Attached files
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| EXCEL - IDEA: XBRL DOCUMENT - Sibling Group Holdings, Inc. | Financial_Report.xls |
| EX-31.1 - CERTIFICATION - Sibling Group Holdings, Inc. | sibe_ex31z1.htm |
| EX-32.1 - CERTIFICATION - Sibling Group Holdings, Inc. | sibe_ex32z1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One) | |
þ | Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2012. |
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¨ | Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ________ to ________ . |
Commission file number: 000-28311
SIBLING GROUP HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Texas | 76-027334 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1355 Peachtree Street, Suite 1150, Atlanta, GA 30309
(Address of principal executive offices) (Zip Code)
(404) 551-5274
(Registrant’s telephone number, Including Area Code)
Securities registered under Section 12(g) of the Exchange Act:
common stock, par value $0.0001
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.
| Yes o | No þ |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
| Yes o | No þ |
Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 þ | No ¨ |
Indicate by check mark whether the registrant has submitted electronically and posted in its corporate Website, 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 such shorter period that the registrant was required to submit and post such files).
| Yes þ | No ¨ |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ¨.
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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer |
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| Accelerated Filer | ¨ |
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Non-Accelerated Filer |
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| Smaller Reporting Company | þ |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes ¨ | No þ |
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $9,440,475 on June 30, 2012.
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. 18,701,070 shares of common stock are outstanding as of March 29, 2013.
All share and per share amounts in this report reflect the 1 for 100 reverse stock split of the registrant’s common stock which took effect on the filing of the Amended and Restated Certificate of Formation with the Secretary of the State of Texas, August 21, 2012.
DOCUMENTS INCORPORATED BY REFERENCE
None.
SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
TABLE of CONTENTS
PART I
ITEM 1.
DESCRIPTION OF BUSINESS
General.
As used herein the terms “Company,” “we,” “our”, and “us” refer to Sibling Entertainment Group Holdings, Inc., a Texas corporation (formerly known as Sona Development Corporation) and its subsidiaries. We were incorporated under the laws of the State of Texas on December 28, 1988 as Houston Produce Corporation and changed our name on May 14, 2007, to “Sibling Entertainment Group Holdings, Inc.” to align our corporate identity with our entry into the entertainment business through an intended acquisition of Sibling Entertainment Group, Inc. (“Sibling”), and its four wholly owned subsidiaries: Sibling Theatricals, Inc., Sibling Pictures, Inc., Sibling Music Corp., and Sibling Properties, Inc. and their subsidiaries including, among others, Dick Foster Productions, Inc., Adrenaline MMA, Inc., and Hats Holdings, Inc. Although we were unable to complete this acquisition, we actively pursued opportunities in film, theater, real estate, management, and music publishing during the first three quarters of 2010. In September 2010, the Company determined that the funding required to continue the entertainment business was not available to the Company.
Effective December 30, 2010, the Company exited the entertainment and theatricals business by transferring all of the Company’s entertainment and theatricals assets to Debt Resolution, LLC. In connection with the acquisition of N4E, we entered into Conversion Agreements with all but one of the 44 holders of our 13% Series AA Secured Convertible Debentures, whereby such holders converted the principal and accrued interest of the Series AA Secured Convertible Debentures and the related warrants into shares of Debt Resolution, LLC and 1,039,985 shares of the Company’s series common stock. The Company’s agreement with the holders of the Series AA Debentures included consent to the acquisition of Newco4Education, LLC and a release of claims against the Company.
Effective December 30, 2010, we acquired N4E for 8,839,869 shares of the Company’s series common stock and thereby entered the education services and technology business..
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Effective August 21, 2012, The Company’s corporation name was changed to Sibling Group Holdings, Inc.
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The Company’s authorized capital stock was increased and reclassified to effect a 1 for 100 share reverse stock split. The Company’s authorized capital is now 510 million shares, divided into 500,000,000 shares of Common Stock, par value $.0001 and 10,000,000 shares of Preferred Stock, par value $.0001. Each 100 shares of the Company’s common stock, par value $.01 outstanding prior to August 21, 2012 was converted into 1 share of the Company’s Common Stock, par value $.0001.
After giving effect to the reclassification and reverse stock split of the common stock outstanding prior to August 21, 2012 and the conversion of series common stock into Common Stock, par value $.0001 created by the Restated Certificate, there were 15,736,859 shares of Common Stock, par value $.0001 issued and outstanding as of August 21, 2012. At December 31, 2012, there are 18,701,070 shares of common stock issued and outstanding and no shares of preferred stock have been issued. The Company’s trading symbol on the OTC-QB is SIBE and the new CUSIP is 825784 101.
Education Business Plan
N4E was formed June 10, 2010, to pursue business opportunities created from the growing popularity of charter schools and to improve educational opportunities for students across the United States through the development of innovative curricula, computer based education tools, and tools for improvement teacher performance. We intend to use the N4E business plan and methodologies to acquire educational management organizations and to manage and operate both charter and private schools as one component of our business strategy to grow a large scale business that will manage and operate pre-K, K-12 and higher education schools and develop and license curricula, computer based education services, and school operation and management tools throughout the United States and internationally. Our Board of Directors and management team has substantial experience in education operations, as well as technology & internet based software.
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Plan of Operation
We believe our mission is to utilize advanced technology and education management techniques to enhance and accelerate the delivery of 21st century learning using multiple teaching and learning modalities on a global basis. We intend to accomplish this mission by accessing funds from the public capital markets and melding them into a unified strategy that will help to accelerate the improvement of education across the globe. Our desired result will be better educated children, a sustainable and cost effective teaching model for pre-K, K-12 and higher education, and reduced dependence on governmental funding. During the previous year we expanded our target market from K-12 education, primarily aimed at charters schools, to include Pre-K, K-12 and higher education, in both private and public education. We believe this broader scope may enable us faster market penetration, without the administrative and political complexities associated with public schools, and more specifically charter schools within the public education market.
To accomplish this mission we intend to operate with two primary divisions:
The Teaching Alliance
In late 2011, we formed The Teaching Alliance, an internal division, based in Atlanta, Georgia. The Teaching Alliance will house the education management organization (EMO) for the Company accomplished through acquisitions of school management businesses. Our management sees tremendous opportunities in the school management area, particularly within the charter school area nationally, and with private school and tutoring operations internationally. The Teaching Alliance intends to acquire existing EMOs. Management believes that economies of scale will be recognized via repeatable best practices combined with improved administrative, and learning technologies. With this approach Management intends to reduce spending on outdated processes, content, and technologies. We expect to improve operating margins by replacing outmoded approaches with a more cost effective learning approach, and use of better quality administrative tools and processes, while increasing the quality of the education experience.
Education Innovation
In 2011, after surveying providers of technology in the educational arena, we formed another internal division, Education Innovation, to hold our technology operations, and decided that it will be based in Atlanta, Georgia, with an a support center in Phoenix, Arizona. This business unit will provide applications and content to facilitate teaching and learning and improve efficiencies within school administration.
Management believes that the use of technology in the teaching process, generally known as "technology enhanced learning," is expanding rapidly, and we intend to be a key player, by facilitating the distribution of existing solutions, as well as providing certain proprietary solutions. Our initial efforts will focus on aggregating teaching materials, both conventional and technology based, so that educators working in the traditional classroom, in blended learning environments, and in online environments can readily access proven materials as they construct the curriculum needed in their particular situation. Many teaching professionals have lessons they have authored, and we would like to empower and motivate them to distribute the materials to others.
Education Innovation will initially, and for the remainder of FY2013, seek to develop two primary technology based offerings. The first is a "Learning Exchange" application we intend to call The Schoolhouse Warehouse™, a cloud based application which creates a solution for the rapid, low cost, global distribution of high quality educational content. Fully mobile content may be available. When fully operational, The Schoolhouse Warehouse™ approach will provide courses, curricula, and learning materials to students in any learning environment from home schooling to private, or public schools. We also intend for these materials to be incorporated for use with any SCORM (Sharable Content Object Reference Model is a standard for e-learning software) compliant Learning Management System (LMS). We are currently evaluating a new standard, referred to as “TIN CAN,” and it may be necessary to support that new standard as it, and our intended products, are developed.
The Schoolhouse Warehouse™ is intended to provide a marketplace that may enable individual educators, learning content and application developers, and possibly large commercial providers to provide or sell their content on a domestic and international basis. User ratings and reviews of each piece of content will help drive choice and promote competition to improve educational content. Private authors as well as corporate developers will be compensated via an online "app store" approach, similar to the Apple™, Intel™, or Android™ app stores, except that it is solely focused on the vertical market of educational materials. The Company is targeting a late Q2 of 2013 initial beta release date. This software development has been delayed from our earlier estimates, in part due to the change in the market requirements. When initially conceived, this was to be an e-commerce only site. Now, with the increased need for online courses, it is being expanded to include a learning portal, which will allow the user to actually take the course online, and be monitored as they would in a classroom environment.
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A second offering will be a proprietary Learning Management System (LMS) called The Learning Resource, primarily aimed at the K-12 marketplace. We intend to integrate The Learning Resource with Education Innovation's anticipated proprietary product offerings. The Learning Resource will be designed to integrate with The Schoolhouse Warehouse. Management believes these integrations will assist administrators and teachers in building curriculum, including required and recommended learning materials delivered to students as course assignments.
We intend for The Learning Resource to have the capability to administer online testing, assessment, and grading. The Learning Resource design will manage content provided by the Schoolhouse Warehouse™, or other curriculum, as well as classroom events, and/or teacher developed courses/assignments. It provides user interface portals, and custom reporting applications that are specific to administrators, teachers, students, and parents. We seek a beta release of the Learning Resource in late FY2013.
Acquisitions
During 2012 we ramped up our review of the market, and expanded our view of suitable acquisition targets. We intend to review situations as they arise with a focus on private schools and Pre-K education companies. We have evaluated a strategy of acquiring a higher education institution, both as a revenue source, and to develop training for teachers in 21st century teaching technologies.
We have seen a number of innovative curriculum providers, working both inside public education, as complementary curriculum, and operating total outside the public education markets. We are completing audit work on one such provider that we have agreed to acquire, Funutation, Inc. This group provides STEM education, current through summer camps, paid for by parents directly, without support from public education. There are a number of providers in this area, and we think this business can be expanded nationally within the camp segment, but also by implementing the curriculum in after school programs, weekend education, and as a complementary curriculum to general public education. We expect to complete this transaction in the 2nd quarter of 2013.
We expect 2013 to be a busy year. Our goal is to complete one or more acquisitions of schools and education management organizations, and to complete our technology development initiatives. We seek to structure transactions with a significant “earn-out” component and issuance of restricted stock. We cannot be sure that any of the transactions under consideration will be completed, or that our preferred transaction structure will be accepted in the marketplace.
About STEM Education
The following is a discussion of the educational content and curriculum generally referred to as STEM, taken from the California Department of Education web site (http://www.cde.ca.gov/pd/ca/sc/stemintrod.asp) :
Science, technology, engineering, and mathematics (STEM) education is used to identify individual subjects, a stand alone course, a sequence of courses, activities involving any of the four areas, a STEM-related course, or an interconnected or integrated program of study. A nationally agreed upon definition for STEM education is currently lacking. This page and the links on it provide information and resources for kindergarten through grade twelve STEM education.
STEM Education Is
STEM education is a sequence of courses or program of study that prepares students, including underrepresented groups:
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for successful employment, post-secondary education, or both that require different and more technically sophisticated skills including the application of mathematics and science skills and concepts, and
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to be competent, capable citizens in our technology-dependent, democratic society.
Taken separately, the four STEM subjects are defined by the National Research Council as:
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Science is the study of the natural world, including the laws of nature associated with physics, chemistry, and biology and the treatment or application of facts, principles, concepts, or conventions associated with these disciplines.
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2.
Technology comprises the entire system of people and organizations, knowledge, processes, and devices that go into creating and operating technological artifacts, as well as the artifacts themselves.
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Engineering is a body of knowledge about the design and creation of products and a process for solving problems. Engineering utilizes concepts in science and mathematics and technological tools.
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Mathematics is the study of patterns and relationships among quantities, numbers, and shapes. Mathematics includes theoretical mathematics and applied mathematics.
STEM education can be an interdisciplinary or trans-disciplinary approach to learning where rigorous academic concepts are coupled with real-world problem-based and performance-based lessons. At this level, STEM education exemplifies the axiom "the whole is more than the sum of the parts."
In Elementary Grades
STEM education:
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Provides the introductory and foundational STEM courses that lead to success in challenging and applied courses in secondary grades.
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Introduces awareness of STEM fields and occupations.
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Provides standards-based, structured inquiry-based and real-world problem-based learning that interconnects STEM subjects.
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Stimulates student interest in “wanting to” rather than “having to” take further STEM related courses.
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Bridges and connects in-school and out-of-school learning opportunities.
In Middle Grades
STEM education:
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Introduces an interdisciplinary program of study consisting of rigorous and challenging courses.
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Continues to provide standards-based, structured inquiry-based and real world problem-based learning that interconnects STEM-related subjects.
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Bridges and connects in-school and out-of-school learning opportunities.
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Increases student awareness of STEM fields and occupations, especially for underrepresented populations.
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Increases student awareness of the academic requirements of STEM fields and occupations.
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Begins student exploration of STEM related careers, especially for underrepresented populations.
In High School
STEM education:
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Provides a challenging and rigorous program of study focusing on the application of STEM subjects.
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Offers courses and pathways for preparation in STEM fields and occupations.
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Bridges and connects in-school and out-of-school learning opportunities.
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Provides opportunities for student exploration of STEM related fields and careers, especially for underrepresented populations .
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Prepares students for successful post-secondary employment, education, or both.
Government Regulation Impacting this Industry
Federal and State Education Programs.
The charter schools we seek to manage will receive funds from federal and state programs to be used for specific educational purposes. If, on behalf of those schools, we fail to comply with the requirements of the various programs, we could be required to repay the funds and those schools could be determined ineligible for receipt of future federal funds. We intend to develop and implement policies and procedures that are intended to comply with the regulations and requirements of these programs. For example, Title I of the Elementary and Secondary
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Education Act of 1965 supports educationally disadvantaged children in areas of high poverty, Title II, Part A, provides funding for the professional development of teachers, Title II, Part D, provides funding for technology programs, Title VII, provides funding for bilingual education programs, Title V, provides funding for innovative education programs, and the Public Charter School Program, provides start-up funding for charter schools. Although we contemplate that we will receive federal and state funds indirectly through local school boards and charter boards, our receipt of these funds will likely subject us to extensive governmental regulation and scrutiny.
We could lose all or part of the funds we intend to receive if we fail to comply with applicable statutes or regulations, if the federal or state authorities reduce the funding for the programs, or if the charter schools we intend to manage are determined to be ineligible to receive funds under such programs. To the extent that the laws and regulations governing federal and state programs change or are interpreted in a manner that would prevent charter schools from using federal funds to pay for the services we intend to provide, the loss of all or part of these funds would hurt our business.
No Child Left Behind Act. (“NCLB”)
This act is the 2001 reauthorization of the Elementary and Secondary Education Act of 1965. It contains numerous requirements pertaining to the receipt of a range of federal funds, including Title I. Two significant requirements of NCLB are standards pertaining to teacher qualifications and the requirement that schools make adequate yearly progress ("AYP") toward state standards for students. The AYP requirements must be met not only by the aggregate school population, but also by ethnic/racial subgroups, students with disabilities, and English language learners. Schools that fail to make AYP toward meeting state standards may lose some of their student enrollment due to school choice provisions, may be required to allocate a portion of their Title I funding toward the provision of supplemental services to some students, and may be subject to state takeover or other forms of district or state intervention. Failure to meet teacher qualification and related standards may result in the loss of NCLB funds at the school or district that failed to meet the Act's requirements.
Individuals with Disabilities in Education Act.
This act requires that students with qualified disabilities receive an appropriate education through special education and related services provided in a manner reasonably calculated to enable the child to receive educational benefit in the least restrictive environment. Our responsibility to provide the potentially extensive services required by this act varies depending on state law, type of school, and the terms of management agreements that we intend to enter into with charter schools. We would be generally responsible for ensuring the requirements of this act are met in the charter schools we intend to manage, unless state law assigns that responsibility to another entity. If we were to be found in violation of this act in one of the charter schools we intend to manage, we may incur costs relating to the provision of compensatory education services, and may be liable for reasonable attorney fees incurred by the families of individual students with disabilities.
Family Educational Rights and Privacy Act.
The charter schools we intend to manage may be subject to the federal Family Educational Rights and Privacy Act, which protects the privacy of a student's educational record, and generally prohibits a school from disclosing a student's records to a third party without the prior consent of his or her parents. The law also gives parents certain rights with respect to their minor children's education records. The failure of the charter schools we intend to manage to comply with this law may result in termination of their eligibility to receive federal education funds.
Gun-Free Schools Act.
The Gun-Free Schools Act, which became effective in 1994, requires the charter schools we intend to manage to effect certain policies, assurances and reports regarding the discipline of students who bring weapons to our schools. If those schools violate any of these requirements, they may be deemed ineligible to receive certain Federal education funds.
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Federal Civil Rights Laws.
The charter schools we intend to manage must comply with federal civil rights laws or those schools could be determined ineligible to receive funds from federal programs or face criminal or civil penalties. These laws include the following:
Title VI of the Civil Rights Act of 1964. Title VI prohibits recipients of federal financial assistance from discriminating on the basis of race, color, or national origin.
Title IX of the Education Amendments of 1972. Title IX prohibits discrimination on the basis of gender by recipients of federal financial assistance.
Section 504 of the Rehabilitation Act of 1973. Section 504 prohibits discrimination on the basis of disability by recipients of federal financial assistance.
Americans with Disabilities Act of 1990. This act prohibits discrimination in employment against a qualified individual with a disability and requires that buildings, facilities, and vehicles associated with public services be accessible to individuals with disabilities.
Age Discrimination Act of 1975. This act prohibits recipients of federal financial assistance from discriminating on the basis of age.
Age Discrimination in Employment Act of 1967. This act prohibits discrimination on the basis of age in employment.
Equal Pay Act of 1963. This act prohibits discrimination on the basis of gender in the payment of wages.
Title VII of the Civil Rights Act of 1964. Title VII prohibits discrimination on the basis of gender in employment.
Drug-Free Workplace Act of 1988. The Drug-Free Workplace Act requires a recipient of federal funds to certify that it provides a drug-free workplace. If we were to violate the certification and reporting requirements of this act, then we could be determined ineligible to receive federal funds.
State Regulations.
We are also subject to state statutory and regulatory requirements in the states in which we operate. All states have standards for the operation of schools concerning, for example, the length of the school year, curriculum, hours of the school day, physical education and other areas. We could be in violation of the management agreements we intend to enter into with charter boards or school districts if we were to fail to comply with these standards.
Foundation for Innovation in Education, Inc.
Foundation for Innovation in Education, Inc. (“the Foundation”), is a Georgia non-profit corporation that was an N4E member and as a result of our acquisition of N4E is a significant shareholder. Currently the Foundation holds approximately 26% of our common shares issued. the Foundation has informed us that over time it intends to acquire other NFPs that hold the charters to charter schools and may start charter schools itself, as well as develop certain programs aimed at improving the learning ability of certain segments of the student population. The Foundation may hire the Company to be the EMO for charter schools that it starts and acquires, though it has no obligations with the Company at this time. The Foundation intends to engage in research and other activities to advance the state education in America.
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ITEM 1A.
RISK FACTORS
Risks Related to Our Business
Our future operating results are highly uncertain. Before deciding to invest in us or to maintain or increase your investment, you should carefully consider the risks described below in addition to the other information contained in this annual report. If any of these risks actually occur, our business, financial condition or results of operations could be seriously harmed. In that event, the market price for our common stock could decline and you may lose all or part of your investment.
Effective December 30, 2010, We Entered A New Business; This Makes It Difficult To Evaluate Our Business
We have yet to enter into any agreement to acquire an EMO or manage a school at any grade level. We have not recorded any revenue from our new business initiatives. Our management team has only recently begun to work together, and has no experience in operating educational management organizations and charter schools. We have no operating history on which you can base your evaluation of our business and prospects. Accordingly, the Company should be evaluated in light of the expenses, delays, uncertainties, and other difficulties frequently encountered by unseasoned business enterprises entering new markets with unproven products. No assurance can be given that the Company will ever achieve profitable operations. Our failure to address these expenses, delays, uncertainties, and other difficulties could cause our operating results to suffer and result in the loss of all or part of your investment.
We Have A History Of Losses And Expect Losses In The Future
The Company has incurred losses since inception. We do not currently own, operate, or have agreements to acquire any school operations and therefore have no revenues. As a result of our technology initiatives and existing, and anticipated operating expenses, we expect to incur substantial net losses for the foreseeable future. Our ability to become profitable will depend upon our ability to generate and sustain revenue that is greater than our expenses. In order to generate revenue, we will need to enter into management agreements with charter schools, acquire other EMOs, and successfully acquire, and successfully launch our technology initiatives, or develop and license curricula, computer based education services, and school operation and management tools. Our ability to execute our business plans, and generate revenue, will be dependent, in part, on our ability to obtain financing sufficient to execute our business plan. Even if we do achieve profitability, we may not sustain or increase profitability on a quarterly or annual basis. Failure to become and remain profitable may adversely affect the market price of our common stock, our ability to raise capital, and our ability to continue operations.
Political risks
Charter Schools are authorized by state statutes. State legislatures may amend these statutes and the amendments may be unfavorable to our business. Courts may declare these statutes unconstitutional in whole or in part. In either event, we may be unable to grow our business and the market price of our common stock would be adversely affected.
The Private, For-Profit Management Of Charter Schools Is A Relatively New And Uncertain Industry, And It May Not Become Publicly Accepted
Our future is highly dependent upon the development, acceptance, and expansion of the market for private, for-profit management of charter schools. This market has only recently developed. The development of this market has been accompanied by significant press coverage and public debate concerning for-profit management of charter schools. If this business model fails to gain acceptance among the general public, educators, politicians and school boards, we may be unable to grow our business and the market price of our common stock would be adversely affected.
The Success Of Our Business Depends On Our Ability To Improve The Academic Achievement Of The Students Enrolled In Our Schools, And We May Face Difficulties In Doing So In The Future
We believe that the success of our business will be dependent, among other things, upon our ability to demonstrate general improvements in academic performance at the charter schools we intend to manage and operate. We anticipate that the management agreements with schools will contain performance requirements related to test scores and other measures of student achievement. If average student performance at our schools increases, whether due to improvements in achievement over time by individual students in our schools or changes in the average performance levels of new students entering our schools, aggregate absolute improvements in student performance will be more
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difficult to achieve. If academic performance at our schools declines, or simply fails to improve, we could lose business and our reputation could be seriously damaged, which would impair our ability to gain new business or renew existing school management agreements.
We Could Incur Losses At Our Schools If We Are Unable To Enroll Enough Students
We expect that the amount of revenue we will receive for operating schools will be dependent on the number of students enrolled, while the majority of the facility, operating, and on-site administrative costs will be fixed. Therefore, achieving site-specific enrollment objectives will be an important factor in our ability to achieve satisfactory financial performance at any particular school. We may be unable to expand or maintain enrollment. To the extent we are unable to meet enrollment objectives at a school, the school will be less financially successful and our financial performance will be adversely affected.
We Desire Rapid Growth, Which May Strain Our Resources And May Not Be Sustainable
We desire to grow rapidly. Rapid growth may strain our managerial, operational, and other resources. If we are to manage our rapid growth successfully, we will need to hire and retain management personnel and other employees. We must also develop and improve our operational systems, procedures, and controls on a timely basis. If we fail to successfully manage our growth, we could experience client dissatisfaction, cost inefficiencies and lost growth opportunities, which could harm our operating results. We cannot guarantee that we will continue to grow at our historical rate.
We May Not Be Able To Attract And Retain Highly Skilled Principals And Teachers In The Numbers Required To Grow Our Business
Once we have acquired EMOs with management agreements with charter schools or entered into management agreements with charter schools, our success is likely to depend to a high degree upon our ability to attract and retain highly skilled school principals and teachers. We may need to hire new principals and new teachers to address turnover at managed schools. Currently, there is a well-publicized nationwide shortage of teachers and other educators in the United States. In addition, we may find it difficult to attract and retain principals and teachers for a variety of reasons, including the following:
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Our teachers may be required to work a longer day and a longer year than most public schools;
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Our schools may be located in challenging locations, such as low-income urban areas, which may make attracting principals and teachers more difficult; and
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We will likely impose more accountability on principals and teachers than do public schools as a whole.
These factors may increase the challenge we face in an already difficult market for attracting principals and teachers. Other EMO’s have experienced higher levels of turnover among teachers than is generally found in public schools nationally, which we attribute in part to these factors. If we fail to attract and retain principals and teachers in sufficient numbers or of a sufficient quality, we could experience client dissatisfaction and lost growth opportunities, which would adversely affect our business.
Our Business Could Suffer If We Lose The Services Of Key Executives
Our future success depends upon the continued services of a number of our key executive personnel, particularly our Chairman of the Board of Directors, our Chief Executive Officer, or Chief Financial Officer. These executives will be instrumental in determining our strategic direction and focus and in publicly promoting the concept of private management of public schools. If we lose the services of either or any of our other executive officers or key employees, our ability to grow our business would be seriously compromised and the market price of our common stock may be adversely affected. We do not maintain any key man insurance on any of our executives.
Our Management Agreements Will Be Terminable Under Specified Circumstances And Generally Expire After A Term Of Five Years
We expect that our school management agreements will generally have a term of five years. When we expand by adding an additional school under an existing management agreement, the term with respect to that school generally expires at the end of the initial five-year period. We have no experience in negotiating school management agreements, and we cannot be assured that any school management agreements will be negotiated or renewed. In
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addition, school management agreements may be terminable by the school district or charter board at will, with or without good reason, and our school management agreements may be terminated for cause, including a failure to meet specified educational standards, such as academic performance based on standardized test scores. In addition, as a result of changes within a school district, such as changes in the political climate, we could from time to time face pressure to permit a school district or charter board to terminate our school management agreement even if they do not have a legal right to do so. If we fail to renew a significant number of school management agreements at the end of their term, or if school management agreements are terminated prior to their expiration, our reputation and financial results would be adversely affected.
Our Management Agreements Will Involve Financial Risk
Our school management agreements will provide that we will operate a school in return for per- pupil funding that generally does not vary with our actual costs. To the extent our actual costs under a school management agreement exceed our budgeted costs, or our actual revenue is less than planned because we are unable to enroll as many students as we anticipated or for any other reason, we would lose money at that school. We expect that our school management agreements will require us to continue operating a school for the duration of the school management agreement even if it becomes unprofitable to do so.
We May Need To Advance Or Loan Money To Charter Schools Or Their Related Charter Holding Equity That May Not Be Repaid
We may have to loan charter boards funds to finance the purchase or renovation of school facilities we manage or for other reasons. Loans to charter schools may be accelerated upon termination of the corresponding management agreement with the charter school. If these advances or loans are not repaid when due, our financial results could be adversely affected.
We Could Become Liable For Financial Obligations Of Charter Boards
We could have facility financing obligations for charter schools we no longer operate, because the terms of our facility financing obligations for some charter schools might exceed the term of the management agreement for those schools. While the charter board is generally responsible for locating and financing its own school building, the holders of school charters, which are often non-profit organizations, typically do not have the resources required to obtain the financing necessary to secure and maintain the school building. For this reason, if we want to obtain a management agreement with a particular charter board, we may help the charter board arrange for the necessary financing. For some of the charter schools we expect to manage, we may enter into a long-term lease for the school facility which may exceed the initial term of the management agreement. If our management agreements were to be terminated, or not renewed in these charter schools, our obligations to make lease payments would continue, which could adversely affect our financial results for the school building, typically in the form of loan guarantees or cash advances. Although the term of these arrangements may be coterminous with the term of the corresponding management agreement, our guarantee may not expire until the loan is repaid in full. The lenders under these facilities may not be committed to release us from our obligations unless replacement credit support is provided. The default by any charter school under a credit facility that we have guaranteed could result in a claim against us for the full amount of the borrowings. Furthermore, in the event any charter board becomes insolvent or has its charter revoked, our loans and advances to the charter board may not be recoverable, which could adversely affect our financial results.
We Expect Our Market To Become More Competitive
We expect the market for providing private, for-profit management of schools will become increasingly competitive. A variety of companies and entities could enter the market, including colleges and universities, other private companies that operate higher education or professional education schools, and others. Our existing competitors and these new market entrants could have financial, marketing and other resources significantly greater than ours. We will also compete for charter school funding with existing public schools that may pursue alternative reform initiatives, such as magnet schools and inter- district choice programs. In addition, in jurisdictions where voucher programs have been authorized, we will compete with existing private schools for public tuition funds.
9
Voucher programs provide for the issuance by local or other governmental bodies of tuition vouchers to parents worth a certain amount of money that they can redeem at any approved school of their choice, including private schools. If we are unable to compete successfully against any of these existing or potential competitors, our revenues could be reduced, resulting in increased losses.
Failure To Raise Necessary Additional Capital Could Restrict Our Growth And Hinder Our Ability To Compete
We are not certain when we will have positive cash flow, if at all. We expect that we will regularly need to raise funds in order to operate our business and may need to raise additional funds in the future. We cannot be certain that we will be able to obtain additional financing on favorable terms, if at all. If we issue additional equity securities, stockholders may experience dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of common stock. If we cannot raise funds on acceptable terms, if and when needed, we may not be able to take advantage of future opportunities, grow our business or respond to competitive pressures or unanticipated requirements, which could seriously harm our business.
We Expect To Derive A Substantial Portion Of Our Revenues From Public School Funding, Which Is Dependent On Support From Federal, State, And Local Governments. Changes Or Reductions In Funding For Public School Systems Could Reduce Our Revenues And Cash Flows And Negatively Impact Our Margins And Impede The Growth Of Our Business.
The availability of funding to purchase our products and services is subject to many factors that affect government spending. These factors include downturns in general economic conditions, like those which we are currently experiencing, that can reduce government tax revenues and may affect education funding, emergence of other priorities that can divert government funding from educational objectives, periodic changes in government leadership that can change spending priorities, and the government appropriations process, which is often slow and unpredictable. In many instances, customers rely on specific funding appropriations to purchase our products. Curtailments, delays, or reductions in this funding can delay or reduce revenues and cash flow we had otherwise forecasted to receive.
If We Are Unable To Adapt Our Products And Services To Technological Changes, To The Emergence Of New Computing Devices And To More Sophisticated Online Services, We May Lose Market Share And Service Revenue, And Our Business Could Suffer.
We need to anticipate, develop and introduce new products, services and applications on a timely and cost effective basis that keeps pace with technological developments and changing customer needs. We may encounter difficulties responding to these changes that could delay our introduction of products and services or require us to make larger than anticipated investments to maintain existing products. Software industries are characterized by rapid technological change and obsolescence, frequent product introductions, and evolving industry standards. Accordingly, it is difficult to predict the problems we may encounter in developing versions of our products and services and we may need to devote significant resources to the creation, support and maintenance of our products and services. If we fail to develop or sell products and services cost effectively that respond to these or other technological developments and changing customer needs, we may be unable to successfully market our products and services and our revenue and business could materially suffer.
Misuse Or Misappropriation Of Our Proprietary Rights Or Inadvertent Infringement By Us On The Rights Of Others Could Adversely Affect Our Results Of Operations.
The intellectual property rights in the software we intend to develop will be essential to our business. We intend to rely on a combination of the laws of copyrights, trademarks, and trade secrets, as well as license agreements, employment and employment termination agreements, third-party non-disclosure agreements, and other methods to protect our proprietary rights. We intend to enforce our intellectual property rights when we become aware of any infringements or potential infringements and believe they warrant such action. If we were unsuccessful in our ability to protect these rights, our operating results could be adversely affected. Third parties may assert infringement claims against us in the future. We may be required to modify our products, services or technologies or obtain a license to permit our continued use of those rights. We may not be able to do so in a timely manner or upon reasonable terms and conditions. Failure to do so could harm our business and operating results. In addition, we leverage certain third party generated products through license and/or royalty agreements and we have the risk that certain of these relationships will not continue or that the underlying products will not be properly supported or updated by the third parties.
10
If Our Security Measures Are Breached And Unauthorized Access Is Obtained To Our Web-Based Products, They May Be Perceived As Not Being Secure, Customers May Curtail Or Stop Using These Products And We May Incur Significant Legal And Financial Exposure And Liabilities.
We may develop web-based products that involve the storage of certain personal information with regard to the teachers and students using these products. If our security measures are breached and unauthorized access to this information occurs, our reputation will be damaged, our business may suffer, and we could incur significant liability. Because the techniques used to attempt unauthorized access to such systems change frequently and generally are not recognized until attempted on a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the security of our system could be harmed and we could lose sales and customers.
Claims Relating To Content Available On Or Accessible From, Our Web Sites May Subject Us To Liabilities And Additional Expense.
If we develop web-based products that incorporate content not under our direct control including content from, and links to, third-party web sites, and content uploaded by our customers, we could be subject to claims relating to this content. In addition to exposing us to potential liability, claims of this type could require us to change our web sites in a manner that could be less attractive to our customers and divert our financial and development resources.
We Rely On Government Funds For Specific Education Programs, And Our Business Could Suffer If We Fail To Comply With Rules Concerning The Receipt And Use Of The Funds
We expect to benefit from funds from federal and state programs to be used for specific educational purposes. Funding from the federal government under Title I of the Elementary and Secondary Education Act provides federal funds for children from low-income families. A number of factors relating to these government programs could lead to adverse effects on our business:
These programs have strict requirements as to eligible students and allowable activities. If we or the charter schools that we intend to manage fail to comply with the regulations governing the programs, we or the charter schools that we intend to manage could be required to repay the funds or be determined ineligible to receive these funds, which would harm our business.
If the income demographics of a district's population were to change over the life of a management agreement for a charter school, resulting in a decrease in Title I funding for the charter school, we would receive less revenue for operating the charter school and our financial results could suffer.
Funding from federal and state education programs is allocated through formulas. If federal or state legislatures or, in some case, agencies were to change the formulas, we could receive less funding and the growth and financial performance of our business would suffer.
Federal, state and local education programs are subject to annual appropriations of funds. Federal or state legislatures or local officials could drastically reduce the funding amount of appropriation for any program, which would hurt our business and our ability to grow.
The authorization for the Elementary and Secondary Education Act, including Title I, has expired and this act is being funded by Congress on an interim appropriation basis. If Congress does not reauthorize or continue to provide interim appropriation for the Elementary and Secondary Education Act, we would receive less funding and our growth and financial results would suffer. Most federal education funds are administered through state and local education agencies, which allot funds to charter boards. These state and local education agencies are subject to extensive government regulation concerning their eligibility for federal funds. If these agencies were declared ineligible to receive federal education funds, the receipt of federal education funds by the charter schools we intend to manage could be delayed, which could in turn delay our payment from the charter schools we intend to manage. In addition, we could become ineligible to receive these funds if any of our high-ranking employees commit serious crimes.
11
We Could Be Subject To Extensive Government Regulation Because We Benefit From Federal Funds, And Our Failure To Comply With Government Regulations Could Result In The Reduction Or Loss Of Federal Education Funds
Because we expect to benefit from federal funds, we must also comply with a variety of federal laws and regulations not directly related to any federal education program, such as federal civil rights laws and laws relating to lobbying. Our failure to comply with these federal laws and regulations could result in the reduction or loss of federal education funds which would cause our business to suffer. In addition, our management agreements are potentially covered by federal procurement rules and regulations because our school district and charter board clients pay us, in part, with funds received from federal programs. Federal procurement rules and regulations generally require competitive bidding, awarding contracts based on lowest cost and similar requirements. If a court or federal agency determined that a management agreement was covered by federal procurement rules and regulations and was awarded without compliance with those rules and regulations, then the management agreement could be voided and we could be required to repay any federal funds we received under the management agreement, which would hurt our business.
Risks Related to Our Securities
Since our common stock is thinly traded it is more susceptible to extreme rises or declines in price, and you may not be able to sell your shares at or above the price paid.
Since our common stock is thinly traded, its trading price is likely to be highly volatile and could be subject to extreme fluctuations in response to various factors, many of which are beyond our control, including:
·
the trading volume of our shares;
·
the number of securities analysts, market-makers and brokers following our common stock;
·
changes in, or failure to achieve, financial estimates by securities analysts;
·
new products or services introduced or announced by us or our competitors;
·
actual or anticipated variations in quarterly operating results;
·
conditions or trends in our business industries;
·
announcements by us of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
·
additions or departures of key personnel;
·
sales of our common stock; and
·
general stock market price and volume fluctuations of publicly-traded, and particularly microcap, companies.
You may have difficulty reselling shares of our common stock, either at or above the price you paid, or even at fair market value. The stock markets often experience significant price and volume changes that are not related to the operating performance of individual companies, and because our common stock is thinly traded it is particularly susceptible to such changes. These broad market changes may cause the market price of our common stock to decline regardless of how well we perform as a company. In addition, securities class action litigation has often been initiated following periods of volatility in the market price of a company’s securities. A securities class action suit against us could result in substantial legal fees, potential liabilities and the diversion of management’s attention and resources from our business. Moreover, and as noted below, our shares are currently traded on the “pink sheets” and, further, are subject to the penny stock regulations. Price fluctuations in such shares are particularly volatile and subject to manipulation by market-makers, short-sellers and option traders.
Our common stock is subject to the “penny stock” regulations, which are likely to make it more difficult to sell.
Our common stock is considered a “penny stock,” which generally is a stock trading under $5.00 and not registered on a national securities exchange or quoted on the Nasdaq National Market. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. These rules generally have the result of reducing trading in such stocks, restricting the pool of potential investors for such stocks, and making it more difficult for investors to sell their shares once acquired. Prior to a transaction in a penny stock, a broker-dealer is required to:
12
·
deliver to a prospective investor a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market;
·
provide the prospective investor with current bid and ask quotations for the penny stock;
·
explain to the prospective investor the compensation of the broker-dealer and its salesperson in the transaction;
·
provide investors monthly account statements showing the market value of each penny stock held in the their account; and
·
make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.
These requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that is subject to the penny stock rules. Since our common stock is subject to the penny stock rules, investors in our common stock may find it more difficult to sell their shares.
Future sales of shares of our common stock by our stockholders could cause our stock price to decline.
Future sales of shares of our common stock could adversely affect the prevailing market price of our stock. If our significant stockholders sell a large number of shares, or if we issue a large number of shares, the market price of our stock could decline. Moreover, the perception in the public market that stockholders might sell shares of our stock could depress the market for our shares. If our significant stockholders sell substantial amounts of our common stock in the public market, such sales could create a circumstance commonly referred to as an “overhang,” in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make it more difficult for us to raise additional financing through the sale of equity or equity-related securities in the future at a time and price we deem reasonable or appropriate.
We have not paid dividends in the past and do not expect to pay dividends in the future. Any return on investment may be limited to the value of our common stock.
We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the Board of Directors may consider relevant. As the date of this report, our management intends to follow a policy of retaining all of our earnings to finance the development and execution of our strategy and the expansion of our business. If we do not pay dividends, our common stock may be less valuable because a return on your investment will occur only if our stock price appreciates.
ITEM 2.
DESCRIPTION OF PROPERTY
The Company does not own any real or personal property. The Company maintains an office at 1355 Peachtree St, Ste 1350 Atlanta, GA 30309. We do not have any employees. Consultants work from locations which are not owned or leased by the Company.
ITEM 3.
LEGAL PROCEEDINGS
At the conclusion of 2012, to be best of our knowledge there are no outstanding legal proceedings involving the Company.
13
PART II
ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company’s common stock was quoted on the Over the Counter Bulletin Board, a service maintained by the National Association of Securities Dealer, Inc., under the symbol, “SIBE” until mid-year 2009. In the fourth quarter, 2009 the Company was delisted from the OTC Bulletin Board Exchange for failure to make timely filings. During FY2011 we brought all of the Company’s required filings under the Securities Act of 1934 current in November 2011, and the Company was upgraded from the Pink Sheets to the Over the Counter Bulletin Board, at level QB, indicating it was fully reporting.
Trading in the common stock in the over-the-counter market in the preceding two years has been limited and sporadic and the quotations set forth below are not necessarily indicative of actual market conditions. Further, these prices reflect inter-dealer prices without retail mark-up, mark-down, or commission, and may not necessarily reflect actual transactions. All share prices reflect the 1 for 100 reverse stock split which took effect on August 21, 2012.
Year |
| Quarter Ending |
| High |
| Low | ||
2012 |
| 31-Dec |
| $1.99 |
|
| $0.05 |
|
|
| 30-Sep |
| $1.99 |
|
| $0.10 |
|
|
| 30-Jun |
| $2.90 |
|
| $0.60 |
|
|
| 31-Mar |
| $6.00 |
|
| $2.00 |
|
2011 |
| 31-Dec |
| $25.00 |
|
| $4.00 |
|
|
| 30-Sep |
| $10.00 |
|
| $3.50 |
|
|
| 30-Jun |
| $13.50 |
|
| $3.50 |
|
|
| 31-Mar |
| $18.00 |
|
| $2.03 |
|
Record Holders
As of December 31, 2012, there were approximately 600 stockholders of record holding a total of 18,701,070 shares of common stock outstanding. Holders of common stock vote as a single class on all matters which our stockholders are entitled to vote. Each share of common stock is entitled to one vote and shares ratably in any dividends declared by our board of directors. Holders of the common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.
Dividends
The Company has not declared any cash dividends since inception and does not anticipate paying any dividends in the foreseeable future. The payment of dividends is within the discretion of the board of directors and will depend on the Company’s earnings, capital requirements, financial condition, and other relevant factors. There are no restrictions that currently limit the Company’s ability to pay dividends on its common stock other than those generally imposed by applicable state law.
14
Recent Sales of Unregistered Securities
On December 28, 2012 the Board approved the issuance of (1) 200,000 shares of common stock to each Director who joined the Board in 2012 and (2) 150,000 shares of common stock in lieu of cash directors fees to each member of the Board of Directors for services as a member of the Board of Directors in 2013. All shares approved for issuance by the Board of Directors on December 28, 2012 are subject to a “reverse vesting” provision, such that 50% of the shares awarded to a Director are automatically cancelled if that Director does not complete 12 months of service, measured from January 1, 2013, unless the termination results from a merger or change of control of the Company.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this report contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can also be identified by words such as “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the subsections entitled “Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition” below and the subsection entitled “Risk Factors” above. The following discussion should be read in conjunction with our financial statements and notes thereto included in this report.
Results of Operations
The Company did not generate any revenues within the twelve months of operation ending December 31, 2012. The Company’s net loss amounted to $3,686,838. The net loss was primarily the result of the expenses surrounding the developmental costs, completion of audits and management and overhead associated with the educational services businesses.
The 2012 operating expenses were mainly related to accrued expenses for management, consulting, legal and advisory services surrounding the move from entertainment related business activities, into the educational services and technology area, and for normal financial reporting and SEC compliance.
In 2011 and the early part of 2012, management focused on the administrative needs to complete the Company’s SEC filings and audits, as well as continuing to evaluate its educational business areas. During the 2012 year management focused its efforts on refinement of its EMO and technology business efforts and the marketing plans associated with the roll-out of its technology business. In the summer of 2012 we completed a restructuring of our equity aimed at providing for financing and acquisitions. Later in 2012 we have been focused on installing a management team and identifying strategic acquisition targets to achieve our business goals.
We have not yet completed any significant financings for the Company, and have funded our operations to this point with either nominal advances from management, or through the issuance of our common stock, either in lieu of compensation, or in settlement of debt. Until such time as we complete a significant financing it is unlikely that we will be able to move forward with our plans.
Capital Expenditures
The Company expended no amounts on capital expenditures for the period from June 10, 2010 (inception) to December 31, 2012.
15
Capital Resources and Liquidity
The Company is in the development stage. The Company is subject to the risks associated with activities of development stage companies. We currently have limited sources of capital, including the public and private placement of equity securities and the possibility of debt. Additional sources of debt will be limited, and we cannot provide assurance that these sources of funds will be available in the future. The Company will take sufficient action to raise additional debt and or equity as the markets will allow. At year-end 2012, the Company had no assets. Stockholders’ equity (deficit) in the Company was ($672,462) at December 31, 2012.
Forward Looking Statements and Factors That May Affect Future Results and Financial Condition
The statements contained in sections titled “Plan of Operation” and “Description of Business”, with the exception of historical facts are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which reflect our current expectations and beliefs regarding our future results of operations, performance, and achievements. These statements are subject to risks and uncertainties and are based upon assumptions and beliefs that may or may not materialize. These forward looking statements include, but are not limited to, statements concerning:
·
our anticipated financial performance and business plan;
·
the sufficiency of existing capital resources;
·
our ability to raise additional capital to fund cash requirements for future operations;
·
the ability of the Company to generate revenues to fund future operations;
·
the volatility of the stock market and;
·
general economic conditions.
We wish to caution readers that the Company’s operating results are subject to various risks and uncertainties that could cause our actual results to differ materially from those discussed or anticipated; including the factors set forth in the section entitled “Risk Factors” included elsewhere in this report. We also wish to advise readers not to place any undue reliance on the forward looking statements contained in this report, which reflect our beliefs and expectations only as of the date of this report. We assume no obligation to update or revise these forward looking statements to reflect new events or circumstances or any changes in our beliefs or expectations, other that is required by law.
Critical Accounting Policies
a)
Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
(b)
Income Taxes
The Company follows the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis (temporary differences). The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
(c)
Financial Instruments
In accordance with the requirements of Financial Accounting Standards Board Accounting Standard Codification (“ASC”) 825-10-50, “Financial Instruments-Disclosure,” the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The carrying values of cash, promissory notes, accounts payable and amounts due to related parties approximate fair values due to the short-term maturity of the instruments.
16
Effect of Recent Accounting Pronouncements
All new accounting pronouncements issued but not yet effective or adopted have been deemed not to be relevant to us, hence are not expected to have any impact once adopted.
Going Concern
The financial statements have been prepared on the basis of a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated any revenues or completed development of any commercially acceptable products or services to date, has a working capital deficiency of $672,462 at December 31, 2012 and has incurred a loss of $6,384,622 since inception, and further significant losses are expected to be incurred in the Company’s development stage. The Company will depend almost exclusively on outside capital through the issuance of common shares, and advances from related parties to finance ongoing operating losses. The ability of the Company to continue as a going concern is dependent on raising additional capital and ultimately on generating future profitable operations. There can be no assurance that the Company will be able to raise the necessary funds when needed to finance its ongoing costs. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The accompanying financial statements do not include any adjustments relative to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.
ITEM 8.
FINANCIAL STATEMENTS
The requirements of this Item can be found beginning on page F-1 elsewhere in the Annual Report.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
On November 14, 2012, Sibling Group Holdings, Inc. (the “Company”) dismissed Sherb & Co., LLP (“Sherb”) as its independent auditors.
During the fiscal years ended December 31, 2011 and 2010, and through the date of Sherb’s dismissal, there were no (i) disagreements between the Company and Sherb on any matter of accounting principles, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Sherb, would have caused Sherb to make a reference to the subject matter of the disagreements in connection with its report or (ii) "reportable events" as described in Item 304(a)(1)(v) of Regulation S-K.
On November 14, 2012, the Company engaged Liggett, Vogt, & Webb, P.A. (“LVW”) as its independent registered public accounting firm for the fiscal year ending December 31, 2012.
ITEM 9A.
CONTROLS AND PROCEDURES
Management’s Report on Internal Controls over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, (iii) receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iv) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the interim or annual financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
17
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012 based on the framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and identified what we believe to be material weaknesses.
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.
The material weaknesses identified during our annual audit for 2012 were (i) lack of segregation of duties, (ii) lack of sufficient resources to ensure compliance with GAAP and the rule and regulations of the SEC, especially with regards to equity based transactions and tax accounting expertise, and (iii) inadequate security over information technology. These control deficiencies resulted in audit adjustments to the Company’s 2012 annual financial statements. Accordingly, management has determined that these control deficiencies constitute material weaknesses.
Because of these material weaknesses, management concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2012.
We believe that the material weaknesses as reported will eventually be fully remediated, upon being properly capitalized to hire the proper personnel for segregation of duties and with appropriate knowledge of SEC and GAAP accounting.
Management’s Report on Disclosure Controls and Procedures
The Company’s management has identified what it believes are deficiencies in the Company’s disclosure controls and procedures. The deficiencies in our disclosure controls and procedures included (i) lack of segregation of duties and (ii) lack of sufficient resources to ensure that information required to be disclosed by the Company in the reports that the Company files or submits to the SEC are recorded, processed, summarized, and reported, within the time periods specified in the SEC's rules and forms.
The Company intends to take corrective action to ensure that information required to be disclosed by the Company pursuant to the reports that the Company files or submits to the SEC is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. As a result of the deficiencies in the Company’s disclosure controls and procedures, management has concluded that the Company’s disclosure controls and procedures are not effective.
Changes in Internal Control over Financial Reporting.
There have been no changes in our internal control over financial reporting during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
None.
18
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Each of our current directors was appointed by the then existing Board of Directors to serve a term that ends at the next annual meeting of stockholders and until a successor is elected and qualified, or until his or her earlier resignation or removal. No family relationship exists among any of our directors or executive officers. All of our directors are independent.
The following table lists the members of the Board of Directors during the period:
Name |
| Age |
| Positions and Offices |
| Appointed |
| Resigned |
|
|
|
|
|
|
|
|
|
Neal Sessions |
| 49 |
| Chairman of the Board of Directors, CEO |
| 12/28/2012 |
| In place |
|
|
|
|
|
|
|
|
|
Pierce Sullivan |
| 24 |
| Director, Secretary, Compensation Committee member |
| 11/14/2012 |
| In place |
|
|
|
|
|
|
|
|
|
Andrew Honeycutt |
| 70 |
| Director, Audit Committee member |
| 11/3/2012 |
| In place |
|
|
|
|
|
|
|
|
|
Amy Savage-Austin, PhD |
| 43 |
| Director and chair of the Audit Committee |
| 12/30/12 |
| In place |
|
|
|
|
|
|
|
|
|
Michael Hanlon |
| 48 |
| Director, Chair of the Compensation Committee |
| 12/01/11 |
| In place |
|
|
|
|
|
|
|
|
|
Gerald F. Sullivan |
| 72 |
| Chairman of the Board of Directors, Chair of the Compensation Committee |
| 12/30/10 |
| 12/28/12 |
|
|
|
|
|
|
|
|
|
Rob Copenhaver |
| 54 |
| Director, Chief Executive Officer as of 01/06/12 |
| 12/01/11 |
| 04/09/12 |
|
|
|
|
|
|
|
|
|
Oswald A. Gayle |
| 52 |
| Chief Financial Officer and Secretary |
| 12/30/11 |
| 02/14/12 |
Our executive officers are appointed by, and serve at the discretion of, our Board of Directors for a term ending at the first meeting of our Board of Directors after the next annual meeting of stockholders, or until his or her earlier resignation or removal.
The following are the names and present principal occupations or employment, and material occupations, positions, offices or employments for the past five years, of each directors and executive officers of the Company that currently serve on the Board of Directors.
Neal Sessions. Mr. Sessions is an experienced finance and management executive. From 2000 until 2011, Mr. Sessions held a number of senior positions in finance with SunTrust Bank, Atlanta, Georgia, including serving as Chief Financial Officer of their subsidiary, GenSpring Family Offices. Mr. Sessions also served on GenSpring’s Senior Management Team, Risk Committee, Valuation Committee, and Technology Approval Committee.
Pierce Sullivan. Mr. Sullivan is Vice President at Greenwich Group International, Inc., a real estate investment group, where Mr. Sullivan is responsible for development of a “green”, environmentally friendly portfolio. He joined Greenwich in early 2012. Mr. Sullivan has a Bachelors degree in finance from Notre Dame University, South Bend, Indiana, which was awarded in 2011.
Andrew Honeycutt. Dr. Andrew Honeycutt holds a Doctorate in Business from Harvard, and an MBA from Boston University. Andrew has an extensive background in education and the teaching profession and his experience includes positions with a number of HBCU's (Historical Black Colleges and Universities). He served as Dean and Director at a number of colleges and universities and successfully implemented virtual classes and remote teaching technologies. From 2007-present, Dr. Honeycutt has been the Distinguished Business Fellow and Director of the Business Undergraduate Program, Shorter College, Rome, GA. From 2005 to 2007, he was Dean of the Akio Morita School of Business, Anaheim University.
19
Amy Savage-Austin. Ms. Savage-Austin has 10 years’ experience, primarily in the area of finance with large publicly traded corporations. She currently is Assistant Professor and Program Director for Undergraduate Studies at a University. She has both classroom and online teaching experience, and holds a Ph.D. in Business.
Michael Hanlon. Mr. Hanlon operates his own consultancy, and has over twenty years of expertise with mergers and acquisitions across the globe. He specializes in the international expansion of both mature, and entrepreneurial organizations. He has a business degree from the University of Tampa in Florida, and resides in Atlanta, Georgia.
The following are the names, title, age, and present principal occupations or employment, and material occupations, positions, offices or employments for the past five years, of the other non-executive members of our management team.
Timothy G. Drake, Director of Technology Platforms - Age 62 - Managing Partner, Higher Learning Technologies Group, LLC , fourteen years’ experience in the online education field. An executive in both for profit and not for profit organizations. Functioned as an operating executive and consultant in the online learning field, worked with numerous organizations across the country in all phases of the development and execution of online learning programs. He holds a PhD in Business.
Gerry L. Bedore Jr., Director of Technology Services - Age 56 - Dr. Bedore co-founded the Socrates Distance Learning Technologies Group, served as an Executive Committee Member of Education Management Corporation Online Higher Education, and has supported the development of world-class online programs for many of the world's most recognized colleges and universities. He has extensive teaching experience in both classroom and online environments. He has a Ph. D in Education.
Disclosure of Family Relationships.
None
Board of Directors Committees
Dr. Honeycutt and Amy Austin serve on audit committee to review and act on and report to the board of directors with respect to various auditing and accounting matters, including the recommendations and performance of independent auditors, the scope of the annual audits, fees to be paid to the independent auditors, and internal accounting and financial control policies and procedures. Pierce Sullivan and Michael Hanlon serve on the compensation committee to review and recommend compensation provided to officers and directors of the Company.
Code of Ethics
The Company has adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-B of the Securities Exchange Act of 1934. The Code of Ethics applies to directors and senior officers, such as the principal executive officer, principal financial officer, controller, and persons performing similar functions. The Company original incorporated its Code of Ethics in Form 10K filed with the SEC on March 30, 2004 and referenced as Exhibit 14 to this Form 10-K. Further, the Company’s Code of Ethics is available in print, at no charge, to any security holder who requests such information by contacting the Company.
Compliance with Section 16(a) of the Exchange Act
Based upon a review of Forms 3, 4 and 5 furnished to the Company, the Company is aware that during the fiscal year ended December 31, 2012, the following individuals failed to file, on a timely basis, reports required by Section 16(a) of the Securities Exchange Act of 1934:
On August 21, 2012, Series Common Stock shares were converted into Common Stock and Rob Copenhaver, Gerald Sullivan and Amy Savage Austin failed to file Form 4 on a timely basis.
On December 28, 2012, restricted shares were granted to Pierce Sullivan, Neal Sessions, Andrew Honeycutt, Amy Savage-Austin and Michael Hanlon, and Forms 3 or 4, as appropriate, were not filed on a timely basis for those transactions.
Timothy Drake and Gerry Bedore, key advisors to the company, have initiated sales of shares and Form 4 has not been filed in a timely manner on those dispositions.
20
The Company intends to institute procedures to assist its executive officers and directors to meet their filing obligations.
ITEM 11.
EXECUTIVE COMPENSATION
Executive Compensation
The following table summarizes all compensation recorded by us in the last completed fiscal year for
·
our principal executive officer or other individuals serving in a similar capacity,
·
our two most highly compensated executive officers other than our principal executive officer who were serving as executive officers at December 31, 2012 as that term is defined under Rule 3b-7 of the Exchange Act
For definitional purposes in this annual report these individuals are sometimes referred to as the "named executive officers." The value attributable to any option awards is computed in accordance with FASB ASC 718, Compensation-Stock Compensation. The amounts included below reflect wages actually earned during the respective periods.
———————
1.
Mr. Sessions is a Director and serves as our Chief Financial Officer effective December 1, 2012 and was appointed Interim Chief Executive Officer effective December 28, 2012. Mr. Sessions is not a party to an employment agreement with the Company. Mr. Sessions’ compensation consists of an annual base salary of $120,000 per year, and annual cash bonus and stock options, as determined by the Board of Directors based on performance. Mr. Sessions also received an initial stock grant of 200,000 shares of common stock, 200,000 shares of common stock for services on the Board of Directors for 2012 and 150,000 shares of common stock for services on the Board of Directors for 2013. Shares issued for services on the Board of Directors are subject to a “reverse vesting” provision, such that 50% of the shares awarded to a Director are automatically cancelled if that Director does not complete 12 months of service, measured from January 1, 2013, unless the termination results from a merger or change of control of the Company.
2.
Mr. Pierce Sullivan is a Director and was appointed Secretary effective December 28, 2012. Mr. Sullivan received 200,000 shares of common stock for services on the Board of Directors for 2012 and 150,000 shares of common stock for services on the Board of Directors for 2013. Shares issued for services on the Board of Directors are subject to a “reverse vesting” provision, such that 50% of the shares awarded to a Director are automatically cancelled if that Director does not complete 12 months of service, measured from January 1, 2013, unless the termination results from a merger or change of control of the Company.
3.
Mr. Gerald Sullivan resigned as President and Chairman of the Board effective December 28, 2012.
4.
Mr. Gayle resigned as Chief Financial Officer and Secretary effective February 14, 2012.
21
Outstanding Equity Awards at Fiscal Year End
The following table provides information concerning unexercised options, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of December 31, 2012:
|
| OPTION AWARDS |
| STOCK AWARDS | ||||||||||||||
Name (a) |
| Number of securities underlying (#) exercisable (b) |
| Number of (#) unexercisable (c) |
| Equity Number of (#) (d) |
| Option ($) (e) |
| Option (f) |
| Number (g) |
| Market (h) |
| Equity (i) |
| Equity (j) |
Neal Sessions |
| — |
| — |
| — |
| — |
| — |
| 150,000 |
| $96,000 |
| — |
| — |
Pierce Sullivan |
| — |
| — |
| — |
| — |
| — |
| 150,000 |
| 96,000 |
| — |
| — |
Incentive and Non-qualified Stock Option and Stock Award Plans
On December 28, 2012, the Board of Directors approved the issuance of (1) 200,000 shares of common stock to each Director who joined the Board in 2012 and (2) 150,000 shares of common stock in lieu of cash directors fees to each member of the Board of Directors for services as a member of the Board of Directors in 2013. All shares approved for issuance by the Board of Directors on December 28, 2012 are subject to a “reverse vesting” provision, such that 50% of the shares awarded to a Director are automatically cancelled if that Director does not complete 12 months of service, measured from January 1, 2013, unless the termination results from a merger or change of control of the Company.
Director Compensation
The following table provides information concerning the compensation of our Board members for their services as members of our Board of Directors for 2012. The value attributable to any option awards is computed in accordance with FASB ASC Topic 718. The assumptions made in the valuations of the option awards are included in the Notes to our Consolidated Financial Statements for the year ended December 31, 2012 appearing elsewhere in this report.
Director Compensation | ||||||||||||||
Name (a) |
| Fees earned or paid in cash ($) (b) |
| Stock awards ($) (c) |
| Option awards ($) (d) |
| Non-equity Incentive Plan Compensation ($) (e) |
| Nonqualified Deferred Compensation earnings ($) (f) |
| All other compensation ($) (g) |
| Total ($) (h) |
Michael Hanlon(1) |
| — |
| $128,000 |
| — |
| — |
| — |
| — |
| $128,000 |
Andrew Honeycutt (1) |
| — |
| 128,000 |
| — |
| — |
| — |
| — |
| 128,000 |
Amy Savage-Austin (1) |
| — |
| 128,000 |
| — |
| — |
| — |
| — |
| 128,000 |
———————
(1)
On December 28, 2012, the Board of Directors approved the issuance of 200,000 shares of common stock to each Director who joined the Board in 2012. These shares were valued at $0.64 per share.
22
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 2012, the number of shares of our common stock beneficially owned by (a) each person or group who was known to us to be the beneficial owner of more than 5% of either of our outstanding common stock or outstanding series common stock, (b) each of our current directors, (c) our chief executive officer and chief financial officer; and (d) all our directors and executive officers, as a group (5 persons). Unless otherwise noted, the business address of each individual listed below is c/o Sibling Group Holdings, Inc., 1355 Peachtree Street, Suite 1159, Atlanta, GA 30309. The beneficial ownership (1) percentages reflected in the table below are based on 18,701,070 shares of our common stock as of December 31, 2012.
Name of Beneficial Owner |
| Beneficial Ownership of Common (1) |
| Percent of Common |
Greater than 5% Shareholders as of 12/31/2012 |
|
|
|
|
Foundation For Innovation in Education, Inc. |
| 4,938,234 |
| 26.41% |
|
|
|
|
|
Directors and Officers during FY2012 |
|
|
|
|
Neal Sessions, CEO Chairman and Director |
| 550,000 |
| 2.94% |
Pierce Sullivan, Director |
| 350,000 |
| 1.87% |
Andrew Honeycutt, Director |
| 350,000 |
| 1.87% |
Amy Savage-Austin, Director |
| 756,186 |
| 4.04% |
Michael Hanlon, Director |
| 360,000 |
| 1.93% |
Rob Copenhaver, Former CEO and Director |
| 10,000 |
| * |
Gerald F. Sullivan, Former Chairman, and Director |
| 804,096 |
| 4.30% |
Oswald Anthony Gayle, Former CFO |
| 321,262 |
| 1.72% |
|
|
|
|
|
All directors and executive officers as a group |
| 3,501,544 |
| 18.72% |
———————
* Less than 1%
(1)
"Beneficial ownership" generally means any person who, directly or indirectly, has or shares voting or investment power with respect to a security or has the right to acquire such power within 60 days. Shares of common stock subject to options or warrants that are currently exercisable or exercisable within 60 days of December 31, 2012 are deemed outstanding for computing the ownership percentage of the person holding such options, but are not deemed outstanding for computing the ownership percentage of any other person. Restricted stock is included in the beneficial ownership amounts even though it may not be transferred
ITEM 13.
Certain Relationships and Related Transactions and Director Independence
Transactions with Related Parties.
Share Awards.
We compensate our directors for their services as directors by awards of restricted stock. During the year ended December 31, 2012, we made awards of 200,000 shares to each of Andrew Honeycutt, Peirce Sullivan, Michael Hanlon, and Neal Sessions. During the year ended December 31, 2011, we made awards of 34,000.shares for a total value of $470,000.
Note and Accounts Payable Conversions.
In January, 2012, the Company issued 5,328 shares of common stock valued at $21,311, or $4.00 per share, to Oswald Gayle, the former CFO, in full satisfaction of all amounts owed to him for his services. As a part of his resignation he tendered 200,000 shares of series common stock which he had acquired as a result of his position as a founding member of NEWCO4EDUCATION, LLC.
In January, 2012, the Company issued 5,576 shares of common stock valued at $22,304, or $4.00 per share, to Steve Carlson, the former CEO, in partial satisfaction of amounts owed to him for his services.
23
Director Independence
Our shares are quoted on the on the Over-the-Counter Bulletin Board, or OTCBB which does not have director independence requirements. However, the Board has reviewed the independence of its directors under the standards of independence set forth in Marketplace Rule 4200(a)(14) of the NASDAQ Stock Market. During the year ended December 31, 2012, Pierce Sullivan, Andrew Honeycutt, Amy Savage-Austin, and Michael Hanlon were independent. Neal Sessions, Rob Copenhaver, Gerald F. Sullivan, and Oswald Gayle were not independent.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
For the Fiscal Year ended December 31, 2012, the Company incurred $13,000 for services rendered by Liggett, Vogt & Webb P.A. for audit and review services.
For the Fiscal Year ended December 31, 2011, the Company accrued and paid $18,500 for services rendered by Sherb & Co., LLP for audit and review services.
Audit Related Fees - None
24
PART IV
ITEM 15.
EXHIBITS
Exhibits required by Item 601 of Regulation S-B are listed in the Index to Exhibits of this Form 10-K, which is incorporated herein by reference.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: May 6, 2013
| Sibling Group Holdings, Inc. |
| |
|
|
|
|
| By: | /s/ Neal B. Sessions |
|
|
| Neal B. Sessions, |
|
|
| Chief Executive Officer and Director |
|
|
| (Principal Executive Officer) |
|
|
|
|
|
| By: | /s/ Neal B. Sessions |
|
|
| Neal B. Sessions, |
|
|
| Chief Financial Officer |
|
|
| (Principal Accounting Officer) |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature |
| Title |
| Date |
|
|
|
|
|
/s/ Neal B. Sessions |
| Chief Executive Officer, Chief Financial Officer and Director |
| May 6, 2013 |
Neal B. Sessions |
| (Principal Executive Officer and Principal Accounting Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Amy Savage-Austin |
| Director |
| May 6, 2013 |
Amy Savage-Austin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Pierce Sullivan |
| Secretary, Director |
| May 6, 2013 |
Pierce Sullivan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Andrew Honeycutt |
| Director |
| May 6, 2013 |
Andrew Honeycutt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Michael Hanlon |
| Director |
| May 6, 2013 |
Michael Hanlon |
|
|
|
|
26
INDEX TO FINANCIAL STATEMENTS
| Page |
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | F-2 |
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | F-3 |
|
|
CONSOLIDATED BALANCE SHEETS | F-4 |
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS | F-5 |
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS | F-6 |
|
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT | F-7 |
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | F-9 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
We have audited the accompanying consolidated balances sheets of Sibling Group Holdings, Inc., a development stage company, as of December 31, 2012 and the related consolidated statements of operations, stockholders’ deficit and cash flows for the year ended December 31, 2012, and the cumulative amounts from June 10, 2010 (inception) to December 31, 2012. These financial statements are the responsibility of Sibling Group Holdings, Inc’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The cumulative statements of losses, changes in stockholders’ equity, and cash flows for the period June 10, 2010 (date of inception) to December 31, 2012 include amounts for the period from June 10, 2010 (date of inception) to December 31, 2011, which were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the period June 10, 2010 through December 31, 2011 is based solely on the report of other auditors.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sibling Group Holdings, Inc. as of December 31, 2012 and the results of its operations and its cash flows for the year ended December 31, 2012 and for the period from inception (June 10, 2010) to December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 1 to the financial statements, the Company has an accumulated deficit of $6,432,434 from inception through December 31, 2012, and a cumulative net loss from inception of $6,384,622 at December 31, 2012. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in note 1. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
/s/ Liggett, Vogt & Webb, P.A.
Liggett, Vogt & Webb, P.A.
New York, New York
May 6, 2013
F-2
RPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Sibling Group Holdings, Inc.
We have audited the accompanying consolidated balances sheet of Sibling Entertainment Group Holdings, Inc. as of December 31, 2011 and the related consolidated statements of operations, stockholders’ deficit and cash flows for the year ended December 31, 2011 and the cumulative amounts from June 10, 2010 (inception) to December 21, 2011. These financial statements are the responsibility of Sibling Entertainment Group Holdings, Inc’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sibling Entertainment Group Holdings, Inc. as of December 31, 2011 and the results of its operations and its cash flows for the year ended December 31, 2011 and the cumulative period from June 10, 2010 (inception) to December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 1 to the financial statements, the Company has an accumulated deficit of $2,745,595 from inception through December 31, 2011, and a cumulative net loss from inception of $2,697,783 through December 31, 2011. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in note 1. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
/s/ Sherb & Co., LLP
Sherb & Co., LLP
New York, New York
April 20, 2012
F-3
SIBLING GROUP HOLDINGS, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
|
| December 31, |
| |||||
|
| 2012 |
|
| 2011 |
| ||
ASSETS |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash |
| $ | — |
|
| $ | 63 |
|
Total current assets |
|
| — |
|
|
| 63 |
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | — |
|
| $ | 63 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Cash overdraft |
| $ | 1,197 |
|
| $ | — |
|
Accounts payable |
|
| 498,641 |
|
|
| 575,821 |
|
Accrued liabilities |
|
| 43,965 |
|
|
| 23,122 |
|
Amounts due to related parties |
|
| 50,159 |
|
|
| 71,298 |
|
Notes payable to related parties |
|
| — |
|
|
| 5,000 |
|
Short-term notes payable |
|
| 78,500 |
|
|
| 62,500 |
|
Derivative liability |
|
| — |
|
|
| 34,137 |
|
Total current liabilities |
|
| 672,462 |
|
|
| 771,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred; no par, 10,000,000 shares authorized; none issued or outstanding |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
Convertible series common stock, $.0001 par value, 10,000,000 shares authorized, none and 9,879,854 shares issued and outstanding at December 31,2012 and December 31, 2011 |
|
| — |
|
|
| 988 |
|
|
|
|
|
|
|
|
|
|
Common stock, $.0001 par value, 500,000,000 shares authorized, 18,701,070 and 715,939 issued and outstanding at December 31, 2012 and December 31, 2011, respectively |
|
| 1,871 |
|
|
| 72 |
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
| 5,758,101 |
|
|
| 1,972,720 |
|
Deficit accumulated during developmental stage |
|
| (6,432,434 | ) |
|
| (2,745,595 | ) |
Total stockholders' deficit |
|
| (672,462 | ) |
|
| (771,815 | ) |
Total liabilities and stockholders' deficit |
| $ | — |
|
| $ | 63 |
|
See notes to the consolidated financial statements
F-4
SIBLING GROUP HOLDINGS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
|
| For the Year Ended December 31, |
|
| Cumulative Amounts From June 10, 2010 (inception) to December 31, 2012 |
| ||||||
|
| 2012 |
|
| 2011 |
|
|
| ||||
|
|
|
|
|
|
|
|
|
| |||
Operating expenses: |
|
|
|
|
|
|
|
|
| |||
General and administrative costs |
| $ | 3,575,123 |
|
| $ | 2,134,200 |
|
| $ | 5,903,552 |
|
Professional fees |
|
| 94,270 |
|
|
| 111,119 |
|
|
| 344,691 |
|
Loss from operations |
|
| 3,669,393 |
|
|
| 2,245,319 |
|
|
| 6,248,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 17,445 |
|
|
| 9,984 |
|
|
| 28,329 |
|
Loss on extinguishment of debt |
|
| — |
|
|
| 108,050 |
|
|
| 108,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (3,686,838 | ) |
| $ | (2,363,353 | ) |
| $ | (6,384,622 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
| $ | (0.58 | ) |
| $ | (4.02 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted average number of common shares |
|
|
|
|
|
|
|
|
|
|
|
|
outstanding: Basic — Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
| 6,402,762 |
|
|
| 588,631 |
|
|
|
|
|
See notes to the consolidated financial statements
F-5
SIBLING GROUP HOLDINGS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| For The Year Ended December 31, |
|
| Cumulative Amounts From June 10, 2010 (inception) to December 31, 2012 |
| ||||||
|
| 2012 |
|
| 2011 |
|
|
| ||||
|
|
|
|
|
|
|
|
|
| |||
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
| |||
Net loss |
| $ | (3,686,838 | ) |
| $ | (2,363,353 | ) |
| $ | (6,384,622 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock used for consulting fees |
|
| 3,146,192 |
|
|
| — |
|
|
| 3,146,192 |
|
Common stock used for directors fees |
|
| 512,000 |
|
|
| 470,000 |
|
|
| 982,000 |
|
Common stock used for services |
|
| 128,000 |
|
|
| 470,000 |
|
|
| 598,000 |
|
Loss on extinguishment of debt |
|
| — |
|
|
| 108,050 |
|
|
| 108,050 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
| (77,181 | ) |
|
| 458,004 |
|
|
| 487,223 |
|
Liabilities to be settled in stock - |
|
| — |
|
|
| — |
|
|
| 155,930 |
|
Accrued liabilities |
|
| 20,843 |
|
|
| (26,809 | ) |
|
| (5,965 | ) |
Pre-paid expenses |
|
| — |
|
|
| 314 ,704 |
|
|
| 314,704 |
|
Due to related parties |
|
| (21,139 | ) |
|
| 527,830 |
|
|
| 548,691 |
|
Derivative liability |
|
| (34,137 | ) |
|
| 34,137 |
|
|
| — |
|
Net cash used in operating activities |
|
| (12,260 | ) |
|
| (7,437 | ) |
|
| (49,797 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash overdraft |
|
| 1,197 |
|
|
| — |
|
|
| 1,197 |
|
Common stock issued for cash |
|
| — |
|
|
| 10,000 |
|
|
| 10,000 |
|
Proceeds from short-term notes payable |
|
| 11,000 |
|
|
| 2,500 |
|
|
| 13,500 |
|
Repayments of notes payable related parties |
|
| — |
|
|
| (5,000 | ) |
|
| (5,000 | ) |
Capital contribution |
|
| — |
|
|
| — |
|
|
| 100 |
|
Proceeds from notes payable |
|
| — |
|
|
| — |
|
|
| 30,000 |
|
Net cash provided by financing activities |
| $ | 12,197 |
|
| $ | 7,500 |
|
| $ | 49,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH |
|
| (63 | ) |
|
| 63 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF PERIOD |
| $ | 63 |
|
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, END OF PERIOD |
|
| — |
|
| $ | 63 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest Paid |
| $ | — |
|
| $ | — |
|
|
|
|
|
Taxes Paid |
| $ | — |
|
| $ | — |
|
|
|
|
|
Non-cash investing and financing activity: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued to settle liabilities to be settled in stock |
| $ | 564,677 |
|
| $ | — |
|
|
|
|
|
Stock issued to settle related party liabilities and accrued expenses |
| $ | 22,305 |
|
| $ | — |
|
|
|
|
|
See notes to the consolidated financial statements
F-6
SIBLING GROUP HOLDINGS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIODS ENDED JUNE 10, 2010 (Inception) To December 31, 2012
|
| Convertible Series Common |
|
| Common |
|
| Additional Paid-In Capital $ 100 |
|
| Deficit Accumulated During the Development Stage |
|
| Treasury Stock |
| Total |
| ||||||||||||
Shares |
|
| Amount |
| Shares |
|
| Amount | |||||||||||||||||||||
Balance at June 10, 2010 (Date of Inception) |
| — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 100 |
|
| $ | — |
|
| — |
| $ | 100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse merger recapitalization |
| 9,879,854 |
|
|
| 988 |
|
|
| 466,358 |
|
|
| 47 |
|
|
| 4,517 |
|
|
| (47,812 | ) |
| — |
|
| (42,260 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (334,430 | ) |
| — |
|
| 334,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
| 9,879,854 |
|
|
| 988 |
|
|
| 466,358 |
|
|
| 47 |
|
|
| 4,617 |
|
|
| (382,242 | ) |
| — |
|
| (376,590 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for cash at $2.00 per share |
| — |
|
|
| — |
|
|
| 5,714 |
|
|
| 1 |
|
|
| 9,999 |
|
|
| — |
|
| — |
|
| 10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for fees accrued during merger |
| — |
|
|
| — |
|
|
| 20,000 |
|
|
| 2 |
|
|
| 39,998 |
|
|
| — |
|
| — |
|
| 40,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for prepaid expenses at $9.00 per share |
| — |
|
|
| — |
|
|
| 25,000 |
|
|
| 3 |
|
|
| 224,997 |
|
|
| — |
|
| — |
|
| 225,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for liabilities to be settled in stock at $2.00 per share, and $5.00 per share |
| — |
|
|
| — |
|
|
| 83,465 |
|
|
| 8 |
|
|
| 190,922 |
|
|
| — |
|
| — |
|
| 190,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for settlement of accrued expenses at $5.00 per share (loss on extinguishment of $16,666) |
| — |
|
|
| — |
|
|
| 8,333 |
|
|
| 1 |
|
|
| 41,665 |
|
|
| — |
|
| — |
|
| 41,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued to settle amounts due to related parties at $5.00 per share, and $20.00 per share (loss on extinguishment of $62,779) |
| — |
|
|
| — |
|
|
| 47,969 |
|
|
| 5 |
|
|
| 488,527 |
|
|
| — |
|
| — |
|
| 488,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for consulting fees at $20.00 per share |
| — |
|
|
| — |
|
|
| 20,000 |
|
|
| 2 |
|
|
| 399,998 |
|
|
| — |
|
| — |
|
| 400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for settlement of accounts payable at $13.00 per share |
| — |
|
|
| — |
|
|
| 3,600 |
|
|
| — |
|
|
| 72,000 |
|
|
| — |
|
| — |
|
| 72,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for Director's fees at $13.00 per share |
| — |
|
|
| — |
|
|
| 34,000 |
|
|
| 3 |
|
|
| 469,997 |
|
|
| — |
|
| — |
|
| 470,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for services at $20.00 per share |
| — |
|
|
| — |
|
|
| 1,500 |
|
|
|
|
|
|
| 30,000 |
|
|
| — |
|
| — |
|
| 30,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,363,353 | ) |
| — |
|
| (2,363,353 | ) |
Balance at December 31, 2011 |
| 9,879,854 |
|
| $ | 988 |
|
|
| 715,939 |
|
| $ | 72 |
|
| $ | 1,972,720 |
|
| $ | (2,745,595 | ) |
| — |
| $ | (771,815 | ) |
See notes to the consolidated financial statements
F-7
SIBLING GROUP HOLDINGS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIODS ENDED JUNE 10, 2010 (Inception) To December 31, 2012 (CONTINUED)
|
| Convertible Series Common |
|
| Common |
|
| Additional Paid-In Capital $100 |
|
| Deficit Accumulated During the Development Stage |
|
| Treasury Stock |
| Total |
| ||||||||||||
Shares |
|
| Amount | Shares |
|
| Amount | ||||||||||||||||||||||
Balance at December 31, 2011 |
| 9,879,854 |
|
| $ | 988 |
|
|
| 715,939 |
|
| $ | 72 |
|
| $ | 1,972,720 |
|
| $ | (2,745,595 | ) |
| — |
| $ | (771,815 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for settlement of notes payable to related party at $4.00 per share |
| — |
|
|
| — |
|
|
| 5,576 |
|
|
| 1 |
|
|
| 22,304 |
|
|
| — |
|
| — |
|
| 22,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for liabilities to be settled in stock at $4.00 per share |
| — |
|
|
| — |
|
|
| 5,328 |
|
|
| — |
|
|
| 21,307 |
|
|
| — |
|
| — |
|
| 21,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for consulting fees at $3.00 per share |
| — |
|
|
| — |
|
|
| 10,000 |
|
|
| 1 |
|
|
| 29,999 |
|
|
| — |
|
| — |
|
| 30,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series common stock reacquired at $4.13 per share |
| (430,000 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,828,007 |
|
|
| — |
|
| (1,828,007) |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series common stock issued in consideration of compensation at $4.13 per share |
| 430,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| 1,828,007 |
|
| 1,828,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series common stock reacquired at $0.012 per share |
| (80,010 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 145,000 |
|
|
| — |
|
| (145,000) |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series common stock issued in consideration of compensation at $1.81 per share |
| 80,010 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
| 145,000 |
|
| 145,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for settlement of accounts payable at $0.60 per share |
| — |
|
|
| — |
|
|
| 50,000 |
|
|
| 5 |
|
|
| 29,995 |
|
|
| — |
|
| — |
|
| 30,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fractional shares and rounding |
| — |
|
|
| — |
|
|
| 66 |
|
|
| — |
|
|
| 3 |
|
|
| (1 | ) |
| — |
|
| 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of series common to common |
| (9,879,854 | ) |
|
| (989 | ) |
|
| 14,947,216 |
|
|
| 1,495 |
|
|
| (506 | ) |
|
| — |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of series common issued for compensation |
| — |
|
|
| — |
|
|
| (120,055 | ) |
|
| (12 | ) |
|
| (144,988 | ) |
|
| — |
|
| — |
|
| (145,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for settlement of accounts payable at $2.00 per share |
| — |
|
|
| — |
|
|
| 257,000 |
|
|
| 26 |
|
|
| 513,344 |
|
|
| — |
|
| — |
|
| 513,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for consulting fees at $0.05 per share |
| — |
|
|
| — |
|
|
| 500,000 |
|
|
| 50 |
|
|
| 24,950 |
|
|
| — |
|
| — |
|
| 25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for consulting fees at $1.25 per share |
| — |
|
|
| — |
|
|
| 500,000 |
|
|
| 50 |
|
|
| 624,950 |
|
|
| — |
|
| — |
|
| 625,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for consulting fees at $0.64 per share |
| — |
|
|
| — |
|
|
| 280,000 |
|
|
| 28 |
|
|
| 179,172 |
|
|
| — |
|
| — |
|
| 179,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for Director’s fees at $0.64 per share |
| — |
|
|
| — |
|
|
| 1,550,000 |
|
|
| 155 |
|
|
| 511,845 |
|
|
| — |
|
| — |
|
| 512,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,686,838 | ) |
| — |
|
| (3,686,838 | ) |
Balance at December 31, 2012 |
| — |
|
| $ | — |
|
|
| 18,701,070 |
|
| $ | 1,871 |
|
| $ | 5,758,101 |
|
| $ | (6,432,434 | ) | $ | — |
| $ | (672,462 | ) |
See notes to the consolidated financial statements
F-8
SIBLING GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012 and 2011
Note 1 - Nature of Operations and Basis of Presentation
(a)
Organization
Sibling Group Holdings, Inc., referenced as the “SIBE,” “Company,” “we,” “our,” and “us” was incorporated under the laws of the State of Texas on December 28, 1988, as “Houston Produce Corporation”. On June 24, 1997, the Company changed its name to “Net Masters Consultants, Inc.” On November 27, 2002, the Company changed its name to “Sona Development Corporation” in an effort to restructure the business image to attract prospective business opportunities. Our name changed on May 14, 2007 to “Sibling Entertainment Group Holdings, Inc.” and on August 15, 2012 the Company name was changed to “Sibling Group Holdings, Inc.” Prior to December 30, 2010, our business plan called for focusing on large group sales of tickets to New York based entertainment shows.
On December 30, 2010, SIBE entered into a Securities Exchange Agreement with NEWCO4EDUCATION, LLC (“N4E”), a newly formed entity on June 10, 2010, and the members of N4E. Pursuant to the Securities Exchange Agreement, SIBE has acquired N4E in exchange for 8,839,869 shares of SIBE’s newly authorized convertible series common stock. For accounting purposes, the acquisition was treated as an acquisition of SIBE by N4E and as a recapitalization of N4E’s equity. N4E is the surviving and continuing entity and the historical financials following the reverse merger transaction are those of N4E. As part of the recapitalization of N4E, the equity transactions since its inception have been retroactively restated to include the equivalent shares of the Company’s common stock received in the merger. Accordingly, the statement of changes in shareholders’ deficit reflects the restatement of these transactions. The consolidated financial statements are based on the historical consolidated financial statements of N4E after giving effect to the reverse merger. In conjunction with the acquisition of N4E, the company issued 1,039,985 shares of our series common stock pursuant to debt conversion agreements with the holders of the Company's Series AA Debentures and related warrants.
The Company focuses on providing services and technology aimed at increasing the performance in educational settings and operates through two (2) divisions, its Educational Management Organization (EMO) and its Technology and Services Group (TSG). The EMO intends to provide school management services, primarily within the charter school arena. The TSG division is focused on the development and deployment of software, systems and procedures to enhance the rate of learning in both primary and secondary education. It is based in Atlanta, Georgia. The Company is considered a development stage company in accordance with ASC 915, “Development Stage Entities”.
(b)
Basis of Presentation
The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiary, N4E, All significant intercompany transactions and balances have been eliminated.
(c)
Going Concern
The financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated any revenues or completed development of any commercially acceptable products or services to date, and has incurred losses of $6,432,434 since inception, and further significant losses are expected to be incurred during the Company’s development stage. The Company will depend almost exclusively on outside capital through the issuance of common shares, debentures, and other loans, and advances from related parties to finance ongoing operating losses.
The ability of the Company to continue as a going concern is dependent on raising additional capital and ultimately on generating future profitable operations. There can be no assurance that the Company will be able to raise the necessary funds when needed to finance its ongoing costs. The accompanying financial statements do not include any adjustments relative to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.
F-9
SIBLING GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2012 and 2011
Note 2 - Summary of Significant Accounting Policies
(a)
Use of Estimates
The preparation of financial statements in conformity with United States Generally Accepted Accounting Principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
(b)
Income Taxes
The Company utilizes Financial Accounting Standards Board Codification (‘ASC”), ASC 740, “Accounting for Income Taxes”, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the estimated tax consequences in future years of differences between the tax bases of assets and liabilities, and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the period in which the differences are expected to affect taxable income.
(c)
Financial Instruments
In accordance with the requirements of ASC 825, “Financial Instruments, Disclosures about Fair Value of Financial Instruments,” the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The carrying values of cash, accounts payable, and amounts due to related parties approximate fair values due to the short-term maturity of the instruments.
(d)
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance ASC 718, “Compensation – Stock Compensation”. Under the provisions of ASC 718, stock-based compensation cost is estimated at the grant date based on the award’s fair value as calculated by the Black-Scholes-Merton (BSM) option-pricing model and/or market price of conversion shares, and is recognized as expense over the requisite service period. The BSM model requires various highly judgmental assumptions including volatility and expected option life. If any of the assumptions used in the BSM model change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. The Company estimates the forfeiture rate based on historical experience. Further, if the extent of the Company’s actual forfeiture rate is different from the estimate, then the stock-based compensation expense is adjusted accordingly.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 505-50 “Equity Based Payments to Non-Employees. Costs are measured at the estimated fair market value of the consideration received, or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by ASC 505-50.
(e)
Loss per Share
The Company computes loss per share in accordance with ASC 260, “Earnings Per Share”, which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. This guidance requires companies that have multiple classes of equity securities to use the “two-class” of “if converted method” in computing earnings per share. We compute loss per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Under the two-class method, earnings per common share are computed by dividing the sum
F-10
SIBLING GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2012 and 2011
of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the weighted average shares outstanding during the period. The Company has excluded all common equivalent shares outstanding for warrants to purchase common stock from the calculation of diluted net loss per share because all such securities are antidilutive for the periods presented.
(f)
Recent Accounting Pronouncements
All new accounting pronouncements issued but not yet effective or adopted have been deemed to be not relevant to the Company and, accordingly, are not expected to have a material impact once adopted.
Note 3 - Due to Related Parties
On November 14, 2012 the Board of Directors of Sibling appointed Neal Sessions as CEO and CFO of the Company with a term of office that commenced December 1, 2012. During this period, he accrued total compensation of $10,000, which amount was due at December 31, 2012.
Gerald F. Sullivan, former Chairman of the Board, was contracted through as a consultant to provide advisory services on a nonexclusive basis. The Company entered into an agreement on March 1, 2011 as amended June 1, 2011 with Gerald F. Sullivan to convert debt for consulting services originally incurred with the formation and development of strategy and business plans in exchange for the Company’s restricted Common Stock in the aggregate of 1,700,000 shares for accrued compensation of $51,000. The company owed him a balance of $40,159 at December 31, 2012 and $13,220 at December 31, 2011 for cash advances made to the company for operating expenses.
The Company entered into an agreement on October 1, 2011 with Stephen C. Carlson, former CEO, to convert debt for services as CEO for the period April 1, 2011 to September 30, 2011. The company owed him a balance of $16,000 and $41,363 at December 31, 2012 and 2011, respectively, including the $5,000 note payable described below.
Notes Payable –Related Party
On January 21, 2011 Stephen C. Carlson loaned the Company $5,000 in the form of a Promissory Note with an annual interest rate of 3.0%. There was balance due of $5,000 due on this loan at December 31, 2012. There was $1,621 and $469 in accrued interest on this note at December 31, 2012 and 2011, respectively.
Note 4 - Short-Term Notes Payable
Short term notes payable consists of the following:
|
| December 31, |
| |||||
|
| 2012 |
|
| 2011 |
| ||
Short Term Note |
| $ | 48,500 |
|
| $ | 32,500 |
|
Outstanding Debenture |
| $ | 30,000 |
|
| $ | 30,000 |
|
Total Short Term Notes |
| $ | 78,500 |
|
| $ | 62,500 |
|
At December 31, 2012 and December 31, 2011 the Company had a note payable balance of $48,500 and $32,500 respectively. This represents short term notes with annual interest rates ranging from 10% to 12%. At December 31, 2012 and 2011 these notes had accrued interest in the amount of $10,692 and $5,027, respectively.
On December 30, 2010, the Company entered into Conversion Agreements with all but one of the holders of the Series AA debentures previously issued by SIBE and held on that date. Pursuant to the conversion agreements, the holders accepted a total of 1,039,985 shares of convertible series common stock and one-hundred percent (100%) of the membership interests of a new, wholly-owned subsidiary of SIBE, Debt Resolution, LLC (DR LLC) in full
F-11
SIBLING GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2012 and 2011
settlement of their debentures, underlying warrants and accrued interest as of that date. The Conversion Agreements released all claims that 43 of the holders of the debentures had, have, or might have against SIBE. Following this transaction, the Company now has a debenture balance of $30,000 and accrued interest of $22,173 and $17,626 as of December 31, 2012 and 2011, respectively, which is in default.
Note 5 - Income Taxes
The Company accounts for income taxes under FASB ASC 740 –. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. ASC 740 also requires that uncertain tax positions are evaluated in a two-step process, whereby (1) it is determined whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that meet the morelikely-than-not recognition threshold, the largest amount of tax benefit that is greater than fifty percent likely of being realized upon ultimate settlement with the related tax authority would be recognized.
The Company had net operating loss carryforwards available to offset future taxable income approximating $5.8 million as of December 31, 2012, which expire beginning in 2025. The Company has determined that realization of a deferred tax asset that has resulted from the net operating losses is not likely and therefore a full valuation allowance has been recorded against this deferred income tax asset. There are no other material deferred tax positions recorded by the Company.
If the Company had more than a 50% change in ownership over a three year period, then the net operating loss carryforwards are limited as to its use under Internal Revenue Code Section 382. We believe the reverse merger that occurred in December 2010, triggered such Section 382 limitation, but no formal study has been under taken, as the Company has not filed its income tax returns in several years.
Note 6 – Reverse Merger with NEWCO4EDUCATION, LLC
On December 30, 2010, the Company, pursuant to a Securities Exchange Agreement, acquired all of the outstanding membership interests of NEWCO4EDUCATION, LLC by issuance of 8,839,869 shares of convertible series common stock. Each share of series common stock will entitle the holder thereof to a number of votes equal to the series conversion ratio determined as of the record date on all matters submitted to a vote of the stockholders of the Corporation. The holders of Series Common Stock shall be entitled to receive dividends when, as, and if declared by the Board of Directors out of funds legally available for that purpose. The Exchange Agreement was contingent on the consummation of two other transactions, which were completed as follows:
On December 29, 2010, the Company entered into a Loan Assignment Agreement with Sibling Theatricals, Inc. ("STI") and Debt Resolution, LLC ("DR LLC"), a newly formed subsidiary of the Company. Pursuant to the Loan Assignment Agreement, the Company assigned the Loan Receivable with STI and the related accrued interest receivable and certain related liabilities underlying these theatrical assets for 1 million membership interests in DR LLC. The Company's ownership interest in DR LLC was transferred to the Series AA debenture holders the next day as part of the settlement of those debt obligations (see below). The Company effectively exited the theatricals business as a result of these transactions.
On December 30, 2010, the Company entered into Conversion Agreements with all but one of the holders of the Series AA convertible debentures held on that date. Pursuant to the conversion agreements, the holders accepted a total of 1,039,985 shares of convertible series common stock and one-hundred percent (100%) of the membership interests of DR LLC in full settlement of their debentures, underlying warrants and accrued interest as of that date. The Conversion Agreements released all claims that 43 of the holders of the debentures had, have, or might have against the Company.
F-12
SIBLING GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2012 and 2011
Note 7 - Capital Stock
On December 30, 2010, the Board of Directors approved a new series of common stock to effect a debt settlement. As a result, the 100,000,000 authorized shares of common stock on that date, were divided into 10,000,000 shares of series common stock (“Series Common Stock”) and 90,000,000 shares of common stock (“Common Stock”).
Series Common Stock
Series Common Stock automatically converted into Common Stock upon a two-thirds vote by the holders of the Series Common Stock. The holders of Series Common Stock enjoyed certain anti-dilution rights whereby the holders of the Series Common Stock will always enjoy a 95% ownership of the Common Stock outstanding as if the holders of the Series Common Stock had converted their shares.
On December 30, 2010, the Company issued 8,839,869 shares of its Series Common Stock pursuant to a Securities Exchange Agreement by and among the Company, N4E, and the N4E Members. Six individual holders of the Series Common Stock entered into stock restriction agreements whereby these six individuals agreed to continue to render services to the Company for up to two years, through December 30, 2012. If an individual does not fulfill the two year term under the Stock Restriction Agreement, the Company had the right to purchase a pro-rata portion of the Series Common Stock held by that individual for $1.00. If the individual terminated his employment before December 30, 2011, then the Company had the right to repurchase, or cancel, 67% of the Series Common Stock holdings subject to the Stock Restriction Agreement. If the individual terminated his employment between December 30, 2011 and December 31, 2012, then the Company had the right to repurchase, or cancel, 33.34% of his Series Common Stock holdings. These individuals were founders of the Company and were paid separately for current services. Any changes as a result of these claw back provisions are considered to be capital and have no effect on the operations of the Company.
In connection with the acquisition of N4E, the Company issued 1,039,985 shares of its Series Common Stock pursuant to debt conversion agreements with the holders of the Company’s Series AA Debentures and related warrants.
Reacquisition and Reissuance of Series Common Stock
During the three months ended March 31, 2012 the Company negotiated the return of 430,010 shares of Series Common Stock. The acquired Series Common Stock do not trade, therefore the Company valued such Series Common Stock using its comparable common stock equivalent. The trading price of the Common Stock on the date of reacquisition of the Series Common Stock was $0.03 per share. As a result, the Company recorded the fair value of the Series Common Stock to treasury stock in the approximate amount of $1,828,000.
During the three month period ended March 31, 2012, the Company issued 350,000 shares and 80,010 shares of Series Common Stock to two consultants, respectively, and recorded compensation expense of approximately $1,828,000. The compensation expense was calculated by multiplying the 430,010 shares, in the aggregate, of the Series Common Stock, on an as converted basis, by the trading price of $0.03 as of March 30, 2012. The compensation expense is reported as general and administrative expense in the statement of operations for the year ended December 31, 2012.
On May 24, 2012, the Company reacquired 80,100 shares of the Series Common Stock previously issued to a consultant during March 30, 2012. The trading price of the Common Stock on the date of reacquisition of the Series Common Stock was approximately $0.012 per share. As a result, the Company recorded the fair value of the Series Common Stock to treasury stock in the approximate amount of $145,000.
On May 28, 2012, the Company issued 80,100 shares of the previously reacquired Series Common Stock to an employee for an aggregate purchase price of $1.00. The trading price on the date of reissuance of the Company’s common stock was approximately $0.012. As a result, the Company eliminated the cost of $145,000 from treasury stock and recorded the difference between the purchase price and previous acquisition cost of $145,000 as compensation expense.
F-13
SIBLING GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2012 and 2011
On August 21, 2012, the effective date of the Series Common conversion to shares of common stock, as part of the conversion, the Company cancelled the common shares issued in conversion for the Series Common shares attributable to the May 28, 2012 transaction. As a result, the Company reversed the compensation expense in the amount of $145,000 previously recorded.
Conversion of Series Common Stock and 100:1 Reverse Split
In connection with actions taken at the Annual Shareholders Meeting on August 9, 2012, all Series Common Stock shares were converted into common stock at a ratio of 1.51 per share, when taking into effect a reverse split at a 100:1 ratio which was also approved at the meeting. All share amounts reflect the effect of the reverse split shares including those applicable to periods prior to the reverse stock split.
Common Stock
During the first quarter, 2011, the Company took steps to significantly reduce outstanding debts associated with the acquisition of N4E by issuance of the Company’s common stock as follows:
On January 14, 2011, the Company entered into an agreement with Mr. Richard Smyth, pursuant to which the Company issued 24,715 shares of common stock valued at $49,430, in payment of consulting services rendered to N4E in connection with the formation and development of the strategy and business plans of N4E.
On January 14, 2011, the Company entered into an agreement with Meshugeneh LLC, pursuant to which the Company issued 42,500 shares of common stock valued at $85,000 in payment of consulting services rendered to N4E in connection with the formation and development of the strategy and business plans of N4E.
On January 14, 2011, the Company entered into an agreement with Betsey V. Peterzell, pursuant to which the Company issued 10,750 shares of common stock valued at $51,500 in payment of legal services rendered to N4E.
On January 14, 2011, the Company entered into an agreement with Michael Baybak, pursuant to which the Company issued 20,000 shares of common stock valued at $40,000 for services rendered to the Company in connection with the acquisition of N4E.
On March 1, 2011, as amended June 1, 2011, the Company entered into an agreement with Viraxid Corporation, pursuant to which the Company issued 8,333 shares of common stock valued at $41,666 for accounting and bookkeeping services rendered to N4E.
On March 1, 2011, the Company entered into an agreement with Gerald F. Sullivan, Chairman, pursuant to which the Company issued 17,000 shares of common stock valued at $85,000 for services rendered to the Company in connection with the formation and development of strategy and business plans of N4E. These were issued on March 31, 2011.
On October 24, 2011, the Company entered into an agreement with Gerald F. Sullivan, Chairman, pursuant to which the Company issued 2,000 shares of common stock valued at $40,000, as an incentive bonus. These were issued on October 24, 2011.
On March 1, 2011, the Company entered into an agreement with Stephen C. Carlson, CEO, pursuant to which the Company issued 9,666 shares of common stock valued $48,334, for consulting services rendered to N4E in connection with the development of strategy and business plans of N4E and for services rendered to the Company as CEO during the first quarter of 2011. These were issued on March 31, 2011.
On October 1, 2011, the Company entered into an agreement with Stephen C. Carlson, CEO, pursuant to which the Company issued 5,967 shares of common stock valued $119,349 to convert debt for services as CEO for the period April 1, 2011 to September 30, 2011. These were issued on October 3, 2011.
F-14
SIBLING GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2012 and 2011
On October 24, 2011, the Company entered into an agreement Stephen C. Carlson, CEO, pursuant to which the Company issued 2,000 shares of common stock valued at $40,000, as an incentive bonus. These were issued on October 24, 2011.
On March 1, 2011, the Company entered into an agreement with Oswald A. Gayle, CFO, pursuant to which the Company issued 4,722 shares of common stock valued at $23,614 for services rendered to the Company as CFO during the first quarter of 2011.
On October 1, 2011, the Company entered into an agreement with Oswald A. Gayle, CFO, pursuant to which the Company issued 6,611 shares of common stock valued at $132,235 to convert debt for services as CFO for the period April 1, 2011 to September 30, 2011.
On October 24, 2011, the Company entered into an agreement Oswald A. Gayle, CFO, pursuant to which the Company issued 2,000 shares of common stock valued at $40,000, as an incentive bonus. These were issued on October 24, 2011.
On October 24, 2011, the Company entered into an agreement with Dr. Amy Savage-Austin, a director, pursuant to which the Company issued 2,000 shares of common stock valued at $40,000 as an incentive bonus. These were issued on October 24, 2011.
On October 24, 2011, the Company entered into an agreement with Dr. Gerry L. Bedore, Jr., a key advisor, pursuant to which the Company issued 10,000 shares of common stock valued at $200,000 as an incentive bonus. These were issued on October 24, 2011.
On October 24, 2011, the Company entered into an agreement with Dr. Timothy G. Drake, a key advisor, pursuant to which the Company issued 10,000 shares of common stock valued at $200,000 as an incentive bonus. These were issued on October 24, 2011.
On November 18, 2011, the Company entered into an agreement with Robert Copenhaver, a director, pursuant to which the Company issued 10,000 shares of common stock valued at $130,000 as an incentive bonus. These were issued on November 18, 2011.
On November 18, 2011, the Company entered into an agreement with Michael Hanlon, a director, pursuant to which the Company issued 10,000 shares of common stock valued at $130,000 as an incentive bonus. These were issued on November 18, 2011.
On November 18, 2011, the Company entered into an agreement with William W. Hanby, a key advisor, pursuant to which the Company issued 10,000 shares of common stock valued at $130,000 as an incentive bonus. These were issued on November 18, 2011.
For the period January 1, 2011 through December 31, 2011, the Company sold 5,714 shares at a price of $0.0175 per share or $10,000 in the aggregate to one accredited investor.
During the year ended December 31, 2012, the Company issued the following shares of Common Stock:
In January, 2012, the Company issued 5,328 shares of common stock valued at approximately $21,000, or $4.00 per share, to Oswald Gayle, the former CFO, in full satisfaction of all amounts owed to him for his services. As a part of his resignation he tendered 200,000 shares of series common stock which he had acquired as a result of his position as a founding member of NEWCO4EDUCATION, LLC.
In January, 2012, the Company issued 5,576 shares of common stock valued at approximately $22,000, or $4.00 per share, to Steve Carlson, the former CEO, in partial satisfaction of amounts owed to him for his services.
In February 2012, the Company issues 10,000 shares of common stock values at $30,000, or $3.00 per share, to The Partnership of Atlanta Incorporated for consulting services.
F-15
SIBLING GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2012 and 2011
In June 2012, the Company issued 50,000 shares of restricted common stock valued at $30,000, or $0.60 per share, to five individuals in partial satisfaction of certain amounts owed to Meshugeneh LLC for consulting services. An additional 500,000 shares were issued in connection with this transaction in September 2012.
In August 2012, 14,947,216 shares of common stock were issued in connection with the conversion of the series common into common stock.
In September 2012, the Company rescinded the series common issued and converted into 120,055 shares of common stock to an individual in connection with compensation for services valued at $145,000.
In September 2012, the Company issued 257,000 shares of common stock valued at $513,370 or $2.00 per share to two individuals in satisfaction of accounts payable balances owed for services and expense advances made on behalf of the Company.
In October 2012, the Company issued 500,000 shares of common stock valued at $25,000 or $0.05 per share to Steeltown Consultants, LLC, for consulting services.
In October 2012, the Company issued 500,000 shares of common stock valued at $625,000 or $1.25 per share to Ahmad Arfaania, for consulting services.
In December 2012, the Company issued 800,000 shares of common stock valued at $512,000 or $0.64 per share to various Board of Directors members for services. In addition the Company issued 750,000 shares of common stock valued at $480,000 or $0.64 per share to various members of the Board of Directors for services to be rendered in 2013. The value of these shares will be expensed ratably in 2013.
In December 2012, the Company issued 200,000 shares of common stock to its Chief Executive Officer valued at $128,000 or $0.64 per share for past and future services.
In December 2012, the Company issued 80,000shares of common stock to two consultants valued at $51,200 or $0.64 per share for consulting services.
Effective August 9, 2012, the Company’s stockholders approved an increase in authorized capital stock to 500 million shares.
Preferred Stock
Effective August 9, 2012, the Company’s stockholders approved an amendment to Article IV of the Certificate of Formation to authorize a class of preferred stock. The total number of preferred shares that the Company is authorized to issue is 10 million. The stockholders have empowered the Board of Directors to set and determine the designations, preferences, limitations and relative rights of the shares. None of the authorized preferred shares have been issued to date.
Note 8 - Legal Proceedings
The Company is not involved in any legal proceeding as of the date of these financial statements. The Company may become involved in litigation in the future in the normal course of business.
Note 9 –Subsequent Events
ASC Topic 855-10, Subsequent Events, requires the Company to disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued. The Company has evaluated all subsequent events through the date these consolidated financial statements were issued.
F-16
INDEX TO EXHIBITS
Exhibit No. |
| Description |
2.1 |
| Securities Exchange Agreement by and among Sibling Entertainment Group Holdings, Inc., Newco4Education I, LLC and the members of Newco4Education I, LLC dated as of December 30, 20104 |
3(i) |
| Articles of Incorporation of the Company1 |
3(i)(b) |
| Amended Articles of Incorporation of the Company1 |
3(i)(c) |
| Amended Articles of Incorporation of the Company filed with the State of Texas on November 27, 20022 |
3(i)(d) |
| Certificate of Designation4 |
3(i)(e) |
| Amended and Restated Certificate of Formation as filed with the Texas Secretary of State on August 15, 2012 and effective as of August 21, 20127 |
3(iii) |
| Bylaws of the Company1 |
10.1 |
| Loan Assignment Agreement by and among Sibling Entertainment Group Holdings, Inc., Sibling Theatricals, Inc., and Debt Resolution, LLC dated as of December 29, 20104 |
10.2 |
| Form of Conversion Agreement, by and between Sibling Entertainment Group Holdings, Inc. and each holder of 13% Series AA Debentures4 |
10.3 |
| Lock-Up Agreement by and between Sibling Entertainment Group Holdings, Inc. and Mitchell Maxwell dated as of December 30, 20104 |
10.4 |
| Lock-Up Agreement by and between Sibling Entertainment Group Holdings, Inc. and Ray Meyers dated as of December 30, 20104 |
10.5 |
| Stock Restriction Agreement by and between Sibling Entertainment Group Holdings, Inc. and Gerry L. Bedore Jr. dated as of December 30, 20104 |
10.6 |
| Stock Restriction Agreement by and between Sibling Entertainment Group Holdings, Inc. and Timothy G. Drake dated as of December 30, 20104 |
10.7 |
| Stock Restriction Agreement by and between Sibling Entertainment Group Holdings, Inc. and Oswald Gayle dated as of December 30, 20104 |
10.8 |
| Stock Restriction Agreement by and between Sibling Entertainment Group Holdings, Inc. and Amy Savage-Austin dated as of December 30, 20104 |
10.9 |
| Stock Restriction Agreement by and between Sibling Entertainment Group Holdings, Inc. and Stephen C. Carlson dated as of December 30, 20104 |
10.10 |
| Stock Restriction Agreement by and between Sibling Entertainment Group Holdings, Inc. and A. Dixon McLeod dated as of December 30, 20104 |
10.11 |
| Memorandum Agreement by and between Sibling Entertainment Group Holdings, Inc. and Gerald F. Sullivan dated as of March 1, 20115 |
10.12 |
| Memorandum Agreement by and between Sibling Entertainment Group Holdings, Inc. and Stephen C. Carlson dated as of March 1, 20115 |
10.13 |
| Memorandum Agreement by and between Sibling Entertainment Group Holdings, Inc. and Oswald A. Gayle dated as of March 1, 20115 |
10.14 |
| Memorandum Agreement by and between Sibling Entertainment Group Holdings, Inc. and Oswald A. Gayle dated as of October 1, 20115 |
10.15 |
| Memorandum Agreement by and between Sibling Entertainment Group Holdings, Inc. and Stephen C. Carlson dated as of October 1, 20115 |
10.16 |
| Memorandum Agreement by and between Sibling Entertainment Group Holdings, Inc. and Gerald Sullivan dated as of October 24, 20115 |
10.17 |
| Memorandum Agreement by and between Sibling Entertainment Group Holdings, Inc. and Steve Carlson dated as of October 24, 20115 |
10.18 |
| Memorandum Agreement by and between Sibling Entertainment Group Holdings, Inc. and Oswald Gayle dated as of October 24, 20115 |
10.19 |
| Memorandum Agreement by and between Sibling Entertainment Group Holdings, Inc. and Amy Austin dated as of October 24, 20115 |
10.20 |
| Memorandum Agreement by and between Sibling Entertainment Group Holdings, Inc. and Gerry Bedore dated as of October 24, 20115 |
10.21 |
| Memorandum Agreement by and between Sibling Entertainment Group Holdings, Inc. and Tim Drake dated as of October 24, 20115 |
Exhibit No. |
| Description |
10.22 |
| Memorandum Agreement by and between Sibling Entertainment Group Holdings, Inc. and Rob Copenhaver dated as of November 18, 20115 |
10.23 |
| Memorandum Agreement by and between Sibling Entertainment Group Holdings, Inc. and Michael Hanlon dated as of November 18, 20115 |
10.24 |
| Memorandum Agreement by and between Sibling Entertainment Group Holdings, Inc. and William Hanby dated as of November 18, 20115 |
10.25 |
| Memorandum Agreement by and between Sibling Entertainment Group Holdings, Inc. and Oswald Gayle dated as of January 31, 20125 |
10.26 |
| Memorandum Agreement by and between Sibling Entertainment Group Holdings, Inc. and Steve Carlson dated as of January 31, 20125 |
10.27 |
| Modification to Master Agreement by and between Sibling Entertainment Group Holdings, Inc. and The Partnership of Atlanta, Inc. dated May 9, 20126 |
10.28 |
| Restricted Stock Purchase and Restriction Agreement by and between Sibling Entertainment Group Holdings, Inc. and Blackstone Partners, LLC dated as of March 30, 20126 |
10.29 |
| Restricted Stock Purchase and Restriction Agreement by and between Sibling Entertainment Group Holdings, Inc. and Atlanta Capital Partners, LLC dated as of March 30, 20126 |
10.30 |
| 2012 Sibling Group Holdings, Inc. Stock Incentive Plan7 |
10.31 |
| Series Common Stock Cancellation Memorandum between Sibling Group Holdings, Inc. and Atlantic Capital dated May 22, 20128 |
10.32 |
| Form of Restricted Stock Purchase and Restriction Agreement8 |
10.33 |
| Restricted Stock Purchase and Restriction Agreement between Sibling Entertainment Group Holdings, Inc. and Meshugeneh, LLC dated June 30, 20128 |
10.34 |
| Debt Conversion agreement dated September 30, 2012, between the Company and Richard Smyth9 |
10.35 |
| Debt Conversion agreement dated September 30, 2012, between the Company and Meshugeneh, LLC9 |
10.36 |
| Consulting Agreement dated October 3, 2012, between the Company and Steeltown Consulting Group, LLC9 |
10.37 |
| Consulting Agreement dated October 30, 2012, between the Company and Ahmad Arfaania9 |
14 |
| Code of Ethics dated March 1, 20043 |
31.1 |
| Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, promulgated under the Securities and Exchange Act of 1934, as amended.* |
32.1 |
| Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** |
101.INS |
| XBRL Instance Document*** |
101.SCH |
| XBRL Taxonomy Extension Schema Document*** |
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document*** |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document*** |
101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document*** |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document*** |
———————
1 | Incorporated by reference from the Form 10SB/A filed with the Commission on April 18, 2000 |
2 | Incorporated by reference from the Form 10K filed with the Commission on April 3, 2003 |
3 | Incorporated by reference from the Form 10K filed with the Commission on March 30, 2004 |
4 | Incorporated by reference form the Form 8K filed with the Commission on January 6, 2011 |
5 | Incorporated by reference from the Form 10K filed with the Commission on April 30, 2012 |
6 | Incorporated by reference from the Form 10Q filed with the Commission on May 21, 2012 |
7 | Incorporated by reference form the Form 8K filed with the Commission on August 23, 2012 |
8 | Incorporated by reference from the Form 10Q filed with the Commission on October 5, 2012 |
9 | Incorporated by reference from the Form 10Q filed with the Commission on December 11, 2012 |
* | Filed herewith |
** | Furnished herewith |
*** | In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this report shall be deemed furnished and not filed. |