10-Q/A

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Amendment No. 1 to 

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012

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

Commission file number: 0000-24477

STRATUS MEDIA GROUP, INC.

(Exact name of Registrant as specified in its charter)

Nevada (State of Incorporation) 30-0645032 (I.R.S. Employer Identification No.)

1800 Century Park East, 6^th Floor, Los Angeles California 90067

(Address of principal executive offices)

(805) 884-9977

(Registrant's telephone number)

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

Securities registered pursuant to Section 12(g) of the Act: Common Stock par value $0.001

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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    o  

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  o No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):

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

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

The number of shares of common stock outstanding at August 14, 2012 was 89,413,894 shares.

EXPLANATORY NOTE

This Amendment No. 1 to the Quarterly Report on Form 10-Q is being filed solely to furnish the Interactive Data files as Exhibit 101, in accordance with Rule 405 of Regulation S-T. No other changes have been made to the Form 10-Q, as originally filed on August 17, 2012.

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Item 6. Exhibits

101.INS*	XBRL Instance Document
101.SCH*	XBRL Schema Document
101.CAL*	XBRL Calculation Linkbase Document
101.DEF*	XBRL Definition Linkbase Document
101.LAB*	XBRL Label Linkbase Document
101.PRE*	XBRL Presentation Linkbase Document

* Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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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.

STRATUS MEDIA GROUP, INC.
By:	/s/ Jerold Rubinstein
	Jerold Rubinstein
	Principal Executive Officer
By:	/s/John Moynahan
	John Moynahan
	Principal Financial Officer
Date:	September 7, 2012

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11. Notes payable (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Notes Payable
Notes Payable	$ 2,752,999	$ 555,000
ProEliteMember
Notes Payable
Notes Payable	1,063,000	415,000
ShareholderMember
Notes Payable
Notes Payable	1,000,000
ThreeHoldersMember
Notes Payable
Notes Payable	350,000
OneHolderMember
Notes Payable
Notes Payable	249,999
ShareholderTwoMember
Notes Payable
Notes Payable	70,000	70,000
ShareholderThreeMember
Notes Payable
Notes Payable	10,000	10,000
NonShareholderMember
Notes Payable
Notes Payable	$ 10,000	$ 60,000

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12. Shareholders' Deficit (Details 2) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Dec. 31, 2010
Warrants Outstanding
Beginning Balance	120,355,242	59,530,245
Exercised
Granted	2,300,000	5,010,000
Ending Balance	120,355,242	59,530,245
Range of Exercise Prices
Beginning Balance Minimum	$ 0.14	$ 0.14
Beginning Balance Maximum	$ 1.5	$ 3.5
Weighted Average Remaining Life in Years
Beginning Balance	3 years 2 months 12 days	2 years 4 months 24 days
Granted	5 years	5 years
Weighted Average Exercise Price
Beginning Balance	$ 0.4	$ 2
Exercised
Granted	$ 0.35	$ 0.54
Ending Balance	$ 0.4	$ 2
Warrants Exercisable
Beginning Balance	59,530,245
Ending Balance	119,521,912	59,530,245
Weighted Average Remaining Life in Years
Beginning Balance	3 years 2 months 12 days	2 years
Granted		5 years
Weighted Average Exercise Price
Beginning Balance	$ 2
Ending Balance	$ 0.4	$ 2
WarrantMember
Warrants Outstanding
Beginning Balance			2,472,676
Exercised
Ratchet-down impact	56,991,667
Granted	3,833,330	57,057,569
Ending Balance			2,472,676
Range of Exercise Prices
Beginning Balance Minimum	$ 0.65	$ 1
Beginning Balance Maximum	$ 2	$ 2
Exercised
Ratchet-down impact	0.3
GrantedMinimum	$ 0.3	$ 0.65
GrantedMaximum	$ 0.4	$ 1
Ending Balance Minimum	$ 0.3	$ 0.65
Ending Balance Maximum	$ 2	$ 2
Weighted Average Remaining Life in Years
Beginning Balance	3 years 6 months	4 years 4 months 24 days
Granted	4 years 10 months 24 days	4 years 6 months
Ending Balance	3 years 10 months 24 days	3 years 6 months
Weighted Average Exercise Price
Beginning Balance			$ 1.37
Exercised
Ratchet-down impact	$ 0.3
Granted	$ 0.32	$ 0.75
Ending Balance			$ 1.37
Warrants Exercisable
Beginning Balance		2,472,676
Exercised
Ratchet-down impact	56,991,667
Granted	3,000,000	57,057,569
Weighted Average Remaining Life in Years
Beginning Balance	3 years 6 months	4 years 4 months 24 days
Granted	4 years 10 months 24 days	4 years 6 months
Ending Balance	3 years 10 months 24 days	3 years 6 months
Weighted Average Exercise Price
Beginning Balance		$ 1.37
Exercised
Ratchet-down impact	$ 0.3
Granted	$ 0.32	$ 0.75

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3. Basis of Presentation and Significant Accounting Policies (Details Narrative) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Basis Of Presentation And Significant Accounting Policies Details Narrative
Intangible Assets	$ 3,359,466	$ 3,359,466
Research and development expenses	$ 0	$ 0

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15. ProElite, Inc. (Details Narrative) (USD $)	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
Proelite Inc. Details Narrative
Goodwill	$ 3,008,966	$ 3,008,966	$ 1,935,621
Non-controlling interest			$ 105,263

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15. ProElite Inc (Details) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended	3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	Mar. 31, 2012 PEIAcquisitionMember	Jun. 30, 2012 PEIAcquisitionMember
Business Acquisition [Line Items]
Revenues	$ 71,666		$ 231,208			$ 112,000	$ 259,000
Gross profit	65,215		(3,745)			112,000	259,000
Loss from operations	(2,442,673)	(2,056,726)	(4,794,841)	(3,731,101)		(2,498,313)	(4,443,263)
Interest and other expense	(931,913)	(88,836)	(1,058,487)	(128,839)		120,530	160,533
Net loss	$ (3,374,586)	$ (2,145,562)	$ (5,853,328)	$ (3,859,940)	$ (15,837,168)	$ (2,618,843)	$ (4,603,796)
Basic and diluted loss per share	88,182,285	71,161,702	88,953,297	68,704,527		(0.04)	(0.07)

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15. ProElite, Inc. (Tables)

6 Months Ended

Jun. 30, 2012

Proelite Inc. Tables

ProElite, Inc.

The pro forma financial information presented below show the consolidated operations for the three and six months ended June 30, 2011 of the Company as if the PEI acquisition had occurred as of January 1, 2011:

	Three Months  Ended  June 30, 2011			Six Months  Ended  June 30, 2011
Revenues	$	112,000		$	259,000
Gross profit		112,000			259,000
Loss from operations		(2,498,313	)		(4,443,263	)
Interest and other expense		120,530			160,533
Net loss	$	(2,618,843	)	$	(4,603,796	)
Basic and diluted loss per share	$	(0.04	)	$	(0.07	)

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7. Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2012

Property And Equipment Tables

Property and Equipment

Property and equipment were as follows:

	June 30,  2012			December 31, 2011
Computers and peripherals	$	97,660		$	97,660
Office machines		49,370			49,370
Automobile		38,100			–
Furniture and fixtures		79,484			79,484
		264,614			226,514
Less accumulated depreciation		(168,138	)		(148,379	)
	$	96,476		$	78,135

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7. Property and Equipment (Details Narrative) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Property And Equipment Details Narrative
Depreciation	$ 19,758	$ 4,054

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7. Property and Equipment (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Property and Equipment
Computers and peripherals	$ 97,660	$ 97,660
Office machines	49,370	49,370
Automobile	38,100
Furniture and fixtures	79,484	79,484
Property and Equipment Gross	264,614	226,514
Less accumulated depreciation	(168,138)	(148,379)
Property and Equipment Net	$ 96,476	$ 78,135

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9. Other accrued expenses and other liabilities (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Accounts Payable and Accrued Liabilities
Professional fees	$ 969,767	$ 494,767
Payroll related	825,983	640,208
Estimated damage liability that may not be covered by insurance	300,000
Accrued board fees	162,497
Consultant fees	154,839	227,178
Accrued legal judgments	90,732	90,732
Travel expenses	70,339	38,546
Other	11,248	49,884
Total Accounts Payable and Accrued Liabilities	$ 2,585,405	$ 1,541,315

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12. Shareholders' Deficit (Details Narrative 1) (USD $)	6 Months Ended
	Jun. 30, 2012
Shareholders Deficit Details Narrative 1
Option Cancelled	4,660,994
Granted	2,300,000
Strike price	$ 0.35
Fair Value of Options	$ 448,800

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2. Going Concern (Details Narrative) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Going Concern Details Narrative
Net Income (loss)	$ (3,374,586)	$ (2,145,562)	$ (5,853,328)	$ (3,859,940)	$ (15,837,168)
Working Capital	(8,523,857)		(8,523,857)
Accumulated deficit	$ (48,049,851)		$ (48,049,851)		$ (42,196,523)

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4. Litigation

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

NOTE 4 - Litigation

In March 2011, four of our shareholders filed an action in Superior Court of California, in Santa Barbara County (lead plaintiff is Howell Douglas Wood (“Wood”)), against us, our Chief Executive Officer at that time (“CEO”), Chief Financial Officer (“CFO”) and its outside directors. The complaint alleges violations of the California Corporations Code relating to the issuance of securities to the plaintiffs, fraud, breach of fiduciary duty, breach of contract, and breach of the covenant of good faith and fair dealing relating to the handling of requests by the plaintiffs to sell their shares. The complaint seeks unspecified compensatory and punitive damages, recovery of attorney fees and costs and certain equitable relief. We believe that the claims are without merit and have been aggressively defending the action. The Company is planning on filing an appropriate motion to counter the operative complaint (which is the third amended complaint). A trial has been set for April 15, 2013.

In November 2011, 12 additional shareholders filed an action in Superior Court of California, in Santa Barbara County (lead plaintiff is Jeffrey Tuttle), against us, our CEO, CFO and its outside directors. This complaint was filed by the same law firms as the Wood complaint, and is similar to the Wood complaint.  As with the Wood complaint, the Tuttle complaint alleges violations of the California Corporations Code relating to the issuance of securities to the plaintiffs, fraud, breach of fiduciary duty, breach of contract, and breach of the covenant of good faith and fair dealing relating to the handling of requests by the plaintiffs to sell their shares. The complaint seeks unspecified compensatory and punitive damages, recovery of attorney fees and costs and certain equitable relief. We believe that the claims are without merit and have been aggressively defending the action. The Company is planning on filing an appropriate motion to counter the operative complaint (which is the second amended complaint). By order of the Court, this matter has been consolidated with the Wood matter for purposes of trial, which has been set for April 15, 2013.

In September 2011, Maier & Company, Inc., filed a lawsuit against the Company and PSEI for alleged breach of a consulting agreement.  In November of 2011, a default judgment was entered for $117,165 against both the Company and PSEI.  In January of 2012, the Company and PSEI filed a motion to set aside the default and default judgment.  That motion was granted, and the Company and PSEI filed an answer to the complaint.  The parties then entered into an agreement to stay discovery or other activity until the parties conduct a mediation. The parties have reached an agreement in principle to settle this matter, subject to reduction to mutually agreeable settlement documents, and the parties are in the process of preparing appropriate settlement documents. The Company anticipates that this matter will be dismissed in the near term.

In February 2012, Maverick Apparel Printing, LLC, filed a lawsuit against the Company for alleged breach of a contract for the provision of goods, and seek $25,694, plus interest, fees and costs.  The Company filed an answer to the complaint.  The parties have reached an agreement in principle to settle this matter, subject to reduction to mutually agreeable settlement documents, and the parties are in the process of preparing appropriate settlement documents. The Company anticipates that this matter will be dismissed by September 30, 2012.

In April 2012, Ned Sands filed a lawsuit against the Company for alleged discrimination based on religion and age in an employee termination, as well as fraud in inducing him to join the company.  The plaintiff has filed his second amended complaint, which adds as additional defendants a current and former officer of the Company. The Company anticipates filing a response to the complaint shortly. The Company has not yet been required to respond to the complaint.  A trial has been set for June of 2013.

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12. Shareholders' Deficit (Details Narrative 2) (USD $)	Jun. 30, 2012
Class of Warrant or Right [Line Items]
Warrants Issued	833,330
Warrants Issued Price	$ 0.4
Notes Payable	$ 249,999
Shares Issued to proelite	1,000,000
Share price	$ 0.35
Fair Value Of Warrants	1,274,000
Warrants Expense	$ 106,167
Anti-dilution protection	249,999
Warrants Conversion feature	$ 0.30
InvestmentBankMember
Class of Warrant or Right [Line Items]
Warrants Issued	3,000,000
Warrants Issued Price	$ 0.3
WarrantAMember
Class of Warrant or Right [Line Items]
Exercise price of warrants	$ 0.65
WarrantBMember
Class of Warrant or Right [Line Items]
Exercise price of warrants	$ 1

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11. Notes payable (Tables)

6 Months Ended

Jun. 30, 2012

Notes Payable Tables

Notes payable

Notes payable are as follows:

	June 30,  2012		December 31,  2011
Notes payable from ProElite to various individuals dated October 20, 2011 with maturity of July 20, 2012, plus interest at xx%, convertible into common stock of ProElite at noteholder's election.  These notes are currently in default.  Secured by the assets of ProElite.	$	1,063,000	$	415,000
Note payable to a shareholder upon the earlier of completion of $1,000,000 in funding, or May 24,2012, plus interest at 0.19%, secured by the assets of ProElite.  This note is in default		1,000,000		–
Notes payable to three holders dated May 11, 2012 with maturity of the earlier of November 11, 2012 or when a finacing is completed of $2,000,000 or more, plus interest at 10%, secured by the assets of the Company		350,000		–
Notes payable to one holder dated April 4, 2012 with maturity on October 4, 2012, plus interest at 10%. Unsecured.		249,999		–
Note payable to a shareholder dated January 14, 2005, with maturity of May 14, 2005, plus interest at 10%.  Unsecured.  This note is currently in default.		70,000		70,000
Note payable to a shareholder dated February 1, 2005 with maturity of June 1, 2005, plus interest at 10%.  Unsecured.  This note is currently in default.		10,000		10,000
Note payable to non-shareholder.  Payable on demand and does not bear interest, unsecured.		10,000		60,000
	$	2,752,999	$	555,000

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10. Loans payable to officers and a director (Tables)

6 Months Ended

Jun. 30, 2012

Loans Payable To Officers And Director Tables

Loans payable to officers and a director

The Loans payable to officers and directors are as follows:

	June 30, 2012		December 31, 2011
Former president and director, interest at 9.5%	$	-	$	78,918
An officer, non-interest bearing		50,245		50,245
An officer, interest at 5.0% if not repaid on timely basis		55,000		55,000
	$	105,245	$	184,163

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16. Related Party Transactions (Details Narrative) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012 MrFellerMember	Dec. 31, 2011 MrFellerMember	Dec. 31, 2011 MrCrossMember	Dec. 31, 2011 MrDunleavyMember	Dec. 31, 2011 MrGolenbergMember
Related Party Transaction [Line Items]
Loan Amount Due		$ 6,713
Gross Receivables				640,000
Accrued Salary Due				398,790
Commision Due				115,000
Business expenses				126,210
Net effect of this receivable and Offset			$ 0	$ 0
Grants issued Description	These grants vest one-third on January 1, 2012, one-third on January 1, 2013 and one-third on January 1, 2014
Grants of restrited Stock Received					162,500	130,000	248,333
Vested Shares Received					54,167	43,333	82,778

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13. Commitments and contingencies (Details) (USD $)	Jun. 30, 2012
Contractual Obligation
Total	$ 6,361,313
2012	5,491,126
2013	745,187
2014	125,000
After 2014
PayrollPayrollTaxAndPersonnelMember
Contractual Obligation
Total	1,394,880
2012	1,394,880
2013
2014
After 2014
EmployeeAndConsultingContractsMember
Contractual Obligation
Total	1,670,661
2012	1,026,494
2013	519,167
2014	125,000
After 2014
NotesPayableMember
Contractual Obligation
Total	2,752,999
2012	2,752,999
2013
2014
After 2014
LegalJudgmentsMember
Contractual Obligation
Total	90,732
2012	90,732
2013
2014
After 2014
RentObligationsMember
Contractual Obligation
Total	452,041
2012	226,021
2013	226,020
2014
After 2014

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12. Shareholders' Deficit (Tables)

6 Months Ended

Jun. 30, 2012

Shareholders Deficit Tables

Stock Options- Assumptions

 The following assumptions were used for the Black Scholes calculation to determine this expense:

Estimated fair value of underlying common stock	$0.35
Remaining life	5.0
Risk-free interest rate	0.69%
Expected volatility	80%
Dividend yield	–

Stock Options - Activity

The following table sets forth the activity of our stock options:

	Options Outstanding						Options Exercisable
	Options Outstanding		Range of Exercise Prices	Weighted Average Remaining Life in Years		Weighted Average Exercise Price	Options Exercisable		Weighted Average Remaining Life in Years		Weighted Average Exercise Price
As of December 31, 2010	10,269,852		$0.14 - $3.50	2.4	$	0.94	8,512,684		2.0	$	0.94
Cancelled	(3,110,000	)	–	–	$	0.43	(3,110,000	)	–	$	0.00
Exercised
Granted	5,010,000		$0.54	5.0	$	0.54	3,355,000		5.0	$	0.54
As of December 31, 2011	12,169,852		$0.14 - $1.50	3.2	$	0.49	8,757,684		3.2	$	0.40
Cancelled	(7,376,329	)	–	–		–	(4,660,994	)	–		–
Exercised	–		–	–		–	–		–		–
Granted	2,300,000		$0.35	5.0	$	0.35	–		–		–
As of June 30, 2012	7,093,523		$0.35 -$0.54	3.7	$	0.47	4,096,690		2.8	$	0.52

Warrants -Assumptions

The following assumptions were used for the Black Scholes calculation to determine this expense:

Estimated fair value of underlying common stock	$0.55
Remaining life	5.0
Risk-free interest rate	0.74%
Expected volatility	84%
Dividend yield	–

Warrants - Summary

A summary of the warrants:

	Warrants Outstanding					Warrants Exercisable
	Warrants Outstanding	Range of Exercise Prices	Weighted Average Remaining Life in Years		Weighted Average Exercise Price	Warrants Exercisable	Weighted Average Remaining Life in Years		Weighted Average Exercise Price
As of December 31, 2010	2,472,676	$1.00 - $2.00	4.4	$	1.37	2,472,676	4.4	$	1.37
Exercised	–	–	–		–	–	–		–
Granted	57,057,569	$0.65 - $1.00	4.5	$	0.75	57,057,569	4.5	$	0.75
As of December 31, 2011	59,530,245	$0.65 - $2.00	3.5	$	2.00	59,530,245	3.5	$	2.00
Exercised	–	–	–		–	–	–		–
Ratchet-down impact	56,991,667	$0.30	–	$	0.30	56,991,667	–	$	0.30
Granted	3,833,330	$0.30 - $0.40	4.9	$	0.32	3,000,000	4.9	$	0.32
As of June 30, 2012	120,355,242	$0.30 - $2.00	3.9	$	0.40	119,521,912	3.9	$	0.40

Calculations of the ratchet-down impact

Calculations of the ratchet-down impact:

	Original					After Ratchet Down
	Shares  x		Strike  =		Aggregate Exercise Price		Shares  x		Strike  =		Aggregate Exercise Price
Series A warrants	21,750,000	$	0.65	$	14,137,500		47,125,000	$	0.30	$	14,137,500
Series B warrants	10,875,000	$	1.00	$	10,875,000		36,250,000	$	0.30	$	10,875,000
Placement agent warrant	3,600,000	$	0.65	$	2,340,000		7,800,000	$	0.30	$	2,340,000
Broker-dealer warrant	1,000,000	$	0.65	$	650,000		2,166,667	$	0.30	$	650,000
Advisory warrant	750,000	$	0.65	$	487,500		1,625,000	$	0.30	$	487,500
	37,975,000						94,966,667
Additional warrants from ratchet-down							56,991,667

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13. Commitments and contingencies (Tables)

6 Months Ended

Jun. 30, 2012

Commitments And Contingencies Tables

Commitments and contingencies

Set forth below is information concerning our known contractual obligations as of June 30, 2012 that are fixed and determinable by year:

			Six Months ended December 31,		Twelve Months  ended December 31,				After
	Total		2012		2013		2014		2014
Payroll, payroll tax and personnel	$	1,394,880	$	1,394,880	$	–	$	–	$	–
Employee and consulting contracts		1,670,661		1,026,494		519,167		125,000		–
Notes payable		2,752,999		2,752,999		–		–		–
Legal judgments		90,732		90,732		–		–		–
Rent obligations		452,041		226,021		226,020		–		–
	$	6,361,313	$	5,491,126	$	745,187	$	125,000	$	–

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3. Basis of Presentation and Significant Accounting Policies

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

NOTE 3 - Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  The unaudited balance sheet at June 30, 2012 consolidates the accounts of PEI.  All significant intercompany balances were eliminated in consolidation.  

Use of Estimates

The preparation of our consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements and accompanying notes. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may differ from such estimates and assumptions.

Event Revenues

Event revenue consists of ticket sales, participant entry fees, corporate sponsorships, advertising, television broadcast fees, athlete management, concession and merchandise sales, charity receipts, commissions and hospitality functions. The Company recognizes admissions and other event-related revenues when the events are held in accordance with SEC Staff Accounting Bulletin (“SAB”) 104. Revenues received in advance and related direct expenses pertaining to specific events are deferred until the events are actually held.

Stratus White Visa Card

Stratus White (formerly Stratus Rewards), the Company’s affiliate redemption credit card rewards program, is expected to generate revenues from transaction fees generated by member purchases using the card, initiation fees and annual membership fees. Revenue is recognized when transaction fees are received and membership fees are amortized and recognized ratably over the twelve-month membership period from the time of receipt.

Cash Equivalents

We consider all highly liquid investments purchased with maturities of three months or less to be cash equivalents.

Accounts Receivable

Accounts receivable arise principally from royalties from television networks for pay-per-view presentations.

Fair Value of Financial Instruments

Our financial instruments include cash and equivalents, accounts receivable, accounts payable, notes payable and accrued liabilities. The carrying amounts of financial instruments approximate fair value due to their short maturities.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. We record depreciation using the straight-line method over the following estimated useful lives:

Equipment	3 – 5 years
Furniture and fixtures	5 years
Software	3 years
Leasehold improvements	Lesser of lease term or life of improvements

Goodwill and Intangible Assets

Intangible assets consist of goodwill from certain events and the Stratus White Visa Card we acquired. Goodwill is the excess of the cost of an acquired entity over the net amounts assigned to tangible and intangible assets acquired and liabilities assumed. We apply the provisions of FASB ASC Topic 350 Goodwill and Other Intangible Assets, which requires allocating goodwill to each reporting unit and testing for impairment using a two-step approach.

The Company purchased several events that are recorded on the Company’s balance sheet as intangible assets with a value at the consideration paid for such assets, which generally include licensing rights, naming rights, merchandising rights and the right to hold such event in particular geographic locations.  There was no goodwill assigned to any of these events and the value of the consideration paid for each event is considered to be the value for each related intangible asset.   Each event has separate accounts for tracking revenues and expenses and a separate account to track the asset valuation.

A portion of the consideration used to purchase the Stratus White Visa Card program was allocated to specific assets, as disclosed in the footnotes to the financial statements, with the difference between the specific assets and the total consideration paid for the program being allocated to goodwill.

The Company reviews the value of intangible assets and related goodwill as part of its annual reporting process, which generally occurs in February or March of each calendar year.  Between valuations, the Company conducts additional tests if circumstances warrant such testing.  For example, if the Company was unable to secure the services of any sponsoring banks, the Company would then undergo a thorough valuation of the intangible assets related to its Stratus White Visa Card program.

To review the value of intangible assets and related goodwill, the Company compares discounted cash flow forecasts with the amounts of the assets on the balance sheet.

The events are forecasted based on historical results for those events, adjusted over time for the assumed synergies expected from discounts from purchases of goods and services from a number of events rather than from each event on its own, and for synergies resulting from the expected ability to provide sponsors with benefits from sponsoring multiple events with a single point of contact.

These forecasts are discounted at a range of discount rates determined by taking the risk-free interest rate at the time of valuation, plus premiums for equity risk and small companies in general, and factors specific to the Company and its business.

If the Company determines the discount factor for cash flows should be increased, or the event will not be able to begin operations when planned, it is possible the amounts for the intangible assets currently on the balance sheet could be reduced or eliminated, which could result in a maximum charge to operations equal to the current carrying value of the intangible assets of $3,359,466.

Research and Development

Research and development costs not related to contract performance are expensed as incurred. We did not incur any research and development expenses for 2011 or the six months ended June 30, 2012.

Capitalized Software Costs

We did not capitalize any software development costs during 2011 or the six months ended June 30, 2012. Costs related to the development of new software products and significant enhancements to existing software products are expensed as incurred until technological feasibility has been established and are amortized over three years.

Valuation of Long-Lived Assets

We account for long-lived assets in accordance with the provisions of FASB ASC Topic 360 Accounting for the Impairment or Disposal of Long-Lived Assets, which requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. Assets to be disposed of by sale are reflected at the lower of their carrying amount or fair value less cost to sell.

Net Loss Per Share

We compute net loss per share in accordance with FASB ASC Topics 260 Earnings Per Share.  Basic per share data is computed by dividing loss available to common stockholders by the weighted average number of shares outstanding during the period. Diluted per share data is computed by dividing loss available to common stockholders by the weighted average shares outstanding during the period increased to include, if dilutive, the number of additional common share equivalents that would have been outstanding if potential common shares had been issued using the treasury stock method. Diluted per share data would also include the potential common share equivalents relating to convertible securities by application of the if-converted method.

The effect of common stock equivalents (which include outstanding warrants and stock options) are not included for the six months ended June 30, 2012 or 2011, as they are antidilutive to loss per share.

Stock-Based Compensation

We follow FASB ASC Topic 718 Share Based Payment, using the modified prospective transition method. New awards and awards modified, repurchased or cancelled after January 1, 2006 trigger compensation expense based on the fair value of the stock option as determined by the Black-Scholes option pricing model. We amortize stock-based compensation for such awards on a straight-line method over the related service period of the awards taking into account the effects of the employees’ expected exercise and post-vesting employment termination behavior.

We account for equity instruments issued to non-employees in accordance with the provisions of FASB ASC Topic 718.

The risk-free interest rate is based on U.S. Treasury interest rates, the terms of which are consistent with the expected life of the stock options.   Future option grants will be calculated using expected volatility based upon the average volatility of our common stock.

Advertising

We expense the cost of advertising as incurred. Such amounts have not historically been significant to our operations.

Income Taxes

The Company utilizes FASB ASC Topics 740-10 and 740-30 Accounting for Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that were included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

Recent Accounting Pronouncements

In June 2011, FASB issued ASU 2011-05, Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income. Under the amendments in this update, an entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income and a total amount for comprehensive income. In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. In addition, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendments in this update should be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company evaluated this pronouncement and determined that it is not applicable to the Company’s financial presentation at this time.

In September 2011, FASB issued ASU 2011-08 Intangibles—Goodwill and Other (Topic 350), which requires that a company should first examined the facts and circumstances for each event or business to determine if it was more likely than not that an impairment had occurred. If this examination suggested it was more likely that an impairment had occurred, the company then compares discounted cash flow forecasts related to the asset with the stated value of the assets on the balance sheet. The Company adopted this accounting standard for the year ended December 31, 2011 and utilized it in the analysis for impairment of intangible assets.

On July 27, 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment.  The ASU provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired.  If an entity concludes that it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required.  However, if an entity concludes otherwise, it would be required to determine the fair value of the indefinite-lived intangible asset to measure the amount of actual impairment, if any, as currently required under US GAAP. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.  Early adoption is permitted. The adoption of this pronouncement will not have a material impact on our financial statements.

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14. Segment Information (Tables)

6 Months Ended

Jun. 30, 2012

Segment Information Tables

Segment Information

A summary of results by segment is as follows:

	(Amounts in $000)
	As of/for the Six Months ended June 30, 2012												As of /for the Six Months ended June 30, 2011
	Stratus Credit Card			ProElite Events			Other			Total			Credit Card			Events		Other			Total
Revenues	$	-		$	231		$	-		$	231		$	-		$	-	$	-		$	-
Cost of revenues		-			235			-			235			-			-		-			-
Gross loss		-			(4	)		-			(4	)		-			-		-			-
Deprec. & Amort		-			-			20			20			30			-		-			30
Segment loss		-			(4	)		(20	)		(24	)		(30	)		-		-			(30	)
Operating expenses		175			578			4,018			4,771			175			-		3,526			3,701
Other expenses		-			38			1,020			1,058			-			-		129			129
Net loss	$	(175	)	$	(620	)	$	(5,058	)	$	(5,853	)	$	(205	)	$	-	$	(3,655	)	$	(3,860	)
Assets	$	1,073		$	1,924		$	712		$	3,709		$	1,216		$	2,124	$	9,127		$	12,467
Liabilities	$	200		$	2,085		$	6,492		$	8,777		$	1,000		$	484	$	2,329		$	3,813

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12. Shareholders' Deficit (Details Narrative) (USD $)	12 Months Ended
	Dec. 31, 2011	Jun. 30, 2012
Class of Stock [Line Items]
Warrants Issued		833,330
Preferred Stock Outstanding	8,500	8,500
SeriesCTenPercentPreferredStockMember
Class of Stock [Line Items]
Preferred Stock Conversion Description	Each share of Series C sold for $30, can be converted at any time into 20 shares of common stock and has voting rights of 20 shares of common stock.
Warrants Issued	124,990
Warrants Exercise Price	$ 2
Preferred stock liquidation preference	$ 30
Cumulative dividend	10.00%
Additional Conversion Description	The Series C automatically convert into 20 shares of common stock when the closing price for a share of common stock is $5.00 or above and the average daily trading volume for the 10 previous trading days is above 200,000 shares.
SeriesDTenPercentPreferredStockMember
Class of Stock [Line Items]
Preferred Stock Conversion Description	Each share of Series D sold for $30, can be converted at any time into 60 shares of common stock and has voting rights of 60 shares of common stock.
Warrants Issued	179,970
Warrants Exercise Price	$ 1
Preferred stock liquidation preference	$ 30
Cumulative dividend	10.00%
Additional Conversion Description	The Series D automatically convert into 60 shares of common stock when the closing price for a share of common stock is $5.00 or above and the average daily trading volume for the 10 previous trading days is above 200,000 shares.
Preferred Stock Outstanding	18,999	18,999
SeriesEFivePercentPreferredStockMember
Class of Stock [Line Items]
Preferred Stock Conversion Description	Company sold the Investors 8,700 shares of a new series of convertible preferred stock designated as Series E Convertible Preferred Stock (the “Series E”), the terms of which are set forth in the Certificate of Designations of Series E Preferred Stock (the “Certificate”), for $1,000 per share, or $8,700,000 in the aggregate.
Cumulative dividend	5.00%
Additional Conversion Description	The effective conversion rate for the Preferred Shares was originally is $0.40 per share of Common Stock, but has been adjusted to $0.30 pursuant to the full ratchet anti-dilution protection mentioned above. The Preferred Shares have voting rights on an as-converted to Common Stock basis, with the Investors (subject to certain exceptions) having the right to elect two members to the Company’s Board of Directors (“BOD”) for so long as at least 50% of the total number of Preferred Shares purchased pursuant to the Purchase Agreement are outstanding, and the right to elect one member to the Company’s BOD for so long as least 25% but less than 50% of the total number of Preferred Shares issued pursuant to the Purchase Agreement are outstanding. The Company is required to redeem any unconverted Preferred Shares on the fifth anniversary of the date of first issuance of the Preferred Shares, and has the right to require conversion at any time if the average daily trading value for any 20 consecutive trading days exceeds $250,000 and the weighted average price per share is at least $2.50 for each of those 20 consecutive trading days.
Preferred Stock Outstanding	8,500	8,475

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12. Shareholders' Deficit (Details 1) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Options Outstanding
Beginning Balance	59,530,245
Cancelled	(7,376,329)	(3,110,000)
Exercised
Granted	2,300,000	5,010,000
Ending Balance	120,355,242	59,530,245
Range of Exercise Prices
Beginning Balance Minimum	$ 0.14	$ 0.14
Beginning Balance Maximum	$ 1.5	$ 3.5
Cancelled
Exercised
Granted	$ 0.35	$ 0.54
Ending Balance Minimum	$ 0.35	$ 0.14
Ending Balance Maximum	$ 0.54	$ 1.5
Beginning Balance	3 years 2 months 12 days	2 years 4 months 24 days
Granted	5 years	5 years
Ending Balance	3 years 8 months 12 days	3 years 2 months 12 days
Weighted Average Exercise Price
Beginning Balance	$ 2
Cancelled		$ 0.43
Exercised
Granted	$ 0.35	$ 0.54
Ending Balance	$ 0.4	$ 2
Options Exercisable
Beginning Balance	8,757,684
Cancelled	(4,660,994)	(3,110,000)
Exercised
Granted		3,355,000
Ending Balance	4,096,690	8,757,684
Weighted Average Remaining Life in Years
Beginning Balance	3 years 2 months 12 days	2 years
Granted		5 years
Ending Balance	2 years 9 months 18 days	3 years 2 months 12 days
Weighted Average Exercise Price
Beginning Balance	$ 0.4
Cancelled		$ 0
Exercised
Granted		$ 0.54
Ending Balance	$ 0.52	$ 0.4

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CONSOLIDATED BALANCE SHEETS (USD $) (USD $)	Jun. 30, 2012	Dec. 31, 2011
ASSETS
Cash and equivalents	$ 42,934	$ 98,449
Accounts receivable	71,667
Deposits and prepaid expenses	138,337	87,502
Total current assets	252,938	185,951
Property and equipment, net	96,476	78,135
Goodwill and intangible assets	3,359,466	3,359,466
Acquisition deposit		50,000
Total assets	3,708,880	3,673,552
Accounts payable	1,052,945	789,021
Deferred salary	813,039
Accrued interest	1,015,121	716,718
Other accrued expenses and other liabilities	2,585,405	1,541,315
Loans payable to officers and a director	105,245	184,163
Rent liability for facilities no longer occupied	452,041
Notes payable	2,752,999	555,000
Total current liabilities	8,776,795	3,786,217
Series C 10% Preferred Stock, Team-, $0.001 par value: 1,000,000 shares authorized, 0 shares outstanding
Series D 10% Preferred Stock, $0.001 par value: 500,000 shares authorized,18,999 shares outstanding	19	19
Series E 5% Preferred Stock, $0.001 par value: 10,000 shares authorized;8,475 and 8,500 shares issued and outstanding	8	9
Common stock, $0.001 par value: 200,000,000 shares authorized 89,230,561 and 88,157,055 shares issued and outstanding	89,231	88,157
Additional paid-in capital	42,886,643	41,964,908
Accumulated deficit	(48,049,851)	(42,196,523)
Total Stratus Stockholders' equity	(5,073,950)	(143,430)
Non-Controlling interest	6,035	30,765
Total shareholders' deficit	(5,067,915)	(112,665)
Total liabilities and shareholders' deficit	$ 3,708,880	$ 3,673,552

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14. Segment Information (Details) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Segment Information
Revenues	$ 71,666		$ 231,208
Cost of revenues	6,451		234,953
Gross loss	65,215		(3,745)
Deprec. & Amort	9,878	13,380	19,758	26,759
Segment loss	(2,442,673)	(2,056,726)	(4,794,841)	(3,731,101)
Operating expenses	2,507,888	2,056,726	4,791,096	3,731,101
Other expenses	760,696		760,696
Net loss	(3,374,586)	(2,145,562)	(5,853,328)	(3,859,940)	(15,837,168)
Assets	3,708,880		3,708,880		3,673,552
Liabilities	8,776,795		8,776,795		3,786,217
StratusCreditCardMember
Segment Information
Revenues
Cost of revenues
Gross loss
Deprec. & Amort				30
Segment loss				(30)
Operating expenses			175	175
Other expenses
Net loss			(175)	(205)
Assets	1,073	1,216	1,073	1,216
Liabilities	200	1,000	200	1,000
ProEliteEventsMember
Segment Information
Revenues			231
Cost of revenues			235
Gross loss			(4)
Deprec. & Amort
Segment loss			(4)
Operating expenses			578
Other expenses			38
Net loss			(620)
Assets	1,924	2,124	1,924	2,124
Liabilities	2,085	484	2,085	484
OthersMember
Segment Information
Revenues
Cost of revenues
Gross loss
Deprec. & Amort			20
Segment loss			(20)
Operating expenses			4,018	3,526
Other expenses			1,020	129
Net loss			(5,058)	(3,655)
Assets	712	9,127	712	9,127
Liabilities	6,492	2,329	6,492	2,329
ConsolidateMember
Segment Information
Revenues			231
Cost of revenues			235
Gross loss			(4)
Deprec. & Amort			20	30
Segment loss			(24)	(30)
Operating expenses			4,771	3,701
Other expenses			1,058	129
Net loss			(5,853)	(3,860)
Assets	3,709	12,467	3,709	12,467
Liabilities	$ 8,777	$ 3,813	$ 8,777	$ 3,813

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1. Business

6 Months Ended

Jun. 30, 2012

Business Combinations [Abstract]

NOTE 1 - Business

On March 14, 2008, pursuant to an Agreement and Plan of Merger dated August 20, 2007 between Feris International, Inc. (“Feris”) and Pro Sports & Entertainment, Inc. (“PSEI”), Feris issued 49,500,000 shares of its common stock for all of the issued and outstanding shares of PSEI, resulting in PSEI becoming a wholly-owned subsidiary of Feris and the surviving entity for accounting purposes (“Reverse Merger”).  In July 2008, Feris’ corporate name was changed to Stratus Media Group, Inc. (“SMDI,” “Stratus” or the “Company”).

PSEI, a California corporation, was organized on November 23, 1998 and specializes in sports and entertainment events it owns, operates, manages, markets and sells in national markets.  PSEI acquired the business of Stratus Rewards, LLC (“Stratus Rewards”) in August 2005 and Stratus Rewards is a wholly-owned subsidiary of PSEI.  Stratus Rewards is a credit card rewards program using the Visa card platform that offers a luxury rewards redemption program, including private jet travel, premium travel opportunities, exclusive events and luxury merchandise.   In May 2010, the Company entered into an agreement with a private bank in Switzerland for it to be the processing bank for Stratus Rewards in Europe.

ProElite, Inc. (“PEI”) is a subsidiary of the Company.  PEI specializes in the operation and management of Mixed Martial Arts events.  

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12. Shareholders' Deficit (Details 3) (USD $)	Jun. 30, 2012
Class of Warrant or Right [Line Items]
Shares	37,975,000
Additional warrants from ratchet-down	56,991,667
AfterRatchetDownMember
Class of Warrant or Right [Line Items]
Shares	94,966,667
SeriesAWarrantsMember
Class of Warrant or Right [Line Items]
Shares	21,750,000
Strike Price	0.65
Aggregate Exercise Price	14,137,500
SeriesAWarrantsMember | AfterRatchetDownMember
Class of Warrant or Right [Line Items]
Shares	47,125,000
Strike Price	0.3
Aggregate Exercise Price	14,137,500
SeriesBWarrantsMember
Class of Warrant or Right [Line Items]
Shares	10,875,000
Strike Price	1
Aggregate Exercise Price	10,875,000
SeriesBWarrantsMember | AfterRatchetDownMember
Class of Warrant or Right [Line Items]
Shares	36,250,000
Strike Price	0.3
Aggregate Exercise Price	10,875,000
PlacementAgentWarrantMember
Class of Warrant or Right [Line Items]
Shares	3,600,000
Strike Price	0.65
Aggregate Exercise Price	2,340,000
PlacementAgentWarrantMember | AfterRatchetDownMember
Class of Warrant or Right [Line Items]
Shares	7,800,000
Strike Price	0.3
Aggregate Exercise Price	2,340,000
BrokerDealerWarrantMember
Class of Warrant or Right [Line Items]
Shares	1,000,000
Strike Price	0.65
Aggregate Exercise Price	650,000
BrokerDealerWarrantMember | AfterRatchetDownMember
Class of Warrant or Right [Line Items]
Shares	2,166,667
Strike Price	0.3
Aggregate Exercise Price	650,000
AdvisoryWarrantMember
Class of Warrant or Right [Line Items]
Shares	750,000
Strike Price	0.65
Aggregate Exercise Price	487,500
AdvisoryWarrantMember | AfterRatchetDownMember
Class of Warrant or Right [Line Items]
Shares	1,625,000
Strike Price	0.3
Aggregate Exercise Price	487,500

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17. Subsequent Events

6 Months Ended

Jun. 30, 2012

Subsequent Events [Abstract]

NOTE 17 - Subsequent Events

In July 2012, SMDI issued two promissory notes in the aggregate principal amount of $50,000. These notes bear interest at 10%, with principal and interest due on the earlier of November 11, 2012, or the receipt by the Company of $2,000,000 or more of gross proceeds from the sale of equity securities. These notes are secured by the assets of the Company on a pari passu basis with the holders of the Company’s Series E Preferred Stock.

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8. Goodwill and Intangible assets (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011
Intangible Assets Net
Intangible Assets	$ 350,500	$ 350,500
Goodwill	3,008,966	3,008,966	1,935,621
Goodwill and Intangible Assets	3,359,466	3,359,466
BeverlyHillsConcoursMember
Intangible Assets Net
Intangible Assets	2,500	2,500
Goodwill
Goodwill and Intangible Assets
SantaBarbaraConcoursdEleganceMember
Intangible Assets Net
Intangible Assets	53,000	53,000
Goodwill
Goodwill and Intangible Assets
CourTourActionSportsTourMember
Intangible Assets Net
Intangible Assets	100,000	100,000
Goodwill
Goodwill and Intangible Assets
FreedomBowlMember
Intangible Assets Net
Intangible Assets	190,000	190,000
Goodwill
Goodwill and Intangible Assets
MauiMusicFestivalMember
Intangible Assets Net
Intangible Assets	5,000	5,000
Goodwill
Goodwill and Intangible Assets
ProEliteMember
Intangible Assets Net
Intangible Assets
Goodwill	1,935,621	1,935,621
Goodwill and Intangible Assets
StratusVisaWhiteCardMember
Intangible Assets Net
Intangible Assets
Goodwill	1,073,345	1,073,345
Goodwill and Intangible Assets

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3. Basis of Presentation and Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2012

Basis Of Presentation And Significant Accounting Policies Tables

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. We record depreciation using the straight-line method over the following estimated useful lives:

Equipment	3 – 5 years
Furniture and fixtures	5 years
Software	3 years
Leasehold improvements	Lesser of lease term or life of improvements

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2. Going Concern

6 Months Ended

Jun. 30, 2012

Organization, Consolidation and Presentation of Financial Statements [Abstract]

NOTE 2 - Going Concern

The Company has suffered losses from operations and without additional capital, lacks liquidity to meet its current obligations.  The Company had a net loss for 2011 of $15,837,168 and a net loss of $5,853,328 for the six months ended June 30, 2012.  As of June 30, 2012, the Company had negative working capital of $8,523,857 and accumulated deficit of $48,049,851.  Unless additional financing is obtained, the Company will not be able to continue as a going concern.  Because of the lack of working capital, the Company has ceased operations and furloughed its employees.

The financial statements were prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities in the normal course of business.  The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result if the Company be unable to continue as a going concern.

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Statement of Financial Position [Abstract]
Series C 10% Preferred Stock, par value	$ 0.001	$ 0.001
Series C 10% Preferred Stock, shares authorized	1,000,000	1,000,000
Series C 10% Preferred Stock, shares outstanding	0	0
Series D 10% Preferred Stock, par value	$ 0.001	$ 0.001
Series D 10% Preferred Stock, shares authorized	500,000	500,000
Series D 10% Preferred Stock, shares outstanding	18,999	18,999
Series E 10% Preferred Stock,par value	$ 0.001	$ 0.001
Series E 10%, shares authorized	10,000	10,000
Series E 10%, shares issued	8,475	8,475
Series E 10%, shares outstanding	8,500	8,500
Common stock par value (in Dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	89,230,561	89,230,561
Common stock, shares outstanding	88,157,055	88,157,055

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12. Shareholders' Equity/Deficit

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

NOTE 12 - Shareholders' Deficit

Series C 10% Preferred Stock

During 2011, holders of the Company's Series C 10% Preferred Stock (“Series C”) converted all of their Series C into common stock. Each share of Series C sold for $30, can be converted at any time into 20 shares of common stock and has voting rights of 20 shares of common stock.  In connection with the issuance of Series C, the Company issued 124,990 warrants with a life of five years to purchase a share of common stock for $2.00 per share.  The Series C has liquidation preference over common stock at a liquidation value of $30 and pays a cumulative dividend of 10% per year, payable on July 31 and December 31of each year that the Series C is outstanding.  Interest payments may be made in cash or in common stock at the discretion of the Company.  The Series C automatically convert into 20 shares of common stock when the closing price for a share of common stock is $5.00 or above and the average daily trading volume for the 10 previous trading days is above 200,000 shares.  Given the losses recorded by the Company, the stock equivalents related to the Series C are not included in the calculation of earnings per share since the effect of such inclusion would be antidilutive.

Since the Series C contains an embedded conversion feature, the Company performed an analysis of the Series C under ASC 815 “Derivatives and Hedging.”  This analysis determined that the embedded conversion feature was not required to be bifurcated and accounted separately from the Series C because the economic risks and characteristics of the embedded conversion feature were clearly and closely related to the economic risks and characteristics of the host contract Series C, namely the risks of the common stock.  The value of the beneficial conversion feature (“BCF”) was $26,945, which was charged to equity at the time of issuance and was not included in the calculation of earnings per share.  The BCF was calculated as the difference of the fair value of the conversion price and the intrinsic value of the preferred shares.

The Series C contains a share adjustment provision that provides for additional shares to be issued if the 30-day volume weighted average price of the Company’s common stock (“VWAP”) is between $1.00 and $2.00 180 days after the purchase of Series C.  If the VWAP is above $2.00, no action is taken.  If the VWAP is between $1.00 to $2.00, additional shares are issued to the holder such that the total of the number of common shares issuable upon conversion, which is the number of Series C shares times 20 (“Conversion Shares”), plus the additional shares together equals the VWAP price equals the Conversion Shares times $2.00.  If the VWAP is below $1.00 the number of additional shares are calculated as if the price were $1.00, not the actual VWAP.  Once this 180-day period passes and the Company has issued the appropriate shares, if any, then Price Protection provisions of this Agreement will expire and the Company will be completely released from any future claims by the Purchaser related to this share adjustment provision.

The Company determined that derivative accounting for the embedded conversion and the share adjustment features were  not required pursuant to ASC 815-10-15-74 because the features and the shares are indexed to the Company’s own stock under ASC 815-40-15 (EITF Issue 07-5); the features can be classified in shareholders’ equity under ASC 815-40 (EITF Issue 00-19, paragraphs 1-11)  and that Series C is classified as a conventional convertible so the embedded conversion feature can be classified in stockholders’ equity under ASC 815-40 (Issue 00-19, paragraphs 12-32).  The determination was made by the Company that the Series C is a conventional convertible because the freestanding warrant is indexed to the company’s own stock under ASC 815-40-15 (EITF Issue 07-5); the freestanding warrant is classified in shareholders’ equity under ASC 815-40 (Issue 00-19, paragraphs 1-32); and the financial instrument does not include embedded puts and/or calls or other features that require bifurcation from the host contract under ASC 815.

As of December 31, 2011, all Series C Preferred Stock had been converted into common stock.

Series D 10% Preferred Stock

The Company had 18,999 shares of its Series D 10% Preferred Stock (“Series D”) outstanding as of June 30, 2012 and December 31, 2011.  Each share of Series D sold for $30, can be converted at any time into 60 shares of common stock and has voting rights of 60 shares of common stock.  In connection with the issuance of Series D, the Company issued warrants to purchase 179,970 shares of common stock.  The warrants have a life of five years to purchase a share of common stock for $1.00 and expire between November 2015 and April 2016.  The Series D has liquidation preference over common stock at a liquidation value of $30 and pays a cumulative dividend of 10% per year, payable on July 31 and December 31 of each year that the Series D is outstanding.  Interest payments may be made in cash or in common stock at the discretion of the Company.  The Series D automatically convert into 60 shares of common stock when the closing price for a share of common stock is $5.00 or above and the average daily trading volume for the 10 previous trading days is above 200,000 shares.  Given the losses recorded by the Company, the stock equivalents related to the Series D are not included in the calculation of earnings per share since the effect of such inclusion would be antidilutive.

Since the Series D contains an embedded conversion feature, the Company performed an analysis of the Series C under ASC 815 “Derivatives and Hedging.”  This analysis determined that the embedded conversion feature was not required to be bifurcated and accounted separately from the Series D because the economic risks and characteristics of the embedded conversion feature were clearly and closely related to the economic risks and characteristics of the host contract Series D, namely the risks of the common stock.  The value of the BCF was $26,945 which was charged to equity at the time of issuance and was not included in the calculation of earnings per share.  The BCF was calculated as the difference of the fair value of the conversion price and the intrinsic value of the preferred shares.

The Series D contains a share adjustment provision that provides for additional shares to be issued if the thirty-day volume weighted average price of the Company’s common stock (“VWAP”) is between $0.50 and $1.00 180 days after the purchase of Series D.  If the VWAP is above $1.00, no action is taken.  If the VWAP is between $0.50 to $1.00, additional shares are issued to the holder such that the total of the number of common shares issuable upon conversion, which is the number of Series D shares times 60 (“Conversion Shares”), plus the additional shares together equals the VWAP price equals the Conversion Shares times $1.00.  If the VWAP is below $0.50 the number of additional shares are calculated as if the price were $0.50, not the actual VWAP.  Once this 180-day period passes and the Company has issued the appropriate shares, if any, then Price Protection provisions of this Agreement will expire and the Company will be completely released from any future claims by the Purchaser related to this share adjustment provision.  The price protection provisions have expired.

The Company determined that derivative accounting for the embedded conversion and the share adjustment features was not required pursuant to ASC 815-10-15-74 because these features are indexed to the Company’s own stock under ASC 815-40-15 (EITF Issue 07-5); the features can be classified in shareholders’ equity under ASC 815-40 (EITF Issue 00-19, paragraphs 1-11)  and that Series D is classified as a conventional convertible so the features can be classified in stockholders’ equity under ASC 815-40 (Issue 00-19, paragraphs 12-32).  The determination was made by the Company that the Series D is a conventional convertible because the freestanding warrant is indexed to the company’s own stock under ASC 815-40-15 (EITF Issue 07-5); the freestanding warrant is classified in shareholders’ equity under ASC 815-40 (Issue 00-19, paragraphs 1-32); and the financial instrument does not include embedded puts and/or calls or other features that require bifurcation from the host contract under ASC 815.

As of June 30, 2012 there were 18,999 shares of Series D Preferred Stock outstanding.   

Series E 5% Preferred Stock

On May 24, 2011, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with eight investors (collectively, the “Investors”) pursuant to which the Company sold the Investors 8,700 shares of a new series of convertible preferred stock designated as Series E Convertible Preferred Stock (the “Series E”), the terms of which are set forth in the Certificate of Designations of Series E Preferred Stock (the “Certificate”), for $1,000 per share, or $8,700,000 in the aggregate. As of June 30, 2012 and December 31, 2011, there were 8,475 and 8,500 shares of Series E outstanding.

In connection with the sale of the Preferred Shares, the Company also agreed to issue to the Investors (a) warrants (“A Warrants”) to purchase up to one additional share of Common Stock for each share of Common Stock issuable upon conversion of the Preferred Shares, and (b) warrants (“B Warrants”) to purchase up to .50 additional shares of Common Stock for each share of Common Stock issuable upon conversion of the Preferred Shares. The Warrants are exercisable for five years commencing on the date of first issuance and are exercisable only for cash if there is an effective registration statement covering the resale of the shares issuable upon exercise of the Warrants. In the absence of such a registration statement, the Warrants are exercisable for cash or on a cashless basis at the option of the holder thereof. The exercise price of the A Warrant is $0.30 per share and the B Warrant has an exercise price of $0.30 per share, subject in each case to full ratchet anti-dilution protection. The exercise price of the A Warrant was originally $0.65 and the exercise price of the B Warrant was originally $1.00 but were adjusted pursuant to the full ratchet anti-dilution protection when $249,999 of notes were issued on April 4, 2012 that contained a $0.30 conversion feature.

Pursuant to the Certificate, the Preferred Shares bear a dividend of 5%, payable quarterly in cash, or, if the dividend shares are registered for resale, in shares of the Company’s Common Stock. The effective conversion rate for the Preferred Shares was originally is $0.40 per share of Common Stock, but has been adjusted to $0.30 pursuant to the full ratchet anti-dilution protection mentioned above. The Preferred Shares have voting rights on an as-converted to Common Stock basis, with the Investors (subject to certain exceptions) having the right to elect two members to the Company’s Board of Directors (“BOD”) for so long as at least 50% of the total number of Preferred Shares purchased pursuant to the Purchase Agreement are outstanding, and the right to elect one member to the Company’s BOD for so long as least 25% but less than 50% of the total number of Preferred Shares issued pursuant to the Purchase Agreement are outstanding. The Company is required to redeem any unconverted Preferred Shares on the fifth anniversary of the date of first issuance of the Preferred Shares, and has the right to require conversion at any time if the average daily trading value for any 20 consecutive trading days exceeds $250,000 and the weighted average price per share is at least $2.50 for each of those 20 consecutive trading days.

To secure the Company’s obligation to redeem the Preferred Shares, the Company entered into a Security Agreement dated May 24, 2011, pursuant to which the Company agreed to grant the holders of the Preferred Shares a first priority security interest in all of its assets.

The Company filed a registration statement with the SEC covering the resale of the shares (a) issuable upon conversion of the Preferred Shares or exercise of the Warrants, (b) issued as dividends payable in shares of Common Stock pursuant to the Certificate, and (c) issuable upon exercise of the Placement Agent Warrants. This registration statement was declared effective on February 13, 2012. Upon the occurrence of certain events set forth in the Purchase Agreement, including the failure to timely file the registration statement or have the registration statement timely declared effective, the Company will pay to the Investors cash of 1% of the aggregate purchase price of the Series E Preferred Stock and Warrants for each 30-day period during such default; provided, however, that the payments will not exceed 10% of the aggregate purchase price.

As of June 30, 2012 there were 8,475 shares of Series E Preferred Stock outstanding.   

Common Stock

During the six months ended June 30, 2012, the Company did not raise funds from the issuance of common stock.

Stock Options

During the six months ended June 30, 2012, the Company cancelled 4,660,994 options for employees whose employment had been terminated and granted 2,300,000 options to Jerold Rubinstein, the Company’s new Chairman of the Board and Chief Executive Officer on June 28, 2012, pursuant to an employment contract. These options have a strike price of $0.35, which is the closing price of the Company’s common stock on the day of grant, a five-year life and vest monthly over a twelve-month period unless the employment contract is terminated for any reason, at which time the options vest in full. The Black Scholes value of these options was $448,800 which is being amortized over the twelve month vesting period starting July 1, 2012; accordingly, no expense was recognized for the three and six months ended June 30, 2012.  The following assumptions were used for the Black Scholes calculation to determine this expense:

Estimated fair value of underlying common stock	$0.35
Remaining life	5.0
Risk-free interest rate	0.69%
Expected volatility	80%
Dividend yield	–

The following table sets forth the activity of our stock options:

	Options Outstanding						Options Exercisable
	Options Outstanding		Range of Exercise Prices	Weighted Average Remaining Life in Years		Weighted Average Exercise Price	Options Exercisable		Weighted Average Remaining Life in Years		Weighted Average Exercise Price
As of December 31, 2010	10,269,852		$0.14 - $3.50	2.4	$	0.94	8,512,684		2.0	$	0.94
Cancelled	(3,110,000	)	–	–	$	0.43	(3,110,000	)	–	$	0.00
Exercised
Granted	5,010,000		$0.54	5.0	$	0.54	3,355,000		5.0	$	0.54
As of December 31, 2011	12,169,852		$0.14 - $1.50	3.2	$	0.49	8,757,684		3.2	$	0.40
Cancelled	(7,376,329	)	–	–		–	(4,660,994	)	–		–
Exercised	–		–	–		–	–		–		–
Granted	2,300,000		$0.35	5.0	$	0.35	–		–		–
As of June 30, 2012	7,093,523		$0.35 -$0.54	3.7	$	0.47	4,096,690		2.8	$	0.52

Warrants

During the six months ended June 30, 2012, the Company issued five-year warrants to purchase 833,330 shares at $0.40 in connection with a note payable for $249,999. During this period, the Company issued warrants to purchase 3,000,000 shares of its common stock at $0.30 with a five-year life in connection with a non-exclusive agreement with an investment bank for advisory services related to funding and capital structure. In addition, this investment bank received warrants to purchase 1,000,000 shares of ProElite common stock at $0.35 with a five-year life. The Black Scholes value of the warrants issued to the investment bank was $1,274,000, which is being recognized over a twelve month period starting June 1, 2012; accordingly, $106,167 was recognized as an expense during the three and six months ended June 30, 2012.  The following assumptions were used for the Black Scholes calculation to determine this expense:

Estimated fair value of underlying common stock	$0.55
Remaining life	5.0
Risk-free interest rate	0.74%
Expected volatility	84%
Dividend yield	–

A summary of the warrants:

	Warrants Outstanding					Warrants Exercisable
	Warrants Outstanding	Range of Exercise Prices	Weighted Average Remaining Life in Years		Weighted Average Exercise Price	Warrants Exercisable	Weighted Average Remaining Life in Years		Weighted Average Exercise Price
As of December 31, 2010	2,472,676	$1.00 - $2.00	4.4	$	1.37	2,472,676	4.4	$	1.37
Exercised	–	–	–		–	–	–		–
Granted	57,057,569	$0.65 - $1.00	4.5	$	0.75	57,057,569	4.5	$	0.75
As of December 31, 2011	59,530,245	$0.65 - $2.00	3.5	$	2.00	59,530,245	3.5	$	2.00
Exercised	–	–	–		–	–	–		–
Ratchet-down impact	56,991,667	$0.30	–	$	0.30	56,991,667	–	$	0.30
Granted	3,833,330	$0.30 - $0.40	4.9	$	0.32	3,000,000	4.9	$	0.32
As of June 30, 2012	120,355,242	$0.30 - $2.00	3.9	$	0.40	119,521,912	3.9	$	0.40

The exercise price of the A Warrant for Series E Preferred was originally $0.65 and the exercise price of the B Warrant for Series E Preferred was originally $1.00, but both warrants were adjusted pursuant to the full ratchet anti-dilution protection when $249,999 of notes were issued on April 4, 2012 that contained a $0.30 conversion feature.

Calculations of the ratchet-down impact:

	Original					After Ratchet Down
	Shares  x		Strike  =		Aggregate Exercise Price		Shares  x		Strike  =		Aggregate Exercise Price
Series A warrants	21,750,000	$	0.65	$	14,137,500		47,125,000	$	0.30	$	14,137,500
Series B warrants	10,875,000	$	1.00	$	10,875,000		36,250,000	$	0.30	$	10,875,000
Placement agent warrant	3,600,000	$	0.65	$	2,340,000		7,800,000	$	0.30	$	2,340,000
Broker-dealer warrant	1,000,000	$	0.65	$	650,000		2,166,667	$	0.30	$	650,000
Advisory warrant	750,000	$	0.65	$	487,500		1,625,000	$	0.30	$	487,500
	37,975,000						94,966,667
Additional warrants from ratchet-down							56,991,667

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Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 14, 2012
Document And Entity Information
Entity Registrant Name	STRATUS MEDIA GROUP, INC.
Entity Central Index Key	0001053691
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		89,413,894
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2012

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13. Commitments and contingencies

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

NOTE 13 - Commitments and contingencies

Set forth below is information concerning our known contractual obligations as of June 30, 2012 that are fixed and determinable by year:

			Six Months ended December 31,		Twelve Months  ended December 31,				After
	Total		2012		2013		2014		2014
Payroll, payroll tax and personnel	$	1,394,880	$	1,394,880	$	–	$	–	$	–
Employee and consulting contracts		1,670,661		1,026,494		519,167		125,000		–
Notes payable		2,752,999		2,752,999		–		–		–
Legal judgments		90,732		90,732		–		–		–
Rent obligations		452,041		226,021		226,020		–		–
	$	6,361,313	$	5,491,126	$	745,187	$	125,000	$	–

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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Income Statement [Abstract]
Revenues	$ 71,666		$ 231,208
Cost of revenues	6,451		234,953
Gross profit	65,215		(3,745)
General and administrative	1,299,808	1,119,244	2,762,495	1,999,024
Warrants and options	193,917	381,979	434,153	883,105
Legal and professional services	1,004,285	542,123	1,574,690	822,213
Depreciation and amortization	9,878	13,380	19,758	26,759
Total operating expenses	2,507,888	2,056,726	4,791,096	3,731,101
Loss from operations	(2,442,673)	(2,056,726)	(4,794,841)	(3,731,101)
Other (income)/expense	760,696		760,696
Interest expense	171,217	88,836	297,791	128,839
Total other expenses	931,913	88,836	1,058,487	128,839
Net loss	$ (3,374,586)	$ (2,145,562)	$ (5,853,328)	$ (3,859,940)
Basic and diluted loss per share	$ (0.04)	$ (0.03)	$ (0.07)	$ (0.06)
Basic and diluted weighted-average common shares	88,182,285	71,161,702	88,953,297	68,704,527

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7. Property and Equipment

6 Months Ended

Jun. 30, 2012

Property, Plant and Equipment [Abstract]

NOTE 7 - Property and Equipment

Property and equipment were as follows:

	June 30, 2012			December 31, 2011
Computers and peripherals	$	97,660		$	97,660
Office machines		49,370			49,370
Automobile		38,100			–
Furniture and fixtures		79,484			79,484
		264,614			226,514
Less accumulated depreciation		(168,138	)		(148,379	)
	$	96,476		$	78,135

For the six months ended June 30, 2012 and 2011, depreciation was $19,758 and $4,054, respectively.

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6. Receivable from former Chairman and Chief Executive Officer

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

NOTE 6 - Receivable from former Chairman and Chief Executive Officer

Pursuant to an investigation conducted in 2012 directed by the Company’s Board of Directors, it was determined that Paul Feller, the Company’s former Chairman and Chief Executive Officer, received $640,000 in December 2010, net of a commission, in connection with a sale of the Company’s common stock he arranged with an outside investor. This sale was fulfilled with issuance of 2,540,000 shares of common stock issued directly by the Company. While Mr. Feller provided the Company with $557,650 of these funds in 2010 and 2011, he was repaid $564,363 during 2011, the net of which was $6,713 and was recorded as a reduction in the loan amount due to him as of June 30, 2011. Accordingly, the Company recorded a gross receivable of $640,000 from Mr. Feller in connection with this transaction. This receivable is presented net of $398,790 of accrued salary due to Mr. Feller as of December 31, 2011, $115,000 of commissions Mr. Feller has stated were also paid in this transaction and $126,210 of business expenses. The net effect of this receivable and the offsets is zero as of June 30, 2012 and December 31, 2011. This receivable is subject to revision if Mr. Feller submits proper documentation regarding business expenses or other amounts due to him. Mr. Feller resigned from the Company on June 28, 2012.

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3. Basis of Presentation and Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2012

Basis Of Presentation And Significant Accounting Policies Policies

Basis of Presentation

The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  The unaudited balance sheet at June 30, 2012 consolidates the accounts of PEI.  All significant intercompany balances were eliminated in consolidation.

Use of Estimates

The preparation of our consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements and accompanying notes. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may differ from such estimates and assumptions.

Event Revenues

Event revenue consists of ticket sales, participant entry fees, corporate sponsorships, advertising, television broadcast fees, athlete management, concession and merchandise sales, charity receipts, commissions and hospitality functions. The Company recognizes admissions and other event-related revenues when the events are held in accordance with SEC Staff Accounting Bulletin (“SAB”) 104. Revenues received in advance and related direct expenses pertaining to specific events are deferred until the events are actually held.

Stratus White Visa Card

Stratus White (formerly Stratus Rewards), the Company’s affiliate redemption credit card rewards program, is expected to generate revenues from transaction fees generated by member purchases using the card, initiation fees and annual membership fees. Revenue is recognized when transaction fees are received and membership fees are amortized and recognized ratably over the twelve-month membership period from the time of receipt.

Cash Equivalents

We consider all highly liquid investments purchased with maturities of three months or less to be cash equivalents.

Accounts Receivable

Accounts receivable arise principally from royalties from television networks for pay-per-view presentations.

Fair Value of Financial Instruments

Our financial instruments include cash and equivalents, accounts receivable, accounts payable, notes payable and accrued liabilities. The carrying amounts of financial instruments approximate fair value due to their short maturities.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.

Goodwill and Intangible Assets

Intangible assets consist of goodwill from certain events and the Stratus White Visa Card we acquired. Goodwill is the excess of the cost of an acquired entity over the net amounts assigned to tangible and intangible assets acquired and liabilities assumed. We apply the provisions of FASB ASC Topic 350 Goodwill and Other Intangible Assets, which requires allocating goodwill to each reporting unit and testing for impairment using a two-step approach.

The Company purchased several events that are recorded on the Company’s balance sheet as intangible assets with a value at the consideration paid for such assets, which generally include licensing rights, naming rights, merchandising rights and the right to hold such event in particular geographic locations.  There was no goodwill assigned to any of these events and the value of the consideration paid for each event is considered to be the value for each related intangible asset.   Each event has separate accounts for tracking revenues and expenses and a separate account to track the asset valuation.

A portion of the consideration used to purchase the Stratus White Visa Card program was allocated to specific assets, as disclosed in the footnotes to the financial statements, with the difference between the specific assets and the total consideration paid for the program being allocated to goodwill.

The Company reviews the value of intangible assets and related goodwill as part of its annual reporting process, which generally occurs in February or March of each calendar year.  Between valuations, the Company conducts additional tests if circumstances warrant such testing.  For example, if the Company was unable to secure the services of any sponsoring banks, the Company would then undergo a thorough valuation of the intangible assets related to its Stratus White Visa Card program.

To review the value of intangible assets and related goodwill, the Company compares discounted cash flow forecasts with the amounts of the assets on the balance sheet.

The events are forecasted based on historical results for those events, adjusted over time for the assumed synergies expected from discounts from purchases of goods and services from a number of events rather than from each event on its own, and for synergies resulting from the expected ability to provide sponsors with benefits from sponsoring multiple events with a single point of contact.

These forecasts are discounted at a range of discount rates determined by taking the risk-free interest rate at the time of valuation, plus premiums for equity risk and small companies in general, and factors specific to the Company and its business.

If the Company determines the discount factor for cash flows should be increased, or the event will not be able to begin operations when planned, it is possible the amounts for the intangible assets currently on the balance sheet could be reduced or eliminated, which could result in a maximum charge to operations equal to the current carrying value of the intangible assets of $3,359,466.

Research and Development

Research and development costs not related to contract performance are expensed as incurred. We did not incur any research and development expenses for 2011 or the six months ended June 30, 2012.

Capitalized Software Costs

We did not capitalize any software development costs during 2011 or the six months ended June 30, 2012. Costs related to the development of new software products and significant enhancements to existing software products are expensed as incurred until technological feasibility has been established and are amortized over three years.

Valuation of Long-Lived Assets

We account for long-lived assets in accordance with the provisions of FASB ASC Topic 360 Accounting for the Impairment or Disposal of Long-Lived Assets, which requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. Assets to be disposed of by sale are reflected at the lower of their carrying amount or fair value less cost to sell.

Net Loss Per Share

We compute net loss per share in accordance with FASB ASC Topics 260 Earnings Per Share.  Basic per share data is computed by dividing loss available to common stockholders by the weighted average number of shares outstanding during the period. Diluted per share data is computed by dividing loss available to common stockholders by the weighted average shares outstanding during the period increased to include, if dilutive, the number of additional common share equivalents that would have been outstanding if potential common shares had been issued using the treasury stock method. Diluted per share data would also include the potential common share equivalents relating to convertible securities by application of the if-converted method.

The effect of common stock equivalents (which include outstanding warrants and stock options) are not included for the six months ended June 30, 2012 or 2011, as they are antidilutive to loss per share.

Stock-Based Compensation

We follow FASB ASC Topic 718 Share Based Payment, using the modified prospective transition method. New awards and awards modified, repurchased or cancelled after January 1, 2006 trigger compensation expense based on the fair value of the stock option as determined by the Black-Scholes option pricing model. We amortize stock-based compensation for such awards on a straight-line method over the related service period of the awards taking into account the effects of the employees’ expected exercise and post-vesting employment termination behavior.

We account for equity instruments issued to non-employees in accordance with the provisions of FASB ASC Topic 718.

The risk-free interest rate is based on U.S. Treasury interest rates, the terms of which are consistent with the expected life of the stock options.   Future option grants will be calculated using expected volatility based upon the average volatility of our common stock.

Advertising

We expense the cost of advertising as incurred. Such amounts have not historically been significant to our operations.

Income Taxes

The Company utilizes FASB ASC Topics 740-10 and 740-30 Accounting for Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that were included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

Recent Accounting Pronouncements

In June 2011, FASB issued ASU 2011-05, Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income. Under the amendments in this update, an entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income and a total amount for comprehensive income. In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. In addition, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendments in this update should be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company evaluated this pronouncement and determined that it is not applicable to the Company’s financial presentation at this time.

In September 2011, FASB issued ASU 2011-08 Intangibles—Goodwill and Other (Topic 350), which requires that a company should first examined the facts and circumstances for each event or business to determine if it was more likely than not that an impairment had occurred. If this examination suggested it was more likely that an impairment had occurred, the company then compares discounted cash flow forecasts related to the asset with the stated value of the assets on the balance sheet. The Company adopted this accounting standard for the year ended December 31, 2011 and utilized it in the analysis for impairment of intangible assets.

On July 27, 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment.  The ASU provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired.  If an entity concludes that it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required.  However, if an entity concludes otherwise, it would be required to determine the fair value of the indefinite-lived intangible asset to measure the amount of actual impairment, if any, as currently required under US GAAP. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.  Early adoption is permitted. The adoption of this pronouncement will not have a material impact on our financial statements.

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14. Segment Information

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

NOTE 14 - Segment Information

Each event and the Stratus Reward program is considered an operating segment pursuant to ASC 280 since each is budgeted separately and results of each event and the Stratus program are tracked separately to provide the chief operating decision maker information to assess and manage each event and the Stratus Program.

The characteristics of the Stratus Visa White Card program are different than the events, so that operating segment is considered a reporting segment.  The events share similar economic characteristics and are aggregated into a reporting segment pursuant to paragraph 17 of ASC 280.  All of the events provide entertainment and the logistics and production processes and methods for each event are similar:  sponsorship sales, ticket and concession sales, security, stages, public address systems and the like.  While the demographic characteristics of the audience can vary by event, all events cater to consumer entertainment.

A summary of results by segment is as follows:

	(Amounts in $000)
	As of/for the Six Months ended June 30, 2012												As of /for the Six Months ended June 30, 2011
	Stratus Credit Card			ProElite Events			Other			Total			Credit Card			Events		Other			Total
Revenues	$	-		$	231		$	-		$	231		$	-		$	-	$	-		$	-
Cost of revenues		-			235			-			235			-			-		-			-
Gross loss		-			(4	)		-			(4	)		-			-		-			-
Deprec. & Amort		-			-			20			20			30			-		-			30
Segment loss		-			(4	)		(20	)		(24	)		(30	)		-		-			(30	)
Operating expenses		175			578			4,018			4,771			175			-		3,526			3,701
Other expenses		-			38			1,020			1,058			-			-		129			129
Net loss	$	(175	)	$	(620	)	$	(5,058	)	$	(5,853	)	$	(205	)	$	-	$	(3,655	)	$	(3,860	)
Assets	$	1,073		$	1,924		$	712		$	3,709		$	1,216		$	2,124	$	9,127		$	12,467
Liabilities	$	200		$	2,085		$	6,492		$	8,777		$	1,000		$	484	$	2,329		$	3,813

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10. Loans payable to officers and a director

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

NOTE 10 - Loans payable to officers and a director

The Loans payable to officers and directors are as follows:

	June 30, 2012		December 31, 2011
Former president and director, interest at 9.5%	$	-	$	78,918
An officer, non-interest bearing		50,245		50,245
An officer, interest at 5.0% if not repaid on timely basis		55,000		55,000
	$	105,245	$	184,163

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8. Goodwill and Intangible assets

6 Months Ended

Jun. 30, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

NOTE 8 - Goodwill and Intangible assets

Goodwill and intangible assets of the Company were as follows:

	June 30, 2012		December 31, 2011
Intangible Assets
Events
Beverly Hills Concours	$	2,500	$	2,500
Santa Barbara Concours d'Elegance		53,000		53,000
Cour Tour/Action Sports Tour		100,000		100,000
Freedom Bowl		190,000		190,000
Maui Music Festival		5,000		5,000
Total - Events		350,500		350,500
Goodwill
ProElite		1,935,621		1,935,621
Stratus Visa White Card		1,073,345		1,073,345
Total Goodwill		3,008,966		3,008,966
Total Goodwill and Intangible Assets	$	3,359,466	$	3,359,466

In accordance with FASB ASC Topic 350 Goodwill and Other Intangible Assets, the Company’s intangible assets, other than the purchased licensed technology and the membership list for Stratus, are considered to have indefinite lives and are therefore no longer amortized, but rather are subject to annual impairment tests. The Company’s annual impairment testing date is December 31, but the Company monitors the facts and circumstances for all intangible properties and will record impairment if warranted by adverse changes in facts and circumstances.  

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9. Other accrued expenses and other liabilities

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

NOTE 9 - Other accrued expenses and other liabilities

Other accrued expenses and other liabilities consisted of the following:

	June 30, 2012		December 31, 2011
Professional fees	$	969,767	$	494,767
Payroll related		825,983		640,208
Estimated damage liability that may not be covered by insurance		300,000		–
Accrued board fees		162,497		–
Consultant fees		154,839		227,178
Accrued legal judgments		90,732		90,732
Travel expenses		70,339		38,546
Other		11,248		49,884
	$	2,585,405	$	1,541,315

The Estimated rent liability for facilities no longer occupied was determined by accruing 12 months of rent at each of the Company’s three former facilities, which the Company has either vacated or planned to vacate as of June 30, 2012. The Estimated damage liability that may not be covered by insurance was determined based on a property damage estimate related to leaks from a broken pipe at a Company facility that was occupied at the time.

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11. Notes payable

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

NOTE 11 - Notes payable

Notes payable are as follows:

	June 30,  2012		December 31,  2011
Notes payable from ProElite to various individuals dated October 20, 2011 with maturity of July 20, 2012, plus interest at xx%, convertible into common stock of ProElite at noteholder's election.  These notes are currently in default.  Secured by the assets of ProElite.	$	1,063,000	$	415,000
Note payable to a shareholder upon the earlier of completion of $1,000,000 in funding, or May 24,2012, plus interest at 0.19%, secured by the assets of ProElite.  This note is in default		1,000,000		–
Notes payable to three holders dated May 11, 2012 with maturity of the earlier of November 11, 2012 or when a finacing is completed of $2,000,000 or more, plus interest at 10%, secured by the assets of the Company		350,000		–
Notes payable to one holder dated April 4, 2012 with maturity on October 4, 2012, plus interest at 10%. Unsecured.		249,999		–
Note payable to a shareholder dated January 14, 2005, with maturity of May 14, 2005, plus interest at 10%.  Unsecured.  This note is currently in default.		70,000		70,000
Note payable to a shareholder dated February 1, 2005 with maturity of June 1, 2005, plus interest at 10%.  Unsecured.  This note is currently in default.		10,000		10,000
Note payable to non-shareholder.  Payable on demand and does not bear interest, unsecured.		10,000		60,000
	$	2,752,999	$	555,000

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3. Basis of Presentation and Significant Accounting Policies (Details)	3 Months Ended
	Jun. 30, 2012
EquipmentMember | MinimumMember
Property and Equipment
Estimated useful Life	3 years
EquipmentMember | MaximumMember
Property and Equipment
Estimated useful Life	5 years
FurnitureAndFixturesMember
Property and Equipment
Estimated useful Life	5 years
SoftwareMember
Property and Equipment
Estimated useful Life	3 years
LeaseholdImprovementsMember
Property and Equipment
Estimated useful Life, description	LESSER OF LEASE TERM OR LIFE OF IMPROVEMENTS

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12. Shareholders’ Deficit (Details) (USD $)	6 Months Ended
	Jun. 30, 2012
Stock Options
Estimated fair value of underlying common stock	$ 0.35
Remaining life	5 years
Risk-free interest rate	0.69%
Expected volatility	80.00%
Dividend yield	0.00%

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16. Related Party Transactions

6 Months Ended

Jun. 30, 2012

Related Party Transactions [Abstract]

NOTE 16 - Related Party Transactions

Pursuant to an investigation conducted in 2012 directed by the Company’s Board of Directors, it was determined that a Paul Feller, the Company’s former Chairman and Chief Executive Officer, received $640,000 in December 2010, net of a commission, in connection with a sale of the Company’s common stock he arranged with an outside investor. This sale was fulfilled with issuance of 2,540,000 shares of common stock issued directly by the Company. While Mr. Feller provided the Company with $557,650 of these funds in 2010 and 2011, he was repaid $564,363 during 2011, the net of which was $6,713 and was recorded as a reduction is the loan amount due to him as of June 30, 2011. Accordingly, the Company recorded a gross receivable of $640,000 from Mr. Feller in connection with this transaction. This receivable is presented net of $398,790 of accrued salary due to him as of December 31, 2011, $115,000 of commissions Mr. Feller has stated were also paid in this transaction and $126,210 of business expenses. The net effect of this receivable and the offsets is zero as of June 30, 2012 and December 31, 2011. This receivable is subject to revision if Mr. Feller submits proper documentation regarding business expenses or other amounts due to him. Mr. Feller resigned from the Company on June 28, 2012.

Effective July 1, 2011, each board member is entitled to an annual payment of $50,000, with the chairman of the audit committee receiving an additional $100,000 per annum and the chairman of the compensation committee receiving an additional $50,000 per annum. Mr. Rubinstein received a grant of 450,000 shares of restricted common stock that vest over a 36 month period and an additional grant of 450,000 shares of restricted common stock as chairman of the audit committee that vest over a 36 month period. Mr. Golenberg received a grant of 450,000 shares of restricted common stock as chairman of the compensation committee that vests over a 36 month period that started in July 2011. On December 28, 2010, the Board of Directors elected to cancel a total of 1,550,000 options granted to Messrs. Cross and Dunleavy and Golenberg in 2009 for board service and to Mr. Golenberg in 2009 and 2010 as chairman of the audit committee, and replace those options with grants of 540,833 shares of restricted stock, which was equal to 50% of the number of vested options as of July 1, 2011. These grants vest one-third on January 1, 2012, one-third on January 1, 2013 and one-third on January 1, 2014. Pursuant to these grants, Mr. Cross received a grant of 162,500 shares of restricted stock, of which 54,167 shares vested on January 1, 2012; Mr. Dunleavy received a grant of 130,000 shares of restricted stock, of which 43,333 shares vested on January 1, 2012; and Mr. Golenberg received a grant of 248,333 shares of restricted stock, of which 82,778 shares vested on January 1, 2012.

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8. Goodwill and Intangible assets (Tables)

6 Months Ended

Jun. 30, 2012

Goodwill And Intangible Assets Tables

Goodwill and Intangible assets

Goodwill and intangible assets of the Company were as follows:

	June 30,  2012		December 31, 2011
Intangible Assets
Events
Beverly Hills Concours	$	2,500	$	2,500
Santa Barbara Concours d'Elegance		53,000		53,000
Cour Tour/Action Sports Tour		100,000		100,000
Freedom Bowl		190,000		190,000
Maui Music Festival		5,000		5,000
Total - Events		350,500		350,500
Goodwill
ProElite		1,935,621		1,935,621
Stratus Visa White Card		1,073,345		1,073,345
Total Goodwill		3,008,966		3,008,966
Total Goodwill and Intangible Assets	$	3,359,466	$	3,359,466

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5. Acquisition of Stratus White Visa Card (Details Narrative) (PaulFellerMember, USD $)	Dec. 31, 2011	Jun. 30, 2011
PaulFellerMember
Related Party Transaction [Line Items]
Reduction in loan Amount		$ 6,713
Gross receivable		640,000
Accrued salary	398,790
Commissions	115,000
Business expenses	$ 126,210

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13. Commitments and contingencies (Details Narrative) (USD $)	4 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2012	Jun. 30, 2011
Related Party Transaction [Line Items]
Rent expense		$ 170,278	$ 46,458
Fund Raising for business Development	2,000,000
BoardOfDirectorsChairmanMember
Related Party Transaction [Line Items]
Salary		250,000
Option Granted to Purchase		2,300,000
Price per Share	$ 0.35	$ 0.35
ChiefExecutiveOfficerMember
Related Party Transaction [Line Items]
Salary		$ 250,000

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Statement of Cash Flows [Abstract]
Net loss	$ (5,853,328)	$ (3,859,940)
Depreciation and amortization	19,758	26,759
Warrants and options expense	434,153	381,979
Stock issued for services	170,000
Accounts receivable	71,667	(53,500)
Deposits and prepaid expenses	50,835	(388,515)
Acquisition deposit	50,000
Accounts payable	263,924	(274,301)
Deferred salary	813,039	(53,399)
Accrued interest	298,403	128,839
Rent liability for facilities no longer occupied	452,041
Other accrued expenses and liabilities	975,994	(257,271)
Net cash used in operating activities	(2,253,514)	(4,349,349)
Capital expenditures		(81,578)
Advances to acquisition targets		(842,487)
Net cash used in investing activities		(924,065)
Payments on loans payable to officers and a director		(441,068)
Proceeds/(Payments) on notes payable, net	2,197,999	(371,508)
Proceeds from issuance of preferred stock		9,406,051
Proceeds from issuance of common stock		2,545,000
Net cash provided by financing activities	2,197,999	11,138,475
Increase/(Decrease) in cash and equivalents	(55,515)	5,865,061
Cash and equivalents, beginning of period	98,449
Cash and equivalents, end of period	42,934	5,865,061
Cash paid during the period for interest
Cash paid during the period for income taxes

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5. Acquisition of Stratus White Visa Card

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

NOTE 5 - Acquisition of Stratus White Visa Card

In accordance with the Asset Purchase Agreement dated August 15, 2005, by and between the Company and Stratus White LLC (“Stratus Purchase Agreement”), the Company acquired the business of Stratus White, a credit card rewards program.

The total consideration for this acquisition was $3,000,000, with Stratus entering into a note payable of $1,000,000 and issuing 666,667 common shares valued at $2,000,000. The note is payable in eight quarterly equal payments over a 24 month period, with the first payment due upon completion of the first post-public merger funding of a minimum of $3,000,000.

The Stratus Purchase Agreement included the transfer to the Company of tangible personal property such as computers and all intellectual property, goodwill associated therewith, licenses and sublicenses.  Stratus White had at least $1.4 million of computer hardware and at least $0.2 million of computer software, all of which should have been transferred to the Company pursuant to the Stratus Purchase Agreement.  These computer and software assets were not included in the accounting for the acquisition of Stratus White by Pro Sports and the value of the computer hardware and software not received was allocated to goodwill.  The owner of Stratus White received notice on May 15, 2006 that if he did not deliver this hardware and software within 30 days, that the amount of consideration he was entitled to would be reduced by at least the $1,000,000 amount of the note, if not an additional $1,000,000 value in the common stock issued as consideration.  The owner responded on June 2, 2006 that his former law firm owned the computer hardware and software and he did not have the authority to release these items to the Company.

Given this situation and the expiration for the statute of limitations, the Company wrote off this liability as of December 31, 2011.

The results of operations of the business acquired were included in the Company’s Statements of Operations from the date of acquisition. Depreciation and amortization related to the acquisition were calculated based on the estimated fair values and estimated useful lives for property and equipment and an independent valuation for certain identifiable intangible assets acquired.

Effective May 14, 2010, the Company entered into a Co-branded Card Agreement (the “Agreement”) with Cornèr Banca SA (the “Bank”), located in Lugano, Switzerland.  Under the Agreement, the parties agreed to jointly launch a co-branded consumer card payment solution targeted at high net worth individuals and a co-branded commercial payment solution targeted at small and mid-sized businesses.  The cards, to be issued by the Bank, will include a loyalty rewards program.  The cards are targeted to residents of Europe.  The initial term of the Agreement is five years.  The Company, among other things, will be responsible for marketing and administration of, and expenses relating to, the rewards program.  The Bank will be responsible for issuing the cards.  The Company will receive a share of purchase transactions generated by a card holder and membership and initiation fees.

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9. Other accrued expenses and other liabilities (Tables)

6 Months Ended

Jun. 30, 2012

Other Accrued Expenses And Other Liabilities Tables

Other accrued expenses and other liabilities

Other accrued expenses and other liabilities consisted of the following:

	June 30, 2012		December 31, 2011
Professional fees	$	969,767	$	494,767
Payroll related		825,983		640,208
Estimated damage liability that may not be covered by insurance		300,000		–
Accrued board fees		162,497		–
Consultant fees		154,839		227,178
Accrued legal judgments		90,732		90,732
Travel expenses		70,339		38,546
Other		11,248		49,884
	$	2,585,405	$	1,541,315

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10. Loans payable to officers and a director (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Loan Payable
Loan Payable	$ 105,245	$ 184,163
ToFormerPresidentAndDirectorInterestNinePointFivePercentMember
Loan Payable
Loan Payable		78,918
ToOfficerNonInterestMember
Loan Payable
Loan Payable	50,245	50,245
ToOfficerInterestFivePercentMember
Loan Payable
Loan Payable	$ 55,000	$ 55,000

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15. ProElite, Inc.

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

NOTE 15 - ProElite, Inc.

Effective October 21, 2009, the Company entered into a Strategic Investment Agreement with PEI pursuant to which PEI sold to the Company shares of PEI’s Series A Preferred Stock (the “Preferred Shares”). The transaction closed on June 14, 2011. The Preferred Shares are convertible into the Common Stock of PEI. The amount of shares of Common Stock issuable upon conversion on a cumulative basis is equal to 95% of the sum of (a) the issued and outstanding shares of PEI as of the closing plus (b) any shares of PEI Common Stock issued after the closing upon exercise or conversion of any derivative securities of PEI outstanding as of the closing, subject to any adjustment for stock splits, stock dividends, recapitalizations etc. and, in all cases, after giving effect to the shares issuable upon conversion of the Preferred Shares. The purchase price of the Preferred Shares was $2,000,000. At the close, all of the previous directors of PEI resigned and the board of directors of PEI consists of two designees of the Company and one designee of PEI. Paul Feller, the Company’s Chief Executive Officer at that time, became PEI’s Chief Executive Officer. Certain present and former key PEI executives continued with PEI. Upon the close of the transaction, the Company recorded goodwill of $1,935,621. The Company also recorded non-controlling interest of $105,263 due to negative equity of PEI at June 30, 2011. The Company has consolidated the balance sheet of PEI as of June 30, 2012 and December 31, 2011. The results of operations of PEI for the three months and six months ended June 30, 2012 were consolidated into the Company’s results of operations.

The pro forma financial information presented below show the consolidated operations for the three and six months ended June 30, 2011 of the Company as if the PEI acquisition had occurred as of January 1, 2011:

	Three Months Ended June 30, 2011			Six Months Ended June 30, 2011
Revenues	$	112,000		$	259,000
Gross profit		112,000			259,000
Loss from operations		(2,498,313	)		(4,443,263	)
Interest and other expense		120,530			160,533
Net loss	$	(2,618,843	)	$	(4,603,796	)
Basic and diluted loss per share	$	(0.04	)	$	(0.07	)