AUDIOSTOCKS, INC. 14% Secured Convertible Promissory Note

THIS 14% SECURED CONVERTIBLE PROMISSORY NOTE (THE “NOTE”) AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THIS NOTE OR THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE UNDER SAID ACT, OR ANY OTHER VALID EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.

FOR VALUE RECEIVED , AudioStocks, Inc. a Delaware corporation (hereinafter called the “ Company ” or “ Borrower ”), hereby promises to pay to the order of Noctua Fund LP, or its registered assigns (the “ Holder ”) the sum of One Hundred Thousand Dollars ($100,000) (the “ Principal Amount ”), the maturity date set forth in Section 1.4 below (the “Maturity Date ”), and to pay interest on the unpaid principal balance hereof at the rate of fourteen percent (14%) per annum (the “ Initial Interest Rate ”) from October 1, 2009 until the same becomes due and payable at the Maturity Date, whether at maturity or upon acceleration or by prepayment or otherwise and thereafter, shall accrue at a default rate of 18% (the “ Default Rate ”) per annum until repaid as more fully set forth below.  All payments due hereunder shall be made in lawful money of the United States of America.  The Principal Amount or Interest of this Note is convertible, at the sole and absolute discretion of the Holder, into common stock (the “ Common Stock ”) of the Borrower as provided in Article II below.    Repayment of this Note is unconditionally guaranteed by the Company and each of its current and future subsidiaries (the “ AudioStocks Subsidiaries ” or the “ Secured Parties ”), and shall be secured by all of the assets of the Borrower, and Secured Parties, which security interest shall be subordinate to no other debt.   All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note.  Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day.  As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.

           The following terms shall apply to this Note:

1.1     Interest Rate .  Subject to Section 1.3 hereof, interest payable on this Note shall accrue at the Initial Interest Rate a rate per annum of fourteen percent (14%).  Interest on the Principal Amount shall be simple interest, payable monthly, commencing on October 1, 2009 and on the first day of each consecutive calendar month thereafter (each, a “ Repayment Date ”) and on and until the Maturity Date, whether by acceleration or otherwise.

1.2             Minimum Monthly Payments .  All outstanding interest shall be paid monthly.

1.3             Default Interest Rate .  Following the occurrence and during the continuance of an Event of Default, and in addition to any other remedies that Holder may have, the annual interest rate on this Note shall automatically be increased to the lesser of (i) eighteen percent (18%) or the higher rate permissible by law (the “Default Interest Rate ”), and all outstanding obligations under this Note, including unpaid interest, shall continue to accrue interest from the date of such Event of Default at such interest rate applicable to such obligations until such Event of Default is cured or waived (any such amount referred to herein as “ Default Interest ”).

1.4             Repayment .  Subsequent to October 1, 2009, this Note shall be unconditionally and immediately repaid upon demand only by the Holder, in U.S. cash currency, by bank check payable to Holder or its assigns, or bank wire transfer in accordance with Holder’s written instructions for the full amount of the demand.  In any event, this Note must be repaid in full by October 1, 2012 (the “ Maturity Date ”).  The Holder may make demand for repayment at its sole discretion, in whole or in part and from time to time until the entire balance of this Note is repaid or converted, after the earlier to occur of (i) the closing of a debt (secured or otherwise), equity or preferred stock or derivative security financing or re-financing or debt/equity line, of the Borrower or any Secured Party, with gross proceeds or maximum credit limit of $750,000 or greater (ii) or upon any Event of Default.

2.1             Conversion Right .  The Holder shall have the right at any time, and from time to time, on or prior to the Maturity Date to convert all or any part of the outstanding and unpaid principal amount of this Note, into fully paid and non-assessable shares of Common Stock, or initially 500,000 shares (the “ Conversion Shares ”), of the Borrower as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the Conversion Price (as defined below) determined as provided herein (a “ Conversion ”); provided , however , that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of this Note or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of Conversion Shares issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock.  For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso.  The Holder of this Note may waive the limitations set forth herein  at its sole and absolute discretion by written notice of not less than sixty-one (61) days to the Company.  The number of Conversion Shares to be issued upon each conversion of the convertible portion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price in effect on the date the notice of conversion, in the form attached hereto as Exhibit A (the “ Notice of Conversion ”), is delivered to the Borrower by the Holder in accordance with Section 2.5 below. (the “ Conversion Date ”).  The term “ Conversion Amount ” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date plus (3) default interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any other amounts owed to the Holder pursuant to this Note.

2.2             Conversion Price .

(a)             Calculation of Conversion Price .  The term “ Conversion Price ” as used herein shall be equal to $.20 per share.

  The calculation of Conversion Price based on trading prices set forth in the previous paragraph shall be subject, as set forth in Section 2.7 , to equitable adjustments  upon the occurrence of certain events including, but not limited to, stock splits, reverse stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower or of Secured Parties, combinations, recapitalization, reclassifications, extraordinary distributions and similar events until converted in full.

(b)   Deficiency Upon Conversion .   Upon Conversion, in the event of any deficiency of any amounts due Holder hereunder, Borrower agrees to pay Holder, at Holder’s option any such deficiency in either cash or additional shares of Common Stock.  If the Holder elects, in its sole and absolute discretion to be paid such deficiency in Common Stock, such Common Stock shall be valued at the Conversion Price, then in effect. Nothing herein shall be deemed to limit the ability of Holder to collect any of the Principal Amount of this Note in cash or otherwise enforce any of its rights herein, as against the Borrower or any of the guarantors and Secured Parties or obligate the Holder to accept such shares in lieu of such deficiency.

2.3             Application of Conversion Amounts .  Any amounts converted by the Holder pursuant to Section 2.1 or paid by the Borrower shall be deemed to constitute payments of and applied, (i) first, any amounts owed other than accrued and unpaid interest (ii) second, against accrued and unpaid interest on the Principal Amount, and (iii) third, against the Principal Amount.

2.4             Authorized Shares .  For so long as the conversion right exists, the Borrower will reserve (and, from time to time, amend its Certificate of Incorporation so as to maintain reserved) from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note and all other convertible securities of the Borrower, options or warrants.  As of the date of issuance of this Note, the Borrower has a sufficient number of authorized and unissued shares of Common Stock that have been duly reserved   for issuance upon conversion of this Note and such other securities  (the “ Reserved Amount ”).  The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations pursuant to this Note and other agreements to which the Borrower may be obligated to issue shares (subject to the anti dilution provisions and other restrictions on such issuances herein).  The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable.  In addition, the if Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which this Note shall be convertible at their then current conversion price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of this Note.  The Borrower agrees that the issuance of this Note by Borrower and execution hereof by Borrower shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

If, at any time a Holder of this Note submits a Notice of Conversion, and the Borrower does not have sufficient authorized but unissued shares of Common Stock available to effect such conversion in accordance with the provisions of this Article II (a “ Conversion Default ”), the Borrower shall issue to the Holder all of the shares of Common Stock which are then available to effect such conversion.  The portion of this Note which the Holder included in its Conversion Notice and which exceeds the amount which is then convertible into available shares of Common Stock (the “ Excess Amount ”) shall, notwithstanding anything to the contrary contained herein, not be convertible into Common Stock in accordance with the terms hereof until (and at the Holder’s option at any time after) the date additional shares of Common Stock are authorized by the Borrower to permit such conversion.  The Borrower shall use its best efforts to authorize a sufficient number of shares of Common Stock as soon as practicable following the earlier of (i) such time that the Holder notifies the Borrower or that the Borrower otherwise becomes aware that there are or likely will be insufficient authorized and unissued shares to allow full conversion thereof and (ii) a Conversion Default.  The Borrower shall send notice to the Holder of the authorization of additional shares of Common Stock, and the Authorization Date.

Nothing herein shall limit the Holder’s right to pursue actual damages against Borrower or any guarantor or Secured Party for the Borrowers failure to maintain a sufficient number of authorized shares of Common Stock or to repay this Note pursuant to the guarantees, and each Holder shall have the right to pursue all remedies available at law or in equity (including degree of specific performance and/or injunctive relief or under this Note.

2.5             Method of Conversion .

(a)             Mechanics of Conversion .   Subject to Section 2.1 , the Principal Amount and interest of this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile or other reasonable means of communication dispatched on the Conversion Date prior to 5:00 p.m., New York, New York time) and (B) subject to Section 2.5(b) , surrendering this Note at the principal office of the Borrower.

(b)             Surrender of Note Upon Conversion .   Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted.  The Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion.  Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note.

 THE HOLDER AND ANY ASSIGNEE, BY ACCEPTANCE OF THIS NOTE, ACKNOWLEDGE AND AGREE THAT, BY REASON OF THE PROVISIONS OF THIS PARAGRAPH, FOLLOWING CONVERSION OF A PORTION OF THIS NOTE, THE UNPAID AND UNCONVERTED PRINCIPAL AMOUNT OF THIS NOTE REPRESENTED BY THIS NOTE MAY BE LESS THAN THE AMOUNT STATED ON THE FACE HEREOF.

(c)             Payment of Taxes .    The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower or the Transfer Agent, as the case may be, shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower or the Transfer Agent, as the case may be, the amount of any such tax or shall have established to the satisfaction of the Transfer Agent, that such tax has been paid.

(d)             Delivery of Common Stock Upon Conversion .   Upon receipt by the Borrower from the Holder of a facsimile transmission, Adobe Acrobat electronic reproduction (or other reasonable means of reproduction of a signature) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 2.5 , the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) full business days (the “ Deadline ”) after such receipt (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof. The Borrower shall pay liquidated damages, in addition to other damages or lost profits resulting in the decline in price of the shares after the Deadline date (regardless of whether such shares could have been sold), of 1% of the number of shares not delivered for each 3 business day after the Deadline (i.e. 1% after six business days after the deadline, an aggregate of 2% after nine days, 3% after 14 days etc.).

(e)             Obligation of Borrower to Deliver Common Stock .  Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the Holder of record of the Common Stock issuable upon such conversion (the “ Conversion Shares ”), the outstanding principal amount and the amount of accrued and unpaid interest (and any other unpaid amounts) on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article II , all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion.  If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion.  The Conversion Date with respect to a Notice of Conversion shall be the date on which the Notice of Conversion is given so long as the Notice of Conversion is received by the Escrow Agent before 5:00 p.m., New York, New York time, on such date; or if received after 5:00 p.m. New York, New York time the Conversion Date shall be the following date.  Upon failure of the Borrower to timely deliver the shares of Common Stock issuable upon any such conversion, the Holder shall be entitled, as liquidated damages and not as a penalty, to a cash payment equal to 1.5% of the dollar amount of any such conversion for each 30-day period (or pro-rata for any portion thereof) following the Conversion Date until delivery of the Conversion Shares.

2.6             Concerning the Shares .  The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless  (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“ Rule 144 ”) or (iv) such shares are issued or transferred pursuant to a valid court order or other exemption from the registration requirements of the Act, or (v) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 2.6 and who is an Accredited Investor (as defined in the Act).  Except as otherwise provided in the Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 or any other exemption, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or issued pursuant to a valid exemption from the registration requirements of the Act, an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.”

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, including the provisions of Rule 144 and the shares are so sold or transferred,