Oxford City Football Club, Inc. - FORM 10-Q

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EX-32.1 - CERTIFICATION OF PAUL ANDREW RUPPANNER, THE PRINCIPAL EXECUTIVE OFFICER, PRINCI - Oxford City Football Club, Inc.	v173779_ex32-1.htm
EX-31.1 - CERTIFICATION BY PAUL ANDREW RUPPANNER, THE PRINCIPAL EXECUTIVE OFFICER, PRINCI - Oxford City Football Club, Inc.	v173779_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2009

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

For the transition period from ___________________________ to ___________________________

Commission file number: 333-153294

SMART KIDS GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Florida		05-0554762
(State of Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

515 Old Santa Fe Trail PMB 435 Santa Fe, NM		87505
(Address of Principal Executive Offices)		(Zip Code)

(505) 577-7918

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

Copies to:

The Sourlis Law Firm

Virginia K. Sourlis, Esq.

214 Broad Street

Red Bank, New Jersey 07701

(732) 530-9007

www.SourlisLaw.com

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 ¨

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 ¨ No ¨

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

Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	x

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

As of February 10, 2010, there were 129,087,000 shares of common stock outstanding and no shares of preferred stock outstanding.

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Plan of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4T.	Controls and Procedures	18

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Submission of Matters to a Vote of Security Holders	19
Item 5.	Other Information	19
Item 6.	Exhibits	19

SIGNATURES		20

PART I

Item 1. Financial Statements.

SMART KIDS GROUP, INC.

(A Development Stage Enterprise)

Balance Sheets

	12/31/2009			6/30/2009
	(Unaudited)			(Audited)
ASSETS

Current assets
Cash	$	16,449		$	78
Prepaid expenses		10,000			10,000
Total current assets		26,449			10,078

Fixed assets
Equipment, net		680			794

Other assets
Software development costs, net		882,200			824,200
Subscription receivable		100			100
Total other assets		882,300			824,300

Total assets	$	909,429		$	835,172

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities
Accounts payable, trade	$	330,615		$	333,039
Due to related parties		1,396,665			1,251,243
Deposits from stock subscriptions		-			134,600
Total current liabilities		1,727,280			1,718,882
Total liabilities		1,727,280			1,718,882

Commitments and contingencies		-			-

Stockholders' equity (deficit)
Common Stock, $.0001 par value; 400,000,000 shares
authorized, 129,087,000 and 122,748,500 shares issued and outstanding		12,909			12,275
Additional paid-in-capital		779,974			192,758
Accumulated deficit during the development stage		(1,610,734	)		(1,088,743	)
Total stockholders' equity (deficit)		(817,851	)		(883,710	)

Total liabilities and stockholders' equity (deficit)	$	909,429		$	835,172

The financial information presented herein has been prepared by management without audit by

independent certified public accountants.

The accompanying notes should be read in conjunction with the financial statements.

SMART KIDS GROUP, INC.

(A Development Stage Enterprise)

Statements of Operations

													For the period
	For the three			For the three			For the six			For the six			February 11, 2003
	months ended			months ended			months ended			months ended			(Inception) to
	December 31, 2009			December 31, 2008			December 31, 2009			December 31, 2008			December 31, 2009
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Revenue	$	-		$	-		$	-		$	-		$	-
Cost of goods sold		-			-			-			-			-
Gross profit (loss)		-			-			-			-			-

Operating expenses
Stock issued for past consideration		254,250			-			254,250			-			254,250
Production costs		3,000			-			3,000			-			76,571
Salaries and wages		75,598			68,600			151,196			116,200			569,596
General and administrative expenses		27,798			1,518			44,570			1,954			138,157
Legal and professional fees		36,109			20,300			68,861			81,736			563,131
Total operating expenses		396,755			90,418			521,877			199,890			1,601,705
Loss from operations		(396,755	)		(90,418	)		(521,877	)		(199,890	)		(1,601,705	)

Other income (expense)
Depreciation		(57	)		(57	)		(113	)		(113	)		(9,029	)
Total other income (expense)		(57	)		(57	)		(113	)		(113	)		(9,029	)

Loss before provision for
income taxes		(396,812	)		(90,475	)		(521,990	)		(200,003	)		(1,610,734	)
Provision for income taxes		-			-			-			-			-
Net loss	$	(396,812	)	$	(90,475	)	$	(521,990	)	$	(200,003	)	$	(1,610,734	)
Net loss per common share
(basis and diluted)	Nil			Nil			Nil			Nil			$	(0.02	)
Weighted average common shares
outstanding (basic and diluted)		125,751,060			121,178,500			123,398,975			121,178,500			66,155,615
Dividends paid per common share	$	-		$	-		$	-		$	-		$	-

Nil = less than ($.01)

The financial information presented herein has been prepared by management without audit by

independent certified public accountants.

The accompanying notes should be read in conjunction with the financial statements.

SMART KIDS GROUP, INC.

(A Development Stage Enterprise)

Statements of Cash Flows

							For the period
	For the six			For the six			February 11, 2003
	months ended			months ended			(Inception) to
	December 31, 2009			December 31, 2008			December 31, 2009
	(Unaudited)			(Unaudited)			(Unaudited)
Cash flows from operating activities
Net income (loss)	$	(521,990	)	$	(200,003	)	$	(1,610,734	)
Adjustments to reconcile net income to cash
(used in) operating activities
Stock issued for services		35,000			-			35,000
Stock issued for past consideration		254,250			-			254,250
Depreciation and amortization		113			113			9,029
(Increase) decrease in
Prepaid expenses		-			-			(10,000	)
Organizational costs		-			-			(8,575	)
Subscriptions receivable		-			-			(100	)
Increase (decrease) in
Accounts payable, trade		(2,424	)		81,987			330,615
Due to related parties		145,422			209,198			1,396,666

Cash flows provided by (used in) operating activities		(89,629	)		91,295			396,151

Cash flows from investing activities
Software/website development costs		(58,000	)		(93,000	)		(882,200	)
Purchase of equipment		-			-			(1,134	)

Cash flows (used in) investing activities		(58,000	)		(93,000	)		(883,334	)

Cash flows from financing activities
Proceeds from the issuance of stock		164,000			-			503,632
Proceeds/payments - due from shareholder		-			(6,721	)		-

Cash flows provided by (used in) financing activities		164,000			(6,721	)		503,632

Net increase in cash		16,371			(8,426	)		16,449

Cash and cash equivalents, beginning of period		78			8,986			-

Cash and cash equivalents, end of period	$	16,449		$	560		$	16,449

The financial information presented herein has been prepared by management without audit by

independent certified public accountants.

The accompanying notes should be read in conjunction with the financial statements.

SMART KIDS GROUP, INC.

(A Development Stage Enterprise)

Notes to Financial Statements

December 31, 2009

Unaudited

NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Smart Kids Group, Inc. (“the Company’) was formed on February 11, 2003 under the laws of the State of Florida. The Company licenses technology and develops educational content and software.

As of December 31, 2009, the Company was a development stage company. A development stage enterprise is a company that is devoting substantially all of its efforts to establishing a new business and either planned principal operations have not commenced or planned principal operations have commenced but there has been no significant revenue. From February 11, 2003 (date of inception) through December 31, 2009, the Company did not realize any revenue.

Basis of Presentation

The accompanying financial statements have been prepared in accordance with United States generally accepted accounting principles (US GAAP) for interim financial information and in accordance with professional standards promulgated by the Public Company Accounting Oversight Board (PCAOB). They reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the six months ended December 31, 2009 and 2008, respectively along with the period February 11, 2003 (date of inception) to December 31, 2009. These interim financial statements should be read in conjunction with the audited financial statements, which are contained in the Form 10-K as of and for the two year period ended June 30, 2009 filed with the SEC on October 13, 2009.

Use of Estimates

The preparation of interim financial information in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial information and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.

Income Taxes

The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on the differences between financial reporting basis and tax basis of the assets and liabilities and are measured using enacted tax rates that will be in effect when the differences are expected to reverse. An allowance against deferred tax assets is recognized, when it is more likely than not, that such tax benefits will not be realized.

Fair Value of Financial Instruments

The carrying value of cash, cash equivalents, software development costs, accounts payable and accrued expenses approximates fair value.

Revenue and Cost Recognition

The Company recognizes revenue using the accrual method of accounting wherein revenue is recognized when earned and expenses and costs are recognized when incurred. Since inception of the business on February 11, 2003 through December 31, 2009, the Company has not realized any revenue.

Software Development Costs

The Company accounts for its software development costs for its products in accordance with Statement of Position no. 98 issued by the AICPA in March 1998. As of December 31, 2009 and June 30, 2009, the Company capitalized $882,200 and $824,200 for the costs incurred to-date. Management of the Company intends to amortize these costs over their estimated useful life when the Company realizes revenue.

Recently Issued Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162,” (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification (“Codification”) as the source of authoritative generally accepted accounting principles (“GAAP”) for nongovernmental entities. The Codification does not change GAAP. Instead, it takes the thousands of individual pronouncements that currently comprise GAAP and reorganizes them into approximately ninety accounting topics, and displays all topics using a consistent structure. Contents in each topic are further organized first by subtopic, then section and finally paragraph. The paragraph level is the only level that contains substantive content. Citing particular content in the Codification involves specifying the unique numeric path to the content through the topic, subtopic, section and paragraph structure. FASB suggests that all citations begin with “FASB ASC,” where ASC stands for Accounting Standards Codification. Changes to the ASC subsequent to June 30, 2009 are referred to as Accounting Standards Updates (“ASU”).

In conjunction with the issuance of SFAS 168, the FASB also issued its first Accounting Standards Update No. 2009-1, “Topic 105 –Generally Accepted Accounting Principles” (“ASU 2009-1”) which includes SFAS 168 in its entirety as a transition to the ASC.

ASU 2009-1 is effective for interim and annual periods ending after September 15, 2009 and will not have an impact on the Company’s financial position or results of operations but will change the referencing system for accounting standards.

As of December 31, 2009, all citations to the various SFAS’ have been eliminated and will be replaced with FASB ASC as suggested by the FASB in future interim and annual financial statements.

The Company does not expect any of the recently issued accounting pronouncements to have a material impact on its financial condition or results of operations.

NOTE 2. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

As of December 31, 2009 and June 30, 2009, the Company incurred accounts payable of $330,615 and $333,039, respectively. The accounts payable primarily consist of consulting fees, audit and legal fees as an SEC reporting company and operating expenses.

NOTE 3. RELATED PARTY TRANSACTIONS

Due to Related Parties

As of December 31, 2009 and June 30, 2009, the Company incurred due to related parties of $1,396,665 and $1,251,243, respectively. The due to related parties consists of the payments due under employment agreements to the officers of the Company along with the related United States employment taxes, license agreement and unreimbursed operating expenses incurred by the majority shareholder. The advances for unreimbursed operating expenses do not bear interest or any specific repayment terms.

	December 31, 2009 (unaudited)		June 30, 2009 (audited)

Employment contracts - officers	$	1,212,454	$	1,078,918
Licensing agreement		184,211		154,211
Unreimbursed expenses		-		18,114

Total due to related parties	$	1,396,665	$	1,251,243

Office Rent

The Company shares office space at the residence of the Chairman of the Board and Chief Development Officer located in Edmonton, Canada at no cost. In addition, the Company shares office space at the residence of the President and Chief Executive Officer of the Company in Santé Fe, New Mexico at no cost.

For the six months ended December 31, 2009 and 2008, the rent expense was zero.

NOTE 4. DEPOSITS FROM STOCK SUBSCRIPTIONS

Prior to June 30, 2009, the Company received $134,600 in total cash consideration for deposits on stock subscriptions for the purchase of 1,346,000 shares of the Company’s restricted common stock at a purchase price of $0.10 per common share. During the six months ended December 31, 2009, the Company issued 1,346,000 of common stock in consideration of these stock subscriptions.

NOTE 5. AGREEMENTS

Employment Agreements

Shergold

Effective August 1, 2005, the Company entered into an employment agreement with Mr. Shergold at an annual salary as of $100,000. There are no additional payments due to Mr. Ruppanner for work performed prior to the date of the employment agreement.

For the six months ended December 31, 2009, the Company has determined that 50% of Mr. Shergold’s time was spent on software development and the related costs are being capitalized in accordance with Statement of Position no. 98 issued by the American Institute of Certified Public Accountants. The Company has determined that the remaining 50% of his time is spent on corporate and administrative matters and all of their related costs are expensed in the current period as incurred.

As of December 31, 2009 and June 30, 2009, the accrued and unpaid salary to Mr. Shergold was $470,096 and $438,660, respectively, including applicable US employment taxes.

Ruppanner

Effective August 1, 2005, the Company entered into an employment agreement with Mr. Ruppanner at an annual salary as of $100,000. There are no additional payments due to Mr. Ruppanner for work performed prior to the date of the employment agreement. For the six months ended December 31, 2009, the Company has determined that 100% of Mr. Ruppanner time was spent on corporate and administrative matters and all of their related costs are expensed in the current period as incurred.

As of December 31, 2009 and June 30, 2009, the accrued and unpaid salary to Mr. Ruppanner was $481,558 and $438,660, respectively, including applicable US employment taxes.

Yakiwchuk

Effective December 31, 2007, the Company entered into an employment agreement with the Ms. Yakiwchuk at an annual salary of $120,000. There are no additional payments due to Ms. Yakiwchuk for work performed prior to the date of the employment agreement.

For the six months ended December 31, 2009, the Company has determined that 100% of Ms. Yakiwchuk’s time was spent on corporate and administrative matters and all costs are expensed in the current period as incurred.

As of December 31, 2009 and June 30, 2009, the accrued and unpaid salary to Ms. Yakiwchuk was $260,800 and $201,600, respectively, including applicable US employment taxes.

Zmudzki

Effective December 15, 2009, the Company entered into an employment agreement with the Mr. Zmudzki, serving as the Company’s CTO and CIO at an annual salary of $120,000.

As of December 31, 2009, no payments were made to Mr. Zmudski under his employment agreement.

Licensing Agreement – Smart Kids International Holdings, Inc.

All intellectual property including the trademarks and work product that the Company currently works with are under an exclusive sublicense agreement with Smart Kids International Holdings, Inc., (“SKIH”) who leases all of the intellectual property from Mr. Shergold, the Company’s Chairman of the Board and Chief Development Officer. The agreement was effective June 20, 2005, at an annual fee of $60,000.

SKIH shall have the right at its sole discretion to terminate the license agreement in the event that the Company becomes insolvent, commits an act of bankruptcy, abandons the license as deemed by the failure to pursue the active business as intended by the license, assigns the license without written consent, fails to observe or perform any of the provisions of the license, or experiences a change in control that is not approved by SKIH, such approval not to be unreasonably withheld, prior to such change in control occurring.

For the six months ended December 31, 2009, the licensing fees related to this agreement were $30,000. These costs are being reflected in the software development costs in the accompanying interim financial statements.

Consulting Agreements

Effective June 8, 2006, the Company entered into an advisory agreement which requires a monthly payment of $5,000. These costs are being reflected in the legal and professional expenses in the accompanying interim financial statements.

For the six months ended December 31, 2009, the consulting expense related to this agreement was $30,000.

NOTE 6. INCOME TAXES

As of December 31, 2009, the Company had federal and state net operating loss carryforwards of approximately $398,280 which expire in 2029.

Utilization of these loss carryforwards may be limited by certain federal statutory provisions, including cumulative changes in ownership interests in excess of 50% over a three-year period.

Future tax benefits related to temporary differences relate to the following as of December 31, 2009:

Gross deferred tax assets:

Net operating losses	$	(1,610,734	)
Accrued officers compensation		1,212,454

Total gross deferred tax assets		(398,280	)

Less - valuation allowance		398,280

Net deferred tax assets	$	-

The Company’s effective tax rate differed from the federal statutory rate due to deferred state tax assets and the Company’s full valuation allowance, the latter of which reduced the Company’s effective tax rate to zero. Because the Company has not yet achieved profitable operations, management believes the potential tax benefits as of December 31, 2009 did not satisfy the realization criteria and accordingly has recorded a valuation allowance for the entire gross tax asset.

NOTE 7. STOCKHOLDERS’ EQUITY

As of December 31, 2009, the Company was authorized to issue 400,000,000 shares of common stock of which 129,087,000 common shares were issued and outstanding.

During the six months ended December 31, 2008, the Company did not issue any shares of restricted common stock for cash consideration.

Stock for Services

During the six months ended December 31, 2008, the Company did not issue any shares of restricted common stock for services.

Stock for Past Consideration

During the six months ended December 31, 2008, the Company did not issue any shares of restricted common stock for past consideration.

NOTE 8. CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially expose the Company to concentrations of credit risk, consist principally of cash. As of December 31, 2009, the Company maintained its cash accounts with financial institutions located in the United States and Canada. Historically, the Company has not experienced any losses on its deposits.

NOTE 9. LIQUIDITY AND CAPITAL RESOURCES

The accompanying interim financial statements have been prepared on a going-concern basis, which contemplates the continuation of operations, realization of assets and liquidation of liabilities in the ordinary course of business.

As reflected in the accompanying interim financial statements, the Company experienced a net loss of $521,990 for the six months ended December 31, 2009 along with an accumulated deficit during the Company’s development stage of $1,610,734 as of December 31, 2009.

Between its inception on February 11, 2003 and December 31, 2009, the Company realized net proceeds of $503,632 from the sale of common stock of the Company.

Management believes that additional capital will be required to fund operations through the year ended June 30, 2010 and beyond, as it attempts to generate increasing revenue, and develops new products. Management intends to raise capital through additional equity offerings. There can be no assurance that the Company will be successful in obtaining financing at the level needed or on terms acceptable to the Company. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying interim financial statements do not include any adjustments that might result from the outcome of this uncertainty.

On August 14, 2009, the United States Securities and Exchange Commission declared our Registration Statement on Form S-1 effective pursuant to which we registered an aggregate of 20,198,500 shares of common stock held by the selling stockholders named therein. We will not receive any proceeds from any sales of the registered shares.

The Company’s operations are subject to certain additional risks and uncertainties including, among others, dependence on outside suppliers and manufacturers, competition, dependence on its exclusive license and relationship with the licensor, uncertainties regarding patents and proprietary rights, dependence on key personnel, and other business risks. In addition, there is no assurance, assuming the Company is successful in raising additional capital that the Company will be successful in achieving profitability or positive cash flow.

Note 10. SUBSEQUENT EVENTS

As of February 11, 2010, the date the interim financial statements were available to be published, there are no subsequent events that are required to be recorded or disclosed in the accompanying interim financial statements as of and for the six months ended December 31, 2009.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

This Report contains statements that we believe are, or may be considered to be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Report regarding the prospects of our industry or our prospects, plans, financial position or business strategy, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “intend,” “estimate,” “foresee,” “project,” “anticipate,” “believe,” “plans,” “forecasts,” “continue” or “could” or the negatives of these terms or variations of them or similar terms. Furthermore, such forward-looking statements may be included in various filings that we make with the SEC or press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Report.

Business Overview

General

Smart Kids Group, Inc. (throughout this report referred to as “we,” “us,” “the Company,” “Smart Kids Group” or “SKGP”) is a development stage corporation incorporated in the State of Florida on February 11, 2003. Since inception, we have not generated any revenues, and from inception to December 31, 2009, we have incurred a net loss of $1,610,734. As of December 31, 2009, we have $16,449 in cash-on-hand to fund our operations. In their report included in their audit for fiscal years ended June 30, 2009 and 2008, our auditors expressed substantial doubt as to our ability to continue as a going concern.

Through a sublicense agreement with our Chief Development Officer Richard Shergold’s company, Smart Kids International Holdings (“SKIH”), which is not affiliated with our Company, we sublicense characters, copyrights, trademarks and internet domain names related to Be Alert Bert and other characters to promote educational and entertaining media products (which include videos, music and books utilizing ‘Be Alert Bert’ characters) to children between the ages of six to twelve and which promote safety, health and fitness. The ‘Be Alert Bert’ characters and related media are targeted to entertain and educate children ranging from the ages six through twelve years old with a particular focus on children’s personal safety and related issues. Our products are sometimes referred to in this report as “EDUtainment products.” EDUtainment is a genre of children’s products that serve to educate as well as entertain children.

The following is a short list of our sublicensed characters, described in greater detail in our annual report on Form 10-K previously filed with the SEC:

1. Be Alert Bert, a Bee (Main Character)

2. Freddie the Firefly, a Firefly

3. Be Aware Clare, a Bee

4. Uncle Buzz, a Bee

5. Betty Blue, a Butterfly

6. Daisy, a Flower

7. Otis Notice, an owl

Pursuant to our sublicense agreement, we sublicense the “Be Alert Bert” television series that is copyrighted and owned by Richard Shergold, and exclusively sublicensed, through SKIH, to our Company. The series consist of 31 episodes featuring “Bert the Bee” and music, and these episodes are available in both English and Spanish. Our Company intends to generate revenue from this series through licensing contracts to TV stations and sales to the public via e-commerce sales from our upcoming “Live at the Hive” website discussed below. There are currently no residual revenues being generated by this television series because the licensing fees were paid up front on a one-time, flat-fee basis, and the contract term is still active. Upon expiration of the existing terms pursuant to our outstanding licensing agreements with TV stations, we will attempt to renegotiate renewal agreements upon similar terms. License renewal negotiations are currently underway. The Company anticipates that any renewed licenses will be for a one-time fee.

We plan to use children-oriented characters and products as a common theme to develop our main children’s website, “Live at the Hive” (www.liveatthehive.com), which we intend to launch in early 2010 contingent upon our ability to obtain sufficient financing. The Company will charge an annual membership fee (after a 30 day trial period) which will provide customers with access to some of our content, and we intend to offer for sale our current line of videos, music, books and other Intellectual Property content that we sublicense, as well as new content and merchandise we intend to develop and own. The website membership fee is anticipated to be $19.99 per family/per year. Revenue from this source is intended to provide short term operating funds for the company. We anticipate that we will require approximately $2 million to complete, launch and properly market this website for the website to reach its anticipated potential. Obstacles to successful revenue generation which may prevent us from achieving our goals include lack of sufficient funding to build the planned website, general lack of discretionary spending by parents due to global economic difficulties and rejection of the benefits of the site by the target demographic.

All “Live at the Hive” website features and functions represented in this report are planned and not developed. The Company has completed the plans by documenting our functional requirements for the site in a typewritten list and reviewed them with two potential website development companies for them to assess efficacy. The site has been planned with functional requirements completed by our management team in preparation for development and launch, which is contingent upon financing. It is the Company’s intention to obtain the necessary financing for completing and launching the “Live at the Hive” website through the sale of equity securities in the near future. Functional requirements include identification and documentation of key site technology components. Functional requirements are the components desired in the construction of a website. Management has considered what capabilities they plan to implement in the website (e.g. downloading videos or sending an e-mail) and have incorporated their decisions into a plan which was communicated to a website developer in the form of “key site technology components”. Representative components are:

Access and Security requirements

Including child usage tracking and parental reporting

Access prevention to block Denial of Service attacks which are malicious actions taken by hackers sending a high volume of messages to your website that overwhelm your website’s capacity, thereby preventing access by anyone legitimately trying to use the website. We plan to utilize software technology that only allows registered (legitimate) users to access the site

Mobile access

Etc.

Data base requirements

Includes multiple databases for communications and control

Data mining which is designing a database of users to facilitate access to sort the information by category (e.g. all registered users from Kansas). The resultant answer has been selected (‘mined’) from the total database.

Data base management

Etc.

E-Commerce requirements

Multi-currency

Inventory management/tracking

Distribution

The growth and development of our business will require a significant amount of additional working capital. We currently have limited financial resources and based on our current operating plan, we will need to raise additional capital in order to continue as a going concern. Upon the obtainment of additional funds, we also plan to develop a character based children’s TV series for release in 2010 entitled “The Adventures of Bert and Claire”. We anticipate that we will require approximately $9 million to complete and launch and market this new TV Series.

Strategic Business Plan

Generating Revenue and Financing Plans for the Short-Term

In the short term, the Company plans to generate revenues and operating capital with three initiatives:

The sale of equity securities.

The licensing/re-licensing of the existing Be Alert Bert TV series to stations in North America.

Receipt of annual Live at the Hive website membership fees ($19.99 per family).

We intend to conduct financing and raise operating capital for our intended plans of operations through the sales and issuances of our common stock. We intend to conduct a series of private offerings to accredited investors only (as such term is defined in Rule 501 of Regulation D of the Securities Act of 1933) either through our officers or directors, or through the help of one or more placement agents.

Obtaining short term operating capital through sales of our equity securities is vital for us to continue as a going concern. Should we fail in our efforts to attract investment in our Company, we will not be able to execute our business plan, and our operations will fail. Current obstacles we face to our financing plans include, but are not limited to, the current global economic crises and declining market for investment in the United States, the highly competitive market in which we operate, the lack of popularity and brand awareness of our products, the fact that we have never generated revenues and our products are not market tested, the large amount of debt we have incurred since inception, and the fact that our auditors have issued a going concern opinion in our last audited financial statements and we anticipate that they will be issuing a going concern opinion in our upcoming audited financial statements.

August 2009 Private Placement Offering of Equity Securities

Commencing August 1, 2009, the Company initiated an offering of 6,250,000 Shares of its restricted Common Stock at a purchase price of $0.08 per share, for a total offering amount of up to $500,000. The Company intends to sell the shares on a best efforts basis, with its officers and directors conducting all of the sales efforts. These securities are to be issued under the exemption from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) and Regulation S promulgated thereunder due to the fact that the issuances will not involve a public offering and only non-US residents will be purchasing the common stock.

The issuances of restricted common stock made by the Company to date, pursuant to this Private Offering are as follows:

During the six months ended December 31, 2009, the Company issued 2,050,000 restricted shares of common stock for total cash consideration of $164,000.

Executive Offices and Telephone Number

Our principal executive offices are located at 515 Old Santa Fe Trail PMB 435, Santa Fe, NM 87505, and our telephone number is (780) 222-6257.

GOING CONCERN

The financial statements included in this Quarterly Report have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business.

As shown in the accompanying financial statements, the Company incurred a net loss of $521,990 for the six months ended December 31, 2009 and had an accumulated deficit of $1,610,734 as of December 31, 2009. Management’s plans include the raising of capital through the equity markets to fund future operations, seeking additional acquisitions, and generating of revenue through its business. However, even if the Company does raise sufficient capital to support its operating expenses and generate adequate revenues, there can be no assurances that the revenue will be sufficient to enable it to develop business to a level where it will generate profits and positive cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern.

There is substantial doubt about our ability to continue as a going concern.

We have financed our operations to date from loans and the sale of equity securities. Our total current assets at December 31, 2009 were $26,449, compared to $10,078 at June 30, 2009. Total current assets consist of cash on hand and prepaid expenses. As of December 31, 2009, our cash on hand was $16,449 compared to $78.as of June 30, 2009. At December 31, 2009, our accounts receivable were $0, compared to $0 at June 30, 2009.

We have financed our operations to date from loans and the sale of equity securities and will continue to depend on such to fund our operations for the next 12 months.

The following is a summary of the Company's cash flows from operating, investing, and financing activities:

	For the Six months Ended
	December 31, 2009			December 31, 2008
Net Cash Used in Operating Activities	$	(89,629	)		91,295

Net Cash Used In Investing Activities	$	(58,000	)		(93,000	)

Net Cash Provided by Financing Activities	$	164,000			(6,721	)

Effect of Exchange Rate on Cash	$	—			—

Net Effect on Cash	$	16,371			(8,426	)

Cash at Beginning of Period	$	78			8,986

Cash End of Period	$	16,449			560

The following table sets forth the Company’s contractual obligations:

Contractual

Obligations

Payment by Period

Total

Less than 1
year

1-3 years

3-5 years

More than 5
years

Long-Term Obligations

Capital Obligations

—

Operating Lease Obligations

—

Other Long-Term Liabilities

Reflected on the Registrant’s Balance Sheet under GAAP

—

Total

Results of Operations

As of December 31, 2009, our cash on hand was $16,449, compared to $78 as of June 30, 2009. This increase was due to sale of the Company’s restricted common stock.

As of December 31, 2009, our total assets were $909,429, compared to $835,172 as of June 30, 2009. This increase was primarily due to the increased capitalization of software development costs.

As of December 31, 2009, our total current liabilities were $1,727,280 compared to $1,718,882 as of June 30, 2009. This increase was nominal, however total current liabilities are comprised of accounts payable (trade) of $330,615 as of December 31, 2009, compared to $333,039 as of June 30, 2009 and amounts due to related parties of $1,396,665 as of December 31, 2009, compared to $1,251,243 at June 30, 2009.

Total Stockholders’ Deficit. Our stockholders’ deficit was $817,851 as of December 31, 2009 compared to $883,710 as of December 31, 2008.

Accounts Payable and Accrued Expenses. As of December 31, 2009, the Company incurred $330,615 in accounts payable. The accounts payable primarily consist of consulting fees, audit and legal fees as an SEC reporting company and operating expenses.

Due to Related Parties. As of December 31, 2009, the Company incurred $1,396,665 in amounts Due to Related Parties. The amount due to related parties consists of the payments due under employment agreements to the officers of the Company along with the related United States employment taxes, license agreement and unreimbursed operating expenses incurred by Richard Shergold, our Chief Development Officer, Chairman and majority shareholder.

During the six months ended December 31, 2009, the Company issued 2,050,000 shares of its restricted common stock for total consideration of $164,000.

These securities were issued under the exemption from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) and Regulation S promulgated thereunder due to the fact that the issuance did not involve a public offering and the investors were non-US residents.

Three months Ended December 31, 2009 Compared to Three months Ended December 31, 2008

Revenues. We had no revenues for the three months ended December 31, 2009. To date, we have not attained any revenues.

Net Loss. We had a net loss of $396,812 for the three months ended December 31, 2009 compared to $90,475 for the three months ended December 31, 2008. This increase was primarily due to an increase in the amount of incurred legal and professional fees, and officers’ compensation.

Operating expenses. Our operating expenses include website maintenance fees, salaries and wages, general and administrative expenses, legal and professional fees. Our total operating expenses increased from $90,418 for the three months ended December 31, 2008 to $396,755 for the three months ended December 31, 2009. This was primarily due to an increase in legal and professional fees from $20,300 to $36,109 in connection with costs incurred for the preparation of our required reporting and filings made to the Securities and Exchange Commission, which this Report is a part, an increase in general and administrative expenses from $1,518 to $27,798, an increase in salaries and wages from $68,600 to $75,598, and an increase in stock issued for past consideration from $0 to $254,250 as of December 31, 2009.

Six months Ended December 31, 2009 Compared to Six months Ended December 31, 2008

Revenues. We had no revenues for the six months ended December 31, 2009. To date, we have not attained any revenues.

Net Loss. We had a net loss of $521,990 for the six months ended December 31, 2009 compared to $200,003 for the six months ended December 31, 2008. This increase was primarily due to an increase in the amount of incurred legal and professional fees, officers’ compensation, and stock issued for past consideration.

Operating expenses. Our operating expenses include website maintenance fees, salaries and wages, general and administrative expenses, legal and professional fees. Our total operating expenses increased from $199,890 for the six months ended December 31, 2008 to $521,877 for the six months ended December 31, 2009. This increase was primarily due to an increase in salaries and wages from $116,200 to $151,196, an increase in general and administrative expenses from $1,954 to $44,570 and an increase in stock issued for past consideration from $0 to $254,250 as of December 31, 2009.

Liquidity and Capital Resources

Cash Balance. As of December 31, 2009, we had $16,449 in cash on-hand. In connection with their audit of our 2009 financial statements, our independent auditors have expressed their substantial doubt as to our ability to continue as a going concern.

The accompanying financial statements have been prepared on a going-concern basis, which contemplates the continuation of operations, realization of assets and liquidation of liabilities in the ordinary course of business.

As reflected in the accompanying interim financial statements, the Company experienced a net loss of $396,812 and $521,990 for the three and six months ended December 31, 2009, respectively, along with an accumulated deficit during the Company’s development stage of $1,610,734 as of December 31, 2009.

Management believes that additional capital will be required to fund operations through the year ending June 30, 2010 and beyond, as it attempts to generate increasing revenue, and develops new products. Management intends to raise capital through additional equity offerings. There can be no assurance that the Company will be successful in obtaining financing at the level needed or on terms acceptable to the Company. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Revenue Recognition

The Company recognizes revenue using the accrual method of accounting wherein revenue is recognized when earned and expenses and costs are recognized when incurred.

Since inception of the business, February 11, 2003 and through December 31, 2009, the Company has not realized any revenue.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Critical Accounting Policies & Estimates

The Company’s financial statements included herein were prepared in accordance with United States generally accepted accounting principles. Significant accounting policies are as follows:

Use of Estimates

The preparation of the statement of financial condition in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the statement of financial condition and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.

Income Taxes

Fair Value of Financial Instruments

The carrying value of cash equivalents, software development costs, and accrued expenses approximates fair value.

Revenue Recognition

The Company recognizes revenue using the accrual method of accounting wherein revenue is recognized when earned and expenses and costs are recognized when incurred.

Since inception of the business, February 11, 2003, the Company has not realized any revenue.

Software Development Costs

The Company accounts for its software development costs for its products in accordance with Statement of Position #98 issued by the AICPA in March 1998. As of December 31, 2009, the Company capitalized $882,200 for the costs incurred to-date. Management intends to amortize these costs over their estimated useful life when the Company realizes revenue.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

N/A.

Item 4T. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

In accordance with Exchange Act Rules 13a-15 and 15d-15, our management is required to perform an evaluation under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period.

Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2009, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by us in this Report was (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and instructions for Form 10-Q.

Our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures had the following deficiency:

●

We were unable to maintain any segregation of duties within our business operations due to our reliance on limited and inexperienced personnel at the executive level. While this control deficiency did not result in any audit adjustments to our 2007 through 2009 interim or annual financial statements, it could have resulted in a material misstatement that might have been prevented or detected by a segregation of duties. Accordingly we have determined that this control deficiency constitutes a material weakness.

To the extent reasonably possible, given our limited resources, our goal is to separate the responsibilities of principal executive officer and principal financial officer, intending to rely on two or more individuals. We will also seek to expand our current board of directors to include additional individuals willing to perform directorial functions. Since the recited remedial actions will require that we hire or engage additional personnel, this material weakness may not be overcome in the near term due to our limited financial resources. Until such remedial actions can be realized, we will continue to rely on the advice of outside professionals and consultants.

Changes in Internal Controls.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is currently not a party to any pending legal proceedings and no such action by or to the best of its knowledge, against the Company has been threatened.

Item 1A. Risk Factors.

N/A.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds.

On August 6, 2009, the Company issued 1,346,000 shares of restricted common stock of the Company to investors for total cash consideration of $134,600, which as of June 30, 2009, were classified as deposits from stock subscriptions in the accompanying financial statements. These securities were issued under the exemption from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) and Regulation S promulgated thereunder due to the fact that the issuance did not involve a public offering and the investors were non-US residents.

During the six months ended December 31, 2009, the Company issued 2,050,000 shares of restricted common stock of the Company to investors for total cash consideration of $164,000 at a per share price of $.08 under the Company’s Private Placement Memorandum dated August 2009. These securities were issued under the exemption from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) and Regulation S promulgated thereunder due to the fact that the issuance did not involve a public offering and the investors were non-US residents.

During the six months ended December 31, 2008, the Company did not issue any shares of restricted common stock for cash consideration.

Stock for Services

During the six months ended December 31, 2009, the Company issued 400,000 shares of restricted common stock of the Company for services rendered on behalf of the Company. $35,000 is reflected in the statement of operations for the six months, ended December 31, 2009 as general and administrative expenses. These shares were issued without registration under the Securities Act of 1933, as amended, under the exemption afforded the Company under Section 4(2) promulgated thereunder due to the fact that such issuance did not involve a public offering.

During the six months ended December 31, 2008, the Company did not issue any shares of restricted common stock for services.

Stock for Past Consideration

During the six months ended December 31, 2009, the Company issued 2,542,500 shares of restricted common stock for past consideration. Management of the Company determined a per share price of $.10 and accordingly recorded an expense of $254,250 for the three months ended December 31, 2009. These securities were issued under the exemption from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) and Regulation S promulgated thereunder due to the fact that the issuance did not involve a public offering and the investors were non-US residents.

During the six months ended December 31, 2008, the Company did not issue any shares of restricted common stock for past consideration.

Item 3. Defaults Upon Senior Securities.

N/A.

Item 4. Submission of Matters to a Vote of Security Holders.

N/A.

Item 5. Other Information.

N/A.

Item 6. Exhibits.

Exhibit No.		Description

31.1		Certification by Paul Andrew Ruppanner, the Principal Executive Officer, Principal Financial Officer and Accounting Officer of Smart Kids Group, Inc., pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended

32.1		Certification of Paul Andrew Ruppanner, the Principal Executive Officer, Principal Financial Officer and Accounting Officer of Smart Kids Group, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

Date: February 11, 2010

	By:
	Name: Paul Andrew Ruppanner Title: President, Chief Executive Officer and Director (Principal Executive Officer, Principal Financial and Accounting Officer)

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