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EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - AFTERMASTER, INC.exhibit_32-1.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934, RULES 13A-14 AND 15D-14, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - AFTERMASTER, INC.exhibit_31-2.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934, RULES 13A-14 AND 15D-14, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - AFTERMASTER, INC.exhibit_31-1.htm

 
U.S. SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 10-Q/A
 
(Amendment No. 1)
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2014
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to __________
  
Commission file number 001-10196
STUDIO ONE MEDIA, INC.

(Exact name of Registrant as specified in its charter)
 
  DELAWARE
  23-2517953
  (State or other jurisdiction of incorporation or organization)
  (IRS Employer Identification No.)
 
7650 E. Evans Rd., Suite C
Scottsdale, Arizona  85260
(Address of principal executive offices) (Zip Code)
 
(480) 556-9303
(Registrant’s telephone number, including area code)

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

x Yes    o No
 
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). 

x Yes    o No   (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
o
Non-accelerated filer
o
Smaller reporting company
x

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

o Yes    x No

At September 30, 2015, the number of shares outstanding of Common Stock, $0.001 par value, was 95,640,101 shares.



 
1

 
 
 
EXPLANATORY NOTE
 
The purpose of this Amendment No. 1 to the registrant's Quarterly Report on Form 10-Q for the quarterly period ended December 30, 2014, filed with the Securities and Exchange Commission on February 17, 2015 (the "Quarterly Report"), is to add derivative liabilities due to an error in sequencing which begun on August 15, 2014 when the company became contingently obligated to potentially issue shares of common stock in excess of the 100 million shares authorized under the Company's certificate of incorporation. Consequently, the ability to settle these obligations with common shares would have be unavailable causing these obligations to potentially be settled in cash during that period. This condition creates a derivative liability
 
The obligations related to the derivative liabilities outlined above were extinguished on August 28, 2015, pursuant to a vote by a majority of shareholders, which raise the Company's authorized capital from 100 million to 250 million.
 
The Company also recognized licensing revenues related to licensing fees generated per a term sheet with bBooth that were initially recorded as deferred revenue but should have been recorded when payments were received as there is no current definitive executed agreement in place. Therefore, the term of use is currently characterized as not definitive and revenues are recorded as received for the licensing of certain technologies, intellectual property, and patents from AfterMaster.
 
No other changes have been made to the Quarterly Report except as noted above. This Amendment No. 1 to the Quarterly Reports speaks as of the original filing date of the Quarterly Report, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Quarterly Report except that the cover page, Note 2 - Correction of Interim Condensed Financial Statements, Note 5 - Notes Payable, Note 7 – Common Stock, and Note 9 – Financial Instruments have been updated to reflect the amount of issuable shares of common stock, and the change regarding accounts receivable has been made.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
2

 
 


 
STUDIO ONE MEDIA, INC.
 
     
 
  INDEX
 
 
PART I - FINANCIAL INFORMATION
 
   
 PAGE NUMBER
Item 1.
Financial Statements
4
     
 
Condensed Consolidated Balance Sheets - December 31, 2014 (Re-stated and unaudited) and June 30, 2014
4
     
 
Condensed Consolidated Statements of Comprehensive Loss - For the three months ended December 31, 2014 and 2013 (Restated and unaudited)
5
     
 
Condensed Consolidated Statements of Cash Flows - For the three months ended December 31, 2014 and 2013 (Re-stated and unaudited)
6
     
 
Notes to Condensed Consolidated Financial Statements (Re-stated and unaudited)
7
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
21
     
Item 3.
Quantitative and Qualitative Disclosure About Market Risks
27
     
Item 4T.
Controls and Procedures
27
 
 
 
PART II - OTHER INFORMATION
 
     
Item 1.
Legal Proceedings
27
     
Item 1A.
Risk Factors
27
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
28
     
Item 3.
Defaults Upon Senior Securities
28
     
Item 4.
Submission of Matters to a Vote of Security Holders
28
     
Item 5.
Other Information
28
     
Item 6.
Exhibits
28
     
 
SIGNATURES
29












 


 
 
 
3

 
 

STUDIO ONE MEDIA, INC.
 
Consolidated Balance Sheets
 
 
December 31,
 
June 30,
 
 
2014
 
2014
 
 
(Re-stated and unaudited)
       
ASSETS
 
             
Current Assets
 
       
Cash
  $ 580,412     $ 77,876  
Accounts receivable
    31,779       3,400  
Other current assets
    9,111       20,499  
                 
Total Current Assets
    621,302       101,775  
                 
Property and equipment, net
    99,271       133,730  
Property and equipment, yet to be placed in service
    93,750       31,250  
                 
Intangible assets, net
    34,742       11,990  
                 
Other Assets
               
Deposits
    122,307       107,057  
Other assets
    41,877       -  
                 
Total Other Long-term Assets
    164,184       107,057  
                 
Total Assets
  $ 1,013,249     $ 385,802  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
 
                 
Current Liabilities
               
Accounts payable and other accrued expenses
  $ 712,670     $ 951,563  
Accrued interest
    96,766       74,483  
Deferred revenue
    6,000       3,500  
Consulting services - related party
    122,127       278,568  
Derivative liability
    2,078,509       -  
Lease payable
    30,768       30,768  
Notes payable - related party
    625,000       610,000  
Notes payable
    40,488       40,488  
Convertible notes payable - related party, net of discount of $0 and $1,761 , respectively
    3,925,000       3,932,239  
Convertible notes payable, net of discount of $35,005 and $161,043, respectively
    837,743       764,705  
 
Total Current Liabilities     8,475,071       6,686,314  
                 
Long-Term Liabilities                
                 
Lease Payable, net of current portion     41,699       55,374  
                 
Total Liabilities
    8,516,770       6,741,688  
                 
Stockholders' Deficit
               
Convertible preferred stock, Series A; $0.001 par value; 100,000 shares authorized, 15,500 shares issued and outstanding
    16       16  
Convertible preferred stock, Series A-1; $0.001 par value; 3,000,000 shares authorized, 641,000 and 696,000 shares issued and outstanding, respectively
    641       696  
Convertible preferred stock, Series B; $0.001 par value; 200,000 shares authorized, 3,500 shares issued and outstanding
    3       3  
Convertible preferred stock, Series C; $0.001 par value; 1,000,000 shares authorized, 13,404 shares issued and outstanding
    13       13  
Convertible preferred stock, Series D; $0.001 par value; 375,000 shares authorized, 130,000 shares issued and outstanding
    130       130  
Convertible preferred stock, Series E; $0.001 par value; 1,000,000 shares authorized, 275,000 shares issued and outstanding
    275       275  
Convertible preferred stock, Series P; $0.001 par value; 600,000 shares authorized, 86,640 shares issued and outstanding
    87       87  
Convertible preferred stock, Series S; $0.001 par value; 50,000 shares authorized, -0- shares issued and outstanding
    -       -  
Common stock, authorized 100,000,000 shares,
               
par value $0.001; 85,571,925 and 70,296,203 shares issued
               
and outstanding, respectively
    85,577       70,297  
Additional paid In capital
    44,849,775       40,557,726  
Accumulated Deficit
    (52,440,038 )     (46,985,129 )
Accumulated other comprehensive gain
    -       -  
                 
Total Stockholders' Deficit
    (7,503,521 )     (6,355,886 )
                 
Total Liabilities and Stockholders' Deficit
  $ 1,013,249     $ 385,802  
                 
The accompanying notes are an integral part of these consolidated financial statements.
 

 
 
4

 
 
 
STUDIO ONE MEDIA, INC.
 
Consolidated Statements of Operations
 
                         
 
For the Three Months Ended
   
For the Six Months Ended
 
 
December 31,
   
December 31,
 
 
2014
   
2013
   
2014
   
2013
 
   
(Re-stated and unaudited)
   
(Unaudited)
   
(Re-stated and unaudited)
   
(Unaudited)
 
REVENUES
                       
Session Revenues
 
$
2,310
   
$
6,240
   
$
3,730
   
$
26,922
 
AfterMaster Revenues
   
24,505
     
36,459
     
52,245
     
70,893
 
Licensing Revenues
   
-
     
-
     
200,000
     
-
 
Total Revenues
   
26,815
     
42,699
     
255,975
     
97,815
 
                                 
COSTS AND EXPENSES
                               
Cost of Revenues (Exclusive of Depreciation and Amortization)
   
84,444
     
122,915
     
167,621
     
207,857
 
Depreciation and Amortization Expense
   
9,537
     
26,880
     
43,893
     
54,794
 
General and Administrative Expenses
   
1,600,667
     
797,494
     
2,501,592
     
1,585,574
 
                                 
Total Costs and Expenses
   
1,694,648
     
947,289
     
2,713,106
     
1,848,225
 
                                 
Loss from Operations
   
(1,667,833
)
   
(904,590
)
   
(2,457,131
)
   
(1,750,410
)
                                 
Other Expense
                               
Interest Expense
   
(1,561,649
)
   
(395,066
)
   
(2,089,997
)
   
(798,257
)
Derivative Expense
   
(66,381
)
   
-
     
(126,126
)
   
-
 
Change in Fair Value of Derivative
   
(725,593
)
   
-
     
(753,138
)
   
-
 
Gain (Loss) on Extinguishment of Debt
   
-
     
27,713
     
(28,517
)
   
27,713
 
Impairment of assets
   
-
     
-
     
-
     
(45,676
)
                                 
Total Other Expense
   
(2,353,623
)
   
(367,353
)
   
(2,997,778
)
   
(816,220
)
                                 
Loss Before Income Taxes
   
(4,021,456
)
   
(1,271,943
)
   
(5,454,909
)
   
(2,566,630
)
                                 
NET LOSS
 
$
(4,021,456
)
 
$
(1,271,943
)
 
$
(5,454,909
)
 
$
(2,566,630
)
                                 
Preferred Stock Accretion and Dividends
   
(15,881
)
   
(17,016
)
   
(32,897
)
   
(34,032
)
                                 
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
 
$
(4,037,337
)
 
$
(1,288,959
)
 
$
(5,487,806
)
 
$
(2,600,662
)
                                 
Basic and Diluted Loss Per Share of Common Stock
 
$
(0.05
)
 
$
(0.02
)
 
$
(0.07
)
 
$
(0.05
)
                                 
Weighted Average Number of Shares Outstanding
   
82,078,713
     
58,416,841
     
78,474,438
     
55,464,433
 
                                 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
 

 
 
 
5

 
 

STUDIO ONE MEDIA, INC.
 
Consolidated Statements of Cash Flows
 
             
   
For the Six Months Ended
 
   
December 31,
 
   
2014
   
2013
 
   
(Re-stated and unaudited)
   
(Unaudited)
 
OPERATING ACTIVITIES
           
             
Net Loss
  $ (5,454,909 )   $ (2,566,630 )
Adjustments to reconcile net loss to cash from operating activities:
               
Depreciation and amortization
    42,608       54,794  
Share-based compensation - Common Stock
    516,485       379,566  
Share-based compensation - warrants
    1,275,119       114,626  
Common stock issued for services and rent
    129,259       264,961  
Common stock issued as incentive with Convertible debt
    10,261       -  
Common stock issued for preferred dividends
    12,923       -  
Common stock issued to extend the maturity dates on debt
    15,750       -  
Amortization of debt discount and issuance costs
    624,798       254,160  
Derivative expense
    126,126       -  
(Gain) loss on derivative
    753,138       -  
(Gain)/Loss on extinguishment of debt
    28,517       -  
Impairment on long lived assets and intangibles
    -       45,676  
Changes in Operating Assets and Liabilities:
               
Other receivables
    (38,379 )     (6,381 )
Other assets
    (25,739 )     107,734  
Accounts payable and accrued expenses and deferred revenue
    1,001,680       474,289  
                 
Net Cash Used in Operating Activities
    (982,363 )     (877,205 )
                 
INVESTING ACTIVITIES
               
                 
Purchase of property and equipment
    (93,401 )     (9,836 )
                 
Net Cash Used in Investing Activities
    (93,401 )     (9,836 )
                 
FINANCING ACTIVITIES
               
                 
Common Stock issued for cash, net of offering costs of $20,125 and $15,935, respectively
    1,058,975       581,565  
Proceeds from notes payable - related party
    50,000       -  
Proceeds from convertible notes payable
    527,000       225,000  
Repayments of convertible notes payable
    (9,000 )     (8,000 )
Repayments of notes payable
    (35,000 )        
Lease Payable
    (13,675 )     -  
                 
Net Cash Provided by Financing Activities
    1,578,300       798,565  
                 
NET INCREASE (DECREASE) IN CASH
    502,536       (88,476 )
CASH AT BEGINNING OF PERIOD
    77,876       165,258  
                 
CASH AT END OF PERIOD
  $ 580,412     $ 76,782  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
               
                 
CASH PAID FOR:
               
Interest
  $ 918     $ 612  
                 
NON CASH FINANCING ACTIVITIES:
               
Conversion of notes and Interest into common stock
  $ 1,922,230       -  
Conversion of warrants for common stock
  $ 10,000     $ -  
Conversion of preferred stock for common stock
  $ 100     $ -  
Common Stock and warrants issued for prepaid services
  $ -     $ 28,000  
Common Stock and warrants issued for interest
  $ 527,000     $ 251,000  
    Warrants and beneficial conversion feature on issuance of convertible debt
  $ -     $ 408,441  
    Initial derivative liability
  $ 1,277,474     $ -  
    Conversion of derivative liability
  $ (78,230 )   $ -  
    Derivative liability
  $ 1,199,245     $ -  
                 
The accompanying notes are an integral part of these consolidated financial statements.
 
 

 

 
 
 
6

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2014 and June 30, 2014

NOTE 1 – CONDENSED FINANCIAL STATEMENTS

The accompanying financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at December 31, 2014, 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, 2014 audited financial statements.  The results of operations for the periods ended December 31, 2014 and June 2014 are not necessarily indicative of the operating results for the full years.

NOTE 2 –CORRECTION OF INTERIM CONDENSED FINANCIAL STATEMENTS

This Amendment No. 1 corrects our previously issued interim consolidated financial statements for the six months ended December 31, 2014, to add derivative liabilities due to an error in sequencing which begun on August 15, 2014 when the company became contingently obligated to issue shares of common stock in excess of the 100 million authorized under the Company's certificate of incorporation and to recognize deferred revenue related to licensing revenue. Consequently, the ability to settle these obligations with common shares would be unavailable causing these obligations to potentially be settled in cash. This condition creates a derivative liability.  The correcting adjustments increased the derivative liability by $2,078,509, increase in derivative expense by $126,126, increase in loss on derivative instruments by $753,138, and an increase in additional paid in capital by $1,199,245. We have restated the three and six months ended December 31, 2014, because we concluded the corrections were material to the interim condensed financial statements.
 
The effects of these corrections on the interim consolidated financial statements were:
 
STUDIO ONE MEDIA, INC.
 
Consolidated Balance Sheets
 
   
December 31,
 
   
2014
 
As Reported
     
Derivative liability
    -  
Deferred revenue
    206,000  
Total Current Liabilities
    6,596,562  
Total Liabilities
    6,638,261  
Additional paid in capital
    46,049,020  
Accumulated Deficit
    (51,760,774 )
Total Stockholders' Deficit
    (5,625,012 )
Total Liabilities and Stockholders' Deficit
  $ 1,013,249  
Correction
       
Derivative liability
    2,078,509  
Deferred revenue
    (200,000 )
Total Current Liabilities
    1,878,509  
Total Liabilities
    1,878,509  
Additional paid in capital
    (1,199,245 )
Accumulated Deficit
    (679,264 )
Total Stockholders' Deficit
    (1,878,509 )
Total Liabilities and Stockholders' Deficit
  $ -  
As Corrected
       
Derivative liability
    2,078,509  
Deferred revenue
    6,000  
Total Current Liabilities
    8,475,071  
Total Liabilities
    8,516,770  
Additional paid in capital
    44,849,775  
Accumulated Deficit
    (52,440,038 )
Total Stockholders' Deficit
    (7,503,521 )
Total Liabilities and Stockholders' Deficit
  $ 1,013,249  


 
 
 
7

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2014 and June 30, 2014

NOTE 2 –CORRECTION OF INTERIM CONDENSED FINANCIAL STATEMENTS - continued

STUDIO ONE MEDIA, INC.
 
Consolidated Statements of Operations (Unaudited)
 
             
   
For the Three
   
For the Six
 
   
Months Ended
   
Months Ended
 
   
December 31,
   
December 31,
 
   
2014
   
2014
 
As Reported
           
Licensing Revenues
    -       -  
Other Expense
               
Derivative Expense
    -       -  
Change in Fair Value of Derivative
    -       -  
Total Other Expense
    (1,561,649 )     (2,118,514 )
Loss Before Income Taxes
    (3,229,482 )     (4,775,645 )
NET LOSS
  $ (3,229,482 )   $ (4,775,645 )
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
  $ (3,245,363 )   $ (4,808,542 )
Basic and Diluted Loss Per Share of Common Stock
  $ (0.04 )   $ (0.06 )
Correction
               
Licensing Revenues
    -       200,000  
Other Expense
               
Derivative Expense
    (66,381 )     (126,126 )
Change in Fair Value of Derivative
    (725,593 )     (753,138 )
Total Other Expense
    (791,974 )     (879,264 )
Loss Before Income Taxes
    (791,974 )     (879,264 )
NET LOSS
  $ (791,974 )   $ (879,264 )
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
  $ (791,974 )   $ (879,264 )
Basic and Diluted Loss Per Share of Common Stock
  $ (0.01 )   $ (0.01 )
As Corrected
               
Licensing Revenues
    -       200,000  
Other Expense
               
Derivative Expense
    (66,381 )     (126,126 )
Change in Fair Value of Derivative
    (725,593 )     (753,138 )
Total Other Expense
    (2,353,623 )     (2,997,778 )
Loss Before Income Taxes
    (4,021,456 )     (5,454,909 )
NET LOSS
  $ (4,021,456 )   $ (5,454,909 )
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
  $ (4,037,337 )   $ (5,487,806 )
Basic and Diluted Loss Per Share of Common Stock
  $ (0.05 )   $ (0.07 )
 
STUDIO ONE MEDIA, INC.
 
Consolidated Statements of Cash Flows (Unaudited)
 
       
 
December 31,
 
 
2014
 
As Reported
   
OPERATING ACTIVITIES
     
Net Loss
  $ (4,775,645 )
Derivative expense
    -  
(Gain) loss on derivative
    -  
Accounts payable and accrued expenses and deferred revenue
    1,201,680  
NON CASH FINANCING ACTIVITIES:
       
Derivative liability
  $ -  
Correction
     
OPERATING ACTIVITIES
     
Net Loss
  $ (679,264 )
Derivative expense
    126,126  
(Gain) loss on derivative
    753,138  
Accounts payable and accrued expenses and deferred revenue
    (200,000 )
NON CASH FINANCING ACTIVITIES:
       
Derivative liability
  $ 1,199,245  
As Corrected
       
OPERATING ACTIVITIES
       
Net Loss
  $ (5,454,909 )
Derivative expense
    126,126  
(Gain) loss on derivative
    753,138  
Accounts payable and accrued expenses and deferred revenue
    1,001,680  
NON CASH FINANCING ACTIVITIES:
       
Derivative liability
  $ 1,199,245  

 
 
 
8

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2014 and June 30, 2014
 
NOTE 3 – 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 $52,440,038 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 AfterMaster and ProMaster businesses. Management's plan to address these issues includes, (a) continued exercise of tight cost controls to conserve cash, (b) obtaining additional financing, and (c place in service the AfterMaster Chips and software in consumer products.

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 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods.

Significant estimates are made in relation to the allowance for doubtful accounts and the fair value of certain financial instruments.

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

Notes and Other Receivables
Notes and other receivables are stated at amounts management expects to collect. An allowance for doubtful accounts is provided for uncollectible receivables based upon management's evaluation of outstanding accounts receivable at each reporting period considering historical experience and customer credit quality and delinquency status. Delinquency status is determined by contractual terms. Bad debts are written off against the allowance when identified.
 
Loss Per Share
Basic earnings (loss) per Common Share is computed by dividing losses attributable to Common shareholders by the weighted-average number of shares of Common Stock outstanding during the period. The losses attributable to Common shareholders was increased for accrued and deemed dividends on Preferred Stock during the periods ended December 31, 2014 and 2013 of $32,897 and $34,032, respectively.

Diluted earnings per Common Share is computed by dividing income (loss) attributable to Common shareholders by the weighted-average number of Shares of Common Stock outstanding during the period increased to include the number of additional Shares of Common Stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding convertible Preferred Stock, stock options, warrants, and convertible debt. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s Common Stock can result in a greater dilutive effect from potentially dilutive securities.
 
For the periods ended December 31, 2014 and 2013, all of the Company’s potentially dilutive securities (warrants, options, convertible preferred stock, and convertible debt) were excluded from the computation of diluted earnings per share as they were anti-dilutive. The total number of potentially dilutive Common Shares that were excluded were 20,863,133 and 12,200,097 at December 31, 2014 and 2013, respectively.

Fair Value Instruments
Cash and available for sale securities are the Company’s only financial assets 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, available-for-sale-securities, 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
December 31, 2014 and June 30, 2014
 
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
 
The fair value of the Company’s notes payable at December 31, 2014 is approximately $5,463,236. 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.
 
Derivative Liabilities
In connection with the private placement of certain convertible instruments beginning in August 15, 2014, the Company became contingently obligated to issue shares of common stock in excess of the 100 million authorized under the Company's certificate of incorporation. Consequently, the ability to settle these obligations with common shares would be unavailable causing these obligations to potentially be settled in cash. This condition creates a derivative liability.

The Company has a sequencing policy regarding share settlement wherein instruments with the earliest issuance date would be settled first. The sequencing policy also considers contingently issuable additional shares, such as those issuable upon a stock split, to have an issuance date to coincide with the event giving rise to the additional shares.

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

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

Income Taxes
There is no income tax provision for the six months ended December 31, 2014 and 2013 due to net operating losses for which there is no benefit currently available.
 
At December 31, 2014, the Company had deferred tax assets associated with state and federal net operating losses. The Company has recorded a corresponding full valuation allowance as it is more likely than not that some portion of all of the deferred tax assets will not be realized.

Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements issued since the last audit of our consolidated financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s consolidated financial statements.
 
Reclassification
Certain amounts disclosed in prior periods have been reclassified to conform to current presentation. Such reclassifications are for presentation purposes only and have no effect on the Company’s net loss or financial position in any of the periods presented. The Company has made adjustments to the Income Statement and Cash flows Statement in impairment of assets and disposal of assets, respectively.

NOTE 5 – NOTES PAYABLE

Convertible Notes Payable
In accounting for its convertible notes payable, proceeds from the sale of a convertible debt instrument with Common Stock purchase warrants are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portions of the proceeds allocated to the warrants are accounted for as paid-in capital with an offset to debt discount. The remainder of the proceeds are allocated to the debt instrument portion of the transaction as prescribed by ASC 470-25-20. The Company then calculates the effective conversion price of the note based on the relative fair value allocated to the debt instrument to determine the fair value of any beneficial conversion feature (“BCF”) associated with the convertible note in accordance with ASC 470-20-30. The BCF is recorded to additional paid-in capital with an offset to debt discount. Both the debt discount related to the issuance of warrants and related to a BCF is amortized over the life of the note.
 
Convertible Notes Payable – Related Parties
Convertible notes payable due to related parties consisted of the following as of December 31, 2014 and June 30, 2014, respectively:
  
Convertible Notes Payable – Related Parties
           
 
December 31,
 
June 30,
 
 
2014
 
2014
 
         
Various term notes with total face value of $3,925,000 issued from February 2010 to April 2013, interest rates range from 10% to 15%, net of unamortized discount of $0 and $1,761 as of December 31, 2014 and June 30, 2014, respectively.
 
$
3,925,000
   
$
3,924,439
 
$9,000 face value, of which $9,000 has been paid back.
   
-
     
7,800
 
Total convertible notes payable – related parties
   
3,925,000
     
3,932,239
 
Less current portion
   
3,925,000
     
3,932,239
 
Convertible notes payable – related parties, long-term
 
$
-
   
$
-
 
 
 


 
 
 
10

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2014 and June 30, 2014
 
NOTE 5 – NOTES PAYABLE - continued
 
The notes were amended on June 30, 2014 to extend the maturity date to September 30, 2014, amended again on September 30, 2014 to December 31, 2014, and amended again on December 31, 2014 to June 30, 2015. The Company evaluated amendment under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension did not result in significant and consequential changes to the economic substance of the debt and thus resulted in a modification of the debt and not extinguishment of the debt.
 
Convertible Notes Payable - Non-Related Parties
Convertible notes payable due to non-related parties consisted of the following as of December 31, 2014 and June 30, 2014, respectively:
 
Convertible Notes Payable - Non-Related Parties
           
   
December 31,
   
June 30,
 
   
2014
   
2014
 
             
$100,000 face value, of which $100,000 has been converted.
 
$
-
   
$
100,000
 
$15,000 face value, issued in October 2011, interest rate of 10%, matures in June 2012, net of unamortized discount of $0 and $0 as of December 31, 2014 and June 30, 2014, respectively.
   
15,000
     
15,000
 
$75,000 face value, of which $75,000 has been converted.
   
-
     
75,000
 
$50,000 face value, issued in August 2012, interest rate of 10%, matures in February 2013, net of unamortized discount of $0 and $0 as of December 31, 2014 and June 30, 2014, respectively.
   
50,000
     
50,000
 
$10,000 face value, issued in September 2012, interest rate of 10%, matures in March 2013, net of unamortized discount of $0 and $0 as of December 31, 2014 and June 30, 2014, respectively.
   
10,000
     
10,000
 
$50,000 face value of which $9,600 was converted leaving a $40,400 face value, issued in November 2012, interest rate of 10%, matures in November 2013 and an additional penalties were added to the principal of $120,348 bringing the face value to $160,748, net of unamortized discount of $0 and $0 as of December 31, 2014 and June 30, 2014, respectively.
   
160,748
     
160,748
 
$30,000 face value, issued in February 2013, interest rate of 0%, matures in November 2013, net of unamortized discount of $0 and $0 as of December 31, 2014 and June 30, 2014, respectively.
   
30,000
     
30,000
 
$20,000 face value, issued in April 2013, interest rate of -0-%, matures in October 2013, net of unamortized discount of $0 and $0 as of December 31, 2014 and June 30, 2014, respectively.
   
 
20,000
     
 
20,000
 
$100,000 face value, of which $100,000 has been converted.
   
-
     
100,000
 
$50,000 face value, of which $50,000 has been converted.
   
-
     
50,000
 
$50,000 face value, of which $50,000 has been.
   
-
     
50,000
 
$50,000 face value, of which $50,000 has been converted.
   
-
     
46,132
 
$30,000 face value, issued in March 2014, interest rate of 0%, matures in September 2014, net of unamortized discount of $0 and $7,011 as of December 31, 2014 and June 30, 2014, respectively.
   
30,000
     
22,989
 
$20,000 face value, of which $20,000 has been converted.
   
-
     
20,000
 
$25,000 face value, of which $25,000 has been converted.
   
-
     
9,563
 
$15,000 face value, issued in June 2014, interest rate of 6%, matures December 2014, net unamortized discount of $6,557 and $14,098 as of December 31, 2014 and June 30, 2014, respectively.
   
15,000
     
902
 
$20,000 face value, issued in June 2014, interest rate of 6%, matures December 2014, net unamortized discount of $8,743 and $18,798 as of December 31, 2014 and June 30, 2014, respectively.
   
20,000
     
1,202
 
$30,000 face value, of which $30,000 has been converted.
   
-
     
1,967
 
$20,000 face value, issued in June 2014, interest rate of 6%, matures December 2014, net unamortized discount of $8,743 and $18,798 as of December 31, 2014 and June 30, 2014, respectively.
   
20,000
     
1,202
 
$25,000 face value, issued in June 2014, interest rate of 6%, matures September 2014, net unamortized discount of $0 and $25,000 as of December 31, 2014 and June 30, 2014, respectively.
   
25,000
     
-
 
$15,000 face value, issued in July 2014, interest rate of 6%, matures October 2014, net unamortized discount of $1,613 as of December 31, 2014.
   
15,000
     
-
 
$10,000 face value, issued in July 2014, interest rate of 6%, matures October 2014, net unamortized discount of $1,087 as of December 31, 2014.
   
10,000
     
-
 
$10,000 face value, issued in July 2014, interest rate of 6%, matures October 2014, net unamortized discount of $1,522 as of December 31, 2014.
   
10,000
     
-
 
$7,000 face value, issued in July 2014, interest rate of 6%, matures October 2014, net unamortized discount of $1,065 as of December 31, 2014.
   
7,000
     
-
 
$5,000 face value, issued in July 2014, interest rate of 6%, matures October 2014, net unamortized discount of $978 as of December 31, 2014.
   
5,000
     
-
 
$10,000 face value, issued in August 2014, interest rate of 6%, matures November 2014, net unamortized discount of $5,326 as of December 31, 2014.
   
10,000
     
-
 
$25,000 face value, of which $25,000 was converted.
   
-
     
-
 
$10,000 face value, issued in August 2014, interest rate of 6%, matures December 2014, net unamortized discount of $7,253 as of December 31, 2014.
   
10,000
     
-
 
$30,000 face value, issued in August 2014, interest rate of 6%, matures December 2014, net unamortized discount of $23,023 as of December 31, 2014.
   
30,000
     
-
 
$100,000 face value, issued in August 2014, interest rate of 6%, matures December 2014, net unamortized discount of $79,121 as of December 31, 2014.
   
100,000
     
-
 
$100,000 face value, issued in August 2014, interest rate of 6%, matures December 2014, net unamortized discount of $87,912 as of December 31, 2014.
   
100,000
     
-
 
$40,000 face value, issued in August 2014, interest rate of 6%, matures December 2014, net unamortized discount of $40,000 as of December 31, 2014.
   
40,000
     
-
 
 
 
 
 
11

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2014 and June 30, 2014
 
NOTE 5 – NOTES PAYABLE - continued
 
$40,000 face value, issued in October 2014, interest rate of 6%, matures December 2014, net unamortized discount of $40,000 as of December 31, 2014.
   
40,000
     
-
 
$40,000 face value, issued in October 2014, interest rate of 6%, matures January 2015, net unamortized discount of $40,000 as of December 31, 2014.
   
37,391
     
-
 
$25,000 face value, of which $25,000 has been converted.
   
-
     
-
 
$25,000 face value, issued in October 2014, interest rate of 6%, matures January 2015, net unamortized discount of $25,000 as of December 31, 2014.
   
20,604
     
-
 
$35,000 face value, issued in November 2014, interest rate of 6%, matures January 2015, net unamortized discount of $35,000 as of December 31, 2014.
   
7,000
     
-
 
Total convertible notes payable – non-related parties
   
837,743
     
764,705
 
Less current portion
   
837,743
     
764,705
 
Convertible notes payable – non-related parties, long-term
 
$
-
   
$
-
 

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

On September 30, 2013, the Company issued a convertible note to an unrelated individual for $100,000 that matures on February 28, 2014. The note bears an interest rate of 0% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period. The value of the BCF recorded was $100,000. On August 14, 2014, the note holder elected to convert the entire note of $100,000.

On October 17, 2013, the Company issued a convertible note to an unrelated individual for $50,000 with an original maturity date of November 17, 2013, the note bears an interest rate of 0% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period. The value of the original BCF recorded was $50,000. The note was amended on November 17, 2013 to extend the maturity date to May 17, 2014 and issued 25,000 common stock and 25,000 warrants as incentive to extending the maturity date. Under ASC 470-60-55-12, the debt was deemed to be extinguished and the company recognized a loss on extinguishment of debt $25,787. On August 14, 2014, the note holder elected to convert the entire note of $50,000.

On February 3, 2014, the Company issued a convertible note to an unrelated individual for $50,000 that matures on April 10, 2014. The note bears an interest rate of 10% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period. On July 19, 2014, the note holder elected to convert the entire note of $50,000 and $3,041 in accrued interest.
 
On February 21, 2014, the Company issued a convertible note to an unrelated individual for $50,000 that matures on August 21, 2014. The note bears an interest rate of 6% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period. On August 14, 2014, the note holder elected to convert the entire note of $50,000.

On March 31, 2014, the Company issued a convertible note to an unrelated individual for $20,000 that matures on June 28, 2014. The note bears an interest rate of 10% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period. On July 19, 2014, the note holder elected to convert the entire note of $20,000 and $603 in accrued interest.

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

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

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

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

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

On July 14, 2014, the Company issued a convertible note to an unrelated individual for $10,000 that matures on October 14, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share.
 
 
 
 
12

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2014 and June 30, 2014
 
NOTE 5 – NOTES PAYABLE - continued
 
In conjunction with the note, the Company issued to the holder 5,000 shares of restricted Common Stock. The value of the BCF recorded was $8,929 and the debt discount related to the attached relative fair value of the restricted Common Stock was $1,071, for a total debt discount of $10,000.

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

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

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

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

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

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

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

On September 10, 2014, the Company issued a convertible note to an unrelated individual for $30,000 that matures on December 5, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The Company booked a debt discount related to the derivative liability of $30,000.
 
On September 11, 2014, the Company issued a convertible note to an unrelated individual for $100,000 that matures on December 11, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The Company booked a debt discount related to the derivative liability of $100,000.

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

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

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

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

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

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

On November 24, 2014, the Company issued a convertible note to an unrelated individual for $35,000 that matures on May 24, 2015. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.35 per share. The Company booked a debt discount related to the derivative liability of $35,000.
 
 
 
 
 
13

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2014 and June 30, 2014
 
NOTE 5 – NOTES PAYABLE - continued
 
Notes Payable – Related Parties
Notes payable due to related parties consisted of the following as of December 31, 2014 and June 30, 2014, respectively:

Notes Payable – Related Parties
           
             
 
December 31,
 
June 30,
 
 
2014
 
2014
 
         
Various term notes with total face value of $610,000 issued from April 11 to January 2014, interest rates range from 0% to 15%, net of unamortized discount of $0  as of December 31, 2014 and June 30, 2014, respectively, of which $35,000 has been paid.
 
$
575,000
   
$
610,000
 
Face value of $50,000, issued in December 2014, matures in January 2015, note bears interest at 0%.
   
50,000
     
-
 
Total notes payable – related parties
   
625,000
     
610,000
 
Less current portion
   
625,000
     
610,000
 
Notes payable - related parties, long term
 
$
-
   
$
-
 
 
Notes Payable – Non-Related Parties
Notes payable due to non-related parties consisted of the following as of December 31, 2014 and June 30, 2014, respectively:

Notes Payable – Non-Related Parties
           
 
December 31,
 
June 30,
 
 
2014
 
2014
 
Various term notes with total face value of $40,488 due upon demand, interest rates range from 0% to 14%.
 
$
40,488
   
$
40,488
 
Total note payable – non-related parties
   
40,488
     
40,488
 
Less current portion
   
40,488
     
40,488
 
Notes payable – non-related parties, long-term
 
$
-
   
$
-
 
 
NOTE 6 – CONVERTIBLE PREFERRED STOCK

The Company has authorized 10,000,000 shares of $0.001 par value per share Preferred Stock, of which the following were issued outstanding:

   
Shares
   
Shares
   
Liquidation
 
   
Allocated
   
Outstanding
   
Preference
 
Series A Convertible Preferred
   
100,000
     
15,500
     
-
 
Series A-1 Convertible Preferred
   
2,762,931
     
641,000
     
712,021
 
Series B Convertible Preferred
   
200,000
     
3,500
     
79,099
 
Series C Convertible Preferred
   
1,000,000
     
13,404
     
-
 
Series D Convertible Preferred
   
375,000
     
130,000
     
130,000
 
Series E Convertible Preferred
   
1,000,000
     
275,000
     
275,000
 
Series P Convertible Preferred
   
600,000
     
86,640
     
-
 
Series S Convertible Preferred
   
50,000
     
-
     
-
 
Total Preferred Stock
   
6,087,931
     
1,165,044
   
$
1,196,021
 
 
 
 
 
 
 
 
14

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2014 and June 30, 2014
 
NOTE 6 – CONVERTIBLE PREFERRED STOCK - continued
 
The Company's Series A Convertible Preferred Stock ("Series A Preferred") is convertible into Common Stock at the rate of 0.025 share of Common stock for each share of the Series A Preferred. Dividends of $0.50 per share annually from date of issue, are payable from retained earnings, but have not been declared or paid.

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

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

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

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

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

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

The Company's Series P Convertible Preferred Stock ("Series P Preferred") is convertible at a rate of 0.007 share of Common Stock for each share of Series P Preferred. Holders are entitled to dividends only to the extent of the holders of the Company’s Common Stock receive dividends.
 
In the event of a liquidation, dissolution or winding up of the affairs of the Company, holders of Series A Preferred Stock, Series P Convertible Preferred Stock, Series C Convertible Preferred Stock have no liquidation preference over holders of the Company’s Common Stock. Holders of Second Series B Preferred Stock have a liquidation preference over holders of the Company’s Common Stock and the Company’s Series A Preferred Stock. Holders of Series D Preferred Stock are entitled to receive, before any distribution is made with respect to the Company’s Common Stock, a preferential payment at a rate per each whole share of Series D Preferred Stock equal to $1.00. Holders of Series E Preferred Stock are entitled to receive, after the preferential payment in full to holders of outstanding shares of Series D Preferred Stock but before any distribution is made with respect to the

Company’s Common Stock, a preferential payment at a rate per each whole share of Series E Preferred Stock equal to $1.00. Holders of Series A-1 Preferred Stock are superior in rank to the Company’s Common Stock and to all other series of Preferred Stock heretofore designated with respect to dividends and liquidation.

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

During the six months ended December 31, 2014 and the fiscal year ended June 30, 2014, the Company issued -0- shares of Series A-1 Preferred Stock for $-0- in cash, net of $-0- of issuance costs, respectively. The Company had two conversions of 55,000 shares of Series A-1 Preferred Stock for 110,000 shares of Common Stock, and issued 41,987 shares of Common Stock of payment of $12,922 in accrued dividends.
 
During the six months ended December 31, 2014, the outstanding Preferred Stock accumulated $34,032 in dividends; in six months ended December 31, 2013 it accumulated $32,897 in dividends on outstanding Preferred Stock. The cumulative dividends in arrears through December 31, 2014 were approximately $623,058.
 
 
 
 
 
 
15

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2014 and June 30, 2014

NOTE 7 – COMMON STOCK
 
The Company has authorized 100,000,000 shares of $0.001 par value per share Common Stock, of which 85,571,925 and 70,296,203 were issued outstanding as of December 31, 2014 and June 30, 2014, respectively.  The activity surrounding the issuances of the Common Stock is as follows:

For the Six Months Ended December 31, 2014
The Company issued 5,316,001 common shares for net cash proceeds of $1,058,975. The Company paid as offering costs $20,125 in cash offering costs. Offering costs have been recorded as reductions to additional paid-in capital from common stock proceeds and an increase in professional fees. Attached to the Common Shares, the Company issued 6,506,133 warrants to purchase shares of the Company’s Common Stock. The Company recognized $1,239,540 for the amortization of warrants issued in prior periods.

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

The Company also issued 4,775,741 shares of Common Stock for the conversion of notes and accrued interest valued at $556,794.

The Company also issued 110,000 shares of Common Stock for the conversion of 55,000 shares of Series A-1 Preferred Stock and issued 41,987 shares of Common Stock of payment of $37,130 in accrued dividends.

The Company also issued 50,000 shares of Common Stock for the conversion warrants.

The Company issued 327,971 shares of Common Stock as payment for services and rent valued at $129,259.

As share-based compensation to employees and non-employees, the Company issued 2,440,138 shares of common stock valued at $516,485, based on the market price of the stock on the date of issuance. As interest expense on outstanding notes payable, the Company issued 886,344 shares of common stock valued at $444,217 based on the market price on the date of issuance. The Company also issued 1,234,040 shares of common stock for settlement of accrued interest on the convertible notes valued at $925,530 based on the market price on the date of issuance.

For the Six Months Ended December 31, 2013

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

The Company also issued 510,000 shares of Common Stock as additional incentive for notes of $141,049 to convertible notes payable and recorded $251,000 in beneficial conversion features related to new issuances of debt.
 
As share-based compensation to employees and non-employees, the Company issued 1,970,458 shares of common stock valued at $531,478, based on the market price of the stock on the date of issuance. As interest expense on outstanding notes payable, the

Company issued 1,471,784 shares of common stock valued at $408,441 based on the market price on the date of issuance.

NOTE 8 – STOCK PURCHASE OPTIONS AND WARRANTS

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

Stock Purchase Options
 
During the six months ended December 31, 2014, the Company did not issue any stock purchase options.  
 
 
 
 
 
 
16

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2014 and June 30, 2014
 
NOTE 8 – STOCK PURCHASE OPTIONS AND WARRANTS - continued
 
During the fiscal year ended June 30, 2014, the Company issued 25,000 stock purchase options for a value of $6,045.  The Company did recognize $10,713 in employee stock option expense during the fiscal year ended June 30, 2014 for options vested during the period that were issued in prior periods.  
 
Date Issued
 
Number of Options
   
Weighted Average Exercise Price
   
Weighted Average Grant Date Fair Value
   
Expiration Date (yrs)
   
Value if Exercised
 
Balance June 30, 2014
   
381,429
   
$
0.55
   
$
0.12
     
0.62
   
$
209,643
 
Granted
   
-
     
-
     
-
     
-
     
-
 
Exercised
   
-
     
-
     
-
     
-
     
-
 
Cancelled/Expired
   
(301,429
)
   
(0.52
)
   
-
     
-
     
(156,743
)
Outstanding as of December 31, 2014
   
80,000
   
$
0.66
   
$
0.59
     
1.94
   
$
52,900
 
 
The following table summarizes the changes in options outstanding of the Company during the fiscal year ended June 30, 2014.
 
Date Issued
 
Number of Options
   
Weighted Average Exercise Price
   
Weighted Average Grant Date Fair Value
   
Expiration Date (yrs)
   
Value if Exercised
 
Balance June 30, 2013
   
613,429
   
$
0.85
   
$
1.20
     
1.95
   
$
522,843
 
Granted
   
25,000
     
0.15
     
0.24
     
5.00
     
3,750
 
Exercised
   
-
     
-
     
-
     
-
     
-
 
Cancelled/Expired
   
(257,000
)
   
(1.23
)
   
-
     
-
     
(316,950
)
Outstanding as of June 30, 2014
   
381,429
   
$
0.55
   
$
0.12
     
0.62
   
$
209,643
 

Stock Purchase Warrants
 
During the six months ended December 31, 2014, the Company issued warrants to purchase a total of 6,506,133. The Company issued 50,000 warrants in conjunction to extended two convertible note payables and issued 4,456,133 warrants in conjunction to a consulting agreement entered into in July 2014. The Company also issued 1,000,000 warrants related to the B Booth agreements which were expensed during the current year.  The company also issued 1,000,000 warrants as part of a private placement to extend the terms during the period, which were converted for cash proceed of $75,000 in exchange for 750,000 shares of common stock. The warrants were valued using the Black-Scholes pricing model under the assumptions noted below. The Company apportioned value to the warrants based on the relative fair market value of the Common Stock and warrants.
 
During the fiscal year ended June 30, 2014, the Company issued warrants to purchase a total of 1,366,016 and expired 498,500 shares of the Company’s Common Stock. The Company issued 29,400 warrants in conjunction to a default clause in a convertible note payable and issued 311,616 warrants in conjunction to a consulting agreement entered into in July 2013. The Company also issued 500,000 warrants in conjunction to a consulting agreement entered into in October 2013.The Company issued 25,000 warrants in conjunction to an extension in a convertible note payable in conjunction with 50,000 shares of common stock. The

Company issued 100,000 warrants in conjunction with a consulting agreement entered into January 2014. The Company issued 300,000 warrants in conjunction with an employment agreement entered into January 2014. The Company also issued 100,000 warrants as compensation for references purchased. The warrants were valued using the Black-Scholes pricing model under the  assumptions noted below. The Company apportioned value to the warrants based on the relative fair market value of the Common Stock and warrants.

The following table presents the assumptions used to estimate the fair values of the stock warrants and options granted:
 
   
December 31,
 
June 30,
   
2014
 
2014
Expected volatility
 
106-125%
 
113-132%
Expected dividends
 
0%
 
0%
Expected term
 
.25-5 Years
 
2-10 Years
Risk-free interest rate
 
0.02-1.75%
 
0.35-1.75%
 
 
 
 
17

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2014 and June 30, 2014
 
NOTE 8 – STOCK PURCHASE OPTIONS AND WARRANTS - continued
 
The following table summarizes the changes in warrants outstanding issued to employees and non-employees of the Company during the six months ended December 31, 2014.
 
Date Issued
 
Number of Warrants
   
Weighted Average Exercise Price
   
Weighted Average Grant Date Fair Value
   
Expiration Date (yrs)
   
Value if Exercised
 
Balance June 30, 2014
   
8,332,579
   
$
0.76
   
$
0.70
     
2.96
   
$
6,370,432
 
Granted
   
6,506,133
     
0.44
     
0.24
     
5.10
     
3,017,533
 
Exercised
   
(1,050,000
)
   
(0.20
)
   
-
     
-
     
(210,000
)
Cancelled/Expired
   
(100,000
)
   
(0.50
)
   
-
     
-
     
(1,824,468
)
Outstanding as of December 31, 2014
   
13,688,712
   
$
0.55
   
$
0.52
     
2.93
   
$
7,773,498
 
 
The following table summarizes the changes in warrants outstanding issued to employees and non-employees of the Company during the fiscal year ended June 30, 2014.

 Date Issued
 
Number of Warrants
   
Weighted Average Exercise Price
   
Weighted Average Grant Date Fair Value
   
Expiration Date (yrs)
   
Value if Exercised
 
Balance June 30, 2013
   
7,530,063
   
$
0.67
   
$
2.45
     
4.17
   
$
4,770,713
 
Granted
   
1,366,016
     
1.30
     
0.23
     
5.00
     
1,774,467
 
Exercised
   
(65,000
)
   
(0.25
)
   
0.14
     
-
     
(16,250
)
Cancelled/Expired
   
(498,500
)
   
(0.70
)
   
-
     
-
     
(158,498
)
Outstanding as of June 30, 2014
   
8,332,579
   
$
0.76
   
$
0.70
     
2.96
   
$
6,370,432
 
 
NOTE 9 – FINANCIAL INSTRUMENTS
 
The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company has estimated the fair value of these embedded derivatives for convertible debentures and associated warrants using a multinomial lattice model as of December 31, 2014. The fair values of the derivative instruments are measured each quarter, which resulted in a gain (loss) of (753,138) and $0 and derivative expense of $66,381 and $0 and $126,126 and $0 during the three and six months ended December 31, 2014 and 2013, respectively. As of December 31, 2014, and June 30, 2014, the fair market value of the derivatives aggregated $2,078,509 and $0, respectively, using the following assumptions: estimated 5-.08-year term, estimated volatility of 109.59-61.11%, and a discount rate of 1.75-0.01%.
 
NOTE 10 – FAIR VALUE MEASUREMENTS
 
For asset and liabilities measured at fair value, the Company uses the following hierarchy of inputs:
 
Level one — Quoted market prices in active markets for identical assets or liabilities;
   
Level two — Inputs other than level one inputs that are either directly or indirectly observable; and
   
Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
 
 
 
 
 
 
18

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2014 and June 30, 2014
 
NOTE 10 – FAIR VALUE MEASUREMENTS - continued
 
Liabilities measured at fair value on a recurring basis at December 31, 2014, are summarized as follows:

   
Level 1
   
Level 2
   
Level 3
   
Total
 
Derivative liability
  $ -     $ 2,078,509     $ -     $ 2,078,509  
 
Liabilities measured at fair value on a recurring basis at June 30, 2014, are summarized as follows:
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Derivative liability
  $ -     $ -     $ -     $ -  

NOTE 11 – COMMITMENTS AND CONTINGENCIES
 
Legal Proceedings
The Company may become involved in certain legal proceedings and claims which arise in the normal course of business. In addition, from time to time, third parties may assert intellectual property infringement claims against the Company in the form of letters and other forms of communication. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the Company’s results of operations, prospects, cash flows, financial position and brand.

In November 2012, the Company’s former Chief Financial Officer, Joseph Desiderio, signed a promissory note (“Note”) on behalf of the Company in favor of JMJ Financial or its Assignees. The Note provided, among other things, for the right on the part of the Lender to convert part of the debt to stock. Subsequently, the parties have disagreed on the validity and terms of the agreement.

The Lender has filed suit in the state court in Dade County, Florida, seeking to enforce the agreement. The Company disputes the Lender’s position on the grounds that (1) the Note contains provisions that violate Florida’s usury laws, (2) there has been no default by Company under the Note, and (3) some provisions of the Note are void and unenforceable. The Company expects the matter to be resolved to its satisfaction. Except as described in the preceding paragraph, to the best knowledge of our management, there are no material litigation matters pending or threatened against us.

Lease Agreements
Pursuant to a lease originally dated January 2006, we currently occupy approximately 11,800 square feet of office space located at 7650 E. Evans Rd., Suite C, Scottsdale, Arizona on a month-to-month basis. The total lease expense is approximately $9,600 per month, payable in cash and Common Stock of the Company.

We also lease an office in Los Angeles for use by our audio team in connection with our AfterMaster product under a lease expiring on December 31, 2017. The total lease expense is approximately $5,600 per month, and the total remaining obligations under these leases at December 31, 2014 were approximately $289,866.96.
 
Rent expense for the six months ended December 31, 2014 was $134,933, of which $87,862 was paid in cash and $47,071 was paid in Common Stock. Rent expense for the six months December 31, 2013 was $39,640, of which $16,684 was paid in cash and $40,256 was paid in Common Stock.
 
Below is a table summarizing the annual operating lease obligations over the next 5 years:
 
Year
 
Lease Payments
 
2015
 
$
93,432.00
 
2016
 
$
96,234.96
 
2017
 
$
100,200.00
 
Total
 
$
289,866.96
 
 
 
 
 
 
19

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
December 31, 2014 and June 30, 2014
 
NOTE 11 – COMMITMENTS AND CONTINGENCIES - continued
 
Other
The Company has not declared dividends on Series A or B Convertible Preferred Stock or its Series A-1 Convertible Preferred Stock. The cumulative dividends in arrears through December 31, 2014 were approximately $686,905.

As of the date of this filing, the Company has not filed its tax return for the fiscal year ended 2013 and 2014.

NOTE 12 - SUBSEQUENT EVENTS
 
As part of a private placement memorandum dated December 24, 2014, the Company intends to raise up to $550,000 through the sale of 1,100,000 shares of common stock at a price of $.50 per share.  For every two shares of common stock purchased, the Company will issue a two year warrant with an exercise price of $.75. The Company issued 675,000 common shares subsequent to the period ended December 31, 2014 as part of the private placement for net cash proceeds of $337,500 and issued 337,500 warrant. The Company paid as offering costs $50,400 in cash offering costs.

On January 1, 2015, the Company issued 270,000 warrants in conjunction with the private placement memorandum dated December 24, 2014. The warrants are have a term of two years, which vest immediately, exercisable at a price of $0.75 valued at $85,277. The warrants were valued using the Black-Scholes pricing model under the assumptions noted below. The Company apportioned value to the warrants based on the relative fair market value of the Common Stock and warrants.

On January 14, 2015, the Company issued 32,500 warrants in conjunction with the private placement memorandum dated December 24, 2014. The warrants are have a term of two years, which vest immediately, exercisable at a price of $0.75 valued at $12,419. The warrants were valued using the Black-Scholes pricing model under the assumptions noted below. The Company apportioned value to the warrants based on the relative fair market value of the Common Stock and warrants.
 
On January 20, 2015, the Company issued 12,500 warrants in conjunction with the private placement memorandum dated December 24, 2014. The warrants are have a term of two years, which vest immediately, exercisable at a price of $0.75 valued at $4,687. The warrants were valued using the Black-Scholes pricing model under the assumptions noted below. The Company apportioned value to the warrants based on the relative fair market value of the Common Stock and warrants.

On January 25, 2015, the Company issued 22,500 warrants in conjunction with the private placement memorandum dated December 24, 2014. The warrants are have a term of two years, which vest immediately, exercisable at a price of $0.75 valued at $10,953. The warrants were valued using the Black-Scholes pricing model under the assumptions noted below. The Company apportioned value to the warrants based on the relative fair market value of the Common Stock and warrants.
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
20

 
 

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


FORWARD-LOOKING AND CAUTIONARY STATEMENTS
 
This Quarterly Report (the “Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended, and as contemplated under the Private Securities Litigation Reform Act of 1995.  These forward-looking statements may relate to such matters as  the Company’s (and its subsidiaries) business strategies, continued growth in the Company’s markets, projections, and anticipated trends in the Company’s business and the industry in which it operates anticipated financial performance, future revenues or earnings, business prospects, projected ventures, new products and services, anticipated market performance and similar matters.  All statements herein contained in this Report, other than statements of historical fact, are forward-looking statements.
 
When used in this Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” “budget,” “budgeted,” “believe,” “will,” “intends,” “seeks,” “goals,” “forecast,” and similar words and expressions are intended to identify forward-looking statements regarding events, conditions, and financial trends that may affect our future plans of operations, business strategy, operating results, and financial position. These forward-looking statements are based largely on the Company’s expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company’s control.  We caution our readers that a variety of factors could cause our actual results to differ materially from the anticipated results or other matters expressed in the forward looking statements, including those factors described under “Risk Factors” and elsewhere herein.  In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Report will in fact transpire or prove to be accurate.  These risks and uncertainties, many of which are beyond our control, include:
 
 
the sufficiency of existing capital resources and our ability to raise additional capital to fund cash requirements for future operations;
 
 
uncertainties involved in growth and growth rate of our operations, business, revenues, operating margins, costs, expenses and acceptance of any products or services;
 
 
volatility of the stock market, particularly within the technology sector;
 
 
our dilution related to all equity grants to employees and non-employees;
 
 
that we will continue to make significant capital expenditure investments;
 
 
that we will continue to make investments and acquisitions;
 
 
the sufficiency of our existing cash and cash generated from operations;
 
 
the increase of sales and marketing and general and administrative expenses in the future;
 
 
the growth in advertising revenues from our websites and studios will be achievable and sustainable;
 
 
that seasonal fluctuations in Internet usage and traditional advertising seasonality are likely to affect our business; and
 
 
general economic conditions. 

Although we believe the expectations reflected in these forward-looking statements are reasonable, such expectations cannot guarantee future results, levels of activity, performance or achievements.  We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report.
 
All references in this report to “we,” “our,” “us,” the “Company” or “Studio One” refer to Studio One Media, Inc. and its subsidiaries and predecessors.
 

 


 
 
 
21

 
 

Corporate Background
 
We are a Delaware public company traded on the Over-The-Counter Bulletin Board (ticker symbol: SOMD).  As of December 31, 2014, there were 85,571,925 shares of Common Stock issued and outstanding.   From April 2006 to December 2014, we have raised approximately $22.5 million in the form of equity for purposes of research and development, the launch of AfterMaster and MyStudio and general corporate purposes. The Company's office and principal place of business is located at 7650 E. Evans Road, Suite C, Scottsdale, Arizona 85260 USA, and its telephone number is (480) 556-9303. The Company also operates research, recording and mastering studios located at 6671 Sunset Blvd., Suite 1520, Hollywood, CA 90028, and its telephone number is (310) 657-4886.

Business Update

Business
 
Studio One Media, Inc. ("the Company") is a diversified media and technology company located in Hollywood, California and Scottsdale, Arizona. The Company's wholly-owned subsidiaries include AfterMaster HD Audio Labs, Inc. and MyStudio, Inc.
 
The Company and its subsidiaries are engaged in the development and commercialization of proprietary (patents issued and pending), leading-edge audio and video technologies for professional and consumer use, including AfterMasterTM HD Audio, ProMaster HDTM and MyStudio® HD Recording Studios.
 
Summary
 
In November, entertainment superstar Justin Timberlake joined the Company as a co-owner and consultant. Mr. Timberlake is an internationally recognized actor, businessman and recording artist who enjoys recognition and credibility with consumers worldwide. The Company believes that Mr. Timberlake's involvement can maximize product value and accelerate the roll out of its audio products.  
 
Through its joint development agreement with ON Semiconductor, the Company's AfterMaster technology has been converted to an algorithm which can be loaded into semiconductor chips or utilized in software applications. ON Semiconductor has successfully loaded the algorithm into a proprietary semiconductor chip which can greatly enhance the audio in consumer and industrial electronics products such as cell phones, headphones, TV's, stereos and speakers. The chips will be available for consumer electronics product manufacturers in 2015.
 
The Company enjoyed a very successful introduction of its technology during the 2015 Consumer Electronics Show (CES). The Company is party to numerous mutual non-disclosure agreements with major consumer electronics and industrial companies to pursue the licensing of its software and sale of semiconductor chips. 
 
AfterMaster HD Audio
 
We believe that our AfterMaster audio technology is one of the most significant breakthroughs in digital audio processing technology and has the potential to create significant revenues for the Company. The feedback from music and consumer electronic products companies has been exceptional. The broad commercialization of this technology is a top priority for the Company.
 
AfterMaster is an internally-developed, proprietary (patents-pending) mastering, remastering and audio processing technology which makes music and other audio files sound significantly louder, fuller and clearer. The technology can be applied to virtually all audio sources including music, radio, motion pictures, television and VoIP. The technology has also been used to enhance music created by such artists as Lady Gaga, Nick Cannon, Ray J, Akon, Diddy, Janet Jackson, and many others.  Further information on AfterMaster Audio Labs and AfterMaster products can be found at www.AfterMasterHD.com.
 
ON Semiconductor/AfterMaster Audio Chip
 
In April of 2014, we entered into a multi-year joint development and marketing agreement with ON Semiconductor ("ON") of Phoenix, Arizona. ON is a multi-billion dollar, multinational semiconductor manufacturer.
 
The agreement calls for ON to implement our AfterMaster technology in a semiconductor chip that will be marketed to their current OEM customers, distributors and others. We selected ON for its technical capabilities, sales support and deep customer breadth.
 
In conjunction with ON Semi, we recently completed the development of the AfterMaster software algorithm designed to be used in semiconductor chips, or as a standalone software package to be injected into existing systems. We believe the sound quality from our algorithm/semiconductor chip will provide a superior audio experience relative to other products on the market.
 
 
 
22

 
 
Since entering into the agreement, both Studio One and ON have identified a large number of prospective customers that will be key targets for this new and unprecedented technology.  We have also received strong indications of interest in the AfterMaster chip since the announcement of the partnership. We have begun developing a joint marketing plan with ON for the expected launch of the AfterMaster semiconductor chip in 2015.
 
The Consumer Audio Products Market
 
As the convergence of features on consumer electronics continues, it is becoming more difficult for leading consumer electronics companies to differentiate their products. We believe that AfterMaster provides a unique and significant competitive advantage for consumer electronics manufacturers by offering their customers a superior audio experience. Such uses are intended to include phones (mobile, home, business and VoIP); headphones; televisions; stereo speakers; stereos (home, portable, commercial and automobile); and computers (desktop, laptop and tablets).    
 
The algorithm and chips will allow consumer product manufacturers an opportunity to offer a significantly improved and differential audio experience in their products without having to significantly change hardware and form factor designs. Through the combined relationships of Studio One and ON, we hope to generate significant revenues for both parties through the sale of the AfterMaster chips and software licensing in 2015.    
 
ProMasterHD
 
ProMaster HD is an online music mastering, streaming, and storage service designed for independent artists which utilizes proprietary audio technologies developed by AfterMaster.  ProMaster HD will master the user’s uploaded music and allow them to compare up to 90 seconds of their original and mastered songs so they can make a decision to purchase.
 
The Independent Music Market
 
Millions of songs are produced, distributed, played on the internet each month around the world by independent artists.  However, many of these artists lack the financial and technical means to master, or “finish” their composition, as a professional mastering can cost over $500 per song. Now, with the ProMaster online platform, musicians can transmit their music directly to the ProMaster HD website, where it can be mastered with AfterMaster Technology for $34.99 per song. ProMaster creates a compelling offering for those seeking to significantly enhance the quality of their music for personal use, or with intent to showcase their music in hopes of advancing their career aspirations. Based on the enormous addressable market for this product, we believe that ProMaster has the potential to generate significant revenues for the Company.
 
The new ProMasterHD.com will be launched in the first quarter of 2015.
 
MyStudio HD Recording Studios
 
On September 30th, 2014, the Company entered into a licensing and option agreement to merge its MyStudio operations with bBooth, Inc. for a total consideration of $1,550,000 consisting of cash and stock in bBooth, as well as a financial interest in the Company's television development project. bBooth is a privately held Los Angeles-based company which intends to install interactive recording booths in the U.S. and internationally and capitalize on the content created therein.

The key financial consideration consists of the following:
 
·
The Company will be paid $1,250,000 in cash over 18 months for a conditional perpetual license of its MyStudio-related intellectual property (including related patents); of the total cash consideration, $200,000 has been paid to the Company.  
·
Upon full payment of the $1,250,000, bBooth will have the option to purchase six freestanding MyStudio's and one mobile MyStudio for a nominal fee.  
·
The Company will also receive approximately 600,000 shares of bBooth, Inc., which are currently valued at $300,000.  
·
Additionally, the Company will retain half of any profits earned from a proposed MyStudio television show.
 
The transaction represents the Company's largest technology licensing agreement to date.
 
Corporate
 
The Company has been awarded five patents with other patent applications pending. The Company has an aggressive intellectual property strategy to protect the technologies it has developed. We expect to continue raising capital through both equity and debt financing's as needed, to further our corporate objectives.
 
 
 
23

 

Employees
 
As of December 31, 2014 we employed ten full-time and five part-time employees. We expect to seek additional employees in the next year to handle anticipated potential growth.
 
We believe that our relationship with our employees is good.  None of our employees are members of any union nor have they entered into any collective bargaining agreements.
 
The Company has continued to embark on several key initiatives, which included redefining our existing products, engaging in research and development for new products, analyzing pricing models based on market analysis, and defining our target demographics. In addition, the Company experienced a decline in studio revenues as it was not able to launch studios in strategic locations until it fulfilled among other things existing lease arrangements.   
 
The information collected through the various initiatives has led the company to a new operational plan for its recording studio business unit as well as its audio technology unit.

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-to-month basis. The total lease expense is approximately $9,600 per month, payable in cash and Common Stock of the Company.

We also lease an office in Los Angeles for use by our audio team in connection with our AfterMaster product under a lease expiring on December 31, 2017. The total lease expense is approximately $5,600 per month, and the total remaining obligations under these leases at December 31, 2014 were approximately $289,866.96.
 
RESULTS OF OPERSATIONS
           
             
Revenues
           
 
Three Months Ended
 
 
December 31,
 
 
2014
 
2013
 
Session Revenues
 
$
2,310
   
$
6,240
 
AfterMaster Revenues
   
24,505
     
36,459
 
Licensing Revenues
   
-
     
-
 
Total Revenues
 
$
26,815
   
$
42,699
 
 
 
Six Months Ended
 
 
December 31,
 
 
2014
 
2013
 
Session Revenues
 
$
3,730
   
$
26,922
 
AfterMaster Revenues
   
52,245
     
70,893
 
Licensing Revenues
   
200,000
     
-
 
Total Revenues
 
$
255,975
   
$
97,815
 
 
Our business model currently generates revenues from two primary sources:

 
1.
ProMaster HD online music mastering service designed for independent artists.
 
2.
AfterMaster mastering, remastering and audio processing technology that makes music and other audio files sound significantly louder, fuller and clearer.

Revenues from AfterMaster Services resulted primarily from audio services provided to producers and artists on a contract basis. This source of revenue is expected to grow in coming years, and the Company is expecting to generate additional revenues from pay-per-play downloads.

The revenue for the three months ended December 31, 2014 decreased to $26,815 from $42,699 over the comparable three month period ended December 31, 2013 due primarily to decreased use of the MyStudio Studios and mobile studio to prepare for the Bbooth merger of the MyStudio operations, and a decrease in online mastering services due to the revamping of the ProMaster website.

The revenue for the Six months ended December 31, 2014 increase to $255,975 from $97,815 over the comparable six month period ended December 31, 2013 due primarily to an increase in licensing revenue related to the bBooth agreement offset by a decrease use of the MyStudio Studios and model studio to prepare for the Bbooth merger of the MyStudio operations.
 
 
 
24

 
 
Cost of Sales
 
 
   
Three Months Ended
 
   
December 31,
 
   
2014
   
2013
 
Cost of Sales (excluding depreciation and amortization)
 
$
84,444
   
$
122,915
 
 
   
Six Months Ended
 
   
December 31,
 
   
2014
 
2013
 
Cost of Sales (excluding depreciation and amortization)
 
$
167,621
   
$
207,857
 
 
Cost of sales consists primarily of studio rent, and Internet connectivity and excludes depreciation and amortization on the studios. The decrease in cost of sales for the three and six months ended December 31, 2014, over the comparable period for the prior fiscal year, is attributable, primarily, to the Company opening fewer studios in the current year.
 
Other Operating Expenses
       
 
 
Three Months Ended
 
 
December 31,
 
 
2014
 
2013
 
Depreciation and Amortization Expense
  $ 9,537     $ 26,880  
General and Administrative Expenses
    1,600,667       797,494  
Total
  $ 1,610,204     $ 824,374  
 
 
Six Months Ended
 
 
December 31,
 
 
2014
 
2013
 
Depreciation and Amortization Expense
  $ 43,893     $ 54,794  
General and Administrative Expenses
    2,501,592       1,585,574  
Total
  $ 2,545,485     $ 1,640,368  
 
General and administrative expenses consist primarily of compensation and related costs for our finance, legal, human resources, and information technology personnel; advertising expenses; rent and facilities; and expenses related to the issuance of stock compensation.  
 
The overall increase in general and administrative expenses are primarily a result of increased Consulting Fees.

Consulting Fees increased by $112,000 and $757,000 during the three and six months ended December 31, 2014. The increase in professional fees is primarily attributable the development of the AfterMaster HD and ProMaster HD business units. 
 
Other Income and Expenses
         
  
 
Three Months Ended
 
   
December 31,
 
   
2014
   
2013
 
Interest Expense
  $ (1,561,649 )   $ (395,066 )
Derivative Expense
    (66,381 )     -  
Change in Fair Value of Derivative
    (725,593 )     -  
Loss on Extinguishment of Debt
    -       27,713  
Impairment of assets
    -       -  
Total
  $ (2,353,623 )   $ (367,353 )
 
 
 
25

 
 
   
Six Months Ended
 
   
December 31,
 
   
2014
   
2013
 
Interest Expense
  $ (2,089,997 )   $ (798,257 )
Derivative Expense
    (126,126 )     -  
Change in Fair Value of Derivative
    (753,138 )     -  
Loss on Extinguishment of Debt
    (28,517 )     27,713  
Impairment of assets
    -       (45,676 )
Total
  $ (2,997,778 )   $ (816,220 )

The other income and expenses during the three and six ended December 31, 2014, totaling $(2,353,623) and $(2,997,778) of net expenses, which consists of interest expense, derivative expense, and change in fair value of derivative. During the comparable period in 2013, other income and expenses totaled $(367,353) and $(816,220). Interest has increased due to additional borrowings used to develop AfterMaster HD and ProMaster HD.

Net Loss
       
  
 
Three Months Ended
 
   
December 31,
 
   
2014
   
2013
 
Net Loss
 
$
(4,021,456
)
 
$
(1,271,943
)
 
   
Six Months Ended
 
   
December 31,
 
   
2014
   
2013
 
Net Loss
 
$
(5,454,909
)
 
$
(2,566,630
)
 
Due to the Company’s cash position, we use our Common Stock as currency to pay many employees, vendors and consultants.  Once we have raised additional capital from outside sources, as well as generated cash flows from operations, we expect to reduce the use of Common Stock as a significant means of compensation. Under FASB ASC 718, “ Accounting for Stock-Based Compensation” , these non-cash issuances are expensed at the equity instruments fair market value.  
 
LIQUIDITY AND CAPITAL RESOURCES
 
The Company had revenues of $26,815 during the three months ended December 31, 2014 as compared to $42,699 in the comparable quarter of 2013.  The Company has incurred losses since inception of $52,440,038.  At December 31, 2014, the Company has negative working capital of $7,853,769, which was a decrease in working capital of $1,269,230 from June 30, 2014.  
 
The future of the Company as an operating business will depend on its ability to obtain sufficient capital contributions and/or financing as may be required to sustain its operations.  Management’s plan to address these issues includes a continued exercise of tight cost controls to conserve cash and obtaining additional debt and/or equity financing.

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

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

As of December 31, 2014, the existing capital and anticipated funds from operations were not sufficient to sustain Company operations or the business plan over the next twelve months.  We anticipate substantial increases in our cash requirements which will require additional capital to be generated from the sale of Common Stock, the sale of Preferred Stock, equipment financing, debt financing and bank borrowings, to the extent available, or other forms of financing to the extent necessary to augment our working capital.  In the event we cannot obtain the necessary capital to pursue our strategic business plan, we may have to significantly curtail our operations.  This would materially impact our ability to continue operations. There is no assurance that the Company will be able to obtain additional funding when needed, or that such funding, if available, can be obtained on terms acceptable to the Company.  

Recent global events, as well as domestic economic factors, have recently limited the access of many companies to both debt and equity financings. As such, no assurance can be made that financing will be available or available on terms acceptable to the Company, and, if available, it may take either the form of debt or equity. In either case, any financing will have a negative impact on our financial condition and will likely result in an immediate and substantial dilution to our existing stockholders.   
 
Although the Company intends to engage in a subsequent equity offering of its securities to raise additional working capital for operations and studio manufacturing, the Company has no firm commitments for any additional funding, either debt or equity, at the present time.  Insufficient financial resources may require the Company to delay or eliminate all or some of its development, marketing and sales plans, which could have a material adverse effect on the Company’s business, financial condition and results of operations.  There is no certainty that the expenditures to be made by the Company will result in a profitable business proposed by the Company.

 
 
26

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 4T.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer, President, and Chief Financial Officer (the “Certifying Officers”) are responsible for establishing and maintaining disclosure controls and procedures for the Company.  The Certifying Officers have designed such disclosure controls and procedures to ensure that material information is made known to them, particularly during the period in which this Report was prepared.

The Certifying Officers responsible for establishing and maintaining adequate internal control over financial reporting for the Company used the “Internal Control over Financial Reporting Integrated Framework” issued by Committee of Sponsoring Organizations (“COSO”) to conduct an extensive review of the Company’s “disclosure controls and procedures” (as defined in the Exchange Act, Rules 13a-15(e) and 15-d-15(e)) as of the end of each of the periods covered by this Report (the “Evaluation Date”).  Based upon that evaluation, the Certifying Officers concluded that, as of December 31, 2014 and June 30, 2014, our disclosure controls and procedures were not effective in ensuring that the information we were required to disclose in reports that we file or submit under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms.
 
The Certifying Officers based their conclusion on the fact that the Company has identified material weaknesses in controls over financial reporting, detailed below.  In order to reduce the impact of these weaknesses to an acceptable level, hawse have contracted with consultants with expertise in U.S. GAAP and SEC financial reporting standards to review and compile all financial information prior to filing that information with the SEC.  However, even with the added expertise of these consultants, we still expect to be deficient in our internal controls over disclosure and procedures until sufficient capital is available to hire the appropriate internal accounting staff and individuals with requisite GAAP and SEC financial reporting knowledge.  There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 
 
Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  Management used the “Internal Control over Financial Reporting Integrated Framework” issued by COSO to conduct an extensive review of the Company’s internal controls over financial reporting to make that evaluation.  As of December 31, 2014 and June 30, 2014, the Company had identified deficiencies in internal controls that constituted material weaknesses in internal controls. Due to these material weaknesses, management concluded that internal controls over financial reporting as of December 31, 2014 and June 30, 2014were ineffective, based on COSO’s framework.  
 
The deficiencies are attributed to the fact that the Company does not have adequate resources to address complex accounting issues, as well as an inadequate number of persons to whom it can segregate accounting tasks within the Company so as to ensure the segregation of duties between those persons who approve and issue payment from those persons who are responsible to record and reconcile such transactions within the Company’s accounting system.  These control deficiencies will be monitored and attention will be given to the matter as we continue to accelerate through our current growth stage.
 
Management has concluded that these control deficiencies constitute a material weakness that continued throughout fiscal year 2014.  In order to reduce the impact of these weaknesses to an acceptable level, we have contracted with consultants with expertise in U.S. GAAP and SEC financial reporting standards to review and compile all financial information prior to filing that information with the SEC.  However, even with the added expertise of these consultants, we still expect to be deficient in our internal controls over disclosure and procedures until sufficient capital is available to hire the appropriate internal accounting staff and individuals with requisite GAAP and SEC financial reporting knowledge. There were no significant changes in our internal control over financial reporting or in other factors that occurred during our most recent fiscal year that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

 
PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Legal Proceedings

The Company may become involved in certain legal proceedings and claims which arise in the normal course of business. In addition, from time to time, third parties may assert intellectual property infringement claims against the Company in the form of letters and other forms of communication. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the Company’s results of operations, prospects, cash flows, financial position and brand.  

ITEM 1A - RISK FACTORS
 
Not required.
 
 
 
27

 
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None.

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

During the three months ended December 31, 2014, no matters were submitted to the shareholders for a vote.
 
ITEM 5. OTHER INFORMATION

Subsequent Events

None
 
ITEM 6. EXHIBITS
 
a) The following Exhibits are filed herein:
 
NO.
TITLE
 
 
 
 
101.INS*
XBRL Instance Document
   
101.SCH*
XBRL Taxonomy Extension Schema
   
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase
   
101.DEF*
XBRL Taxonomy Extension Definition Linkbase
   
101.LAB*
XBRL Taxonomy Extension Label Linkbase
   
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase
 

 

 
 
 
 
 
 


 
 
 
28

 
 
 
 
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: October 14, 2015
By:  
/s/ Preston J. Shea
 
Preston J. Shea,
 
Title:   President and Chief Executive Officer
 
 
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
 
     
 
STUDIO ONE MEDIA, INC.
     
Date: October 14, 2015
By:  
/s/ Preston J. Shea
 
Preston J. Shea,
 
Title:  Director, President, Chief Executive Officer, Secretary
 
     
 
STUDIO ONE MEDIA, INC.
     
Date: October 14, 2015
By:  
/s/ Mirella Chavez
 
Mirella Chavez
 
Title:   Chief Financial Officer
 
 
 

 
 
 
 
 
 
 

 
 
 
 
29