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EX-31.1 - EXHIBIT 31.1 - Oxford City Football Club, Inc.ex31_1.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

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 September 30, 2011
 
[  ] Transition Report pursuant to 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 or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)

 

Suite 234, 9768-170 St. Edmonton, AB Canada T5T 5L4
(Address of principal executive offices)

 

(780) 222-6257
(Registrant’s telephone number)

 

___________________________________________________________

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [X] Yes    [ ] 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. [ ]

 

[  ] Large accelerated filer  [  ]  Accelerated filer
[  ] Non-accelerated filer  [X] Smaller reporting company

 

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

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 10,400,517 as of November 14, 2011.

        

EXPLANATORY NOTE

 

This filing contains restated financial statements of Smart Kids Group, Inc. for the three months ended September 30, 2010. Prior to the issuance of the original filing in Form 10-Q for the quarter ended December 31, 2010, the Company determined that software development costs of $406,612 and previously capitalized costs of goods sold of $475,558 reported on the Company’s annual report on Form 10-K for the year ended June 30, 2010 included sub-licensing fees of $270,000 ($30,000 incurred for the year ended June 30, 2010) and officer salaries of $612,200 ($28,000 incurred for the year ended June 30, 2010) did not meet the capitalization criteria of the FASB ASC 350-40 “Internal Use Software”. As of March 31, 2011, the prior auditor was no longer independent and management determined that the financial statements for the year ended June 30, 2010 needed to be re-audited. In January 2011, the Company engaged a new auditor to re-audit June 30, 2010 and audit June 30, 2011. Additionally, an accounting firm was engaged that specializes in smaller reporting companies, to perform its internal bookkeeping and external financial reporting. All Notes to the Financial Statements have been updated to reflect the restatement of the September 30, 2010 financial statements.

 

As a result of the change in control over financial reporting mentioned above, the Company determined that there were changes in the Company’s Balance Sheet, Statement of Operations, and Statement of Cash Flows for the three months ended September 30, 2010. Accordingly, the unaudited condensed consolidated financial statements for the three months ended September 30, 2010 have been restated as disclosed.

 

The following errors were found as of September 30, 2010:

 

  • Software development costs of $406,612 and previously capitalized did not meet the capitalization criteria of FASB ASC 350-40 “Internal use Software”;
  • Cash was overstated by $9 due to foreign currency translation;
  • A 40% investment in Smart Kids Productions Inc., a Canadian company, of $99 was not recognized;
  • Deferred financing fees of $15,000 were not recognized;
  • Accounts payable and accrued expenses were overstated by $48,563 primarily due to the payment of accounts payable by a shareholder;
  • Note payable of $5,849 was not recognized;
  • Due to related parties was understated by $42,292 related to accrued officer compensation;
  • Additional paid-in capital was overstated by $22,411;
  • Common stock payable of $20,000 was not recognized;
  • Common stock receivable of $73,150 was not recognized for the Equity Drawdown Agreement;
  • Accumulated deficit during the development stage was understated by $315,541;
  • Operating expenses was overstated by $15,291. This was due to the increase in salaries and wages of $1,037, legal and professional fees of $29,606 and reclassification of sub-licensing expense of $273,008, offset by a decrease in general and administrative expenses of $318,942;
  • Finance and interest expense was understated by $15,600;
  • Depreciation expense of $57 should have been reported as an operating expense;
  • Net loss was understated by $252 as a result of that mentioned above.

 

The effects on our previously issued September 30, 2010 financial statements are as follows:

 

2

Balance Sheet

 

   September 30,
2010
     September 30, 2010
   As filed  Adjustments  Restated
ASSETS         
Cash  $419   $(9)  $410 
Prepaid expenses   1,500    —      1,500 
Fixed assets   510    —      510 
Investment in unconsolidated investee   —      99    99 
Deferred financing fee   —      15,000    15,000 
Software development costs   406,612    (406,612)   —   
Total assets  $409,041   $(391,522)  $17,519 
                
LIABILITIES AND STOCKHOLDERS’ DEFICIT               
Accounts payable and accrued expenses  $153,691   $(48,562)  $105,129 
Note payable   —      5,849    5,849 
Due to related parties   738,566    42,293    780,859 
Total liabilities   892,257    (420)   891,837 
Common stock   355    —      355 
Additional paid-in-capital   2,132,221    (22,411)   2,109,810 
Stock payable   —      20,000    20,000 
Stock receivable   —      (73,150)   (73,150)
Accumulated deficit during the development stage   (2,615,792)   (315,541)   (2,931,333)
Total stockholders’ deficit   (483,216)   (391,102)   (874,318)
Total liabilities and stockholders’ deficit  $409,041   $(391,522)  $17,519 

 

Statement of Operations

 

   For the Three Months Ended September 30,
2010
     For the Three Months Ended September 30, 2010
   As Filed  Adjustments  Restated
Cost of goods sold  $—     $—     $—   
Salaries and wages        1,037    1,037 
Legal and professional fees   26,706    29,606    56,312 
General and administrative expenses   324,756    (318,942)   5,814 
Sub-licensing expense        273,008    273,008 
Total operating expense   351,462    (15,291)   336,171 
 Loss before other expenses   (351,462)   15,291    (336,171)
Finance and interest expense   (2,800)   (15,600)   (18,400)
Depreciation   (57)   57    —   
Total other expense   (2,857)   (15,543)   (18,400)
  Net loss  $(354,319)  $(252)  $(354,571)

 

3

Statement of Cash Flows

 

   For the Three Months Ended
September 30, 2010
     For the Three
Months Ended
September 30, 2010
   As Filed  Adjustments  Restated
Net loss  $(354,319)  $(252)  $(354,571)
Issuance of common stock- services   54,950    (32,087)   22,863 
Issuance of common stock- equity drawdown   1,000    (1,000)   —  
Issuance of common stock- financing fees   2,800    15,600    18,400 
Issuance of common stock- sub-licensing fee   10,000    —      10,000 
Depreciation and amortization   57    —      57 
Prepaid expenses   (1,500)   —      (1,500)
Accounts payable and accrued expenses   (21,489)   16,539    (4,950)
Due to related parties   263,008    —      263,008 
Net cash used in operating activities   (45,493)   (1,200)   (46,693)
                
Proceeds from the issuance of stock   45,800    1,200    47,000 
Net cash provided by financing activities  $45,800   $1,200   $47,000 
                
Non-cash investing and financing activities:               
Stock issued for equity drawdown agreement  $—     $9,500   $9,500 

 

4

 

TABLE OF CONTENTS

 

 

Page

   

PART I – FINANCIAL INFORMATION

 
Item 1: Financial Statements F-1
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 6
Item 3: Quantitative and Qualitative Disclosures About Market Risk 9
Item 4: Controls and Procedures 9

 

PART II – OTHER INFORMATION

 

Item 1: Legal Proceedings 10
Item 1A: Risk Factors 10
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 10
Item 3: Defaults Upon Senior Securities 11
Item 4: (Removed and Reserved) 11
Item 5: Other Information 11
Item 6: Exhibits 11

 

 

 

5

PART I - FINANCIAL INFORMATION

 

SMART KIDS GROUP, INC.

(A Development Stage Company)

Condensed Balance Sheets

 

   September 30,
2011
  June 30,
2011
   (Unaudited)  (Audited)
ASSETS          
Current assets          
Cash  $1,739   $4,595 
Prepaids   511,944    11,750 
Total current assets   513,683    16,345 
Fixed assets          
Equipment, net of accumulated depreciation of $851 and $737, respectively   283    340 
Investment in unconsolidated investee   —      99 
Other assets          
Software development costs, net of accumulated amortization of $2,063 and $1,375, respectively   3,438    4,125 
Total assets  $517,404   $20,909 
LIABILITIES AND STOCKHOLDERS' DEFICIT          
Current liabilities          
Accounts payable and accrued expenses  $259,982   $213,639 
Accrued expenses – related parties   600,906    572,206 
Total current liabilities   860,888    785,845 
Stockholders' deficit          
Preferred stock: $0.0001 par value; authorized 40,000,000 shares; issued and outstanding: 0 and 0, respectively   —      —   
Common stock: $0.0001 par value; authorized 1,800,000,000 shares; issued and outstanding: 9,251,692 and 5,387,025, respectively   925    538 
Additional paid-in capital   3,119,224    2,427,248 
Common stock payable   17,746    97,157 
Accumulated deficit during the development stage   (3,481,379)   (3,289,879)
Total stockholders' deficit   (342,484)   (764,936)
Total liabilities and stockholders' deficit  $517,404   $20,909 

 

The accompanying notes are an integral part of these condensed financial statements.

F-1

SMART KIDS GROUP, INC.

(A Development Stage Company)

Condensed Statements of Operations

(Unaudited)

 

         From inception
   For the three months ended  (February 11, 2003)
      September 30,  to
   September 30,  2010  September 30,
   2011  (Restated)  2011
Revenues  $—     $—     $—   
                
Cost of goods sold   —      —      —   
Gross loss   —      —      —   
                
Operating expenses               
Salaries and wages   32,506    1,037    1,390,460 
Legal and professional fees   115,403    56,312    1,179,892 
General and administrative expenses   11,921    5,814    161,013 
   Sub-licensing expense   15,000    273,008    345,137 
   Allowance on stock receivable   —      —      57,040 
Impairment of equity investment   10,304    —      10,304 
   Total operating expenses   185,134    336,171    3,143,846 
                
Loss before other expenses and income taxes   (185,134)   (336,171)   (3,143,846)
                
Other expense               
Finance and interest expense   (6,366)   (18,400)   (332,788)
Loss on conversion of debt   —      —      (4,745)
    Total other expense   (6,366)   (18,400)   (337,533)
                
Net loss  $(191,500)  $(354,571)  $(3,481,379)
                
Net loss per common share – basic  $(0.03)  $(0.13)     
                
Weighted average number of common shares outstanding – basic   7,287,083    2,626,822      

 

 

The accompanying notes are an integral part of these condensed financial statements.

F-2

SMART KIDS GROUP, INC.

(A Development Stage Company)

Condensed Statements of Cash Flows

(Unaudited)

 

   Three months ended
September 30,
2011
  Three months ended
September 30,
2010
(Restated)
  From Inception
(February 11, 2003) to
September 30, 2011
Cash flows from operating activities:               
Net loss  $(191,500)  $(354,571)  $(3,481,379)
                
Adjustments to reconcile net loss to
net cash used in operating activities:
               
Issuance of common stock- services   63,839    22,863    374,934 
Issuance of common stock- sub-licensing fee       10,000     
Issuance of common stock- financing fees       18,400    286,900 
Loss on conversion of AP, accrued expenses and note payable       —      4,745 
   Allowance on stock receivable       —      57,040 
Depreciation and amortization   744    57    11,488 
Deferred financing fee       —      15,000 
Impairment of equity investments   10,304    —      10,304 
Changes in current assets and liabilities:               
Organizational costs       —      (8,575)
Prepaid expense       (1,500)    
Accounts payable and accrued expenses   46,343    (4,951)   516,354 
Accrued expenses – related parties   28,700    263,009    1,423,855 
   Net cash used in operating activities   (41,570)   (46,693)   (789,334)
                
Cash flows from investing activities:               
Investment in unconsolidated investee   (10,205)   —      (10,304)
Purchase of equipment       —      (1,134)
   Net cash used in investing activities   (10,205)   —      (11,438)
                
Cash flows from financing activities:               
Proceeds from the issuance of stock   48,919    47,000    756,642 
Proceeds from equity draw down agreement       —      45,020 
Proceeds from note payable       —      5,849 
Payment on deferred financing fees       —      (5,000)
   Net cash provided by financing activities   48,919    47,000    802,511 
                
Increase in cash   (2,856)   307    1,739 
Cash, beginning of period   4,595    103     
Cash, end of period  $1,739   $410   $1,739 

 

The accompanying notes are an integral part of these condensed financial statements.

F-3

SMART KIDS GROUP, INC.

(A Development Stage Company)

Condensed Statements of Cash Flows

(Unaudited)

(Continued)

 

   Three months
ended
September 30,
2011
  Three months ended
September 30,
2010
(Restated)
  From Inception
(February 11, 2003) to
September 30, 2011
Supplemental disclosure of cash flow information:               
Cash paid during the period for:               
Interest  $—     $—     $—   
Income taxes  $—     $—     $—   
                
Supplemental schedule of non-cash investing and financing activities:               
Stock issued for prepaid expense  $558,000   $—     $569,750 
Stock issued for equity draw down  $—      $9,500   $109,060 
Stock issued for software development  $—     $—     $5,500 
Stock issued for accounts payable, accrued expense, and note payable  $—     $—     $855,172 
Payment of accounts payable by shareholder  $—     $—     $240,000 

 

The accompanying notes are an integral part of these condensed financial statements.

F-4

SMART KIDS GROUP, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(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 (date of inception) under the laws of the State of Florida. The Company licenses technology and develops educational content and software.

 

As of September 30, 2011, the Company is 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 September 30, 2011, the Company did not realize any revenues and has not commenced its principal operations.

 

On April 23, 2010, the Company created Smart Kids Productions Inc., a Canadian corporation, incorporated on May 4, 2009, of which the Company has a 40% interest ownership.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The interim unaudited financial statements should be read in conjunction with the financial statements included in the Form 10-K for the year ended June 30, 2011.  In the opinion of management, all adjustments considered necessary for the fair presentation consisting solely of normal recurring adjustments, have been made.  Operating results for the three months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ended June 30, 2012.

 

The reporting currency of the Company is the U.S. dollar.  The Company has one bank account located in Canada and as a result, has re-measured the account from Canadian dollars to U.S. dollars.  The resulting translation adjustment has been recorded as an operating expense.

 

As used in these notes to the condensed financial statements, the terms the “Company”, “we”, “us”, “our” and similar terms refer to Smart Kids Group, Inc.  These condensed financial statements include all accounts of the Company. Significant accounting policies disclosed therein have not changed except as noted below.

 

Use of Estimates

 

The preparation of financial information in conformity with US GAAP 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 financial information and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Going Concern

 

The accompanying unaudited condensed financial statements have been prepared in conformity with US GAAP, which contemplate continuation of the Company as a going concern.  The Company has not begun generating revenue, is considered a development stage company, has experienced recurring net operating losses, had a net loss of $191,500 and $354,571 for the three months ended September 30, 2011 and 2010, respectively, accumulated deficit of $3,481,379 and a working capital deficiency of $347,205 at September 30, 2011.  

F-5

SMART KIDS GROUP, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

 

Management believes that additional capital will be required to fund operations through September 30, 2012 and beyond, as it attempts to generate revenues, 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.

 

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.

 

Cash and Cash Equivalents

 

For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents. As of September 30, 2011 and June 30, 2011 the Company had no cash equivalents.

 

Fair Value of Financial Instruments

 

The carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair values due to the short maturities of these items. The Company does not hold any investments that are available-for-sale.

 

Fair Value Accounting

 

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The three levels of the fair value hierarchy are described below:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

 

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

Software Development Cost

 

Costs incurred internally in creating a computer software product are charged to expense when incurred as research and development until technological feasibility has been established for the product. Technological feasibility is established upon completion of a detail program design or, in its absence, completion of a working model. Thereafter, all software production costs are capitalized and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized costs are amortized based on current and future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the product.

F-6

SMART KIDS GROUP, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

 

As of September 30, 2011, the Company capitalized software of $3,438, net of accumulated amortization of $2,063 in internal software development costs.

 

Adopted

In January 2010, the FASB issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance will become effective for the Company with the reporting period beginning July 1, 2011. The adoption of this guidance did not have a material impact on the Company's financial position, results of operations or cash flows.

 

Issued

 

In May 2011, the FASB issued an accounting standard update that amends the accounting standard on fair value measurements. The accounting standard update provides for a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. generally accepted accounting principles and International Financial Reporting Standards. The accounting standard update changes certain fair value measurement principles, clarifies the application of existing fair value measurement, and expands the fair value measurement disclosure requirements, particularly for Level 3 fair value measurements. The amendments in this accounting standard update are to be applied prospectively and are effective for interim and annual periods beginning after December 15, 2011. The adoption of this accounting standard update will become effective for the reporting period beginning July 1, 2012. The adoption of this guidance will not have a material impact on the Company’s financial position, results of operations or cash flows.

 

In June 2011, the FASB issued an accounting standard update which requires the presentation of components of other comprehensive income with the components of net income in either (1) a continuous statement of comprehensive income that contains two sections, net income and other comprehensive income, or (2) two separate but consecutive statements. This accounting standard update eliminates the option to present components of other comprehensive income as part of the statement of shareholders’ equity, and is effective for interim and annual periods beginning after December 15, 2011. The adoption of this accounting standard update will become effective for the reporting period beginning July 1, 2012. The adoption of this guidance will not have a material impact on the Company’s financial position, results of operations or cash flows.

 

In September 2011, the FASB issued an accounting standard update that amends the accounting guidance on goodwill impairment testing. The amendments in this accounting standard update are intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendments in this accounting standard update are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this accounting standard update will become effective for the reporting period beginning July 1, 2012. The adoption of this guidance will not have a material impact on the Company’s financial position, result of operations or cash flows.

 

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future financial position, results of operations or cash flows.

 

F-7

SMART KIDS GROUP, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

 

NOTE 2. CORRECTION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010

 

The financial statements for the three months ended September 30, 2010 have been restated for the following matters. Prior to the issuance of the original filing on Form 10-Q for the quarter ended December 31, 2010, the Company determined that software development costs of $406,612 and previously capitalized cost of goods sold of $475,558 reported in the Company’s annual report in Form 10-K for the year ended June 30, 2010 included sublicensing fees of $270,000 ($30,000 incurred for the year ended June 30, 2010) and officer salaries ($28,000 incurred for the year ended June 30, 2010) did not meet the capitalization criteria of the FASB ASC 350-40 “Internal Use Software”. As of March 31, 2011, the prior auditor was no longer independent and management determined that the financial statements for the year ended June 30, 2010 needed to be re-audited. In January 2011, the Company engaged a new auditor to re-audit the financial statements as of and for the year ended June 30, 2010 and audit the financial statements as of and for the year ended June 30, 2011 concurrently. Additionally, an accounting firm was engaged that specializes in smaller reporting companies, to perform its internal bookkeeping and external financial reporting.

 

As a result of the change in control over financial reporting mentioned above, the Company determined that there were changes in the Company’s Balance Sheet, Statement of Operations, and Statement of Cash Flows for the three months ended September 30, 2010.

 

Accordingly, the unaudited condensed consolidated financial statements for the three months ended September 30, 2010 have been restated as disclosed.

 

The following errors were found as of September 30, 2010:

 

  • Software development costs of $406,612 and previously capitalized did not meet the capitalization criteria of FASB ASC 350-40 “Internal use Software”;
  • Cash was overstated by $9 due to foreign currency translation;
  • A 40% investment in Smart Kids Productions Inc., a Canadian company, of $99 was not recognized;
  • Deferred financing fees of $15,000 were not recognized;
  • Accounts payable and accrued expenses were overstated by $48,562 primarily due to the payment of accounts payable by a shareholder;
  • Note payable of $5,849 was not recognized;
  • Due to related parties was understated by $42,293 related to accrued officer compensation;
  • Additional paid-in capital was overstated by $22,411;
  • Common stock payable of $20,000 was not recognized;
  • Common stock receivable of $73,150 was not recognized for the Equity Drawdown Agreement;
  • Accumulated deficit during the development stage was understated by $315,541;
  • Operating expenses was overstated by $15,291. This was due to the increase in salaries and wages of $1,037, legal and professional fees of $29,606 and reclassification of sub-licensing expense of $273,008, offset by a decrease in general and administrative expenses of $318,942;
  • Finance and interest expense was understated by $15,600;
  • Depreciation expense of $57 should have been reported as an operating expense;
  • Net loss was understated by $252 as a result of that mentioned above.
F-8

SMART KIDS GROUP, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

 

The effects on our previously issued September 30, 2010 financial statements are as follows:

 

Balance Sheet

 

   September 30,
2010
     September 30, 2010
   As filed  Adjustments  Restated
ASSETS         
Cash  $419   $(9)  $410 
Prepaid expenses   1,500    —      1,500 
Fixed assets   510    —      510 
Investment in unconsolidated investee   —      99    99 
Deferred financing fee   —      15,000    15,000 
Software development costs   406,612    (406,612)   —   
Total assets  $409,041   $(391,522)  $17,519 
                
LIABILITIES AND STOCKHOLDERS’ DEFICIT               
Accounts payable and accrued expenses  $153,691   $(48,562)  $105,129 
Note payable   —      5,849    5,849 
Due to related parties   738,566    42,293    780,859 
Total liabilities   892,257    (420)   891,837 
Common stock   355    —      355 
Additional paid-in-capital   2,132,221    (22,411)   2,109,810 
Stock payable   —      20,000    20,000 
Stock receivable   —      (73,150)   (73,150)
Accumulated deficit during the development stage   (2,615,792)   (315,541)   (2,931,333)
Total stockholders’ deficit   (483,216)   (391,102)   (874,318)
Total liabilities and stockholders’ deficit  $409,041   $(391,522)  $17,519 

 

Statement of Operations

 

   For the Three Months Ended September 30,
2010
     For the Three Months Ended September 30, 2010
   As Filed  Adjustments  Restated
Cost of goods sold  $—     $—     $—   
Salaries and wages        1,037    1,037 
Legal and professional fees   26,706    29,606    56,312 
General and administrative expenses   324,756    (318,942)   5,814 
Sub-licensing expense        273,008    273,008 
Total operating expense   351,462    (15,291)   336,171 
 Loss before other expenses   (351,462)   15,291    (336,171)
Finance and interest expense   (2,800)   (15,600)   (18,400)
Depreciation   (57)   57    —   
Total other expense   (2,857)   (15,543)   (18,400)
  Net loss  $(354,319)  $(252)  $(354,571)

 

F-9

Statement of Cash Flows

 

   For the Three Months Ended
September 30, 2010
     For the Three
Months Ended
September 30, 2010
   As Filed  Adjustments  Restated
Net loss  $(354,319)  $(252)  $(354,571)
Issuance of common stock- services   54,950    (32,087)   22,863 
Issuance of common stock- equity drawdown   1,000    (1,000)   —  
Issuance of common stock- financing fees   2,800    15,600    18,400 
Issuance of common stock- sub-licensing fee   10,000    —      10,000 
Depreciation and amortization   57    —      57 
Prepaid expenses   (1,500)   —      (1,500)
Accounts payable and accrued expenses   (21,489)   16,539    (4,950)
Due to related parties   263,008    —      263,008 
Net cash used in operating activities   (45,493)   (1,200)   (46,693)
                
Proceeds from the issuance of stock   45,800    1,200    47,000 
Net cash provided by financing activities  $45,800   $1,200   $47,000 
                
Non-cash investing and financing activities:               
Stock issued for equity drawdown agreement  $—     $9,500   $9,500 

 

 

 

NOTE 3. PREPAID EXPENSE

 

As of September 30, 2011 and June 30, 2011, the Company had prepaid expenses of $511,944 and $11,750. For the three months ended September 30, 2011, prepaid expense of $558,000 was paid through the issuance of the Company’s common stock of which $57,806 has been expensed.

 

NOTE 4. UNCONSOLIDATED INVESTEE

 

In August 2011, the Company paid $10,205 to its unconsolidated investee, Smart Kids Productions, (“SK Productions”) as an investment. The Company has an agreement with SK Productions for the re-packaging of the Company’s intellectual property relating to Be Alert Bert®. As of September 30, 2011, the Company determined that its investment in SK Productions should be fully impaired due to Production’s continued net loss, and recognized an impairment of unconsolidated investees of the $10,205 invested in August, and the initial investment of $99 in May 2010.

 

NOTE 5. RELATED PARTY TRANSACTIONS

 

Accrued expenses – related parties

 

   September 30,
2011
  June 30,
2011
           
Unpaid officer compensation  $562,723   $549,023 
Sub-license expense   38,183    23,183 
Total accrued expenses – related parties  $600,906   $572,206 

 

F-10

SMART KIDS GROUP, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

 

As of September 30, 2011 and June 30, 2011, the Company incurred amounts due to related parties of $600,906 and $572,206. The liability consists of payments due under employment agreements of $562,723 to our Chief Executive Officer and Chief Operating Officer and sub-licensing fees of $38,183 for the intellectual property with Smart Kids International Holdings, Inc., (“SKIH”). As of September 30, 2011 and June 30, 2011, $475,558 of unpaid officer compensation is due to the former Chief Executive Officer, Paul Andrew Ruppanner who was terminated pursuant to Section 1.7 (c)(4) of his employment agreement dated August 1, 2005 (Exhibit 10-4) as filed in an Form 8-K dated April 27, 2010. The remaining $87,165 as of September 30, 2011, is due to our Chief Operating Officer. All accrued expenses – related parties have been expensed in the Statement of Operations in the period incurred.

  

NOTE 6. STOCKHOLDERS’ EQUITY

 

The authorized common stock of the Company consists of 1,800,000,000 shares of common stock with par value of $0.0001 and 40,000,000 shares of preferred stock. As of September 30, 2011 and June 30, 2010 the Company had 9,251,692 and 5,387,025 common stock and zero preferred stock outstanding.

 

In October 2011, upon majority of votes by the Company’s stockholders, the Company affected a 100 to 1 reverse stock split of its outstanding common stock. All share amounts have been retroactively restated to reflect this reverse split.

 

On August 8, 2011, the Company issued 600,000 (post split) shares of restricted common stock valued at $0.22 (post split) per share or $132,000 as a prepayment of consulting services. The shares were valued at the fair market value on July 13, 2011, the agreement date.

 

On August 8, 2011, the Company issued 300,000 (post split) shares of restricted common stock valued at $0.22 (post split) per share or $66,000 as a prepayment of consulting services. The shares were valued at the fair market value on July 25, 2011, the agreement date.

 

On August 8, 2011, the Company issued 350,000 (post split) shares of restricted common stock valued at $0.25 (post split) per share or $87,500 as a prepayment of consulting services. The shares were valued at the fair market value on July 20, 2011, the agreement date.

 

On August 8, 2011, the Company issued 600,000 (post split) shares of restricted common stock valued at $0.25 (post split) per share or $150,000 as a prepayment of consulting services. The shares were valued at the fair market value on July 19, 2011, the agreement date. In accordance with the consulting agreement, an additional 60,000,000 shares are due contingent upon the Company’s stock value exceeding a minimum of $0.03 per share for 20 consecutive days.

 

On August 8, 2011, the Company issued 50,000 (post split) shares of restricted common stock valued at $0.23 (post split) per share or $11,500 as a prepayment of consulting services. The shares were valued at the fair market value on July 8, 2011, the agreement date.

 

On August 8, 2011, the Company issued 300,000 (post split) shares of restricted common stock valued at $0.19 (post split) per share or $57,000 as a prepayment of consulting services. The shares were valued at the fair market value on September 1, 2011, the agreement date.

 

On August 10, 2011, the Company issued 13,334 (post split) shares of restricted common stock valued at $0.15 (post split) per share or $2,000 for consulting services. The shares were valued at the fair market value on July 30, 2011 per the terms of the agreement.

 

On August 17, 2011, the Company issued 540,000 (post split) shares of restricted common stock valued at $0.12 (post split) per share or $64,800 for consulting services. The shares were valued at the fair market value on April 28, 2011, the agreement date.

 

On August 17, 2011, the Company issued 125,000 (post split) shares of restricted common stock for cash consideration of $0.04 (post split) per share or $5,283.

 

On August 17, 2011, the Company issued 25,000 (post split) shares of restricted common stock valued at $0.20 (post split) per share or $5,000 as a prepayment of consulting services. The shares were valued at the fair market value on August 17, 2011, the grant date.

F-11

SMART KIDS GROUP, INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

(Unaudited)

 

On August 17, 2011, the Company issued 25,000 (post split) shares of restricted common stock valued at $0.20 (post split) per share or $5,000 as a prepayment of consulting services. The shares were valued at the fair market value on August 17, 2011, the grant date.

 

On August 17, 2011, the Company issued 513,000 (post split) shares of restricted common stock for cash consideration of approximately $0.11 (post split) per share or $58,246.

 

On September 14, 2011, the Company issued 13,334 (post split) shares of restricted common stock valued at $0.19 (post split) per share or $2,533 for consulting services. The shares were valued at the fair market value on August 31, 2011, per the terms of the agreement.

 

On September 22, 2011, the Company issued 400,000 (post split) shares of restricted common stock valued at $0.11 (post split) per share or $44,000 as a prepayment of consulting services. The shares were valued at the fair market value on August 19, 2011, the agreement date.

 

On September 22, 2011, the Company issued 10,000 (post split) shares of restricted common stock valued at $0.15 (post split) per share or $1,500 for services. The shares were valued at the fair market value on September 21, 2011, the agreement date.

 

As of September 30, 2011, the Company received cash consideration of $17,746 for the purchase of restricted common stock. The shares have not been issued as of September 30, 2011.

 

NOTE 7. SUBSEQUENT EVENTS

 

Subsequent to September 30, 2011, the Company had the following stock transactions:

 

  • In October 2011, upon majority of votes by the Company’s stockholders, the Company affected a 100 to 1 reverse stock split of its outstanding common stock.
  • On October 25, 2011, the Company issued 380,000 (post split) shares of restricted common stock valued at $0.10 (post split) per share or $38,000 as payment of outstanding sub-licensing fees. The shares were valued at the fair market value on October 25, 2011, the grant date.
  • On October 25, 2011, the Company issued 300,000 (post split) shares of restricted common stock for cash consideration of $30,000 or $0.10 per share.
  • On October 25, 2011, the Company issued 468,825 (post split) shares of restricted common stock valued at $0.10 (post split) per share or $46,883 as payment of outstanding accounts payables. The shares were valued at the fair market value on October 25, 2011, the grant date.

On October 11, 2011, the board of directors appointed Mr. Marcel Scherger to act as a member of our board of directors as filed in a Form 8-K on October 12, 2011.

 

On October 17, 2011, the Company, entered into a merger transaction with Paragon GPS Inc., a Delaware corporation (“Paragon”), pursuant to an Agreement and Plan of Merger, by and among the Company, SKGI Acquisition Corp., a Nevada corporation, incorporated on October 14, 2011 and a wholly-owned subsidiary of the Company, and Paragon as filed in a Form 8-K on October 18, 2011, and amended on October 26, 2011.

F-12

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

 

 Forward-Looking Statements

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.   These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions.  We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions.  Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.  We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.  Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

 

Overview

 

We are a development stage company incorporated in the State of Florida on February 11, 2003 that holds the rights to intellectual property of the Be Alert Bert® character and his friends. The intellectual property contains educational and entertainment media product, including television shows, videos, music, and books owned by Smart Kids International Holdings, Inc., a company owned by our Chief Executive Officer and Director, Richard Shergold.

 

Our business plan for the next twelve months is to refurbish, edit and repackage our existing product line of television shows, videos and books for media placement and retail sale. This plan includes locating distribution channels for our products and associated marketing efforts. We estimate that we will need approximately $350,000 to accomplish these tasks. As such, we are currently searching for avenues of financing to accomplish these goals.

 

In addition to repackaging our existing products for sale, we intend to develop new media products based on our licensed intellectual property. We are working on a series of television shows titled the “The Adventures of Bert and Claire.” We are also working to launch a website to display, market and retail our products named, “the Smartkids Community” (www.smartkidscommunity.com). We intend to charge an annual membership fee (after a 30 day trial period) of $19.99 per family which will provide them with access to some of our content and through which they will be able to purchase our videos, music, books and other content that we either sublicense or produce. We launched our company website in April, 2011 (www.smartkidsgroup.com), but our design is contingent on the availability of financing. To develop our new television series and launch our interactive website, we will need roughly $2 million in capital.

 

We have also launched a community-oriented Smart Kids Travel Company, our website is smartkidsgroup.com. This will be a full service travel agency capable of fulfilling vacation and business needs. It will also focus on the travel needs of the members of the Smart Kids Community. Smart Kids Travel is managed by Gary Javorsky, a seasoned travel agency owner, with over 20 years experience selling travel products and services. Through the Smart Kids Travel Website, customers will be able to research destinations, attractions, accommodations and so much more, with departures from across Canada and the United States to any destination around the world. Customers will be able to compare prices from the most popular travel suppliers and contact the Smart Kids Travel Agency to make reservations with the assistance of a personal travel consultant who will make sure that the customer gets exactly what is wanted at the very best price available. In the near future, Smart Kids Travel will post specials oriented towards kids and great family vacations that will give both children and their family’s memorable experiences that will last a lifetime.

 

6

This filing contains restated financial statements of Smart Kids Group, Inc. as of and for the three months ended September 30, 2010. Prior to the issuance of the original filing on Form 10-Q for the quarter ended December 31, 2010, the Company determined that software development costs of $406,612 and previously capitalized costs of goods sold of $475,558 reported on the Company’s annual report in Form 10-K for the year ended June 30, 2010 included sub-licensing fees of $270,000 ($30,000 incurred for the year ended June 30, 2010) and officer salaries of $612,200 ($28,000 incurred for the year ended June 30, 2010) did not meet the capitalization criteria of the FASB ASC 350-40 “Internal Use Software”. As of March 31, 2011, the prior auditor was no longer independent and management determined that the financial statements for the year ended June 30, 2010 needed to be re-audited. In January 2011, the Company engaged a new auditor to re-audit the financial statements as of June 30, 2010 and audit the financial statements as of June 30, 2011. Additionally, an accounting firm was engaged that specializes in smaller reporting companies, to perform its internal bookkeeping and external financial reporting.

 

As a result of the change in control over financial reporting mentioned above, the Company determined that there were changes in the Company’s Balance Sheet, Statement of Operations, Stockholders’ Deficit, and Statement of Cash Flow as of and for the three months ended September 30, 2010. Accordingly, the unaudited condensed consolidated financial statements for the three months ended September 30, 2010 have been restated as disclosed.

 

Results of Operations

 

Revenues. We had no revenues from our inception on February 11, 2003 to September 30, 2011.  We do not expect to achieve revenues until we are able to successfully implement our business plan.

 

Operating expenses. Our operating expenses include licensing expenses, salaries and wages, general and administrative expenses, legal and professional fees. For the three months ended September 30, 2011, we incurred an operating loss of $185,134 compared to an operating loss of $336,171 for the three months ended September 30, 2010, a change of 45%. This was primarily due to a decrease in sub-licensing expense of $258,008 due to the signing of a then active sub-licensing agreement with 3DFV in September 2010. The agreement and sub-licensing fee was cancelled in December 2010. This was offset by an increase in salaries and wages of $31,469 due to the reinstatement of salaries in January 2010, legal and professional fees of $59,091 due to an increase primarily in accounting and consulting fees, an increase in general and administrative expenses of $6,107, and the impairment of equity investments of $10,304 as of September 30, 2011.

 

We anticipate operating expenses to increase in the next twelve months in accordance with our business plan to refurbish, edit and repackage our existing product line of television shows, videos and books for media placement and retail sale.

 

Net Loss. We had a net loss of $191,500 for the three months ended September 30, 2011 compared to a net loss of $354,571 for the three months ended September 30, 2010. The decrease of $163,071 was primarily due to the decrease in operating expenses stated above, and a decrease of $12,034 for finance and interest expenses due to less stock being issued to past investors.

 

Liquidity and Capital Resources

 

As of September 30, 2011, we had total current assets of $513,683 and total assets in the amount of $517,404. Our total current liabilities as of September 30, 2011 were $860,888.  We had an accumulated deficit of $3,481,379 and a working capital deficit of $347,205 as of September 30, 2011.

 

Cash used in operating activities decreased to $41,570 for the three months ended September 30, 2011 compared to $46,693 for the three months ended September 30, 2010 as a result of a decrease in stock issued for financing and sub-licensing fees and due to related parties, offset by an increase due to an impairment of unconsolidated investee, prepaid expenses and accounts payables.

 

Cash used in investing activities increased to $10,205 for the three months ended September 30, 2011 compared to no cash used in investing activities for the three months ended September 30, 2010. The increase was due to the investment in unconsolidated investee of $10,205.

 

Cash flows provided by financing activities during the three months ended September 30, 2011 of $48,919 compared to $47,000 for the three months ended September 30, 2010, consisted of proceeds from the issuance of common stock that stayed relatively the same.

 

Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.

 

7

Going Concern

 

At September 30, 2011, we had $1,739 cash on-hand and an accumulated deficit of $3,481,379, and as noted throughout this report and our financial statements and notes thereto, our independent auditors have expressed their substantial doubt as to our ability to continue as a going concern as of September 30, 2011. We anticipate incurring significant losses in the future. We do not have an established source of revenue sufficient to cover our operating costs. Our ability to continue as a going concern is dependent upon our ability to successfully compete, operate profitably and/or raise additional capital through other means. If we are unable to reverse our losses, we will have to discontinue operations.

 

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

 

Management’s plans include the raising of capital through the equity markets to fund future operations, seeking additional acquisitions, and generating of revenue through our business. However, even if we do raise sufficient capital to support our operating expenses and generate adequate revenues, there can be no assurances that the revenue will be sufficient to enable us to develop business to a level where we will generate profits and positive cash flows from operations. These matters raise substantial doubt about our ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

 

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

 

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

 

Use of Estimates

 

The preparation of 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 financial information and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Stock Based Compensation

 

Stock based compensation is accounted for using the Equity-Based Payments to Non-Employee Topic of the FASB ASC, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. We determine the value of stock issued at the date of grant. We also determine at the date of grant the value of stock at fair market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.

 

Shares issued to employees are expensed upon issuance.

 

Stock based compensation for employees is accounted for using the Stock Based Compensation Topic of the FASB ASC.  We use the fair value method for equity instruments granted to employees and will use the Black Scholes model for measuring the fair value of options, if issued. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.

 

8

Software Development Cost

 

Costs incurred internally in creating a computer software product are charged to expense when incurred as research and development until technological feasibility has been established for the product. Technological feasibility is established upon completion of a detail program design or, in its absence, completion of a working model. Thereafter, all software production costs are capitalized and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized costs are amortized based on current and future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the product.

 

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 September 30, 2011, the Company has not realized any revenue.

 

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

 

A smaller reporting company is not required to provide the information required by this Item.

 

Item 4.     Controls and Procedures

 

Disclosure Controls and Procedures

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2011.  This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer.  Based upon that evaluation, our Chief Executive Officer concluded that, as of September 30, 2011, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of September 30, 2011, our disclosure controls and procedures were not effective:

 

§ We were unable to maintain any segregation of duties within our financial operations due to our reliance on limited personnel in the finance function;

 

§ We do not have an independent Board of Directors, nor do we have a board member designated as an independent financial expert for the Company. The Board of Directors is comprised of two (2) members of management. As a result, there may be lack of independent oversight of the management team, lack of independent review of our operating and financial results, and lack of independent review of disclosures made by the Company; and

 

§ Documentation of all proper accounting procedures is not yet complete.

 
Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting

 

Our company plans to take steps to enhance and improve the design of our internal controls over financial reporting.  During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes:

 

§ We have engaged an accounting firm that specializes in smaller reporting companies to perform our internal bookkeeping and external financial reporting;

 

§ We have engaged a new securities legal counsel to perform consulting services and to review our filings for regulation compliance;

 

§ Expanding our current board of directors to include additional independent individuals willing to perform directorial functions; and

 

§ Increasing our workforce in preparation for exiting the development stage and commencing revenue producing operations.

 

9

Since the recited remedial actions will require that we hire or engage additional personnel, these material weaknesses 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.

 

We anticipate that these initiatives will be at least partially, if not fully, implemented by June 30, 2012, subject to our ability to obtain sufficient future financing and subject to our ability to produce revenue in the short term. Failure to obtain financing will prevent us from curing any of the above stated deficiencies.  To reduce the risk of material misstatements we have increased our segregation of duties by engaging an accounting firm to perform our internal record keeping and external financial reporting function.

 

Changes in Internal Control over Financial Reporting

 

None.

 

PART II – OTHER INFORMATION

 

Item 1.     Legal Proceedings

 

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

 

Item 1A:  Risk Factors

 

A smaller reporting company is not required to provide the information required by this Item.

 

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

 

On August 8, 2011, the Company issued 600,000 (post split) shares of restricted common stock valued at $0.22 (post split) per share or $132,000 as a prepayment of consulting services. The shares were valued at the fair market value on July 13, 2011, the agreement date.

 

On August 8, 2011, the Company issued 300,000 (post split) shares of restricted common stock valued at $0.22 (post split) per share or $66,000 as a prepayment of consulting services. The shares were valued at the fair market value on July 25, 2011, the agreement date.

 

On August 8, 2011, the Company issued 350,000 (post split) shares of restricted common stock valued at $0.25 (post split) per share or $87,500 as a prepayment of consulting services. The shares were valued at the fair market value on July 20, 2011, the agreement date.

 

On August 8, 2011, the Company issued 600,000 (post split) shares of restricted common stock valued at $0.25 (post split) per share or $150,000 as a prepayment of consulting services. The shares were valued at the fair market value on July 19, 2011, the agreement date.

 

On August 8, 2011, the Company issued 50,000 (post split) shares of restricted common stock valued at $0.23 (post split) per share or $11,500 as a prepayment of consulting services. The shares were valued at the fair market value on July 8, 2011, the agreement date.

 

On August 8, 2011, the Company issued 300,000 (post split) shares of restricted common stock valued at $0.19 (post split) per share or $57,000 as a prepayment of consulting services. The shares were valued at the fair market value on September 1, 2011, the agreement date.

 

On August 10, 2011, the Company issued 13,333 (post split) shares of restricted common stock valued at $0.15 (post split) per share or $2,000 for consulting services. The shares were valued at the fair market value on July 30, 2011, per the terms of the agreement.

 

On August 17, 2011, the Company issued 540,000 (post split) shares of restricted common stock valued at $0.12 (post split) per share or $64,800 for consulting services. The shares were valued at the fair market value on April 28, 2011, the agreement date.

 

On August 17, 2011, the Company issued 125,000 (post split) shares of restricted common stock for cash consideration of $0.04 (post split) per share or $5,283.

 

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On August 17, 2011, the Company issued 25,000 (post split) shares of restricted common stock valued at $0.20 (post split) per share or $5,000 as a prepayment of consulting services. The shares were valued at the fair market value on August 17, 2011, the grant date.

 

On August 17, 2011, the Company issued 25,000 (post split) shares of restricted common stock valued at $0.20 (post split) per share or $5,000 as a prepayment of consulting services. The shares were valued at the fair market value on August 17, 2011, the grant date.

 

On August 17, 2011, the Company issued 513,000 (post split) shares of restricted common stock for cash consideration of approximately $0.11 (post split) per share or $58,246.

 

On September 14, 2011, the Company issued 13,334 (post split) shares of restricted common stock valued at $0.19 (post split) per share or $2,533 for consulting services. The shares were valued at the fair market value on August 31, 2011, per the terms of the agreement.

 

On September 22, 2011, the Company issued 400,000 (post split) shares of restricted common stock valued at $0.11 (post split) per share or $44,000 as a prepayment of consulting services. The shares were valued at the fair market value on August 19, 2011, the agreement date.

 

On September 22, 2011, the Company issued 10,000 (post split) shares of restricted common stock valued at $0.15 (post split) per share or $1,500 for services. The shares were valued at the fair market value on September 21, 2011, the agreement date.

 

On October 25, 2011, the Company issued 380,000 (post split) shares of restricted common stock valued at $0.10 (post split) per share or $38,000 as payment of outstanding sub-licensing fees. The shares were valued at the fair market value on October 25, 2011, the grant date.

 

On October 25, 2011, the Company issued 300,000 (post split) shares of restricted common stock for cash consideration of $30,000 or $0.10 per share.

 

On October 25, 2011, the Company issued 468,825 (post split) shares of restricted common stock valued at $0.10 (post split) per share or $46,883 as payment of outstanding accounts payables The shares were valued at the fair market value on October 25, 2011, the grant date.

 

These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.

 

Item 3.     Defaults upon Senior Securities

 

None

 

Item 4.     (Removed and Reserved)

 

Item 5.     Other Information

 

None

 

Item 6.      Exhibits

 

Exhibit Number Description of Exhibit
31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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SIGNATURES

 

In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Smart Kids Group, Inc.
 
Date: November 14, 2011
 

By:       /s/ Richard Shergold

             Richard Shergold

Title:    Chief Executive Officer and Director

 

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