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EX-31.2 - CERTIFICATION - Sibling Group Holdings, Inc.sibe_ex31z2.htm
EX-31.1 - CERTIFICATION - Sibling Group Holdings, Inc.sibe_ex31z1.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 September 30, 2014.


¨

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

76-0270334

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification Number)


901 Mopac Expressway South, Barton Oaks Plaza One, Suite 300, Austin, TX 78746

(Address of Principal Executive Office)   (Postal Code)


(512) 329-1905

(Registrant’s telephone number, including area code)


_______________________________________________________

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


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  þ Yes  ¨ No


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  þ Yes  ¨ No


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


Large accelerated filer

¨

 

 

Accelerated filer

¨

 

Non-accelerated filer

¨

 

 

Smaller reporting company

þ

 


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


Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. 48,539,640 shares of common stock are outstanding as of November 7, 2014.

 

 






TABLE OF CONTENTS


 

 

Page

                  

 

                  

 

PART I.  FINANCIAL INFORMATION

 

 

 

 

ITEM 1.

FINANCIAL STATEMENTS

1

 

Condensed Consolidated Balance Sheets as of September 30, 2014 (unaudited) and June 30, 2014

1

 

Condensed Consolidated Statements of Operations for the three months ended September 30, 2014 and 2013 (unaudited)

2

 

Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2014 and 2013 (unaudited)

3

 

Notes to Unaudited Condensed Consolidated Financial Statements

4

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

12

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

13

ITEM 4.

CONTROLS AND PROCEDURES

14

 

 

 

 

PART II.  OTHER INFORMATION

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

15

ITEM 1A.

RISK FACTORS

15

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

15

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

15

ITEM 4.

MINE SAFETY DISCLOSURES

15

ITEM 5.

OTHER INFORMATION

15

ITEM 6.

EXHIBITS

16

 

SIGNATURES

17






i



INTRODUCTORY NOTES


This Report on Form 10-Q for Sibling Group Holdings, Inc. (“SIBE” or the “Company”) may contain forward-looking statements. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate” and “continue” or similar words. Forward-looking statements include information concerning possible or assumed future business success or financial results. You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking information. We believe that it is important to communicate future expectations to investors. However, there may be events in the future that we are not able to accurately predict or control. Accordingly, we do not undertake any obligation to update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.


The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties set forth under “Risk Factors” in our Transition Report on Form 10-K for the six months ended June 30, 2014 and year ended December 31, 2013 and other periodic reports filed with the SEC. Accordingly, to the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of the Company, please be advised that SIBE’s actual financial condition, operating results and business performance may differ materially from that projected or estimated in such forward-looking statements.


The information contained in this report, except as specifically dated, is as of September 30, 2014.






ii




PART I.  FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS


SIBLING GROUP HOLDINGS, INC.

Condensed Consolidated Balance Sheets


 

 

September 30,

2014

 

 

June 30,

2014

 

 

 

(Unaudited)

 

 

 

 

ASSETS

  

                          

  

  

                          

  

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$

111,300

 

 

$

27,250

 

Accounts receivable

 

 

335,578

 

 

 

77,356

 

Prepaid expenses

 

 

207,176

 

 

 

202,363

 

Total current assets

 

 

654,054

 

 

 

306,969

 

 

 

 

 

 

 

 

 

 

Intangible assets, net

 

 

1,095,743

 

 

 

1,225,461

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,749,797

 

 

$

1,532,430

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,334,798

 

 

$

1,127,649

 

Accrued liabilities

 

 

153,110

 

 

 

231,322

 

Deferred revenue

 

 

1,359,002

 

 

 

634,643

 

Line of credit

 

 

100,000

 

 

 

100,000

 

Short-term notes payable

 

 

37,500

 

 

 

37,500

 

Total current liabilities

 

 

2,984,410

 

 

 

2,131,114

 

 

 

 

 

 

 

 

 

 

Stockholders' deficit

 

 

 

 

 

 

 

 

Preferred stock, no par value; 10,000,000 shares authorized; none issued or outstanding

 

 

 

 

 

 

Convertible series common stock, $0.0001 par value; 10,000,000 shares authorized; none issued or outstanding

 

 

 

 

 

 

Common stock, $0.0001 par value; 500,000,000 shares authorized; 48,239,640 and 41,518,251 issued and outstanding at September 30, 2014 and June 30, 2014

 

 

4,824

 

 

 

4,152

 

Additional paid-in capital

 

 

8,864,410

 

 

 

8,016,481

 

Accumulated deficit

 

 

(10,103,847

)

 

 

(8,619,317

)

Total stockholders' deficit

 

 

(1,234,613

)

 

 

(598,684

)

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' deficit

 

$

1,749,797

 

 

$

1,532,430

 


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




1



SIBLING GROUP HOLDINGS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)


 

 

Three months ended

September 30,

 

 

 

2014

 

 

2013

 

 

  

                          

  

  

                          

  

Revenues

 

$

529,760

 

 

$

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

201,548

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

328,212

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

General and administrative

 

 

1,296,027

 

 

 

4,603

 

Professional fees

 

 

370,766

 

 

 

247,643

 

Total operating expenses

 

 

1,666,793

 

 

 

252,246

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(1,338,581

)

 

 

(252,246

)

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Other (expense)

 

 

(129,718

)

 

 

 

Interest (expense)

 

 

(16,231

)

 

 

(700

)

Total other income (expense)

 

 

(145,949

)

 

 

(700

)

 

 

 

 

 

 

 

 

 

Net loss before income taxes

 

 

(1,484,530

)

 

 

(252,946

)

 

 

 

 

 

 

 

 

 

Income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,484,530

)

 

$

(252,946

)

 

 

 

 

 

 

 

 

 

Net loss per share

 

$

(0.03

)

 

$

(0.01

)

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic and diluted

 

 

43,175,842

 

 

 

19,653,025

 


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




2



SIBLING GROUP HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


 

 

Three months ended

September 30,

 

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(1,484,530

)

 

$

(252,946

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities

 

 

 

 

 

 

 

 

Common stock issued for directors/board committee fees

 

 

32,400

 

 

 

120,000

 

Common stock issued for services

 

 

210,400

 

 

 

72,105

 

Common stock issued for compensation

 

 

604,800

 

 

 

 

Amortization of intangibles

 

 

129,718

 

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(258,222

)

 

 

 

Accounts payable

 

 

208,149

 

 

 

29,866

 

Accrued liabilities

 

 

(78,212

)

 

 

700

 

Deferred revenue

 

 

724,359

 

 

 

 

Prepaid expenses

 

 

(4,812

)

 

 

 

Due to related parties

 

 

 

 

 

25,633

 

Net cash provided by (used in) operating activities

 

 

84,050

 

 

 

(4,642

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash

 

$

84,050

 

 

$

(4,642

)

Cash, beginning of period

 

 

27,250

 

 

 

4,642

 

Cash, end of period

 

$

111,300

 

 

$

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,275

 

 

$

 

Cash paid for income taxes

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash operating and financing activities

 

 

 

 

 

 

 

 

Common stock issued for settlement of account payable

 

$

1,000

 

 

$

2,500

 

Common stock issued for settlement of related party payable

 

$

 

 

$

84,908

 

Common stock issued for purchase of intangible asset

 

$

 

 

$

24,000

 


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




3



SIBLING GROUP HOLDINGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014 AND JUNE 30, 2014

(Unaudited)


Note 1 - Nature of Operations and Basis of Presentation

 

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."


On March 30, 2013, SIBE, through its wholly owned subsidiary, BLSCH Acquisition, LLC signed a Closing Terms Addendum (the "Closing Addendum) to the previously disclosed Asset Purchase Agreement between the BLSCH Acquisition, LLC and BLENDEDSCHOOLS.NET, an unrelated third party ("Blended Schools") dated November 25, 2013. Under the terms of the Closing Addendum, we closed on the purchase of assets of Blended Schools effective as of May 30, 2014. Blended Schools provides online curriculum with 192 master courses for the K-12 marketplace, all Common Core compatible; a complete hosted course authoring and learning management system (LMS) environment featuring both Blackboard and Canvas; the new Language Institute, with online courses in Arabic, Chinese, Spanish, French, Japanese, Latin, Russian, German and Hindi, all oriented to meet today's ESL requirements. The Blendedschools.net staff provides online, and on-site training for Blended Learning training methods, conversion planning, and implementation.


Under the terms of the Closing Addendum, we agreed to pay the $550,000 purchase price for the assets by assuming $446,187 of Blended Schools' debt, by payment of $53,813 in cash on June 10, 2014, and agreeing to pay an additional $50,000 payment in cash on November 14, 2014 to Blended Schools. In addition, we agreed to pay certain other debts of Blended Schools as provided for in the Asset Purchase Agreement.

 

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 Austin, Texas.


Note 2 - Summary of Significant Accounting Policies


(a)  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 subsidiaries. All significant intercompany transactions and balances have been eliminated. The Company changed its fiscal financial reporting year end from December 31 to be June 30, which represents the operating year ends of its current business.


(b)  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 limited revenues, has a working capital deficit of $2,330,356 and incurred a loss of $1,484,530 for the recent three months ended September 30, 2014. These conditions raise substantial doubt about the Company's ability to continue as a going concern. 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.



4



SIBLING GROUP HOLDINGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014 AND JUNE 30, 2014

(Unaudited)



(c)  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 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.


(d)  Allowance for Doubtful Accounts


Accounts receivables are recorded at their estimated collectible amounts. Management evaluates the collectability of its receivables periodically, largely based on the historical trends with the customer as well as current financial information available. If it is deemed appropriate an allowance is recorded as an expense in the current period. As of September 30, 2014 and June 30, 2014 there is no allowance for doubtful accounts recorded.


(e)  Intangibles


Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.


(f)  Revenue Recognition


The Company typically will receive in full or a large prepayment on account for the use of its courses for the successive K-12 school year commencing on July 1. Revenues are amortized ratably over the contract term with the customer, typically over twelve months. Deferred revenues represents customer prepayments on account for the subscribed software and course content.

 

(g)  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.


(h)  Financial Instruments


In accordance with the requirements of ASC 820, "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.


Certain assets and liabilities that are measured at fair value on a recurring basis are measured in accordance with FASB ASC Topic 820-10-05, Fair Value Measurements. FASB ASC Topic 820-10-05 defines fair value, establishes a framework for measuring fair value and expands the disclosure requirements regarding fair value measurements for financial assets and liabilities as well as for non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis in the financial statements.




5



SIBLING GROUP HOLDINGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014 AND JUNE 30, 2014

(Unaudited)



The statement requires fair value measurement be classified and disclosed in one of the following three categories:


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


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


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

 

(i)  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.

 

(j)  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 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. As of September 30, 2014 and 2013 there are no common stock equivalents outstanding to exclude.

 



6



SIBLING GROUP HOLDINGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014 AND JUNE 30, 2014

(Unaudited)



(k)  Recent Accounting Pronouncements


In August 2014, the FASB issued Accounting Standards Update "ASU" 2014-15 on "Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern". Currently, there is no guidance in U.S. GAAP about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern or to provide related footnote disclosures. The amendments in this Update provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management's plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management's plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued).


The amendments in this Update are effective for public and nonpublic entities for annual periods ending after December 15, 2016.  Early adoption is permitted.


In June 2014, FASB issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers". The update gives entities a single comprehensive model to use in reporting information about the amount and timing of revenue resulting from contracts to provide goods or services to customers. The proposed ASU, which would apply to any entity that enters into contracts to provide goods or services, would supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the update would supersede some cost guidance included in Subtopic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. The update removes inconsistencies and weaknesses in revenue requirements and provides a more robust framework for addressing revenue issues and more useful information to users of financial statements through improved disclosure requirements. In addition, the update improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

 

In June 2014, FASB issued Accounting Standards Update ("ASU") No. 2014-12, "Compensation – Stock Compensation (Topic 718); Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period". The amendments in this ASU apply to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. For all entities, the amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The effective date is the same for both public business entities and all other entities.

 

Entities may apply the amendments in this ASU either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial condition.


All other 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.



7



SIBLING GROUP HOLDINGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014 AND JUNE 30, 2014

(Unaudited)



Note 3 – Acquisition Activity


We completed the acquisition of two internet properties, ClassChatter.com and ClassChatterLive.com. Both had been developed by an individual with a background in STEM and Blended Learning educational technology. The sites are being revised as to their appearance to be more intuitive as to their purpose. They are expected to become the base modules for a full, end-to-end solution for e-learning through the addition of applications that use the classroom membership such as grade books, behavior monitoring, class interaction and course interaction. The total consideration given was the issuance of 319,905 shares of restricted common stock, which has been fair valued at $58,000. The seller has been retained as a consultant and is expected to continue the development on a part time basis.


During the period ended September 30, 2013 we completed the acquisition of the assets and operations of PLC Consultants, LLC, whose business is focused on special education training and certification, primarily for education professionals in the K-12 area. The web site and underlying course library is being converted to a more conventional format. The total consideration given in the transaction was 300,000 shares of restricted stock, which has been fair valued at $24,000. We have retained one of their founders under a consulting agreement, and increased the scope of responsibility to include a) an expanded special education course library, and b) a similar library addressing the training needs of teaching professionals in other specialized curriculum.


On February 1, 2014, we completed the purchase of the assets of DWSaba Consulting, LLC for 800,000 shares of restricted common stock valued at $0.05 per share for total consideration of $40,000. This allowed Sibling Group Holdings access to the AcceleratingED.com website, newsletter, extensive contacts in education as well as access to the education marketing and sales tools developed by DWSaba Consulting, LLC.


On May 30, 2014, we closed on the purchase of assets and business of Blended Schools. Blended Schools provides online curriculum with 192 master courses for the K-12 marketplace, all Common Core compatible; a complete hosted course authoring and learning management system (LMS) environment featuring both Blackboard and Canvas; the new Language Institute, with online courses in Arabic, Chinese, Spanish, French, Japanese, Latin, Russian, German and Hindi, all oriented to meet today's ESL requirements. The Blendedschools.net staff provides online, and on-site training for Blended Learning training methods, conversion planning, and implementation. We agreed to pay the $550,000 purchase price for the assets by assuming $446,187 of Blended Schools' debt, exclusive of deferred revenues, by payment of $53,813 in cash on June 10, 2014 and agreeing to pay an additional $50,000 in cash on November 14, 2014 to Blended Schools. In addition, we agreed to pay certain other debts of Blended Schools as provided for in the Asset Purchase Agreement.


The identified assets and liabilities acquired in the BlendedSchools acquisition as of May 30, 2014 are as follows:


Fair Value of Assets Acquired:

 

 

 

Accounts Receivable

 

$

121,810

 

Prepaid Expenses

 

 

24,946

 

Software and content

 

 

1,187,534

 

Liabilities Assumed:

 

 

 

 

Accounts Payable

 

 

(284,891

)

Bank Line of Credit

 

 

(100,000

)

Deferred Revenue – customer prepayments

 

 

(784,291

)

Other Accrued Liabilities

 

 

(61,295

)

 

 

 

 

 

Cash Paid to be paid to Seller – post closing

 

$

103,813

 

 

 

 

 

 

Cash Paid to Seller – post closing

 

$

53,813

 

Contingent Payable to Seller - Accrued

 

 

50,000

 

Liabilities Assumed

 

 

446,187

 

 

 

 

 

 

Total Purchase Price

 

$

550,000

 




8



SIBLING GROUP HOLDINGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014 AND JUNE 30, 2014

(Unaudited)



The Consolidated Unaudited Pro-forma operations as if BlendedSchools had been acquired as of January 1, 2012 are as follows:

 

 

 

Three months Ended

September 30,

 

 

 

2014

 

 

2013

 

Revenues

 

$

529,760

 

 

$

550,226

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(1,484,530

)

 

$

(360,240

)


The intangibles are being amortized over a one to three year period, with the exception of PLC Consultants, which has not been placed in service.

 

Note 4 – Intangible Assets


Intangible assets are comprised of software and content from the following acquisitions;


 

 

September 30,

2014

 

 

June 30,

2014

 

ClassChatter

 

$

58,000

 

 

$

58,000

 

PLC Consultants

 

 

24,000

 

 

 

24,000

 

DWSaba Consulting

 

 

40,000

 

 

 

40,000

 

BlendedSchools

 

 

1,187,534

 

 

 

1,187,534

 

Total

 

 

1,309,534

 

 

 

1,309,534

 

Less accumulated amortization

 

 

(213,791

)

 

 

(84,073

)

Net

 

$

1,095,743

 

 

$

1,225,461

 


Note 5 – Accrued Liabilities


Accrued liabilities consist of the following:


 

 

September 30,

2014

 

 

June 30,

2014

 

Accrued benefits & payroll taxes

 

$

19,192

 

 

$

26,659

 

Accrued compensation

 

 

23,366

 

 

 

68,080

 

Accrued interest

 

 

27,596

 

 

 

22,641

 

Accrued miscellaneous

 

 

82,956

 

 

 

67,581

 

Due to TIU – accounting services

 

 

0

 

 

 

38,361

 

Liabilities to be settled in stock

 

 

0

 

 

 

8,000

 

 

 

$

153,110

 

 

$

231,322

 




9



SIBLING GROUP HOLDINGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014 AND JUNE 30, 2014

(Unaudited)



Note 6 - Short-Term Notes Payable

 

Short term notes payable consists of the following:


  

 

September 30,

2014

 

 

June 30,

2014

 

Short Term Note (a)

 

$

7,500

 

 

$

7,500

 

Outstanding Debenture in default

 

 

30,000

 

 

 

30,000

 

Total Short Term Notes

 

$

37,500

 

 

$

37,500

 

———————

(a)

At September 30, 2014 and June 30, 2014 the Company had a note payable balance of $7,500. This represents short term notes with annual interest rates ranging from 10% to 12%. At September 30, 2014 and June 30, 2014 these notes had accrued interest in the amount of $666 and $516, respectively.

(b)

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 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 $23,250 and $22,125 as of September 30, 2014 and June 30, 2014, respectively, which is in default.


Note 7 – Line of Credit


Pursuant to the terms of the acquisition of the assets and business of Blended Schools, the Company assumed certain debts of Blended Schools, inclusive of a $100,000 line of credit with a bank. The bank has approved of the conveyance of this debt to the Company. The Company continues to work out the terms of a new acceptable debt arrangement.


Note 8 - 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"). Effective August 9, 2012, the Company's stockholders approved an increase in authorized capital stock to 500 million shares.

 

Common Stock


During the three months ended September 30, 2014, the Company issued the following shares of Common Stock:


The Company issued 1,613,056 shares of common stock pursuant to Consulting and Services Agreements. The stock issued was fair valued at prices ranging from $.12 to $.18 per share for a total fair value of $210,400.


The Company issued 900,000 shares of common stock in accordance with the Company's Board of Directors' compensation policy and for the services of a Board appointed committee. The stock issued was fair valued at $.144 per share for a total fair value of $129,600, which will be expensed quarterly during the year ended June 30, 2015.


The Company issued 4,200,000 shares of common stock for compensation to officers and employees. The stock issued was fair valued at $.144 per share for a total fair value of $604,800.


The Company issued 8,333 shares of common stock in conversion of outstanding debts. The stock issued was fair valued at $.12 per share for a total value of $1,000.




10



SIBLING GROUP HOLDINGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014 AND JUNE 30, 2014

(Unaudited)



Note 9 – Commitments and Contingencies


On July 1, 2014, the Company entered into a three-month consulting agreement whereby the consultant would be paid with 50,000 shares of the Company's common stock and cash payments of $5,000 per month.


On July 9, 2014, the Company entered into a two-year consulting agreement whereby the consultant would be paid with 170,000 shares of the Company's common stock and cash payments totaling $10,000.


On August 1, 2014, the Company entered into a six-month consulting agreement whereby the consultant would be paid with 250,000 shares of the Company's common stock and cash payments of $5,000 per month.

 

On September 30, 2014, the Company entered into a one-year consulting agreement where the consultant would be paid cash payments of $8,000 per month.


The Company rents its office space unit on a month to month basis in Austin, Texas. Rent expense for the three months ended September 30, 2014 and the six months ended June 30, 2014 was $$1,890 and $18,000 respectively.


Note 10 – Subsequent Events


On October 20, 2014, the Company issued 300,000 shares of common stock pursuant to a Consulting and Services agreement valued at $37,500.


On October 30, 2014, the Company signed a non-binding letter of intent to acquire Urban Planet Media & Entertainment Corp., the operator of the Urban Planet Mobile™ education software platform ("UPM" or "Urban Planet"), a privately held mobile media company focused on creating high-value content and solutions in education, healthcare and literacy.


The proposed UPM acquisition is subject to due diligence, customary conditions, including approval of a definitive agreement and the approval of the Company's board of directors. The consideration to complete the transaction includes the issuance of 12,500,000 restricted common shares of the Company and 500,000 shares of Preferred "A" convertible shares. Each Preferred "A" share is convertible into 20 common shares of the Company no sooner than 24 months from the date of issuance, at a conversion price of $.50 per share, unless, otherwise agreed to in writing by all parties, and approved by the majority of the Board of Directors of the Company. Both companies are working diligently to close the transaction by December 31, 2014.


On November 6, 2014, the Company signed a one-year promissory note with Kish Bank in order to fully settle the LOC assumed by the Company in the acquisition of Blendedschools.net.  The loan is payable in one principal payment on November 6, 2015, with interest payments being paid monthly beginning December 6, 2014. The interest rate is 1.25% over the Prime rate of interest (currently 3.25%), floating daily, with a floor rate of 4.00%. The debt is secured with a first lien security interest in the accounts receivable of Blended Schools Network.




11



 


ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the Company’s financial condition and results of operations. The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes thereto.


Overview


Our mission is to discover, develop and deliver resources to expand and improve lifelong learning opportunities and achievement. The mission is accomplished by accessing funds from the public capital markets and applying them in a unified strategy of growth and acquisitions to accelerate the improvement of early childhood, K-12, post-secondary and corporate education around the world.


Results of Operations


For the Three Months Ended September 30, 2014 and September 30, 2013.


During the three months period ended September 30, 2014 we recorded revenue of $529,760, as compared to $0 revenue for the three months ended September 30. 2013. Total operating expenses for the three month period ended September 30, 2014 was $1,666,793, consisting mainly of salaries of our management, as well as consulting expenses and professional fees. This is compared to total operating expenses for the three month period ended September 30, 2013 of $252,246, consisting mainly of consulting expenses and professional fees.

 

Interest expense on our existing debt for the three month periods ended September 30, 2014 and September 30, 2013 was $16,231 and $700, respectively. Amortization amounted to $129,718 and $0 for the three months ended September 30, 2014 and 2013, respectively.


For the three months ended September 30, 2014, our operations included expanding the management team, assuming the operations of Blended Schools Network, forming strategic partnerships to take products into a national and international market, exploring and evaluating future acquisitions, and engaging investor relation and investment banking firms to raise our visibility and communication in the investment community.


Liquidity and Capital Resources


Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had a working capital deficit of $2,330,356, $111,300 in cash and $1,095,743 of intangible assets as of September 30, 2014, compared to a working capital deficit of $1,824,145 and $27,250 in cash as of June 30, 2014.


Net cash provided by operating activities was $84,050 for the three months ended September 30, 2014, compared to net cash used in operating activities of $4,642 for the three months ended September 30, 2013.  The increase of $88,692 of cash provided by operating activities for the quarter was primarily a result of cash collections of accounts receivable.


We have had no capital expenditures for the three months ended September 30, 2014, and have no plans for the purchase of any plant or equipment in the foreseeable future.


We do not presently have any firm commitments for additional working capital and there are no assurances that such capital will be available to us when needed or upon terms and conditions which are acceptable to us.  If we are unable to secure additional working capital as needed, our ability to develop new business generate sales, meet our operating and financing obligations as they become due, or continue our business and operations could be in jeopardy.


As of June 27, 2014, corporate offices are located at 901 Mopac Expressway, Barton Oaks Plaza One Suite 300, Austin, TX  78746.




12



 


Critical Accounting Policies


The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure on contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions and conditions.

 

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and may potentially result in materially different results under different assumptions and conditions. Our critical accounting policies are summarized in Note #2 to our consolidated financial statements in Item #15 of our Transition Report on Form 10-K for the six months ended June 30, 2014.  There have been no changes to our critical accounting policies during the fiscal quarter ended September 30, 2014.  As of September 30, 2014, management believes the critical accounting policies applicable to the Company that are reflective of significant judgments and or uncertainties are limited to equity based transactions or convertible debt instruments.


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.


Off Balance Sheet Arrangements


There are no off balance sheet arrangements.


Exemption from Registration


The securities issued during the three months ended September 30, 2014 were issued without registration with the Securities and Exchange Commission, pursuant to Section 4(2) of the Securities Act of 1933, as amended.  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.


ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


We did not have any market risk sensitive instruments outstanding during this period.




13



 


ITEM 4.

CONTROLS AND PROCEDURES


We strive to maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports filed under the Securities Exchange Act, is recorded processed, summarized and reported within the time periods specified by the SEC’s rules and forms.  Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.


Under the supervision of management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission published in 1992 and subsequent guidance prepared by the Commission specifically for smaller public companies. Based on that evaluation, our management concluded that our internal control over financial reporting were not effective as of September 30, 2014. We have identified the following material weaknesses as of September 30, 2014: (i) 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, (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 control deficiencies noted did not result in any audit adjustments to the Company's 2014 transitional financial statements.





14



 


PART II.  OTHER INFORMATION


ITEM 1.

LEGAL PROCEEDINGS


We are not presently a party to any material litigation, and no new litigation commenced since the filing of our Form 10-K that would be required to be disclosed in response to this Item.


ITEM 1A.

RISK FACTORS


In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Transition Report on Form 10-K for the six months ended June 30, 2014 which could materially affect our business, financial condition or future results. There have been no other material changes during the quarter ended September 30, 2014 to the risk factors discussed in the periodic reports noted above that have not already been disclosed in the Company’s most recently filed 10-K.


ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


During the three months ended September 30, 2014, the Company issued the following shares of Common Stock:


On August 19 2014, the Company issued 1,613,056 shares of common stock for $210,400 pursuant to Consulting and Services Agreements. These issuances were restricted shares, issued pursuant to the exemption set forth in Section 4(a)(2) of the Securities Act of 1933.


On August 19 2014, the Company issued 8,333 shares of common stock for $1,000 in conversion of outstanding debts. These issuances were restricted shares, issued pursuant to the exemption set forth in Section 4(a)(2) of the Securities Act of 1933.


On September 10, 2014, the Company issued 900,000 shares of common stock for $129,600 in accordance with the Company’s Board of Directors’ compensation policy and for the services of a Board appointed committee. These issuances were restricted shares, issued pursuant to the exemption set forth in Section 4(a)(2) of the Securities Act of 1933.


On September 10, 2014, the Company issued 4,200,000 shares of common stock for $604,800 for compensation to officers and employees. These issuances were restricted shares, issued pursuant to the exemption set forth in Section 4(a)(2) of the Securities Act of 1933.


ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.


None.


ITEM 4.

MINE SAFETY DISCLOSURES.


Not Applicable.


ITEM 5.

OTHER INFORMATION.


Non-Binding Letter of Intent


On October 30, 2014, the Company signed a non-binding letter of intent to acquire Urban Planet Media & Entertainment Corp., the operator of the Urban Planet Mobile™ education software platform (“UPM” or “Urban Planet”), a privately held mobile media company focused on creating high-value content and solutions in education, healthcare and literacy.


The proposed UPM acquisition is subject to due diligence, customary conditions, including approval of a definitive agreement and the approval of the Company’s board of directors. The consideration to complete the transaction includes the issuance of 12,500,000 restricted common shares of the Company and 500,000 shares of Preferred “A” convertible shares. Each Preferred “A” share is convertible into 20 common shares of the Company no sooner than 24 months from the date of issuance, at a conversion price of $.50 per share, unless, otherwise agreed to in writing by all parties, and approved by the majority of the Board of Directors of the Company. Both companies are working diligently to close the transaction by December 31, 2014.




15



 


ITEM 6.

EXHIBITS


Exhibit No.

 

Description

10.1

 

Letter of Intent

31.1*

 

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, promulgated under the Securities and Exchange Act of 1934, as amended.

31.2*

 

Certification of Principal Accounting 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 of Principal Executive Officer and Principal Accounting Officer 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.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document.

———————

*

Filed with this report.

**

Furnished with this report in accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subjected to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.







16



 



SIGNATURES

Pursuant to the requirements 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.


 

Sibling Group Holdings, Inc.

 

 

 

 

 

Dated:  November 14, 2014

By:

/s/ Maurine Findley

 

 

 

Maurine Findley

 

 

 

Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

 

 

 

 

Dated:  November 14, 2014

By:

/s/ Angelle Judice

 

 

 

Angelle Judice

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial and Accounting Officer)

 

 

 

 

 












17