Total Sports Media 10Q 2013 Q3 Quarterly report

U. S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended May 31, 2013

Commission File Number: 333-153502

STREAMTRACK, INC.

(Exact name of registrant as specified in its charter)

Wyoming		26-2589503
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

347 Chapala Street

Santa Barbara, California 93101

(Address of principal executive offices)

(805) 308-9151

(Registrant’s telephone number, including area code)

________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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

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

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x
(Do not check if a smaller reporting company)

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

At July 15, 2013, there were 17,087,768 shares of the Company’s common stock outstanding.

TABLE OF CONTENTS

		Page
PART I

Item 1.	Financial Statements		F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation		3
Item 3.	Controls and Procedures		13

PART II

Item 1.	Legal Proceedings		14
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		14
Item 3.	Defaults Upon Senior Securities		14
Item 4.	Mine Safety Disclosures		14
Item 5.	Other Information		14
Item 6.	Exhibits		15

StreamTrack, Inc.

Unaudited Consolidated Balance Sheets

	As of May 31, 2013			As of August 31, 2012
				(Restated)
Assets
Current assets
Cash	$	6,182		$	227,435
Accounts receivable, net of allowances of $87,000 and $72,000 at May 31, 2013 and August 31, 2012, respectively		440,021			518,785
Prepaid expenses		32,929			10,981
Total current assets		479,132			757,201
Property and equipment, net		483,161			732,740
Other assets
Note receivable		157,875			150,000
Customer list, net		-			150,166
Other assets		36,469			34,323
Total other assets		194,344			334,489
Total assets	$	1,156,637		$	1,824,430

Liabilities and stockholders’ deficit
Current liabilities
Accounts payable and accrued expenses	$	1,240,712		$	1,123,041
Line of credit		255,365			68,091
Derivative liabilities embedded within convertible notes payable		109,799			86,115
Capital lease payable, in default		102,105			118,443
Related party payable		426,078			136,978
Contingent royalty payable		345,423			35,822
Convertible note payable		196,500			-
Convertible notes payable, in default, net of debt discount of $0 and $11,299 as of May 31, 2013 and August 31, 2012		147,000			164,201
Total current liabilities		2,822,982			1,732,691
Long term liabilities
Deferred revenues		-			157,805
Contingent royalty payable, net of current portion		496,017			730,177
Convertible promissory notes, net of debt discount of $34,211and $6,370 as of May 31, 2013 and August 31, 2012		275,789			43,630
Related party convertible promissory notes, net of debt discount of $43,081 and $59,983 as of May 31, 2013 and August 31, 2012		381,919			365,017
Total long term liabilities		1,153,725			1,296,629
Total liabilities		3,976,707			3,029,320
Commitments and contingencies
Stockholders’ deficit:
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; 0 and 100 shares issued and outstanding as of May 31, 2013 and August 31, 2012		-			-
Common stock, $0.0001 par value: 1,000,000,000 shares authorized; 16,948,879 and 183,415 shares issued and outstanding as of May 31, 2013 and August 31, 2012		1,695			18
Additional paid-in capital		1,373,895			1,346,968
Deferred stock based compensation		(552,457	)		(766,292	)
Accumulated deficit		(3,643,203	)		(1,785,584	)
Total stockholders’ deficit		(2,820,070	)		(1,204,890	)
Total liabilities and stockholders’ deficit	$	1,156,637		$	1,824,430

The accompanying notes are an integral part of the consolidated financial statements.

F-1

StreamTrack, Inc.

Unaudited Consolidated Statements of Operations

	Three Months Ended May 31, 2013			Three Months Ended May 31, 2012			Nine Months Ended May 31, 2013			Period From Inception, November 30, 2011, Through May 31, 2012
Revenue:
Advertising	$	348,904		$	473,456		$	1,017,424		$	1,026,123
Services		9,100			35,701			206,794			85,692
Total revenue		358,004			509,157			1,224,218			1,111,815
Costs of sales:
Depreciation and amortization		91,130			79,365			282,224			154,377
Colocation services		47,850			75,624			164,458			159,907
Broadcaster commissions		61,327			46,141			159,559			100,968
Other costs		191,285			293,790			669,411			617,039
Total costs of sales		391,592			494,920			1,275,652			1,032,291
Gross (loss) profit		(33,588	)		14,237			(51,434	)		79,524
Operating expenses:
Product development		151,193			36,587			389,707			71,866
Officer compensation		120,000			45,161			347,379			95,348
Sales and marketing		43,309			44,806			247,937			80,747
Other expenses		212,255			311,395			625,787			490,525
Total operating expenses		526,757			437,949			1,610,810			738,486
Operating loss from continuing operations before other income (expenses) and provision for income taxes		(560,345	)		(423,712	)		(1,662,244	)		(658,962	)
Other income (expenses)
Interest income		2,625			-			7,875			-
Interest expense		(94,637	)		(23,531	)		(135,837	)		(43,651	)
Interest expense – accretion		(56,303	)		(35,198	)		(373,724	)		77,482	)
Gain on disposal of assets		71,847			-			71,847			-
Change in fair value of derivatives		663,372			-			285,391			-
Total other income (expenses)		586,904			(58,729	)		(144,448	)		(121,133	)
Income (loss) from continuing operations before provision for income taxes		26,559			(482,441	)		(1,806,692	)		(780,095	)
Income tax benefit (expense)		-			-			-			-
Net income (loss) from continuing operations		26,559			(482,441	)		(1,806,692	)		(780,095	)
Loss from discontinued operations		-			(41,464	)		-			(111,106	)
Net income (loss)		26,559			(523,905	)		(1,806,692	)		(891,201	)
Dividend		-			(1,600,063	)		(50,927	)		(1,600,063	)
Net income (loss) attributable to common stockholders	$	26,559		$	(2,123,968	)	$	(1,857,619	)	$	(2,491,264	)
Basic and diluted net income (loss) per share attributable to common stockholders	$	0.01		$	(18.28	)	$	(0.24	)	$	(26.51	)
Weighted-average number of shares used in computing basic and diluted per share amounts		5,277,530			116,199			7,848,130			93,961

The accompanying notes are an integral part of the consolidated financial statements.

F-2

StreamTrack, Inc.

Unaudited Consolidated Statements of Cash Flows

	For the Nine Months Ended May 31, 2013			Period From Inception, November 30, 2011, Through May 31, 2012
Cash flows from operating activities
Net loss	$	(1,806,692	)	$	(891,201	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		217,165			10,300
Bad debt expense		18,057			12,000
Depreciation and amortization		289,329			148,136
Re-measurement of derivative liabilities		(285,391	)		-
Accretion		373,724			81,127
Finance fees		41,865			-
Gain on disposal of assets		(71,847	)		-
Changes in assets and liabilities:
Accounts receivable		53,880			(36,121	)
Prepaid expenses		(21,948	)		20,243
Other assets		(2,146	)		(8,780	)
Accounts payable and accrued expenses		352,922			332,651
Deferred revenue		(157,805	)		-
Net cash used in operating activities		(998,887	)		(331,645	)
Cash flows from financing activities
Proceeds from issuance of convertible promissory notes		360,000			346,969
Proceeds from line of credit		213,500			-
Payments on capital lease		(9,000	)		(28,606	)
Interest on note receivable		(7,875	)		-
Net advances from related parties		289,100			3,993
Net (payments) advances to Factor		(68,091	)		146,800
Net cash provided by financing activities		777,634			469,156

Cash Flows used in discontinued operations
Cash Flows from operations activities	-	(135,167	)
Cash Flows from investing activities	-	(68,325	)
Cash Flows from financing activities	-	142,025
Net cash used in discontinued operations	-	(61,467	)

Net (decrease) increase in cash and cash equivalents		(221,253	)		76,044
Cash and cash equivalents at beginning of year		227,435			-
Cash and cash equivalents at end of year	$	6,182		$	76,044

Supplemental disclosures of noncash financing activities
Deemed dividend	$	50,927		$	-
Issuance of common stock for conversion of debts	$	72,000		$	84,500
Computer software contributed by shareholder	$	-		$	83,020
Supplemental disclosures of cash flow information
Cash paid during the period for income taxes	$	-		$	-
Cash paid during the period for interest	$	35,940		$	36,570

The accompanying notes are an integral part of the consolidated financial statements.

F-3

StreamTrack, Inc.

Notes to Consolidated Financial Statements

1. Nature of Business

StreamTrack, Inc. (“StreamTrack,” or the “Company”) is a digital media and technology services company. The Company provides audio and video streaming and advertising services through the RadioLoyaltyTM Platform (the “Platform”) to a global group of internet and terrestrial radio stations and other broadcast content providers. The Platform consists of a web player that manages audio and video content streaming, manages audio, display and video ad serving within the web player and is also capable of replacing original broadcast audio ads with audio, display and video ads within the player in a live or on demand environment. StreamTrack is also continuing development of WatchThis™, a patent-pending merchandising in-stream technology to provide IP television streaming services, advertising and e-commerce services. The Company’s digital media and technology services are offered to a worldwide audience and customer base.

On August 31, 2012, the Company’s subsidiary, StreamTrack Media, Inc., a California corporation, acquired certain assets and liabilities of Radioloyalty, Inc., (“RL”) a California corporation (the “Merger”). StreamTrack Media, Inc. was the surviving corporation. As a result of the Merger, StreamTrack Media, Inc. acquired the business of RL, and will continue the existing business operations of RL as a wholly-owned subsidiary, in a transaction treated as a reverse acquisition. Prior to a stock purchase agreement executed by RL’s founder, Michael Hill, on May 16, 2012, the Company had minimal operations. Majority-voting control was transferred to Michael Hill on that date, subject to the successful acquisition of RL by the Company, which occurred on August 31, 2012. The transaction required a recapitalization of the Company. Since RL, through Michael Hill, acquired a controlling voting interest, it was deemed the accounting acquirer, while the Company was deemed the legal acquirer. The historical financial statements of the Company are those of RL, and of the consolidated entities from the date of Merger and subsequent.

Basis of Presentation

The accompanying interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Form 10-K/A for the period ended August 31, 2012, filed on June 4, 2013. In the opinion of management, all adjustments necessary in order for the financial statements to be not misleading have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, StreamTrack Media, Inc., a California corporation. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position for the periods presented.

Going Concern

The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. For the nine months ended May 31, 2013, the Company recorded a net loss of $1,806,692. The net loss, along with the May 31, 2013 working capital deficit of $2,343,850, indicate that the Company may have difficulty continuing as a going concern.

Management is confident but cannot guarantee that additional capital can be raised in order to repay debts and continue operations. For the twelve months ending May 31, 2014, the Company is obligated to make payments on certain operating leases, convertible debts, and a capital lease, among others of $173,110, $343,500, and $102,105, respectively. Normal operating costs are also significant and include consulting fees, professional fees, product development costs and marketing and sales costs associated with management’s business plan. Since inception and through the date of these financial statements, the Company has successfully raised a significant amount of capital. On April 11, 2013, the Company closed a non-dilutive line of credit financing for $250,000 with an institutional fund. Subsequently, the institutional fund has increased the Company’s line of credit to $330,000. Additionally, the Company anticipates launching several new product offerings and initiating certain new significant partnerships during the fiscal year ending August 31, 2013. The Company expects those products and partnerships to be profitable but notes that it will require an unknown amount of capital for product development and commercial deployment. The Company will attempt to have its potential partners pay for the majority of these costs but management can not be certain that arrangement will occur. Management may potentially make a business decision to move forward, delay, or cancel certain partnerships because of the Company’s overall capital needs. Nonetheless, the ability of the Company to continue as a going concern is dependent on the successful execution of the business plan in order to reach break-even and become profitable. If the Company is unable to become profitable, the Company could be forced to modify its business operations or possibly cease operations entirely. Management cannot provide any assurances that the Company will be successful in its operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

F-4

2. Composition of Certain Financial Statement Captions

Accounts Receivable

Accounts receivable, net consisted of the following:

	May 31, 2013				August 31, 2012

Accounts receivable		$	527,021			$	590,785
Allowance for doubtful accounts			(87,000	)			(72,000	)
Accounts receivable, net		$	440,021			$	518,785

Allowance for Doubtful Accounts	Balance at Beginning of Period			Charged to Operations			Write-offs, Net of Recoveries			Balance at End of Period

For nine months ended May 31, 2013		$	72,000		$	18,057		$	3,057		$	87,000
Period from inception, November 30, 2011, through May 31, 2012			-			12,000			-			-

Property and Equipment

Property and equipment consisted of the following:

	May 31, 2013			August 31, 2012

Software	$	771,666		$	771,666
Servers, computers, and other related equipment		198,924			198,924
Leasehold improvements		1,675			1,675
		972,265			972,265
Less accumulated depreciation and amortization		(489,104	)		(239,525	)
Property and equipment, net	$	483,161		$	732,740

Depreciation expense totaled $83,193 and $239,579 for the three and nine months ended May 31, 2013, respectively. Depreciation expense for the three months ended May 31, 2012 and for the period from inception, November 30, 2011, through May 31, 2012 totaled $81,182 and $156,587, respectively. There have been no write-offs or impairments of property and equipment since the Company’s inception on November 30, 2011.

Note receivable

Note receivable consisted of a $150,000 convertible promissory note bearing 7% annual compounded interest due from a digital content provider on or before August 28, 2016. The balance owed can be converted into either preferred stock or common stock of the digital content provider, at the Company’s election, subject to certain conditions and contingencies. The Company agreed to work with the digital content provider to make modifications to its UniversalPlayer TM technology platform to better suit the digital content provider’s specific needs. The Company received a $25,000 deposit with the remaining balance of the contract in the form of the note receivable. The Company expects to receive the remaining fees when the modifications are completed, the technology is fully integrated and operational, and the digital content provider is generating revenue within its advertising segment.

F-5

Customer List

Customer list, net consisted of the following:

	May 31, 2013		August 31, 2012

Original cost	$	-	$	159,000
Less accumulated amortization		-		(8,834	)
Customer list, net	$	-	$	150,166

Amortization expense totaled $8,834 and $39,750 three and nine months ended May 31, 2013, respectively. Amortization expense for the three months ended May 31, 2012 and the period from inception, November 30, 2011, through May 31, 2012 totaled $0, respectively. The Customer List was acquired on July 1, 2012. On May 1, 2013, the Company entered into a settlement agreement to dispose of the customer list.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following:

	May 31, 2013		August 31, 2012

Accounts payable	$	938,917	$	1,030,716
Accrued interest		119,132		17,673
Accrued broadcaster commissions		73,474		28,870
Accrued consulting fees		51,205		41,500
Accrued payroll		53,814		-
Credit card		4,170		4,282
Accounts payable and accrued expenses	$	1,240,712	$	1,123,041

Deferred Revenues

Deferred revenues consisted of the following:

	May 31, 2013			August 31, 2012

Balance due upon completion of special project, secured by a convertible promissory note		$	-		$	150,000
Customer deposits			-			7,805
Deferred revenues		$	-		$	157,805

F-6

Stock Based Compensation

Stock-based compensation expenses related to all employee and non-employee stock-based awards for the three and nine months ended May 31, 2013 are classified within the statements of operations as follows.

	Three Months Ended May 31, 2013		Nine Months Ended May 31, 2013

Product development	$	48,583	$	145,750
Marketing and sales		2,208		25,790
Other		19,125		45,625
Total stock-based compensation	$	69,917	$	217,165

3. Fair Value

The Company records cash equivalents, debt discounts on convertible promissory notes and derivatives at fair value.

Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. Fair value measurements are required to be disclosed by level within the following fair value hierarchy:

Level 1– Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 – Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3 – Inputs lack observable market data to corroborate management’s estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

When determining fair value, whenever possible the Company uses observable market data, and relies on unobservable inputs only when observable market data is not available.

F-7

The fair value of these financial assets and liabilities was determined using the following inputs at May 31, 2013:

	Fair Value Measurement Using
	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total

Fair values as of May 31, 2013
Assets:
None	$	-	$	-	$	-	$	-

Total assets measured at fair value	$	-	$	-	$	-	$	-

Liabilities:
None	$	-	$	-	$	-	$	-

Total liabilities measured at fair value	$	-	$	-	$	-	$	-

Fair values as of May 31, 2013
Liabilities:
Convertible promissory notes	$	-	$	1,001,208	$	-	$	1,001,208
Derivative liabilities		-		109,799		-		109,799

Total liabilities measured at fair value	$	-	$	1,111,007	$	-	$	1,111,007

The Company’s convertible promissory notes and derivative liabilities were classified as Level 2 within the fair value hierarchy because they were valued using significant other observable inputs.

4. Acquisitions

On December 1, 2011, Michael Hill and Aaron Gravitz (the “Executives”), together with a business entity they organized, RL, executed an asset purchase agreement with their former employer, Lenco Mobile, Inc. (“Lenco”), to acquire certain assets and assume certain liabilities from Lenco. The primary asset acquired from Lenco was the RadioLoyalty TM Platform (the “Platform”). The consideration given to Lenco consisted only of a 3.5% royalty on revenues earned through the Platform for the period from November 1, 2011 through November 1, 2014 (the “Royalty”). The Royalty is limited to a maximum amount of $2,500,000. The Royalty was assumed by RL on December 1, 2011 and subsequently assumed by the Company’s subsidiary, StreamTrack Media, Inc. (“StreamTrack Media”), in connection with the August 31, 2012 asset purchase agreement between the Company, StreamTrack Media and RL. The value of the classes of assets and liabilities assumed in the December 1, 2011 transaction were as follows as of the acquisition date.

F-8

Accounts receivable	$	500,476
Prepaid expenses		35,100
Software		684,294
Security deposits		15,213
Accounts payable		(484,685	)
Related party payable – Michael Hill		(48,383	)
Related party payable – Aaron Gravitz		(42,553	)
Purchase price	$	659,462

The software included the source code and front-end software for the Platform. The Company determined it would amortize the software over a period of three years.

The purchase price was classified on the Company’s balance sheets as a contingent royalty payable.

Acquisition of WatchThis TM from MHCG, LLC

On March 22, 2012, RL acquired the WatchThis TM Assets (“WatchThis”) from MHCG, LLC, an entity Michael Hill retained a 50% ownership in at the time. Mr. Hill was also the Chief Executive Officer of RL on that date. The Company is developing Watchthis as a web or television-based player that manages streaming audio and video content, social media engagement, display and video ad serving within the player and is also capable of tagging merchandise within the content and providing the viewer with the opportunity to select and purchase the merchandise. Management envisions the technology operating in a live or on demand environment. The consideration given to MHCG, LLC consisted of (i) an RL Note for $125,000 (ii) 152,015 shares of the Company’s stock, and (iii) a three year warrant to purchase 62,500 shares of the Company’s common stock at $0.41 per share. The value of the Watchthis assets was recorded at historical cost as a result of both RL and MHCG, LLC being under common control by Michael Hill, respectively. The historical costs incurred to develop WatchThis as of March 22, 2012 are classified as follows:

Domain cost	$	58,500
Patent filing fees		12,600
Web and software design		10,000
Web hosting and related costs		6,272
Purchase price	$	87,372

The purchase price was classified on the Company’s balance sheets as software. The Company determined it would amortize the software over a period of three years.

Acquisition of Customer List from Rightmail, LLC and Rescission

On July 1, 2012, RL acquired a customer list (the “Customer List”) from Rightmail, LLC (“Rigthmail”), an entity Michael Freides retained a 100% ownership in at the time. The Customer List included a variety of web advertisers and web publishers Mr. Freides had previously worked with. The consideration given to Rightmail consisted of 395,238 shares of the Company’s common stock. The purchase price of $159,000 was classified on the Company’s balance sheets as an intangible asset – customer list. The Company determined it would amortize the customer list over a period of three years.

On May 1, 2013, RL entered into a settlement and rescission agreement with Rightmail, LLC, Michael Freides and Jennifer Freides. The settlement and rescission agreement provided for the following: (i) cancellation of all shares of the Company’s common stock previously issued to Michael Freides and Jennifer Freides (the “Rightmail Officers”) (ii) issuance of 250,000 shares of the Company’s common stock to Michael Freides (iii) cancellation of any and all other amounts owed between the Company and Rightmail and (iv) the assignment of certain accounts payables balances, already included in the Company’s accounts payable, that total $139,634, to the Company.

Assignment of certain accounts payables balances to Rightmail	$	7,583
Writeoff of customer list accumulated amortization		44,170
Writeoff of accrued consulting fees owed to Rightmail Officers		103,256
Value of settlement shares issued to Rightmail owner, Michael Freides		(72,500	)
Writeoff of amount due from Rightmail		(3,835	)
Assignment of certain accounts receivable balances to Rightmail		(6,827	)
Gain on disposal of assets	$	71,847

F-9

5. Commitments and Contingencies

Royalty on RadioLoyaltyTM Revenues

Lenco is owed a 3.5% royalty on all revenues generated by the Platform for the period from November 1, 2011 through November 1, 2014. No other compensation is due to Lenco. The Royalty was assumed by RL on December 1, 2011 and subsequently assumed by the Company’s subsidiary, StreamTrack Media, Inc. (“StreamTrack), in connection with the August 31, 2012 asset purchase agreement between the Company, StreamTrack and RL. As of December 1, 2011, RL estimated the total Royalty owed to Lenco during the term of the Royalty was $1,051,786. RL determined the present value of the payments estimated to be owed to Lenco during the term of the Royalty. A discount factor of 20.06% was used. This percentage represented the Company’s estimated effective cost of capital during the period from its inception through the date of these financial statements. The present value of the Lenco Contingent Royalty was estimated to be $659,462 as of December 1, 2011. During the period from August 31, 2012 through May 31, 2013, RL recorded accretion of the estimated Lenco Contingent Royalty of $75,441. This amount is classified within interest expense – accretion in the statement of operations. The present value of the Lenco Contingent Royalty as of May 31, 2013 was estimated to be $841,440.

As of May 31, 2013, the Company calculated that the Royalty actually owed to Lenco through May 31, 2013 was $25,366. However, Lenco owed the Company approximately $132,000 as of the date of these financial statements for hosting services provided to Lenco subsequent to December 1, 2011. No royalty payments have been made by the Company to Lenco as a result of this balance being owed to the Company. The asset purchase agreement dated December 1, 2011 between RL and Lenco does not contain any default provisions, penalties or any other immediate negative consequences to the Company in the event that the Company does not pay the Royalty. The Company and Lenco are currently in negotiations to satisfy the obligations each party has to the other.

Leases

The Company conducts its operations using leased office facilities in Santa Barbara, California.

The following is a schedule of future minimum lease payments under operating leases as of May 31, 2013:

For the Twelve Month Period Ending May 31,
2014	$	173,110
2015		-
2016		-
2017		-
2018		-
All future years		-
Total minimum lease payments	$	173,110

The leases consist of separate arrangements expiring through 2014. The Company has the right to renew the leases for an additional two years at increased rental rates. Rent expenses for the three and nine months ended May 31, 2013 totaled $45,639 and $137,821, respectively. Rent expense for the three months ended May 31, 2012 and the period from inception, November 30, 2011, through May 31, 2012 totaled $48,539 and $97,378, respectively. The Company recognizes rent expense on a straight-line basis over the lease term including expected renewal periods. The difference between rent expenses and rent payments is recorded as deferred rent in current and long-term liabilities. No deferred rent existed as of May 31, 2013 and August 31, 2012, respectively.

F-10

Indemnification Agreements

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. In addition, the Company plans to enter into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees.

While the outcome of these matters cannot be predicted with certainty, the Company does not believe that the outcome of any claims under indemnification arrangements will have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

Legal Proceedings

The Company is potentially subject to various legal proceedings and claims arising in the ordinary course of its business. There are no pending legal proceedings against the Company as of the date of these financial statements.

6. Income Taxes

The provision for income tax (expense) benefit consists of the following:

	For the Nine Months Ended May 31, 2013			Period From Inception, November 30, 2011, Through May 31, 2012
Current
Federal	$	-		$	-
State and local		-			-
Total current income tax (expense) benefit		-			-
Deferred
Federal	$	(614,275	)	$	(303,008	)
State and local		(271,004	)		(133,680	)
Valuation allowance		885,279			436,688
Total deferred income tax (expense) benefit		-			-

Total income tax (expense) benefit	$	-		$	-

F-11

The following table presents a reconciliation of the statutory federal rate and the Company’s effective tax rate for the periods presented.

	For the Nine Months Ended May 31, 2013			Period From Inception, November 30, 2011, Through May 31, 2012

U.S. federal taxes at statutory rate		34	%		34	%
State taxes, net of federal benefit		15			15
Permanent differences		-			-
Change in valuation allowance		(49	)		(49	)
Change in rate		-			-
Other		-			-
Effective tax rate		-	%		-	%

The major components of deferred tax assets and liabilities were as follows:

	May 31, 2013			August 31, 2012
Deferred tax assets:
Net operating loss carryforwards	$	4,300,000		$	1,600,000
Tax credit carryforwards		-			-
Allowances and other		-			-
Depreciation and amortization		-			-
Total deferred tax assets		4,300,000			1,600,000
Deferred tax liabilities:
Depreciation and amortization		-			-
Total deferred tax liabilities		-			-
Valuation allowance		(4,300,000	)		(1,600,000	)
Net deferred tax assets	$	-		$	-

As of May 31, 2013, the Company had federal net operating loss carryforwards of approximately $4,300,000, which includes stock-based compensation deductions of approximately $476,430. The federal net operating losses and tax credits expire in years beginning in 2028. As of May 31, 2013, the Company had state net operating loss carryforwards of approximately $4,300,000, which expire in years beginning in 2028. Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. The Company has previously experienced “ownership changes” under section 382 of the Code and comparable state tax laws. The Company estimates that none of the federal and state pre-change net operating losses will be limited under Section 382 of the Code.

F-12

As of May 31, 2013, the Company maintained a full valuation allowance on its net deferred tax assets. The valuation allowance was determined in accordance with the provisions of ASC 740, Accounting for Income Taxes, which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction by jurisdiction basis. The Company’s history of cumulative losses, along with expected future U.S. losses required that a full valuation allowance be recorded against all net deferred tax assets. The Company intends to maintain a full valuation allowance on net deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance.

The Company income tax returns are to be filed in the United States and California. The 2011 tax year remains subject to examination for U.S. federal and state purposes. All net operating losses and tax credits generated to date are subject to adjustment for U.S. federal and state purposes. The Company is not currently under examination in federal or state jurisdictions.

7. Capital Lease

The Company periodically leases computer servers and related hardware under capital lease agreements. The lease terms are typically from three to five years, depending on the type of equipment. The leased equipment typically has a bargain purchase price, and qualifies for treatment as a capital lease. For book purposes, the assets are amortized over their estimated useful lives.

Assets under capital lease, included within property and equipment on the balance sheet, as of May 31, 2013 and August 31, 2012 were as follows:

	May 31, 2013				August 31, 2012

Servers		$	147,049			$	147,049
Less: accumulated depreciation			(85,757	)			(43,062	)
Net assets under capital lease		$	61,292			$	103,987

On March 22, 2013, the Company reached a settlement and release agreement with IBM Credit, LLC, (“IBM”) the lessor associated with the Company’s computer servers and software classified under capital lease. The balance owed to IBM as of March 22, 2013 was agreed to be $108,704. Payments of $9,000 per month are scheduled in order to satisfy this balance. The final payment due March 1, 2014 is for $9,704. The following is a schedule of future payments required under the lease together with their present values:

	Payments
For the Twelve Month Period Ending May 31,
2014	$	102,105
2015		-
Total lease payments		102,105
Less: amount representing interest		-
Present value of minimum lease payments	$	102,105

F-13

8. Related Party Transactions

The Company has only been operating since November 30, 2011. As a result, the Company has an extremely limited credit history. The Company’s Chief Executive Officer, and the Chief Executive Officer of StreamTrack Media, Inc. (the “Executives”) use their personal credit cards to fund operations on a frequent basis. If the Company did not have access to these credit cards, the Company would have to rely exclusively on external sources of capital. The Company’s external sources of capital are not always readily available. Once the Company’s track record is more established and results of operations are profitable, then external sources of capital should become more readily available. As a result, in time-constrained circumstances, the use of personal credit cards is necessary until such time as the Company is able to build up its own credit-worthiness and access more readily available and significant credit.

The related party payable as of May 31, 2013 consists of unpaid compensation and non-interest bearing cash advances and charges on personal credit lines made on behalf of the Company by the Executives. The balances owed to the Executives are not secured and are due on demand. Interest will be charged on these balances. However, no formal agreement has been executed to quantify the interest.

9. Factor Line of Credit

On January 26, 2012 the Company executed a contract with an unrelated party (the “Factor”) to provide financing to the Company in the form of a factoring line of credit. The Company utilizes the factoring line of credit to receive cash advances on its accounts receivable balances prior to its customers paying the balances owed to the Company. The Factor charges a variety of fees totaling approximately 3% of the funds advanced by the Factor. Transactions involving the Factor for the nine months ended May 31, 2013 are detailed in the table below.

Balance, August 31, 2012	$	68,091
Advances from Factor		433,095
Fees charged by Factor		42,044
Total		543,230
Payments received from the Company or its customers		(543,230	)
Balance, May 31, 2013	$	-

On April 16, 2013, the Company executed a payoff agreement with the Factor and made payment to the Factor in full satisfaction of all amounts owed to the Factor. By executing the payoff agreement, the Company also terminated its agreement with the Factor.

10. Debt Instruments – In Default

The Company has relied on financing from a lender since 2010 (the “Creditor”). Each note issued by the Creditor (the “Creditor Notes”) bears interest per annum at a rate of 8% and is generally payable within six months from the issuance date. The table below details the transactions with the Creditor during the nine months ended May 31, 2013. The Company is currently in default on these Creditor’s Notes.

Creditor’s Notes, in default, principal balance as of August 31, 2012	$	175,500
Default penalties		59,980
Conversion of a portion of December 28, 2011 Creditor’s Note to common stock		(28,500	)
Creditor’s Notes, in default, principal balance as of May 31, 2013	$	206,980

F-14

11. Debt Instruments

On April 11, 2013, the Company executed a non-dilutive asset-based debt financing (the “Lender Financing”) with a third party (the “Lender”). The Lender Financing consists of a $250,000 line of credit secured by all of the Company’s assets. The Company’s management also executed limited recourse guarantees with the Lender. Interest is payable monthly based on a floating interest rate determined based on a formula outlined in detail within the financing agreement. The Company anticipates the effective monthly interest rate charged on the outstanding balance owed to the third party will be between 2.2% and 1.1%. The Lender Financing is due and payable in full on September 30, 2013.

The table below details the transactions with the Creditor involving debts that are not in default, during the nine months ended May 31, 2013.

Creditor’s Notes, principal balance as of August 31, 2012	$	-
Issuance of December 28, 2012 Creditor Note		100,000
Conversion of Creditor’s Note to common stock		-
Creditor’s Notes, principal balance as of May 31, 2013	$	100,000

As of May 31, 2013, the conversion price of a total of $306,980 Creditor Notes, including certain Creditor Notes that are in default as of the date of these financial statements, and accrued interest of approximately $29,907 is based upon a 39% discount to lowest five days closing prices of the Company’s common stock over the ten-day period prior to conversion. As a result, the lower the stock price at the time the Creditor converts the Creditor Notes, the more common shares the Creditor will receive.

To the extent the Creditor converts the Creditor Notes and then sells its common stock, the market price of the common stock may decrease due to the additional shares in the market. This could allow the Creditor to receive greater amounts of common stock upon conversion. The sale of each share of common stock could further depress the stock price.

Due to the floating conversion price of the notes, the Company does not know the exact number of shares that the Creditor would be issued upon conversion. The table below details the number of shares of the Company’s common stock the Creditor would be issued, if the Creditor elected to convert the Creditor Notes to common shares on each reporting date.

The shares issuable upon conversion of the Creditor Notes may result in substantial dilution to the interests of the Company’s other shareholders. In this regard, even though the investor may not hold shares amounting to more than 9.99% of the outstanding shares at one time, this restriction does not prevent the investor from selling some of its holdings and then receiving additional shares. In this way, the investor could sell more than the 9.99% limit while never holding more than the limit.

The table below details the number of shares issuable to the Creditor, without regard to the 9.99% limitation, in the event the share price decreases 25%, 50% or 75% from the stock price as of each date set forth below.

	May 31, 2013			February 28, 2013			November 30, 2012			August 31, 2012

Stock price	$	0.2000		$	1.5663		$	1.0843		$	3.1325
Effective conversion price	$	0.2089		$	0.4263		$	0.6908		$	1.1759
Convertible promissory notes balance outstanding	$	336,887		$	247,000		$	147,000		$	175,500
Actual outstanding shares of common stock		16,948,879			360,973			210,973			183,415
Shares issuable upon conversion, at actual price		1,612,480			579,448			212,789			149,248
% of outstanding common stock, at actual price		10	%		161	%		101	%		81	%
Shares issuable upon conversion, assuming 25% price decrease		2,149,973			772,597			283,719			198,997
% of outstanding common stock, assuming 25% price decrease		13	%		214	%		134	%		108	%
Shares issuable upon conversion, assuming 50% price decrease		3,224,960			1,158,895			425,578			298,496
% of outstanding common stock, assuming 50% price decrease		19	%		321	%		202	%		163	%
Shares issuable upon conversion, assuming 75% price decrease		6,449,919			2,317,791			851,156			596,991
% of outstanding common stock, assuming 75% price decrease		38	%		642	%		403	%		325	%

F-15

The Company issued a non-interest bearing convertible promissory note due on demand (the “Vendor Note”) to settle all outstanding debts with a former vendor (the “Vendor”). The table below details the transactions with the Vendor during the nine months ended May 31, 2013.

Vendor Notes, principal balance as of August 31, 2012	$	-
Issuance of November 1, 2012 Vendor Note		140,000
Conversion of Vendor Note to common stock		(43,500	)
Vendor Note, principal balance, May 31, 2013	$	96,500

As of May 31, 2013, the conversion price of the $96,500 Vendor Note is based upon a 50% discount to lowest five days bid prices of the Company’s common stock over the five-day period prior to conversion. As a result, the lower the stock price at the time the Vendor converts the Vendor Note, the more common shares the Vendor will receive.

To the extent the Vendor converts the Vendor Note and then sells its common stock, the common stock may decrease due to the additional shares in the market. This could allow the Vendor to receive greater amounts of common stock upon conversion. The sale of each share of common stock further depresses the stock price.

Due to the floating conversion price of the notes, the Company does not know the exact number of shares that the Vendor would be issued upon conversion. The table below details the number of shares of the Company’s common stock the Vendor would be issued, if the Vendor elected to convert the Vendor Note to common shares on each reporting date.

The shares issuable upon conversion of the Vendor Note may result in substantial dilution to the interests of the Company’s other shareholders.

The table below details the number of shares issuable to the Vendor in the event the share price decreases 25%, 50% or 75% from the stock price as of each date set forth below.

	May 31, 2013			February 28, 2013			November 30, 2012			August 31, 2012

Stock price	$	0.2000		$	1.5663		$	1.0843		$	-
Effective conversion price	$	0.1000		$	0.4263		$	0.3615		$	-
Convertible promissory notes balance outstanding	$	96,500		$	140,000		$	140,000		$	-
Actual outstanding shares of common stock		16,948,879			360,973			210,973			-
Shares issuable upon conversion, at actual price		965,000			331,990			387,329			-
% of outstanding common stock, at actual price		6	%		92	%		184	%		-	%
Shares issuable upon conversion, assuming 25% price decrease		1,286,667			442,653			516,438			-
% of outstanding common stock, assuming 25% price decrease		8	%		123	%		245	%		-	%
Shares issuable upon conversion, assuming 50% price decrease		1,930,000			663,979			774,658			-
% of outstanding common stock, assuming 50% price decrease		11	%		184	%		367	%		-	%
Shares issuable upon conversion, assuming 75% price decrease		3,860,000			1,327,958			1,549,315			-
% of outstanding common stock, assuming 75% price decrease		23	%		368	%		734	%		-	%

F-16

In connection with the acquisition of RL on August 31, 2012, the Company assumed six convertible promissory notes previously issued by RL (the “RL Notes”). The RL Notes bear interest at 4% per annum and are due in full, including principal and interest, three years from the issuance date. The RL Notes also include a conversion option whereby the holders of the RL Notes may elect at any time to convert any portion or the entire balance of the RL Notes they hold into the Company’s common stock at a conversion price of $0.41. The Company issued an additional convertible promissory note in March 2013 under similar terms to the original RL Notes. The table below details the transactions associated with the RL Notes during the nine months ended May 31, 2013.

RL Notes, principal balance as of August 31, 2012	$	475,000
Issuance of convertible promissory notes		260,000
Conversion of convertible promissory note to common stock		-
RL Notes, principal balance, May 31, 2013	$	735,000

The conversion feature associated with the convertible promissory notes provide for a rate of conversion that is below market value. This conversion feature is accounted for as a beneficial conversion feature. A beneficial conversion feature was recorded and classified as a debt discount on the balance sheet at the time of issuance of each convertible promissory note with a corresponding credit to additional paid-in capital. The value is amortized over the three-year term of the convertible promissory note. The amortized value for each period is recorded as an offset against the debt discount on the balance sheet, classified as interest expense - accretion in the statement of operations and as accretion of debt discount within the statement of cash flows.

The valuation of the stock warrants and the beneficial conversion feature associated with the issuance of convertible promissory notes utilized valuation inputs and related figures provided by a professional and independent valuation firm.

As of May 31, 2013, the amounts of long-term and short-term convertible promissory notes payable are stated at contract amounts that approximate fair value based on current interest rates available in the United States of America.

Future maturities of the principal balances of the Company’s convertible promissory notes, in the aggregate, are as follows for the twelve-month period ending May 31,

2014	$	403,480
2015		150,000
2016		585,000
Thereafter		-
	$	1,138,480

12. Derivatives

Upon the six-month anniversary (180 days) of all financings with the Creditor, the shares underlying the Creditor’s Notes are issuable without restriction and can be sold to the public through the OTC Bulletin Board. As a result of the conversion price not being fixed, the number of shares of the Company’s common stock that are issuable upon the conversion of the Creditor’s Notes is indeterminable until such time as the Creditor elects to convert to common stock.

F-17

The six-month anniversary of the August 8, 2012 Creditor’s Note was February 4, 2013. The Company measured the derivative liability using the input attributes disclosed below and recorded a derivative liability of $55,065 as of February 4, 2013. On May 31, 2013 and February 28, 2013, the Company re-measured the derivative liability using the input attributes below and determined the value to be $3,610 and $113,671, respectively. Other income of $110,961 and $51,455 was classified as “change in fair value of derivatives” and was recorded for the three and nine months ended May 31, 2013 and included in the statement of operations in order to adjust the derivative liability to the re-measured value.

	May 31, 2013			February 28, 2013			February 4, 2013

Expected life (in years)		0.10			0.17			0.24
Balance of note outstanding	$	63,377		$	42,500		$	42,500
Stock price	$	0.2000		$	1.5663		$	0.8434
Effective conversion price	$	0.2089		$	0.4263		$	0.3675
Shares issuable upon conversion		303,349			99,703			115,658
Risk-free interest rate		0.40	%		0.11	%		0.07	%
Expected volatility		61.83	%		61.83	%		61.83	%
Expected dividend yield		-			-			-

The Vendor Note was executed on November 1, 2012 and was immediately convertible into the Company’s common stock at a 50% discount to the lowest bid price as quoted on the OTC Bulletin Board for the five days prior to the conversion date. As a result of the fact that the number of shares the Vendor Note was convertible into was indeterminable, the Company determined a derivative liability was embedded within the Vendor Note. The Company measured the derivative liability using the input attributes disclosed below and recorded a derivative liability of $190,927 as of November 1, 2012. As a result of the valuation of the derivative liability being in excess of the value of the proceeds of the Vendor Note by $50,927, a deemed dividend of $50,927 was recorded by the Company on November 1, 2012. The debt discount associated with the Vendor Note was immediately expensed to interest expense – accretion as a result of the Vendor Note being immediately convertible and due on demand. On May 31, 2013, February 28, 2013 and November 30, 2012, the Company re-measured the derivative liability using the input attributes below and determined the value to be $96,500, $380,028 and $280,000, on each date, respectively. Other income of $283,528 and $94,427 was classified as “change in fair value of derivatives” and was recorded for the three and nine months ended May 31, 2013, respectively, and included in the statement of operations in order to adjust the derivative liability to the re-measured value.

	May 31, 2013			February 28, 2013			November 30, 2012			November 1, 2012

Expected life (in years)		0.10			0.10			0.10			0.10
Balance of note outstanding	$	96,500		$	140,000		$	140,000		$	140,000
Stock price	$	0.20		$	1.5663		$	1.0843		$	1.5663
Effective conversion price	$	0.10		$	0.4217		$	0.3615		$	0.6627
Shares issuable upon conversion		965,000			331,990			387,329			211,273
Risk-free interest rate		0.40	%		0.17	%		0.18	%		0.18
Expected volatility		61.83	%		61.83	%		61.83	%		61.83
Expected dividend yield		-			-			-

F-18

The six-month anniversary of the May 24, 2012 Creditor’s Note was November 20, 2012. The Company measured the derivative liability using the input attributes disclosed below and recorded a derivative liability of $63,083 as of November 20, 2012. On May 31, 2013, February 28, 2013 and November 30, 2012, the Company re-measured the derivative liability using the input attributes below and determined the value to be $6,768, $209,938 and $41,964 respectively. Other income of $203,171 and $56,315 was classified as “change in fair value of derivatives” and was recorded for the three and nine months ended May 31, 2013 and included in the statement of operations in order to adjust the derivative liability to the re-measured value.

	May 31, 2013			February 28, 2013			November 30, 2012			November 20, 2012

Expected life (in years)		0.10			0.10			0.25			0.28
Balance of note outstanding	$	118,815		$	78,500		$	78,500		$	78,500
Stock price	$	0.2000		$	1.5663		$	1.0800		$	1.3200
Effective conversion price	$	0.2089		$	0.4263		$	0.7200		$	0.7200
Shares issuable upon conversion		568,698			184,156			116,566			105,138
Risk-free interest rate		0.40	%		0.11	%		0.08	%		0.08	%
Expected volatility		61.83	%		61.83	%		61.83	%		61.83	%
Expected dividend yield		-			-			-

The Company also re-measured the derivative liability associated with the December 28, 2011 Creditor’s Note using the input attributes below and determined the value to be $2,922, $69,534 and $12,063 as of May 31, 2013, February 28, 2013 and November 30, 2012, respectively. Other expense income of $66,612 and $83,193 was classified as “change in fair value of derivatives” and recorded for the three and nine months ended May 31, 2013 and included in the statement of operations in order to adjust the derivative liability to the re-measured value.

	May 31, 2013			February 28, 2013			November 30, 2012

Expected life (in years)		0.1			0.1			0.1
Balance of note outstanding	$	51,292		$	26,000		$	26,000
Stock price	$	0.2000		$	1.5663		$	1.0800
Effective conversion price	$	0.2089		$	0.4263		$	0.7200
Shares issuable upon conversion		245,505			60,994			36,111
Risk-free interest rate		0.40	%		0.11	%		0.08	%
Expected volatility		61.83	%		61.83	%		61.83	%
Expected dividend yield		-			-			-

13. Stockholders’ Equity

Series A Preferred Stock

Each share of Series A Preferred Stock has voting rights equal to the voting equivalent of the common stock into which it is convertible at the time of the vote. All outstanding shares of Series A Preferred Stock will automatically convert into common stock on the first business day after the closing date of the acquisition by the Company of 100% of the total issued and outstanding capital stock of RL. The holders of the Series A Preferred Stock are not entitled to dividends. The Series A Preferred Stock has no preferential rights to the Company’s common stock and will share in any liquidation proceeds with the common stock on an as converted basis.

Common Stock

Each share of common stock has the right to one vote per share. The holders of common stock are also entitled to receive dividends as and when declared by the board of directors of the Company, whenever funds are legally available. These rights are subordinate to the dividend rights of holders of all classes of stock outstanding at the time.

F-19

On January 2, 2013, the Wyoming Secretary of State accepted the filing by the Company of an Amended and Restated Articles of Incorporation (“Amended and Restated Articles”) that was filed with the Wyoming Secretary of State on December 27, 2012 in order to (1) effect a one-for-twelve hundred reverse stock split of all of the issued and outstanding common stock for shareholders of record on the recording date of the Amended and Restated Articles, (2) empower the Company’s board of directors to fix, by resolution, the rights, preferences and privileges of, and qualifications, restrictions and limitations applicable to, any series of the Company’s preferred stock, and (3) change the Company’s name to StreamTrack, Inc. In connection with the reverse stock split, the Company also filed submitted a notification and related documentation to the Financial Industry Regulatory Authority (“FINRA”).

On March 6, 2013, FINRA approved the reverse stock split and name change to StreamTrack, Inc. On that day, 1 new share of the Company’s common stock was exchanged for the cancellation of each 1,200 shares of the Company’s previously outstanding common stock. All references to the Company’s common stock included within the financial statements included herein have been prepared on a post-split basis.

On March 7, 2013, to complete the acquisition of RL, and a recapitalization of the Company, the Company issued a total of 14,868,095 shares of its common stock, on a post-split basis, to the former shareholders of RL in connection with the asset purchase agreement between the Company and RL dated August 31, 2012.

On March 7, 2013, the holders of the Series A Preferred Stock elected to convert all outstanding shares of Series A Preferred Stock to 1,510,417 shares of the Company’s common stock, on a post-split basis. Subsequent to these conversions, no further shares of the Series A Preferred Stock remained outstanding.

Detachable Stock Warrants

In connection with the acquisition of RL on August 31, 2012, the Company assumed a total of 362,500 detachable stock warrants from RL (the “RL Warrants”). The RL Warrants have a three-year term and are convertible into the Company’s common stock at an exercise price of $0.41 per share. The RL Warrants had been previously convertible into RL common stock at a price of $0.50 per share. The exercise price of the RL Warrants, that became exercisable for issuance of the Company’s common stock as of August 31, 2012, was adjusted to $0.41 upon the closing of the August 31, 2012 acquisition.

Deeded Dividend

A deemed dividend of $50,927 was recorded by the Company on November 1, 2012, in connection with the issuance of the Vendor Note.

Stock Based Compensation

The fair value of the Company’s Restricted Stock Units (“RSUs”) is expensed ratably over the vesting period. RSUs vest daily on a cliff basis over the service period, generally three years. The Company recorded stock-based compensation expense related to restricted stock units of $$69,917 and $217,165 during the three and nine months ended May 31, 2013. As of May 31, 2013, total compensation cost not yet recognized of $552,457 related to non-vested RSUs, is expected to be recognized over a weighted average period of 2.50 years.

The following table summarizes the activities for the Company’s RSUs for the period ended May 31, 2013:

	Number of Shares			Weighted- Average Grant-Date Fair Value (1)

Unvested at August 31, 2012		1,825,588		$	0.53
Granted		24,650			0.53
Vested		(361,935	)		0.53
Canceled		7,250			0.00

Unvested at May 31, 2013		1,298,611		$	0.53

Expected to vest after May 31, 2013		1,298,611		$	0.53

_____________

(1) Grant date fair value was the fair value associated with RL’s common stock, not the Company’s common stock.

F-20

Effect of Reverse Stock Split

As a result of the reverse stock split, the Company intends to re-issue the RL Notes and RL Warrants in the same form. However, the conversion price of each specific instrument has been adjusted to $0.41 to ensure that the holder of each instrument will have the right to convert the instrument into an equivalent number of shares of the Company’s common stock that they would have been entitled to on an as-if basis, if they had elected to convert the instrument they held on the date RL was acquired by the Company.

14. Net Loss Per Share

Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

Diluted net loss per share is computed by giving effect to all potential shares of common stock, including the shares issuable upon conversion of the Creditor Notes, the Vendor Note, the Series A Preferred Stock, the RL Notes, and the RL Warrants. Basic and diluted net loss per share was the same for each year presented as the inclusion of all potential common shares outstanding would have been anti-dilutive.

	For the Three Months Ended May 31, 2013		For the Three Months Ended May 31, 2012			For the Nine Months Ended May 31, 2013			From Inception, November 30, 2011, Through May 31, 2012

Weighted-average common shares outstanding used in computing basic and diluted net loss per share:		5,277,530		116,199			7,848,130			93,961

Net loss per share, basic and diluted	$	0.01	$	(18.28	)	$	(0.24	)	$	(26.51	)

Common stock equivalents not included in calculated of diluted net loss per share:
Creditor Notes (1)		1,612,673		-			1,612,673			-
Vendor Note		965,000		-			965,000			-
RL Notes (2)		1,864,014		365,854			1,864,014			365,854
RL Warrants (3)		362,500		75,000			362,500			75,000
Total quantifiable common stock equivalents		4,804,187		430,854			4,804,187			430,854

(1)

As of May 31, 2013, Creditor's Notes and accrued interest of $336,887 remained outstanding. The Company has estimated the number of shares of common stock the holder of the convertible promissory note agreements could have been issued had the holder elected to convert the convertible promissory notes to common stock as of May 31, 2013. The holder did not make such an election as of May 31, 2013.

(2)	In connection with the August 31, 2012 asset purchase agreement with RL, the Company assumed the RL Notes. As of the date of these financial statements, the RL Notes and accrued interest were convertible into 1,864,014 shares of the Company’s common stock.

(3)	In connection with the August 31, 2012 asset purchase agreement with RL, the Company assumed the RL Warrants. As of the date of these financial statements, the RL Warrants were convertible into 362,500 shares of the Company’s common stock.

15. Subsequent Events

The Lender increased the Company’s available line of credit in June 2013. As of July 15, 2013, the Company’s available line of credit with the lender was $330,000. Subsequent to May 31, 2013, the Company has received additional advances from this line of credit of approximately $65,000.

F-21

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

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included in this report and those in our Form 10-K/A for the fiscal year ended August 31, 2012 filed with the Securities and Exchange Commission June 4, 2013 and all subsequent filings. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of certain factors, including but not limited to, those described under “Risk Factors” included in Part II, Item IA of this report.

Overview

Our business model is focused on the following core principles:

1.	We barter with audio content providers, namely internet and terrestrial radio stations, to obtain control and management of their desktop advertising opportunity (“Ad Inventory”). We also routinely purchase any Ad Inventory the content providers have not previously given to us by barter.
2.	In exchange for the Ad Inventory, we pay for all internet and mobile streaming costs associated with the broadcaster’s content that is streamed through our platform. We barter in order to scale our business. The end result of the barter is that we aggregate Ad Inventory from our broadcasters that management believes can reach substantial size while maintaining a primarily fixed cost structure for our hardware, content delivery, labor and other costs, respectively.
3.	We re-broadcast original audio broadcast content through the Platform in a streaming media format in desktop and mobile environments. By re-broadcasting we ensure that we do not pay any royalties. Royalties are the responsibility of our broadcasters. This is a substantial advantage for us as many of our competitors pay royalties of up to 70% of revenues generated from licensed broadcast content.
4.	We serve advertisements (“Ads”) within the Platform in audio, display and video formats in a desktop environment and display ads in a mobile environment using our RadioLoyaltyTM Apps.
5.	Ads are served by our automated systems based on geography and demographics data, among others.
6.	The primary technology that makes our Platform unique in the industry is that we are able to re-broadcast audio content with geographically targeted Ads that replace Ads served within an original broadcast targeting a listener in a certain geography. By having this capability we can also choose to replace audio Ads that do not generate as high of Ad revenues with video-based Ads that generate much higher Ad revenues. In effect, we make the broadcaster’s original broadcast capable of delivering Ads that are geographically targeted throughout a global broadcast marketplace while also utilizing video Ads and our proprietary video in-stream technology to increase advertising rates.
7.	All of our primary technology that supports the Platform is automated and capable of operating in a live environment. Audio content is streamed, Ads are targeted and served, audio Ads are replaced as needed and video Ads replace audio Ads, as desired and when possible.

Advertising revenue constitutes the majority of our total revenue, representing 97.5% and 83.1% of total revenue for the three and nine months ended May 31, 2013. We anticipate this trend will continue and our revenues will be generated primarily from advertising. Our advertising revenue for the nine months ended May 31, 2013 was almost entirely derived from advertising delivered on desktop devices.

We deliver content on mobile devices through our RadioLoyaltyTM app but we do not currently generate significant mobile advertising revenues. Management believes that mobile advertising represents an opportunity for the Company in the coming years and on an ongoing basis. Management expects the mobile advertising market will grow at substantial rates in the coming years. However, many challenges exist in this market. We believe these challenges will be solved primarily with new technologies. We believe our current technologies and other technology under development will solve some of these challenges. By solving these challenges we will be able to monetize the mobile listenership we are growing today.

We are also continuing development of WatchThis™, a patent-pending merchandising in-stream technology to provide web-based and IP television streaming services with a unique e-commerce advertising capability. The technology is functional in a local environment. Our development efforts are currently focused on technical issues associated with operating the technology in a live streaming environment. If and once the technology is functional in a live streaming environment, management plans to use the in-video advertising method technology to create a video encode with keywords that tag frames with corresponding merchandise within video content. These tags would communicate with our advertising database to deliver the highest paying advertiser in real-time. Consumers would be able to view this content, select tagged products within the content, and complete purchases throughout the broadcast. We anticipate deploying this service by December 31, 2013.

Key Metrics:

We track listener hours because we believe it is the best key indicator of the growth of our business with Platform. Revenues from advertising through our Platform represented substantially all of revenues for the three and nine months ended May 31, 2013. We also track the number of active users on our Platform as well as the RadioLoyaltyTM app as indicators of the size and quality of our audience, which are particularly important to potential advertisers. Additionally, the Company anticipates launching several new product offerings and initiating certain new significant partnerships during the fiscal year ending August 31, 2013. The Company expects those products and partnerships to be profitable but notes that it will require an unknown amount of capital for product development and commercial deployment. Once these products are launched we will determine key indicators of growth for those products.

We calculate actual listener hours using our internal analytics systems. Some of our competitors do not always calculate their listener hours in the same way we do. As a result, their stated listener hours may not represent a truly comparable figure.

Player launches are defined as the number of individual times the UniversalPlayer™ was launched.

Registered users are defined as the number of users who have signed up for an account with us in order to access our broadcasters’ content and to earn loyalty points. The number of registered users may overstate the number of actual unique individuals who have signed up for an account with us in order to earn loyalty points, as an individual may register for, and use, multiple accounts under unique registration information. This is in breach of our terms and conditions but we may not be able to effectively manage and authenticate registration information in order to ensure each user is a unique individual. We define registered users as those who have signed up with us to receive loyalty points. We calculate this by the number of submissions we receive from users signing up for our loyalty service.

We calculate listener hours as follows. When the UniversalPlayer TM is launched a session is created - this is considered the listener's start time. At one minute following the launch of the UniversalPlayerTM, we record that as 1 minute of listening time. If a session lasts between 1 and 59 seconds, we record that as 30 seconds of listening time. At ten-minute intervals following the session being created, we count each 10 minute period as listening time. So for example, if a user launched the UniversalPlayer TM at 11:00am, we will recognize 1 minute of listening time at 11:01, then 10 minutes of listening time at 11:10, 20 minutes at 11:20, etc.

Events are user interactions such as a 10 minute interval, clicking song like/dislike, sharing what they are listening to, checking the news through our news app in the player, etc. The last event we see for the user is considered the end of their session. We then take that time minus the time the session started to determine how long the session is. So for example, if a user launched the UniversalPlayer TM at 11am, and liked a song at 11:07am, but exited the player at 11:09am, we would recognize that as 7 minutes of listening.

Comparison of the Nine Months Ended May 31, 2013 and Period From Inception, November 30, 2011, Through May 31, 2012

	Nine Months Ended May 31, 2013		Period From Inception, November 30, 2011, Through May 31, 2012
Revenue
Advertising
Video	$	229,151		864,874
Display		321,607		145,693
Lead generation		289,306		-
Other		177,360		15,556
Total		1,017,424		1,026,123
Services		206,794		85,692
Total revenue	$	1,224,218	$	1,111,815

Revenues for the nine months ended May 31, 2013 and the period from inception, November 30, 2011, through May 31, 2012, totaled $1,224,218 and $1,111,815 respectively. We generated substantial revenues from video and display Ads utilizing our Platform and the listenership from over 1,500 of our radio broadcasters. Video revenues were more substantial in the period from November 30, 2011 through May 31, 2012 as the Company benefitted from a significant short-term trend where video advertising arbitrage sales were substantial. Market conditions have changed and video advertising arbitrage sales were minimal during the nine months ended May 31, 2013. Upon the acquisition of Rightmail on July 1, 2012, we also began generating substantial lead generation revenues. We continue to record lead generation revenues today but do not utilize the Rightmail customer list. We did not generate substantial lead generation revenues in the period from November 30, 2011 through May 31, 2012. Display advertising increased during the nine months ended May 31, 2013 as the Company began focusing more of its effort on filling advertisements in the display and video category within the Platform itself as opposed to display and video advertisements in traditional internet webpage formats. We also have generated substantial revenues from our services related to the integration of our technology with our customer’s advertising systems and related infrastructure. The white labeling of the Platform for Scratch.fm was completed in February 2013 and resulted in the recognition of $175,000 in services revenues. Services revenues generated in the period from November 30, 2011 through May 31, 2012 consisted almost entirely of the provision of hosting services to one customer. We also expanded our call center operations during the nine months ended May 31, 2013. We anticipate generating additional advertising revenues from the launch of several new product offerings and certain new significant partnerships during the year ending August 31, 2013.

	Nine Months Ended May 31, 2013		Period From Inception, November 30, 2011, Through May 31, 2012
Costs of revenues
Depreciation and amortization	$	282,224		154,377
Colocation services		164,458		159,907
Broadcaster commissions		159,559		100,968
Other		669,411		617,039
Total costs of revenue	$	1,275,652	$	1,032,291

Costs of revenues for the nine months ended May 31, 2013 and the period from inception, November 30, 2011, through May 31, 2012, totaled $1,275,652 and $1,032,291 respectively. Each reporting period we have recorded substantial amortization costs associated with the Platform. The significant amortization costs associated with the Platform are anticipated to continue until the Platform asset value is fully amortized on December 1, 2014. In order to operate the Platform and the RadioLoyaltyTM mobile and tablet apps and our ad-serving technologies, we require substantial computing power, hosting and streaming hosting. We operate a substantial technology center at our offices in Santa Barbara, California but also utilize a contracted facility in Los Angeles, California, to support our operations and ensure our systems and content delivery maintain our service level agreements. We refer to these costs as colocation services. Colocation services costs should increase as our business grows. However, our current costs should remain fixed until and if we reach a substantial listener hours level that exceeds approximately 15,000,000 hours per month. We currently generate approximately 1,000,000 listener hours per month. Our advertising sales arrangements with over 1,500 broadcasters facilitate us paying the broadcasters a monthly revenue sharing fee. We refer to these costs as broadcaster commissions. Broadcaster commissions are paid on Ad Inventory we purchase from the broadcasters, not on Ad Inventory we receive as a barter from the broadcasters. Other costs of sales include affiliate marketing costs associated with the lead generation business, media network costs associated with the distribution of our content across a variety of advertising networks, streaming costs, call center operation costs, and various application technologies that support our primary product offerings.

	Nine Months Ended May 31, 2013		Period From Inception, November 30, 2011, Through May 31, 2012
Operating expenses
Product development	$	389,707		71,866
Officer compensation		347,379		95,348
Sales and marketing		247,937		80,747
Rents		137,821		97,378
Consultants		112,720		160,223
Professional fees		44,381		57,397
Travel and entertainment		46,987		25,777
Other		285,878		149,750
Total operating expenses	$	1,610,810	$	738,486

Operating expenses for the nine months ended May 31, 2013 and the period from inception, November 30, 2011, through May 31, 2012, totaled $1,610,810 and $738,486 respectively. Product development costs were associated with continuing improvements to the software and related infrastructure for our primary product offering as well as development work on our online product portfolio and the WatchThisTM technology. Officer compensation related to accrued but primarily unpaid salaries for our two primary executives officers. Marketing and sales costs incurred were primarily related to the labor costs of employing our sales force. Our sales force markets our products on a daily basis. We expect these costs to increase in the current fiscal year. Rents were primarily related to four leases we are obligated under for our Santa Barbara, California office. Consultant expenses included fees incurred with certain personnel primarily related to finance, business development and investor relations services. Professional fees included accounting, auditing and legal fees associated with public company matters. Travel and entertainment was associated with ongoing business development and investor relations activities. Other operating costs include telecom, depreciation, utilities, travel and entertainment and various other costs of doing business.

	Nine Months Ended May 31, 2013			Period From Inception, November 30, 2011, Through May 31, 2012
Other income (expenses)
Interest income	$	7,875		$	-
Interest expense		(135,837	)		(43,651	)
Interest expense – accretion		(373,724	)		(77,482	)
Gain on disposal of assets		71,847			-
Change in fair value of derivatives		285,391			-
Total other income (expenses)	$	(144,448	)	$	(121,133	)

Other income (expenses) for the nine months ended May 31, 2013 and the period from inception, November 30, 2011, through May 31, 2012, totaled $(144,448) and $(121,133) respectively. We generated interest income on the note receivable. We incurred interest expense calculated on our convertible promissory notes, line of credit with an institutional lender and fees charged by the former provider of our factoring line of credit, among others. We also recorded the accretion of various debt discounts associated with our convertible promissory notes and accretion of the contingent royalty liability. The accretion of the debt discounts is a result of the amortization of the debt discounts associated with the convertible promissory notes over the term of the convertible promissory notes. Debt discounts recorded during the nine months ended May 31, 2013 represented the beneficial conversion feature, warrants to purchase stock, and derivative liabilities associated with the convertible promissory notes. The original value of each derivative liability was recorded as a debt discount. As a result of the derivative classification, the debt discount had to be re-measured as of the reporting date. For the nine months ended May 31, 2013, the re-measurement resulted in an decrease to the derivative liabilities of $285,391. If the convertible promissory notes issued to the Creditor remain outstanding at any time subsequent to the six-month anniversary of the date the convertible promissory notes were issued, a derivative liability exists and will have to be measured as of each reporting date. Similarly, if any portion of the Vendor Note remains outstanding at the reporting date, the derivative liability has to be re-measured as of the reporting date. The Company’s stock price was decreasing substantially during the week prior to May 31, 2013. As a result, all derivative valuations decreased as of May 31, 2013 and a large change in fair value of derivatives resulted.

We did not generate profits for the nine months ended May 31, 2013 and the period from inception, November 30, 2011, through May 31, 2012, respectively. As a result, no provision for income taxes was recorded during either period.

	Nine Months Ended May 31, 2013			Period From Inception, November 30, 2011, Through May 31, 2012
Net loss attributable to common shareholders
Net loss	$	(1,806,692	)	$	(891,201	)
Deemed dividend		(50,927	)		(1,600,063	)
Net loss attributable to common shareholders	$	(1,857,619	)	$	(2,491,264	)

We generated a net loss attributable to shareholders of $1,857,619 and $2,491,264 for the nine months ended May 31, 2013 and the period from inception, November 30, 2011, through May 31, 2012, respectively for the reasons set forth above. A deemed dividend was recorded as of November 1, 2012, as a result of the issuance of the Vendor Note.

Comparison of the Three Months Ended May 31, 2013 and 2012

	Three Months Ended May 31, 2013		Three Months Ended May 31, 2012
Revenue
Advertising
Video	$	109,650		375,448
Display		148,479		87,893
Call center		87,197		-
Other		3,578		10,115
Total		348,904		473,456
Services		9,100		35,701
Total revenue	$	358,004	$	509,157

Revenues for the three months ended May 31, 2013 and May 31, 2012, totaled $358,004 and $509,157 respectively. We generated substantial revenues from video and display Ads utilizing our Platform and the listenership from our global group of over 1,500 of our radio broadcasters. Video revenues were more substantial in the three months ended May 31, 2012 as the Company benefitted from a significant short-term trend where video advertising arbitrage sales were substantial. Market conditions have changed and video advertising arbitrage sales were minimal during the nine months ended May 31, 2013. Upon the acquisition of Rightmail on July 1, 2012, we also began generating substantial lead generation revenues. We continue to record lead generation revenues today but we do not utilize the Rightmail customer list. We did not generate substantial lead generation revenues in the period from November 30, 2011 through May 31, 2012. Display advertising increased during the nine months ended May 31, 2013 as the Company began focusing more of its effort on filling advertisements in the display and video category within the Platform itself as opposed to display and video advertisements in traditional internet webpage formats. We also have generated substantial revenues from our services related to the integration of our technology with our customer’s advertising systems and related infrastructure. Services revenues generated in the three months ended May 31, 2012 consisted almost entirely of the provision of hosting services to one customer. We also expanded our call center operations during the three months ended May 31, 2013. We anticipate generating additional advertising revenues from the launch of several new product offerings and certain new significant partnerships during the year ending August 31, 2013.

	Three Months Ended May 31, 2013		Three Months Ended May 31, 2012
Costs of revenues
Depreciation and amortization	$	91,130		79,365
Colocation services		47,850		75,624
Broadcaster commissions		61,327		46,141
Other		191,285		293,790
Total costs of revenue	$	391,592	$	494,920

Costs of revenues for the three months ended May 31, 2013 and May 31, 2012, totaled $391,592 and $494,920 respectively. Each reporting period we have recorded substantial amortization costs associated with the Platform. The significant amortization costs associated with the Platform are anticipated to continue until these Platform asset value is fully amortized on December 1, 2014. In order to operate the Platform and the RadioLoyaltyTM mobile and tablet apps and our ad-serving technologies, we require substantial computing power, hosting and streaming hosting. We operate a substantial technology center at our offices in Santa Barbara, California but also utilize a contracted facility in Los Angeles, California, to support our operations and ensure our systems and content delivery maintain our service level agreements. We refer to these costs as colocation services. Colocation services costs should increase as our business grows. However, our current costs should remain fixed until and if we reach a substantial listener hours level that exceeds approximately 15,000,000 hours per month. We currently generate approximately 1,000,000 listener hours per month. Our advertising sales arrangements with over 1,500 broadcasters facilitate us paying the broadcasters a monthly revenue sharing fee. We refer to these costs as broadcaster commissions. Broadcaster commissions are paid on Ad Inventory we purchase from the broadcasters, not on Ad Inventory we receive as a barter from the broadcasters. Other costs of sales include affiliate marketing costs associated with the lead generation business, media network costs associated with the distribution of our content across a variety of advertising networks, streaming costs, call center operation costs, and various application technologies that support our primary product offerings.

	Three Months Ended May 31, 2013		Three Months Ended May 31, 2012
Operating expenses
Product development	$	151,193		36,587
Officer compensation		120,000		45,161
Sales and marketing		43,309		44,806
Rents		45,639		48,539
Consultants		44,531		125,747
Professional fees		8,223		43,592
Travel and entertainment		5,996		15,506
Other		107,866		78,011
Total operating expenses	$	526,757	$	437,949

Operating expenses for the three months ended May 31, 2013 and May 31, 2012, totaled $526,757 and $437,949 respectively. Product development costs were associated with continuing improvements to the software and related infrastructure for our primary product offering as well as development work on our online product portfolio and the WatchThisTM technology. Officer compensation related to accrued but primarily unpaid salaries for our two primary executives officers. Marketing and sales costs incurred were primarily related to the labor costs of employing our sales force. Our sales force markets our products on a daily basis. We expect these costs to increase in the current fiscal year. Rents were primarily related to four leases we are obligated under for our Santa Barbara, California office. Consultant expenses included fees incurred with certain personnel primarily related to finance, business development and investor relations services. Professional fees included accounting, auditing and legal fees associated with public company matters. Travel and entertainment was associated with ongoing business development and investor relations activities. Other operating costs include telecom, depreciation, utilities, travel and entertainment and various other costs of doing business.

	Three Months Ended May 31, 2013			Three Months Ended May 31, 2012
Other income (expenses)
Interest income	$	2,625		$	-
Interest expense		(94,637	)		(23,531	)
Interest expense – accretion		(56,303	)		(35,198	)
Gain on disposal of assets		71,847			-
Change in fair value of derivatives		663,372			-
Total other income (expenses)	$	586,904		$	(58,729	)

Other (expense) income for the three months ended May 31, 2013 and May 31, 2012, totaled $586,904 and $(58,729) respectively. We generated interest income on the note receivable. We incurred interest expense calculated on our convertible promissory notes and fees charged by the provider of our factoring line of credit, among others. We also recorded the accretion of various debt discounts associated with our convertible promissory notes. The accretion is a result of the amortization of the debt discounts associated with the convertible promissory notes over the term of the convertible promissory notes. Debt discounts recorded during the three months ended May 31, 2013 represented the beneficial conversion feature, warrants to purchase stock, and derivative liabilities associated with the convertible promissory notes. The original value of each derivative liability was recorded as a debt discount. As a result of the derivative classification, the debt discount had to be re-measured as of the reporting date. For the three months ended May 31, 2013, the re-measurement resulted in a decrease to the derivative liabilities of $663,372. If the convertible promissory notes issued to the Creditor remain outstanding at any time subsequent to the six-month anniversary of the date the convertible promissory notes were issued, a derivative liability exists and will have to be measured as of each reporting date. Similarly, if any portion of the Vendor Note remains outstanding at the reporting date, the derivative liability has to be re-measured as of the reporting date. The Company’s stock price was decreasing substantially during the week prior to May 31, 2013. As a result, all derivative valuations decreased as of May 31, 2013 and a large change in fair value of derivatives resulted.

We did not generate taxable profits for the three months ended May 31, 2013 and May 31, 2012, respectively. As a result, no provision for income taxes was recorded during either period.

	Three Months Ended May 31, 2013		Three Months Ended May 31, 2012
Net income (loss) attributable to common shareholders
Net income (loss)	$	26,559	$	(523,905	)
Deemed dividend		-		(1,600,063	)
Net income (loss) attributable to common shareholders	$	26,559	$	(2,123,968	)

We generated net income (loss) attributable to shareholders of $26,559 and $(2,123,968) for the three months ended May 31, 2013 and May 31, 2012, respectively for the reasons set forth above.

Liquidity and Capital Resources

As of May 31, 2013 we had cash totaling $6,182, which consisted of cash funds held at major financial institutions. We had net a working capital deficit of $2,343,850 as of May 31, 2013, compared to a net working capital of $(975,490) as of August 31, 2012. Our principal uses of cash during the three months ending May 31, 2013 were funding our operations.

Going Concern

Working Capital Related Party Financing

The Company has only been operating since November 30, 2011. As a result, the Company has an extremely limited credit history. The Company’s Chief Executive Officer, and the Chief Executive Officer of StreamTrack Media, Inc. use their personal credit cards to fund operations on a frequent basis. If the Company did not have access to these credit cards, the Company would have to rely exclusively on external sources of capital. The Company’s external sources of capital are not always readily available. Once the Company’s track record is more established and results of operations are profitable, then external sources of capital should become more readily available. As a result, in time-constrained circumstances, the use of personal credit cards is necessary until such time as the Company is able to build up its own credit-worthiness and access more readily available and significant credit.

Our Indebtedness

As of May 31, 2013, we had issued a total of $1,001,208 in convertible promissory notes that remained outstanding. On April 11, 2013 we also executed an asset-based financing arrangement with a new creditor for a $250,000 line of credit and elected to draw down on the line of credit for the full $250,000. The line of credit was increased in June and is for $330,000 as of the date of these financial statements. We also owe significant balances under a settlement and release agreement associated with our computer servers and related software, and significant balances are owed to the two primary executives that operate our business.

As of May 31, 2013, the conversion price of a total of $336,887 Creditor Notes, including accrued interest and certain Creditor Notes that are in default as of the date of these financial statements, is based upon a 39% discount to lowest five days closing prices of the Company’s common stock over the ten-day period prior to conversion. As a result, the lower the stock price at the time the Creditor converts the Creditor Notes, the more common shares the Creditor will receive.

	May 31, 2013			February 28, 2013			November 30, 2012			August 31, 2012

Stock price	$	0.2000		$	1.5663		$	1.0843		$	3.1325
Effective conversion price	$	0.2089		$	0.4263		$	0.6908		$	1.1759
Conveble promissory notes balance outstanding	$	336,887		$	247,000		$	147,000		$	175,500
Actual outstanding shares of common stock		16,948,879			360,973			210,973			183,415

Shares issuable upon conversion, at actual price		1,612,480			579,448			212,789			149,248
% of outstanding common stock, at actual price		10	%		161	%		101	%		81	%
Shares issuable upon conversion, assuming 25% price decrease		2,149,973			772,597			283,719			198,997
% of outstanding common stock, assuming 25% price decrease		13	%		214	%		134	%		108	%
Shares issuable upon conversion, assuming 50% price decrease		3,224,960			1,158,895			425,578			298,496
% of outstanding common stock, assuming 50% price decrease		19	%		321	%		202	%		163	%
Shares issuable upon conversion, assuming 75% price decrease		6,449,919			2,317,791			851,156			596,991
% of outstanding common stock, assuming 75% price decrease		38	%		642	%		403	%		325	%

Vendor Notes, principal balance as of August 31, 2012	$	-
Issuance of November 1, 2012 Vendor Note		140,000
Conversion of Vendor Note to common stock		(43,500	)
Vendor Note, principal balance, May 31, 2013	$	96,500

The shares issuable upon conversion of the Vendor Note may result in substantial dilution to the interests of the Company’s other shareholders.

The table below details the number of shares issuable to the Vendor in the event the share price decreases 25%, 50% or 75% from the stock price as of each date set forth below.

	May 31, 2013			February 28, 2013			November 30, 2012			August 31, 2012

Stock price	$	0.2000		$	1.5663		$	1.0843		$	-
Effective conversion price	$	0.1000		$	0.4263		$	0.3615		$	-
Convertible promissory notes balance outstanding	$	96,500		$	140,000		$	140,000		$	-
Actual outstanding shares of common stock		16,948,879			360,973			210,973			-

Shares issuable upon conversion, at actual price		965,000			331,990			387,329			-
% of outstanding common stock, at actual price		6	%		92	%		184	%		-	%
Shares issuable upon conversion, assuming 25% price decrease		1,286,667			442,653			516,438			-
% of outstanding common stock, assuming 25% price decrease		8	%		123	%		245	%		-	%
Shares issuable upon conversion, assuming 50% price decrease		1,930,000			663,979			774,658			-
% of outstanding common stock, assuming 50% price decrease		11	%		184	%		367	%		-	%
Shares issuable upon conversion, assuming 75% price decrease		3,860,000			1,327,958			1,549,315			-
% of outstanding common stock, assuming 75% price decrease		23	%		368	%		734	%		-	%

Capital Expenditures

Based on current estimates, we believe that our anticipated capital expenditures will be adequate to implement our current plans.

Historical Trends

The following table summarizes our cash flow data for the nine months ended May 31, 2013 and 2012.

	Nine Months Ended May 31, 2013				Period From Inception, November 30, 2011, Through February 29, 2012

Net cash used in operating activities of continuing operations		$	(998,887	)		$	(331,645	)
Net cash used in investing activities of continuing operations			-				-
Net cash provided by financing activities of continuing operations			777,634				469,156

Cash flow used by operating activities totaled $998,887 for the nine months ended May 31, 2013, compared to $331,645 used for the nine months ended May 31, 2012. Operating cash flow was negative during the nine months ended May 31, 2013 as we continued operations and a focused effort on product development and efforts towards certain potential significant partnerships with third parties within the digital media industry.

Cash flow used by investing activities totaled $0 for the nine months ended May 31, 2013, as compared to $0 used in the nine months ended May 31, 2012. We did not make investments in additional assets during either reporting period.

Cash flow provided by financing activities totaled $777,634 for the three months ended May 31 2013, compared to $469,156 for the three months ended May 31, 2012. We raised substantial capital through the issuance of convertible promissory notes and advances from related our primary executive officers during the nine months ended May 31, 2013 and May 31, 2012, respectively.

Item 3. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of May 31, 2013. This evaluation was accomplished under the supervision and with the participation of our Chief Executive Officer, who also serves as our Chief Financial Officer, who concluded that our disclosure controls and procedures are currently effective to ensure that all material information required to be filed in the quarterly report on Form 10-Q has been made known to them.

For purposes of this section, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seg.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by in our reports filed under the Securities Exchange Act of 1934, as amended (the "Act") is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this Quarterly Report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer (Principal Executive and Financial Officer); of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer (Principal Executive and Financial Officer) concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and which also are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer (Principal Executive and Financial Officer), to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

There has not been any changes in our internal controls over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The Company is not, currently, party to any legal proceeding.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

Item 3. DEFAULTS UPON SENIOR SECURITEIES

The Company is currently in default on approximately $147,000 in convertible debts. The Company is working with the Creditor in order to resolve the default. No default penalties have been assessed by the Creditor as of the date of this report.

The Company is currently in default on its capital lease. The Company is working with the lessor to resolve the default.

Item 4. MINE SAFETY DISCLOSURES

None

Item 5. OTHER INFORMATION

None

Item 6. EXHIBITS

(a) Exhibits:

Number		Description

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS **		XBRL Instance Document

101.SCH **		XBRL Taxonomy Extension Schema Document

101.CAL **		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF **		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB **		XBRL Taxonomy Extension Label Linkbase Document

101.PRE **		XBRL Taxonomy Extension Presentation Linkbase Document

___________________

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	STREAMTRACK, INC.

Date: July 22, 2013	By:	/s/ Michael Hill
	Name:	Michael Hill
	Title:	Chairman of the Board of Directors, Chief Executive Officer, President, and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)

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