acquire significant market share.  We cannot assure you that we will be able to compete effectively with any competitor should they arise or that the competitive pressures faced by us will not harm our business. Such intense competition will limit our opportunities and have a materially adverse effect on our profitability or viability.
 
 Our web property competes in a growing social media market with companies like Facebook, YouTube and MySpace.  We believe our HD-quality and user-generated content is unique and may allow us to differentiate 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.   The music industry may also resist the adoption of our AfterMaster technology for new and catalogue releases.
   30
  ITEM 1A - RISK FACTORS - continued
 
 Dependence on Intellectual Property - Design and Proprietary Rights.
 
 Our success and ability to compete depends to a degree on our intellectual property.  We will rely on copyright, trademark and patent filings as well as confidentiality arrangements, to protect our intellectual property locally and internationally.  Studio One and its subsidiaries have filed numerous patent applications relating to MyStudio, AfterMaster and related technologies and processes, and while we believe the technologies, methods and processes merit patent protection, there is no assurance that any patent will be issued.  If circumstances make it impossible to try to adequately protect our intellectual property, that intellectual property could be used by others without our consent and there could be material adverse consequences to us. We have filed several trademark applications and have received Notices of Allowance on four of those applications. Effective protection may not be available for our service marks. Although we plan to continue to register our service marks in the United States and in countries in which we do business or expect to do business, we cannot assure you that we will be able to secure significant protection for these marks. Our competitors, if any exist, or others may adopt product or service names similar to ours, thereby impeding our ability to build brand identity and possibly leading to client confusion. If circumstances make it impossible to adequately protect the name and brand, this could seriously harm our business.
 
 Policing unauthorized use of our intellectual property is made especially difficult by the global nature of the high technology industry and difficulty in controlling hardware and software.  The laws of other countries may afford us little or no effective protection for our intellectual property.  We cannot assure you that the steps we take will prevent misappropriation of our intellectual property or that agreements entered into for that purpose will be enforceable. In addition, litigation may be necessary in the future to enforce our intellectual property rights; determine the validity and scope of the proprietary rights of others; or defend against claims of infringement or invalidity.  Such litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources, either of which could seriously harm our business.  There can be no assurance that our competitors, some of which have substantially greater resources, will not obtain patents or other intellectual property protection that will restrict our ability to make and sell our products.  If we are unsuccessful in protecting proprietary and intellectual property rights to the MyStudio and/or AfterMaster related business methods and websites, it could have a material adverse effect on our business, results of operations, financial condition and value, and financial results.
 
 Economic Downturn.
 
 We are susceptible to adverse impacts caused by domestic and/or international economic downturns (including the current challenging economic landscape) in the markets in which do or propose to operate, as well as broader economic downturns affecting a region, or a particular industry sector in which we propose to operate.  There can be no assurance that we will survive any such economic downturn, or if we do survive, that we will be capable of executing or furthering, to any meaningful degree, the originally conceived business plans.
 
 Some of Our Markets are Cyclical.
 
 Some of our markets are cyclical, and a decline in any of these markets could have a material adverse effect on our operating performance.   Our business is cyclical and dependent on consumer and business spending and is therefore impacted by the strength of the economy generally, interest rates, and other factors, including national, regional and local slowdowns in economic activity and job markets, which can result in a general decrease in product demand from professional contractors and specialty distributors.  For example, a slowdown in economic activity that results in less discretionary income for entertainment  and music can have an adverse effect on the demand for some or all of our products.  In addition, unforeseen events, such as terrorist attacks or armed hostilities, could negatively affect our industry or the industries in which our customers operate, resulting in a material adverse effect on our business, results of operations and financial condition.
 
 Disaster.
 
 A disaster that disables our operations will negatively impact our ability to perform for a period of time.
 
 Dependency on Foreign Components for our Products.
 
 We do and expect to continue sourcing components for our products from both inside and outside of the United States, which may present additional risks to our business.  International sourcing of components subject to various risks, including political, religious and economic instability, local labor market conditions, the imposition of foreign tariffs and other trade restrictions, the impact of foreign government regulations, and the effects of income and withholding tax, governmental expropriation, and differences in business practices.  We may incur increased costs and experience delays or disruptions in product deliveries and payments in connection with component manufacturers, thus causing a potential loss of revenues. Unfavorable changes in the political, regulatory, and business climate could have a material adverse effect on our financial condition, results of operations, and cash flows.
   31
 
 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 our studios is dependent upon our ability to obtain adequate product supply from manufacturers or other suppliers. While in many instances we have agreements, including supply agreements, with our suppliers, these agreements are generally terminable by either party on limited notice.  The loss of, or a substantial decrease in the availability of, products from certain of our suppliers, or the loss of key supplier agreements, could have a material adverse effect on our business, results of operations and financial condition.  In addition, supply interruptions could arise from shortages of raw materials, labor disputes or weather conditions affecting products or shipments, transportation disruptions or other factors beyond our control.
 
 Dependency on Long Supply Chains.
 
 In some cases we are dependent on long supply chains, which may subject us to interruptions in the supply of many of the products or components used in the manufacturing and assembly of MyStudio.  The length and complexity of these supply chains make them vulnerable to numerous risks, many of which are beyond our control, which could cause significant interruptions or delays in delivery of our products.  Factors such as labor disputes, changes in tariff or import policies, severe weather or terrorist attacks or armed hostilities may disrupt these supply chains.  A significant interruption in our supply chains caused by any of the above factors could result in increased costs or delivery delays and have a material adverse effect on our business, results of operations and financial condition.
 
 Fluctuations in Cost of Raw Materials.
 
 Our results of operations could be adversely affected by fluctuations in the cost of raw materials.  The manufacturing process is subject to world commodity pricing for some of the raw materials used in the manufacture of our studios.  Such raw materials are often subject to price fluctuations, frequently due to factors beyond our control, including changes in supply and demand, general U.S. and international economic conditions, labor costs, competition, and government regulation.  Inflationary and other increases in the costs of raw materials have occurred in the past and may recur in the future.  Any significant increase in the cost of raw materials could reduce our profitability and have a material adverse effect on our business, results of operations and financial condition.
 
 Regulatory Factors.
 
 Our business model includes a component involving the Internet.  As such, we are subject to a number of foreign and domestic laws and regulations that effect business on the Internet.  We must contend with laws and regulations relating to user privacy, freedom of expression, content, advertising, information security and intellectual property rights of others.  Possible future consumer legislation, regulations and actions could cause additional expense, capital expenditures, restrictions and delays in the activities undertaken in connection with our business, the extent of which cannot be predicted.  The exact affect of such legislation cannot be predicted until it is proposed.
 
 Terms of Subsequent Financings.
 
 Terms of subsequent financings may adversely impact your investment.  We will engage in common equity, debt, and/or preferred stock financings in the future.  Your rights and the value of your investment in Preferred or Common Stock could be reduced.  Interest on debt securities could increase costs and negatively impacts operating results.  Shares of our Preferred Stock may be issued in series from time to time with such designations, rights, preferences, and limitations as needed to raise capital. The terms of Preferred stock could be more advantageous to those investors than to the holders of Common Stock. In addition, if we need to raise more equity capital from the sale of common or preferred stock, institutional or other investors may negotiate terms at least as, and possibly more, favorable than the terms of your investment. Shares of Common Stock which we sell could be sold into the market, which could adversely affect the market price.
   32
 
 ITEM 1A - RISK FACTORS - continued
 
 Rapid Technological Change.
 
 The industries in which we operate are characterized by rapid technological change that requires us to implement new technologies on an ongoing basis.  Our future will depend upon our ability to successfully implement new technologies in a rapidly changing technological environment.  We will likely require additional capital to develop new technologies to meet changing customer demands.  Moreover, expenditures for technology and product development are generally made before the commercial viability for such developments can be assured.  As a result, we cannot assure that we will successfully implement new technologies, that any implementations will be well received by customers, or that we will realize a return on the capital expended to develop such technology.
 
 Effect of Fluctuations in Operations on the Price of Common Stock.
 
 Our future operating results may fluctuate and cause the price of our Common Stock to decline, which could result in substantial losses for investors.  Our limited operating history makes it difficult to predict accurately our future operations.  We expect that our operating results will fluctuate significantly from quarter to quarter, due to a variety of factors, many of which are beyond our control.  If our operating results fall below the expectations of investors or securities analysts, the price of our Common Stock could decline significantly.  The factors that could cause our operating results to fluctuate include, but are not limited to:
 
 ●
Ability to broadly commercialize and expand 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.
 
 Dilution; Dilutive Effect of Future Transactions.
 
 As of March 31, 2011, we had 28,467,158 shares of Common Stock, $0.001 par value, issued and outstanding.  We have granted options to purchase 551,000 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 1,611,044 shares of various classes of Convertible Preferred Stock outstanding, which can be converted to 531,000 shares of Common Stock.  We had outstanding convertible debt with a face value of $1,132,500 and an accreted value of $383,263, which can be converted into approximately $2,203,846 shares of Common Stock. In addition, we had warrants outstanding that would permit, if exercised, the issuance of 5,286,012 additional shares of Common Stock at an average exercise price of $1.72.  Issuing additional shares will result in further dilution to existing shareholders, which could be significant; meaning your percentage ownership of any such merged entity will be significantly less than your percentage ownership in us.  If we issue additional shares either outright or through any future options or warrants programs or requires additional financing, further dilution in value and in the percentage ownership represented by the purchaser’s investment will occur.
 
 Future debt or equity transactions, as well as the related of grant and subsequent exercise of such warrants, could result in dilution.  >From time to time, we sell restricted preferred or common stock, warrants, and convertible debt to investors in other private placements.  Because such stock is restricted, the stock is sold at a greater discount to market prices compared to a public stock offering, and the exercise price of related warrants, if any, sometimes is at or even lower than market prices.  These transactions cause dilution to existing stockholders.  Also, from time to time, options are issued to officers, directors, or employees, with exercise prices equal to the market price.  Warrants may also be issued to advisors and vendors at times in lieu or in addition to other compensation. Exercises of options and warrants will result in dilution to existing stockholders.  The amount of dilution will depend on the spread between the market and exercise price, and the number of shares involved, which could be significant.
   33
   ITEM 1A - RISK FACTORS - continued
 
 Restrictions on Transfer - No Public Market for Preferred Shares or Restricted Common Shares.
 
 Our shares of Common Stock are traded on the Over-The-Counter Bulletin Board System (OTCBB) under the ticker symbol SOMD.  However, for shares that have been issued and are restricted pursuant to SEC Rule 144 of the Securities Act of 1933 (the “Act”), there is presently no public or private market for such shares.  Such shares may only be offered or sold pursuant to registration under or an exemption from the Act and have not been registered under the Act, as amended, or any State securities laws and would be issued under Section 4(2) of the Act and Rule 506 of Regulation D promulgated under the Act.
 
 Expect to Incur Losses for the Foreseeable Future.
 
 We expect to incur losses for the foreseeable future and we may never become profitable.   Our business model requires that additional studios be deployed and operating for us to generate enough revenues to reach break-even.  There are no assurances that significant revenues from MyStudio and/or AfterMaster necessary for the Company to become break-even will occur. We expect our expenses to increase significantly as we continue to develop the infrastructure necessary to fully implement our business strategy.  Our expenses will continue to increase as we: hire additional employees; implement our marketing plans; pursue further research and development; expand our information technology systems; and lease and purchase more space to accommodate our operations.
 
 Costs associated with designing, developing, manufacturing, marketing and developing the infrastructure we will need to support our customers will depend upon many factors, including the number of MyStudio locations.  Therefore, we cannot now determine the amount by which our expenses will increase as we grow.
 
 Possible Claims That the Company Has Violated Intellectual Property Rights of Others.
 
 We are not subject to any dispute, claim or lawsuit or threatened lawsuit alleging the violation of intellectual property rights of a third party.  We believe MyStudio and AfterMaster are not in violation of any patents claimed by others.  To the extent that the Company is ever alleged to have violated a patent or other intellectual property right of a third party, it may be prevented from operating its business as planned, and it may be required to pay damages, to obtain a license, if available, to use the patent or other right or to use a non-infringing method, if possible, to accomplish its objectives. Any of these claims, with or without merit, could subject us to costly litigation and the diversion of our technical and management personnel. If we incur costly litigation and our personnel are not effectively deployed, the expenses and losses incurred will increase, and our profits, if any, will decrease.
 
 Business Plans and Operational Structure May Change.
 
 We continually analyze our business plans and operations in light of market conditions and developments.  As a result of our ongoing analyses, we may decide to make substantial changes in our business plan and organization.  In the future, as we continue our internal analyses and as market conditions and our available capital change, we may decide to make organizational changes and/or alter some or all of our overall business plans.
 
 Reliance on Management.
 
 We believe that our present management has the experience and ability to successfully implement our business plans for the foreseeable future.  However, it is likely that we will continue to add to our management and therefore will recruit additional persons to key management positions in the future.  Should we be unsuccessful in recruiting persons to fill the key positions or in the event any of these individuals should cease to be affiliated with us for any reason before qualified replacements can be hired, there could be material adverse effects on our business and prospects.  Each officer, director, and other key personnel has or will have an employment agreement with us which will contain provisions dealing with confidentiality of trade secrets, ownership of patents, copyrights and other work product, and non-competition.  Nonetheless, there can be no assurance that these personnel will remain employed for the entire duration of the respective terms of such agreements or that any employee will not breach covenants and obligations owed to us.
 
 In addition, all management decisions will be made exclusively by our officers and directors.  Investors will only have rights associated with minority ownership interest rights to make decisions that affect the Company.  Our success, to a large extent, will depend on the quality of our directors, officers and senior management.
 
 Inability to Attract and Retain Qualified Personnel.
 
 Our future success depends in significant part on its ability to attract and retain key management, technical and marketing personnel.  Competition for highly qualified professional, technical, business development, and management and marketing personnel is intense.  We may experience difficulty in attracting new personnel, may not be able to hire the necessary personnel to implement our business strategy, or we may need to pay higher compensation for employees than we currently expect.  A shortage in the availability of required personnel could limit our ability to grow.  We cannot assure you that we will succeed in attracting and retaining the personnel we need to grow.
   34
 
 ITEM 1A - RISK FACTORS - continued
 
 Inability to Manage Rapid Growth.
 
 We expect to grow rapidly.  Rapid growth often places considerable operational, managerial and financial strain on a business.  To successfully manage rapid growth, we must accurately project its rate of growth and:
 
 ●
Rapidly improve, upgrade and expand our business infrastructure;●
Deliver our product and services on a timely basis;●
Maintain levels of service expected by clients and customers;●
Maintain appropriate levels of staffing;●
Maintain adequate levels of liquidity; and●
Expand and upgrade our technology, transaction processing systems and network hardware or software or find third parties to provide these services.
 
 Our business will suffer if we are unable to successfully manage our growth.
 
 Effects of Amortization Charges/Stock Based Compensation.
 
 Our losses will increase, or our earnings, if applicable, will be reduced by charges associated with the issuance of options and/or warrants.  We have adopted a stock incentive plan for the benefit of our directors, officers and employees.  We may also compensate consultants and vendors with restricted stock and/or warrants in lieu of, or in addition to, cash for services provided. The total unearned stock-based compensation will be amortized as a stock-based compensation expense in our consolidated financial statements over the applicable vesting periods, generally two to ten years in the case of options granted to employees, officers and directors and two years in the case of warrants granted to consultants and other third parties.  These types of charges may increase in the future.  The future value of these potential charges cannot be estimated at this time because the charges will be based on the future value of our stock and the related exercises of the aforementioned options and warrants.
 
 Dividend Policy.
 
 There can be no assurance that our operations will result in future significant revenues or any level of profitability.  We have not, and do not, anticipate paying cash dividends on our Common Stock in the foreseeable future.  We plan to retain all future earnings and cash flows, if any, to finance our operations and for general corporate purposes.  Any future determination as to the payment of cash dividends will be at our Board of Directors’ discretion and will depend on our financial condition, operating results, current and anticipated cash needs, plans for expansion and other factors that our Board of Directors considers relevant.
 
 Conflicts of Interest.
 
 Existing and future officers and directors may have other interests to which they devote time, either individually or through partnerships and corporations in which they have an interest, hold an office, or serve on boards of directors, and each may continue to do so.  As a result, certain conflicts of interest may exist between the Company and its officers and/or directors that may not be susceptible to resolution.  All potential conflicts of interest will be resolved only through exercise by the directors of such judgment as is consistent with their fiduciary duties to the Company, and it is the intention of management to minimize any potential conflicts of interest.
 
 Loss of Services of Key Members of Our Senior Management Team.
 
 Our future success depends in a large part upon the continued services of key members of our senior management team.  These persons are critical to the overall management of Studio One as well as the development of our technology, our culture and our strategic direction.  We do not maintain any key-person life insurance policies.  The loss of any of our management or key personnel could seriously harm our business.
  ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  (a)
During the nine months ended March 31, 2011, the Company issued 201,261 shares of Common Stock for $25,717 in cash.  The Company also issued 300,833 shares of Common Stock for warrants exercised for cash for a total of $129,566 and 906,390 shares of Common Stock to extinguish notes payable and accrued interest totaling $618,864.  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, AfterMaster operations, as well as for working capital and general corporate purposes.
   35
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS - continued
  (b)
During the nine months ended March 31, 2011, the Company agreed to issue 2,350,000 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 $0.95 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 $ 1,068,297 of share-based compensation expense for 1,102,709 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 nine months ended March 31, 2011, 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 March 31, 2011, 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 nine months ended March 31, 2011, 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 LLP 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 LLP, neither the Registrant nor anyone on its behalf consulted with SingerLewak LLP 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 LLP 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.
 
 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
 
 
 
 
 
 
 
 
 
  36
  
 
 
 SIGNATURES
 
 In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 STUDIO ONE MEDIA, INC.Date:  November 17 , 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: November 17 , 2011
By:
/s/ Preston J. SheaPreston J. SheaTitle: Director, President, Chief Executive Officer, Secretary
 
 STUDIO ONE MEDIA, INC.Date:  November 17 , 2011
By:
/s/ Kenneth R. PinckardKenneth R. PinckardTitle: Director, Vice President, Chief Financial Officer, Chief Accounting Officer
 
 
 
 
 
 
 
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