UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended June 30, 2009

or

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.
(Name of Small Business Issuer as specific in its Charter)

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


7650 East Evans Road, Suite C
Scottsdale, Arizona 85260

(Address of Principal Executive Offices) (Zip Code)

(480) 556-9303

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value

(Title of Class)

 
1

 


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  o   No  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o No  þ

Indicate by check mark whether the issuer (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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o

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 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
þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed fiscal year. As of June 30, 2009 the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $5,715,640 based on the average bid and asked price of such common stock as reported on the Over-The-Counter Bulletin Board system.  Shares of common stock held by each officer and director and each person, to Registrant’s knowledge, who owns more than 5% or more of the Registrant’s outstanding common stock have been excluded because these persons may be deemed to be affiliates. The determination of affiliate status for purpose of this calculation is not necessarily a conclusive determination for other purposes.

As of June 30, 2009, the number of shares of Registrant’s Common Stock outstanding was 16,417,447.




DOCUMENTS INCORPORATED BY REFERENCE

None




 
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STUDIO ONE MEDIA, INC.

FORM 10-K

FOR THE FISCAL YEAR ENDED
JUNE 30, 2009
INDEX

   
Page
PART I
 
Item 1.
Business
5
Item 1A.
Risk Factors
9
Item 1B.
Unresolved Staff Comments
17
Item 2.
Properties
17
Item 3.
Legal Proceedings
17
Item 4.
Submission of Matters to a Vote of Security Holders
17
   
PART II
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
18
Item 6.
Selected Financial Data
19
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
19
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
24
Item 8.
Financial Statements and Supplementary Data. 
24
Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
24
Item 9A(T).
Controls and Procedures
25
Item 9B.
Other Information
26
   
PART III
 
Item 10.
Directors, Executive Officers and Corporate Governance
27
Item 11.
Executive  Compensation
29
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
31
Item 13.
Certain Relationships and Related Transactions, and Director Independence
33
Item 14.
Principal Accounting Fees and Services
34
   
PART IV
 
Item 15.
Exhibits, Financial Statement Schedules
35


 


 
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FORWARD-LOOKING AND CAUTIONARY STATEMENTS

This Annual Report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended, and as contemplated under the Private Securities Litigation Reform Act of 1995.  These forward-looking statements may relate to such matters as  the Company's (and its subsidiaries) business strategies, continued growth in the Company's markets, projections, and anticipated trends in the Company's business and the industry in which it operates anticipated financial performance, future revenues or earnings, business prospects, projected ventures, new products and services, anticipated market performance and similar matters.  All statements herein contained in this Report, other than statements of historical fact, are forward-looking statements.

When used in this report, the words "may," "will," "expect," "anticipate," "continue," "estimate," "project," "intend," “budget,” “budgeted,” "believe," “will,” "intends," “seeks,” “goals,” "forecast," and similar words and expressions are intended to identify forward-looking statements regarding events, conditions, and financial trends that may affect our future plans of operations, business strategy, operating results, and financial position. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company's control.  We caution our readers that a variety of factors could cause our actual results to differ materially from the anticipated results or other matters expressed in the forward looking statements, including those factors described under "Risk Factors" and elsewhere herein.  In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Report will in fact transpire or prove to be accurate.  These risks and uncertainties, many of which are beyond our control, include:
 
 
·
the sufficiency of existing capital resources and our ability to raise additional capital to fund cash requirements for future operations;
 
 
·
uncertainties involved in the rate of growth of our business and acceptance of any products or services;
 
 
·
volatility of the stock market, particularly within the technology sector; and
 
 
·
general economic conditions.
 
Although we believe the expectations reflected in these forward-looking statements are reasonable, such expectations cannot guarantee future results, levels of activity, performance or achievements.  We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report.



 
4

 

PART  I

ITEM 1. DESCRIPTION OF BUSINESS.

General

Corporate Background

Studio One Entertainment, Inc., of Scottsdale, Arizona, was formed in 2004 to develop the MyStudio ® concept.  In April 2007, it completed a reverse merger with Studio One Media, Inc., (formerly Dimensional Visions, Incorporated).  The acquisition of Studio One Entertainment, Inc. by Studio One Media, Inc. (the “Company”, “Registrant” or “Studio One”), included a one-for-one, stock-for-stock transaction, involving the issuance of 7 million shares of Studio One Media, Inc. stock to the shareholders of Studio One Entertainment, Inc.

Studio One is a Delaware public company traded on the Over-The-Counter Bulletin Board (ticker symbol: SOMD).  As of June 30, 2009, there were 16,417,447 shares issued and outstanding.  Insiders and affiliates control approximately 55% of the issued and outstanding shares.  Since April 2006, the Company has raised approximately $8 million in the form of equity for purposes of research and development and the launch of MyStudio.

Commencement of Operations

Over the last six years, Studio One and its wholly-owned subsidiary Studio One Entertainment, Inc., have been engaged in the research and development of proprietary, leading edge audio and video technologies for professional and consumer use. During the first quarter of fiscal year 2009, the Company transitioned from a Development Stage Company to an operating entity with the installation of its first MyStudio interactive audio and video recording studio in the Scottsdale Fashion Square mall in Scottsdale, Arizona on September 29, 2008. The Scottsdale studio has enjoyed high customer satisfaction, a high ratio of repeat customers and has operated with negligible downtime.  Despite launching and operating in the most difficult retail environment in decades, the Scottsdale studio generated $141,861 in sales and trade revenues during its first nine months of operations including an initial sixty day launch period which offered free or discounted recording sessions to attract customers and build brand awareness.

Business

Studio One Media, Inc. is a diversified media and technology company based in Scottsdale, Arizona. Studio One subsidiaries and divisions include Studio One Entertainment, Inc., MyStudio Recording Studios, MyStudio Audio Labs, Inc., MyStudio Music, MyStudio Management  and MyStudio Masters.
 
Over the last six years, Studio One and its wholly-owned subsidiary, Studio One Entertainment, Inc., have been engaged in the research and development of proprietary, leading-edge audio and video technologies for professional and consumer use.
 
Studio One introduced its first groundbreaking product on September 29, 2008 with the installation of its first MyStudio interactive audio and video recording studio in the Scottsdale Fashion Square mall in Scottsdale, Arizona.  A second studio was introduced in Los Angeles in August 2009 and currently resides in a showroom on Sunset Boulevard where it is being showcased for entertainment industry executives.  The LA studio is expected to be permanently relocated in a local mall at a future date.  The Company expects to install its third studio in the New York area in November 2009.
 
Studio One’s MyStudio business model and website featuring user generated content (“UGC”) are highly differentiated from leading companies in the entertainment and Internet industries. MyStudio offers a unique “bricks and clicks” business model of cash-generating studios and Internet-based advertising revenues. Currently, all major video sharing and social networking websites receive little or no revenue from the creation of the UGC hosted on their websites, forcing them to rely almost exclusively on revenue from website advertisers. The MyStudio business model uniquely provides for revenues generated from both the creation of the UGC by MyStudio customers and advertising. MyStudio revenue is derived from paid session revenue, on-studio video monitoring advertising and traditional website advertising..
 
In addition, the Company expects additional future revenue to be generated from music sales and talent management arising from UGC on the MyStudio.net website. Subject to the availability and timing of capital, Studio One expects to install and operate many MyStudios both nationally and internationally.
 

 
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ITEM 1. DESCRIPTION OF BUSINESS  - continued
 
The multiple revenue streams differentiate the Company from other social media sites that rely primarily on website advertising.
 
MyStudio® Recording Studios
 
Studio One has developed MyStudio, a self contained, state-of-the-art, high definition (“HD”) interactive audio/video recording studio designed for installation in shopping malls and other high traffic areas.
 
MyStudio offers consumers true professional recording studio-quality audio and HD broadcast-quality video with an ease, economy and convenience never before available to the public. MyStudio is designed for installation in malls and other high traffic pedestrian areas. MyStudio and its accompanying website, MyStudio.net , incorporate into a single entertainment venue some of the best elements of the world's leading Internet and entertainment properties including video sharing, social networking and talent-related television programming. MyStudio eliminates the high cost and technological and logistical barriers inherent in the creation of high quality production and uploading of video content onto the Internet for both amateurs and professionals alike.
 
 
MyStudio enables users, for a $20 fee, to record up to a five-minute personalized video with professional-quality backdrop, lighting and sound. The studios feature Hollywood-style green screen technology, and users can select from over a thousand HD virtual backgrounds (static and dynamic) and thousands of exclusively licensed karaoke tracks from EMI Music Publishing. The studio lighting is custom programmed for each virtual background, and the sound quality is derived from a specially engineered acoustic design and a proprietary audio signal sequencing process.  Professional users, such as musicians and entertainers, often pay hundreds or thousands of dollars for comparable professionally produced audio and video.
 
Finished videos are available within minutes for viewing at MyStudio.net upon completion of the recording. Videos are protected with a privacy pass-code, and user scan decide whether to make the videos available to the public. The MyStudio.net website offers users the opportunity to share videos and create member profile pages in a dynamic social networking environment. Users may also create links between MyStudio.net and other social networking sites or their own websites, such as their own small businesses. MyStudio.net members can enter contests, order free DVD of their videos, download MP3 audio files (restrictions apply), access embedded codes or print high resolution photos from their video.
 
MyStudio has been used to create videos for music, modeling, comedy, dating, job resumes, auditions, and personal messages and greetings. Users can also enter their videos into industry sponsored music, casting, modeling and comedy contests, such as the recently held Are You Smarter Than a Fifth Grader auditions. In addition, the Company has offered various themed holiday greetings, as well as greetings to U.S. troops overseas.
 
Current MyStudio locations include Scottsdale, Arizona and Los Angeles, California. The Company expects to install its next studio in the New York area in November 2009.
 
Business Strategy

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

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

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

 
6

 

ITEM 1. DESCRIPTION OF BUSINESS  - continued
 
The studios provide entertainment recruiters with an entirely new method for locating talent. Using MyStudio’s software casting applications, casting directors are able to review a standardized and efficient format for judging talent prospects. This contrasts with the inefficiencies of them receiving, loading and screening numerous formats of video (i.e., VHS and DVDs) for talent. Additionally, MyStudio allows prospective contestants to perform their auditions on their own time and in unlimited quantities versus the current casting call standard of having only a few moments and a single opportunity in front of a casting agent.  Reality television producers understand that their shows are only as good as the talent. MyStudio will allow for a greater number of contestants to try-out for these shows which provides producers with a much deeper well of talent. MyStudio has the ability to set a new standard and create a new marketplace for sellers and buyers of talent.

Build an Online Community Featuring User-Generated Content.    MyStudio.net captures the social networking phenomena of MySpace, Facebook and YouTube and combines it with a superior audio/visual experience.  The MyStudio.net website allows users to create personal profiles, share videos with family and friends and make their videos available to the public, all of which encourage user loyalty and viral growth opportunities.

Expand the MyStudio Concept into New Vertical Industries.   The potential utilization of the recording studios extends well beyond the entertainment industry. The studios can facilitate efficiency, personalization and differentiation in many industries including professional recruitment and staffing, Internet dating, corporate training, online greeting cards and business promotion.  The Company expects  future partnerships for content and users with recruiting, dating and greeting card companies.

Business Model

The Company’s “bricks and clicks” business model is currently based upon three primary sources of revenue: recording session fees from the MyStudio studios and advertising revenue from both the individual studios and the Company’s MyStudio.net website.  The Company plans to drive recording session revenue through the use of industry-sponsored music, modeling and talent contests and drive revenue growth through the addition of new studios and new and repeat users.  These studios in turn will drive exponential traffic to the MyStudio.net website as each new video generates a greater number of unique website visitors due to the viral effect of the Company’s video sharing offering.

MyStudio Recording Session Revenue.   Each studio is designed to record videos during a mall’s operating hours, which can average 13 hours per day.  The Company charges $20 per session for use of the studio. Each session lasts up to five minutes.  There are two pay stations on the studio to expedite the song and background selection and payment process.  Additionally, users may prepay their sessions from home and have an opportunity to select from a greater variety of songs and backgrounds.  The two pay stations and home prepayment are designed specifically to increase throughput of those using the studio.

The Company has over 1,000 HD backgrounds from which to select or users may provide their own backgrounds.   Additionally, MyStudio offers thousands of songs licensed from EMI Music Publishing for karaoke usage.  In many instances, users perform their own songs using their guitar, keyboard or other instruments, which may be plugged into the studios for a professionally sounding quality video.

MyStudio Advertising Revenue.   The exterior of the studios contain eight (8) 37” LCD flat screen monitors that are used to promote MyStudio and display advertising messages from selected sponsors and third party advertisers.  The Company has successfully sold advertising on the Scottsdale studio, and the Company believes that it will secure national advertising sponsors when it has multiple studios in operation.

Website Advertising Revenue.   Visitors, visitor demographics and time spent on a website are the primary drivers behind advertising-based revenue models for Internet properties.  The user-generated content created in MyStudio is the traffic generator for the Company’s MyStudio.net website.  The number of visitors to the MyStudio.net website correlates in an exponential manner to the number of studios in operation.  MyStudio.net has seen substantial growth and averaged over 1,000,000 page views per month over the last quarter, with a single studio in operation.  However, unlike a number of other social media and Internet companies, the Company is not solely dependent upon website advertising to generate revenues.

 

 
7

 

ITEM 1. DESCRIPTION OF BUSINESS  - continued
 
Marketing and Promotion Strategy
 
The Company launched its first MyStudio in Scottsdale Fashion Square mall in Scottsdale, Arizona on September 29, 2008. The studio has enjoyed high customer satisfaction, a high number of repeat customers and has operated with negligible downtime. During its first month of operations, the Company offered mostly free studio access through the distribution of unpaid promotional cards to familiarize the public with the operation and capabilities of the studio while building brand awareness. In November 2008, the Company began a 2-for-1 offer and then moved to the full retail price of $20 per paid session in December. The Company also commenced selling on-studio advertising in December 2008. Despite the significant and continuing slowdown in mall traffic and consumer spending throughout the United States, the Company has realized session growth during each fiscal quarter since launch and confirmed the viability of its $20 price point.  

The Company’s business plan calls for the establishment of regular events and contests to drive traffic to its studios; this assumption has been confirmed by a marked increase in studio traffic when contests and promotions have been offered.  Our comprehensive marketing and promotion strategy is designed to drive traffic through the studios which in turn drives traffic to the MyStudio.net website.  The Company is focused on forming strategic partnerships at the local, regional and national level with talent seekers (the television, music, film, performing arts and modeling industries), the media (radio and television stations and printed media) and corporate sponsors who may seek access to the Company’s expanding user base.  The partnerships are designed to generate industry-sponsored music, modeling and talent contests to stimulate trial of and demand for the studios.

In December 2008, the Company finalized two important multi-year agreements with Mark Burnett Productions for reality TV casting and The GRAMMY Foundation to host auditions for various GRAMMY Foundation programs.  Studio One’s MyStudio recording studios and its accompanying website, MyStudio.net , have and are being used for auditions and promotions relating to several GRAMMY Foundation programs for young people including GRAMMY Camp ® , GRAMMY ® Signature Schools and the GRAMMY Jazz Ensembles.

Studio One’s agreement with Mark Burnett Productions provides for the use of MyStudio   video recording studios to augment the casting of Mark Burnett television shows  such as Are You Smarter Than a 5 th Grad er.  Mark Burnett Productions will also have the exclusive right to develop reality-based TV shows with MyStudio content.  Mark Burnett Productions is a leading production company for primetime television, cable and the Internet, and has produced over 1,100 hours of television programming which regularly air in over 70 countries around the world.  The Company believes the agreement is a significant development in encouraging trial and utilization of MyStudio and creating national exposure for the Company.

A number of high-profile organizations have hosted contests in the Scottsdale studio. The Company expects to continue to align itself and enter into partnerships with other high profile entertainment companies, so it can offer consumers an ongoing variety of contests to ensure steady studio traffic.

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

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

The Company continues to aggressively solicit additional reality TV, music, modeling and comedy audition opportunities and expects to make additional partnership announcements in the future.

MyStudio Audio Labs, Inc. and MyStudio Masters [
 
The Company has recently completed the research and development of a new technology for mastering audio that it has branded MyStudio Masters. The Masters technology falls under the recently incorporated MyStudio Audio Labs, Inc., a wholly-owned subsidiary of the Company. The Company believes that its MyStudio Masters process for mastering audio makes music significantly louder, fuller and more exciting than traditionally mastered music. The MyStudio Mastering process achieves its sound without adding compression distortion or exceeding recording industry limits of digital zero. MyStudio Mastering technology is a proprietary, patent pending combination of hardware and software which was developed over the last four years by the MyStudio audio engineering team.  It can be applied on virtually all audio sources including, music, radio, television and film.

 
8

 

ITEM 1. DESCRIPTION OF BUSINESS  - continued
 
The MyStudio Mastering process can be used to create both a master from a master audio mix or to “AfterMaster” existing music that has already been mastered. MyStudio AfterMastering allows any mastered audio to be remastered without the need to access the master mix. The business model includes the mastering and AfterMastering of both new music releases as well as catalog music. The Company believes that MyStudio Masters can be the technological impetus that can revitalize the music industry by providing consumers with a new leap in sound quality and added value.   Some music industry experts who have recently been introduced to our Mastering technologies have equated it with high definition television: this technology has the opportunity to do for music what HD has done for television. The audio fidelity offered by our Mastering technologies are believed to be unprecedented in the digital music industry.

While the Company has not generated any revenues to date from the technology, the Company’s management team is diligently working on developing and refining its business and marketing strategy to maximize the revenue potential for these technologies for the Company’s shareholders.

Manufacturing

The studios are currently outsourced for manufacture to an Arizona-based manufacturing company. The Company plans to take delivery of two additional MyStudio structures for installation in strategic locations before calendar year-end for a total of five MyStudios expected to be operating by year-end.

Intellectual Property and Licensing

The Company has embarked on an aggressive intellectual property program including the filing of 24 pending foreign and domestic patent applications and eight trademark applications (for which it has received four Notices of Allowance) with the U.S. Patent and Trademark Office all designed to protect what the Company believes is innovative and proprietary technology. We also enter into confidentiality and invention assignment agreements with our employees and consultants and confidentiality agreements with third parties, and we rigorously control access to proprietary technology.

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

Employees

As of the end of our fiscal year on June 30, 2009, we employed seventeen full-time employees consisting of three executives, nine technical/engineering persons, one manufacturing engineer, one accountant, one clerical/administrative person, and one talent coordinator.  We also employed four part-time employees as attendants at the MyStudio recording studio.  Subsequent to June 30, 2009, we have added a vice president of corporate development.  We expect to seek additional employees in the next year to handle anticipated potential growth.

We believe that our relationship with our employees is good.  None of our employees are members of any union, nor have they entered into any collective bargaining agreements.


ITEM 1A.   RISK FACTORS
 
You should carefully consider the risk factors and other uncertainties set forth below and all other information contained in this report, as well as the public disclosure documents incorporated by reference herein.  If any of the events contemplated by the following risks actually occurs, then our business, financial condition, or results of operations could be materially adversely affected. As a result, the trading price of our common stock could decline, and you may lose all or part of your investment. The risks and uncertainties below are not the only risks facing our company.   Additional risks and uncertainties, including those that are not yet identified or that we currently believe are immaterial, may also adversely affect our business, financial condition or operating results.
 
History of Operations and Dependence on Future Developments .

Studio One Media, Inc., (the “Company”, “Studio One” or “SOMD”) was originally organized in Delaware on May 12, 1988, as Dimensional Visions Group, Ltd.  Historically, the Company produced and marketed lithographically printed stereoscopic and animation print products.  The Company ceased all marketing and sales activity during the last quarter of 2002.

 
9

 


ITEM 1A.   RISK FACTORS  - continued
 
On March 28, 2006, the Company changed its name to Studio One Media, Inc.  On March 29, 2006, the Company entered into an agreement to purchase 100% of Studio One Entertainment, Inc., (“SO Entertainment”) of Scottsdale, Arizona, in a one-for-one, stock-for-stock transaction.  SO Entertainment owns proprietary audio/video recording technology, patent and trademark applications, studio design, methods and related concepts for MyStudio.  MyStudio is a self contained interactive video recording studio designed for installation in shopping malls and other pedestrian high traffic public areas.  The studios will enable the public, for a fee, to record their video and voice images in a stand alone, state-of-the-art recording studio and enter their MyStudio performances in music, modeling and other talent related contests.  In addition, MyStudio can be used to record video resumes, dating profiles and personal messages.  The Company believes MyStudio methods, processes and business model are proprietary and a unique opportunity in the entertainment industry.

The reverse merger of SO Entertainment was completed on April 17, 2007, with the exchange of 7 million shares of the Company’s common stock for an equal number of shares of SO Entertainment common stock constituting 100% of the issued and outstanding shares of SO Entertainment.  SO Entertainment operates as a wholly-owned subsidiary.

The Company opened its first studio in Scottsdale Fashion Square, Scottsdale, Arizona, on September 29, 2008, and intends to place its studios in malls across America, as well as expand into other high traffic locations, theme parks, airport terminals and theaters.  Ultimately, Studio One intends to be a one-stop accessible facility that acts as a link between an entertainment hopeful and the acting, fashion and music industries.  Revenues for the Company are expected to be generated by both services provided by the studio, such as the virtual audition, as well as through web site advertising.

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

The Company is dependent upon its management, certain shareholders and investors for its fundraising.  The Company expects additional operating losses will occur until revenue is sufficient to offset the level of costs to be incurred for marketing, sales, general and administrative and product and services development.  The Company is subject to all of the risks inherent in establishing an early stage business enterprise.  Since the Company has limited operations, there can be no assurance that its business plan will be successful.  The potential for success of the Company must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered with an early stage business and the competitive environment in which the Company will operate.  A prospective investor should be aware that if the Company is not successful in achieving its goals and achieving profitability, any money invested in the Company will likely be lost.  The Company’s management team believes that its potential near-term success depends on the Company’s success in completing product development, manufacturing, marketing and selling its products and services.
 
As an early stage company we are particularly susceptible to the risks and uncertainties described herein and we will be more likely to incur the expenses associated with addressing them.  Our business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in early stages of development.  These risks are particularly severe among companies in new markets, such as those markets in which we expect we will operate.  Accordingly, shareholders will bear the risk of loss of their entire investment in the Company's shares.

New Business Model.

We have a relatively new business model in an emerging and rapidly evolving market.  This makes it difficult to evaluate our future prospects and may increase the risk that we will not continue or be successful.  We will encounter risks and difficulties as a company operating in a new and rapidly evolving market.  We may not be able to successfully address these risks and difficulties, which could materially harm our business and operating results.

Limited Capital and Need for Additional Financing.

The funds currently available to the Company will be inadequate to implement the business plan of the Company.  Until the Company has achieved a sales level sufficient to break even, it will not be self-sustaining or be competitive in the areas in which it intends to operate.  The Company will require additional funding for continued operations and will therefore be dependent upon its ability to raise additional funds through bank borrowing, equity or debt financing, or asset sales. We expect to need to access the public and private equity and/or debt markets periodically to obtain the funds we need to support our operations and continued growth.  There is no assurance that the Company will be able to obtain additional funding when needed, or that such funding, if available, can be obtained on terms acceptable to the Company.  If we require, but are unable to obtain, additional financing in the future on acceptable terms, or at all, we will not be able to continue our business strategy, respond to changing business or economic conditions, withstand adverse operating results or compete effectively.  If the Company cannot obtain needed funds, the Company may be forced to curtail, in whole or in part, or cease its activities altogether.  When additional shares are issued to obtain financing, current shareholders will suffer a dilutive effect on their percentage of stock ownership in the Company.  

 
10

 

ITEM 1A.   RISK FACTORS  - continued

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

Lack of Diversification.
 
The size of the Company makes it unlikely that the Company will be able to commit its funds to diversify the business until it has a proven track record, and the Company may not be able to achieve the same level of diversification as larger entities engaged in this type of business.

Competition.

The Company knows of no competitors offering a similar high-quality, in-mall HD studio experience.  The Company believes that it is the first to market with a recording studio with its functionality and quality combined with a groundbreaking website.  It would require a competitor significant time and capital to design, develop and manufacture a recording studio with similar functionality and features, giving the Company valuable time to gain consumer recognition and a foothold in the market. While the technology surrounding MyStudio is cutting edge and unique, the Company believes there are other factors that will separate the Company from competitors.  The Company has embarked on an aggressive intellectual property protection program which it believes will be a significant barrier to market entry to potential competitors.  In addition, the Company employs individuals who have long standing relationships and expertise in various segments of the entertainment and communications industries, which it expects will help facilitate the negotiation of favorable partnerships, sponsorships and industry support for MyStudio.

Nonetheless, many potential competitors have greater name recognition, industry contacts and more extensive customer bases that could be leveraged to accelerate their competitive activity.  Moreover, potential competitors may establish future cooperative relationships among themselves and with third parties to enhance their products and services in this market space in which the Company proposes to operate.  Consequently, competitors or alliances may emerge and rapidly acquire significant market share.  We cannot assure you that we will be able to compete effectively with any competitor should they arise or that the competitive pressures faced by us will not harm our business. Such intense competition will limit our opportunities and have a materially adverse effect on the Company’s profitability or viability.

The Company’s web property competes in a growing social media market with companies like Facebook, YouTube and MySpace .  The Company believes its HD-quality, user-generated content is unique and may allow it to differentiate itself from other social media companies.

Performance - Market Acceptance.

The quality of the Company’s products, services, its marketing and sales ability, and the quality and abilities of its personnel are among the operational keys to the Company’s success.  The Company is heavily dependent upon successfully completing its product development, gaining market acceptance and subsequently recruiting and training a successful sales and marketing force.  There can be no assurance that, even if the Company successfully completes its product development initiatives, it will be successful in attracting, training or retaining the key personnel required to execute the business plan.  Also, there can be no assurance that the Company can complete development of new technology so that other companies possessing greater resources will not surpass it.  There can be no assurance that the Company can achieve its planned levels of performance.  If the Company is unsuccessful in these areas, it could have a material adverse effect on the Company's business, results of operations, financial condition and forecasted financial results.  The entertainment industry may resist the Company's business plan and refuse to participate in contests and other sponsorship events.  In that case the Company would be forced to fund and sponsor its own contests which would affect operating capital, liquidity and revenues.

 

 
11

 

ITEM 1A.   RISK FACTORS  - continued
 
Dependence on Intellectual Property - Design and Proprietary Rights.
 
Our success and ability to compete depends to a degree on our intellectual property.  We will rely on copyright, trademark and patent filings as well as confidentiality arrangements, to protect our intellectual property locally and internationally.  Studio One Entertainment, Inc. has filed 24 patent applications relating to MyStudio and related technologies and processes, and while the Company believes the technologies, methods and processes merit patent protection, there is no assurance that any patent will be issued.  If circumstances make it impossible to try to adequately protect our intellectual property that intellectual property could be used by others without our consent and there could be material adverse consequences to the Company.  We have filed eight trademark applications and have received Notices of Allowance on four of those applications.  Effective protection may not be available for our service marks.  Although we plan to continue to register our service marks in the United States and in countries in which we do business or expect to do business, we cannot assure you that we will be able to secure significant protection for these marks.  Our competitors, if any exist, or others may adopt product or service names similar to those used by the Company, thereby impeding our ability to build brand identity and possibly leading to client confusion.  If circumstances make it impossible to adequately protect the name and brand, that result could seriously harm our business.

Policing unauthorized use of our intellectual property is made especially difficult by the global nature of the high technology industry and difficulty in controlling hardware and software.  The laws of other countries may afford us little or no effective protection for our intellectual property.  We cannot assure you that the steps we take will prevent misappropriation of our intellectual property or that agreements entered into for that purpose will be enforceable. In addition, litigation may be necessary in the future to enforce our intellectual property rights; determine the validity and scope of the proprietary rights of others; or defend against claims of infringement or invalidity.  Such litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources, either of which could seriously harm our business.  There can be no assurance that competitors of the Company, some of which have substantially greater resources, will not obtain patents or other intellectual property protection that will restrict the Company’s ability to make and sell its products.  If the Company was unsuccessful in protection of proprietary and intellectual property rights to MyStudio related business methods and websites, it could have a material adverse effect on the Company’s business, results of operations, financial condition and value, and financial results.
 
Economic Downturn.

The Company is susceptible to adverse impacts caused by economic downturns locally and in the markets in which it proposes to operate, as well as broader economic downturns affecting a region, or the particular industry sector in which the Company proposes to operate.  There can be no assurance that the Company will survive any such economic downturn, or if the Company does survive, that it will be capable of executing or furthering, to any meaningful degree, the originally conceived business plan.
 
Some of Our Markets are Cyclical.
 
Some of our markets are cyclical, and a decline in any of these markets could have a material adverse effect on our operating performance.   Our business is cyclical and dependent on consumer spending and is therefore impacted by the strength of the economy generally, interest rates, and other factors, including national, regional and local slowdowns in economic activity and job markets, which can result in a general decrease in product demand from professional contractors and specialty distributors.  For example, a slowdown in economic activity that results in less discretionary income for entertainment can have an adverse effect on the demand for some of our products.  In addition, unforeseen events, such as terrorist attacks or armed hostilities, could negatively affect our industry or the industries in which our customers operate, resulting in a material adverse effect on our business, results of operations and financial condition.
 
Disaster.
 
A disaster that disables the Company’s operations will negatively impact the Company’s ability to perform for a period of time.
 
Dependency on Foreign Components for our Products.
 
We expect to source components for our products outside the United States, which may present additional risks to our business.  International sourcing of components subject to various risks, including political, religious and economic instability, local labor market conditions, the imposition of foreign tariffs and other trade restrictions, the impact of foreign government regulations, and the effects of income and withholding tax, governmental expropriation, and differences in business practices.  We may incur increased costs and experience delays or disruptions in product deliveries and payments in connection with international manufacturing and sales that could cause loss of revenue. Unfavorable changes in the political, regulatory, and business climate could have a material adverse effect on our financial condition, results of operations, and cash flows.

 

 
12

 

ITEM 1A.   RISK FACTORS  - continued
 
Exposure to Product Liability Lawsuits.
 
Our results of operations may be negatively impacted by product liability lawsuits.   While we expect to maintain what we believe to be suitable product liability insurance once we have commenced operations of services with the general public, we cannot assure you that we will be able to maintain this insurance on acceptable terms or that this insurance will provide adequate protection against potential liabilities.  A series of successful claims against us could materially and adversely affect our reputation and our financial condition, results of operations, and cash flows.
 
Dependency on Key Suppliers and Product Availability.
 
Loss of key suppliers, lack of product availability or loss of delivery sources could delay product development, manufacturing and decrease sales and earnings.  Our ability to manufacture is dependent upon our ability to obtain adequate product supply from manufacturers or other suppliers. While in many instances we have agreements, including supply agreements, with our suppliers, these agreements are generally terminable by either party on limited notice.  The loss of, or a substantial decrease in the availability of, products from certain of our suppliers, or the loss of key supplier agreements, could have a material adverse effect on our business, results of operations and financial condition.  In addition, supply interruptions could arise from shortages of raw materials, labor disputes or weather conditions affecting products or shipments, transportation disruptions or other factors beyond our control.
 
Dependency on Long Supply Chains.
 
In some cases we are dependent on long supply chains, which may subject us to interruptions in the supply of many of the products used in the manufacture of My Studios.   The length and complexity of these supply chains make them vulnerable to numerous risks, many of which are beyond our control, which could cause significant interruptions or delays in delivery of our products.  Factors such as labor disputes, changes in tariff or import policies, severe weather or terrorist attacks or armed hostilities may disrupt these supply chains.  A significant interruption in our supply chains caused by any of the above factors could result in increased costs or delivery delays and have a material adverse effect on our business, results of operations and financial condition.
 
Fluctuations in Cost of Raw Materials.
 
Our results of operations could be adversely affected by fluctuations in the cost of raw materials.   The manufacturing process is subject to world commodity pricing for some of the raw materials used in the manufacture of our studios.  Such raw materials are often subject to price fluctuations, frequently due to factors beyond our control, including changes in supply and demand, general U.S. and international economic conditions, labor costs, competition, and government regulation.  Inflationary and other increases in the costs of raw materials have occurred in the past and may recur in the future.  Any significant increase in the cost of raw materials could reduce our profitability and have a material adverse effect on our business, results of operations and financial condition.
 
Regulatory Factors.

Our business model includes a component involving the internet.  As such, we are subject to a number of foreign and domestic laws and regulations that effect business on the internet.  We must contend with laws and regulations relating to user privacy, freedom of expression, content, advertising, information security and intellectual property rights of others.  Possible future consumer legislation, regulations and actions could cause additional expense, capital expenditures, restrictions and delays in the activities undertaken in connection with our business, the extent of which cannot be predicted.  The exact affect of such legislation cannot be predicted until it is proposed.

Terms of Subsequent Financings.

Terms of subsequent financings may adversely impact your investment.  We will engage in common equity, debt, and/or preferred stock financings in the future.  Your rights and the value of your investment in common stock could be reduced.  Interest on debt securities could increase costs and negatively impacts operating results.  Shares of our preferred stock may be issued in series from time to time with such designations, rights, preferences, and limitations as needed to raise capital.  The terms of preferred stock could be more advantageous to those investors than to the holders of common stock.  In addition, if we need to raise more equity capital from the sale of common or preferred stock, institutional or other investors may negotiate terms at least as, and possibly more, favorable than the terms of your investment.  Shares of common stock which we sell could be sold into the market, which could adversely affect market price.

 
 

 
13

 

ITEM 1A.   RISK FACTORS  - continued
 
Rapid Technological Change.
 
The industry in which we operate is characterized by rapid technological change that requires us to implement new technologies on an ongoing basis.  Our future will depend upon our ability to successfully implement new technologies in a rapidly changing technological environment.  We will likely require additional capital to develop new technologies to meet changing customer demands.  Moreover, expenditures for technology and product development are generally made before the commercial viability for such developments can be assured.  As a result, we cannot assure that we will successfully implement new technologies, that any implementations will be well received by customers, or that we will realize a return on the capital expended to develop such technology.

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

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

 
Ability to broadly commercialize and expand MyStudio;
 
Changes in entertainment technology;
 
Price and availability of alternative entertainment available to the public;
 
Availability and cost of technology and marketing personnel;
 
Our ability to establish and maintain key relationships with industry partners;
 
The amount and timing of operating costs and capital expenditures relating to maintaining our business, operations, and infrastructure; and
 
General economic conditions and economic conditions specific to the entertainment industry.
     
These and other external factors have caused and may continue to cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In the past, securities class action litigation has often been brought against companies following periods of volatility in the market price of their securities.  If securities class action litigation were to be brought against us it could result in substantial costs and a diversion of our management’s attention and resources, which could hurt our business.

Our Common Stock is Subject to Penny Stock Regulations.

Our common stock is subject to regulations of the Securities and Exchange Commission relating to the market for penny stocks.  These regulations generally require that a disclosure schedule explaining the penny stock market and the risks associated therewith be delivered to purchasers of penny stocks and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors.  The regulations applicable to penny stocks may severely affect the market liquidity for our common stock and could limit your ability to sell your securities in the secondary market.

Uncertainty as a Going Concern.
 
Our future existence remains uncertain and the report of our auditors on our June 30, 2009 financial statements contains a “going concern” qualification.  The report of the independent auditors on our financial statements for the year ended June 30, 2009, includes an explanatory paragraph relating to our ability to continue as a going concern.  We have suffered substantial losses from operations and require additional financing.  Ultimately we need to generate additional revenues and attain profitable operations.  These factors raise substantial doubt about our ability to continue as a going concern.  There can be no assurance that we will be able to develop commercially viable products or an effective marketing system.  Even if we are able to develop commercially viable products, there is no assurance that we will be able to attain profitable operations.

Dilution; Dilutive Effect of Future Transactions.

As of June 30, 2009, the Company had 16,417,447 shares of common stock, $0.001 par value, issued and outstanding.  The Company contemplates issuing a maximum of 1,500,000 shares of common stock pursuant to its 2009 Stock Incentive Plan approved by the Board on June 10, 2009, and further shares to certain of its management, directors, officers, employees and consultants in the immediate future.  The Company also had 774,044 shares of various classes of Convertible Preferred Stock outstanding, which can be converted to 514,814 shares of common stock.  In addition, the Company had warrants outstanding that would permit, if exercised, the issuance of 3,070,671 additional shares of common stock at an average exercise price of $3.14.  The issuance of additional shares by the Company will result in a further dilution of the Company, which could be significant; meaning your percentage ownership of any such merged entity will be significantly less than your percentage ownership of the Company.  If the Company issues additional shares either outright or through any future options or warrants programs or requires additional financing, further dilution in value and in the percentage ownership represented by the purchaser’s investment will occur.

 
14

 

ITEM 1A.   RISK FACTORS  - continued

Future equity transactions, including exercise of options or warrants, could result in dilution.  From time to time, we sell restricted stock, warrants, and convertible debt to investors in other private placements.  Because the stock is restricted, the stock is sold at a greater discount to market prices compared to a public stock offering, and the exercise price of the warrants sometimes is at or even lower than market prices.  These transactions cause dilution to existing stockholders.  Also, from time to time, options are issued to officers, directors, or employees, with exercise prices equal to the market price.  Exercises of in-the-money options and warrants will result in dilution to existing stockholders.  The amount of dilution will depend on the spread between the market and exercise price, and the number of shares involved but this dilution could be significant.

Restrictions on Transfer - No Public Market for Preferred Shares or Restricted Common Shares.

The shares of common stock of the Company are traded on the Over-The-Counter Bulletin Board System (OTCBB) under the ticker symbol SOMD.  However, for shares that have been issued and are restricted pursuant to SEC Rule 144 of the Securities Act of 1933 (the “Act”) there is presently no public or private market for such shares.  Such shares may only be offered or sold pursuant to registration under or an exemption from the Act and have not been registered under the Act, as amended, or any State securities laws and are being issued under Section 4(2) of the Act and Rule 506 of Regulation D promulgated under the Act.  Furthermore, there is presently no public or private market for the Common shares made available in this Offering.

Expect to Incur Losses for the Foreseeable Future.

We expect to incur losses for the foreseeable future and we may never become profitable.   Our business model requires that additional studios be deployed and operating for the Company to generate such revenues to reach break-even.  There are no assurances that such revenues will occur. We expect our expenses to increase significantly as we develop the infrastructure necessary to implement our business strategy.  Our expenses will continue to increase as we: hire additional employees; pursue further research and development; expand our information technology systems; and lease and purchase more space to accommodate our operations.
 
Costs associated with designing, developing, manufacturing, marketing and developing the infrastructure we will need to support our customers will depend upon many factors, including the number of MyStudio locations.  Therefore, we cannot now determine the amount by which our expenses will increase as we grow.

Possible Claims That the Company Has Violated Intellectual Property Rights of Others .

The Company is not subject to any dispute, claim or lawsuit or threatened lawsuit alleging the violation of intellectual property rights of a third party.  The Company believes MyStudio is not in violation of any patents claimed by others.  To the extent that the Company is ever alleged to have violated a patent or other intellectual property right of a third party, it may be prevented from operating its business as planned, and it may be required to pay damages, to obtain a license, if available, to use the patent or other right or to use a non-infringing method, if possible, to accomplish its objectives.  Any of these claims, with or without merit, could subject the Company to costly litigation and the diversion of their technical and management personnel.  If the Company incurs costly litigation and its personnel are not effectively deployed, the expenses and losses incurred by them will increase, and their profits, if any, will decrease.

Business Plans and Operational Structure May Change.

We will continually analyze our business plans and internal operations in light of market developments.  As a result of this ongoing analysis, we may decide to make substantial changes in our business plan and organization.  In the future, as we continue our internal analysis and as market conditions and our available capital change, we may decide to make organizational changes and/or alter some or all of our overall business plans.

Reliance on Management.

The Company believes that its present management has the experience and ability to successfully implement its business plan for the foreseeable future.  However, it is likely that the Company will continue to add to its management and therefore will recruit additional persons to key management positions in the future.  Should the Company be unsuccessful in recruiting persons to fill the key positions or in the event any of these individuals should cease to be affiliated with the Company for any reason before qualified replacements can be found, there could be material adverse effects on the Company’s business and prospects.  Each officer, director, and other key personnel has or will have an employment agreement with the Company which will contain provisions dealing with confidentiality of trade secrets, ownership of patents, copyrights and other work product, and non-competition.  Nonetheless, there can be no assurance that these personnel will remain employed for the entire duration of the respective terms of such agreements or that any employee will not breach covenants and obligations owed to the Company.

 
15

 

ITEM 1A.   RISK FACTORS  - continued

In addition, all decisions with respect to the management of the Company will be made exclusively by the officers and directors of the Company and its subsidiaries.  Investors will only have rights associated with minority ownership interest rights to make decisions that affect the Company.  The success of the Company, to a large extent, will depend on the quality of the directors, officers and senior management of the Company and subsidiaries.

Inability to Attract and Retain Qualified Personnel.

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

Inability to Manage Rapid Growth.

The Company expects to grow very rapidly.  Rapid growth often places considerable operational, managerial and financial strain on a business.  To successfully manage rapid growth, the Company must accurately project its rate of growth and:

 
Rapidly improve, upgrade and expand its business infrastructures;
 
Deliver its product and services on a timely basis;
 
Maintain levels of service expected by clients and customers;
 
Maintain appropriate levels of staffing;
 
Maintain adequate levels of liquidity; and
 
Expand and upgrade its technology, transaction processing systems and network hardware or software or find third parties to provide these services.

Our business will suffer if the Company is unable to successfully manage its growth.
 
Effects of Amortization Charges/ Stock Based Compensation  

Our losses will be increased, or our earnings, if we have them in the future, will be reduced, by charges associated if the Company issues options and/or warrants.  We have adopted a stock incentive plan for the benefit of our directors, officers, employees and consultants.  The total unearned stock-based compensation will be amortized as a stock-based compensation expense in our consolidated financial statements over the vesting period of the applicable options or shares, generally two to ten years in the case of options granted to employees, officers and directors and two years in the case of options granted to non-employee directors, consultants and third parties.  These types of charges may increase in the future.  The future value of these potential charges cannot be estimated at this time because the charges will be based on the future value of our stock.

Dividend Policy.

There can be no assurance that the proposed operations of the Company will result in significant revenues or any level of profitability.  We do not anticipate paying cash dividends on our common stock in the foreseeable future.  We plan to retain all future earnings, if any, to finance our operations and for general corporate purposes.  Any future determination as to the payment of cash dividends will be at our Board of Directors’ discretion and will depend on our financial condition, operating results, current and anticipated cash needs, plans for expansion and other factors that our Board of Directors considers relevant.  No dividends have been declared or paid by the Company with respect to its common stock, and the Company does not contemplate paying dividends on the common stock in the foreseeable future.

 

 
16

 

ITEM 1A.   RISK FACTORS  - continued
 
Conflicts of Interest.
 
Existing and future officers and directors may have other interests to which they devote time, either individually or through partnerships and corporations in which they have an interest, hold an office, or serve on boards of directors, and each may continue to do so.  As a result, certain conflicts of interest may exist between the Company and its officers and/or directors that may not be susceptible to resolution.  All potential conflicts of interest will be resolved only through exercise by the directors of such judgment as is consistent with their fiduciary duties to the Company and it is the intention of management to minimize any potential conflicts of interest.

Voting Control.

As a result of the acquisition of SO Entertainment, certain persons, either individually or acting together, are able to elect a majority of Directors or to authorize or defeat any proposal presented to the stockholders for action.

Loss of Services of Key Members of Our Senior Management Team.

Our future success depends in a large part upon the continued services of key members of our senior management team.  These persons are critical to the overall management of Studio One as well as the development of our technology, our culture and our strategic direction.  We do not maintain any key-person life insurance policies.  The loss of any of our management or key personnel could seriously harm our business.


ITEM 1B.  UNRESOLVED STAFF COMMENTS

Not required by Form 10-K for smaller reporting companies.


ITEM 2. DESCRIPTION OF PROPERTY.

Pursuant to a lease originally dated January, 2006, we currently occupy approximately 5,400 square feet of office space located at 7650 E. Evans Rd., Suite C, Scottsdale, Arizona 75260.  On June 15, 2008, we expanded into and also occupy approximately 5,400 square feet adjoining the original premises on a month-by month basis.  Under the terms of the extended, expanded lease, we occupy the premises on a month-to-month basis.  The total lease expense is $6,650 per month, payable in cash, common stock of the Company and on-studio advertising.

In anticipation of implementation of our business plan, we had also leased an additional  9,400 feet of office space in another building located at 7812 E. Acoma, Scottsdale, Arizona, at a monthly cost of $12,225.   We have never occupied this space and in May 2009, entered into a termination agreement with the landlord pursuant to which the Company will pay the sum of $50,000 over a period of ten months in exchange for terminating future obligations under the lease.

The Company leases space at Scottsdale Fashion Square for its MyStudio recording studio pursuant to a two-year lease.   The monthly rent for this space is at a market rate commensurate with other kiosk operations.  As the Company expands, it will continue to secure space for its recording studios at various venues and locations around the country.

ITEM 3. LEGAL PROCEEDINGS.

The Company is an interpleader party to a lawsuit in the Southern District of Georgia, Savannah Division, pursuant to which the Company seeks to prevent the release of 100,000 shares of its common stock to a third-party and asks the court to return those shares to the Company.   The suit seeks no damages from the Company and the Company believes that it will prevail in the matter.

Except as described in the preceding paragraph, to the best knowledge of our management, there are no material litigation matters pending or threatened against us.

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

On April 16, 2007, a majority of the shareholders of the Company and a majority of the shareholders of Studio One Entertainment, Inc., approved the acquisition of Studio One Entertainment, Inc., by the Company.  No further matters were submitted to a vote of our securities holders during the fiscal year ended June 30, 2008 and none were submitted to the securities holders during the fiscal year ended June 30, 2009.

 
17

 

 
PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information

Studio One’s common stock has been traded on the Over the Counter Bulletin Board (the OTC Bulletin Board”) under the following various symbols:
 
 DVGL
  -
 Prior to January 12, 1998
 DVUI   
  -
 January 12, 1998 to May 18, 2004
 DVSO
 -
 May 18, 2004 to April 20, 2006
 SOMD
 -
 From April 20, 2006

The following table sets forth the range of high and low bid quotations for each fiscal quarter for the last two fiscal years.  These quotations reflect inter-dealer prices without retail mark-up, markdown, or commissions and may not necessarily represent actual transactions.
 
Per Share Common Stock Bid Price By Quarter

  For the Fiscal Year Ending on June 30, 2009
   
High
   
Low
 
  Quarter Ended June 30, 2009
   
  0.99
   
  0.40
 
  Quarter Ended March 31, 2009
   
1.29
   
0.50
 
  Quarter Ended December 31, 2008
   
4.90
   
0.56
 
  Quarter Ended September 30, 2008
   
5.50
   
 3.88
 


  For the Fiscal Year Ending on June 30, 2008
   
High
   
Low
 
  Quarter Ended June 30, 2008
   
5.50
   
3.80
 
  Quarter Ended March 31, 2008
   
5.80
   
3.90
 
  Quarter Ended December 31, 2007
   
6.25
   
4.05
 
  Quarter Ended September 30, 2007
   
6.40
   
3.70
 

       
Holders

As of June 30, 2009, the number of stockholders of record according to the Company’s transfer agent, not including beneficial owners whose shares are held by banks, brokers and other nominees, was approximately 439.  Because many of our shares are held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of stockholders represented by these record holders.  Consequently, the actual number of stockholders of record as of the date of this Report was not available. The Company believes, however, that it has approximately 1,500 stockholders in total.

Dividends

The Company has paid no dividends on its Common Stock since its inception and does not anticipate or contemplate paying cash dividends in the foreseeable future. 
 
Pursuant to the terms of the Company's Series A Convertible Preferred Stock, a 5% annual dividend is due and owing. Pursuant to the terms of the Company Series B Convertible Preferred stock, an 8% annual dividend is due and owing.  Pursuant to the terms of the Company’s Series A-1 Senior Convertible Redeemable Preferred stock, a 6% annual dividend is due and owing.  As of June 30, 2009, the Company has not declared dividends on Series A, Series B or its Series A-1 preferred stock.  The unpaid cumulative dividends totaled approximately $183,057.  See Notes 4 and 6 of Notes to Financial Statements.

 
18

 

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS  - continued

Supplemental Disclosure of Non-Cash Investing and Financing Activities for Fiscal Years 2009 and 2008

Fiscal Year 2009

During fiscal year ended June 30, 2009, the Company accepted subscriptions for 1,505,478 shares of unregistered restricted shares of common stock at an average price per share of $1.27 for a total of $2,061,074 and agreed to issue 743,330 shares pursuant to warrants granted in connection with such placements.  Generally, the warrants may be exercised at any time within a one to two-year period beginning on the date of the respective investments at an average exercise price of $3.18.  The Company also agreed to issue 890,391shares pursuant to warrants granted to various employees and consultants, which may be exercised at varying times ranging from two to ten years at an average exercise price of $1.72 per share.  In addition, the Company issued 1,142,935 shares of common stock for consulting, legal and other services valued at $1,511,922, 50,000 shares in conversion of preferred shares valued at $50,000, and 52,733 shares in conversion of debt valued at $26,367.   The Company also issued 100,000 shares to a trustee as collateral for a promissory note made in termination of a lease agreement.   During the fiscal year ended June 30, 2009, Warrantholders exercised various options for 349,335 shares for a total of $363,417, an average of $1.21 per share.

In June 2009, the Company adopted the 2009 Long-Term Stock Incentive Plan intended to aid the Company in attracting and retaining key employees, to stimulate the efforts of such individuals and to strengthen their desire to remain with the Company.   As of June 30, 2009, the Company had granted options under this Plan to two employees to purchase, in the aggregate, 85,000 shares of the Company’s common stock.  The exercise period for each of the grants is two years from the date of grant and the exercise price in each instance is $0.80.

Fiscal Year 2008

During fiscal year ended June 30, 2008, the Company accepted subscriptions for 1,115,830 shares of unregistered restricted shares of common stock at an average price per share of $2.83 for a total of $3,010,725 and agreed to issue 1,089,163 shares pursuant to warrants granted in connection with such placements.  The warrants may be exercised at any time within a two-year period beginning on the date of the respective investments at an average exercise price of $3.83.  The Company also agreed to issue 534,036 shares pursuant to warrants granted to various employees and consultants, which may be exercised at varying times ranging from two to five years.  In addition, the Company issued 684,322 shares of common stock for consulting, legal and other services valued at $2,405,096, 5,000 shares for a vehicle valued at $24,125, and 833 shares in conversion of preferred shares valued at $4,027.   During the fiscal year ended June 30, 2008, Warrantholders exercised various options for 44,507 shares for a total of $133,520, an average of $3.00 per share.


ITEM 6 - SELECTED FINANCIAL DATA

Note required by Form 10-K for smaller reporting companies.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

FISCAL YEARS 2009 AND 2008

RESULTS OF OPERATIONS

The Company launched its first MyStudio in Scottsdale Fashion Square mall in Scottsdale, Arizona on September 29, 2008. The studio has enjoyed high customer satisfaction, a high ratio of repeat customers and has operated with negligible downtime.  Despite the significant slowdown in mall traffic and consumer spending which began in October, the Company has generated quarterly revenue growth.

The Company’s business plan calls for the establishment of regular events and contests to drive traffic to its studios and this assumption was confirmed by a marked increase in studio traffic when contests and promotions have been offered. In late December 2008, the Company finalized two important multiyear partnerships with Mark Burnett Productions for reality TV casting and The GRAMMY Foundation to do auditions for various GRAMMY Foundation programs. The Company expects to continue to align itself and enter into partnerships with other high profile entertainment companies, so it can offer consumers an ongoing variety of contests to ensure steady studio traffic.  During the fiscal year ended June 30, 2009 the Company hosted a variety of contests and auditions.

 
19

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  - continued

Revenues:                                                                              
                                                                                                          
  Twelve Months Ended 
  Increase/(Decrease)
  6-30-09   6-30-08   Amount      %  
                 
Revenue
    141,861       839       141,022   99
%

 
The Company opened its first MyStudio on September 29, 2008, and began generating revenue on October 1, 2008.
 
It had no operating revenue for the twelve months ended June 30, 2008 or for the three preceding fiscal years during which time it has expended considerable effort and funds in developing MyStudio.  Until the current fiscal year, the Company has been a Development Stage company.  
 
The Company’s business model provides for revenues from three sources:

 
·
Paid revenue sessions from customers who utilize the studios to create audio/video recordings.
 
·
Advertising revenue from the external monitors located on each MyStudio facility.
 
·
Advertising revenue from its website.

The revenues from each of the first two of these sources is expected to increase proportionally to the number of studios we place in operation.   Future revenue from advertising on the website will depend on the number and length of visits to our website by MyStudio users and other viewers .

Cost of Sales :
         
  Twelve Months Ended 
  Increase/(Decrease)
  6-30-09   6-30-08   Amount      %  
                 
Cost of Sales
   
136,413
      0      
136,413
 
100.0
%

Cost of Sales is comprised of expenses directly related to the operation of the MyStudio facility and includes studio rent paid to the mall, connectivity charges for high speed internet access, utilities, advertising, attendant personnel and related payroll costs, and other expenses associated with a particular studio.  Depreciation and amortization associated with the studio is accounted for in the Company’s general and administrative expenses.

General and Administrative Expenses:        
 
  Twelve Months Ended 
  Increase/(Decrease)
  6-30-09   6-30-08   Amount      %  
                 
General and Administrative Expenses
   
2,600,675
     
1,729,396
     
871,279
 
50.4
%

General and administrative expenses consist primarily of compensation and related costs for personnel and facilities for our finance, human resources, information technology and general administration, and fees for professional services.  Professional services are principally comprised of outside legal, audit, information technology, consulting and outsourcing services.

General and administrative expenses increased for the year ended June 30, 2009 by approximately $871,279 compared to the year ended June 30, 2008.

 

 
20

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  - continued
 
The overall increase for the twelve month period ended June 30, 2009 in general and administrative costs is attributable to the developmentof MyStudio, including the hiring of personnel, such as software developers, design engineers, administrative staff, marketing personnel and others, increasing expenses substantially.  The greatest portion of the expenses occurred in the first quarter of the current fiscal year as we ramped up to open our first studio.  Subsequently, for the second and third quarters of the current fiscal year, we have taken actions to curtail our general and administrative expenses to address the uncertainties of the current economic environment.  The non-cash portion of general and administrative expenses for the twelve months ended June 30, 2009, was $789,487 , compared to $938,136 for the period ended June 30, 2008, a decline of approximately 16%.  These non-cash charges are attributable to shares issued to various employees and consultants for services rendered and for warrants to investors in connection with equity raises during the respective periods.  We elected to use the Black-Scholes option-pricing model to determine the fair value of stock option based awards under SFAS 123R, consistent with that used for pro-forma disclosures under SFAS No. 123, Accounting for Stock-Based Compensation.

Research and Development Expenses:            
 
  Twelve Months Ended 
  Increase/(Decrease)
  6-30-09   6-30-08   Amount      %  
                 
Research and Development Expenses
   
800,967
     
778,834
     
22,133
 
2.8
%


Research and development expenses consist primarily of compensation and related costs for personnel and consultants responsible for developing the MyStudio prototype and the Company’s companion social networking website, MyStudio.net.  These costs include persons engaged on a contractual basis to develop MyStudio and its intellectual components, as well as outside expenses incurred to construct a working prototype and the first production model and the hardware and software necessary to make the studio fully operational.  We expense research and development costs as they are incurred.

MyStudio is now a developed product and was formally introduced to the market place in September 2008.  Although the Company has now moved into an operational stage, with the production, installation and operation of its first studio and others contemplated in various locations, it will also continue to incur additional research and development costs in refinement of the MyStudio facility and its website.  Research & development costs, however, as a percentage of overall costs, are expected to decline as the Company rolls-out additional MyStudio units.

For the twelve months ended June 30, 2009, research & development expenses increased by some 2.8% to $800,967 compared to $778,834 for the twelve months ended June 30, 2008.  The Company expects such expenses to continue at the current twelve-month level for an indefinite period.

Total Operating Expenses:
 
  Twelve Months Ended 
  Increase/(Decrease)
  6-30-09   6-30-08   Amount      %  
                 
Total Operating Expenses
   
6,585,561
     
6,188,444
     
397,117
 
6.4
%


This increase is mostly attributable to the launch of our first studio, for which the Company incurred marketing and promotion expenses not present in earlier periods and ramped up its staff in preparation of a more aggressive studio roll-out plan.  Consequently, for the twelve months ended June 30, 2009, Total operating expenses increased to $6,585,561, compared to $6,188,444 for the twelve months ended June 30, 2008, an increase of approximately 6.4%.
 
Net Income/(Loss):
 
  Twelve Months Ended 
  Increase/(Decrease)
  6-30-09   6-30-08   Amount      %  
                 
Net Income (Loss)
   
6,599,366
     
6,178,992
     
420,374
 
6.8
%



 
21

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  - continued
 
The net loss for the twelve months ended June 30, 2009 was $(6,599,366) which is an 6.8% increase in the loss recorded for the comparable twelve months ended June 30, 2008.   

The Company recorded an interest expense of $173,776 in the twelve months ended June 30, 2009 compared to $14,553 in interest expense for the twelve months ended June 30, 2008.  The nominal amount of interest expense for the twelve month periods ending June 30, 2008, is attributable to the reduction in outstanding short-term debt in the form of extinguishment and conversion occurring in the previous two fiscal years.  The increased interest expense occurring for the twelve month periods ending June 30, 2009 relates to interest accrued on obligations to a related party.

The increase in the net loss for the twelve months ended June 30, 2009 parallels the changes in general and administrative expenses and research and development costs for the same periods.

Net Operating Losses
 
We have accumulated approximately $15,237,122 million of net operating loss carryforwards as of June 30, 2009, which the Company believes may be offset against future taxable income through 2029.  The use of these losses to reduce future income taxes will depend on several factors including the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards.  In the event of certain changes in control, there will be an annual limitation on the amount of net operating loss carryforwards which can be used.  No tax benefit has been reported in the financial statements for the year ended June 30, 2009 because the potential tax benefits of the loss carryforward is offset by valuation allowance of the same amount.

Liquidity and Capital Resources

The Company had limited revenue during the fiscal year ended June 30, 2009.

Subsequent to 2002, when its then operations as Dimensional Visions Incorporated were discontinued, the Company has met its financial needs through debt financing and through the sales and issuances of its securities.  During the fiscal year ended June 30, 2009, the Company undertook several sales of non-registered securities in a series of private transactions.  The Company issued 1,505,478 unregistered restricted shares at an average price of $1.27 per share for a total of $2,061,074 and granted warrants to these security holders to acquire an additional 743,330 shares at an average exercise price of $3.18 at any time within two years after the dates of their respective investments.  In addition, the Company issued 1,142,935 to various employees and consultants for services valued at $1,511,922 and granted warrants to employees and consultants to purchase an additional 890,391shares at an average exercise price of $1.72 per share at various times up to ten years.  The Company also issued 50,000 shares in conversion of preferred shares valued at $50,000, and 52,733 shares in conversion of debt valued at $26,366.   The Company also issued 100,000 shares to a trustee as collateral for a promissory note made in termination of a lease agreement.   During the fiscal year ended June 30, 2009, Warrantholders exercised various options for 349,335 shares for a total of $363,417, an average of $1.04 per share.  All shares issued were subject to the restrictions set forth in Section 144 of the Securities Exchange Act of 1933.  The securities were sold only to persons who met the Accredited Investor requirements and other requirements set forth in the respective offering memoranda.

Based on the Company’s current plans, management has determined that the funds currently available to the Company will be inadequate to completely implement the business plan of the Company.  In addition, the Company is unable to provide assurance that its planned levels of revenue, costs and expenses will be achieved.  Until the Company has achieved a sales level sufficient to break even, it will not be self-sustaining.  The Company will require additional funding for continued operations and will therefore be dependent upon its ability to raise additional funds through bank borrowing, equity or debt financing, or asset sales. We expect to need to access the public and private equity or debt markets periodically to obtain the funds we need to support our operations and continued growth.  There is no assurance that the Company will be able to obtain additional funding when needed, or that such funding, if available, can be obtained on terms acceptable to the Company.  If we require, but are unable to obtain, additional financing in the future on acceptable terms, or at all, we will not be able to continue our business strategy, respond to changing business or economic conditions, withstand adverse operating results or compete effectively.  If the Company cannot obtain needed funds, the Company may be forced to curtail, in whole or in part, or cease its activities altogether.  If additional shares are issued to obtain financing, current shareholders will suffer a dilutive effect on their percentage of stock ownership in the Company.  

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

 
22

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  - continued
 
Going Concern

The report of our independent registered public accounting firm on the financial statements for the year ended June 30, 2009, includes an explanatory paragraph indicating substantial doubt as to our ability to continue as a going concern.  We have an accumulated deficit of $15,237,122 and working capital deficit of $1,692,495 as of June 30, 2009.  We have not generated meaningful revenues in the last two fiscal years.  Our ability to establish the Company as a going concern is dependent upon our ability to obtain additional financing in order to fund our planned operations and ultimately to achieve profitable operations.

Intangible Assets

The Company’s intangible assets consist of 24 pending patents and 8 applications for trademarks, 4 of which Notices of Allowance have been received. Generally a patent has a life of 17 to 20 years.
 
The Company performed an impairment test in accordance with the guidance provided in SFAS 142, “Goodwill and Other Intangible Assets”, and has determined that, as of June 30, 2009, no impairment exists on any of the Company’s assets based on the present value of future cash flows generated from Company assets.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies

We have identified the following policies as critical to our business operations and the understanding of our results of operations. The preparation of these financial statements require us to make estimates and assumptions that effect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that future actual results will not differ from those estimates. The effect of these policies on our business operations is discussed below where such policies affect our reported and expected financial results.

Fair Value Measurements .  In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements.  Where applicable, SFAS No. 157 simplifies and codifies related guidance within GAAP and does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company has adopted  SFAS No. 157 and there have been no significant effects on its financial position or results of operation.
 
Income Taxes .  In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109", which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006.  The Company has adopted FIN 48 and there have been no material impacts on its financial reporting or on its disclosure requirements.

Revenue Recognition . The Company’s business model is based on three primary sources of revenue:  revenue from individual recording sessions in a studio, revenue from advertising on the exterior flat screen monitors located on each studio, and future revenue from website advertising.  We record sales when revenue is earned.  We make no sales on credit.  We had $37,600 in revenue from kiosk sessions and $104,261 $141,861 in revenue from barter exchanges during the fiscal year ended June 30, 2009.

Barter Transactions - Barter revenue relates to recording session services provided by Studio One to business customers in exchange for products and services that Studio One would otherwise be required to buy for cash. Barter expenses reflect the expense offset to barter revenue. The amount of barter revenue and expense is recorded at the estimated fair value of the services received or the services provided, whichever is more objectively determinable, in the month the services and advertising are exchanged.  Studio One applies APB 29, Accounting for Non-Monetary Transactions, the provisions of EITF 93-11, “Accounting for Barter Transactions Involving Barter Credits” and EITF 99-13 “Accounting for Advertising Barter Transactions” and, accordingly, recognizes barter revenues only to the extent that Studio One has similar cash transactions within a period not to exceed six months prior to the date of the barter transaction.

 
23

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  - continued

To date, the amount of barter revenue to be recognized has been more objectively determinable based on the value of products or services received rather than based upon the value of advertising provided.  For revenue from recording sessions services provided for cash to be considered similar to the recording session services provided in barter transactions, the services rendered must have been in the same media and similar term as the barter transaction.

Patents . We evaluate potential impairment of long-lived assets in accordance with FAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” FAS No. 144 requires that certain long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable based on expected undiscounted cash flows that result from the use and eventual disposition of the asset. The amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. Patent and software costs include direct costs of obtaining patents. Costs for new patents are either expensed as they are incurred or capitalized and amortized over the estimated useful lives of seventeen years and software over five years.

Research and Development .   Our research and development efforts concentrate on new product development, improving product durability and expanding technical expertise in the manufacturing process. We expense product research and development costs as they are incurred.  We incurred research and development expense of $800,967 and $778,834 during the years ended June 30, 2009 and 2008, respectively.

Stock Based Compensation .   In December 2004, the FASB issued FAS No. 123R, “Share-Based Payment.” This statement is a revision to FAS No. 123, “Accounting for Stock-Based Compensation,” and it supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends FAS No. 95, “Statement of Cash Flows.” FAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. We use the Black-Scholes pricing model for determining the fair value of stock based compensation.

Equity instruments issued to non-employees for goods or services are accounted for at fair value and are marked to market until service is complete or a performance commitment date is reached.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required by Form 10-K for smaller reporting companies.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Our financial statements as of and for the fiscal years ended June 30, 2009 and 2008 have been audited to the extent indicated in the report by Mantyla McReynolds, LLC, independent certified public accountants, and have been prepared in accordance with generally accepted accounting principles and pursuant to Regulation S-X as promulgated by the SEC.  The aforementioned financial statements are presented in a separate section of this report following Part IV.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

The auditor for the Company is the firm of Mantyla McReynolds, LLC, 178 South Rio Grande Street, Suite 200, Salt Lake City, Utah  84101, who were engaged on September 11, 2009.

The audit reports of Mantyla McReynolds on the financial statements for the years ended June 30, 2009 contained a separate paragraph stating:  "The Company has incurred losses since inception of $15,237,122 and has limited revenues which raises substantial doubt about its ability 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) ultimately achieve substantial revenues from its personal recording studio business. 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 its personal recording studios.  The financial statements have been prepared on a going concern basis, which contemplates the realization and settlement of liabilities and commitments in the normal course of business.  The available funds at June 30, 2009, are not sufficient to satisfy the present cost structure. Management recognizes that the Company must obtain additional funding to enable it to continue operations and operate as a going concern.  ”

 
24

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  - continued

There were no other adverse opinions, disclaimers of opinions, or qualifications or modifications as to uncertainty, audit scope, or accounting principles.
 
During the two most recent fiscal years, there were no disagreements with Mantyla McReynolds on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the satisfaction of Mantyla McReynolds, would have caused it to make reference to the subject matter of the disagreement in connection with its report.  
There were no other "reportable events" as that term is described in Item 304(a)(1)(iv) of Regulation S-B occurring within the registrant's two most recent fiscal years.
 
During the Registrant's two most recent fiscal years, neither the registrant nor anyone on its behalf consulted Mantyla McReynolds, regarding the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the registrant's financial statements.


ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of disclosure controls and procedures

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

The Certifying Officers responsible for establishing and maintaining adequate internal control over financial reporting for the Company used the Internal Control over Financial Reporting Integrated Framework issued by Committee of Sponsoring Organizations’ (COSO) to conduct an extensive review of the Company's “disclosure controls and procedures” (as defined in the Exchange Act, Rules 13a-15(e) and 15-d-15(e)) as of the end of each of the periods covered by this report (the “Evaluation Date”).  Based upon that evaluation, the Certifying Officers concluded that, as of June 30, 2009 and June 30, 2008, our disclosure controls and procedures were ineffective in ensuring that the information we were required to disclose in reports that we file or submit under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms.  

The Certifying Officers based their conclusion on the fact that the Company has identified a material weakness in controls over financial reporting, detailed below.  In order to mitigate this risk, the Company has contracted with consultants with expertise in US GAAP and SEC financial reporting standards to review and compile all financial information prior to filing that information with the SEC.  There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  Management used the Internal Control over Financial Reporting Integrated Framework issued by Committee of Sponsoring Organizations’ (COSO) to conduct an extensive review of the Company’s internal controls over financial reporting to make that evaluation.  As of June 30, 2009 and June 30, 2008, the Company had a deficiency in internal controls that constituted a material weakness in internal controls. Due to this material weaknesses, management concluded that internal controls over financial reporting as of June 31, 2009 were ineffective, based on COSO’s framework.

 

 
25

 

ITEM 9A. CONTROLS AND PROCEDURES  - continued
 
This deficiency is attributed to the fact that the Company does not have adequate resources to address complex accounting issues as well as an inadequate number of persons to whom it can segregate accounting tasks within the company so as to ensure the separation of duties between those persons who approve and issue payment from those persons who are responsible to record and reconcile such transactions within the Company’s accounting system.  This control deficiency will be monitored and attention will be given to the matter as the Company begins operations as an active business entity. Management has concluded that this control deficiency constituted a material weakness that continued throughout fiscal year 2009  In order to mitigate this risk, the Company has contracted with consultants with expertise in US GAAP and SEC financial reporting standards to review and compile all financial information prior to filing that information with the SEC.  There were no significant changes in our internal control over financial reporting or in other factors that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

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


ITEM 9B.  OTHER INFORMATION

None



 
26

 

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The directors and executive officers of the Company as of June 30, 2009 are as follows:

Age
Position
     
Preston J. Shea
61
Director, President, CEO, Secretary
Kenneth R. Pinckard
63
Director, Vice President, CFO, Legal Counsel
Barry M. Goldwater, Jr.
70
Director, Chairman
Shelly Yakus
63
Vice President
Matthew Long
43
Vice President
Anna Madrid    35  Vice President
                                                                 

The directors and officers of wholly owned operating subsidiary, Studio One Entertainment, Inc., at June 30, 2009, is:

Name
Age
Position
     
Lawrence G. Ryckman
49
Director, President, CEO, Secretary

Directors serve until the next annual meeting or until their successors are qualified and elected. Officers serve at the discretion of the Board of Directors.

Preston J. Shea is President, Secretary, and Director and was the sole officer and director of the Company from September 2003 to March 2006.  He is licensed as an attorney in the State of Arizona and as a Barrister and Solicitor by the Law Society of Upper Canada in Ontario. From 1999 to present, he has been vice president and general counsel for an international business organization with offices in Canada and the United States and representative offices in Russia, China, Austria and Mexico. From 1990 to 1999, he practiced international immigration law and business law in Ontario, Canada, Detroit, Michigan and Phoenix, Arizona, with an emphasis on the North American Free Trade Agreement. Prior to that, from 1986 to 1990, he was employed by the government of Canada in various positions including Chief of Staff for the Federal Minister of the Environment, Special Assistant to the Federal Minister of International Trade, and as a Senior Investment Advisor in the Los Angeles offices of the Canadian Consulate. Prior to his tenure with the Canadian government, he was actively engaged in various legal and business positions in the private sector.

Kenneth R. Pinckard is a member of the State Bar of Arizona with extensive experience in startup ventures, investments, corporate acquisitions and mergers, turn-arounds and reorganizations, corporate finance, tax, bankruptcy matters, and commercial real estate development, construction, management and leasing.   Mr. Pinckard holds a B.B.A., Accounting from the University of Texas at Austin and a Juris Doctorate from the University of Houston.

Barry M. Goldwater, Jr., served as a U.S. Congressman for 14 years, representing a district in northern Los Angeles County.  Prior to that he was a stockbroker and partner in the Los Angeles securities firm of Noble Cook, Inc. (now Wedbush Securities) where he developed an institutional customer base and traded securities on all stock exchanges.  While in Congress, he served on a number of committees, including Committee on Science and Technology and the Joint Committee on Energy.  He authored the Privacy Act of 1974.  Since retiring from Congress in 1984, Barry has been actively involved in private business activities and has held a number of responsible senior positions involving finance and management.  He is presently on the Boards of two companies in addition to Studio One.  Mr. Goldwater holds a degree in Marketing from Arizona State University.

Shelly Yakus is a renowned music producer, audio engineer/mixer and recording studio designer. He has engineered and mixed recordings for some of the world’s best known artists including John Lennon, Stevie Nicks, Alice Cooper, Van Morrison, Tom Petty, Dire Straits, Blue Oyster Cult, Bob Seger, Amy Grant, Don Henley, U2 and Madonna. Known as “Golden Ears,” he is also widely respected for his expertise in recording studio design and acoustics. Mr. Yakus co-designed, equipped and supervised construction of the industry leading A&M Music recording studios in Los Angeles and served as vice-president of A&M studios from 1985-1995. He was previously vice president of the Record Plant recording studios in New York and a partner at Tongue and Groove Studios in Philadelphia. The music that Mr. Yakus has engineered, produced or mixed has grossed over a billion dollars in sales and in 1999 he was nominated for induction into the Rock and Roll Hall of Fame. Mr. Yakus’ career and accomplishments are widely covered in publications such as Rolling Stone, Mix Magazine, Audio Engineer and Spin.

 
27

 

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   - continued
 
Mr. Matthew Long, is   an   Emmy Award winner and has enjoyed an extensive career as a producer, director, editor, director of photography and writer for television, feature film and video productions.  Mr. Long is responsible for producing and managing the video content for Studio One’s interactive studios and related television production.

Larry Ryckman is an award winning entrepreneur and businessman with notable achievements in the entertainment, high technology and sports industries.  Larry previously co-founded and served as president and CEO of entertainment/technology company, QSound, Ltd., which developed proprietary sound technologies for the entertainment, computer, cell phone and video game industries.  During his tenure as president, QSound grew from a start-up to a NASDAQ listed, internationally recognized player in the industry and secured over a dozen patents.  He completed licensing and joint venture agreements with multi-national corporations such as Polygram, Nintendo, JVC, Coca Cola, and NEC.

Anna Madrid , prior to joining Studio One, specialized in leasing, marketing and corporate strategic partnerships within the Shopping Center industry.  She has extensive experience working with local, regional and national brands and advertisers.  Anna has represented some of the most recognized luxury shopping centers in the nation and now leads all aspects of Studio One's overall business development.

Indemnification of Directors and Officers

The Certificate of Incorporation and Bylaws of the Company provide that the Company will indemnify and advance expenses, to the fullest extent permitted by the Delaware General Corporation Law (the “Act”), to each person who is or was a director, officer or agent of the Company, or who serves or served any other enterprise or organization at the request of the Company (an "Indemnitee").  Under Delaware law, to the extent that an Indemnitee is successful on the merits of a suit or proceeding brought against him or her by reason of the fact that he or she was a director, officer or agent of the Company, or serves or served any other enterprise or organization at the request of the Company, the Company will indemnify him or her against expenses (including attorneys' fees) actually and reasonably incurred in connection with such action.  If unsuccessful in defense of a third-party civil suit or a criminal suit, or if such a suit is settled, an Indemnitee may be indemnified under Delaware law against both (i) expenses, including attorneys' fees, and (ii) judgments, fines and amounts paid in settlement if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action, had no reasonable cause to believe his other conduct was unlawful.  If unsuccessful in defense of a suit brought by or in the right of the Company, where the suit is settled, an Indemnitee may be indemnified under Delaware law only against expenses (including attorneys' fees) actually and reasonably incurred in the defense or settlement of the suit if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company except that if the Indemnitee is adjudged to be liable for negligence or misconduct in the performance of his or her duty to the Company, he or she cannot be made whole even for expenses unless a court determines that he or she is fully and reasonably entitled to indemnification for such expenses.  Also under Delaware law, expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding may be paid by the Company in advance of the final disposition of the suit, action or proceeding upon receipt of an undertaking by or on behalf of the officer or director to repay such amount if it is ultimately determined that he or she is not entitled to be indemnified by the Company.  The Company may also advance expenses incurred by other employees and agents of the Company upon such terms and conditions, if any, that the Board of Directors of the Company deems appropriate.  Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, in the opinion of the Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable.

In addition, subsequent to June 30, 2009, on July 21, 2009, the Company approved a Directors and Officers Indemnity Agreement for its directors and principal officers.  It has since entered into agreements with Messrs. Barry M. Goldwater, Preston J. Shea, Kenneth R. Pinckard, Lawrence G. Ryckman, Sheldon Yakus, Matthew Long and Anna Madrid.  A copy of  the Directors and Officers Indemnity Agreement is attached as an exhibit to this Annual Report.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires executive officers and directors, and persons who beneficially own more than 10% of any class of the Registrant’s equity securities (“Reporting Persons”) to file initial reports of ownership and reports of changes in ownership on Forms 3, 4 and 5 with the SEC.  Executive officers, directors and beneficial owners of more than 5% of any class of the Registrant’s equity securities are required by SEC regulations to furnish the Registrant with copies of all Section 16(a) forms they file.

Based solely on a review of the copies of such forms furnished to the Registrant during or with respect to fiscal 2009, and certain written representations from executive officers and directors, the Registrant is aware that the Directors and certain officers have inadvertently failed to file a Forms 3 and 4at the time of their respective election to the Board or appointment as an officer.  Except as stated in the preceding sentence, the Company believes that all Reporting Persons have complied on a timely basis with all filing requirements applicable to them.

 
28

 

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   - continued
   
Code of Ethics

The Company maintains a Code of Ethics (the “Code”) that was filed As Exhibit 14 with its Annual Report on Form 10-KSB for 2004 filed on November 15, 2004.  The Code applies to the chief executive, financial and accounting officers, controller and persons performing similar functions.  If the Company amends the code or grants a waiver from the Code with respect to the foregoing persons, it will post that amendment or waiver on its website.

Audit Committee

The Company’s Audit Committee consists of Messrs. Pinckard and Shea.  Neither of those members has been designated by the Board or the Audit Committee as an “audit committee financial expert.”  The Board is seeking to fill a board seat with an independent Board member that would fulfill that qualification.


ITEM 11. EXECUTIVE COMPENSATION.

Summary Compensation Table

The following table sets forth the total compensation earned by or paid to the Company's Officers for the last two fiscal years.  Only one officer of the Company earned more than $100,000 in the last two fiscal years.

         
  Long Term Compensation
 
 
 
Annual Compensation      
 A wards
 
Payouts
 
 
Name and Principal Position
Fiscal
Year
 
Salary ($)
Bonus ($)
Other Annual Compensation ($)
 
Restricted Stock Award(s) ($)
Securities Underlying Options/
SARs (#)
LTIP
Payout ($)
  All Other Compensation ($)
                 
Preston J. Shea  President, 
 2009
 -0-
-0-
 -0-
 -0-
-0-
 -0-
 $33,970
  Secretary 
 2008
 -0-
-0-
 -0-
 -0-
-0-
 -0-
 $32,670
                 
Kenneth R. Pinckard, Vice
 2009
$  -0-
-0-
 -0-
 -0-
-0-
 -0-
 $200,000 (2)
  President, Treasurer 
 2008
 $61,865
-0-
 -0-
 -0-
-0- 
 -0-
 $  5,280
                 
Shelly Yakus, Vice 
 2009
$51,450
-0-
 -0-
 -0-
 -0-
 -0-
 $110,000
  President 
 2008
 $16,200
-0-
 -0-
 -0-
 -0-
 -0-
 $ 5,280
                 
Matthew Long, Vice
 2009
$107,965
 -0-
$12,495
 -0-
 -0-
 -0-
 $10,540
  President 
 2008
$ 90,000
-0-
$12,495
 -0-
 -0-
 -0-
 $29,020
                 
Anna Madrid, Vice President
 2009
 $181,790
-0-
 -0-
 -0-
 -0-
 -0-
 $    -0-
  
 2008
 -0-
-0-
 -0-
 -0-
 -0-
 -0-
 $    -0-

Lawrence G. Ryckman, 
 2009
 -0-
-0-
 -0-
 -0-
 -0-
 -0-
 $250,000 (1)
  President of Studio One  
 2008
 -0-
-0-
 -0-
 -0-
 -0-
 -0-
 $29,914
  Entertainment, Inc. 
               




 
29

 

ITEM 11. EXECUTIVE COMPENSATION  - continued
 
(1)  Total compensation provided for fiscal year ended June 30, 2009.  Of this amount, $19,800 was paid in cash, $100,000 was paid in the form of a Convertible Promissory Note dated December 31, 2008 in the amount of $100,000, payable to an affiliate of Mr. Ryckman, and the balance was accrued at year end.

(2) Total compensation provided for fiscal year ended June 30, 2009.  Of this amount, $138,124 was paid in cash and the balance was accrued at year end.



Outstanding Equity Awards at Fiscal Year-End
Name
OPTION AWARDS
STOCK AWARDS
 
Number of Securities Underlying Unexercised Options (#) Exercisable
Number of Securities Underlying Unexercised Options (#) Unexercisable
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)
Option Exercise Price ($)
Option Expiration Date
Number of Shares or Units of Stock that have not Vested(#)
Market Value of Shares or Units of Stock that have not Vested($)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that have not Vested (#)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that have not Vested ($)
Barry M. Goldwater, Jr.
125,000
-0-
-0-
1.00
08/29/17 (1)
11/18/18 (2)
-0-
-0-
-0-
-0-
Preston J. Shea
125,000
-0-
-0-
1.00
08/29/17 (1)
11/18/18 (2)
-0-
-0-
-0-
-0-
Matthew Long
25,000
-0-
-0-
5.95
03/12/10 (3)
06/12/10 (3)
-0-
-0-
-0-
-0-

 
(1)
50,000 shares expire on 8/29/2017
 
(2)
75,000 shares expire on 11/18/2018
 
(3)
20,000 shares expire on 3/12/10 and 5,000 shares expire on 6/12/10


Compensation of Directors

Our non-employee Directors receives reimbursement for expenses of attendance for each scheduled meeting that requires physical attendance.  Effective October 1, 2008, Messrs. Goldwater and Shea each receives 5,000 restricted common shares for each quarter year service to the Company.  Prior to that date, each such Director received 1,000 shares for each quarter year service.

Compensation for our directors for our last completed fiscal year is set forth below, with the exception of Kenneth R. Pinckard and Preston J. Shea, whose compensation is disclosed above.

Director Compensation
Name
Fees Earned or Paid in Cash ($)
Stock Awards ($)
Option Awards ($)
Non-Equity Incentive Plan Compensation ($)
Non-qualified Deferred
Compensation
Earnings ($)
All Other Compensation ($)
Total ($)
 
Barry M.   Goldwater, Jr.
 
-0-
 
$33,970
 
-0-
 
-0-
 
-0-
 
-0-
 
$33,970
               


 
30

 

ITEM 11. EXECUTIVE COMPENSATION  - continued
 
Employment and Related Agreements

The Company has no employment agreements with any of its current management.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information, as of June 30, 2009, concerning shares of the Company’s common stock, the only class of securities that are issued and outstanding, held by (1) each stockholder known to own beneficially more than five percent of the common stock as of June 30, 2009 with the number of outstanding shares at 16,417,447, (2) each of the directors, (3) each of the executive officers, and (4) all of the directors and executive officers as a group:
 
Beneficial Owner (1)
Amount and Nature of Beneficial Ownership
 
Percent of Class (2)
     
Preston J. Shea
1 Yonge Street, Suite 1801
Toronto, ON  M5E 1W7
158,000 Direct
(4)
0.95%
     
Barry M. Goldwater, Jr.
3104 E. Camelback Rd., #274
Phoenix, AZ  85016
148,000Direct
(4)
0.89%
     
Kenneth R. Pinckard
3104 E. Camelback Rd. #245
Phoenix, AZ  85016
 
1,000
 
0.01%
     
Lawrence G. Ryckman
13470 N. 85 th Place
Scottsdale, AZ  85260
 
       5,129,500 Indirect
(3)
30.73 %
     
Shelly Yakus
1778 Lantana Drive
Minden, NV  89423
100,000 Indirect
0.60%
     
Matthew Long
17197 N. 54 th Avenue
Glendale, AZ  85308
35,500 Direct
(5)
0.21%
     
Anna Marid
15417 Becker Lane
Surprise, AZ  85379
65,101 Indirect
0.39%
     
Perry D. Logan
420 Saint Andrews Court
Las Vegas, NV  89144
1,443,105 Direct
8.65%

Officers and Directors as a group
  (7 persons)
 
5,637,101
 
33.77%
 
(1)
Except as otherwise indicated, we believe that the beneficial owners of Common Stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable.  Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.
 
 
 
 
31

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT  - continued
 
 
(2)
The above table is based on 16,417,447 shares of Common Stock outstanding as of June 30, 2009 plus options to purchase 275,000 shares granted to two directors and one officer.  Shares of Common Stock subject to options or warrants currently exercisable, or exercisable within 90 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.

(3)
The shares indirectly attributed to Lawrence Ryckman are held by affiliated entities.

(4)
Includes Option to purchase 125,000 shares of Common Shares at $1.00 per share that have been approved by the Board as of the date of filing of this Report.

(5)
Includes Option to purchase 20,000 shares of Common Shares at $5.95 per share and 5,000 shares at $4.00 per share that have been approved by the Board as of the date of filing of this Report.


Change in Control

The Company is not aware of any arrangements which may result in a change in control of the Company


Equity Compensation Plans

As of June 30, 2009 our equity compensation plans were as follows:

1999 Stock Option Plan

On November 15, 1999, the Board of Directors adopted the 1999 Stock Option Plan (the "1999 Plan").  This plan was approved by a majority of our stockholders on January 28, 2000.  The purpose of the 1999 Plan is to advance the interests of the Company by encouraging and enabling acquisition of a financial interest in the Company by its officers and other key individuals.  The 1999 Plan is intended to aid the Company in attracting and retaining key employees, to stimulate the efforts of such individuals and to strengthen their desire to remain with the Company.  A maximum of 1,500,000 shares of the Company's common stock is reserved for issuance under stock options to be issued under the 1999 Plan.  The option exercise price will be 100% of the fair market value of the Company's common stock on the date the option is granted and will be exercisable for a period not to exceed 10 years from the date of grant. As of the date hereof, no options have been issued pursuant to this plan.

2004 Stock Incentive Plan

On February 28, 2004, the Board of Directors adopted the 2004 Stock Incentive Plan (the "2004 Plan").  The purpose of the 2004 Plan was to advance the interests of the Company by encouraging and enabling acquisition of a financial interest in the Company by its officers and other key individuals.  The 2004 Plan was intended to aid the Company in attracting and retaining key employees, to stimulate the efforts of such individuals and to strengthen their desire to remain with the Company.  A maximum of 100,000 shares of the Company's common stock was reserved for issuance under stock options to be issued under the 2004 Plan.  On May 24, 2004, the Company filed a Registration on Form S-8 with the Securities Exchange Commission covering the 100,000 shares provided by this plan, at a maximum offering price of $1.00 per share.  As of June 30, 2009, the Company had issued all of the shares covered by the 2004 Plan.

2006 Employee Stock Incentive Plan

On October 13, 2006, the Board of Directors adopted the 2006 Employee Stock Incentive Plan (the "2006 Plan"). The purpose of the 2006 Plan was to advance the interests of the Company by encouraging and enabling acquisition of a financial interest in the Company by its officers and other key individuals.  The 2006 Plan was intended to aid the Company in attracting and retaining key employees, to stimulate the efforts of such individuals and to strengthen their desire to remain with the Company.  A maximum of 100,000 shares of the Company's common stock was reserved for issuance under stock options to be issued under the 2006 Plan.  On October 13, 2006, the Company filed a Registration on Form S-8 with the Securities Exchange Commission covering the 100,000 shares provided by this plan, at a maximum offering price of $1.00 per share.  As of June 30, 2009, the Company had issued all of the shares covered by the 2006 Plan.

 
32

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT  - continued

2007 Non-Executive Employee Stock Option Plan

The Board of Directors on August 28, 2007, approved the Non-Executive Employee Stock Option Plan.  The purpose of the Employee Stock Option Plan is to advance the interests of the Company by encouraging and enabling acquisition of a financial interest in the Company by employees and other key individuals.  The Employee Stock Option Plan was intended to aid the Company in attracting and retaining key employees, to stimulate the efforts of such individuals and to strengthen their desire to remain with the Company.  A maximum of 1,000,000 shares of the Company's common stock were reserved for issuance under stock options to be issued under the Employee Stock Option Plan.  The option exercise price was to be 100% of the fair market value of the Company's common stock on the date the option is granted and will be exercisable for a period not to exceed 2 years from the date of grant.  The Employee Stock Option Plan was administered by the Board of Directors.    No shares were issued or authorized pursuant to the 2007 Non-Executive Employee Stock Option Plan and on June 10, 2009, the Company rescinded the plan and replaced it with the 2009 Long-Term Stock Incentive Plan.

2009 Long-Term Stock Incentive Plan

The Board of Directors on June 10, 2009, approved the 2009 Long-Term Stock Incentive Plan.  The purpose of the 2009 Long-term Stock Incentive Plan is to advance the interests of the Company by encouraging and enabling acquisition of a financial interest in the Company by employees and other key individuals.  The 2009 Long-Term Stock Incentive Plan is intended to aid the Company in attracting and retaining key employees, to stimulate the efforts of such individuals and to strengthen their desire to remain with the Company.  A maximum of 1,500,000 shares of the Company's common stock is reserved for issuance under stock options to be issued under the 2009 Long-Term Stock Incentive Plan.  The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options and Restricted Stock Awards.  The 2009 Long-Term Stock Incentive Plan is administered by the Board of Directors or, at its direction, the Compensation Committee comprised of officers of the Company.   As of June 30, 2009, the Company had granted such options to two employees to purchase, in the aggregate, 85,000 shares of the Company’s common stock.  The Exercise Period for each of the grants is two years from the date of grant and the exercise price in each instance is $0.80.


 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Other than as disclosed below, none of the Company’s present directors, officers or principal shareholders, nor any family member of the foregoing, nor, to the best of the Company’s information and belief, any of its former directors, senior officers or principal shareholders, nor any family member of such former directors, officers or principal shareholders, has or had any material interest, direct or indirect, in any transaction, or in any proposed transaction which has materially affected or will materially affect the Company.
 
During the year ended June 30, 2006, Lawrence Ryckman, President and CEO of Studio One Entertainment, Inc., either directly or through affiliated entities, loaned the Company $93,948; during the year ended June 30, 2007, he loaned an additional $43,400 to the Company.  These funds were used to further the research and development program of the Company.  During the year ended June 30, 2007, the Company repaid $40,566 of these loans.  At June 30, 2007, the amount owed Mr. Ryckman and his affiliated entities was $96,782.  These loans are demand notes, to be repaid at ten percent interest.   During the year ended June 30, 2008, Mr. Ryckman, either directly or through affiliated entities, loaned the Company $25,000.  The Company repaid $24,465.  On December 31, 2008, the balance owing Mr. Ryckman and his affiliated entities was reduced to a single Convertible Promissory Note payable bearing interest at 10% per annum and due on demand.  The original principal amount of this note was $101,591.  In addition, on December 31, 2008, the Company issued a second Convertible in the amount of $100,000 to an affiliate of Mr. Ryckman as partial compensation for services rendered in 2008.  At June 30, 2009, the amount owed Mr. Ryckman and his affiliated entities, included interest is $211,587.  Subsequent to June 30, 2009, the two Convertible Promissory Notes have been converted to common shares according to the terms of the respective notes.

On March 29, 2006, the Company entered into an agreement to acquire 100% of the issued and outstanding shares of Studio One Entertainment, Inc., on a one-for-one, stock-for-stock basis.  The purchase of SO Entertainment was consummated on April 16, 2007.  At the date of the original agreement and the date of the exchange, Lawrence Ryckman, Paul Fisher and Digital Crossing owned or controlled directly or indirectly 6,387,500 of the 7 million shares of SO Entertainment exchanged for Common Shares of the Company.

 
33

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS  - continued

Future Transactions

All future affiliated transactions are expected to be made or entered into on terms that are no less favorable to the Company than those that can be obtained from any unaffiliated third party. A majority of the independent, disinterested members of the Company’s Board of Directors are asked to approve future affiliated transactions. The Company believes that of the transactions described above have been on terms at least as favorable to it as could have been obtained from unaffiliated third parties as a result of arm’s length negotiations.

Conflicts of Interest

In accordance with the laws applicable to the Company, its directors are required to act honestly and in good faith with a view to the Company’s best interests. In the event that a conflict of interest arises at a meeting of the Board of Directors, a director who has such a conflict is expected to disclose the nature and extent of his interest to those present at the meeting and to abstain from voting for or against the approval of the matter in which he has a conflict.

Director Independence

Our common stock trades in the OTC Bulletin Board.  As such, we are not currently subject to corporate governance standards of listed companies, which require, among other things, that the majority of the board of directors be independent.

Since we are not currently subject to corporate governance standards relating to the independence of our directors, we choose to define an “independent” director in accordance with the NASDAQ Global Market’s requirements for independent directors (NASDAQ Marketplace Rule 4200).  The NASDAQ independence definition includes a series of objective tests, such as that a director is not an employee of the company and has not engaged in various types of business dealings with the company.

Barry M. Goldwater, Jr., is an independent directors under the above definition.  We do not list that definition on our Company website.

We presently do not have a compensation committee, nominating committee, executive committee of our Board of Directors, stock plan committee or any other committees, except for an Audit Committee.


ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES.
 
The following is a summary of the aggregate fees billed to Registrant by its principal accountant(s) for professional services rendered for the fiscal years ended June 30, 2009 and 2008.

 
 
Fiscal 2009 Fees  
 
 
Fiscal 2008 Fees  
 
  Audit Fees (1)
   
$ 24,543
   
$ 30,500
 
  Audit-Related Fees (2)  
   
0
   
0
 
  Tax Fees (3)    
   
0
   
0
 
  All Other Fees (4)  
   
0
   
0
 
  Total Fees
   
$ 24,543
   
$ 30,500
 
 
1. Audit Fees.  Consists of fees billed for professional services rendered for the audits of Registrant's financial statements for the fiscal years ended June 30, 2009 and 2008, and for review of the financial statements included in Registrant's Quarterly Reports on Form 10-QSB for those fiscal years.

 
34

 

ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES  - continued
 
2. Audit-Related Fees.  Consists of fees billed for services rendered to Registrant for audit-related services, which generally include fees for audit and review services in connection with a proposed spin-off transaction, separate audits of employee benefit and pension plans, and ad hoc fees for consultation on financial accounting and reporting standards.

3. Tax Fees.  Consists of fees billed for services rendered to Registrant for tax services, which generally include fees for corporate tax planning, consultation and compliance.

4. All Other Fees.  Consists of fees billed for all other services rendered to Registrant, which generally include fees for consultation regarding computer system controls and human capital consultations.  No services were performed related to financial information systems design and implementation for the fiscal years ended June 30, 2009 and 2008.

None of the "audit-related," "tax" and "all other" services in 2009, as defined above, were approved by the Audit Committee in reliance on the de minimus exception to the preapproval requirements under federal securities laws and regulations.

Pre-Approval of Services of Principal Accounting Firm

The Audit Committee's written policy is to pre-approve all audit and permissible non-audit services provided by Registrant's principal accounting firm (independent auditor).  These services may include audit services, audit-related services, tax services and other permissible non-audit services.  Any service incorporated within the independent auditor's engagement letter, which is approved by the Audit Committee, is deemed pre-approved.  Any service identified as to type and estimated fee in the independent auditor's written annual service plan, which is approved by the Audit Committee, is deemed pre-approved up to the dollar amount provided in such annual service plan.

During the year, the principal accounting firm may also provide additional accounting research and consultation services required by, and incident to, the audit of Registrant's financial statements and related reporting compliance. These additional audit-related services are pre-approved up to the amount approved in the annual service plan approved by the Audit Committee.  The Audit Committee may also pre-approve services on a case-by-case basis during the year.

The Audit Committee's approval of proposed services and fees are noted in the meeting minutes of the Audit Committee and/or by signature of the Audit Committee on the engagement letter.  The principal accounting firm of Registrant and management are periodically requested to summarize the principal accounting firm services and fees paid to date, and management is required to report whether the principal accounting firm's services and fees have been pre-approved in accordance with the required pre-approval process of the Audit Committee.

Non-Audit Services
 
The Audit Committee of the Board of Directors has considered whether the provision of non-audit services by the Registrant's principal accountants is compatible with maintaining auditor independence.
 


ITEM 15. EXHIBITS

The following Exhibits are incorporated by reference:
 

 
Exhibit No.
Description
3.1
Articles of Incorporation, dated May 12, 1988. (a)
3.1
Certificate of Amendment of Articles of Incorporation of Dimensional Visions Incorporated dated January 16, 2006. (f)
3.2
Certificate of Amendment of Articles of Incorporation of Elevation Media, Inc., dated March 24, 2006. (f)
3.2
Bylaws. (a)
3.3
Certificate of Amendment of Certificate of Incorporation of Dimensional Visions Incorporated dated January 22, 2004. (f)
 
 
 
35

 
 
ITEM 15. EXHIBITS - continued
 
4.1
Certificate of Designation of Series A Convertible Preferred Stock, dated December 12, 1992. (a)
4.1
Form of Warrant issued to Participants in 2007 Private Placements (g)
4.2
Certificate of Designation of Series B Convertible Preferred Stock, dated December 22, 1993. (a)
4.3
Certificate of Designation of Series P Convertible Preferred Stock, dated September 11, 1995. (a)
4.4
Certificate of Designation of Series S Convertible Preferred Stock, dated August 28, 1995. (a)
4.5
Certificate of Designation of Series C Convertible Preferred Stock, dated November 2, 1995. (a)
4.6
Certificate of Designation of Series D and Series E Convertible Preferred Stock dated August 25, 1999. (a)
4.7
Form of Warrant Agreement to Debt Holders, dated January 15, 1998. (a)
4.8
Form of Warrant Agreement to Debt Holders, dated April 8, 1998. (a)
4.9
Form of Warrant Agreement to Participants in Private Placement dated April 8, 1998. (a)
4.10
Pledge Agreement dated January 11, 2001 with Dale Riker and Russ Ritchie. (b)
4.11
Investment Agreement dated December 13, 2000, with Swartz Private Equity, LLC. (b)
4.12
Merrill Lynch Portfolio Reserve Loan and Collateral Account Agreement, dated January 12, 2002. (b)
10.1
1996 Equity Incentive Plan. (a)
10.1
Stock Purchase Agreement, dated March 29, 2006, between Studio One Entertainment, Inc., and Dimensional Visions Incorporated. (g)
10.2
1999 Stock Option Plan. (a)
10.2
Exchange Agreement between Studio One Media, Inc., and Studio One Entertainment, Inc., dated April 16, 2007 (g)
10.3
Employment Agreement dated January 1, 2001, with John D. McPhilimy. (c)
10.3
Accord and Satisfaction, dated October 11, 2006, between Dimensional Visions, Inc., and Russell H. Ritchie, Dale E. Riker, Suntine Enterprises, LLC, and Cornerstone Wireless Communications, LLC (g)
10.4
Employment Agreement dated July 1, 2001, with Bruce D. Sandig. (c)
10.5
Settlement Agreement and Release dated April 30, 2003, between the Company and Russell H. Ritchie, Dale E. Riker, Suntine Enterprises, LLC, and Cornerstone Wireless Communications, LLC. (d)
14
Dimensional Visions, Inc. Code of Ethics. (e)
21.1 Subsidiaries of the Registrant (h)
          

 
(a)         Incorporated by reference from the Company’s registration Statement on Form SB-2 dated June 19, 2000 (Registration No. 333-30368).
(b)         Incorporated by reference from the Company’s registration Statement on Form SB-2 dated July 10, 2001 (Registration No. 333-56804).
(c)         Incorporated by reference from the Company’s Amendment No. 1 to Annual Report on Form 10-KSB, dated February 22, 2002.
(d)         Incorporated by reference from the Company’s Annual Report, Form 10-KSB for fiscal year ended June 30, 2003, filed October 15, 2003.
(e)         Incorporated by reference from the Company’s Annual Report, Form 10-KSB for fiscal year ended June 30, 2004, filed November 15, 2004.
(f)         Incorporated by reference from the Company’s Annual Report, Form 10-KSB for fiscal year ended June 30, 2006, filed September 29, 2006
(g)         Incorporated by reference from the Company’s Annual Report, Form 10-KSB for fiscal year ended June 30, 2007, filed September 28, 2007, and Form 10-K/A for the fiscal year ended June 30, 2007, filed May 27, 2008.
(h)         Incorporated by reference from the Company’s Annual Report, Form 10-KSB for fiscal year ended June 30, 2008, filed September 29, 2008.
 


 
 
36

 

ITEM 15. EXHIBITS - continued
 
The following Exhibits are filed herewith:

 
10.6 
2009 Long-Term Stock Incentive Plan
 
10.7 
Form of Directors and Officers Indemnity Agreement
 
23.1 
Consent of Mantyla McReynolds, LLC
 
31.1
Certification of Chief Executive Officer pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
31.2
Certification of Chief Financial Officer pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
32.1
Certification of Chief Executive Officer pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
32.2
Certification of Chief Financial Officer pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


SIGNATURES

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

     
 
STUDIO ONE MEDIA, INC.
     
Date:  September 15, 2009
By:  
/s/ Preston J. Shea,
 
Preston J. Shea,
 
Title   President


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
Title
Date
     
/s/ Preston J. Shea
 
President and Director
September 15, 2009
Preston J. Shea
 
(Principal Executive Officer)
 
       
/s/ Kenneth R. Pinckard
 
Chief Financial Officer, Director
September 15, 2009
Kenneth R. Pinckard
 
(Principal Financial Officer)
 
       
/s/ Kenneth R. Pinckard
 
Chief Accounting Officer, Director
September 15, 2009
Kenneth R. Pinckard
 
(Principal Accounting Officer)
 
       
/s/ Barry M. Goldwater, Jr/
 
Director
September 15, 2009
Barry M. Goldwater, Jr.
     
       
       



 
37

 

 
 
 
STUDIO ONE MEDIA, INC.
(A Development Stage Company)
 
FINANCIAL STATEMENTS
 
 INDEX TO THE FINANCIAL STATEMENTS
PAGE
NUMBER
   
 Independent Auditor's Report
 F-2
   
 Financial Statements
 
   
 Consolidated Balance Sheets
 F-3
   
 Consolidated Statements of Operations
 F-4
   
 Consolidated Statements of Stockholders' Equity (Deficit)
 F-5
   
 Consolidated Statements of Cash Flows
 F-6
   
 Notes to Financial Statements
 F-7 - F-22

 

 
 

 
 
 
 
F-1

 
 

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 

 
The Board of Directors and Shareholders
 
Studio One Media, Inc.

We have audited the accompanying consolidated balance sheets of Studio One Media, Inc. as of June 30, 2009 and 2008, and the related consolidated statements of operations, cash flows, and stockholders’ deficit, for the years ended June 30, 2009 and 2008.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Studio One Media, Inc. as of June 30, 2009 and 2008, and the results of operations and cash flows for the years ended June 30, 2009 and 2008, in conformity with accounting principles generally accepted in the United States of America.
 
The Company has incurred losses since inception, has a working capital deficit, and has limited revenues which raise substantial doubt about its ability to continue as a going concern.  Management's plan to address these issues is included in Note 1 to the consolidated financial statements.  The financial statements have been prepared on a going concern basis, which contemplates the realization and settlement of liabilities and commitments in the normal course of business.  The financial statements do not include any adjustment that might result from the outcome of this uncertainty.
 
As discussed in Note 13 to the consolidated financial statements, the accompanying consolidated financial statements as of and for the fiscal year ending June 30, 2008, have been restated.
 

 
/s/ Mantyla McReynolds LLC
 
Mantyla McReynolds LLC
 
Salt Lake City, Utah
October 14, 2009
 

 
 
F-2

 
 
 
 
Consolidated Balance Sheets
 
             
 
June 30,
 
June 30,
 
 
2009
 
2008
 
     
(Restated)
 
ASSETS
 
Current Assets
           
Cash
  $ 439,474     $ 392,450  
Prepaid Expenses
    57,513       48,153  
                 
Total Current Assets
    496,987       440,603  
                 
Property and Equipment, Net
    421,980       240,784  
Property and Equipment, yet to be placed in service
    631,169       313,565  
                 
Other Assets
               
Notes Receivable
    177,228       178,752  
Accrued Interest Receivable
    73,811       55,701  
Deposits
    76,400       29,630  
Intangible Assets, net
    107,314       95,687  
                 
Total Other Assets
    434,753       359,770  
                 
Total Assets
  $ 1,984,889     $ 1,354,722  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
                 
Current Liabilities
               
Accounts Payable and Accrued Expenses
  $ 1,483,797     $ 491,560  
Capital Equipment Loan
    -       7,270  
Notes Payable - Related Party
    268,788       97,285  
Notes Payable
    436,897       25,000  
                 
Total Current Liabilities
    2,189,482       621,115  
                 
Long-Term Liabilities
    -       -  
                 
Total Liabilities
    2,189,482       621,115  
                 
Stockholders' Equity (Deficit)
               
Preferred Stock, authorized 10,000,000 shares, par value $0.001;
               
issued and oustanding are 774,044  and 524,044
               
June 30, 2009 and 2008, respectively
    774       524  
Common Stock, authorized 100,000,000 shares, par value $0.001;
               
issued and outstanding are 16,417,447 and 13,212,398 shares at
               
June 30, 2009 and 2008, respectively
    16,417       13,212  
Additional Paid in Capital
    15,039,491       9,473,679  
Common Shares to be issued
    24,000       221,000  
Common Stock Issued in Advance of Services
    (48,153 )     (337,052 )
Accumulated Deficit
    (15,237,122 )     (8,637,756 )
                 
Total Stockholders' Equity (Deficit)
    (204,593 )     733,607  
                 
Total Liabilities and Stockholders' Equity (Deficit)
  $ 1,984,889     $ 1,354,722  
                 
                 
                 
The accompanying notes are an integral part of these financial statements.
 
 
 
 
 
F-3

 
 
 
STUDIO ONE MEDIA, INC.
Consolidated Statements of Operations
             
   
For the Year Ended
 
   
June 30,
2009
   
June 30,
2008
 
         
Restated
 
Revenues
           
Kiosk Session Revenues
  $ 115,989     $ -  
Advertising Revenues
    25,872       -  
Other Revenue
    -       839  
                 
Total Revenues
    141,861       839  
                 
Costs and Expenses
               
Cost of Sales (Exclusive of Depreciation and Amortization)
    136,413       -  
Cost of Barter Exchanges
    104,261       -  
Advertising Expenses
    389,993       150,724  
Depreciation Expense
    138,182       40,167  
Professional Fees
    2,415,070       3,489,323  
Research and Development
    800,967       778,834  
General and Administrative Expenses
    2,600,675       1,729,396  
                 
Total Costs and Expenses
    6,585,561       6,188,444  
                 
Loss from Operations
    (6,443,700 )     (6,187,605 )
                 
Other Income (Expense)
               
        Interest Expense
    (173,776 )     (14,553 )
        Interest Income
    18,110       23,166  
                 
Total Other Income (Expense)
    (155,666 )     8,613  
                 
Loss before Income Taxes
    (6,599,366 )     (6,178,992 )
Income Tax Expense
    -       -  
                 
NET LOSS
  $ (6,599,366 )   $ (6,178,992 )
                 
Basic Loss Per Share of Common Stock
  $ (0.46 )   $ (0.51 )
                 
Weighted Average Number of Shares Outstanding
    14,420,630       12,179,418  
                 
The accompanying notes are an integral part of these financial statements.
 

 
 
 
 
F-4

 

 
 
Consolidated Statements of Stockholders' Equity (Deficit)
2007-2008 Restated
                                     
                         
Common
 
Total
                 
Additional
   
Stock Issued
 
Stockholders'
 
Preferred Stock
 
Common Stock
Paid In
Common Shares
in Advance
Accumulated
Equity
 
Shares
 
Amount
 
Shares
Amount
Capital
to be Issued
for Services
Deficit
(Deficit)
                                     
Balance, June 30, 2007
524,044
 
$
524
 
11,362,739
$
11,363
$
2,963,926
$
137,600
$
-
$
(2,458,764)
$
654,649
                                     
Common shares issued for services
-
   
-
 
684,322
 
684
 
2,404,412
 
-
 
-
 
-
 
2,405,096
                                     
Common shares issued for cash
-
   
-
 
1,115,830
 
1,116
 
3,009,609
 
-
 
-
 
-
 
3,010,725
                                     
Common shares for assets
-
   
-
 
5,000
 
5
 
24,120
 
-
 
-
 
-
 
24,125
                                     
Warrants exercised for cash
-
   
-
 
44,507
 
44
 
133,476
 
-
 
-
 
-
 
133,520
                                     
Fair value of warrants granted
-
   
-
 
-
 
-
 
938,136
 
-
 
-
 
-
 
938,136
                                     
Common shares to be issued
-
   
-
 
-
 
-
 
-
 
83,400
 
-
 
-
 
83,400
                                     
Common stock issued in advance
                                   
  for services
-
   
-
 
-
 
-
 
-
 
-
 
(337,052)
 
-
 
(337,052)
                                     
Net Loss for the Year Ended
                                   
June 30, 2008
-
   
-
 
-
 
-
 
-
 
-
 
-
 
(6,178,992)
 
(6,178,992)
                                     
Balance, June 30, 2008
524,044
   
524
 
13,212,398
 
13,212
 
9,473,679
 
221,000
 
(337,052)
 
(8,637,756)
 
733,607
                                     
Common shares issued for services
-
   
-
 
1,142,935
 
1,143
 
1,707,779
 
(197,000)
 
-
 
-
 
1,511,922
                                     
Common shares issued for cash
-
   
-
 
1,505,478
 
1,505
 
2,059,569
 
-
 
-
 
-
 
2,061,074
                                     
Warrants exercised for cash
-
   
-
 
349,335
 
349
 
363,068
 
-
 
-
 
-
 
363,417
                                     
Common shares issued in conversion
                                   
of preferred shares
(25,000)
   
(25)
 
50,000
 
50
 
(25)
 
-
 
-
 
-
 
-
                                     
Common shares issued in conversion
                                   
of debt
-
   
-
 
52,733
 
53
 
26,314
 
-
 
-
 
-
 
26,367
                                     
Common shares issued as collateral
                                   
for promissory note
-
   
-
 
100,000
 
100
 
69,900
 
-
 
-
 
-
 
70,000
                                     
Adjustment to account for
                                   
fractional shares
-
   
-
 
4,568
 
5
 
(5)
 
-
 
-
 
-
 
-
                                     
Preferred shares issued for cash
275,000
   
275
 
-
 
-
 
549,725
 
-
 
-
 
-
 
550,000
                                     
Fair value of warrants granted
-
   
-
 
-
 
-
 
789,487
 
-
 
-
 
-
 
789,487
                                     
Amortization of stock issued in
                                   
  advance for servcies
-
   
-
 
-
 
-
 
-
 
-
 
288,899
 
-
 
288,899
                                     
Net Loss for the Year Ended
                                   
June 30, 2009
-
   
-
 
-
 
-
 
-
 
-
 
-
 
(6,599,366)
 
(6,599,366)
                                     
Balance, June 30, 2009
774,044
 
$
774
 
16,417,447
$
16,417
$
15,039,491
$
24,000
$
(48,153)
$
(15,237,122)
$
(204,593)
           
 
                       
                                     
The accompanying notes are an integral part of these financial statements.
                                     

 
 
 
F-5

 
 
 

 
 
Consolidated Statements of Cash Flows
 
   
             
   
For the Years Ended
 
   
June 30,
 
   
2009
   
2008
Restated
 
Cash Flows from Operating Activities
           
             
Net Loss
  $ (6,599,366 )   $ (6,178,992 )
Adjustments to reconcile to cash from
               
   operating activities:
               
Depreciation and amortization
    138,132       40,167  
Common stock issued for services
    1,708,922       2,405,096  
 Fair value of warrants granted
    789,487       938,136  
Bad debt expense
    1,524       -  
Common Shares to be issued
    (197,000 )     83,400  
Amortization of stock issued in advance for services
    288,899       (337,052 )
Writeoff of intangible assets
    -       112,770  
Changes in Operating Assets and Liabilities:
               
Accrued interest receivable
    (18,110 )     (23,166 )
Prepaid expenses
    (9,360 )     (23,765 )
Deposits
    23,230       (23,230 )
Accounts payable and accrued  expenses
    992,236       240,013  
                 
Net Cash Used in Operating Activities
    (2,881,406 )     (2,766,623 )
                 
Cash Flows from Investing Activities
               
 
               
Notes receivable
    -       23,412  
Purchase of property and equipment
    (613,344 )     (375,648 )
Purchase of intangible assets
    (35,215 )     (45,687 )
                 
Net Cash Used in Investing Activities
    (648,559 )     (397,923 )
                 
Cash Flows from Financing Activities
               
 
               
Issuance of common stock
    2,061,074       3,010,725  
Issuance of preferred stock
    550,000       -  
Warrants exercised for cash
    363,417       133,520  
Proceeds from notes payable-related party
    197,871       553  
Repayment of notes payable
    (7,270 )     (2,489 )
Proceeds from notes payable
    411,897       -  
                 
Net Cash from Financing Activities
    3,576,989       3,142,309  
                 
Net Increase (Decrease) in Cash
    47,024       (22,237 )
                 
Cash, Beginning of Year
    392,450       414,687  
                 
Cash, End of Year
  $ 439,474     $ 392,450  
                 
Supplemental Cash Flow Disclosure:
               
                 
Cash Paid For:
               
   Interest
  $ 1,898     $ -  
   Income Taxes
    -       -  
                 
Non Cash Financing Activities:
               
   Common stock issued for assets
  $ -     $ 24,125  
   Equipment purchased under capital lease
    -       9,759  
Common stock issued to extinguish debt
    26,367       -  
Common stock issued as collateral on debt
    70,000       -  
                 
The accompanying notes are an integral part of these financial statements.
 


 
F-6

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
June 30, 2009 and 2008


Note 1: Summary of Significant Accounting Policies

DESCRIPTION OF BUSINESS, FINANCING AND BASIS OF FINANCIAL STATEMENT PRESENTATION

Studio One Media, Inc., (the “Company” or “SOMD”) was originally organized in Delaware on May 12, 1988, as Dimensional Visions Group, Ltd. The name was changed on January 15, 1998 to Dimensional Visions Incorporated. On February 8, 2006, it changed its name to Elevation Media, Inc., and on March 28, 2006 the Company’s name was changed to Studio One Media, Inc., as part of its overall plan to implement its revised business plan.

In April 2006, the Company entered into an agreement to purchase Studio One Entertainment, Inc., a private Scottsdale, Arizona based company that designed and manufactured a proprietary (patents pending), self contained interactive audio/video recording and conferencing studio designed for installation in shopping malls and other high traffic public areas (the “Studio One Entertainment Agreement”). The Studio One™ Kiosk enables the public, for a fee, to record their video and voice images in a portable state-of-the-art recording studio environment and enter their performances in music, modeling and other talent related contests.

On April 17, 2007, the Company announced that it had finalized the reverse merger of Studio One Entertainment, Inc., (SOEI) through an all-stock transaction. The purchase is pursuant to an agreement entered into by the companies dated March 29, 2006. The reverse merger includes the exchange of 7,000,000 restricted common shares of Studio One Media, Inc. for 100% of the issued and outstanding shares of Studio One Entertainment, Inc.   The substance of the transaction resulted in a reverse merge wherein SOE became the accounting acquirer of SOMD.  Therefore, historical financial data reflects the operations and accumulated deficit of SOE.  The transaction essentially is a recapitalization of SOE. The reverse merger includes all right, title and interest to Studio One Entertainment's proprietary interactive recording studios, business plan and intellectual property, including pending patents, foreign patent rights and federal trademark applications.  Studio One Entertainment, Inc. continues to operate as a wholly owned subsidiary of Studio One Media, Inc. Accordingly, the financial statements present on a consolidated basis the operations of SOMD and SOEI.

During fiscal year 2009, the Company is no longer considered to be a development stage company, as a result of the commencement of its principle revenue activities.

GOING CONCERN

The Company has incurred losses since inception of $15,237,122 and has just begun collecting revenues which raise substantial doubt about its ability 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) continue to achieve revenues from its personal recording studio kiosk business. 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.

INCOME TAXES

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
 
In July, 2006, the FASB issued FASB Interpretations No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in

 
F-7

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
June 30, 2009 and 2008

Note 1: Summary of Significant Accounting Policies - continued
 
In July, 2006, the FASB issued FASB Interpretations No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. FIN 48 became effective as of January 1, 2007 and had no impact on the Company’s financial statements.
 
The charge for taxation is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

LOSS PER SHARE

Basic and diluted loss per common share is calculated using the weighted average number of common shares outstanding during the period. For the year ended June 30, 2009 and 2008, the Company’s 3,045,671 and 2,473,362 warrants, 14,814 and 136,412 shares to be issued upon the conversion of the preferred stock and 6,000 and -0- shares to be issued upon conversion of debt are excluded from the computation of diluted earnings per share as they are anti-dilutive, respectively.

USE OF ESTIMATES

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

SHARE-BASED COMPENSATION

In December 2004, the FASB issued FAS No. 123R, “Share-Based Payment.” This statement is a revision to FAS No. 123, “Accounting for Stock-Based Compensation,” and it supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends FAS No. 95, “Statement of Cash Flows.” FAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.  The Company uses the Black-Scholes pricing model for determining the fair value of stock based compensation.

Equity instruments issued to non-employees for goods or services are accounted for at fair value and are marked to market until service is complete or a performance commitment date is reached, whichever is earlier

IMPAIRMENT OF LONG-LIVED ASSETS

The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
 
CASH AND CASH EQUIVALENTS

For purposes of financial statement presentation, the Company considers all highly liquid investments with a maturity of three months or less, from the date of purchase, to be cash equivalents.
 
FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with FAS 157, the carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to the short-term maturity of these instruments.  The carrying value of notes payable approximates fair value because negotiated terms and conditions are consistent with current market rates as of June 30, 2009 and 2008.

 
F-8

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
June 30, 2009 and 2008

 
Note 1: Summary of Significant Accounting Policies - continued
 
CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash and trade receivables.  Concentrations of credit risk with respect to trade receivables are limited due to the clients that comprise our customer base and their dispersion across different business and geographic areas.  We estimate and maintain an allowance for potentially uncollectible accounts and such estimates have historically been within management's expectations.  Our cash balances are maintained in accounts held by major banks and financial institutions located in the United States.  The Company occasionally maintains amounts on deposit with a financial institution that are in excess of the federally insured limit of $250,000.  Statement of Financial Accounting Standards No. 105 identifies this as a concentration of credit risk requiring disclosure, regardless of the degree of risk. The risk is managed by maintaining all deposits in high quality financial institutions. The Company had  no deposits  in excess of federally insured limits at June 30, 2009.
 
REVENUE RECOGNITION

The Company applies the provisions of SEC Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements" ("SAB 104"), which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 104 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue related to goods and services provided when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.

The Company's revenues are generated from sale of video and audio recorded products. Revenues from the sale of products will be collected at the point of sale. The products will be delivered simultaneously with the sale accordingly revenues will be realized and recognized at the time of the transaction.

Barter Transactions - Barter revenue relates to recording session services provided by Studio One to business customers in exchange for products and services that Studio One would otherwise be required to buy for cash. Barter expenses reflect the expense offset to barter revenue. The amount of barter revenue and expense is recorded at the estimated fair value of the services received or the services provided, whichever is more objectively determinable, in the month the services and advertising are exchanged.  Studio One applies APB 29, Accounting for Non-Monetary Transactions, the provisions of EITF 93-11, “Accounting for Barter Transactions Involving Barter Credits” and EITF 99-13 “Accounting for Advertising Barter Transactions” and, accordingly, recognizes barter revenues only to the extent that Studio One has similar cash transactions within a period not to exceed six months prior to the date of the barter transaction.

To date, the amount of barter revenue to be recognized has been more objectively determinable based on the value of products or services received rather than based upon the value of advertising provided.  For revenue from recording sessions services provided for cash to be considered similar to the recording session services provided in barter transactions, the services rendered must have been in the same media and similar term as the barter transaction.

REVENUE RECOGNITION (CONTINUED)

Studio One had no barter revenues for the fiscal year ended June 30, 2008.  Barter revenues for the fiscal year ended June 30, 2009 is broken out by kiosk session income and advertising income.  Of the $115,989 of kiosk session income, $78,379 was in barter and $37,610 was in cash. Of the $25,872 of total advertising revenue, $23,872 was in barter and the remaining $2,000 was cash.

 
F-9

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
June 30, 2009 and 2008

Note 1: Summary of Significant Accounting Policies - continued
 
Studio One had no barter revenues for the fiscal year ended June 30, 2008.  Barter revenues totaled $78,379 for the fiscal year ended June 30, 2009.

RESEARCH AND DEVELOPMENT

The Company follows the policy of expensing its research and development costs in the period in which they are incurred in accordance with SFAS No. 2, “Accounting for Research and Development Costs”. The Company incurred research and development expenses of $800,967 and $778,834 during the years ended June 30, 2009 and 2008, respectively.
 
ADVERTISING AND MARKETING

The Company expenses advertising costs in the period in which they are incurred. Advertising and marketing expense was $444,510 and $150,724 for the years ended June 30, 2009 and 2008, respectively.

GOODWILL AND INTANGIBLE ASSETS

The Company adopted SFAS No. 141,  Business Combinations,  and SFAS No. 142,  Goodwill and Other Intangible Assets , effective June 2001 and revised in December, 2007. SFAS No. 141 requires the use of the purchase method of accounting for any business combinations initiated after June 30, 2002, and further clarifies the criteria to recognize intangible assets separately from goodwill. Under SFAS No. 142, goodwill and indefinite−life intangible assets are no longer amortized but are reviewed for impairment annually.

PROPERTY AND EQUIPMENT

Property and equipment is located at the Company's headquarters in Scottsdale, Arizona and is recorded at cost less accumulated depreciation. Depreciation and amortization is calculated using the straight-line method over the expected useful life of the asset, after the asset is placed in service. The Company generally uses the following depreciable lives for its major classifications of property and equipment:
 
Description
 
Useful Lives
Computer hardware
 
3-7 years
Computer software
 
3-5 years
Furniture and Office Equipment
  7 Years
Production Equipment
 
7 years
Leasehold improvements
 
10 years
 
VALUATION OF LONG-LIVED ASSETS

Long-lived tangible assets and definite-lived intangible assets are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company uses an estimate of undiscounted future net cash flows of the assets over the remaining useful lives in determining whether the carrying value of the assets is recoverable. If the carrying values of the assets exceed the expected future cash flows of the assets, the Company recognizes an impairment loss equal to the difference between the carrying values of the assets and their estimated fair values. Impairment of long-lived assets is assessed at the lowest levels for which there are identifiable cash flows that are independent from other groups of assets. The evaluation of long-lived assets requires the Company to use estimates of future cash flows. However, actual cash flows may differ from the estimated future cash flows used in these impairment tests. As of June 30, 2009, management does not believe any of the Company’s assets were impaired.

 
F-10

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
June 30, 2009 and 2008

Note 1: Summary of Significant Accounting Policies - continued
 
PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Studio One Media, Inc. and its subsidiaries. All significant inter-company accounts and transactions have been eliminated. The Company operates on a June 30 fiscal year.

COST OF SALES

The Company’s cost of sales includes kiosk lease expense, kiosk employee costs, and other nominal amounts.


Note 2: Accounts Payable and Accrued Expenses

A summary of Accounts Payable and Accrued Expenses Follows:

   
June 30, 2009
 
June 30, 2008
 
  Accounts Payable
 $
1,232,807
 
$
433,353
 
  Accrued Interest
 
38,344
   
 35,438
 
  Other Accrued Expenses
 
212,646
   
22,769
 
  Total
 $
1,483,797
  $
491,560
 
 

 Note 3: Short-Term Borrowings

During July and August of 2001 the Company borrowed $45,000 and issued a 14% convertible debenture for $25,000 due in October 2001 and issued a 12% convertible debenture for $20,000 due in February 2002. Both debentures were in default under the terms of the debenture agreement. The $20,000 debenture, together with all accrued interest thereon, was converted to equity in the year ended June 30, 2007.  The Company continues to accrue interest on the remaining $25,000 obligation. The debenture is convertible into 6,000 shares of the Company's common stock at $7.50 per share after given effect for the 1 to 60 share reverse split.

As of June 30, 2009, the Company owes $268,788 for funds borrowed from an entity owned by one of the Company’s officers.  The loans are unsecured, accrue interest at 10% per annum and are due upon demand.

The Company has a convertible note payable to Howard Hill which is a convertible note.  The terms of the conversion allow the noteholder to convert the debt into equity of the Company in the form of shares of common stock of the Company at the rate of $0.50 per share.

During the year ended June 30, 2009, the noteholder converted the note into 52,733 shares of common stock in exchange for entire outstanding balance of the note, totaling $26,367.

 The notes payable due to Sundance Financial Corp., Allan Kaplan, Chad Boeding, Divesh Makan, and Larry Buresh are convertible with the following terms.  All or any of the principle amount of the note, together with the accrued interest, may be converted at the option of the investor at any time after four (4) months into fully paid and nonassessable shares of restricted common stock of the company.  The number of shares eligible to be converted will equal the note amount to be converted divided by the per share price after applying a 25% discount to the average closing price of the Company’s stock for the previous ten (10) trading days prior to the date such payment is due.

 
F-11

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
June 30, 2009 and 2008

Note 3: Short-Term Borrowings - continued
 
The Company has analyzed these notes in accordance with EITF 98-5 and has determined that a beneficial conversion feature exists. The value of this conversion feature has been estimated at $133,000 (400,000 shares / $0.25).

The difference between the $400,000 face value and the $533,000 carrying value has been recognized as interest expense, with $133,000 being recognized in fiscal year 2009.

During 2008, the Company purchased equipment under a capital lease. The lease is secured by the equipment and due in monthly payments of $808.

A summary of Short Term Borrowings Follows:

Outstanding Notes Payable at 6-30-09
                   
       
Total
 
Total
     
       
Accrued
Interest
Interest
     
 
Date of
 Principal
  Interest
Interest
Accrued
Accrued
   
Total
Note Holder
Note
Amount
  Rate
06/30/08
6/30/2009
To Date
Converted
 
Due
                   
Glenn Crotts
07/13/01
25,000.00
14.00%
24,384.93
3,500.00
27,884.93
-
 
52,884.93
Sundance Financial Corp.
12/31/08
100,000.00
10.00%
-
4,958.90
4,958.90
-
 
104,958.90
Sundance Financial Corp.
12/31/08
101,590.52
10.00%
-
5,037.77
5,037.77
-
 
106,628.29
Acoma, LLC
05/22/09
45,230.49
12.00%
-
446.11
446.11
-
 
45,676.60
Allan Kaplan
06/29/09
100,000.00
6.00%
-
16.44
16.44
-
 
100,016.44
Chad Boeding
06/30/09
50,000.00
6.00%
-
-
-
-
 
50,000.00
Divesh Makan
06/30/09
50,000.00
6.00%
-
-
-
-
 
50,000.00
Larry/Georgette Buresh
06/30/09
100,000.00
8.00%
-
-
-
-
 
100,000.00
Beneficial Converstion Feature
 
133,863.99
0.00%
-
-
-
-
 
133,863.99
   
 
 
 
 
 
 
 
 
Totals
 
705,685.00
 
24,384.93
13,959.22
38,344.15
0.00
 
744,029


 Note 4: Commitments and Contingencies

There are no legal proceedings, which the Company believes will have a material adverse effect on its financial position.

The Company has not declared dividends on Series A or B Convertible Preferred Stock. The cumulative dividends in arrears through June 30, 2009 were approximately $183,057.

Pursuant to a lease originally dated January, 2006, the Company currently occupies approximately 5,400 square feet of office space located at 7650 E. Evans Rd., Suite C, Scottsdale, Arizona 75260.  On June 15, 2008, the Company expanded into and also occupies approximately 5,400 square feet adjoining the original premises on a month-by month basis.  Under the terms of the extended, expanded lease, the Company occupies the premises on a month-to-month basis.  The total lease expense is $6,650 per month, payable in cash, common stock of the Company and on-studio advertising.

In anticipation of implementation of its business plan, the Company also leased an additional  9,400 feet of office space in another building located at 7812 E. Acoma, Scottsdale, Arizona, at a monthly cost of $12,225.   The Company have never occupied this space and in May 2009, entered into a termination agreement with the landlord pursuant to which the Company will pay the sum of $50,000 over a period of ten months in exchange for terminating future obligations under the lease.

 
F-12

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
June 30, 2009 and 2008

Note 4: Commitments and Contingencies - continued
 
The Company leases space at Scottsdale Fashion Square for its MyStudio recording studio pursuant to a two-year lease.   The monthly rent for this space is at a market rate commensurate with other kiosk operations.  As the Company expands, it will continue to secure space for its recording studios at various venues and locations around the country.


 Note 5: Common Stock

During the year ended June 30, 2008, the Company issued 1,160,337 shares for $3,144,245 in cash, 684,322 shares of the Company’s common stock for consulting services rendered to the Company valued at $2,405,096. The Company also issued 5,000 shares for a vehicle valued at $29,125 with $5,000 being paid in cash.

During the year ended June 30, 2008, the Company exchanged 44,507 warrants for 44,507 shares of the Company’s Common Stock for $133,520 in cash.

During the year ended June 30, 2009, the Company issued 1,505,478 common shares for $2,061,074 in cash and 1,142,935 shares of the Company’s common stock for consulting services rendered to the Company valued at $1,511,922.  The Company issued an additional 100,000 shares of its common stock as collateral for a promissory note, for $70,000.

During the year ended June 30, 2009, the Company exchanged 349,335 warrants for 349,335 shares of the Company’s Common Stock for $363,417 in cash.


Note 6: Preferred Stock

The Company has authorized 10,000,000 shares of $.001 par value per share Preferred Stock, of which the following were issued outstanding:
 
   
Allocated
   
Outstanding
 
Series A Preferred
   
100,000
     
15,500
 
Series A-1 Convertible Preferred
   
275,000
     
250,000
 
Series B Preferred
   
200,000
     
3,500
 
Series C Preferred
   
1,000,000
     
13,404
 
Series D Preferred
   
375,000
     
130,000
 
Series E Preferred
   
375,000
     
275,000
 
Series P Preferred
   
600,000
     
86,640
 
     Total Preferred Stock
   
2,925,000
     
774,044
 

The activity surrounding the issuances of the preferred stock is as follows.  Prior to the year ended June 30, 2008 the Company issued 524,044 total shares of preferred stock made up of 15,500 Series A, 3,500 Series B, 13,404 Series C, 130,000 Series D, 275,000 Series E, and 86,640 Series P.

During the fiscal year ended June 30, 2009, the Company issued an additional 275,000 Series A-1 shares and converted 25,000 of those shares for 50,000 shares of common stock.

The Company's Series A Convertible 5% Preferred Stock ("Series A Preferred"), 100,000 shares authorized, is convertible into common stock at the rate of .027 share of common stock for each share of the Series A Preferred. Dividends from date of issue, are payable from retained earnings, and have been accumulated on June 30 each year, but have not been declared or paid.

 
F-13

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
June 30, 2009 and 2008

Note 6: Preferred Stock -  continued
 
The Company's Series B Convertible 8% Preferred Stock ("Series B Preferred") is convertible at the rate of .067 share of common stock for each share of Series B Preferred. Dividends from date of issue are payable on June 30 from retained earnings at the rate of 8% per annum and have not been declared or paid.

The Company's Series C Convertible Preferred Stock ("Series C Preferred") is convertible at a rate of .007 share of common stock per share of Series C Preferred.

The Company's Series D Convertible Preferred Stock ("Series D Preferred") is convertible at a rate of .034 share of Common stock per share of Series D Preferred.

The Company's Series E Convertible Preferred Stock ("Series E Preferred") is convertible at a rate of .034 share of Common stock per share of Series E Preferred.

The Company's Series P Convertible Preferred Stock ("Series P Preferred") is convertible at a rate of .007 share of common stock for each share of Series P Preferred.


Note 7: Stock Purchase Options and Warrants

On November 15, 1999, the Board of Directors of the Company adopted the 1999 Stock Option Plan (the "1999 Plan"). This plan was approved by a majority of our stockholders at our January 28, 2000, stockholders' meeting. The purpose of the 1999 Plan is to advance the interests of the Company by encouraging and enabling acquisition of a financial interest in the Company by its officers and other key individuals. The 1999 Plan is intended to aid the Company in attracting and retaining key employees, to stimulate the efforts of such individuals and to strengthen their desire to remain with the Company. A   maximum of 1,500,000 shares of the Company's common stock are available to be issued under the 1999   Plan. The option exercise price will be 100% of the fair market value of the Company's common stock on the date the option is granted and will be exercisable for a period not to exceed 10 years from the date of grant. As of June 30, 2009, no stock options have been granted under this plan.

On May 17, 2004, the Company adopted an employee stock incentive plan setting aside 100,000 shares of the Company’s common stock for issuance to officers, employees, directors and consultants for services rendered or to be rendered. A compensation committee appointed by the Board of Directors who shall have the right to grant awards or stock options administers the plan. On May 24, 2004, the Company filed a Registration on Form S-8 with the Securities Exchange Commission covering the 100,000 shares provided by this plan, at a maximum offering price of $1.00 per share. As of June 30, 2009, the Company has issued all shares covered by the 2004 Stock Incentive Plan.

The Board of Directors on June 10, 2009, approved the 2009 Long-Term Stock Incentive Plan.  The purpose of the 2009 Long-term Stock Incentive Plan is to advance the interests of the Company by encouraging and enabling acquisition of a financial interest in the Company by employees and other key individuals.  The 2009 Long-Term Stock Incentive Plan is intended to aid the Company in attracting and retaining key employees, to stimulate the efforts of such individuals and to strengthen their desire to remain with the Company.  A maximum of 1,500,000 shares of the Company's common stock is reserved for issuance under stock options to be issued under the 2009 Long-Term Stock Incentive Plan.  The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options and Restricted Stock Awards.  The 2009 Long-Term Stock Incentive Plan is administered by the Board of Directors or, at its direction, the Compensation Committee comprised of officers of the Company.   As of June 30, 2009, the Company had granted such options to two employees to purchase, in the aggregate, 85,000 shares of the Company’s common stock. The Exercise Period for each of the grants is two years from the date of grant and the exercise price in each instance is $0.80.

 

 
F-14

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
June 30, 2009 and 2008

Note 7: Stock Purchase Options and Warrants - continued
 
On October 13, 2006 the Company adopted an employee stock incentive plan setting aside 100,000 shares of the Company’s common stock for issuance to officers, employees, directors and consultants for services rendered or to be rendered. The proposed maximum offering price of such shares is $1.00 per share.  A compensation committee appointed by the Board of Directors who shall have the right to grant awards or stock options administers the plan. On October 13, 2006, the Company filed a Registration on Form S-8 with the Securities Exchange Commission covering shares provided by this plan. As of June 30, 2007, the Company has issued 47,282 shares covered by the 2006 Stock Incentive Plan and recorded an expense of $282,380. As of June 30, 2008, 52,718 remain unissued under this Plan. The value of shares issued pursuant to this Plan is computed using the Black-Scholes model as prescribed by FAS No. 123R.  The assumptions used for the model are the following:  the stock price on the date of issuance, the exercise price of each specific warrant ($0.50 to $5.95), the expected life of the warrant (1 to 2 years and as high as 10),  the annualized volatility (31% to 237%), and the risk free rate (1.350% to 5.350%).

During the year ended June 30, 2009, the estimated value of the compensatory common stock purchase warrants granted to 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 years, a risk free interest rate of 1.35% to 2.35%, a dividend yield of 0% and volatility of 55% to 237%. The amount of the expense charged to operations for compensatory options and warrants granted in exchange for services was $789,487.

  During the year ended June 30, 2008, the estimated value of the compensatory common stock purchase warrants granted to 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 years, a risk free interest rate of 2.35% to 5.35%, a dividend yield of 0% and volatility of 26% to 70%. The amount of the expense charged to operations for compensatory options and warrants granted in exchange for services was $938,136.

The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s common stock issued to employees and non-employees of the Company. These warrants were granted in lieu of cash compensation for services performed.
 
   
Number of Warrants
   
Weighted Average Exercise Price
 
Outstanding as of June 30, 2007
   
850,163
   
$
3.18
 
Granted
   
1,667,706
     
0.00
 
Exercised
   
(44,507)
     
3.67
 
Cancelled
   
-
     
 0.00
 
Outstanding as of June 30, 2008
   
2,473,362
     
3.50
 
Granted
   
1,823,057
     
2.38
 
Exercised
   
(349,335)
     
1.21
 
Cancelled
   
(810,163)
     
3.17
 
Outstanding at June 30, 2009
   
3,136,921
   
$
3.10
 

 
Note 8: Income Taxes

SFAS No. 109 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the Company’s opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a valuation allowance equal to the deferred tax asset has been recorded. The total deferred tax asset is calculated by multiplying a 35% marginal tax rate by the cumulative NOL of $15,237,122. The total valuation allowance is equal to the total deferred tax asset.
 
 
 
F-15

 

Note 8: Income Taxes - continued
 
The tax effects of significant items comprising the Company's net deferred taxes as of June 30, 2009 and 2008 were as follows: 
 
   
6-30-09
   
6-30-08
 
  Deferred tax assets:
               
        Net operating loss carry forwards
   
5,332,993
     
3,023,215
 
  Valuation allowance
   
(5,332,993
)
   
(3,023,215
)
Net deferred tax asset reported
 
$
--
   
$
--
 
 
The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates of 35% to pretax income from continuing operations for the years ended June 30, 2009 and 2008 due to the following:

     
6-30-09
     
6-30-08
 
                 
  Book loss from operations
 
$
(2,309,778
)
 
$
(2,162,647
)
  Options and warrants issued for services
   
276,320
     
328,348
 
  Common stock issued for services
   
598,123
     
841,784
 
  Valuation allowance
   
1,435,335
     
992,515
 
   
$
--
   
$
--
 
 
The federal net operating loss carry forwards of approximately $15,237,122 expire in various years through 2029. In addition the Company has state carry forwards of approximately $14,931,000.

The Company has had numerous transactions in its common stock.  Such transactions may have resulted in a change in the Company's ownership, as defined in the Internal Revenue Code Section 382.  Such change may result in an annual limitation on the amount of the Company's taxable income that may be offset with its net operating loss carry forwards.  The Company has not evaluated the impact of Section 382, if any, on its ability to utilize its net operating loss carry forwards in future years.

In July, 2006, the FASB issued FASB Interpretations No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. FIN 48 became effective as of January 1, 2007 and had no impact on the Company’s financial statements.
 

Note 9.  Intangible Assets

Intangible assets consist of computer software, website costs and video backgrounds.  Computer software is purchased from third party developers and recorded at cost.  Computer software is amortized over the estimated useful life of 3 years. Website costs are costs incurred to develop the Company’s website.  The website costs will be amortized over the estimated useful life of the website when placed in service during the year ended June 30, 2009. Video backgrounds are the costs incurred to develop video backgrounds for use in the Company’s recording Kiosks. The video background costs will be amortized over the estimated useful life of the website when placed in service during the year ended June 30, 2009.  Technology is the cost of proprietary know how and intellectual property.

 

 
F-16

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
June 30, 2009 and 2008

  Note 9.  Intangible Assets - continued
 
The technology will be amortized over the estimated useful life when placed in service during the year ended June 30, 2009. Patents and trademarks is the cost of patents pending and applied for trademarks. Patents and trademarks will be amortized over the estimated useful life when placed in service during the year ended June 30, 2009. Management assesses the carrying values of long-lived assets for impairment when circumstances warrant such a review. In performing this assessment, management considers current market analysis and appraisal of the technology, along with estimates of future cash flows. The Company recognizes impairment losses when undiscounted cash flows estimated to be generated from long-lived assets are less than the amount of unamortized assets. The Company’s intangible assets are comprised of the following on June 30, 2009:
 
     
2009
2008
Patterns and Molds
   
18,071
-0-
 Website costs 
   
77,699
91,375
 Video backgrounds  
   
11,547
4,312
 Accumulated amortization  
   
(23,588)
-0-
 Net Intangible Assets 
 
$
107,314
95,687
 
The Company’s estimated amortization for the above intangible assets are as follows: 

   
2010
   
2011
   
2012
   
2013
   
2014
   
Thereafter
 
Patterns and Molds
    6,024       6,024       6,024       -0-       -0-       -0-  
 Website costs 
    13,706       13,706       13,706       13,706       13,706       9,138  
 Video backgrounds  
    3,858       3,858       3,858       -0-       -0-       -0-  


Note 10.  Property and Equipment

The Company’s property and equipment are comprised of the following on June 30, 2009:
 
   
2009
   
2008
 
 Furniture and equipment  
  $ 25,012     $ 15,708  
 Office equipment and computers 
    209,984       191,794  
 Kiosks
    264,586       -0-  
 Vehicles 
    29,125       29,125  
 Leasehold improvements 
    5,196       2,260  
 Computer Software
    50,879       46,251  
 Accumulated depreciation 
    (162,802 )     (44,354 )
 Net Property and Equipment  
  $ 421,980       240,784  
 
The Company also has $631,169 and $313,565 in equipment that is yet to be placed in service as of June 30, 2009 and 2008, respectively.

The equipment is depreciated over its estimated useful life of 5 to 7 years under the straight-line method. Leasehold improvements are depreciated over the lesser of the lease term or the useful life of the asset. Depreciation expense for the years ended June 30, 2009 and 2008 was $138,182 and $40,167, respectively.
 

Note 11.  Recent Accounting Pronouncements

June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140” (“SFAS 166”).  The provisions of SFAS 166, in part, amend the derecognition guidance in FASB Statement No. 140, eliminate the exemption from consolidation for qualifying special-purpose entities and require additional disclosures. SFAS 166 is effective for financial asset transfers occurring after the beginning of an entity’s first fiscal year that begins after November 15, 2009. The Company does not expect the provisions of SFAS 166 to have a material effect on the financial position, results of operations or cash flows of the Company.

 
F-17

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
June 30, 2009 and 2008

Note 11.  Recent Accounting Pronouncements - continued
 
 In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 amends the consolidation guidance applicable to variable interest entities. The provisions of SFAS 167 significantly affect the overall consolidation analysis under FASB Interpretation No. 46(R). SFAS 167 is effective as of the beginning of the first fiscal year that begins after November 15, 2009. SFAS 167 will be effective for the Company beginning in 2010. The Company does not expect the provisions of SFAS 167 to have a material effect on the financial position, results of operations or cash flows of the Company.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162” (“SFAS No. 168”).  Under SFAS No. 168 the “FASB Accounting Standards Codification” (“Codification”) will become the source of authoritative U. S. GAAP to be applied by nongovernmental entities.  Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  On the effective date, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. SFAS No. 168 is effective for the Company’s interim quarterly period beginning July 1, 2009. The Company does not expect the adoption of SFAS No. 168 to have an impact on the financial statements.

In June 2009, the Securities and Exchange Commission’s Office of the Chief Accountant and Division of Corporation Finance announced the release of Staff Accounting Bulletin (SAB) No. 112. This staff accounting bulletin amends or rescinds portions of the interpretive guidance included in the Staff Accounting Bulletin Series in order to make the relevant interpretive guidance consistent with current authoritative accounting and auditing guidance and Securities and Exchange Commission rules and regulations. Specifically, the staff is updating the Series in order to bring existing guidance into conformity with recent pronouncements by the Financial Accounting Standards Board, namely, Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations, and Statement of Financial Accounting Standards No. 160, Non-controlling Interests in Consolidated Financial Statements. The statements in staff accounting bulletins are not rules or interpretations of the Commission, nor are they published as bearing the Commission's official approval. They represent interpretations and practices followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the Federal securities laws.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. This FSP amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. This FSP shall be effective for interim reporting periods ending after June 15, 2009. The Company does not have any fair value of financial instruments to disclose.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. This FSP amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements.

The FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The FSP shall be effective for interim and annual reporting periods ending after June 15, 2009. The Company currently does not have any financial assets that are other-than-temporarily impaired.

 

 
F-18

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
June 30, 2009 and 2008

Note 11.  Recent Accounting Pronouncements - continued
 
In April 2009, the FASB issued FSP No. FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, to address some of the application issues under SFAS 141(R). The FSP deals with the initial recognition and measurement of an asset acquired or a liability assumed in a business combination that arises from a contingency provided the asset or liability’s fair value on the date of acquisition can be determined. When the fair value can-not be determined, the FSP requires using the guidance under SFAS No. 5, Accounting for Contingencies, and FASB Interpretation (FIN) No. 14, Reasonable Estimation of the Amount of a Loss. This FSP will be effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after July 1, 2009. The adoption of this FSP is not expected to have a material impact on our financial position, results of operations, or cash flows during the six months ended June 30, 2009.

In April 2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”).  FSP FAS 157-4 provides guidance on estimating fair value when market activity has decreased and on identifying transactions that are not orderly.  Additionally, entities are required to disclose in interim and annual periods the inputs and valuation techniques used to measure fair value.  This FSP is effective for interim and annual periods ending after June 15, 2009.  The Company does not expect the adoption of FSP FAS 157-4 will have a material impact on its financial condition or results of operation.

In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active,” (“FSP FAS 157-3”), which clarifies application of SFAS 157 in a market that is not active.  FSP FAS 157-3 was effective upon issuance, including prior periods for which financial statements have not been issued.  The adoption of FSP FAS 157-3 had no impact on the Company’s results of operations, financial condition or cash flows.

In December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.”  This disclosure-only FSP improves the transparency of transfers of financial assets and an enterprise’s involvement with variable interest entities, including qualifying special-purpose entities.  This FSP is effective for the first reporting period (interim or annual) ending after December 15, 2008, with earlier application encouraged.  The Company adopted this FSP effective January 1, 2009.  The adoption of the FSP had no impact on the Company’s results of operations, financial condition or cash flows.

In December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FSP FAS 132(R)-1”).  FSP FAS 132(R)-1 requires additional fair value disclosures about employers’ pension and postretirement benefit plan assets consistent with guidance contained in SFAS 157.  Specifically, employers will be required to disclose information about how investment allocation decisions are made, the fair value of each major category of plan assets and information about the inputs and valuation techniques used to develop the fair value measurements of plan assets. This FSP is effective for fiscal years ending after December 15, 2009.  The Company does not expect the adoption of FSP FAS 132(R)-1 will have a material impact on its financial condition or results of operation.

In September 2008, the FASB issued exposure drafts that eliminate qualifying special purpose entities from the guidance of SFAS No. 140, “Accounting for Transfers and Servicing of Financial  Assets and  Extinguishments of Liabilities,” and  FASB  Interpretation 46 (revised December 2003), “Consolidation of  Variable  Interest Entities − an interpretation of ARB  No. 51,” as well as other modifications.  While the proposed revised pronouncements have not been finalized and the proposals are subject to further public  comment, the Company anticipates the changes will not have a significant impact on the Company’s financial statements.  The changes would be effective March 1, 2010, on a prospective basis.

In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need to be included in the computation of earnings per share under the two-class method as described in FASB Statement of Financial Accounting Standards No. 128, “Earnings per Share.” FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and earlier adoption is prohibited. We are not required to adopt FSP EITF 03-6-1; neither do we believe that FSP EITF 03-6-1 would have material effect on our consolidated financial position and results of operations if adopted.

 
F-19

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
June 30, 2009 and 2008

Note 11.  Recent Accounting Pronouncements - continued
 
In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts-and interpretation of FASB Statement No. 60”.  SFAS No. 163 clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claims liabilities. This statement also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those years. SFAS No. 163 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.

In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”.  SFAS No. 162 sets forth the level of authority to a given accounting pronouncement or document by category. Where there might be conflicting guidance between two categories, the more authoritative category will prevail. SFAS No. 162 will become effective 60 days after the SEC approves the PCAOB’s amendments to AU Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.

In March 2008, the Financial Accounting Standards Board, or FASB, issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133.  This standard requires companies to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company has not yet adopted the provisions of SFAS No. 161, but does not expect it to have a material impact on its consolidated financial position, results of operations or cash flows.


Note 12,  Subsequent Events

In accordance with FAS 165, management evaluated the subsequent events as of October 14, 2009.  Subsequent to June 30, 2009, the two Convertible Promissory Notes have been converted to common shares according to the terms of the respective notes.


Note 13.  Restatement of Financial Statements

On August 27, 2009 the Company was informed that the Public Company Accounting Oversight Board ("PCAOB") revoked the registration of Moore & Associates who was serving as the Company’s independent registered public accounting firm.  The revocation was a result of Moore’s violation of PCAOB rules and auditing standards.  This revocation of Moore’s registration required the Company to have reaudited the financial statements previously issued for the fiscal years ended June 30, 2007 and 2008.

This reaudit produced material differences from the previously filed versions.  Included in this filing are the restated 2008 fiscal year financial statements.  For comparative purposes, the table below presents the reaudited balance sheets and income statements compared to the original filing.  





 
F-20

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
June 30, 2009 and 2008

Note 12.  Restatement of Financial Statements (continued)

Consolidated Balance Sheets
 
             
 
June 30,
 
June 30,
 
 
2008
 
2008
 
 
(Original)
 
(Restated)
 
ASSETS
 
Current Assets
           
Cash
  $ 391,109     $ 392,450  
Prepaid Expenses
    48,153       48,153  
Total Current Assets
    439,262       440,603  
                 
Property and Equipment, Net
    548,070       554,349  
                 
Other Assets
               
Notes Receivable- Non Current
    178,752       178,752  
Accrued Interest Receivable
    55,701       55,701  
Deposits
    29,630       29,630  
Intangible Assets, net
    138,084       95,687  
Total Other Assets
    402,167       359,770  
                 
Total Assets
  $ 1,389,499     $ 1,354,722  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
Current Liabilities
               
Accounts Payable and Accrued Expenses
  $ 358,359     $ 491,560  
Capital Equipment Loan
    -       7,270  
Notes Payable - Related Party
    108,319       97,285  
Notes Payable
    49,385       25,000  
Total Current Liabilities
    516,063       621,115  
                 
Long-Term Liabilities
    -       -  
                 
Total Liabilities
    516,063       621,115  
                 
Stockholders' Equity (Deficit)
               
Preferred Stock, authorized 10,000,000 shares, par value $0.001;
               
issued and oustanding are 774,044  and 524,044
               
June 30, 2009 and 2008, respectively
    524       524  
Common Stock, authorized 100,000,000 shares, par value $0.001;
               
issued and outstanding are 16,417,447 and 13,212,398 shares at
               
June 30, 2009 and 2008, respectively
    13,212       13,212  
Additional Paid in Capital
    14,463,184       9,473,679  
Common Shares to be issued
    -       221,000  
Common Stock Issued in Advance of Services
    -       (337,052 )
Accumulated Deficit - Development Stage
    (13,603,484 )     -  
Accumulated Deficit
    -       (8,637,756 )
Total Liabilities and Stockholders' Equity (Deficit)
  $ 1,389,499     $ 1,354,722  


 
F-21

 
STUDIO ONE MEDIA, INC.
Notes to Consolidated Financial Statements
June 30, 2009 and 2008


Note 12.  Restatement of Financial Statements (continued)


Consolidated Statements of Operations
 
             
   
For the Year Ended
 
   
June 30,
   
June 30,
 
   
2008
   
2008
 
   
(Original)
   
(Restated)
 
Revenues
           
Kiosk Advertising Revenues
  $ -     $ -  
Kiosk Barter Revenue
    -       -  
       Advertising Revenues
    -       -  
      Other Revenue
    -       839  
                 
Total Revenues
    -       839  
                 
COST OF SALES
               
(Exclusive of Depreciation and Ammortization)
    -       -  
                 
GROSS PROFIT (LOSS)
    -       839  
                 
Operating Expenses
               
Advertising Expenses
    -       150,724  
Depreciation Expense
    -       40,167  
Professional Fees
    -       3,489,323  
Research and Development
    1,065,168       778,834  
General and Administrative Expenses
    7,561,257       1,729,396  
                 
Total Operating Expenses
    8,626,425       6,188,444  
                 
Loss from Operations
    (8,626,425 )     (6,187,605 )
                 
Other Income (Expense)
               
        Interest Expense
    (14,553 )     (14,553 )
        Intersest Income
    24,005       23,166  
                 
Total Other Income (Expense)
    9,452       8,613  
                 
Loss before Income Taxes
    (8,616,973 )     (6,178,992 )
Income Tax Expense
    -       -  
                 
NET LOSS
  $ (8,616,973 )   $ (6,178,992 )
                 
Basic Loss Per Share of Common Stock
  $ (0.71 )   $ (0.51 )
                 
Weighted Average Number of Shares Outstanding
    12,179,418       12,179,418  

 
F-22

 


EXHIBIT 10.6
 

STUDIO ONE MEDIA, INC.
 
2009 Long-Term Incentive Plan
 
 
 
1.              Purposes of the Plan .  The Company, by means of the Plan, seeks to attract and retain the best available qualified personnel for positions of substantial responsibility, such as Employees, Directors and Consultants, and to provide additional incentives to such personnel to exert maximum efforts for the success of the Company.
 
The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, and Restricted Stock Awards.
 
2.              Definitions .  As used herein, the following definitions shall apply:
 
Administrator ” means the Board or any of its Committees as shall be administering the Plan in accordance with Section 4 hereof.
 
Applicable Laws ” means the requirements relating to the administration of stock option plans under U.S. state laws, U.S. federal laws, the Code, the rules and regulations of any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any other country or jurisdiction where Options or Stock Awards are granted under the Plan.
 
Awardholder ” means the holder of an outstanding Option or Stock Award granted under the Plan.
 
Board ” means the Board of Directors of the Company.
 
Cause shall, with respect to any Participant, have the meaning specified in the Award Agreement.  In the absence of any definition in the Award Agreement, “Cause” shall have the equivalent meaning or the same meaning as “cause” or “for cause” set forth in any employment, consulting, change in control or other agreement for the performance of services between the Participant and the Company or a Related Entity or, in the absence of any such definition in such agreement, such term shall mean (i) the failure by the Participant to perform his or her duties as assigned by the Company (or a Related Entity) in a reasonable manner, (ii) any violation or breach by the Participant of his or her employment, consulting or other similar agreement with the Company (or a Related Entity), if any, (iii) any violation or breach by the Participant of his or her confidential information and invention assignment, non-competition, non-solicitation, non-disclosure and/or other similar agreement with the Company or a Related Entity, if any, (iv) any act by the Participant of dishonesty or bad faith with respect to the Company (or a Related Entity), (v) any material violation or breach by the Participant of the Company’s or a Related Entity’s policy for employee conduct, if any, (vi) use of alcohol, drugs or other similar substances in a manner that adversely affects the Participant’s work performance, or (vii) the commission by the Participant of any act, misdemeanor, or crime reflecting unfavorably upon the Participant or the Company or any Related Entity.  The good faith determination by the Plan Administrator of whether the Participant’s continuous service was terminated by the Company for “Cause” shall be final and binding for all purposes hereunder.
 
 
 
 
 
 
1

 
 
Change in Control ” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:
 
(i)           any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) (an “ Exchange Act Person ”) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction.  Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of the acquisition of securities of the Company by any institutional investor, any affiliate thereof or any other Exchange Act Person that acquires the Company’s securities in a transaction or series of related transactions that are primarily a private financing transaction for the Company or (B) solely because the level of ownership held by any Exchange Act Person (the “ Subject Person ”) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of voting securities outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such acquisition, the Subject Person becomes the owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities owned by the Subject Person over the designated percentage threshold, then a Change in Control shall be deemed to occur;
 
(ii)           there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company if, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving entity in such merger, consolidation or similar transaction; or
 
(iii)           there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportion as their ownership of the Company immediately prior to such sale, lease, license or other disposition.
 
The term Change in Control shall not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company.
 

 
2

 

 
Notwithstanding the foregoing or any other provision of this Plan, the definition of Change in Control (or any analogous term) in an individual written agreement between the Company or any affiliate and the Awardholder shall supersede the foregoing definition with respect to Stock Awards or Options subject to such agreement (it being understood, however, that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition shall apply).
 
 
Code ” means the Internal Revenue Code of 1986, as amended.
 
Committee ” means a committee of Directors or other individuals satisfying Applicable Laws appointed by the Board in accordance with Section 4 hereof.
 
Common Stock ” means the common stock of the Company, par value $0.001 per share.
 
Company ” means Studio One Media, Inc., a Delaware   corporation.
 
Consultant ” means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services to such entity.
 
Corporate Transaction ” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:
 
(i)           a sale, lease or license,   or other disposition of all or substantially all, as determined by the Board, of the consolidated assets of the Company and its Subsidiaries;
 
(ii)           a sale or other disposition of at least thirty percent (30%) of the outstanding securities of the Company; or
 
(iii)           a merger, consolidation or similar transaction whether or not the Company is the surviving Company.
 
Director ” means a member of the Board.
 
Disability ” means total and permanent disability as defined in Section 22(e)(3) of the Code.
 
Employee ” means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company.  Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “ employment ” by the Company.
 
Exchange Act ” means the Securities Exchange Act of 1934, as amended.
 
Fair Market Value ” means, as of any date, the value of Common Stock determined as follows:
 
 

 
3

 

 
(i)           If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
 
(ii)           If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the day of determination; or
 
(iii)           In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator.
 
Good Reason ” shall, with respect to any Participant, have the meaning specified in the Award Agreement.  In the absence of any definition in the Award Agreement, “Good Reason” shall have the equivalent meaning (or the same meaning as “good reason” or “for good reason”) set forth in any employment, consulting, change in control or other agreement for the performance of services between the Participant and the Company or a Related Entity or, in the absence of any such definition in such agreement(s), such term shall mean (i) the assignment to the Participant of any duties inconsistent in any material respect with the Participant’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as assigned by the Company (or a Related Entity) or any other action by the Company (or a Related Entity) which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company (or a Related Entity) promptly after receipt of notice thereof given by the Participant; (ii) any failure by the Company (or a Related Entity) to comply with its obligations to the Participant as agreed upon, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company (or a Related Entity) promptly after receipt of notice thereof given by the Participant; (iii) the Company’s (or Related Entity’s) requiring the Participant to be based at any office or location more than fifty (50) miles from the location of employment as of the date of Award, except for travel reasonably required in the performance of the Participant’s responsibilities; (iv) any purported termination by the Company (or a Related Entity) of the Participant’s continuous service otherwise than for Cause, as defined Section 2(e), death, or by reason of the Participant’s Disability as defined in Section 2(o); or (v) any reduction in the Participant’s base salary (unless such reduction is part of Company-wide reduction that affects a majority of the persons of comparable level to the Participant).  The Participant must give the Company written notice of any event the Participant believes constitutes Good Reason.  Such notice must be delivered to the Company within 90 days of the first occurrence of such event and the Company shall have 30 days to cure, if possible.
 
Incentive Stock Option ” means an Option intended to qualify as an “incentive stock option” within the meaning of Section 422 of the Code.
 
Nonstatutory Stock Option ” means an Option not intended to qualify as an Incentive Stock Option.
 
 
 

 
4

 

 
Option ” means a stock option granted pursuant to the Plan.
 
Option Agreement ” means a written or electronic agreement between the Company and an Awardholder evidencing the terms and conditions of an individual Option.  The Option Agreement is subject to the terms and conditions of the Plan.
 
Optioned Stock ” means the Common Stock subject to an Option or a Stock Award.
 
Parent ” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.
 
Plan ” means this 2008 Long-Term Incentive Plan.
 
Restricted Stock ” means Shares issued pursuant to a Stock Award or Shares of restricted stock issued pursuant to an Option that are subject to a repurchase option by the Company.
 
Restricted Stock Agreement   means a written or electronic agreement between the Company and the Awardholder evidencing the terms and conditions of the individual Stock Award.  The Restricted Stock Agreement is subject to the terms and conditions of the Plan.
 
Securities Act ” means the Securities Act of 1933, as amended.
 
Service Provider ” means an Employee, Director or Consultant.
 
Share ” means a share of the Common Stock, as adjusted in accordance with Section 13 below.
 
Stock Award ” means a right to receive or purchase Common Stock pursuant to Section 11 below.
 
Subsidiary ” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.
 
3.              Stock Subject to the Plan .
 
General .   Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be issued under the Plan is One Million Five Hundred Thousand (1,500,000) Shares.  The Shares may be authorized but unissued, or reacquired Common Stock.
 
Availability of Shares Not Delivered under Awards .
 
(i)           If any Shares subject to an Option or Stock Award, are forfeited, expire or otherwise terminate without issuance of such Shares, or any Option or Stock Award, is settled for cash or otherwise does not result in the issuance of all or a portion of the Shares subject to such Option or Stock Award, the Shares shall, to the extent of such forfeiture, expiration, termination, cash settlement or non-issuance, again be available for Award under the Plan, subject to Section 3(b)(iv) below.
 
 
 
 
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(ii)           If any Shares issued pursuant to an Option or Stock Award are forfeited back to or repurchased by the Company, including, but not limited to, any repurchase or forfeiture caused by the failure to meet a contingency or condition required for the vesting of such shares, then the Shares not acquired under such Option or Stock Award shall revert to and again become available for issuance under the Plan.
 
(iii)           In the event that any Option or Stock Award granted hereunder is exercised through the tendering of  Shares (either actually or by attestation) or by the withholding of Shares by the Company, or withholding tax liabilities arising from such Option or Stock Award are satisfied by the tendering of Shares (either actually or by attestation) or by the withholding of Shares by the Company, then only the number of Shares issued net of the Shares tendered or withheld shall be counted for purposes of determining the maximum number of Shares available for grant under the Plan.
 
(iv)           Notwithstanding anything in this Section 3(b) to the contrary and solely for purposes of determining whether Shares are available for the grant of Incentive Stock Options, the maximum aggregate number of shares that may be granted under this Plan shall be determined without regard to any Shares restored pursuant to this Section 3(b) that, if taken into account, would cause the Plan to fail the requirement under Code Section 422 that the Plan designate a maximum aggregate number of shares that may be issued.
 
4.              Administration of the Plan .
 
Administrator . The Plan shall be administered by the Board or a Committee appointed by the Board, which Committee shall be constituted to comply with Applicable Laws.
 
Powers of the Administrator .  Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority in its discretion:
 
(i)           to determine the Fair Market Value;
 
(ii)           to select the Service Providers to whom Options and Stock Awards  may from time to time be granted hereunder;
 
(iii)           to approve forms of agreement for use under the Plan;
 
(iv)           to determine the terms and conditions of any Option or Stock Award granted hereunder.  Such terms and conditions include, but are not limited to, the exercise price, the number of Shares subject to the award, the time or times when Options or Stock Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Award or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;
 
 

 
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(v)           to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws;
 
(vi)           to allow or require Awardholders to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Award that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld.  The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined.  All elections by Awardholders to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and
 
(vii)           to construe and interpret the terms of the Plan and Options granted pursuant to the Plan.
 
Effect of Administrator’s Decision .  All decisions, determinations and interpretations of the Administrator shall be final and binding on all Awardholders.
 
5.              Eligibility .  Nonstatutory Stock Options and Stock Awards may be granted to Service Providers.  Incentive Stock Options may be granted only to Employees.
 
6.              Limitations .
 
Incentive Stock Option Limit .  Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.  However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Awardholder during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options.  For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted.  The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.
 
At-Will Employment .  Neither the Plan nor any Option or Stock Awards shall confer upon any Awardholder any right with respect to continuing the Awardholder’s relationship as a Service Provider with the Company, nor shall it interfere in any way with his or her right or the Company’s right to terminate such relationship at any time, with or without cause, and with or without notice.
 
7.              Term of Plan .  Subject to stockholder approval in accordance with Section 19, the Plan shall become effective upon its adoption by the Board.  Unless sooner terminated under Section 16, it shall continue in effect for a term of ten (10) years from the later of (i) the effective date of the Plan, or (ii) the most recent Board approval of an increase in the number of Shares reserved for issuance under the Plan (contingent on stockholder approval of such increase).
 
8.              Term of Option .  The maximum term of each Option shall be stated in the Option Agreement; provided, however , that the maximum term shall be no more than ten (10) years from the date of grant thereof.  In the case of an Incentive Stock Option granted to an Awardholder who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the maximum term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement.
 
 
 
 
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9.              Option Exercise Price and Consideration .
 
Exercise Price .  The per Share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following:
 
(i)             In the case of an Incentive Stock Option
 
(A)           granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.
 
(B)           granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.
 
(ii)            If an Option is granted with a per Share exercise price below the per Share Fair Market Value of the Common Stock on the grant date, then the Option shall contain such additional terms as necessary to comply with Section 409A of the Code.
 
(iii)           Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction.
 
Forms of Consideration .  The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant).  Such consideration may consist of, without limitation, (i) cash, (ii) check, (iii) according to a deferred payment or other similar arrangement with the Awardholder, (iv) other Shares, (v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, (vi) any other form of legal consideration as determined by the Administrator or (vii) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company.  Unless otherwise specifically provided in the Option, the purchase price of Common Stock acquired pursuant to an Option that is paid by delivery to the Company of other Common Stock acquired, directly or indirectly from the Company (or from the Option itself at or before the time of exercise), shall be paid only by Shares that have been held for such period of time required to avoid a charge to earnings for financial accounting purposes.
 
 
 

 
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10.           Exercise of Option.
 
Procedure for Exercise; Rights as a Stockholder .  Any Option granted hereunder shall be exercisable according to the terms of the Plan at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement.  An Option may not be exercised for a fraction of a Share.
 
An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, (ii) full payment for the Shares with respect to which the Option is exercised and (iii) any additional documentation required by the Company.  Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan.  Shares issued upon exercise of an Option shall be issued in the name of the Awardholder or, if requested by the Awardholder, in the name of the Awardholder and his or her spouse.  Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive allocations of profits or losses or any other rights as a stockholder shall exist with respect to the Shares, notwithstanding the exercise of the Option.  The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised.  No adjustment will be made for an allocation of profit or loss or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan.   An Awardholder shall only be entitled to prospective allocations of profit or loss upon issuance of Shares pursuant to an Option exercise.
 
Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
 
Termination of Relationship as a Service Provider .  If an Awardholder ceases to be a Service Provider other than due to death or Disability, such Awardholder may exercise his or her Option within thirty (30) days after the Awardholder ceases to be a Service Provider or such other period of time as specified in the Option Agreement (but  in no event later than the expiration of the maximum term of the Option as set forth in the Plan or, if less, in the Option Agreement), and only to the extent that the Option is vested and exercisable on the date of termination.   If an Awardholder ceases to be a Service Provider as a result of the Awardholder’s death or Disability, the Awardholder (or in the case of the Awardholder’s death, the Awardholder’s estate, designated beneficiary or by the person(s) to whom the Option is transferred pursuant to the Awardholder’s will or in accordance with the laws of descent and distribution) may exercise the Awardholder’s Option within six (6) months of termination, or such longer period of time as specified in the Option Agreement, to the extent the Option is vested and exercisable on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement).  On the date of termination, any Shares subject to the Option that are not vested or subject to vesting acceleration may not be exercised by the Awardholder and shall revert to the Plan.  If, after termination, the Awardholder does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
 
 
 
 

 
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Leaves of Absence .
 
(i)           Unless the Administrator provides otherwise, vesting of Options granted hereunder to Service Providers shall be suspended during any unpaid leave of absence in excess of ninety (90) days.
 
(ii)           A Service Provider shall not cease to be an Employee in the case of (A) any leave of absence approved by the Company or (B) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor.
 
(iii)           For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract.  If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then three (3) months following the 91st day of such leave, any Incentive Stock Option held by the Awardholder shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
 
11.            Stock Awards .
 
Rights to Purchase .  Stock Awards may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan.  After the Administrator determines that it will offer Stock Awards under the Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer.  The offer shall be accepted by execution of a Restricted Stock Agreement in the form determined by the Administrator.
 
Forfeiture or Repurchase Option .  Unless the Administrator determines otherwise, the Restricted Stock Agreement shall grant the Company a forfeiture right or repurchase option (depending upon whether the Awardholder paid for such Stock Award) exercisable upon termination of the purchaser’s service with the Company for any reason (including death or disability).  The forfeiture right or repurchase option shall lapse at such rate as the Administrator may determine.
 
Other Provisions .  The Restricted Stock Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion.
 
Rights as a Stockholder .  Once the Stock Award is exercised, the purchaser shall have rights equivalent to those of a stockholder and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company.  No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Award is exercised, except as provided in Section 13 of the Plan.
 
12.            Transfer Restrictions for Options, Stock Awards and Shares Issued Under the Plan .
 
(a)            Transfer Restrictions .
 
 

 
 
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(i)              Limited Transferability of Options and Stock Awards .  Unless determined otherwise by the Administrator, Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or the laws of descent and distribution, and may be exercised during the lifetime of the Awardholder, only by the Awardholder.  Stock Awards shall be transferable to the extent provided for by the Administrator in the Restricted Stock Agreement.
 
(ii)            Restrictions on Transfer of Shares .  Shares received upon the exercise of an Option or through a Stock Award may not be sold, transferred, assigned, pledged, encumbered or otherwise disposed of, except in accordance with the Plan.  Except as otherwise provided in the Option Agreement or Restricted Stock Agreement, such restrictions on transfer, however, will not apply to (i) a gratuitous transfer of the Shares, provided, and only if, Awardholder obtains the Company’s prior written consent to such transfer, (ii) a transfer of title to the Shares effected pursuant to Awardholder’s will or the laws of intestate succession, or (c) a transfer to the Company in pledge as security for any purchase-money indebtedness incurred by Awardholder in connection with the acquisition of the Shares.
 
(iii)            Transferee Obligations .  Each person (other than the Company) to whom the Shares are transferred by means of one of the permitted transfers specified in Section 12(a)(ii) must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Company that such person is bound by the provisions of this Agreement, to the same extent the Shares would be so subject if retained by Awardholder.
 
(b)            Company’s Right of First Refusal .
 
(i)           Before any Shares held by Awardholder may be sold or otherwise transferred (including any assignment, pledge, encumbrance or other disposition of the Shares, but not including a permitted transfer under Section 12(a)(ii)), the Company or its assignee will have an assignable right of first refusal to purchase the Shares on the terms and conditions set forth in this Section 12(b) (the “ Right of First Refusal ”).  Such Right of First Refusal shall terminate after the earlier of a Change in Control where the successor corporation or its parent has shares that are publicly traded.
 
(ii)           In the event Awardholder desires to accept a bona fide third-party offer for the sale or transfer of any or all of the Shares, Awardholder will promptly deliver to the Company a written notice (the “ Notice ”) stating the terms and conditions of any proposed sale or transfer, including (a) Awardholder’s bona fide intention to sell or otherwise transfer such Shares, (b) the name of each proposed purchaser or other transferee (the “ Proposed Transferee ”), (c) the number of Shares to be transferred to each Proposed Transferee, and (d) the bona fide cash price or other consideration for which Awardholder proposes to transfer the Shares (the “ Offered Price ”).  Awardholder will provide satisfactory proof that the disposition of such shares to such Proposed Transferee would not be in contravention of the provisions of Section 12(a) and Awardholder will offer to sell the Shares at the Offered Price to the Company.
 
(iii)           At any time within thirty (30) days after receipt of the Notice, the Company or its assignee may, by giving written notice to Awardholder, elect to purchase all or any portion of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with Section 12(b)(iv).
 
 
 
 
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(iv)           The purchase price for the Shares purchased under this Section 12(b) will be the Offered Price.  If the Offered Price includes consideration other than cash, the cash equivalent value of the noncash consideration will be determined by the Board in good faith.
 
(v)           Payment of the purchase price will be made, in the discretion of the Administrator, either (a) in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of Awardholder to the Company or such assignee, or by any combination thereof, within thirty (30) days after receipt of the Notice or (b) in the manner and at the time(s) set forth in the Notice.
 
(vi)           If any of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee as provided in this Section, then Awardholder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price; provided that such sale or other transfer is consummated within 60 days after the date of the Notice; and provided, further, that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Shares in the hands of such Proposed Transferee.  If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, or if Awardholder proposes to change the price or other terms to make them more favorable to the Proposed Transferee, a new Notice will be given to the Company, and the Company or its assignee will again be offered the Right of First Refusal before any Shares held by Awardholder may be sold or otherwise transferred.
 
(vii)           Notwithstanding any other provision of this Agreement, Awardholder may not deliver a Notice and the Company may not exercise the Right of First Refusal earlier than six months and one day following the date of this Agreement (or any shorter period sufficient to avoid a charge to the Company’s earnings for financial reporting purposes).
 
(c)            Vested Share Repurchase Right .
 
(i)           The Company or its assignee will have the right to repurchase the Shares (the “ Vested Share Repurchase Right ”) in the event Awardholder terminates as a Service Provider for any reason whatsoever, including, without limitation, termination with or without Disability, death or cause.  Such Vested Share Repurchase Right shall terminate immediately after a Change in Control where the successor corporation or its parent has shares that are publicly traded.
 
(ii)           The Company may exercise the Vested Share Repurchase Right by giving Awardholder written notice within sixty (60) days after the date of Awardholder’s termination as a Service Provider (or exercise of the Option, if later).  Such notice will indicate the Company’s election to exercise the Vested Share Repurchase Right, the number of Shares to be repurchased by the Company and the per-share repurchase price.  If the Company fails to give notice within such sixty (60) day period, the Vested Share Repurchase Right will terminate unless, to the extent permitted by applicable law, Awardholder and the Company have extended the time for the exercise of the Vested Share Repurchase Right.
 
 
 
 
 
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(iii)           Payment of the repurchase price will be made, at the option of the Company, either in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of Awardholder to the Company, or by any combination thereof, within thirty (30) days after the Company mails written notice of exercise of the Vested Share Repurchase Right.  No interest will be paid on such amount.
 
(iv)           The repurchase price for the Shares subject to the Vested Share Repurchase Right will be equal to the aggregate Fair Market Value of such Shares on the date the Company mails written notice of exercise of the Vested Share Repurchase Right, as determined by the Board.  Awardholder will deliver the certificate(s) representing the Shares subject to the Vested Share Repurchase Right, duly endorsed for transfer to the Company, at the same time the Company delivers payment to Awardholder.
 
(v)           Notwithstanding any other provision of this Agreement, the Company may not exercise the Vested Share Repurchase Right earlier than six months and one day following the date of this Agreement (or any shorter period sufficient to avoid a charge to the Company’s earnings for financial reporting purposes) (the “ Holding Period ”).  To the extent a Holding Period is necessary to avoid such an accounting charge and to the extent permitted by applicable law, the sixty (60) day period specified in Section 12(c)(ii) will begin to run on the last day of such Holding Period.
 
(d)            Legends .  All certificates evidencing Shares subject to the Transfer provisions set forth in this Section shall bear the following legend, in addition to any legend(s) required for reasons not related to this Agreement:
 
"The shares represented hereby may not be sold, assigned, transferred, encumbered or in any manner disposed of, except in compliance with the terms of a written stock repurchase agreement between the Company and the registered holder of the shares (or the predecessor in interest to the shares).  Such Agreement grants to the Company certain repurchase rights upon the occurrence of certain events.  The Secretary of the Company will upon written request furnish a copy of such Agreement to the holder hereof without charge."
 
13.            Adjustments; Dissolution or Liquidation; Merger or Corporate Transaction .
 
Adjustments .  In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan, shall adjust the number, kind, type and class of Shares that may be delivered under the Plan and/or the number, kind, type, class, and exercise price of Shares covered by each outstanding Option or Stock Award.
 
 
 
 

 
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Dissolution or Liquidation .  In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Awardholder as soon as practicable prior to the effective date of such proposed transaction.  To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action.
 
Corporate Transaction .  In the event of a Corporate Transaction, each outstanding Option shall be assumed, continued or an equivalent option substituted by the successor corporation or a Parent of the successor corporation (together, the “ Successor Corporation ”).  In the event that the Successor Corporation in a Corporate Transaction refuses to assume, continue or substitute for the Option, then the Option shall terminate immediately prior to the close of the Corporate Transaction.  The Administrator, in its sole discretion, shall determine whether each Option is assumed, continued, substituted or terminated.  To the extent that the agreement relating to the Corporate Transaction provides for the treatment of each Option, the treatment in such agreement shall be determinative for the treatment of each Option for purposes of this Plan.  If such Option shall terminated immediately prior to and contingent upon a Corporate Transaction, the Administrator shall provide the Awardholder notice of such termination and a period of at least one business day to exercise such Option prior to is termination in accordance with its terms.
 
In the event that the Successor Corporation in a Corporate Transaction refuses to assume, continue or substitute for an Option, then the Awardholder shall fully vest in and have the right to exercise such Option as to all of the Shares subject to such Option, including Shares as to which such Option would not otherwise be vested or exercisable.  If an Option becomes fully vested and exercisable in lieu of assumption, continuation or substitution in the event of a Corporate Transaction, the Administrator shall notify the Awardholder in writing or electronically that the Option shall be fully exercisable immediately prior to the close of the Corporate Transaction.  For the purposes of this Section, the Option shall be considered assumed, continued or substituted if, following the Corporate Transaction, the assumed, continued or substituted option or right confers the right to purchase or receive, for each Share subject to the Option immediately prior to the Corporate Transaction, the consideration (whether stock, cash, or other securities or property) received in the Corporate Transaction by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however , that if such consideration received in the Corporate Transaction is not solely common stock of the Successor Corporation, the Administrator may, with the consent of the Successor Corporation, provide for the consideration to be received upon the exercise of the Option, for each Share subject to the Option, to be solely common stock of the Successor Corporation equal in fair market value to the per share consideration received by holders of common stock in the Corporate Transaction.
 
In the event of a Corporate Transaction, any reacquisition or repurchase rights held by the Company in respect of Common Stock issued pursuant to a Stock Award (the “ Repurchase Rights ”) may continue or be assigned by the Company to the Successor Corporation, in connection with such Corporate Transaction.  In the event any Repurchase Rights are not continued or assigned to the Successor Corporation, then such Repurchase Rights shall lapse and the Stock Award shall be fully vested as of the effective date of the Corporate Transaction.
 
 
 

 
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The Administrator, in its discretion, may (but is obligated to) either (x) accelerate the vesting of any Options and Stock Awards (including permitting the lapse of any repurchase rights held by the Company) and, if applicable, the time at which any Option may be exercised, in full or as to some percentage of the Option or Stock Award to a date prior to the effective time of a Corporate Transaction contingent upon the effectiveness of such Corporate Transaction or (y) provide for a cash payment in exchange for the termination of any Option or Stock Award or any portion thereof contingent upon the effectiveness of such Corporate Transaction.
 
Change of Control .  The Administrator may, in its discretion, provide for the acceleration of vesting of Options or Stock Awards in the individual Option or Restricted Stock Agreements.
 
14.            Code Section 409A .  If and to the extent that the Administrator believes that any Options or Stock Awards may constitute a “nonqualified deferred compensation plan” under Section 409A of the Code, the terms and conditions set forth in the respective Option or Restricted Stock Agreement for such  Options or Stock Award shall be drafted in a manner that is intended to comply with, and shall be interpreted in a manner consistent with, the applicable requirements of Section 409A of the Code, unless otherwise agreed to in writing by the Awardholder and the Company.
 
15.            Time of Granting Options and Stock Awards .  The date of grant of an Option or Stock Award shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Award, or such later date as is determined by the Administrator.  Notice of the determination shall be given to each Service Provider to whom an Option or Stock Award is so granted within a reasonable time after the date of such grant.
 
16.            Amendment and Termination of the Plan .
 
Amendment and Termination .  The Administrator may at any time amend, alter, suspend or terminate the Plan.
 
Stockholder Approval .  The Administrator shall obtain stockholder approval of any Plan amendment to the extent the Administrator deems necessary and desirable to comply with Applicable Laws.
 
Effect of Amendment or Termination .  No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Awardholder, unless mutually agreed otherwise between the Awardholder and the Administrator, which agreement must be in writing and signed by the Awardholder and the Company.  Termination of the Plan shall not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination.
 
Amendment of Options and Stock Awards .  The Administrator may at any time, and from time to time, amend the terms of any one or more Options or Stock Awards; provided, however, that the rights under any Option or Stock Award shall not be impaired by any such amendment unless the Awardholder consents in writing.
 

 
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17.           Conditions Upon Issuance of Shares.
 
Legal Compliance .  Shares shall not be issued pursuant to the exercise of an Option or Stock Award unless the exercise of such Option or Stock Award and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.
 
Investment Representations .  As a condition to the exercise of an Option or Stock Purchase Right, the Administrator may require the person exercising such Option or Stock Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.
 
18.            Inability to Obtain Authority .  The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
 
19.            Stockholder Approval .  At the discretion of the Board, in order to comply with the requirements for the grant of Incentive Stock Options or any Applicable Laws, the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted.  Such stockholder approval shall be obtained in the degree and manner required under Applicable Laws.
 
 

 
 
 
 
 
 
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EXHIBIT 10.7

 
FORM OF INDEMNIFICATION AGREEMENT FOR OFFICERS AND DIRECTORS
 
THIS AGREEMENT (the “Agreement”) is made and entered into as of ________________, 20__ between Studio One Media, Inc., a Delaware corporation (the “Company”), and __________________ (“Indemnitee”).
 
WITNESSETH THAT:
 
WHEREAS , the Certificate of Incorporation of the Company requires the Company to indemnify and advance expenses to its directors and officers to the fullest extent permitted under Delaware law, which includes Section 145 of the Delaware General Corporation Law, as amended (“Law”); and
 
WHEREAS , the Board of Directors of the Company has adopted Bylaws (the “Bylaws”) that permit the indemnification of the officers, directors, employees, or agents of the Company to the fullest extent permitted by applicable law; and
 
WHEREAS , in accordance with the authorization as provided by the Law, the Company may purchase and maintain a policy or policies of directors’ and officers’ liability insurance (“D & O Insurance”), covering certain liabilities which may be incurred by its officers or directors in the performance of their obligations to the Company; and
 
WHEREAS , Indemnitee has been serving and continues to serve as a director and/or officer of the Company in part in reliance on the Company’s Certificate of Incorporation and Bylaws and has provided valuable services to and for the Company; and
 
WHEREAS , it is essential to the Company to retain and attract as directors and officers the most capable persons available; and
 
WHEREAS , both the Company and Indemnitee recognize the increased risk of litigation and other claims currently being asserted against directors and officers of corporations; and

WHEREAS , in recognition of Indemnitee’s need for (i) substantial protection against personal liability based on Indemnitee’s reliance on the aforesaid Certificate of Incorporation and Bylaws, (ii) specific contractual assurance that the protection promised by the Certificate of Incorporation and Bylaws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of the Certificate of Incorporation and Bylaws or any change in the composition of the Company’s Board of Directors or acquisition transaction relating to the Company), and (iii) an inducement to provide effective services to the Company as a director and/or officer, the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted under Delaware law and as set forth in this Agreement, and, to the extent insurance is maintained, to provide for the continued coverage of Indemnitee under the Company’s directors’ and officers’ liability insurance policies;
 
NOW, THEREFORE , in consideration of the above premises and of Indemnitee continuing to serve the Company directly or, at its request, with another enterprise, and intending to be legally bound hereby, the parties agree as follows:

1.            Indemnity of Indemnitee .  The Company hereby agrees to hold harmless and indemnify Indemnitee to the full extent authorized or permitted by the provisions of the Law, as such may be amended from time to time, and the Bylaws (or other applicable charter documents of the Company), as such may be amended, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute.  In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, or agent, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change.  In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, or agent, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder.  In furtherance of the foregoing indemnification, and without limiting the generality thereof:
 
 
 
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(a)            Proceedings Other Than Proceedings by or in the Right of the Company .  Indemnitee shall be entitled to the rights of indemnification provided in this Section l(a) if, by reason of Indemnitee’s Corporate Status (as hereinafter defined), he is, or is threatened to be made, a party to or participant in any Proceeding (as hereinafter defined) other than a Proceeding by or in the right of the Company.  Pursuant to this Section 1(a), Indemnitee shall be indemnified against all Expenses (as hereinafter defined), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if the Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal Proceeding, the Indemnitee had no reasonable cause to believe his conduct was unlawful.
 
(b)            Proceedings by or in the Right of the Company .  Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(b) if, by reason of Indemnitee’s Corporate Status, he was, is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company.  Pursuant to this Section 1(b), Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; provided, however, that, if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware shall determine that such indemnification may be made.
 
(c)            Indemnification for Expenses of a Party Who is Wholly or Partly Successful .  Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of Indemnitee’s Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified to the maximum extent permitted by law against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.  If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter.  For purposes of this Section 1 and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
 
2.            Additional Indemnity .  In addition to, and without regard to any limitations on, the indemnification provided for in Section 1, the Company shall and hereby does indemnify and hold harmless Indemnitee against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf if, by reason of Indemnitee’s Corporate Status, he is, or is threatened to be made, a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company), including, without limitation, all liability arising out of the negligence or active or passive wrongdoing of Indemnitee.  The only limitation that shall exist upon the Company’s obligations pursuant to this Agreement shall be that the Company shall not be obligated to make any payment to Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Sections 6 and 7 hereof) to be unlawful under Delaware law.
 

 
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3.            Contribution in the Event of Joint Liability .
 
(a)           Whether or not the indemnification provided in Sections 1 and 2 hereof is available, in respect of any threatened, pending or completed action, suit or proceeding in which Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring Indemnitee to contribute to such payment and Company hereby waives and relinquishes any right of contribution it may have against Indemnitee.  Company shall not enter into any settlement of any action, suit or proceeding in which Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.
 
(b)           Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or proceeding in which Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), Company shall contribute to the amount of expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company other than the Indemnitee who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction from which such action, suit or proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of Company and all officers, directors or employees of the Company other than the Indemnitee who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which the law may require to be considered.
 
(c)           Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company other than the Indemnitee who may be jointly liable with Indemnitee.
 
4.            Indemnification for Expenses of a Witness .  Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of Indemnitee’s Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.
 
5.            Advancement of Expenses .  Notwithstanding any other provision of this Agreement, the Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitee’s Corporate Status within ten (10) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding.  Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses.  Any advances and undertakings to repay pursuant to this Section 5 shall be unsecured and interest free.  Notwithstanding the foregoing, the obligation of the Company to advance Expenses pursuant to this Section 5 shall be subject to the condition that, if, when and to the extent that the Independent Counsel determines that Indemnitee would not be permitted to be indemnified under applicable law, the Company shall be entitled to be reimbursed, within thirty (30) days of such determination, by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Independent Counsel that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any advance of Expenses until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed).
 

 
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6.            Procedures and Presumptions for Determination of Entitlement to Indemnification .  It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under the law and public policy of the State of Delaware.  Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement:
 
(a)           To obtain indemnification (including, but not limited to, the advancement of Expenses and contribution by the Company) under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification.  The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.
 
(b)           Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 6(a) hereof, a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case by the Board of Directors; provided, however, in the event the Board of Directors shall not agree to the indemnification of the Indemnitee with respect to such matter according to the terms of this Agreement within ten (10) days of receipt of the request from Indemnitee as provide in Section 6(a) hereof, or in the event the Board of Directors shall deny such indemnity, the determination with respect to Indemnitee’s entitlement and all rights hereunder shall be made by Independent Counsel selected as provided in Section 6(c) hereof.
 
(c)           If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent Counsel shall be selected as provided in this Section 6(c).  The Independent Counsel shall be selected by the Indemnitee.  The Board of Directors may, within five (5) days after such written notice of selection shall have been given, deliver to the Indemnitee a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 16 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion.  Absent a proper and timely objection, the person so selected shall act as Independent Counsel.  If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit.  If, within twenty (20) days after submission by Indemnitee of a written request for indemnification pursuant to Section 6(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 6(b) hereof.  The Company agrees to pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 6(b) hereof, and incident to the procedures of this Section 6(c), regardless of the manner in which such Independent Counsel was selected or appointed, and to indemnify fully such counsel against any and all expenses (including attorneys’ fees) claims, liabilities, loss and damages arising out of or in connection with this Agreement or the engagement of Independent Counsel pursuant hereto.
 
(d)           In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 6(a) of this Agreement.  Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion, by clear and convincing evidence.
 
(e)           Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to an Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise.  In addition, the knowledge or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.  Whether or not the foregoing provisions of this Section 6(e) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company.  Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion, by clear and convincing evidence.
 
 
 
 
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(f)           If the Board of Directors or the person, persons or entity empowered or selected under Section 6(c) to determine whether Indemnitee is entitled to indemnification shall not have made a determination within thirty (30) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such thirty (30) day period may be extended for a reasonable time, not to exceed an additional ten (10) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating documentation and/or information relating thereto.
 
(g)           Indemnitee and the officers and directors of the Company shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination.  Any Independent Counselor member of the Board of Directors, of the Company shall act reasonably and in good faith in making a determination under the Agreement of the Indemnitee’s entitlement to indemnification.  Any costs or expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
 
(h)           The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty.  In the event that any action, claim or proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding.  Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion, by clear and convincing evidence.
 
(i)           The person, persons or entity empowered or selected under Section 6(c) to determine whether Indemnitee is entitled to indemnification, shall, among other things, render its written opinion to the Company and Indemnitee as to whether and to what extent the Indemnitee shall be permitted to be indemnified under applicable law and this Agreement.
 
7.            Remedies of Indemnitee .
 
(a)           In the event that (i) a determination is made pursuant to Section 6 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 5 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 6(b) of this Agreement within thirty (30) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to this Agreement within ten (10) days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within five (5) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 6 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of his entitlement to such indemnification.  Indemnitee shall commence such proceeding seeking an adjudication within one year following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 7(a).  The Company shall not oppose Indemnitee’s right to seek any such adjudication.
 
 
 
 
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(b)           In the event that a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 7 shall be conducted in all respects as a de novo trial, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination under Section 6(b).
 
(c)           If a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 7, absent a prohibition of such indemnification under applicable law.
 
(d)           In the event that Indemnitee, pursuant to this Section 7, seeks a judicial adjudication of his rights under, or to recover damages for breach of, this Agreement, or to recover under any directors’ and officers’ liability insurance policies maintained by the Company the Company shall pay on his behalf, in advance, any and all expenses (of the types described in the definition of Expenses in Section 16 of this Agreement) actually and reasonably incurred by him in such judicial adjudication, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of expenses or insurance recovery.
 
(e)           The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 7 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement.
 
8.            Non-Exclusivity; Survival of Rights; Insurance; Subrogation .
 
(a)           The rights of indemnification as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the certificate of incorporation of the Company, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise.  No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by the Indemnitee in Indemnitee’s Corporate Status prior to such amendment, alteration or repeal.  To the extent that a change in the Law, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under the Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change.  No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise.  The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
 
(b)           To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents or fiduciaries of the Company (or related persons thereof) or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent (or related person thereof) under such policy or policies.
 
(c)           In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
 
 
 
 
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(d)           The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
 
9.            Exception to Right of Indemnification .  Notwithstanding any other provision of this Agreement, Indemnitee shall not be entitled to indemnification under this Agreement with respect to any Proceeding brought by Indemnitee against the Company, or any claim therein, unless (a) the bringing of such Proceeding or making of such claim shall have been approved by the Board of Directors of the Company; (b) such Proceeding is being brought by the Indemnitee to assert, interpret or enforce his rights under this Agreement,; or the Independent Counsel has approved its initiation.
 
10.           Duration of Agreement .  All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is an officer or director of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter so long as Indemnitee shall be subject to any Proceeding (or any proceeding commenced under Section 7 hereof) by reason of Indemnitee’s Corporate Status, whether or not Indemnitee is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement.  This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.  This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as an officer or director of the Company or any other Enterprise at the Company’s request.
 
11.           Security .  To the extent requested by the Indemnitee and approved by the Board of Directors of the Company, the Company may at any time and from time to time provide security to the Indemnitee for the Company’s obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral.  Any such security, once provided to the Indemnitee, may not be revoked or released without the prior written consent of the Indemnitee.
 
12.           Enforcement .
 
(a)           The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as an officer or director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as an officer or director of the Company.
 
(b)           This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.
 
13.            Period of Limitations .  No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.
 
 
 
 
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14.            Attorneys' Fees .  In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be paid all attorneys’ fees and Expenses incurred by Indemnitee with respect to such action, regardless of whether Indemnitee is ultimately successful in such action, and shall be entitled to the advancement of Expenses with respect to such action, unless as a part of such action the court of competent jurisdiction over such action determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous.  In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all attorneys’ fees and Expenses incurred by Indemnitee in defense of such action (including costs and expenses incurred with respect to Indemnitee's counterclaims and cross-claims made in such action), and shall be entitled to Expense Advances with respect to such action, unless as a part of such action the court having jurisdiction over such action determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous.
 
15.            Subrogation .  In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.
 
16.            Definitions .  For purposes of this Agreement:
 
(a)           “Corporate Status” describes the status of a person who is or was a director, officer, employee or agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the express written request of the Company.
 
(b)           “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
 
(c)           “Enterprise” shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the express written request of the Company as a director, officer, employee, agent or fiduciary.
 
(d)           “Expenses” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, fees of investigators, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding.
 
(e)           “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent:  (i) the Company or any Enterprise, any officers or directors of the Company or any Enterprise, or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder.  The Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in n action to determine Indemnitee’s rights under this Agreement.  The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
 
(f)           “Proceeding” includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is, is threatened to be, or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, by reason of any action taken by Indemnitee or of any inaction on Indemnitee’s part while acting as any such capacity, or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other Enterprise; in each case whether or not Indemnitee is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement; including one pending on or before the date of this Agreement; and excluding one initiated by an Indemnitee pursuant to Section 7 of this Agreement to enforce his rights under this Agreement.
 
 
 
 
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17.            Severability .  If any provision or provisions of this Agreement shall be held by a court of competent jurisdiction to be invalid, void, illegal or otherwise unenforceable for any reason whatsoever:  (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.
 
18.            Modification and Waiver .  No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
 
19.            Notice By Indemnitee .  Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder.  The failure to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company.
 
20.            Notices .  All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:
 
(a)           If to Indemnitee, to the address set forth below Indemnitee’s signature hereto.
 
(b)           If to the Company, to:

                Studio One Media, Inc.
7650 East Evans Road, Suite C
Scottsdale, Arizona 85260
Attn:  Chief Executive Officer

With a copy to:

Greenberg Traurig, LLP
2375 E. Camelback Road, Suite 700
Phoenix, Arizona 85016
Attn:  Quinn P. Williams, Esq.

or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.
 
21.            Counterparts .  This Agreement may be executed in two or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement.  Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
 
 
 
 
9

 
 
 
22.            Headings .  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
 
23.            Governing Law .  The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware without application of the conflict of laws principles thereof.
 
24.            Consent to Jurisdiction .  The Company and Indemnitee each hereby consent to the jurisdiction of the courts of the State of Arizona for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Courts of the State of Arizona, which shall be the exclusive and only proper forum for adjudicating such a claim.
 
25.            Gender .  Use of the masculine pronoun shall be deemed to include usage of the feminine and gender-neutral pronoun where appropriate.
 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written.
 
 
  STUDIO ONE MEDIA, INC.  
       
 
 
By:
   
 
 
Name:
   
 
 
Title:
   
       
 
 
  INDEMNITEE:  
       
 
 
 
   
 
 
Name:
   
 
 
Address:
   
       
       
       
       
 
 
 
10

EXHIBIT 23.1
 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



We consent to the use, in the statement on Form 10-K of Studio One Media, Inc. of our report dated October 14, 2009 on our audit of the consolidated financial statements of Studio One Media, Inc. as of June 30, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended.




/s/ Mantyla McReynolds LLC
Mantyla McReynolds
Salt Lake City, UT 84101
October 14, 2009

 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

Exhibit 31.1
 
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Preston J. Shea, certify that:
 
1.
I have reviewed this annual report on Form 10-K of Studio One Media, Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
 
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
 
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  October 15 , 2009
 
/s/   Preston J. Shea 
Preston J. Shea, President

 
 



Exhibit 31.2
 
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Kenneth R. Pinckard, certify that:
 
1.
I have reviewed this annual report on Form 10-K for Studio One Media, Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
 
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
 
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
Date: October 15 , 2009
 
/s/   Kenneth R. Pinckard
Kenneth R. Pinckard
Chief Accounting Officer

 



Exhibit 32.1
 
CERTIFICATION PURSUANT TO 18 U.S.C.SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
 
 
In connection with the Annual Report of STUDIO ONE MEDIA, INC. (the "Company") on Form 10-K for the year ended June 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Preston J. Shea, President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
 
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
 
 
     
 
STUDIO ONE MEDIA, INC.
     
Date: October 15 , 2009
By:  
/s/  Preston J. Shea
 
Preston J. Shea
 
President
 

 
 
 
 
 
 

 


Exhibit 32.2
 
CERTIFICATION PURSUANT TO 18 U.S.C.SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
 
 
In connection with the Annual Report of STUDIO ONE MEDIA, INC. (the "Company") on Form 10-K for the year ended June 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kenneth R. Pinckard, Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
 
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
 
 

     
 
STUDIO ONE MEDIA, INC.
     
Date: October 15 , 2009
By:  
/s/  Kenneth R. Pinckard
 
Kenneth R. Pinckard
 
Chief Financial Officer and Chief Accounting Officer