10-Q/A 1 studioone_10q1a-12312010.htm STUDIO ONE MEDIA, INC. 12/31/10 10-Q/A, FIRST AMENDMENT studioone_10q1a-12312010.htm

U.S. SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 10- Q/A
 
(Mark One)
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2010
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to __________
 
 
Commission file number 001-10196
 

STUDIO ONE MEDIA, INC.

(Exact name of Registrant as specified in its charter)
 
  DELAWARE
  23-2517953
  (State or other jurisdiction of incorporation or organization)
  (IRS Employer Identification No.)
 
7650 E. Evans Rd., Suite C
Scottsdale, Arizona  85260

(Address of principal executive offices) (Zip Code)
 
(480) 556-9303

(Registrant’s telephone number, including area code)


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

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

o  Yes     o  No   (Not required)

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

oYes     x No

At December 31, 2010, the number of shares outstanding of common stock, $0.001 par value, was 27,483,768 shares.
 
 
1

 

 
EXPLANATORY NOTE
 
This Amendment on Form 10-Q/A amends the Quarterly Report on Form 10-Q for the period ended December 31, 2010 (the “Original Report”) and is being filed by Studio One Media, Inc. (the “Company”) to correct certain errors that occurred in the filing of the Original Report.
On November 3, 2011, management became aware of accounting errors that were made in the previously filed SEC Form 10-Q for the quarter ended December 31, 2010.  The errors relate to the accounting of various note payable agreements that were renegotiated during the period as well as valuations of various stock awards issued to employees and non-employees.  The Company originally recorded the amended agreements as debt modifications.  Subsequently management determined that the amendments should have been recorded as debt extinguishments pursuant to ASC 470.

During the audit of its fiscal year ended June 30, 2011, the Company also determined that it incorrectly recorded $368,392 in accounts payable relating to the purchase of a new studio that was not delivered by December 31, 2010.  Even though an agreement was finalized, because the Company did not take possession of the studio, the amount was not deemed due and payable and the asset should not have been recorded.
The Company evaluated these errors individually and in the aggregate and determined that a restatement of the Form 10-Q for the aforementioned quarterly period is necessary and required.  See Note 8 – Restatement of Financial Statements for a detailed breakdown of the error made and its effect on the previously filed financials statements.
Unless expressly noted otherwise, the disclosures in this Form 10-Q/A continue to speak as of the date of the Original Report, and do not reflect events occurring after the filing of the Original Report.  For additional information on subsequent events, the reader should refer to the Forms 10-Q, 10-K and Forms 8-K the Company has filed in 2011.  The filing of this Form 10-Q/A shall not be deemed an admission that the Original Report, when made, included any untrue statement of a material fact or omitted to state a material fact necessary to make a statement not misleading.
 

 
 
2

 
 
 
STUDIO ONE MEDIA, INC.
 
     
 
  INDEX
 
 
PART I - FINANCIAL INFORMATION
 
   
 PAGE NUMBER
Item 1.
Financial Statements
 4
     
 
Consolidated Balance Sheets – December 31, 2010 (unaudited) and June 30, 2010
 4
     
 
Consolidated Statements of Operations - For the three and six months ended December 31, 2010 and 2009 (unaudited)
 5
     
 
Consolidated Statements of Stockholders’ Equity (Deficit) -- For the year ended June 30, 2010 and the six months ended December 31, 2010 (unaudited)
6 - 7
     
 
Consolidated Statements of Cash Flows - For the six months ended December 31, 2010 and 2009 (unaudited)
 
8
     
 
Notes to Consolidated Financial Statements (unaudited)
9
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
17
     
Item 3.
Quantitative and Qualitative Disclosure About Market Risks
29
     
Item 4T.
Controls and Procedures
29
 
 
 
PART II - OTHER INFORMATION
 
     
Item 1.
Legal Proceedings
30
     
Item 1A.
Risk Factors
30
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
38
     
Item 3.
Defaults Upon Senior Securities
39
     
Item 4.
Submission of Matters to a Vote of Security Holders
39
     
Item 5.
Other Information
39
     
Item 6.
Exhibits
40
     
 
SIGNATURES
40
   
 
 
 

 
3

 


 
PART I - FINANCIAL INFORMATION
 
 

STUDIO ONE MEDIA, INC.
Consolidated Balance Sheets
             
 
December 31,
June 30,
 
 
2010
2010
 
 
(Unaudited)
       
ASSETS
 
             
Current Assets
 
         
Cash
  $ 301,683     $ 632,980  
Prepaid Expenses
    288,389       329,406  
Other Receivable
    3,069       16,968  
Notes Receivable
    125,000       127,500  
                 
Total Current Assets
    718,141       1,106,854  
                 
Property and Equipment, net
    873,757       673,384  
Property and Equipment, yet to be placed in service
    754,445       605,644  
                 
Intangible Assets, net
    280,391       310,673  
                 
Other Assets
               
Deposits
    99,863       102,863  
Prepaid Expenses
    -       49,188  
Debt Issuance Costs
    42,995       23,692  
                 
Total Other Assets
    142,858       175,743  
                 
Total Assets
  $ 2,769,592     $ 2,872,298  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
                 
Current Liabilities
               
Accounts Payable and Accrued Expenses
  $ 1,019,801     $ 815,686  
Notes Payable - Related Party
    50,000       90,000  
Notes Payable, net of discount of $39,682 and $0, respectively
    383,216       120,398  
                 
Total Current Liabilities
    1,453,017       1,026,084  
                 
Long-Term Liabilities
               
Convertible Notes Payable, net of discount of $813,347 and $458,029, respectively
  147,786       41,971  
                 
Total Liabilities
    1,600,803       1,068,055  
                 
Stockholders' Equity
               
Convertible Preferred Stock, authorized 10,000,000 shares,
               
par value $0.001; issued and outstanding are 744,044
               
and 549,044, respectively
    744       549  
Common Stock, authorized 100,000,000 shares,
               
par value $0.001; issued and outstanding are 27,483,768 and
               
25,891,768 shares, respectively
    27,484       25,892  
Additional Paid In Capital
    25,245,090       22,346,842  
Accumulated Deficit
    (24,104,529       (20,569,040 )
                 
Total Stockholders' Equity
    1,168,789       1,804,243  
                 
Total Liabilities and Stockholders' Equity
  $ 2,769,592     $ 2,872,298  
                 
The accompanying notes are an integral part of these consolidated financial statements.
 

 
 
 
4

 
 
STUDIO ONE MEDIA, INC.
 
Consolidated Statements of Operations
 
(Unaudited)
 
                         
   
For the Three Months Ended
   
For the Six Months Ended
 
   
December 31,
   
December 31,
 
   
2010
   
2009
   
2010
   
2009
 
                         
REVENUES
                       
Session Revenues
  $ 113,340     $ 26,385     $ 206,510     $ 45,085  
       Advertising Revenues
    1,500       10,643       9,000       21,286  
       AfterMaster Revenues
    16,600       -       18,800       -  
                                 
Total Revenues
    131,440       37,028       234,310       66,371  
                                 
COSTS AND EXPENSES
                               
Cost of Revenues (Exclusive of Depreciation and Amortization)
    118,601       39,973       239,806       81,228  
Cost of Barter Exchanges
    102,800       24,643       177,050       46,286  
Depreciation and Amortization Expense
    83,246       45,987       157,624       84,409  
General and Administrative Expenses
    1,120,995       1,122,331       2,361,472       2,550,458  
                                 
Total Costs and Expenses
    1,425,642       1,232,934       2,935,952       2,762,381  
                                 
Loss from Operations
    (1,294,202 )     (1,195,906 )     (2,701,642 )     (2,696,010 )
                                 
Other Income (Expense)
                               
        Interest Expense
    (177,044 )     (5,372 )     (264,074 )     (15,548 )
        Interest Income
    -       3,739       -       8,061  
        Gain on Disposal of Property
    -       -       73,502       -  
        Loss on Extinguishment of Debt
    (643,275 )     -       (643,275 )     -  
                                 
Total Other Income (Expense)
    (820,319 )     (1,633 )     (833,847 )     (7,487 )
                                 
Loss Before Income Taxes
    (2,114,521 )     (1,197,539 )     (3,535,489 )     (2,703,497 )
Income Tax Expense
    -       -       -       -  
                                 
NET LOSS
  $ (2,114,521 )   $ (1,197,539 )   $ (3,535,489 )   $ (2,703,497 )
                                 
Preferred Stock Accretion and Dividends
    (51,484 )     -       (54,384 )     -  
                                 
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
  $ (2,166,005 )   $ (1,197,539 )   $ (3,589,873 )   $ (2,703,497 )
                                 
Basic and Diluted Loss Per Share of Common Stock
  $ (0.08 )   $ (0.06 )   $ (0.14 )   $ (0.15 )
                                 
Weighted Average Number of Shares Outstanding
    27,011,922       19,616,270       26,290,376       18,475,203  
                                 
The accompanying notes are an integral part of these consolidated financial statements.
 
 

 

 
 
5

 
 
 
 
 
STUDIO ONE MEDIA, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
 
                                         
Common
             
                                        Stock              
                           
Additional
     Common    
Issued
         
Total
 
   
Preferred Stock
   
Common Stock
   
Paid In
   
 Shares
   
in Advance
   
Accumulated
   
Stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
to be Issued
   
for Services
   
Deficit
   
Equity
 
                                                       
                                                       
Balance, June 30, 2009
    774,044     $ 774       16,417,447     $ 16,417     $ 15,039,491     $ 24,000     $ (48,153 )   $ (15,237,122 )   $ (204,593 )
                                                                         
Common shares issued in conversion
                                                                       
of preferred shares
    (296,429 )     (296 )     628,995       629       (333 )     -       -       -       -  
                                                                         
Common shares issued for assets
    -       -       250,000       250       249,750       -       -       -       250,000  
                                                                         
Common shares issued for cash
    -       -       4,280,422       4,281       2,397,362       -       -       -       2,401,643  
                                                                         
Warrants and options exercised for cash
    -       -       399,989       400       239,309       -       -       -       239,709  
                                                                         
Common shares issued in conversion
                                                                       
of debt and extinguishment of liabilities
    -       -       1,233,456       1,233       709,452       -       -       -       710,685  
                                                                         
Share-based compensation - common shares
    -       -       2,401,689       2,402       1,949,224       (24,000 )     48,153       -       1,975,779  
                                                                         
Share-based compensation - warrants
    -       -       -       -       764,614       -       -       -       764,614  
                                                                         
Share-based compensation - shares to be issued
    -       -       279,770       280       156,150       -       -       -       156,430  
                                                                         
Common shares issued in advance of services
    -       -       -       -       129,968       -       -       -       129,968  
                                                                         
Warrants issued in advance of services
    -       -       -       -       197,176       -       -       -       197,176  
                                                                         
Beneficial conversion feature on issuance
                                                                       
of convertible debt
    -       -       -       -       421,150       -       -       -       421,150  
                                                                         
Warrants issued in connection to issuance
    -       -       -       -       82,850       -       -       -       82,850  
of convertible debt
                                                                       
                                                                         
Preferred shares issued for cash
    96,429       96       -       -       60,654       -       -       -       60,750  
                                                                         
Preferred shares repurchased
    (25,000 )     (25 )     -       -       (49,975 )     -       -       -       (50,000 )
                                                                         
Net Loss for the Year Ended
                                                                       
June 30, 2010
    -       -       -       -       -       -       -       (2,703,497 )     (2,703,497 )
 
 
6

 
 
 
Consolidated Statements of Stockholders' Equity - continued
 
                                                                         
Balance, June 30, 2010
    549,044       549       25,891,768       25,892       22,346,842       -       -       (20,569,040 )     4,432,664  
                                                                         
Preferred shares issued for cash (unaudited)
    195,000       195       -       -       194,805       -       -       -       195,000  
                                                                         
Common shares issued for cash (unaudited)
    -       -       92,500       93       42,601       -       -       -       42,694  
                                                                         
Warrants and options exercised for cash (unaudited)
    -       -       235,833       235       118,931       -       -       -       119,166  
                                                                         
Common shares issued in conversion
                                                                       
of debt and extinguishment of liabilities (unaudited)
    -       -       440,406       441       327,921       -       -       -       328,362  
                                                                         
Share-based compensation - common shares (unaudited)
    -       -       792,397       792       739,112       -       -       -       739,904  
                                                                         
Share-based compensation - warrants (unaudited)
    -       -       -       -       166,877       -       -       -       166,877  
                                                                         
Warrants and common shares issued in advance of services (unaudited)
    -       -       30,864       31       380,876       -       -       -       380,907  
                                                                         
Beneficial conversion feature on issuance
                                                                       
of convertible debt (unaudited)
    -       -       -       -       858,396       -       -       -       858,396  
                                                                         
Warrants issued in connection to issuance
                                                                       
of convertible debt (unaudited)
    -       -       -       -       68,729       -       -       -       68,729  
                                                                         
Net Loss for the six months ended
                                                                       
December 31, 2010 (unaudited)
    -       -       -       -       -       -       -       (3,535,489 )     (3,535,489 )
                                                                         
Balance, December 31, 2010 (unaudited)
    744,044     $ 744       27,483,768     $ 27,484     $ 25,245,090     $ -     $ -     $ (24,104,529 )   $ 3,797,210  
                                                                         
The accompanying notes are an integral part of these condolidated financial statements.
 
 
 
 
 
 
 
 

 
7

 

STUDIO ONE MEDIA, INC.
Consolidated Statements of Cash Flows
(Unaudited)
 
             
   
For the Six Months Ended
 
   
December 31,
 
   
2010
   
2009
 
             
OPERATING ACTIVITIES
           
             
Net Loss
  $ (3,535,489 )   $ (2,703,497 )
Adjustments to reconcile to cash from operating activities:
               
Depreciation and amortization
    157,624       84,409  
Share-based compensation - common stock
    739,904       1,490,338  
Share-based compensation - warrants
    166,877          
Amortization of debt discount and issuance costs
    139,599       -  
Loss on extinguishment of debt
    643,275       9,939  
Gain on conversion of preferred shares
    -       (36,475 )
Changes in Operating Assets and Liabilities:
               
Accrued interest receivable
    -       (8,061 )
Other receivables
    16,399       -  
Prepaid expenses
    433,865       (3,372 )
Deposits
    3,000       (2,454 )
Accounts payable and accrued expenses
    235,805       (303,744 )
                 
Net Cash Used in Operating Activities
    (999,141 )     (1,472,917 )
                 
INVESTING ACTIVITIES
               
                 
Purchase of property and equipment
    (566,715 )     (39,732 )
Proceeds from disposal of property
    90,199       -  
                 
Net Cash Used in Investing Activities
    (476,516 )     (39,732 )
                 
FINANCING ACTIVITIES
               
                 
Preferred stock issued for cash
    195,000       67,500  
Common stock issued for cash
    42,694       855,500  
Warrants and options exercised for cash
    119,166       163,042  
Repayments of notes payable - related party
    (40,000 )     -  
Repayment of notes payable
    (40,000 )     -  
Proceeds from notes payable
    867,500       125,000  
                 
Net Cash from Financing Activities
    1,144,360       1,211,042  
                 
NET DECREASE IN CASH
    (331,297 )     (301,607 )
CASH AT BEGINNING OF PERIOD
    632,980       439,474  
                 
CASH AT END OF PERIOD
  $ 301,683     $ 137,867  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
               
                 
CASH PAID FOR:
               
   Interest
  $ 5,525     $ 696  
   Income Taxes
    -       -  
                 
NON CASH FINANCING ACTIVITIES:
               
Common stock issued to extinguish debt and liabilities
  $ 328,362     $ 666,812  
Stock and warrants issued for prepaid services
    380,907       -  
Warrants and beneficial conversion feature on issuance of convertible debt
    927,125       -  
Common stock issued for intangible assets
    -       250,000  
                 
The accompanying notes are an integral part of these condolidated financial statements.
 

 
8

 
STUDIO ONE MEDIA, INC
Notes to Consolidated Financial Statements
December 31, 2010 and June 30, 2010

NOTE 1 – CONDENSED FINANCIAL STATEMENTS

The accompanying financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at December 31, 2010, and for all periods presented herein, have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's June 30, 2010 audited financial statements.  The results of operations for the periods ended December 31, 2010 and 2009 are not necessarily indicative of the operating results for the full years.

NOTE 2 – GOING CONCERN

The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred losses since inception of $24,104,529 and currently has revenues which are insufficient to covering its operating costs which raises substantial doubt about its ability to continue as a going concern. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern.
 
The future of the Company as an operating business will depend on its ability to (1) obtain sufficient capital contributions and/or financing as may be required to sustain its operations and (2) to achieve adequate revenues from its MyStudio and AfterMaster businesses. Management's plan to address these issues includes, (a) continued exercise of tight cost controls to conserve cash, (b) obtaining additional financing, and (c) place in service additional personal recording kiosks.

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

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Reclassification of Financial Statement Accounts
Certain amounts in the December 31, 2009 financial statements have been reclassified to conform to the presentation in the December 31, 2010 financial statements.

Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements issued since the last audit of the Company’s financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
 
 
 
9

STUDIO ONE MEDIA, INC
Notes to Consolidated Financial Statements
December 31, 2010 and June 30, 2010
 
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
 
Fair Value Instruments

Cash is the Company’s only financial asset or liability required to be recognized at fair value and is measured using quoted prices for active markets for identical assets (Level 1 fair value hierarchy).  The carrying amounts reported in the balance sheets for notes receivable and accounts payable and accrued expenses approximate their fair market value based on the short-term maturity of these instruments.
 
The fair value of the Company’s notes payable at December 31, 2010 is approximately $1,472,898 (carrying value of $531,002).  Market prices are not available for the Company’s loans due to related parties or its other notes payable, nor are market prices of similar loans available.  The Company determined that the fair value of the notes payable based on its amortized cost basis due to the short term nature and current borrowing terms available to the Company for these instruments.
 
Income Taxes
There is no income tax provision for the six months ended December 31, 2010 and 2009 due to net operating losses for which there is no benefit currently available.
 
At December 31, 2010, the Company had deferred tax assets associated with state and federal net operating losses (“NOLs”). The Company has recorded a corresponding full valuation allowance as it is more likely than not that some portion of all of the deferred tax assets will not be realized.

NOTE 4 – NOTES PAYABLE

During fiscal year ended June 30, 2010, the Company entered into a financing agreement with an unrelated third party to fund up to $1,000,000 in four equal increment tranches in exchange for the Company issuing convertible note at each tranche with a conversion rate of $0.50 as well as 50,000 shares of warrant with a contractual life of 5 years to purchase Company’s common stock at $0.50 per share. The proceeds of each advance by the lender to the Company are to be used to manufacture, ship, install and operate MyStudios, which serve as collateral for such advance. Each advance is evidenced by a promissory note, bearing interest at 12% per annum and due in 3 years from the advance dates, and a security agreement granting the lender a first lien on specified studios. As noted above, the principal and interest on these notes may be converted at the lender’s option into Common Stock based on a conversion price of fifty cents ($0.50) per share.  At December 31, 2011, the lender had advanced a total of $1,000,000 under this financing agreement, and the Company granted 200,000 warrants to the lender.  The intrinsic value of the beneficial conversion feature and the debt discount associated with the warrants issued in connection with the convertible debts were recorded based on the relative fair value of the warrants in relation to the debt in accordance with ASC 470-20-25-2.  The total initial beneficial conversion feature recorded for all four tranches equaled $827,271 whereas the warrants, which were valued using a Black-Schole valuation model, resulted in a initial total debt discount of $140,429.  The initial recorded beneficial conversion feature and debt discounts for Tranche III included in the above amounts were subsequently adjusted to reflect the modification of the terms embedded in the host debt.

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

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

 
10

STUDIO ONE MEDIA, INC
Notes to Consolidated Financial Statements
December 31, 2010 and June 30, 2010
 
NOTE 4 – NOTES PAYABLE - continued
 
For amendment two which occurred on November 15, 2010, the Company issued to the lender and its agent warrant with a contract life of 5 year to purchase 25,000 and 10,000 shares, respectively, of the Company’s common stock at $0.40 per share.  The fair value of these warrants issued were $18,558 and $7,423, respectively, calculated using the black-schole valuation model.

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

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

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

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

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

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

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

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

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

 
 
11

STUDIO ONE MEDIA, INC
Notes to Consolidated Financial Statements
December 31, 2010 and June 30, 2010
 
NOTE 4 – NOTES PAYABLE - continued
 
On September 17, 2010, the Company extinguished an outstanding note plus accrued interest for $27,000 that has been outstanding since September 2009 in exchange for Company’s common stock.  In exchange for full extinguishment of the note, the Company issued 54,000 shares of its common stock at a fair market value of $0.87 per share for a total consideration amount of $46,980.  The difference of $19,980 was recorded as a debt extinguishment loss and recorded in other income (expense) section of the statement of operations for the year ended June 30, 2011.

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

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

NOTE 5 – PREFERRED STOCK

During the six months ended December 31, 2010, the Company issued 195,000 shares of Series A-1 Senior Convertible Preferred Stock (“Series A-1 Preferred Stock”) for cash totaling $195,000.  The Company’s Series A-1 Preferred Stock is convertible at the rate of 2 shares of Common Stock per share of Series A-1 Preferred beginning 180 days after issuance. The dividend rate of the Series A-1 Preferred Stock is 6% per share per annum in cash, or commencing on June 30, 2009 in shares of the Company’s Common stock (at the option of the Company).

In accordance with ASC 470, the Company’s management evaluated the conversion terms of the Series A-1 Preferred Stock and has concluded that a beneficial conversion feature (“BCF”) exists. The value of the BCF was determined based on the Common Stock price on the day of commitment, the number of convertible shares, and the difference between the effective conversion price and the fair value of the Common Stock. The value of the BCF of the Series A-1 Preferred Stock has been estimated at $155,400.  The Company is amortizing the value of the BCF over the 180 day period prior to the Series A-1 Preferred Stock becoming convertible.  The amortized amount is recorded in Preferred Stock Accretion thereby reducing net loss available to common shareholders in the Company’s statement of operations.
 
The Preferred Stock have a liquidation preference of $738,752 at December 31, 2010.
  
NOTE 5 – COMMON STOCK

During the six months ended December 31, 2010, the Company issued 92,500 Common shares for $42,694 in net cash proceeds and issued 792,397 shares of the Company’s Common Stock to employees and non-employees for services rendered to the Company valued at $739,904, based on the market price of the stock on the day of issuance.  The Company also issued 235,833 shares of common stock for warrants exercised for cash totaling $119,166 and 440,406 shares of Common Stock to extinguish accounts payable, notes payable and accrued interest totaling $328,362. The Company also issued 30,864 common shares for services valued at $380,907 based on the quoted market price on the date of issuance which have been recorded as prepaid expenses.
 
NOTE 6 – STOCK PURCHASE OPTIONS AND WARRANTS

During the six months ended December 31, 2010, the estimated value of the compensatory Common Stock purchase warrants and stock options granted to employees and non-employees in exchange for services and financing expenses was determined using the Black-Scholes pricing model and the following assumptions: expected term of 2-5 years, a risk free interest rate of 0.26%-2.09%, a dividend yield of 0% and volatility of 77%-293%%. The amount of the stock-based compensation charged to expenses for compensatory options and warrants granted in exchange for services was $166,877 and is included in General and Administrative Expenses.

NOTE 7 - SUBSEQUENT EVENTS

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

 
12

STUDIO ONE MEDIA, INC
Notes to Consolidated Financial Statements
December 31, 2010 and June 30, 2010
       
NOTE 8 – RESTATEMENT OF FINANCIAL STATEMENTS

On November 3, 2011, management became aware of accounting errors that were made in the previously filed SEC Form 10-Q for the period ended December 31, 2010.  The errors relate to the accounting of various note payable agreements that were renegotiated during the period.  The Company originally recorded the amended agreements as debt modifications.  Subsequently management determined that the amendments should have been recorded as debt extinguishments pursuant to ASC 470.  While the Management reviewed the accounting surrounding the accounting for its debt, errors surrounding the valuation of certain stock awards to employees and non-employees were discovered that, when viewed separately from the debt modification, do not have a material effect on the financial statements as presented, however the Company has decided to also include corrections for these items.

During the audit of its fiscal year ended June 30, 2011, the Company also determined that it incorrectly recorded $368,392 in accounts payable relating to the purchase of a new studio that was not delivered by December 31, 2010.  Even though an agreement was finalized, because the Company did not take possession of the studio, the amount was not deemed due and payable and the asset should not have been recorded.
 
The corrected errors resulting from the modified debt affect the following amounts and balances as of the period end: debt discount associated with the modified debt, the amount of prepaid debt issuance costs, the amortization of the debt discounts, debt discount and beneficial conversion features, additional paid-in capital, interest expense, and the loss on extinguishment of debt.
 
The corrected errors resulting from the revaluations of stock awards affect the following amounts and balances as of the period end: prepaid expenses, additional paid-in capital, and general and administrative expenses.
 
The corrected errors resulting from the accounts payable elimination affect the following amounts and balances as of the period end: accounts payable and accrued expenses and property and equipment, yet to be placed in service.

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

Consolidated Balance Sheets
 
(Unaudited)
 
                   
   
December 31,
   
December 31,
   
December 31,
 
   
2010
   
2010
   
2010
 
ASSETS
 
(As Originally Filed)
   
(Restated)
   
(Difference)
 
                   
CURRENT ASSETS
                 
Cash
  $ 301,683     $ 301,683     $ -  
Prepaid Expenses
    304,101       288,389       (15,712 )
Other Receivable
    3,069       3,069       -  
Notes Receivable
    125,000       125,000       -  
Total Current Assets
    733,853       718,141       (15,712 )
                         
Property and Equipment, net
    873,757       873,757       -  
Property and Equipment, yet to be placed in service
    1,122,837       754,445       (368,392 )
Intangible Assets, net
    280,391       280,391       -  
                         
OTHER ASSETS
                       
Deposits
    99,863       99,863       -  
Prepaid Expenses
    48,146       -       (48,146 )
Debt Issuance Costs
    60,341       42,995       (17,346 )
TOTAL ASSETS
  $ 3,219,188     $ 2,769,592     $ (449,596 )
                         
LIABILITIES AND STOCKHOLDERS' EQUITY
                       
                         
CURRENT LIABILITIES
                       
Accounts Payable and Accrued Expenses
  $ 1,388,193     $ 1,019,801     $ (368,392 )
Notes Payable - Related Party
    50,000       50,000       -  
Notes Payable, net of discount of $39,682 and $0, respectively
    383,216       383,216       -  
Total Current Liabilities
    1,821,409       1,453,017       (368,392 )
                         
LONG-TERM LIABILITIES
                       
Convertible Notes Payable
    186,653       147,786       (38,867 )
TOTAL LIABILITIES
    2,008,062       1,600,803       (407,259 )
                         
STOCKHOLDERS' EQUITY
                       
                         
Preferred stock
    744       744       -  
Common stock
    27,484       27,484       -  
Additional paid-in capital
    24,768,699       25,245,090       476,391  
Accumulated deficit
    (23,585,801 )     (24,104,529 )     (518,728 )
                         
Total Stockholders' Equity
    1,211,126       1,168,789       (42,337 )
                         
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 3,219,188     $ 2,769,592     $ (449,596 )
 
13

STUDIO ONE MEDIA, INC
Notes to Consolidated Financial Statements
December 31, 2010 and June 30, 2010
 
NOTE 8 – RESTATEMENT OF FINANCIAL STATEMENTS - continued
 
Consolidated Statements of Operations
 
(Unaudited)
 
                   
   
For the
 
For the
 
For the
 
   
Three Months
 
Three Months
 
Three Months
 
   
December 31,
 
December 31,
 
December 31,
 
   
2010
 
2010
 
2010
 
   
(Originally Filed)
 
(Restated)
 
(Difference)
 
                   
REVENUES
  $ 131,440     $ 131,440     $ -  
                         
OPERATING EXPENSES
                       
Cost of Revenues (Exclusive of Depreciation and Amortization)
    118,601       118,601       -  
Cost of Barter Exchanges
    102,800       102,800       -  
Depreciation and Amortization Expense
    83,246       83,246       -  
General and Administrative Expenses
    1,051,161       1,120,995       69,834  
Total Costs and Expenses
    1,355,808       1,425,642       69,834  
                         
LOSS FROM OPERATIONS
  $ (1,224,368 )   $ (1,294,202 )   $ (69,834 )
                         
OTHER INCOME (EXPENSE)
                       
Interest Expense
    (278,711 )     (177,044 )     101,667  
Interest Income
    -       -       -  
Gain on Disposal of Property
    -       -       -  
Loss on Extinguishment of Debt
    (92,714 )     (643,275 )     (550,561 )
Total Other Income and Expense
    (371,425 )     (820,319 )     (448,894 )
                         
NET LOSS
    (1,595,793 )     (2,114,521 )     (518,728 )
                         
Preferred Stock Accretion and Dividends
    (51,484 )     (51,484 )     -  
                         
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
  $ (1,647,277 )   $ (2,166,005 )   $ (518,728 )
                         
BASIC LOSS PER SHARE
  $ (0.06 )   $ (0.08 )   $ (0.02 )
                         
WEIGHTED AVERAGE  NUMBER OF SHARES OUTSTANDING:
                       
BASIC AND DILUTED
    27,011,922       27,011,922       0  

 
 
 
 

 
14

STUDIO ONE MEDIA, INC
Notes to Consolidated Financial Statements
December 31, 2010 and June 30, 2010
 
NOTE 8 – RESTATEMENT OF FINANCIAL STATEMENTS - continued
 
Consolidated Statements of Operations
 
(Unaudited)
 
                   
   
For the
   
For the
   
For the
 
   
Six Months
   
Six Months
   
Six Months
 
   
December 31,
   
December 31,
   
December 31,
 
   
2010
   
2010
   
2010
 
   
(Originally Filed)
   
(Restated)
   
(Difference)
 
                   
REVENUES
  $ 234,310     $ 234,310     $ -  
                         
OPERATING EXPENSES
                       
Cost of Revenues (Exclusive of Depreciation and Amortization)
    239,806       239,806       -  
Cost of Barter Exchanges
    177,050       177,050       -  
Depreciation and Amortization Expense
    157,624       157,624       -  
General and Administrative Expenses
    2,291,638       2,361,472       69,834  
Total Costs and Expenses
    2,866,118       2,935,952       69,834  
                         
LOSS FROM OPERATIONS
  $ (2,631,808 )   $ (2,701,642 )   $ (69,834 )
                         
OTHER INCOME (EXPENSE)
                       
Interest Expense
    (365,741 )     (264,074 )     101,667  
Interest Income
    -       -       -  
Gain on Disposal of Property
    73,502       73,502       -  
Loss on Extinguishment of Debt
    (92,714 )     (643,275 )     (550,561 )
Total Other Income and Expense
    (384,953 )     (833,847 )     (448,894 )
                         
NET LOSS
    (3,016,761 )     (3,535,489 )     (518,728 )
                         
Preferred Stock Accretion and Dividends
    (54,384 )     (54,384 )     -  
                         
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
  $ (3,071,145 )   $ (3,589,873 )   $ (518,728 )
                         
BASIC LOSS PER SHARE
  $ (0.12 )   $ (0.13 )   $ (0.01 )