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EX-32.1 - EXHIBIT 32.1 - Sibling Group Holdings, Inc.ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - Sibling Group Holdings, Inc.ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - Sibling Group Holdings, Inc.ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - Sibling Group Holdings, Inc.ex31-1.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
 
þ      Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2010.
 
¨       Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from              to              .
 
Commission file number: 0-28311
 
SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
 
TEXAS
(State or other jurisdiction of incorporation or organization)
76-027334
(IRS Employer Identification Number)
 
2180 Satellite Blvd, Suite 400, Duluth, GA 30097
(Address of Principal Executive Office)         (Postal Code)
 
(404) 551-5274
 (Issuer’s telephone number)
 
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  
o  
 No x

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  
o
 No x

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
 
o
  
Accelerated Filer
o
       
Non-Accelerated Filer
 
o
  
Smaller Reporting Company
x

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

The number of shares outstanding of each of the registrant’s classes of common stock as of September 30, 2011 was 62,826,011 shares of Common stock and 9,879,854 shares of series common stock.
 
 
1

 
 
TABLE OF CONTENTS
 
 
 
Page
PART I.
 
 
ITEM 1. FINANCIAL STATEMENTS
3
 
 
Balance Sheets as of  March 31, 2010 (unaudited) and December 31, 2009
4
 
 
Statements of Operations for the three months ended March 31, 2010 and 2009 and the period December 28, 1988 (inception) to March 31, 2010  (unaudited)
5
 
 
Statements of Cash Flows for the three months ended March 31, 2010 and 2009 and the period December 28, 1988 (inception) to March 31, 2010  (unaudited)
6
 
 
Statements of Stockholder’s Equity (Deficit) for the period December 28, 1988 (inception) to March 31, 2010 (unaudited)
7
 
 
Notes to Financial Statements (unaudited)
9
 
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
18
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
21
 
ITEM 4. CONTROLS AND PROCEDURES
21
 
 
 
 
PART II.
24
 
ITEM 1. LEGAL PROCEEDINGS
24
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
24
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
24
 
ITEM 4. REMOVED AND RESERVED
24
 
ITEM 5. OTHER INFORMATION
25
 
ITEM 6. EXHIBITS
25
 
SIGNATURES
26
 
 
 
 
INDEX TO EXHIBITS
27
 
2

 
 
PART I
 
ITEM 1. FINANCIAL STATEMENTS
 
As used herein the terms “Company,” “we,” “our”, and “us” refer to Sibling Entertainment Group Holdings, Inc., formerly, Sona Development Corp., a Texas corporation, unless otherwise indicated. In the opinion of management, the accompanying unaudited financial statements included in this Form 10-Q reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.

 
3

 
 
SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
BALANCE SHEETS
 
   
March 31, 2010
   
December 31, 2009
 
   
(unaudited)
       
   
 
   
 
 
ASSETS
 
             
Current assets:
           
Cash
  $ -     $ -  
Escrow with Attorney
    1,000       1,000  
Prepaid expenses
    147,341       -  
Deposits
    604       604  
Total current assets
    148,945       1,604  
Receivable from related party
    3,337,366       3,241,553  
Investment
    1       1  
                 
Total assets
  $ 3,486,312     $ 3,243,158  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
                 
Current liabilities:
               
Accounts payable and accrued liabilities
  $ 932,030     $ 799,368  
Amounts due to related parties
    148,660       314,947  
Short-term Loan Payable, net of discount
    2,550,816       2,546,050  
Total current liabilities
    3,631,506       3,660,365  
                 
Stockholders' equity
               
Common stock, $.0001 par value, 100,000,000 shares authorized, 25,989,816 shares as of  03/31/2010, and 22,664,066 shares as of 12/31/2009, issued and outstanding
    2,599       2,266  
Additional paid-in capital
    4,668,419       4,344,464  
Deficit accumulated during the development phase
    (4,816,212 )     (4,763,937 )
Total stockholders' equity (deficit)
    (145,194 )     (417,207 )
                 
Total liabilities and stockholders' equity
  $ 3,486,312     $ 3,243,158  

See notes to the financial statements
 
 
4

 

SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)

               
Cumulative
 
               
Amounts From
 
               
December 28,1988
 
   
Three months ended,
   
(inception) to
 
   
March 31,
   
March 31,
 
   
2010
   
2009
   
2010
 
Operating expenses:
                 
General and administrative costs
  $ 47,509     $ 25,604     $ 3,377,204  
Recovery of consulting fees
    -       -       (45,000 )
Gain (Loss) from operations
    (47,509 )     (25,604 )     (3,332,204 )
                         
Non-operating income (expense):
                       
Interest income
    95,813       95,813       1,009,364  
Interest expense
    (100,579 )     (97,702 )     (1,949,326 )
Gain on forgiveness of debt
    -       -       8,000  
Write down of promissory notes
    -       -       (552,046 )
                         
Net loss
  $ (52,275 )   $ (27,493 )   $ (4,816,212 )
                         
Loss per share - basic and diluted
  $ (0.00 )   $ (0.00 )        
                         
Weighted average common shares outstanding - basic and diluted
    24,925,416       13,074,066          

See notes to the financial statements
 
 
5

 
 
SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
 
               
Cumulative
 
               
Amounts From
 
               
December 28,1988
 
               
(inception) to
 
   
Three Months Ended March 31,
   
March 31,
 
   
2010
   
2009
   
2010
 
OPERATING ACTIVITIES:
                 
                   
Net loss
  $ (52,275 )   $ (27,493 )   $ (4,816,212 )
Adjustments to reconcile net loss to net  cash used by operating activities:
                       
Common stock used for consulting fees
    5,659       -       1,007,829  
Common stock used for services
    -       -       220,830  
Common stock used for finance costs
    -       -       187,500  
Beneficial conversion feature on convertible debt
    -       -       208,157  
Amortization of debt discount
    4,766       -       694,546  
Common stock issued for organizational costs
    -       -       33  
Interest accretion on related party notes
    (95,813 )     (95,813 )     (1,009,509 )
Common stock issued for other services
    -       -       79,903  
Gain or forgiveness of debt
    -       -       (8,000 )
Write down of promissory notes
    -       -       552,047  
Changes in non-cash working items
    -       -       -  
Accounts payable and accrued liabilities
    137,663       110,890       1,266,791  
Advances and deposits
    -       -       (604 )
Accrued and unpaid amounts due to related parties
    (152,000 )     12,416       289,105  
Net cash used in operating activities
    (152,000 )     -       (1,327,584 )
                         
Net cash used in investing activities:
                       
Promissory notes
    -       -       (550,000 )
Proceeds from repayment of related party interest
    -       -       228,149  
Advances to related party
    -       -       (2,555,000 )
Loan to Smart Card Technologies Co. Ltd.
    -       -       (600,000 )
Net cash used in investing activities
    -       -       (3,476,851 )
                         
Net cash used in financing activities:
                       
Advances from related parties
    -       -       612,068  
Proceeds from loan/short term debt
    152,000       -       3,387,000  
Common stock issued for cash
    -       -       805,367  
Net cash provided by financing activities
    152,000       -       4,804,435  
                         
NET INCREASE (DECREASE) IN CASH
    -       -       -  
                         
CASH, BEGINNING OF PERIOD
    -       -       -  
                         
CASH, END OF PERIOD
    -       -       -  

See notes to the financial statements
 
 
6

 
 
SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIODS FROM DECEMBER 28, 1988 (Inception) To March 31, 2010
(Unaudited)
 
                           
Deficit
       
                           
Accumulated
       
               
Additional
         
During the
       
   
Common Stock
   
Paid-in
   
Stock
   
Development
       
   
Shares
   
Amount
   
Capital
   
Subscriptions
   
Stage
   
Total
 
         
$
   
$
   
$
   
$
   
$
 
Balance at December 28, 1988
(date of inception)
    -       -       -       -       -       -  
Stock issued for organization costs
    33,000       33,000       (32,967 )     -       -       33  
Net loss
    -       -       -       -       (33 )     (33 )
Balances at December 31, 1988 to
31-Dec-96
    33,000       33,000       (32,967 )     -       (33 )     -  
                                                 
1,000 for 1 stock split
    32,967,000       -       -       -       -       -  
Cancelled 30,000,000 shares
    (30,000,000 )     (32,700 )     32,700       -       -       -  
Stock issued for cash at $5.00 per share
    20,000       2       99,998       -       -       100,000  
Net loss
    -       -       -       -       (80,025 )     (80,025 )
Balance at December 31, 1997
    3,020,000       302       99,731       -       (80,058 )     19,975  
                                                 
Stock issued for services at $0.10 per share
    95,000       10       9,490       -       -       9,500  
Stock issued for cash at $0.14 per share
    52,800       5       7,795       (2,722 )     -       5,078  
Net loss
    -       -       -       -       (33,798 )     (33,798 )
Balance at December 31, 1998
    3,167,800       317       117,016       (2,722 )     (113,856 )     755  
                                                 
Net loss
    -       -       -       -       (66,662 )     (66,662 )
Balance at December 31, 1999
    3,167,800       317       117,016       (2,722 )     (180,518 )     (65,907 )
                                                 
2 for 1 stock split
    3,167,800       317       (317 )     -       -       -  
Stock issued for consulting fees
at $2.00 per share
    320,000       32       639,968       -       -       640,000  
Stock issued to settle trade payables
at $2.00 per share
    20,540       2       41,078       -       -       41,080  
Stock issued for services at
$2.00 per share
    11,960       2       23,918       -       -       23,920  
Stock issued per preemptive rights
    192       -       17       -       -       17  
Stock subscriptions received
    -       -       -       2,722       -       2,722  
Net loss
    -       -       -       -       (1,018,914 )     (1,018,914 )
Balance at December 31, 2000
    6,688,292       670       821,680       -       (1,199,432 )     (377,082 )
                                                 
Stock issued for consulting fees
and payables at $0.08 per share
    687,500       68       54,932       -       -       55,000  
Stock issued at $0.08 per share
for rent payable
    535,000       54       42,746       -       -       42,800  
Net loss
    -       -       -       -       (227,672 )     (227,672 )
Balance at December 31, 2001
    7,910,792       792       919,358       -       (1,427,104 )     (506,954 )
                                                 
1 for 10 reverse stock split
    (7,119,708 )     (713 )     713       -       -       -  
Stock subscribed for converted debts
    -       -       -       641,953       -       641,953  
Net loss
    -       -       -       -       (80,733 )     (80,733 )
Balance at December 31, 2002
    791,084       79       920,071       641,953       (1,607,837 )     (45,734  
                                                 
Stock issued for cash at $0.10 per share
    280,000       28       27,972       -       -       28,000  
Stock issued for converted debts
    5,598,947       560       641,393       (641,953 )     -       -  
Stock issued for debt settlement
at $0.20 per share
    280,538       28       56,080       -       -       56,108  
Stock issued for debt settlement
at $0.20 per share
    52,500       5       10,495       -       -       10,500  
Stock issued for debt settlement
at $0.10 per share
    50,000       5       4,995       -       -       5,000  
Net loss
    -       -       -       -       (100,115 )     (100,115 )
Balance at December 31, 2003
    7,053,069       705       1,661,006       -       (1,707,952 )     (46,241 )
 
See notes to the financial statements
 
 
7

 
 
SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (continued)
FOR THE PERIODS FROM DECEMBER 28, 1988 (Inception) To March 31, 2010
 (Unaudited)
 
                           
Deficit
       
                           
Accumulated
       
               
Additional
         
During the
       
   
Common Stock
   
Paid-in
   
Stock
   
Development
       
   
Shares
   
Amount
   
Capital
   
Subscriptions
   
Stage
   
Total
 
         
$
   
$
   
$
   
$
   
$
 
                                                 
Stock issued for debt settlement at $0.10 per share
    735,782       73       73,505       -       -       73,578  
Stock issued for debt settlement at $0.10 per share
    50,000       5       4,995       -       -       5,000  
Stock issued for services at $0.15 per share
    65,000       6       9,744       -       -       9,750  
Stock issued for debt settlement at $0.10 per share
    86,000       9       8,591       -       -       8,600  
Stock issued for debt settlement at $0.16 per share
    277,314       28       44,717       -       -       44,745  
Stock issued for cash at $0.35 per share
    871,572       87       304,963       -       -       305,050  
Subscriptions receivable
    -       -       -       (35,000 )     -       (35,000 )
Net loss
    -       -       -       -       (447,411 )     (447,411 )
Balance at December 31, 2004
    9,138,737       913       2,107,521       (35,000 )     (2,155,363 )     (81,929 )
                                                 
Stock issued for cash at $0.35 per share
    914,288       91       319,909       -       -       320,000  
Stock issued for debt settlement at $0.10 per share
    1,147,680       115       114,653       -       -       114,768  
Stock issued for debt settlement at $0.50 per share
    50,000       5       24,995       -       -       25,000  
Subscriptions received
    -       -       -       35,000       -       35,000  
Net loss
    -       -       -       -       (407,256 )     (407,256 )
Balance at December 31, 2005
    11,250,705       1,124       2,567,078       -       (2,562,619 )     5,583  
                                                 
Stock issued for finance costs at $0.35 per share (Note 7)
    150,000       15       52,485       -       -       52,500  
Stock issued for consulting fees at $0.36 per share
    100,000       10       35,990       -       -       36,000  
Stock issued for consulting fees at $0.40 per share
    176,000       18       70,382       -       -       70,400  
Stock issued for finance costs at $0.45 per share (Note 7)
    300,000       30       134,970       -       -       135,000  
Net loss
    -       -       -       -       (532,610 )     (532,610 )
Balance at December 31, 2006
    11,976,705       1,197       2,860,905       -       (3,095,229 )     (233,127 )
Beneficial conversion feature on convertible debt
                    208,157       -       -       208,157  
Stock issued for conversion of debt
    1,097,361       110       219,362       -       -       219,472  
Debt forgiveness-related party debt
                    16,000                       16,000  
Warrants Issued with Loans Payable
    -       -       678,400       -       -       678,400  
Net Loss
                                    (850,438 )     (850,438 )
Balance at December 31. 2007
    13,074,066       1,307       3,982,824               (3,945,668 )     38,463  
Net Loss
                                    (403,829 )     (403,829 )
Balance at December 31. 2008
    13,074,066       1,307       3,982,824       -       (4,349,497 )     (365,366 )
                                                 
Stock issued for stock subscriptions costs at $0.05 per share
    890,000       89       44,411       -       -       44,500  
Stock issued for consulting fees at $0.055 per share
    2,700,000       270       148,500       -       -       148,770  
Stock issued for services at $0.025 per share
    6,000,000       600       149,400       -       -       150,000  
Finance costs from new warrants in June 2009 under Series AA debenture
    -       -       19,329                       19,329  
Net Loss
    -       -       -       -       (414,440 )     (414,440 )
Balance at December 31. 2009
    22,664,066       2,266       4,344,464       -       (4,763,937 )     (417,207 )
                                                 
Stock issued to settle related party payables costs at $0.05 per share
    285,750       29       14,259       -       -       14,288  
Stock issued for consulting fees at $0.05 per share
    3,040,000       304       151,696       -       -       152,000  
Warrants issued for consulting services costs at $0.05 per share
                    153,000       -       -       153,000  
Related party debt forgiveness
                    5,000       -       -       5,000  
Net Loss
                                    (52,275 )     (52,275 )
Balance at March 31, 2010
    25,989,816       2,599       4,668,419       -       (4,816,212 )     (145,194 )
 
See notes to the financial statements
 
 
8

 
 
SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2010
(Unaudited)

Note 1 - Nature of Operations and Basis of Presentation

(a) Organization

Sibling Entertainment Group Holdings, Inc., referenced as the “Company,” “we,” “our,” and “us” was incorporated under the laws of the State of Texas on December 28, 1988, as “Houston Produce Corporation”. The Houston Produce Corporation was formed for the purpose of importing fruit and vegetables from Latin America for sale in the United States. The Company’s plan to import fruit and vegetables was subsequently abandoned. On June 24, 1997, the Company changed its name to “Net Masters Consultants, Inc.” as part of a plan to become a global internet service provider. The internet business plans were discarded in October of 1999. 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.”, in New York City.  The Company is considered a development stage company in accordance with ASC 915, “Development Stage Entities”.

Our business plan called for focusing on large group sales of tickets to New York based entertainment shows, mostly Broadway plays.  We intended to create a full-featured Internet website and registered the domain name Stageseats.com on May 14, 2009.  We hired an existing industry expert to head the entity and to execute the business plan.  We started booking tickets in April 2009 and continued until November 27, 2009 when we closed the business due to our manager abruptly resigning and lack of funding to continue the business.  In September 2009, the executives of SIBE discussed several different methods of obtaining intellectual property from which to launch the next Broadway play.  In the fourth quarter of 2009, the Company continued to engage in additional capital efforts. The strategic direction of the Company significantly changed in 2010 (see Note 12 – Subsequent Events)

(b) Going Concern

The Company has not generated any revenues or completed development of any commercially acceptable products or services to date, and has incurred losses of $4,816,212 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. On March 31, 2010 the Company had $2,555,000 of principal due on the Series AA debentures and approximately $818,000 of accrued interest. 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.

 
9

 

SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2010
 (Unaudited)

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 715, “Compensation - Retirement Benefits, Share-Based Payment”. Under the provisions of ASC 715, 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 718, “Stock Compensation” and 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.

 
10

 

SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2010
 (Unaudited)

Note 2 - Summary of Significant Accounting Policies (continued)

(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. Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period including stock options and warrants using the treasury method, and preferred stock using the if-converted method. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.

(f) Recent Accounting Pronouncements
 
Fair Value Measurements and Disclosures ASC 820, Improving Disclosures about Fair Value Measurements: In January 2010, the Financial Accounting Standards Board (FASB) issued accounting guidance intended to improve disclosures related to fair value measurements. This guidance requires significant transfers in and out of Level 1 and Level 2 fair value measurements to be disclosed separately along with the reasons for the transfers. Additionally, in the reconciliation for the fair value measurements using significant unobservable inputs (Level 3), information about purchases, sales, issuances and settlements must be presented separately (cannot net as one number). This guidance also provides clarification for existing disclosures on (i) level of disaggregation and (ii) inputs and valuation techniques. In addition, this guidance includes conforming amendments for employers’ disclosure of postretirement benefit plan assets. This guidance was effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the rollforward of activity in Level 3 fair value measurements. Those disclosures are required for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of ASC 820 did not have a material impact on the Company’s consolidated results of operations or financial position.

In December 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2010-29, Business Combinations (Topic 805) - Disclosure of Supplementary Pro Forma Information for Business Combinations. This ASU requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period.  If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. ASU 2010-29 affects any public entity as defined by Topic 805 that enters into business combinations that are material on an individual or aggregate basis. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2010-29 to have an effect on its financial position, results of operations or cash flows. We have determined that all other recently issued accounting standards will not have a material impact on our consolidated financial statements, or do not apply to our operations.

 
11

 

SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2010
 (Unaudited)

Note 2 - Summary of Significant Accounting Policies (continued)

Section 480-10-S99 ("ASU 2009-4"). ASU 2009-4 represents a Securities and Exchange Commission ("SEC") update to Section 480-10-S99, Distinguishing Liabilities from Equity. The adoption of guidance within ASU 2009-4 did not have an impact on the Company's consolidated results of operations or financial position. We have determined that all other recently issued accounting standards will not have a material impact on our consolidated financial statements, or do not apply to our operations.

Note 3 - Due to Related Parties

Related party payables consist of the following:
 
   
March 31,
   
Decmber 31,
 
   
2010
   
2009
 
Due to a significant shareholder (a)
  $ 81,681     $ 167,356  
                 
Due to a company with a director in common (b)
    66,979       147,591  
                 
    $ 148,660     $ 314,947  
 
The above transactions are in the normal course of operation.

(a) These amounts due to a related party at March 31, 2010 and December 31, 2009, were $81,681 and $167,356 respectively.  These were due to a significant shareholder for cash loans, consulting fees, and reimbursable expenses. The Company is indebted to this significant shareholder for cash loans of $21,600, which bear interest at a rate of ten percent (10%) per annum and is due from the proceeds of the next financing arranged by the Company. At March 31, 2010 and December 31, 2009, the Company had accrued $6,876 and $6,876 respectively for interest on the loans. The loans are unsecured and due on demand. Overdue payments will bear interest at twelve percent (12%) per annum until paid. The remaining balance at March 31, 2010 and December 31, 2009 is for unreimbursed expenses paid on behalf of the Company.

(b) These amounts are due to STI, a company with directors in common, at March 31, 2010 and December 31, 2009, of $66,979 and $147,591 respectively, due for cash loans, interest, and expenses paid on behalf of the Company. The Company is indebted for cash loans of $51,450, which bear interest at a rate of ten percent (10%) per annum. At March 31, 2010 and December 31, 2009 the Company had accrued $15,529 and $15,529 respectively of interest on the loans. The loans are unsecured and due on demand. During the three months ended March 31, 2010, the Company repaid $152,000 against these obligations from proceeds from stock subscriptions during the period.

At December 31, 2009, the Company was also indebted $80,612 to Sibling Theatricals, Inc. (STI) for expenses paid on its behalf. This additional debt bears no interest and has no set term of repayment.

Related Party Receivable

In conjunction with short-term financing under Series AA debentures, the amounts received were in turn loaned to a related party, Sibling Theatricals Inc., at an annual interest rate of thirteen percent (13%). The interest rate increased to fifteen percent (15%) during the extended period between June 1, 2008 and March 31, 2010.  The notes were receivable six months after each borrowing.  As of March 31, 2010 and December 31, 2009, a total of $3,337,366 and $3,241,553 respectively were due from Sibling Theatrical Inc. representing notes of $2,555,000, and accrued interest of $782,366 and $686,553 (net of interest payments received of $97,825 in 2008) respectively.  Sibling Theatricals, Inc. is currently in default of interest payments.

As of December 31, 2010, these items have been resolved (see Note 11 – Subsequent Events)
 
 
12

 
 
SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2010
 (Unaudited)

Note 4 - Short-Term Notes Payable

During the period of May through August of 2007, the Company borrowed $2,555,000 from various individuals payable in six months from the date of borrowing at an annual interest rate of thirteen percent (13%).

The collateral for this note comprised of:
 
a)
All goods of the maker
 
b)
All inventory of the maker
 
c)
All contract rights and general intangibles
 
d)
All documents, warehouse receipts, instruments and chattel paper of the maker
 
e)
All accounts and other receivables instruments or other forms of obligations and rights to payment of the maker
 
f)
To the extent assignable, all of the makers rights under all present and future authorizations, permits, licenses, and franchises issued or granted in connection with operations of any of its facilities
 
g)
All products and proceeds (including without limitation, insurance proceeds) from the above referenced pledged property

In addition to the collateral for the obligations under the Note, Mitchell Maxwell, President and Chief Executive Officer of Sibling Entertainment Group, Inc. (“Sibling Entertainment’) placed 300,000 shares of his holdings in Sibling Entertainment’s common stock (“the Escrow Shares’) into an Escrow account held by Anslow & Jaclin, LLP, (“Escrow Agent”) for the purpose of securing prompt and complete payment and performance by the Company of all of the obligations in the Note.

As additional collateral for the obligations under the Note, the Company 900,000 shares of its common stock (“the Escrow Shares’) into an Escrow account held by Anslow & Jaclin, LLP, (“Escrow Agent”) for the purpose of securing prompt and complete payment, and performance by the Company of all of the obligations in the Note.

In conjunction with this financing, the lenders received for each unit equal to $10,000, 10,000 stock purchase warrants to purchase 10,000 shares of common stock at $1 per share and 10,000 stock purchase warrants to purchase 10,000 shares of common stock at $2.50 per share.

The warrants expire within five years of the notes. The value of these warrants using the, Black-Scholes method was $678,400, with and was recorded as a discount to the debt, and was being amortized over the life of the debt. There was additional discount recorded of $19,320 from modification of warrants during 2009. The Company executed amendments of the Series AA warrant terms as consideration for the extension of the underlying debentures for one year. The exercise price of the AA-1 Warrant was changed to $0.50 vs. previous of $1.00 per share. The exercise price of the AA-2 Warrant was changed to $1.25 vs. previous of $2.50 per share.  The interest rate increased to fifteen percent (15%) during the extended period. Amortization of the debt discount during the three months ended March 31, 2010 was $4,766.

The fair value of the modified warrants was estimated using the following assumptions:
 
Risk-free interest rate
   
1.84
%
Expected volatility
   
150
%
Expected dividend yield
   
 

 
13

 

SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2010
 (Unaudited)

Note 4 - Short-Term Notes Payable (continued)

As of March 31, 2010, the Company was in default on the debentures noted above.  The interest rate upon default was increased to fifteen percent (15%) and the accrued balance due for interest as of March 31, 2010 was $782,366. On June 26, 2009, the Company offered Series AA Note(s) debenture holders that in exchange for the continued deferral of all outstanding principal and current unpaid accrued interest at the rate of fifteen percent (15%) for an additional one year until June 1, 2010. In addition, the Company would agree to the following:

1. Reduce of the purchase price of each AA-1 Warrants from $1.00 to $0.50 per share; and
2. Reduce of the purchase price of each AA-2 Warrants from $2.50 to $1.25 per share.

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 more-likely-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 $4.8 million as of March 31, 2010. 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.

Note 6 - Capital Stock

a) Stock based compensation

For the period January 1, 2010 through March 31, 2010, the Company did not issue any new shares of common stock for compensation.

b) Stock issuances

In the first quarter of 2010, the Company sold 3,040,000 shares at a price of $0.05 per share or $152,000 in the aggregate to seven accredited investors.  These shares were sold pursuant to our “Series BB” private placement of up to 9,000,000 shares, or for an aggregate offering price of $450,000.

 
14

 
 
SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2010
(Unaudited)

Note 7 - Supplemental Cash Flow Information

Actual amounts paid for interest and income taxes for 2010 and 2009 are as follows:

   
March 31,
 
   
2010
   
2009
 
Interest
  $ -     $ -  
                 
Income taxes
  $ -     $ -  
 
Non-cash Investing and Financing Transactions:
 
   
March 31,
 
   
2010
   
2009
 
             
Warrants issued for prepaid consulting services
  $ 153,000     $ -  
Stock issued to settle related party payable
  $ 14,288     $ -  
Forgiveness of related party payable
  $ 5,000     $ -  
 
Note 8 - Investment

The Company entered into a letter of intent on May 20, 2004 (and amended through November 2005), with Idea One, Inc., which is a private company involved in the development of battery cell technology. The letter of intent did not culminate in a definitive agreement.

Over the term of the letter of intent the Company loaned Idea One, Inc., a total of $550,000 through a series of convertible promissory notes. The notes were written down to $1 as of December 31, 2005 as management determined they were not collectible. Further, if Idea One, Inc., shares were received, it was not possible to determine their value.

As of April 30, 2006, the Company agreed to convert the outstanding balance, including accrued interest, of $595,642, at $0.40 per share, to 1,489,106 common shares of Idea One, Inc., in full satisfaction of the loan receivable. Idea One, Inc., shares was received in the second quarter of 2006. As of March 31, 2010 and December 31, 2009, these shares are recorded at $1.

Note 9 - Proposed Merger with Sibling

On February 9, 2007, the shareholders of the Company approved an Agreement of Acquisition and Plan of Reorganization, as amended, to acquire four wholly owned subsidiaries: Sibling Theatricals, Inc. (STI), Sibling Pictures, Inc., Sibling Music Corp., and Sibling Properties, Inc. from Sibling Entertainment Group, Inc. an entertainment development and production casting company based in New York City.

Our plan of operation for 2009 was conditioned by plans to merge with Sibling Entertainment Group, Inc. Subsequent to our February 9, 2007 shareholders meeting, the SEC advised the Company that the Company was required to file a Form S-4 registration statement. The Company’s S-4 registration statement must be approved by the SEC in order to close our transaction with Sibling Entertainment Group, Inc. The Company filed the Form S-4 registration statement on August 13, 2007. After passage of time, the SEC has deemed the Form S-4 abandoned. The Company was subsequently notified that a new Form S-4 was required in order to proceed with the proposed
 
 
15

 
 
SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2010
(Unaudited)

Note 9 - Proposed Merger with Sibling (continued)

merger. In mid-2009, the Company determined that it should abandon efforts to pursue acquisition of Sibling Entertainment, Inc.

Other material events occurred in subsequent periods that significantly alter the Company’s strategic direction (see Note 11 – Subsequent Events)

Note 10 - Legal Proceedings

None

Note 11 –Subsequent Events

In June 2010, the Company was introduced to consultants working with Newco4Education LLC, a recently formed venture resulting from more than two years of extensive research into the fields of charter schools, education management organizations, and online learning systems.

On November 3, 2010, the Company acted on the following matters that resulted in issuance of the Company’s restricted Common Stock.

 
·
The Company entered into an agreement with Michael Baybak to extinguish outstanding debt owed by the Company in exchange for the Company’s restricted Common Stock in the aggregate of 3,300,000 shares.
 
 
·
The Company entered into an agreement with Broad Street Ventures to settle consulting fees due from the Company in exchange for the Company’s restricted Common Stock in the aggregate of 3,000,000 shares.
 
 
·
The Company entered into an agreement with Ira Gaines to provide introduction services to financing and restructuring sources in exchange for the Company’s restricted Common Stock in the aggregate of 1,000,000 shares.
 
 
·
The Company entered into an agreement with Jamison Firestone to provide intermediary and translation services in dealing with foreign investors on the settlement of certain debts in exchange for restricted Common Stock in the aggregate of 600,000 shares.
 
 
·
The Company awarded 2,700,000 of its restricted Common Stock to Mitchell Maxwell for services rendered as a member of the board of directors and in lieu of cash compensation as the Company’s Chief Executive Officer and President.
 
 
·
The Company awarded 650,000 of its restricted Common Stock to Christian Fitzgerald for board of director services.
 
 
·
The Company awarded 375,000 of its restricted Common Stock to Richard Bernstein for board of director services.
 
 
16

 

SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2010
(Unaudited)

Note 11 –Subsequent Events (continued)

On November 12, 2010, the Company announced that it has reached an agreement with its debenture holders for a restructuring and that it is contemplating a move into a new business area.  On December 1, 2010, the Company announced that it intended to reorient its business focus to the growing and important education marketplace. It intends to acquire N4E as a means of initiating its participation in the educational services industry.  In the fourth quarter, 2010, the Company received notice from Capital Securities Management, Inc. of their intent to exercise its 2008 warrant agreement.  Subsequently, on November 26, 2010, the Company issued to Capital Securities Management, Inc. 271,000 shares of the Company’s restricted Common Stock.

In the fourth quarter, 2010, the Company received notice from Vertical Innovation, Inc. of their intent to exercise its 2009 warrant agreement. Subsequently, on November 26, 2010, the Company issued to Vertical Innovation, Inc. 3,000,000 shares of the Company’s restricted Common Stock.

In the fourth quarter 2010, the Company informed Vertical Innovation, Inc. of their intention to issue common stock in lieu of cash payment for services rendered under the 2009 Vertical Innovation, Inc. Consulting Agreement. Subsequently, on November 3, 2010, the Company issued to Vertical Innovation, Inc. 2,600,000 shares of the Company’s restricted Common Stock for payment in full for services rendered from November 2009 to November, 2010.  Additionally, on November 26, 2010, the Company issued to Vertical Innovation, Inc. 200,000 shares of the Company’s restricted Common Stock for payment for additional services rendered in December, 2010 in relation to the acquisition of NEWCO4EDUCATION, LLC.

On December 21, 2010, the Company entered into an agreement with Rochester Wealth Management to provide consulting services in dealing with debenture holders in exchange for restricted Common Stock in the aggregate of 1,050,000 shares.  Rochester Wealth Management designated all shares to a list of individuals provided to the Company.

On December 29, 2010, the Company entered into a Loan Assignment Agreement with Sibling Theatricals, Inc. (STI) and Debt Resolution, LLC a newly formed subsidiary of the Company. Pursuant to the Loan Assignment Agreement, the Company assigned to Debt Resolution, LLC all of the Company’s entertainment and theatricals assets and exited the entertainment and theatricals business. Furthermore, on December 30, 2010, the Company entered into Conversion Agreements with all but one of the 44 holders of our thirteen percent (13%) Series AA Secured Convertible Debentures.

On December 30, 2010, the Company entered into a material agreement for the acquisition.  Sibling Entertainment Group Holdings, Inc., (the “Company,” “we,” “us,” or “Sibling”) entered into a Securities Exchange Agreement with N4E and the members of the N4E (the “N4E Members”).  In consideration of the purchase of N4E, and its ownership assets and intellectual property for its educational strategy, N4E existing members will receive shares in a newly created Series Common Stock. The shares issued to the N4E members will, in aggregate, have the right to convert into eighty five percent (85%) of the common stock in the Company at a later date. Any issuance of this common stock would be subject to Rule 144 of the Securities Act of 1934. In addition to other conditions, N4E shall have the right to appoint three directors to the Board of Directors for SIBE, and operations will be relocated to Atlanta, Georgia. N4E will operate 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.

 
17

 

CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risk, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “could”, “would”, “expect”,” plan”,” anticipate”, “believer”, “estimate”, “continue”, or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those listed under the heading “Risk Factors” and those listed in our other Securities and Exchange Commission filings. The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report.
 
ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

For the three months ended March 31, 2010, the Company’s operations were limited to satisfying continuous public disclosure requirements, seeking our alternative business opportunities, and entering into an agreement with Sibling Entertainment Group, Inc. The Company has not generated revenues since inception and due to the nature of our search for a suitable business opportunity, cannot determine whether we will ever generate revenue from operations and may continue at a loss.  Lack of material result ended with a change in strategic direction in 2010. See Subsequent Events.

Net Loss
 
For the period from inception to March 31, 2010, the Company recorded a net loss of $4,816,212. The Company’s net loss is primarily attributable to general and administrative expenses and the write down of promissory notes. The general and administrative expenses include incorporation costs, offering costs, accounting costs, and costs associated with the preparation of disclosure documentation in connection with registration pursuant to the Exchange Act of 1934. We expect to continue to operate at a loss through fiscal 2010 and cannot determine whether we will ever generate revenues from operations.

Capital Expenditures
 
The Company expended no amounts on capital expenditures for the period from December 28, 1988 (inception) to March 31, 2010.
 
Liquidity and Capital Resources
 
The Company is in the development stage and, since inception, has experienced significant changes in liquidity, capital resources and shareholders’ equity. The Company had current and total assets of $148,945 and $3,486,312 respectively as of March 31, 2010. The working capital deficit at March 31, 2010 was $3,482,561.  Net stockholders equity in the Company was $ (145,194) at March 31, 2010.
 
The Company borrowed an aggregate of $51,450 as of March 31, 2010 from Sibling Entertainment Group, Inc. (“SEGI”) on several convertible promissory notes. The convertible promissory notes, as amended, bore interest of 10% per annum payable upon demand.

With the abandonment of the plan for acquisition of Sibling Entertainment Group, Inc. in June, 2009, the Company was faced with the need to obtain loans from shareholders or pursue alternative private equity placements in order to
 
 
18

 
 
ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources (continued)

maintain its continuous disclosure requirements until such time as an alternative acquisition or merger candidate is identified. The Company took steps in the fourth quarter 2009 and throughout the first quarter fiscal 2010 to actively pursue alternative business opportunities with the assistance of outside consultants.

In the fourth quarter of 2009 and in the first quarter of 2010, the Company sold 3,930,000 shares at a price of $0.05 per share or $196,500 in the aggregate to six accredited investors.  These shares were sold pursuant to our “Series BB” private placement of up to 9,000,000 shares, or for an aggregate offering price of $450,000. For every two shares purchased under the “Series BB” private placement, one warrant is to be issued for the purchase of one additional share at a price of $0.20 per share, and one warrant is to be issued for the purchase of one additional share at a price of $0.50 per share. Accordingly, these six investors may acquire up to an additional 3,930,000 shares

For the period ending March 31, 2010, the corporate offices continue to be hosted in the SEGI offices in New York, New York. This was done in 2007 to reduce Company general and administrative expenses.

The Company has no current plans for the purchase or sale of any plant or equipment.
 
There are no employees at the Company.  The Company has no current plans to add employees.
 
Critical Accounting Policies
 
In Note 2 to the attached interim financial statements for the periods ended March 31, 2010 and  2009 included in this Form 10-Q, we discuss those accounting policies that are considered significant in determining the results of operations and our financial position. We believe that the accounting principles utilized by us conform to accounting principles generally accepted in the United States of America.

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 Accounting Standards Codification (“ASC”) 825, “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, promissory notes, accounts payable and amounts due to related parties approximate fair values due to the short-term maturity of the instruments.

 
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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Critical Accounting Policies (continued)

In June 2009, the Financial Accounting Standards Board (“FASB”) issued the Accounting Standards Codification (“ASC”) 105 (formerly issued as Statement of Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“GAAP”) — a replacement of FASB SFAS No. 162), as the single source of authoritative non-governmental U.S. GAAP launched on July 1, 2009.  The ASC does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all other accounting literature not included in the ASC will be considered non-authoritative. The ASC is effective for interim and annual periods ending after September 15, 2009. The ASC is for disclosure only and will not impact our financial condition or results of operations.  The Company has adopted this pronouncement effective as of March 31, 2010. The adoption of this ASC had no impact on our financial reporting process.

On January 1, 2009, the Company adopted ASC Subtopic 815-10 (formerly SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” — an amendment of FASB Statement No. 133), which provides revised guidance for enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and the related hedged items are accounted for under ASC Topic 815, and how derivative instruments and the related hedged items affect an entity’s financial position, financial performance and cash flows.  Since the Company currently does not have any derivative instruments, there are no additional disclosures required.

In April 2009, the FASB issued ASC 825, "Interim Disclosures about Fair Value of Financial Instruments." ASC 825 essentially expands the disclosure about fair value of financial instruments that were previously required only annually to also be required for interim period reporting. In addition, the ASC requires certain additional disclosures regarding the methods and significant assumptions used to estimate the fair value of financial instruments.

Effect of Recent Accounting Pronouncements

Fair Value Measurements and Disclosures ASC 820, Improving Disclosures about Fair Value Measurements: In January 2010, the Financial Accounting Standards Board (FASB) issued accounting guidance intended to improve disclosures related to fair value measurements. This guidance requires significant transfers in and out of Level 1 and Level 2 fair value measurements to be disclosed separately along with the reasons for the transfers. Additionally, in the reconciliation for the fair value measurements using significant unobservable inputs (Level 3), information about purchases, sales, issuances and settlements must be presented separately (cannot net as one number). This guidance also provides clarification for existing disclosures on (i) level of disaggregation and (ii) inputs and valuation techniques. In addition, this guidance includes conforming amendments for employers’ disclosure of postretirement benefit plan assets. This guidance was effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the rollforward of activity in Level 3 fair value measurements. Those disclosures are required for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of ASC 820 did not have a material impact on the Company’s consolidated results of operations or financial position.

In December 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2010-29, Business Combinations (Topic 805) - Disclosure of Supplementary Pro Forma Information for Business Combinations. This ASU requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period.  If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. ASU 2010-29 affects any public entity as defined by Topic 805 that enters into business combinations that are material on an individual or
 
 
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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
aggregate basis. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2010-29 to have an effect on its financial position, results of operations or cash flows. We have determined that all other recently issued accounting standards will not have a material impact on our consolidated financial statements, or do not apply to our operations.

Going Concern
 
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 $3,482,561 at March 31, 2010 and has incurred losses of $4,816,212 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
The Company is subject to certain market risks, including changes in interest rates and currency exchange rates.  The Company does not undertake any specific actions to limit those exposures.
 
ITEM 4T. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
 
a)     Evaluation of disclosure controls and procedures
 
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. 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 generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) 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.
 
The Company’s management did not assess the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009 in accordance with a recognized framework, due to its lack of resources. However, we have identified what we believe to be material weaknesses.
 
 
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ITEM 4T. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES (CONTINUED)
 
a)     Evaluation of disclosure controls and procedures (continued)

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 were (i) lack of segregation of duties, (ii) lack of sufficient resources with SEC, generally accepted accounting principles (GAAP) and tax accounting expertise; and (iii) inadequate security over information technology. These control deficiencies resulted in audit adjustments to the Company’s 2008 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 March 31, 2010. This report does not include an attestation report of our registered public accounting firm regarding our internal controls over financial reporting. The disclosure contained under this Item 8A was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only the disclosure under this Item 8A in this annual report.
 
The auditors did not test the effectiveness of nor relied on the internal controls of the Company for the fiscal quarters ended March 31, 2010 and 2009.

The Company is in the process of correcting the internal control deficiencies through ongoing remediation efforts. However, these efforts individually and in the aggregate may not be sufficient to fully eliminate the weakness that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
 
As reported in our Annual Report on Form 10-K for the year ended December 31, 2009, based upon an evaluation of the effectiveness of disclosure controls and procedures, the Company has determined that there are material weaknesses in our disclosure controls and procedures.  It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

(b)     Changes in internal controls over financial reporting

During the three months ended March 31, 2010, we continued our comprehensive evaluation relating to the effectiveness of disclosure controls and procedures. As a result of such review, we have implemented several changes, among which included:
 
   
§ We have started the documentation of formal policies and procedures necessary to adequately review significant accounting transactions
 
§ We have more specifically defined existing key controls, and developed additional controls, applicable to the review of significant accounting transactions and the accounting treatment of such transactions
 
§ We have implemented a formal audit committee with a financial expert, and  the Company now has the board oversight role within the financial reporting process
 
 
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ITEM 4T. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
 
   
(b)     Changes in internal controls over financial reporting (continued)
 
   
§ We have enhanced the documentation regarding conclusions reached in the implementation of generally accepted accounting principles
 
§ We have added additional levels of review by qualified personnel of the application of each key control
     
Based on the foregoing efforts, we believe that the material weaknesses as reported will eventually be fully remediated.
 
During the three months ended March 31, 2010, there were no other changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
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PART II
 
ITEM 1. LEGAL PROCEEDINGS
 
None
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
In the first quarter of 2010, the Company sold 3,040,000 shares at a price of $0.05 per share or $152,000 in the aggregate to seven accredited investors.  These shares were sold pursuant to our “Series BB” private placement of up to 9,000,000 shares, or for an aggregate offering price of $450,000. For every two shares purchased under the “Series BB” private placement, one warrant is to be issued for the purchase of one additional share at a price of $0.20 per share, and one warrant is to be issued for the purchase of one additional share at a price of $0.50 per share. Accordingly, these six investors may acquire up to an additional 3,930,000 shares.  We believe that the offer and sale of the foregoing units were exempt from the registration requirements of the Securities Act of 1933 by virtue of Sections 4(2) and 4(6) thereof and Regulation D as promulgated hereunder. The securities were offered and sold only to persons believed by us to be, and who represented to us in writing that they are accredited investors as defined in Regulation D.

EXEMPTION FROM REGISTRATION

The securities issued in the private placement financing transaction were issued without registration with the Commission, pursuant to Section 4(2) of the Securities Act of 1933, as amended, and/or Rule 506 of Regulation D promulgated thereunder.  The securities are offered and sold only to accredited investors as defined in Regulation D.  This exemption applies because the Company did not make any public offer to sell any securities, but rather, the Company only offered securities to persons known to the Company to be accredited investors and only sold securities to persons who represented to the Company in writing that they are accredited investors.

ITEM 3. DEFAULTS ON SENIOR SECURITIES

During the period of May through August of 2007, the Company borrowed $2,555,000 from various individuals payable on June 1, 2008 (the “Original Maturity Date”) at an annual interest rate of 13% (the “Series AA Note(s)”). The Notes shall be extended an additional year; and bear interest at a rate of 15% per annum and payable quarterly. As of March 31, 2010, $782,366 of accrued interest is currently past due.

On June 26, 2009, the Company offered Series AA Note(s) debenture holders that in exchange for the continued deferral of all outstanding principal and current unpaid accrued interest at the rate of 15% for an additional one year until June 1, 2010.   In addition, the Company would agree to the following:

1.           Reduce of the purchase price of each AA-1 Warrants from $1.00 to $0.50 per share; and
2.           Reduce of the purchase price of each AA-2 Warrants from $2.50 to $1.25 per share.

As of August 19, 2009, the Company has received and granted extensions in the amount of $455,000, plus accrued interest of approximately $97,897.

On August 11, 2009, the Company received a Default and Demand for Payment equal to $175,000 in principal and accrued interest of approximately $49,019.

ITEM 4. (REMOVED AND RESERVED)

 
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ITEM 5. OTHER INFORMATION
 
In addition, on August 1, 2009 offered three (3) executive compensation agreements with its principal officers Mitchell Maxwell as its President and Chief Executive Officer; James Cardwell as its Chief Operating Officer and Chief Financial Officer; and Richard Bernstein as its Vice President reserving up to six million (6,000,000) shares and signing bonuses effective August 1, 2009 at an expense of $150,000 based upon a price at the time of issue of $0.025/share including the following initial estimated annual compensation and bonus share allocation:

Mitchell Maxwell – President / CEO
$250,000 annually, and 3,500,000 shares
James Cardwell – COO / CFO
$175,000 annually, and 1,500,000 shares
Richard Bernstein – Vice President
$125,000 annually, and 1,000,000 shares

Shares were subsequently issued in accord with these agreements, however, no salary or cash payment was made to officers and directors under these agreements.
 
ITEM 6. EXHIBITS
 
Exhibits required to be attached by Item 601 of Regulation S-B are listed in the Index to Exhibits on page 34 this Form 10-Q, and are incorporated herein by this reference.
 
 
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SIGNATURES
 
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the dates indicated.
 
 
Signature
 
Title
 
Date
         
/s/ Mitchell Maxwell
 
Director, Chief Executive Officer,
 
October 20, 2011
Mitchell Maxwell
  Acting Chief Financial Officer    
         
/s/ Christian Fitzgerald
 
Director
 
October 20, 2011
Christian Fitzgerald
       


 
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INDEX TO EXHIBITS
 
Exhibit No.
   
Description
       
31.1
   
Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
31.2
   
Certification of the Chief financial Offer pursuant to Rule 13aq-14 of the Securities and Exchange Act of 1934 as amended as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
       
32.1
   
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
       
32.2
   
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 
 
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