10-Q/A 1 studioone_10qa-03312011.htm STUDIO ONE MEDIA, INC. 03/31/2011 10-Q/A, FIRST AMENDMENT studioone_10qa-03312011.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 March 31, 2011
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to __________
 
 
Commission file number 001-10196
 

STUDIO ONE MEDIA, INC.

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

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

 (Registrant’s telephone number, including area code)


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

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

o  Yes     o  No   (Not required)

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
o
Accelerated filer
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 May 15, 2011, the number of shares outstanding of Common Stock, $0.001 par value, was 29,086,863 shares.
 


 
 
 
 
 
1

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

During the audit of its fiscal year ended June 30, 2011, the Company also determined that it incorrectly recorded $368,392 in accounts payable relating to the purchase of a new studio that was not delivered by March 31, 2011.  Even though an agreement was finalized, because the Company did not take possession of the studio, the amount was not deemed due and payable and the asset should not have been recorded.
The Company evaluated these errors individually and in the aggregate and determined that a restatement of the Form 10-Q for the aforementioned quarterly period is necessary and required.  See Note 9 – Restatement of Financial Statements for a detailed breakdown of the error made and its effect on the previously filed financials statements.
Unless expressly noted otherwise, the disclosures in this Form 10-Q/A continue to speak as of the date of the Original Report, and do not reflect events occurring after the filing of the Original Report.  For additional information on subsequent events, the reader should refer to the Forms 10-Q, 10-K and Forms 8-K the Company has filed in 2011.  The filing of this Form 10-Q/A shall not be deemed an admission that the Original Report, when made, included any untrue statement of a material fact or omitted to state a material fact necessary to make a statement not misleading.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
2

 



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



 
 
 
 
 
3

 
 
 


PART I - FINANCIAL INFORMATION

STUDIO ONE MEDIA, INC.
 
Consolidated Balance Sheets
 
             
   
March 31,
   
June 30,
 
   
2011
   
2010
 
   
(Unaudited)
       
ASSETS
 
             
Current Assets
           
Cash
  $ 110,301     $ 632,980  
Prepaid Expenses
    220,547       329,406  
Other Receivable
    11,380       16,968  
Notes Receivable
    125,000       127,500  
                 
Total Current Assets
    467,228       1,106,854  
                 
Property and Equipment, net
    813,691       673,384  
Property and Equipment, yet to be placed in service
    936,363       605,644  
                 
Intangible Assets, net
    265,249       310,673  
                 
Other Assets
               
Deposits
    100,888       102,863  
Prepaid Expenses
    -       49,188  
Debt Issuance Costs
    56,477       23,692  
                 
Total Other Assets
    157,365       175,743  
                 
Total Assets
  $ 2,639,896     $ 2,872,298  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
                 
Current Liabilities
               
Accounts Payable and Accrued Expenses
  $ 1,026,429     $ 815,686  
Notes Payable - Related Party
    -       90,000  
Notes Payable
    257,632       120,398  
                 
Total Current Liabilities
    1,284,061       1,026,084  
                 
Long-Term Liabilities
               
Notes Payable, net of discount of $749,238 and $458,029, respectively
    214,075       41,971  
                 
Total Liabilities
    1,498,136       1,068,055  
                 
Stockholders' Equity
               
Convertible Preferred Stock, authorized 10,000,000 shares,
               
par value $0.001; issued and outstanding are 1,611,044
               
and 549,044, respectively
    1,611       549  
Common Stock, authorized 100,000,000 shares,
               
par value $0.001; issued and outstanding are 28,467,158
               
and 25,891,768 shares, respectively
    28,467       25,892  
Additional Paid In Capital
    27,210,256       22,346,842  
Accumulated Deficit
    (26,098,574 )     (20,569,040 )
                 
Total Stockholders' Equity
    1,141,760       1,804,243  
                 
Total Liabilities and Stockholders' Equity
  $ 2,639,896     $ 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 Nine Months Ended
 
   
March 31,
   
March 31,
 
   
2011
   
2010
   
2011
   
2010
 
                         
REVENUES
                       
Session Revenues
  $ 113,230     $ 54,320     $ 319,740     $ 99,405  
Advertising Revenues
    -       11,393       9,000       32,679  
AfterMaster Revenues
    21,900       -       40,700       -  
                                 
Total Revenues
    135,130       65,713       369,440       132,084  
                                 
COSTS AND EXPENSES
                               
Cost of Revenues (Exclusive of Depreciation and Amortization)
    118,854       50,269       358,660       131,497  
Cost of Barter Exchanges
    105,000       54,643       282,050       100,929  
Depreciation and Amortization Expense
    79,607       55,722       237,231       140,131  
General and Administrative Expenses
    1,212,989       1,407,669       3,574,462       3,933,027  
                                 
Total Costs and Expenses
    1,516,450       1,568,303       4,452,403       4,305,584  
                                 
Loss from Operations
    (1,381,320 )     (1,502,590 )     (4,082,963 )     (4,173,500 )
                                 
Other Income (Expense)
                               
Interest Expense
    (397,551 )     (38,026 )     (661,625 )     (53,574 )
Other Income
    2,330       -       2,330       8,062  
Gain on Disposal of Property
    -       -       73,502       -  
Loss on Extinguishment of Debt
    (217,502 )     97,587       (860,778 )     97,587  
                                 
Total Other Income (Expense)
    (612,723 )     59,561       (1,446,571 )     52,075  
                                 
Loss Before Income Taxes
    (1,994,043 )     (1,443,029 )     (5,529,534 )     (4,121,425 )
Income Tax Expense
    -       -       -       -  
                                 
NET LOSS
  $ (1,994,043 )   $ (1,443,029 )   $ (5,529,534 )   $ (4,121,425 )
                                 
Preferred Stock Accretion and Dividends
    (51,484 )     -       (105,868 )     -  
                                 
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
  $ (2,045,527 )   $ (1,443,029 )   $ (5,635,402 )   $ (4,121,425 )
                                 
Basic and Diluted Loss Per Share of Common Stock
  $ (0.07 )   $ (0.06 )   $ (0.20 )   $ (0.22 )
                                 
Weighted Average Number of Shares Outstanding
  $ 28,009,059       22,248,687       27,743,527       18,475,203  
                                 
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 Issued in Advance              
                                                  Total Stockholders'  
    Preferred Stock    
Common Stock
   
Additional
Paid In
    Common Shares        
Accumulated
     
   
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
    -       -       -       -       -       -       -       (5,331,918 )     (5,331,918 )
 
 

 
 
 
6

 
 
 
Consolidated Statements of Stockholders' Equity (Deficit) - continued
 
Balance, June 30, 2010
    549,044       549       25,891,768       25,892       22,346,842       -       -       (20,569,040 )     1,804,243  
                                                                         
Preferred shares issued for cash (unaudited)
    1,062,000       1,062       -       -       1,060,938       -       -       -       1,062,000  
                                                                         
Common shares issued for cash (unaudited)
    -       -       201,261       201       25,516       -       -       -       25,717  
                                                                         
Warrants and options exercised for cash (unaudited)
    -       -       300,833       301       129,265       -       -       -       129,566  
                                                                         
Common shares issued in conversion
                                                                       
of debt and extinguishment of liabilities (unaudited)
    -       -       906,390       907       617,957       -       -       -       618,864  
                                                                         
Share-based compensation - common shares (unaudited)
    -       -       1,102,709       1,102       1,068,297       -       -       -       1,046,020  
                                                                         
Share-based compensation - warrants (unaudited)
    -       -       -       -       313,749       -       -       -       169,749  
                                                                         
Warrants and common shares issued in advance of services (unaudited)
    -       -       64,197       64       572,591       -       -       -       572,655  
                                                                         
Beneficial conversion feature on issuance
                                                                 
of convertible debt (unaudited)
    -       -       -       -       1,006,372       -       -       -       595,870  
                                                                         
Warrants issued in connection to issuance
                                                                 
of convertible debt (unaudited)
    -       -       -       -       68,729       -       -       -       68,729  
                                                                         
Net loss for the Nine months ended
                                                                       
March 31, 2011 (unaudited)
    -       -       -       -       -       -       -       (5,529,534 )     (5,529,534 )
                                                                         
Balance, March 31, 2011 (unaudited)
    1,611,044     $ 1,611       28,467,158     $ 28,467     $ 27,210,256     $ -     $ -     $ (26,098,574 )   $ 563,879  
                                                                         
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 Nine Months Ended
 
   
March 31,
 
   
2011
   
2010
 
             
OPERATING ACTIVITIES
           
             
Net Loss
  $ (5,529,534 )   $ (4,121,425 )
Adjustments to reconcile to cash from operating activities:
               
Depreciation and amortization
    237,231       140,131  
Share-based compensation - common stock
    1,069,399       2,139,000  
Share-based compensation - warrants
    313,749          
Amortization of debt discount and issuance costs
    266,159       8,212  
(Gain)/Loss on extinguishment of debt
    860,778       (97,587 )
Gain on conversion of preferred shares
    -       (36,475 )
Gain on disposal of property
    (73,502 )     -  
Bad debt expense
    -       134,885  
Changes in Operating Assets and Liabilities:
               
Accrued interest receivable
    -       (8,061 )
Other receivables
    8,088       -  
Prepaid expenses
    657,173       (3,228 )
Deposits
    1,975       (10,454 )
Accounts payable and accrued expenses
    275,263       (410,842 )
                 
Net Cash Used in Operating Activities
    (1,913,221 )     (2,265,844 )
                 
INVESTING ACTIVITIES
               
                 
Purchase of property and equipment
    (679,801 )     (180,096 )
Proceeds from disposal of property
    90,470       (2,500 )
                 
Net Cash Used in Investing Activities
    (589,331 )     (182,596 )
                 
FINANCING ACTIVITIES
               
                 
Preferred stock issued for cash
    1,062,000       67,500  
Common stock issued for cash
    97,624       1,781,625  
Warrants and options exercised for cash
    129,566       163,042  
Stock offering costs
    (71,907 )     -  
Proceeds from notes payable - related party
    10,000       -  
Repayments of notes payable - related party
    (100,000 )     -  
Repayment of notes payable
    (90,000 )     -  
Proceeds from notes payable
    942,590       325,000  
                 
Net Cash Provided by Financing Activities
    1,979,873       2,337,167  
                 
NET DECREASE IN CASH
    (522,679 )     (111,273 )
CASH AT BEGINNING OF PERIOD
    632,980       439,474  
                 
CASH AT END OF PERIOD
  $ 110,301     $ 328,201  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
               
                 
CASH PAID FOR:
               
   Interest
  $ 5,813     $ 26,960  
   Income Taxes
    -       -  
                 
NON CASH FINANCING ACTIVITIES:
               
Common stock issued to extinguish debt and liabilities
  $ 618,864     $ 739,846  
Stock and warrants issued for prepaid services
    572,655       -  
Warrants and beneficial conversion feature on issuance of convertible debt
    664,599       (250,000 )
Common stock issued for intangible assets
    -       250,000  
                 
The accompanying notes are an integral part of these condolidated financial statements.
 
 
 
 
 
 
8

 
 
 
Studio One Media, Inc.
Notes to Consolidated Financial Statements
March 31, 2011 and June 30, 2010
 
NOTE 1 – CONDENSED FINANCIAL STATEMENTS
 
The accompanying financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at March 31, 2011, and for all periods presented herein, have been made.
 
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's June 30, 2010 audited financial statements.  The results of operations for the periods ended March 31, 2011 and 2010 are not necessarily indicative of the operating results for the full years.
 
NOTE 2 – GOING CONCERN
 
The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred losses since inception of $26,098,574 and currently has revenues which are insufficient to cover its operating costs which raises substantial doubt about its ability to continue as a going concern. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern.
 
The future of the Company as an operating business will depend on its ability to (1) obtain sufficient capital contributions and/or financing as may be required to sustain its operations and (2) to achieve adequate revenues from its MyStudio and AfterMaster businesses. Management's plan to address these issues includes, (a) continued exercise of tight cost controls to conserve cash, (b) obtaining additional financing, (c) place in service additional studios, and (d) begin generating more substantial revenues from both MyStudio and AfterMaster.
 
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
 
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
 
Reclassification of Financial Statement Accounts
Certain amounts in the March 31, 2010 financial statements have been reclassified to conform to the presentation in the March 31, 2011 financial statements.
 
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements issued since the last audit of the Company’s financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
 
Fair Value Instruments
Cash is the Company’s only financial asset or liability required to be recognized at fair value and is measured using quoted prices for active markets for identical assets (Level 1 fair value hierarchy).  The carrying amounts reported in the balance sheets for notes receivable and accounts payable and accrued expenses approximate their fair market value based on the short-term maturity of these instruments.
 
 
 
9

Studio One Media, Inc.
Notes to Consolidated Financial Statements
March 31, 2011 and June 30, 2010
 
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
 
The fair value of the Company’s notes payable at March 31, 2011 is approximately $1,272,988 (carrying value of $471,707).  Market prices are not available for the Company’s loans due to related parties or its other notes payable, nor are market prices of similar loans available.  The Company determined that the fair value of the notes payable based on its amortized cost basis due to the short term nature and current borrowing terms available to the Company for these instruments.
 
Income Taxes
There is no income tax provision for the nine months ended March 31, 2011 and 2010 due to net operating losses for which there is no benefit currently available.
 
At March 31, 2011, the Company had deferred tax assets associated with state and federal net operating losses. The Company has recorded a corresponding full valuation allowance as it is more likely than not that some portion of all of the deferred tax assets will not be realized.
 
NOTE 4 – NOTES PAYABLE
 
During fiscal year ended June 30, 2010, the Company entered into a financing agreement with an unrelated third party to fund up to $1,000,000 in four equal increment tranches in exchange for the Company issuing convertible note at each tranche with a conversion rate of $0.50 as well as 50,000 shares of warrant with a contractual life of 5 years to purchase Company’s common stock at $0.50 per share. The proceeds of each advance by the lender to the Company are to be used to manufacture, ship, install and operate MyStudios, which serve as collateral for such advance. Each advance is evidenced by a promissory note, bearing interest at 12% per annum and due in 3 years from the advance dates, and a security agreement granting the lender a first lien on specified studios. As noted above, the principal and interest on these notes may be converted at the lender’s option into Common Stock based on a conversion price of fifty cents ($0.50) per share.  At March 31, 2011, the lender had advanced a total of $1,000,000 under this financing agreement, and the Company granted 200,000 warrants to the lender.  The intrinsic value of the beneficial conversion feature and the debt discount associated with the warrants issued in connection with the convertible debts were recorded based on the relative fair value of the warrants in relation to the debt in accordance with ASC 470-20-25-2.  The total initial beneficial conversion feature recorded for all four tranches equaled $827,271 whereas the warrants, which were valued using a Black-Schole valuation model, resulted in a initial total debt discount of $140,429.  The initial recorded beneficial conversion feature and debt discounts for Tranche III included in the above amounts were subsequently adjusted to reflect the modification of the terms embedded in the host debt.
 
On August 19, 2010, the Company issued a convertible note for $250,000 under the above $1,000,000 financing agreement (Tranche III).  The note contained conversion rate feature and issued a warrant to purchase 50,000 share of the Company’s common stock at $.50 per share exercisable for 5 years pursuant to the umbrella financing agreement discussed above.  The Company recorded a beneficial conversion feature of $186,350 and a debt discount for $31,350 for this financing transaction.  Moreover, in connection with the Tranche III funding, the Company also issued to the lender an option, embedded in the convertible note and at the lender’s discretion, to put the converted common stock back to the Company at $0.60 per share.  The embedded put option was evaluated and deemed to not meet the definition of a derivative and as such, was not bifurcated and accounted for as a derivative.  Subsequent to the origination of the Tranche III, the Company then provided to the lender four separate amendments in which at each amendment, the maturity date of the put option was extended.
 
For the first amendment, the Company extended the maturity date of the put option with no consideration given to the lender.  For amendments two through four, the Company issued to the lender and its agent warrant to purchase common stocks of the Company.
 
For amendment two which occurred on November 15, 2010, the Company issued to the lender and its agent warrant with a contract life of 5 year to purchase 25,000 and 10,000 shares, respectively, of the Company’s common stock at $0.40 per share.  The fair value of these warrants issued were $18,558 and $7,423, respectively, calculated using the black-schole valuation model.
 
 
 
 
10

Studio One Media, Inc.
Notes to Consolidated Financial Statements
March 31, 2011 and June 30, 2010
 
NOTE 4 – NOTES PAYABLE - continued
 
For the third amendment which occurred on November 22, 2010, the Company, the Company issued to the lender and its agent another warrant with a contract life of 5 year to purchase 25,000 and 10,000 shares, respectively, of the Company’s common stock at $0.40 per share.  The fair value of these warrants issued were $21,182 and $8,473, respectively, calculated using the black-schole valuation model.
 
For the fourth amendment which occurred on December 7, 2010, the Company issued to the lender and its agent warrant with a contract life of 5 year to purchase 50,000 and 25,000 shares, respectively, of the Company’s common stock at $0.40 per share.  The fair value of these warrants issued were $43,843 and $21,922, respectively, calculated using the black-schole valuation model.
 
The Company evaluated each of the amendments under ASC 470-50, Debt - Modification and Extinguishment, and concluded that while Amendments one and two were not deemed to be significant, Amendments three and four resulted in significant and consequential changes to the economic substance of the debt and thus resulted in extinguishment of the debt.
 
The extinguishment loss related to each of the amendment is summarized below:
 
First Amendment – October 29, 2010
$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.
 
At maturity of the note on March 31, 2011, the Company and the lender agreed to extinguish the full the outstanding amount of the principal and accrued interest ($52,016) of the debt in exchange for 104,033shares of the Company’s common stock.  The fair market value of these common stocks issued to the lender for full settlement of the outstanding principal and interest balances on the debt was $144,606.  The difference between the fair market value of the common stock issued and the outstanding balances of the principal and interest on the debt was recorded as debt extinguishment loss for approximately $95,000 and is recorded in other income (expense) section of the statement of operations.
 
 
 
 
11

Studio One Media, Inc.
Notes to Consolidated Financial Statements
March 31, 2011 and June 30, 2010
 
NOTE 4 – NOTES PAYABLE - continued
 
On September 29, 2010, the Company entered into financing agreement with an unrelated individual for $100,000.  The note was due on October 28, 2010, is unsecured, and in lieu of cash interest payment, the Company agreed to issue warrant to purchase 10,000 share of Company’s common stock.  The warrant has an exercise price of $0.75 per share and a 5 year contractual life.  The warrant was valued using the Black-Scholes valuation model resulting in a fair value of $7,800.  This amount was recorded as a discount to the face amount of the note and has been amortized into interest expense over the life of the note.  The note was repaid in full upon maturity on October 28, 2010.
 
On September 17, 2010, the Company extinguished an outstanding note plus accrued interest for $27,000 that has been outstanding since September 2009 in exchange for Company’s common stock.  In exchange for full extinguishment of the note, the Company issued 54,000 shares of its common stock at a fair market value of $0.87 per share for a total consideration amount of $46,980.  The difference of $19,980 was recorded as a debt extinguishment loss and recorded in other income (expense) section of the statement of operations for the year ended June 30, 2011.
 
On November 17 and 30, 2010, the Company issued convertible notes to three unrelated individuals for a total of $132,500.  The notes bear interest at12% per annum and mature six month from the origination date.  The notes are convertible into Company’s common stock at $0.65 per share.  The Company calculated a total intrinsic beneficial conversion feature value of $48,923 for these three convertible notes which is being amortized over the life of the note.  These three notes were all converted into common stock at maturity date pursuant to the original conversion terms.
 
On December 29, 2010, the Company issued a convertible note for $250,000 under the above financing agreement for $1,000,000 (Tranche IV).  The note contained conversion rate feature and issued a warrant to purchase 50,000 share of the Company’s common stock at $.50 per share exercisable for 5 years pursuant to the umbrella financing agreement discussed.  The Company calculated the black-scholes value of the warrant and recorded the warrant and intrinsic beneficial conversion feature value based on their relative fair value.  The Company notes that the calculated amount exceeds the face amount of the note and as such the allocated amount of the debt discount and beneficial conversion feature was limited to the face amount of the note.  Hence, the Company recorded a beneficial conversion feature of $212,621 and a debt discount for $37.379 for this financing transaction.
 
On January 4, 2011, the Company extinguished an outstanding note plus accrued interest for $51,548 outstanding since September 2009 in exchange for Company’s common stock.  In exchange for full extinguishment of the note, the Company issued 103,096 shares of its common stock at a fair market value of $0.89 per share for a total consideration amount of $91,755.  The difference of $40,207 was recorded as a debt extinguishment loss and recorded in other income (expense) section of the statement of operations for the year ended June 30, 2011.  During the same period, the Company also extinguished another outstanding note plus accrued interest for $76,011 outstanding since December 2010 in exchange for Company’s common stock.  In exchange for full extinguishment of the note, the Company issued 152,022 shares of its common stock at a fair market value of $0.88 per share for a total consideration amount of $133,779.  The difference of $57,768 was also recorded as a debt extinguishment loss and recorded in other income (expense) section of the statement of operations for the year ended June 30, 2011.
 
During January 2011, the Company issued short term various small increments of plain-vanilla non-convertible notes for a total borrowing of $85,000 for an average interest rate of 12%.  No warrant was issued in connection with this financing.
 
NOTE 5 – PREFERRED STOCK
 
During the nine months ended March 31, 2011, the Company issued 1,062,000 shares of Series A-1 Senior Convertible Redeemable Preferred Stock (“Series A-1 Preferred Stock”) for cash totaling $1,062,000.  The Company’s Series A-1 Preferred Stock is convertible at the rate of 2 shares of Common Stock per share of Series A-1 Preferred beginning 180 days after issuance. The dividend rate of the Series A-1 Preferred Stock is 6% per share per annum in cash, or commencing on June 30, 2009 in shares of the Company’s Common stock (at the option of the Company).
 
 
 
 
12

Studio One Media, Inc.
Notes to Consolidated Financial Statements
March 31, 2011 and June 30, 2010
 
NOTE 5 – PREFERRED STOCK - continued
 
In accordance with ASC 470, the Company’s management evaluated the conversion terms of the Series A-1 Preferred Stock and has concluded that a BCF exists. The value of the BCF was determined based on the Common Stock price on the day of commitment, the number of convertible shares, and the difference between the effective conversion price and the fair value of the common stock. The value of the BCF of the Series A-1 Preferred Stock has been valued at $1,132,640.  The Company is amortizing the value of the BCF over the 180 day period prior to the Series A-1 Preferred Stock becoming convertible.  The amortized amount is recorded in Preferred Stock Accretion thereby reducing net loss available to Common shareholders in the Company’s statement of operations.  For the nine months ended March 31, 2011 and 2010, the Company recognized $105,868 and $-0-, respectively, in preferred stock accretion and dividends.
 
NOTE 6 – COMMON STOCK
 
During the nine months ended March 31, 2011, the Company issued 201,261 Common shares for $25,717 in net cash proceeds and issued 1,102,709 shares of the Company’s Common Stock to employees and non-employees for services rendered to the Company valued at $1,046,020, based on the market price of the stock on the day of issuance.  The Company also issued 300,833 shares of Common Stock for warrants and options exercised for cash totaling $129,566 and 906,390 shares of Common Stock to extinguish accounts payable, notes payable and accrued interest totaling $618,864.
 
NOTE 7 – STOCK PURCHASE OPTIONS AND WARRANTS
 
During the nine months ended March 31, 2011, the estimated value of the compensatory Common Stock purchase warrants and stock options granted to employees and non-employees in exchange for services and financing expenses was determined using the Black-Scholes pricing model and the following assumptions: expected term of 2-5 years, a risk free interest rate of 0.26%-2.09%, a dividend yield of 0% and volatility of 77%-293%. The amount of the stock-based compensation charged to expenses during the nine months ended March 31, 2011 for compensatory options and warrants granted in exchange for services was $169,749 and is included in General and Administrative Expense.
 
NOTE 8 - SUBSEQUENT EVENTS
 
In accordance with ASC 855 Company management reviewed all material events through the date of this filing and determined that there are no material subsequent events to report.      
 
NOTE 9 – RESTATEMENT OF FINANCIAL STATEMENTS
 
On November 3, 2011, management became aware of numerous accounting errors that were made in the previously filed SEC Form 10-Q for the period ended March 31, 2011.  The error relates to the accounting of various note payable agreements that were renegotiated during the period.  The Company originally recorded the amended agreements as debt modifications.  Subsequently management determined that the amendments should have been recorded as debt extinguishments pursuant to ASC 470.  While the Management reviewed the accounting surrounding the accounting for its debt, errors surrounding the valuation of certain stock awards to employees and non-employees were discovered that, when viewed separately from the debt modification, do not have a material effect on the financial statements as presented, however the Company has decided to also include corrections for these items.
During the audit of its fiscal year ended June 30, 2011, the Company also determined that it incorrectly recorded $368,392 in accounts payable relating to the purchase of a new studio that was not delivered by March 31, 2011.  Even though an agreement was finalized, because the Company did not take possession of the studio, the amount was not deemed due and payable and the asset should not have been recorded.

The corrected errors resulting from the modified debt affect the following amounts and balances as of the period end: debt discount associated with the modified debt, the amount of prepaid debt issuance costs, the amortization of the debt discounts, debt discount and beneficial conversion features, additional paid-in capital, interest expense, and the loss on extinguishment of debt.
The corrected errors resulting from the revaluations of stock awards affect the following amounts and balances as of the period end: prepaid expenses, additional paid-in capital, and general and administrative expenses.

The corrected errors resulting from the accounts payable elimination affect the following amounts and balances as of the period end: accounts payable and accrued expenses and property and equipment, yet to be placed in service.
 
 
 
13

Studio One Media, Inc.
Notes to Consolidated Financial Statements
March 31, 2011 and June 30, 2010
 
NOTE 9 – RESTATEMENT OF FINANCIAL STATEMENTS - continued
 
The Company evaluated these errors individually and in the aggregate and determined that a restatement of the Form 10-Q for the aforementioned quarterly period is necessary and required.  A comparison of the summarized financial statements as revised and as originally presented is a follows:
 

Consolidated Balance Sheets
 
(Unaudited)
 
                   
   
March 31,
   
March 31,
   
March 31,
 
   
2011
   
2011
   
2011
 
ASSETS
 
(As Originally Filed)
   
(Restated)
   
(Difference)
 
                   
CURRENT ASSETS
                 
Cash
  $ 110,301     $ 110,301     $ -  
Prepaid Expenses
    224,521       220,547       (3,974 )
Other Receivable
    11,380       11,380       -  
Notes Receivable
    125,000       125,000       -  
Total Current Assets
    471,202       467,228       (3,974 )
                         
Property and Equipment, net
    813,691       813,691       -  
Property and Equipment, yet to be placed in service
    1,304,755       936,363       (368,392 )
Intangible Assets, net
    265,249       265,249       -  
                         
OTHER ASSETS
                       
Deposits
    100,888       100,888       -  
Prepaid Expenses
    48,146       -       (48,146 )
Debt Issuance Costs
    75,826       56,477       (19,349 )
TOTAL ASSETS
  $ 3,079,757     $ 2,639,896     $ (439,861 )
                         
LIABILITIES AND STOCKHOLDERS' EQUITY
                       
                         
CURRENT LIABILITIES
                       
Accounts Payable and Accrued Expenses
  $ 1,394,821     $ 1,026,429     $ (368,392 )
Notes Payable, net of discount of $39,682 and $0, respectively
    257,632       257,632       -  
Total Current Liabilities
    1,652,453       1,284,061       (368,392 )
                         
LONG-TERM LIABILITIES
                       
Convertible Notes Payable
    266,118       214,075       (52,043 )
TOTAL LIABILITIES
    1,918,571       1,498,136       (420,435 )
                         
STOCKHOLDERS' EQUITY
                       
                         
Preferred stock
    1,611       1,611       -  
Common stock
    28,467       28,467       -  
Additional paid-in capital
    26,632,375       27,210,256       577,881  
Accumulated deficit
    (25,501,267 )     (26,098,574 )     (597,307 )
                         
Total Stockholders' Equity
    1,161,186       1,141,760       (19,426 )
                         
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 3,079,757     $ 2,639,896     $ (439,861 )

 
 
 
 
 
 
14

Studio One Media, Inc.
Notes to Consolidated Financial Statements
March 31, 2011 and June 30, 2010
 
NOTE 9 – RESTATEMENT OF FINANCIAL STATEMENTS - continued
 
Consolidated Statements of Operations
 
(Unaudited)
 
                   
   
For the
   
For the
   
For the
 
   
Three Months
   
Three Months
   
Three Months
 
   
March 31,
   
March 31,
   
March 31,
 
   
2011
   
2011
   
2011
 
   
(Originally Filed)
   
(Restated)
   
(Difference)
 
                   
REVENUES
  $ 135,130     $ 135,130     $ -  
                         
OPERATING EXPENSES
                       
Cost of Revenues (Exclusive of Depreciation and Amortization)
    118,854       118,854       -  
Cost of Barter Exchanges
    105,000       105,000       -  
Depreciation and Amortization Expense
    79,607       79,607       -  
General and Administrative Expenses
    1,205,876       1,212,989       7,113  
Total Costs and Expenses
    1,509,337       1,516,450       7,113  
                         
LOSS FROM OPERATIONS
  $ (1,374,207 )   $ (1,381,320 )   $ (7,113 )
                         
OTHER INCOME (EXPENSE)
                       
Interest Expense
    (543,589 )     (397,551 )     146,038  
Interest Income
    2,330       2,330       -  
Loss on Extinguishment of Debt
    -       (217,502 )     (217,502 )
Total Other Income and Expense
    (541,259 )     (612,723 )     (71,464 )
                         
NET LOSS
    (1,915,466 )     (1,994,043 )     (78,577 )
                         
Preferred Stock Accretion and Dividends
    (51,484 )     (51,484 )     -  
                         
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
  $ (1,966,950 )   $ (2,045,527 )   $ (78,577 )
                         
BASIC LOSS PER SHARE
  $ (0.07 )   $ (0.07 )   $ (0.00 )
                         
WEIGHTED AVERAGE  NUMBER OF SHARES OUTSTANDING:
                       
BASIC AND DILUTED
    28,009,059       28,009,059       0  
 
 
 
 
 
 
 
 
 
 
15

Studio One Media, Inc.
Notes to Consolidated Financial Statements
March 31, 2011 and June 30, 2010
 
NOTE 9 – RESTATEMENT OF FINANCIAL STATEMENTS - continued
 
Consolidated Statements of Operations
 
(Unaudited)
 
                   
   
For the
   
For the
   
For the
 
   
Nine Months
   
Nine Months
   
Nine Months
 
   
March 31,
   
March 31,
   
March 31,
 
   
2011
   
2011
   
2011
 
   
(Originally Filed)
   
(Restated)
   
(Difference)
 
                   
REVENUES
  $ 369,440     $ 369,440     $ -  
                         
OPERATING EXPENSES
                       
Cost of Revenues (Exclusive of Depreciation and Amortization)
    358,660       358,660       -  
Cost of Barter Exchanges
    282,050       282,050       -  
Depreciation and Amortization Expense
    237,231       237,231       -  
General and Administrative Expenses
    3,497,514       3,574,462       76,948  
Total Costs and Expenses
    4,375,455       4,452,403       (76,948 )
                         
LOSS FROM OPERATIONS
  $ (4,006,015 )   $ (4,082,963 )   $ 76,948  
                         
OTHER INCOME (EXPENSE)
                       
Interest Expense
    (909,330 )     (661,625 )     247,705  
Interest Income
    2,330       2,330       -  
Gain on Disposal of Property
    73,502       73,502       -  
Loss on Extinguishment of Debt
    (92,714 )     (860,778 )     (768,064 )
Total Other Income and Expense
    (926,212 )     (1,446,571 )     (520,359 )
                         
NET LOSS
    (4,932,227 )     (5,529,534 )     (443,411 )
                         
Preferred Stock Accretion and Dividends
    (105,868 )     (105,868 )     -  
                         
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
  $ (5,038,095 )   $ (5,635,402 )