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EX-31.1 - CERTIFICATION - Sibling Group Holdings, Inc.sibe_ex31z1.htm
EX-31.2 - CERTIFICATION - Sibling Group Holdings, Inc.sibe_ex31z2.htm
EX-32.1 - CERTIFICATION - Sibling Group Holdings, Inc.sibe_ex32z1.htm
EX-10.4 - VIDEO PRODUCTION AGREEMENT - Sibling Group Holdings, Inc.sibe_ex10z4.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, 2015.


¨

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)


7380 W. Sand Lake Road Suite 500; Orlando, FL  32819

(Address of Principal Executive Office)   (Zip Code)


(407) 734-1531

(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. ¨  Yes þ  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.  202,509,291 shares of common stock are outstanding as of October 29, 2015.

 

 






TABLE OF CONTENTS


 

 

Page

                  

 

                  

 

PART I.  FINANCIAL INFORMATION

 

 

 

 

ITEM 1.

FINANCIAL STATEMENTS

1

 

Condensed Consolidated Balance Sheets as of September 30, 2015 (unaudited) and June 30, 2015

1

 

Condensed Consolidated Statements of Operations for the three months ended September 30, 2015 and 2014 (unaudited)

2

 

Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2015 and 2014 (unaudited)

3

 

Notes to Unaudited Condensed Consolidated Financial Statements

4

ITEM 2.

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

17

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

22

ITEM 4.

CONTROLS AND PROCEDURES

23

 

 

 

 

PART II.  OTHER INFORMATION

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

24

ITEM 1A.

RISK FACTORS

24

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

24

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

24

ITEM 4.

MINE SAFETY DISCLOSURES

24

ITEM 5.

OTHER INFORMATION

24

ITEM 6.

EXHIBITS

25

 

SIGNATURES

26






i



INTRODUCTORY NOTES


This Quarterly 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 Annual Report on Form 10-K for the year ended June 30, 2015 and other periodic reports filed with the Securities and Exchange Commission (“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, 2015.






ii



 



PART I.  FINANCIAL INFORMATION


ITEM 1.

FINANCIAL STATEMENTS


SIBLING GROUP HOLDINGS, INC.

d/b/a GLOBAL PERSONALIZED ACADEMICS

Condensed Consolidated Balance Sheets

 

 

 

September 30,
2015

 

 

June 30,
2015

 

 

 

(Unaudited)

 

 

 

 

ASSETS

  

                         

  

  

                         

  

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$

3,374,291

 

 

$

5,415,744

 

Accounts receivable, net

 

 

164,600

 

 

 

50,605

 

Prepaid expenses

 

 

374,700

 

 

 

288,075

 

Total current assets

 

 

3,913,591

 

 

 

5,754,424

 

 

 

 

 

 

 

 

 

 

Fixed Assets, net

 

 

45,967

 

 

 

15,632

 

Intangible assets, net

 

 

1,271,915

 

 

 

1,231,295

 

 

 

 

1,317,882

 

 

 

1,246,927

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

5,231,473

 

 

$

7,001,351

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,013,785

 

 

$

1,852,602

 

Accrued liabilities

 

 

19,525

 

 

 

165,571

 

Deferred revenue

 

 

1,087,468

 

 

 

645,830

 

Short-term notes payable

 

 

100,000

 

 

 

130,000

 

Due to related party

 

 

27,367

 

 

 

27,367

 

Due to shareholders

 

 

36,900

 

 

 

36,900

 

Total current liabilities

 

 

2,285,045

 

 

 

2,858,270

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 500,000 authorized; 500,000 and no shares issued and outstanding at September 30, 2015 and June 30, 2015.

 

 

962,000

 

 

 

962,000

 

Common stock, $0.0001 par value; 500,000,000 shares authorized; 202,509,291 issued and outstanding at September 30, 2015 and June 30, 2015.

 

 

20,251

 

 

 

20,251

 

Additional paid-in capital

 

 

18,800,182

 

 

 

18,800,182

 

Accumulated deficit

 

 

(16,836,005

)

 

 

(15,639,352

)

Total stockholders' equity

 

 

2,946,428

 

 

 

4,143,081

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

5,231,473

 

 

$

7,001,351

 

 


See accompanying notes to the unaudited condensed financial statements.




1



 


SIBLING GROUP HOLDINGS, INC.

d/b/a GLOBAL PERSONALIZED ACADEMICS

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

Three months ended

 

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

  

                         

  

  

                         

  

Revenues

 

$

514,352

 

 

$

529,760

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

464,953

 

 

 

201,548

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

49,399

 

 

 

328,212

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

General and administrative

 

 

930,445

 

 

 

1,296,027

 

Professional fees

 

 

309,072

 

 

 

370,766

 

Total operating expenses

 

 

1,239,517

 

 

 

1,666,793

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(1,190,118

)

 

 

(1,338,581

)

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

(129,718

)

Interest income (expense)

 

 

(6,593

)

 

 

(16,231

)

Gain on debt settlements

 

 

58

 

 

 

 

Total other income (expense)

 

 

(6,535

)

 

 

(145,949

)

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,196,653

)

 

$

(1,484,530

)

 

 

 

 

 

 

 

 

 

Net loss per share – basic and diluted

 

$

(0.01

)

 

$

(0.03

)

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic and diluted

 

 

202,509,291

 

 

 

43,175,842

 

 


See accompanying notes to the unaudited condensed financial statements.





2



 


SIBLING GROUP HOLDINGS, INC.

d/b/a GLOBAL PERSONALIZED ACADEMICS

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three months ended

 

 

 

September 30,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities

  

                         

  

  

                         

  

Net loss

 

$

(1,196,653

)

 

$

(1,484,530

)

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

 

 

 

 

 

 

 

 

Common stock issued for directors/board committee fees

 

 

 

 

 

32,400

 

Common stock issued for services

 

 

 

 

 

210,400

 

Common stock issued for compensation

 

 

 

 

 

604,800

 

Depreciation

 

 

5,116

 

 

 

 

Amortization of intangibles and debt discount

 

 

93,055

 

 

 

129,718

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(113,995

)

 

 

(258,222

)

Accounts payable

 

 

(838,817

)

 

 

208,149

 

Accrued liabilities

 

 

(146,046

)

 

 

(78,212

)

Deferred revenue

 

 

441,638

 

 

 

724,359

 

Prepaid expenses

 

 

(86,625

)

 

 

(4,812

)

Net cash provided by (used in) operating activities

 

 

(1,842,327

)

 

 

84,050

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of fixed assets

 

 

(35,451

)

 

 

 

Additional investing in intangibles

 

 

(133,675

)

 

 

 

 

Net cash (used in) operating activities

 

 

(169,126

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Repayment of notes payable

 

 

(30,000

)

 

 

 

Net cash (used in) financing activities

 

 

(30,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash

 

$

(2,041,453

)

 

$

84,050

 

Cash, beginning of period

 

 

5,415,744

 

 

 

27,250

 

Cash, end of period

 

$

3,374,291

 

 

$

111,300

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

3,264

 

 

$

1,275

 

Cash paid for income taxes

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash operating and financing activities

 

 

 

 

 

 

 

 

Common stock issued for settlement of accounts payable

 

$

 

 

$

1,000

 

 


See accompanying notes to the unaudited condensed financial statements.





3



 


SIBLING GROUP HOLDINGS, INC.

d/b/a GLOBAL PERSONALIZED ACADEMICS

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014


Note 1 - Nature of Operations and Basis of Presentation


Organization


Sibling Group Holdings, Inc., d/b/a Global Personalized Academics (the “Company”), 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. The Company 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 July 20, 2015, the Company issued a press release announcing its intent to do business under the name of Global Personalized Academics (“GPA”).  The Company is in the process of completing the steps required for the name change to GPA.


BlendedSchools.Net


As of May 30, 2014, the Company completed the acquisition of the assets of BlendedSchools.Net (“Blended Schools”) for a purchase price of $550,000, which included the assumption of $446,187 of Blended Schools’ debt and cash payments totaling $103,813. In addition, the Company agreed to pay certain other debts of Blended Schools as provided for in the asset purchase agreement.


Blended Schools provides online curriculum with approximately 200 master courses for the K-12 marketplace, all Common Core compatible; a complete hosted course authoring and learning management system environment featuring both Blackboard and Canvas; and 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.


Urban Planet Media & Entertainment, Corp.


On January 28, 2015, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with Urban Planet Media & Entertainment, Corp. (“Urban Planet”) and its shareholders pursuant to which the Company issued 10,500,000 shares of its common stock, $0.0001 par value, and 500,000 shares of its Series A convertible preferred stock to the shareholders of Urban Planet in exchange for all of the issued and outstanding shares of Urban Planet. An additional 2,000,000 shares of common stock were agreed to be issued to key current and past employees and consultants. These shares were issued in May 2015, and expensed in the amount of $192,400, at the then fair value accordingly.


Each share of preferred stock issued to the former Urban Planet shareholders is convertible by the holder (1) at any time after 24 months after the original issue date or (2) at any time after delivery of notice by the Company of the occurrence of certain conversion events set forth in the certificate of designation establishing the preferred stock into that number of shares of common stock determined by dividing the stated value of such shares of preferred stock, which is $10.00 per preferred share, by the conversion price. The conversion price of the preferred stock is $0.50, subject to adjustment as stated in the certificate of designation.


Urban Planet is a mobile media company providing content and solutions in the education, healthcare and literary markets.


On June 16, 2015, the Company concluded that it was necessary to write down the value of the investment in Urban Planet, based on industry information from an independent third party, to two times the revenue reported by Urban Planet for the calendar year 2014, which totaled $249,692. As a result, the Company incurred a non-cash impairment charge in the amount of $1,722,408. The Company’s determination to recognize the impairment charge was based on the expiration of a grant and service agreement that previously contributed to Urban Planet revenues and the Company’s decision to suspend the development of a proposed Urban Planet product. The Company does not expect to incur any material future cash expenditures in connection with the write-down of Urban Planet.

  



4



SIBLING GROUP HOLDINGS, INC.

d/b/a GLOBAL PERSONALIZED ACADEMICS

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 


Shenzhen City Qianhai Xinshi Education Management Co., Ltd.


During the year ended June 30, 2015, the Company received a strategic investment from Shenzhen City Qianhai Xinshi Education Management Co., Ltd., a company based and operating in the People’s Republic of China (“Shenzhen”). The strategic investment was provided to accelerate the Company’s growth and expansion into critical strategic markets around the world, including China.


Effective on February 27, 2015, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with Shenzhen and certain accredited and institutional investors (together with Shenzhen, the “Investors”). Pursuant to the Securities Purchase Agreement, the Investors purchased an aggregate of 53,571,429 Units (each, a “Unit”) for an aggregate cash raise of $3,250,000. Costs directly attributed to this equity raise aggregated $157,000. Included in the aforementioned were 7,142,857 Units issued in lieu of a $500,000 payment for fees attributed to this equity raise. An additional 4,457,143 shares were issued as payment of fees for this equity raise as well, which were fair valued at $312,000.  Each Unit consists of: (1) a share of the Company’s common stock; (2) a warrant giving each of the Investors the right to purchase one additional share of common stock for each share owned at any time and from time to time for a period of five years at an exercise price of $0.07 per share (each, an “A Warrant”); (3) a warrant giving each of the Investors the right to purchase one additional share of common stock for each share owned at any time and from time to time for a period of one year following the effectiveness of a registration statement covering the resale of the total number of shares of common stock acquired by the Investors in the transaction at an exercise price equal to the five-day volume weighted average price immediately preceding the exercise date (each, a “B Warrant”); and (4) only as part of and in connection with the purchase of the shares underlying the B Warrants (the “B Warrant Shares”), a warrant giving each of the Investors the right to purchase 0.50 shares of common stock for each B Warrant Share purchased by such Investors at any time and from time to time for a period of five years at an exercise price equal to the purchase price of the B Warrant Shares (each, an “Additional Warrant” and together with the A Warrants and the B Warrants, the “Warrants”). The exercise prices of the Warrants may be reduced if the Company issues additional shares of common stock or securities convertible into common stock at a price lower than the Warrant exercise prices for so long as the Warrants remain outstanding. If all shares underlying all Warrants are ultimately issued, the Company will issue an aggregate of 187,500,001 shares of common stock pursuant to the Securities Purchase Agreement for additional proceeds.


On April 6, 2015, Shenzhen exercised the A Warrants in full and a portion of the B Warrants resulting in an additional 72,857,143 shares of common stock being issued to Shenzhen in exchange for an aggregate purchase price of $5,526,966. Pursuant to the terms of the Securities Purchase Agreement, 42,857,143 of the shares received upon issuance of the A Warrants were issued at a price per share of $0.07. The remaining 30,000,000 shares received upon the partial exercise of the B Warrants were issued at a price per share of $0.0842322, which is equivalent to the volume weighted average price for the Company’s common stock for the five trading days preceding April 6, 2015, the date of exercise. Cash costs attributed to this portion of the equity raise was $644,057 and an additional 6,061,707 shares, which were fair valued at $460,084 were issued in lieu of cash fees for this warrant exercise equity raise.


As a result of the exercise of the B Warrants and pursuant to the terms of the B Warrants, the Company issued Shenzhen Additional Warrants to purchase an aggregate of 15,000,000 shares of the Company’s common stock at any time and from time to time for a period of five years from the date of the Additional Warrants at an exercise price per share equal to $0.0842322, the purchase price of the shares issued pursuant to the B Warrants.


Following the exercise of the Warrants, Shenzhen holds 115,714,286 shares of the Company’s common stock, or 57.14% of the Company’s total issued and outstanding shares of common stock as of September 30, 2015.


Pursuant to the terms of the remaining Warrants, Shenzhen has the potential to purchase up to an additional 34,285,714 shares of the Company’s common stock. If all shares underlying all Warrants held by Shenzhen are ultimately issued to Shenzhen, Shenzhen will hold an aggregate of 150,000,000 shares of the Company’s common stock. Of Shenzhen’s remaining Warrants, 15,000,000 are exercisable at $0.0842322 per share, which would result in an additional $1,263,483 in proceeds to the Company. Because the purchase price of the remaining 19,285,714 shares that Shenzhen has the right to acquire pursuant to its Warrants is dependent on the price of the Company’s common stock if and when such Warrants are exercised, the Company is unable to calculate the gross proceeds that would be received upon exercise of such Warrants.



5



SIBLING GROUP HOLDINGS, INC.

d/b/a GLOBAL PERSONALIZED ACADEMICS

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 


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. During 2014, the Company changed its fiscal financial reporting year end from December 31 to be June 30, which represents the operating year ends of Blended Schools and Urban Planet.

 

(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. During the quarter ended September 30, 2015, the Company had a net loss of $1,196,653 and negative cash flow from operations of $1,842,327. 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 generating future profitable operations and raising additional capital needed until the Company generates profits. 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. Management has developed new product offerings internationally as well as focused on increasing sales by hiring seven new sales team members to provide coverage for most of the United States and South America. The Company has also implemented cost reduction programs to reduce discretionary expenses.

 

(c) 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 amounts of assets and liabilities, debt discounts, valuation of intangibles acquired in our acquisition, impairment of intangibles, deferred tax assets, 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, 2015 and June 30, 2015, the Company recorded $3,926, and $3,926, respectively, in allowance for doubtful accounts.


(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. During the quarter ended September 30, 2015 and the year ended June 30, 2015, the Company recorded an impairment charge of $0 and $1,722,408, respectively.




6



SIBLING GROUP HOLDINGS, INC.

d/b/a GLOBAL PERSONALIZED ACADEMICS

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 


(f) Capitalized Software Costs


The Company develops software for internal use. Software development costs incurred during the application development stage are capitalized in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, “Intangibles — Goodwill and Other”. The Company amortizes these costs over the estimated useful life of the software, which is generally three years. Capitalized software development costs are stated at cost less accumulated amortization. The Company capitalized internally developed software or content costs of $0 and $28,131, respectively, for the quarter ended September 30, 2015 and year ended June 30, 2015.


(g) Revenue Recognition


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

 

(h) Income Taxes

 

The Company utilizes FASB 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. The Company’s recent equity raises and possibly past restructuring events have resulted in the occurrence of a triggering event as defined in Section 382 of the Internal Revenue Code of 1986, as amended, which could limit the use of the Company’s net operating loss carryforwards. The Company has yet to undertake a study to quantify any limitations on the use of its net operating loss carryforwards.


(i) Financial Instruments


In accordance with the requirements of FASB 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” (“Topic 820-10-05”). 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.


Topic 820-10-05 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).




7



SIBLING GROUP HOLDINGS, INC.

d/b/a GLOBAL PERSONALIZED ACADEMICS

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 


(j) Stock-Based Compensation


The Company accounts for stock-based compensation in accordance with FASB ASC 718, “Compensation – Stock Compensation” (“ASC 718”). 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 FASB ASC 505-50 “Equity Based Payments to Non-Employees” (“ASC 505-50”). 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.


(k) Loss per Share

 

The Company computes loss per share in accordance with FASB ASC 260, “Earnings Per Share” (“ASC 260”), which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. ASC 260 requires companies that have multiple classes of equity securities to use the “two-class” of “if converted method” in computing earnings per share. The Company computes 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, 2015 and June 30, 2015, there were common stock equivalents outstanding of 45,204,762 and 130,582,840, respectively.

 

(l) Recent Accounting Pronouncements


In August 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). The amendments in ASU 2014-15 provide guidance about management’s responsibility to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. 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 ASU 2014-15 are effective for public and nonpublic entities for annual periods ending after December 15, 2016. Early adoption is permitted.




8



SIBLING GROUP HOLDINGS, INC.

d/b/a GLOBAL PERSONALIZED ACADEMICS

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 


In June 2014, the FASB issued ASU 2014-09,“Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 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. ASU 2014-09, which would apply to any entity that enters into contracts to provide goods or services, would supersede the revenue recognition requirements in ASC Topic 605, “Revenue Recognition”, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, ASC 2014-09 would supersede some cost guidance included in ASC Subtopic 605-35, “Revenue Recognition – Construction-Type and Production-Type Contracts”. ASC 2014-09 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, ASC 2014-09 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. ASC 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. In August 2015, the FASB issued ASU 2015-14 which defers the effective date of ASU 2014-09, for one year, to be effective for periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently reviewing the provisions of ASU 2014-09 to determine if there will be any impact on the Company’s results of operations, cash flows or financial condition.


In June 2014, the FASB issued 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” (“ASU 2014-12”).  The amendments in ASU 2014-12 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 ASC 718 as it relates to awards with performance conditions that affect vesting to account for such awards. For all entities, the amendments in ASU 2014-12 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 ASU 2014-12 either (1) prospectively to all awards granted or modified after the effective date or (2) 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 ASU 2014-12 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. ASU 2014-12 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.


Note 3 – Acquisition Activity


On January 28, 2015, the Company entered into the Share Exchange Agreement with Urban Planet and its shareholders pursuant to which the Company issued up to 10,500,000 shares of its common stock, and 500,000 shares of its Series A convertible preferred stock to the shareholders of Urban Planet in exchange for all of the issued and outstanding shares of Urban Planet. An additional 2,000,000 shares of common stock were agreed to be issued to key current and past employees and consultants. These shares were issued in May 2015 and expensed in the amount of $192,400 at the then fair value accordingly.




9



SIBLING GROUP HOLDINGS, INC.

d/b/a GLOBAL PERSONALIZED ACADEMICS

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 


The identified assets and liabilities acquired for the issuance of equity in the Urban Planet acquisition as of January 28, 2015 are as follows:


Fair Value of Assets Acquired:

 

 

 

Cash

 

$

29,756

 

Accounts Receivable

 

 

53,447

 

Prepaid Expenses

 

 

1,862

 

Other Current Assets

 

 

24,068

 

Fixed Assets

 

 

3,967

 

Software and content

 

 

577,167

 

Other Assets

 

 

5,000

 

Liabilities Assumed:

 

 

 

 

Accounts Payable

 

 

(259,755

)

Deferred Revenue

 

 

(31,342

)

Other Accrued Liabilities

 

 

(154,478

)

Net Value

 

$

249,692

 


Each share of preferred stock issued to the former Urban Planet shareholders is convertible by the holder (i) at any time after 24 months after the original issue date or (ii) at any time after delivery of notice by the Company of the occurrence of certain conversion events set forth in the certificate of designation establishing the preferred stock into that number of shares of common stock determined by dividing the stated value of such shares of preferred stock, which is $10.00 per preferred share, by the conversion price. The conversion price of the preferred stock is $0.50, subject to adjustment as stated in the certificate of designation.


The Company has written down the value of the investment in Urban Planet using industry information from an independent third-party appraiser to two times revenue reported by Urban Planet for calendar year 2014, or $249,692. The resulting loss of $1,722,408 was reported as “Impairment of UPM assets acquired” in the consolidated statements of operations filed as part of the Company’s Annual Report on Form 10-K for the year ended June 30, 2015.


The consolidated unaudited pro-forma results of operations of the Company as if Urban Planet and Blended Schools had been acquired as of July 1, 2014 are as follows:


 

 

Three months ended

September 30,

 

 

 

2015

 

 

2014

 

Revenues

 

$

514,352

 

 

$

582,330

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(1,196,654

)

 

$

(1,519,412

)




10



SIBLING GROUP HOLDINGS, INC.

d/b/a GLOBAL PERSONALIZED ACADEMICS

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 


Note 4 – Intangible Assets


Intangible assets are comprised of software and content from the following acquisitions as well as the costs to upgrade the quality of the videos in the course content:


 

 

September 30,

2015

 

 

June 30,

2015

 

ClassChatter

 

$

58,000

 

 

$

58,000

 

PLC Consultants

 

 

24,000

 

 

 

24,000

 

DWSaba Consulting

 

 

40,000

 

 

 

40,000

 

Blended Schools

 

 

1,187,534

 

 

 

1,187,534

 

Urban Planet

 

 

368,415

 

 

 

605,298

 

Video Project

 

 

156,000

 

 

 

0

 

Total

 

 

1,833,949

 

 

 

1,914,832

 

Less accumulated amortization

 

 

(562,034

)

 

 

(683,537

)

Net

 

$

1,271,915

 

 

$

1,231,295

 


The intangibles are being amortized over a one to five-year period. The annual amortization for each of the next five years is expected to approximate $337,860, $337,860, $337,860, $217,715 and $0, beginning with June 30, 2016, respectively.


Note 5 – Accrued Liabilities


Accrued liabilities consist of the following:


 

 

September 30,

2015

 

 

June 30,

2015

 

Accrued compensation

 

$

0

 

 

$

82,984

 

Accrued interest

 

 

375

 

 

 

39,188

 

Accrued miscellaneous

 

 

19,150

 

 

 

43,399

 

 

 

$

19,525

 

 

$

165,571

 


Note 6 - Short-Term Notes Payable, Due to Shareholders and Due to Related Party

 

Short term notes payable, due to shareholders and due to related party consists of the following:


 

 

September 30,

2015

 

 

June 30,

2015

 

Short term note (a)

 

$

100,000

 

 

$

100,000

 

Due to shareholders and related party (b)

 

 

64,267

 

 

 

64,267

 

Outstanding debenture in default (c)

 

 

0

 

 

 

30,000

 

Total short term notes payable due to shareholder and due to related party

 

$

164,267

 

 

$

194,267

 

———————

(a)

At June 30, 2015, the Company re-financed its line of credit with a note payable balance of $100,000. This represents a short term note with an annual interest rate of 4.5%. At September 30, 2015 and June 30, 2015, the note had accrued interest in the amount of $375 and $375, respectively.


(b)

Advances and loans from shareholders total $36,900 for the Company and $10,009 for Urban Planet.


Due to related party consists of amounts due to Measurement Planet, an Urban Planet joint venture, in the amount of $17,358.




11



SIBLING GROUP HOLDINGS, INC.

d/b/a GLOBAL PERSONALIZED ACADEMICS

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 


(c)

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 the Company 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 100% of the membership interests of a new, wholly-owned subsidiary of the Company, Debt Resolution, LLC, in full settlement of their debentures, underlying warrants and accrued interest as of that date. The conversion agreements released all claims that 43 of the holders of the debentures had, have, or might have against the Company. Following this transaction, the Company now has a debenture balance of $30,000 and accrued interest of $35,483 and $22,125 as of June 30, 2015 and 2014, respectively, which was in default at June 30, 2015.  Payment in full was made on August 3, 2015.


The Company compensates a related party, under no formal consulting services contract, a consulting fee plus reimbursement of travel expenses on a month-to-month basis. The amount paid for the quarter ending September 30, 2015 was $54,000.  The amount included in accounts payable at September 30, 2015 is $0.


Note 7 - Capital Stock


In 2012, the Company’s shareholders approved the Amended and Restated Certificate of Incorporation authorizing 510,000,000 shares of capital stock, 500,000,000 of which are designated as common stock and 10,000,000 of which are designated as preferred stock. The shareholders also approved the conversion of the series common stock to common stock at a ratio of 151.127 shares of common stock for each share of series common stock and a reverse split of the common stock at a ratio of 100 to 1. As a result of the conversion, all of the Company’s outstanding shares of series common stock were converted into 14,827,161 shares of common stock.


On January 29, 2015, the Board of Directors approved a series of 500,000 shares of Series A convertible preferred stock for issuance in connection with the Urban Planet share exchange, and filed the Certificate of Designation of Powers, Preferences and Rights of Series A Convertible Preferred Stock with the Secretary of State of Texas. Each share of Series A preferred stock shall have a par value of $0.0001 per share and a stated value equal to $10.00.

 

Common Stock

 

During the three months ended September 30, 2015, the Company issued no shares of common stock.


During the year ended June 30, 2015, the Company issued the following shares of common stock:


The Company issued 6,193,388 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 $799,579.


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 4,658,000 shares of common stock for compensation to officers and employees. The stock issued was fair valued at prices ranging from $.0962 to $.144 per share for a total fair value of $648,860.


The Company issued 120,043 shares of common stock in conversion of outstanding debts. The stock issued was fair valued at prices ranging from $.12 to $0.1298 per share for a total value of $15,500.


The Company issued 125,000 shares of common stock in connection with a private placement financing. The stock issued was fair valued at $.149 per share for a total value of $18,645.


The Company issued 78,616 shares of common stock pursuant to an advisory fee agreement in connection with a private placement financing agreement. The stock issued was fair valued at $.159 per share for a total value of $12,500.




12



SIBLING GROUP HOLDINGS, INC.

d/b/a GLOBAL PERSONALIZED ACADEMICS

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 


The Company sold 1,428,571 units, which consisted of 1,428,571 shares of common stock and 1,428,571 warrants exercisable at $0.10 a share. The stock sold was at $.07 per share for proceeds of $100,000. There were no stipulations, conditions or requirements under the sale.


The Company sold 53,571,429 Units, which consisted of 53,571,429 shares of common stock and 99,000,001 warrants exercisable at varying exercise prices. The stock sold was at $.07 per share for proceeds of $3,250,000. Included in the aforementioned were 7,142,857 Units issued in lieu of a $500,000 payment for fees attributed to this equity raise. An additional 4,457,143 shares were issued as payment of fees for this equity raise as well, which had a fair value at $312,000. There were no stipulations, conditions or requirements under the sale. Exclusive of shares and warrants issued in lieu of fees, the cost of this equity raise was $157,000.


The Company issued 10,500,000 shares of its common stock pursuant to the Share Exchange Agreement with Urban Planet. The stock issued was fair valued at $.0962 per share for a total value of $1,010,100.


The Company issued a total of 72,857,143 shares of its common stock pursuant to the exercise by Shenzhen of certain warrants. The shares issued were at a price per share of $0.07 and $0.0842322 for total proceeds of $5,526,966. There were no stipulations, conditions or requirements under the sale. Exclusive of shares and warrants issued, the cost of this equity raise was $644,057.


The Company issued a total of 6,061,707 shares of its common stock pursuant to an advisory fee agreement with V3 Capital Partners, LLC as a direct result of the warrant exercise. The price per share ranged from $0.07 to $0.0842322 for a total fair value of $460,084 as a cost of the warrant exercise equity raise.


The Company issued 40,000 shares of its common stock for the settlement of amounts due to a shareholder. The stock issued was fair valued at $0.0962 per share for a total value of $3,848.  No gain or loss was recorded on this transaction.


Preferred Stock


During the three months ended September 30, 2015, the Company issued no shares of Preferred Stock.


During the year ended June 30, 2015, the Company issued the following shares of Preferred Stock:


The Company issued 500,000 shares of its preferred stock pursuant to the Share Exchange Agreement with Urban Planet. Each share of preferred stock issued to the former Urban Planet shareholders is convertible by the holder (1) at any time after 24 months after the original issue date or (2) at any time after delivery of notice by the Company of the occurrence of certain conversion events set forth in the certificate of designation establishing the preferred stock into that number of shares of common stock determined by dividing the stated value of such shares of preferred stock, which is $10.00 per preferred share, by the conversion price. The conversion price of the preferred stock is $0.50, subject to adjustment as stated in the certificate of designation. The shares were fair valued at $.0962 per share, calculated at the conversion rate of 20 shares of common stock for each share of preferred converted. The total estimated fair value of the preferred stock issued was $962,000 based on an as converted basis for the acquisition of Urban Planet.




13



SIBLING GROUP HOLDINGS, INC.

d/b/a GLOBAL PERSONALIZED ACADEMICS

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 


Warrants


Warrant activity as of September 30, 2015 and the year ended June 30, 2015 is summarized as follows:


 

 

Fifteen months ended

 September 30, 2015

 

 

 

Shares

 

 

Weighted

Average

Exercise

Price

 

Warrants outstanding at July 1, 2014

 

 

0

 

 

$

0.0

 

Granted

 

 

203,439,983

 

 

 

0.075

 

Exercised

 

 

(72,857,143

)

 

 

0.076

 

Cancelled/expired

 

 

0

 

 

 

 

Warrants outstanding at June 30, 2015

 

 

130,582,840

 

 

$

0.075

 

Granted

 

 

0

 

 

 

0

 

Exercised

 

 

0

 

 

 

0

 

Cancelled/expired

 

 

(85,378,078

 

 

**

 

Warrants outstanding at September 30, 2015

 

 

45,204,762

 

 

$

0.075

 

 

 

 

 

 

 

 

 

 

Warrants exercisable at September 30, 2015

 

 

45,204,762

 

 

$

0.075

 

———————

**

The cancelled warrants include 27,742,928 warrants that did not have a set exercise price, and were to be set at the five-day volume weighted average price immediately preceding the exercise date of such warrants.  As such, no weighted average price is available.


The total warrants outstanding at September 30, 2015 include 21,428,572 warrants that do not yet have a set exercise price, as per the terms of such warrants, the exercise price shall be the five-day volume weighted average price immediately preceding the exercise date of such warrants. See the discussion of the Securities Purchase Agreement in Note 1.


Note 8 – Commitments and Contingencies


On December 30, 2014, the Company entered into a one-year consulting agreement whereby the consultant would be paid with 1,600,000 shares of the Company’s common stock and cash payments of $10,000 per month. The Company is currently involved in a dispute regarding cash and share amounts owed. The Company maintains the agreements are not enforceable due to non-performance.


On July 17, 2015, the Board of Directors of the Company appointed Julie Young as the Company’s Chief Executive Officer, effective July 20, 2015. Ms. Young will serve as the Company’s principal executive officer in this position. As Chief Executive Officer, Ms. Young will be compensated as follows, as set forth in her offer letter dated as of July 17, 2015: (i) an annual salary of $282,000; (ii) the authorization of a grant of 2,000,000 shares of restricted common stock, which will vest immediately upon issuance; (iii) the right to receive an additional grant of 2,000,000 shares of restricted common stock upon the Company’s achievement of a five-day average share price of $0.15 per share; and (iv) eligibility to participate in the Company’s health and other benefit plans on the same terms and conditions as the Company’s other employees. In the event that Ms. Young’s employment is terminated without cause, she resigns for good reason, or she is terminated within 18 months of a change in control, Ms. Young will receive a severance payment equal to one-year’s salary and will be eligible to participate in the Company’s benefit plans for one year from the date of termination.


On July 21, 2015, the Company entered into a Video Production Agreement with Coolfire Studios, LLC to produce 3,500 academic instruction videos. The per video cost is $530, with various payments scheduled over a one-year period.  




14



SIBLING GROUP HOLDINGS, INC.

d/b/a GLOBAL PERSONALIZED ACADEMICS

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 


Effective February 2015, the Company entered into an Advisory Fee Agreement (the “Advisory Agreement”) with V3 Capital Partners, LLC pursuant to which V3 Capital Partners, LLC and certain of its affiliates (the “Advisors”) provided advisory, due diligence and financing activities performed by the advisors in connection with the transactions contemplated by the Securities Purchase Agreement. Pursuant to the Advisory Agreement, the Company agreed to pay or issue to the Advisors (i) cash; (ii) Units; (iii) warrants to purchase shares of common stock; and (iv) additional cash and Units in the event any of the Investors exercised Warrants received pursuant to the Securities Purchase Agreement.  


Effective September 24, 2015, the Company entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) with V3 Capital Partners, LLC, Scot Cohen, Oakway International Ltd., Oakway International and North Haven Equities (together the “V3 Affiliates”) and Guarav Malhotra, Richard Abbe, Jonathan Rudney, Matthew Hull and Kyle Pollack (together, the “Individuals” and together with the V3 Affiliates, the “Advisors) modifying the terms of the Advisory Agreement as follows: (i) certain of the V3 Affiliates have agreed to forfeit and cancel all warrants previously issued to them pursuant to the Advisory Agreement and agreed to terminate all further rights to additional shares, warrants or other payments due under the Advisory Agreement; (ii) Mr. Cohen has agreed to (A) forfeit and cancel all warrants issued to him under the Securities Purchase Agreement and Advisory Agreement, other than A Warrants to purchase 3,078,572 shares of common stock upon the terms and conditions of the A Warrants as stated in the Securities Purchase Agreement, which were previously issued to him under the Securities Purchase Agreement, and (B) terminate all further rights to additional shares, warrants or other payments due under the Securities Purchase Agreement or Advisory Agreement; (iii) Oakway International Ltd. has agreed to forfeit and cancel all warrants received under the Advisory Agreement and terminate all further rights to additional shares, warrants or other payments due under the Securities Purchase Agreement or Advisory Agreement in exchange for (A) the right to retain A Warrants to purchase 2,857,143 shares of common stock upon the terms and conditions of the A Warrants as stated in the Securities Purchase Agreement, which were previously issued to it under the Securities Purchase Agreement and (B) receipt of an additional A Warrant to purchase 221,428 shares of common stock upon the terms and conditions of the A Warrants as stated in the Securities Purchase Agreement; (iv) the Individuals will retain the warrants previously issued to them under the Advisory Agreement providing for rights to purchase an aggregate of 3,333,333 shares of common stock upon the same terms and conditions as provided in the Advisory Agreement and agreed to terminate all further rights to additional shares, warrants or other payments due under the Advisory Agreement; and (v) the Company agreed to pay the Advisors a total of $644,000.


Each of the parties to the Settlement Agreement has agreed to waive and release any and all claims relating to the Advisory Agreement and services provided by the Advisors thereunder.


As a result of the Settlement Agreement, the Company cancelled warrants to purchase a total of 85,378,078 shares of common stock, such that the Company’s total outstanding warrants held by all security holders as of September 30, 2015 provide for the rights to purchase an aggregate of 45,204,762 shares of common stock.




15



SIBLING GROUP HOLDINGS, INC.

d/b/a GLOBAL PERSONALIZED ACADEMICS

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 


Note 9 – Subsequent Events


On October 12, 2015, the Company entered into a one-year contract for office services in Orlando, Florida at a cost of $129 per month.


On October 16, 2015, the Company entered into a Conversion of Accounts Payable Agreement with Krevolin & Horst, LLC (“Krevolin & Horst”) to settle approximately $350,000 in fees for legal services rendered to the Company for (1) a cash payment of $180,000, which was paid in full on October 19, 2015; (2) the issuance of 170,000 shares of its common stock; and (3) on or before six months from October 16, 2015, a number of shares of its common stock equal to the quotient of $36,000 divided by either (a) the average closing price of the common stock for the 20 trading day period ending April 8, 2016 or (b) $0.05, whichever is greater.


On November 3, 2015, the Company’s Board of Directors appointed Mr. Michael Horn and Mr. David Dai to serve on the Company’s Board of Directors, each to serve to serve until the next annual meeting of the Company’s stockholders or until his successor is duly elected and qualified.





16



 


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 financial condition and results of operations of Sibling Group Holdings, Inc. (the “Company”). 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


The Company, which does business as Global Personalized Academics (“GPA”), is an innovative education company that provides virtual and classroom learning to help students across the globe transform the way they learn. GPA aims to take online learning to the next level with the latest technologies and education practices to help students reach their full potential.  


The Company offers the following products and services:


Online Courses – The Company sells digital curriculum for grades K-12 directly to schools and districts in the U.S. The current catalog includes over 190 courses, all created by the GPA team of subject matter experts and sold in a variety of licensing models. Our catalog includes core, electives, AP, world languages and credit recovery courses.


Teacher Training – The Company provides professional development directly to schools and districts in the U.S. on a fee for service basis. Training is delivered online and face-to-face. Training is sold as a separate service or bundled with other products as a value-add.


Learning Management System Hosting – The Company provides access to learning management software directly to schools and districts in the U.S. This service is not sold separately, but is included as a value-add when combined with online courses and teacher training in a “Network Membership” model.


Online School – The Company provides end-to-end solutions to schools and districts in the U.S. and around the world. This service provides online courses, learning management system and a teacher in exchange for tuition on a per student, per semester basis.


International Dual-Diploma – Based on the Online School offering, these products expand the opportunity for international students by providing the chance to earn a U.S. high school diploma along with their local diploma. This program includes a fixed set of 12 semester courses delivered over two to three years. Courses are sold on a per student, per semester basis and targeted toward international students interested in attending a U.S. college or university.


Most of the K-12 course content has been created by the GPA team of subject matter experts.  GPA upgrades each course very three years to ensure it meets the latest standards of pedagogy and content.  GPA uses multiple learning management systems and other software systems to effectively deliver the content to the individual student.


Through professional development services, online curriculum licensing, curriculum bundled with learning management system access and administration and its Learning Institute, we service more than 150 school districts.


The Company is not dependent on one or a few major clients, and no client accounts for 10% of our revenues.


The Company is a Texas corporation incorporated on December 28, 1988.




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Recent Developments


Recent Acquisitions


As of May 30, 2014, the Company completed the acquisition of the assets of BlendedSchools.Net (“Blended Schools”) for a purchase price of $550,000, which included the assumption of $446,187 of Blended Schools’ debt and cash payments totaling $103,813. In addition, the Company agreed to pay certain other debts of Blended Schools as provided for in the asset purchase agreement. 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 environment featuring both Blackboard and Canvas; and 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.


On January 28, 2015, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with Urban Planet Media & Entertainment, Corp. (“Urban Planet”) and its shareholders pursuant to which the Company issued 10,500,000 shares of its common stock, $0.0001 par value, and 500,000 shares of its Series A convertible preferred stock to the shareholders of Urban Planet in exchange for all of the issued and outstanding shares of Urban Planet. Each share of preferred stock issued to the former Urban Planet shareholders is convertible by the holder (1) at any time after 24 months after the original issue date or (2) at any time after delivery of notice by the Company of the occurrence of certain conversion events set forth in the certificate of designation establishing the preferred stock into that number of shares of common stock determined by dividing the stated value of such shares of preferred stock, which is $10.00 per preferred share, by the conversion price. The conversion price of the preferred stock is $0.50, subject to adjustment as stated in the certificate of designation.


On June 16, 2015, the Company concluded that it was necessary to write down the value of the investment in Urban Planet, based on industry information from an independent third party, to two times the revenue reported by Urban Planet for the calendar year 2014, which totaled $249,692. As a result, the Company incurred a non-cash impairment charge in the amount of $1,722,408. The Company’s determination to recognize the impairment charge was based on the expiration of a grant and service agreement that previously contributed to Urban Planet revenues and the Company’s decision to suspend the development of a proposed Urban Planet product. The Company does not expect to incur any material future cash expenditures in connection with the write-down of Urban Planet.


The Company continues to evaluate acquisition and partnership opportunities that will compliment its vision within the K-12 education markets, representing education technologies, personalized learning, curriculum and private school organizations.


Capital Investments and Change in Control


During the quarter ended March 31, 2015, the Company received a strategic investment from Shenzhen City Qianhai Xinshi Education Management Co., Ltd., a company based and operating in the People’s Republic of China (“Shenzhen”). The strategic investment was provided to accelerate the Company’s growth and expansion into critical strategic markets around the world, including China. Effective on February 27, 2015, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with Shenzhen and certain accredited and institutional investors (together with Shenzhen, the “Investors”). Pursuant to the Securities Purchase Agreement, the Investors purchased an aggregate of 53,571,429 Units (each, a “Unit”) for an aggregate cash raise of $3,250,000. Each Unit consists of: (1) a share of the Company’s common stock; (2) a warrant giving each of the Investors the right to purchase one additional share of common stock for each share owned at any time and from time to time for a period of five years at an exercise price of $0.07 per share (each, an “A Warrant”); (3) a warrant giving each of the Investors the right to purchase one additional share of common stock for each share owned at any time and from time to time for a period of one year following the effectiveness of a registration statement covering the resale of the total number of shares of common stock acquired by the Investors in the transaction at an exercise price equal to the five-day volume weighted average price immediately preceding the exercise date (each, a “B Warrant”); and (4) only as part of and in connection with the purchase of the shares underlying the B Warrants (the “B Warrant Shares”), a warrant giving each of the Investors the right to purchase 0.50 shares of common stock for each B Warrant Share purchased by such Investors at any time and from time to time for a period of five years at an exercise price equal to the purchase price of the B Warrant Shares (each, an “Additional Warrant” and together with the A Warrants and the B Warrants, the “Warrants”). The exercise prices of the Warrants may be reduced if the Company issues additional shares of common stock or securities convertible into common stock at a price lower than the Warrant exercise prices for so long as the Warrants remain outstanding. If all shares underlying all Warrants are ultimately issued, the Company will issue an aggregate of 187,500,001 shares of common stock pursuant to the Securities Purchase Agreement for additional proceeds.




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On April 6, 2015, Shenzhen exercised the A Warrants in full and a portion of the B Warrants resulting in an additional 72,857,143 shares of common stock being issued to Shenzhen in exchange for an aggregate purchase price of $5,526,966. Pursuant to the terms of the Securities Purchase Agreement, 42,857,143 of the shares received upon issuance of the A Warrants were issued at a price per share of $0.07. The remaining 30,000,000 shares received upon the partial exercise of the B Warrants were issued at a price per share of $0.0842322, which is equivalent to the volume weighted average price for the Company’s common stock for the five trading days preceding April 6, 2015, the date of exercise.


As a result of the exercise of the B Warrants and pursuant to the terms of the B Warrants, the Company issued Shenzhen Additional Warrants to purchase an aggregate of 15,000,000 shares of the Company’s common stock at any time and from time to time for a period of five years from the date of the Additional Warrants at an exercise price per share equal to $0.0842322, the purchase price of the shares issued pursuant to the B Warrants.


Following the exercise of the Warrants, Shenzhen holds 115,714,286 shares of the Company’s common stock, or approximately 57% of the Company’s total issued and outstanding shares of common stock as of September 30, 2015.


Pursuant to the terms of the remaining Warrants, Shenzhen has the potential to purchase up to an additional 34,285,714 shares of the Company’s common stock. If all shares underlying all Warrants held by Shenzhen are ultimately issued to Shenzhen, Shenzhen will hold an aggregate of 150,000,000 shares of the Company’s common stock. Of Shenzhen’s remaining Warrants, 15,000,000 are exercisable at $0.0842322 per share, which would result in an additional $1,263,483 in proceeds to the Company. Because the purchase price of the remaining 19,285,714 shares that Shenzhen has the right to acquire pursuant to its Warrants is dependent on the price of the Company’s common stock if and when such Warrants are exercised, the Company is unable to calculate the gross proceeds that would be received upon exercise of such Warrants.


The Company also entered into a Securities Purchase Agreement with an accredited investor, effective as of February 27, 2015 (“the Purchase Agreement”). Pursuant to the Purchase Agreement, the investor purchased an aggregate of 1,428,571 shares of the Company’s common stock for aggregate proceeds of $100,000. Additionally, the investor received a warrant giving him the right to purchase up to 1,428,571 shares of common stock at any time and from time to time for a period of five years at an exercise price of $0.10 per share.


Advisory Fee Agreement


During fiscal 2015, the Company entered into an Advisory Fee Agreement (the “Advisory Fee Agreement”) with V3 Capital Partners, LLC and certain of its affiliates (the “Advisor”) in connection with advisory, due diligence and financing activities performed by the Advisor in connection with the transaction with Shenzhen pursuant to the Securities Purchase Agreement.  Pursuant to the Advisory Fee Agreement, the Company paid or issued to Advisor: (1) a cash payment of $57,000; (2) $312,000 of Units on the same terms and conditions as those issued in connection with the Shenzhen transaction; and (3) a warrant giving the Advisor the right to purchase up to an aggregate of 26,785,714 shares of common stock at any time and from time to time for a period of five years at an exercise price of $0.07 per share.  Additionally, the Company agreed to pay Advisor a pro rata portion of the advisory fees detailed above in (1) and (2) on a similar percentage basis as the above fees upon exercise of any A Warrant, B Warrant or Additional Warrant and the fees described in clause (3) on a similar percentage basis as the above fee on the exercise of the B Warrant.  The Company also agreed to pay $100,000 of Shenzhen’s and Advisor’s legal and due diligence expenses.  




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Effective as of September 24, 2015, the Company entered into a Settlement Agreement and Mutual Release, and Addendum to Settlement Agreement and Mutual Release (the “Addendum,” and together, the “Settlement Agreement”), with the Advisors V3 Capital Partners, LLC, Scot Cohen, Oakway International Ltd., Oakway International and North Haven Equities, LLC (together, the “V3 Affiliates”) and Gaurav Malhotra, Richard Abbe, Jonathan Rudney, Matthew Hull and Kyle Pollack (together, the “Individuals” and together with the V3 Affiliates, the “Advisors”) modifying the terms of the Advisory Fee Agreement. Pursuant to the Settlement Agreement, the Advisors and the Company agreed to modify the payments due to the Advisors under the Advisory Fee Agreement as follows: (1) certain of the V3 Affiliates have agreed to forfeit and cancel all warrants previously issued to them pursuant to the Advisory Fee Agreement and agreed to terminate all further rights to additional shares, warrants or other payments due under the Advisory Fee Agreement; (2) Mr. Cohen has agreed to (A) forfeit and cancel all warrants issued to him under the Securities Purchase Agreement and Advisory Fee Agreement, other than A Warrants to purchase 3,078,572 shares of common stock upon the terms and conditions of the A Warrants as stated in the Securities Purchase Agreement, which were previously issued to him under the Securities Purchase Agreement, and (B) terminate all further rights to additional shares, warrants or other payments due under the Securities Purchase Agreement or Advisory Fee Agreement; (3) Oakway International Ltd. has agreed to forfeit and cancel all warrants received under the Advisory Fee Agreement and terminate all further rights to additional shares, warrants or other payments due under the Securities Purchase Agreement or Advisory Fee Agreement in exchange for (A) the right to retain A Warrants to purchase 2,857,143 shares of common stock upon the terms and conditions of the A Warrants as stated in the Securities Purchase Agreement, which were previously issued to it under the Securities Purchase Agreement and (B) receipt of an additional A Warrant to purchase 221,428 shares of common stock upon the terms and conditions of the A Warrants as stated in the Securities Purchase Agreement; (4) the Individuals will retain the warrants previously issued to them under the Advisory Fee Agreement providing for rights to purchase an aggregate of 3,333,333 shares of common stock upon the same terms and conditions as provided in the Advisory Fee Agreement and agreed to terminate all further rights to additional shares, warrants or other payments due under the Advisory Fee Agreement; and (5) the Company agreed to pay the Advisors a total of $644,000. Each of the parties to the Settlement Agreement has agreed to waive and release any and all claims relating to the Advisory Fee Agreement and services provided by the Advisors thereunder.


As a result of the Settlement Agreement, the Company canceled warrants to purchase a total of 85,378,078 shares of common stock, such that the Company’s total outstanding warrants held by all security holders as of September 30, 2015 provide for the rights to purchase an aggregate of 45,204,762 shares of common stock.  


Debentures


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 the Company 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 100% of the membership interests of a wholly-owned subsidiary of the Company, Debt Resolution, LLC, in full settlement of their debentures, underlying warrants and accrued interest as of that date. Subsequently, series common stock was converted to shares of the Company’s common stock. The conversion agreements released all claims that 43 of the 44 total holders of the debentures had, have, or might have against the Company.  Following this transaction, the Company had a debenture balance of $30,000 and accrued interest of $35,483 as of June 30, 2015, which was in default at June 30, 2015.  On August 3, 2015, the Company paid a total of $65,904 in full satisfaction of the outstanding debenture, consisting of the principal amount and accrued interest.


Our Business Strategy


In fiscal 2015, GPA built a team of individuals who have demonstrated long-term success in the education market and added a significant number of new team members to provide ongoing support to help our schools realize student success. In fiscal 2015, the Company’s new team worked to refine the overall Company strategy to concentrate on K-12 online learning tools and created a strategic plan for growth. For 2016, the Company will focus on developing and enhancing the Blended Schools content to better compete in all markets; refining our sales and marketing to drive an increase in sales; and meeting a growing international demand for U.S. K-12 education tools.


In furtherance of these goals, the Company has engaged a reputable public relations and communications firm to advise on the branding and positioning of the Company in the education marketplace, and has focused on hiring experienced and successful individuals to build up its leadership team.  In addition, the Company will continue to work to form partnerships and develop certain of its products to grow its position in the online education market, including the expanding credit recovery program market.




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Domestic Sales and Marketing


We believe that every teacher should have access to the latest education technology tools and teaching techniques regardless of school size, budget or zip code. GPA focuses all domestic sales and marketing efforts on small school districts with student populations between 1,000 and 10,000. The Company currently serves 150 U.S. school districts, with the largest customer representing 3% of total revenue. GPA has expanded the domestic sales team to include seven new members who are working to leverage existing relationships and cultivate new leads.


International Sales and Marketing


In August 2015, the Company began working with our strategic partner, Shenzhen, to develop the Chinese market for GPA products.  The two companies created both an English language learning (“ELL”) and international dual diploma program for Chinese students. Shenzhen and GPA have worked to establish partnerships with education marketing and sales companies to sell the products into Chinese schools. GPA staff have worked closely with the Shenzhen staff to present the program directly to schools and learning centers in the country to enroll students in the program.  The Company expects to have pilot programs in place by the spring of 2016 with full program implementation in the fall of 2016.


The international dual diploma program developed for China can be used in other countries as well. The Company intends to take both the ELL and international dual diploma program and work with other organizations that are successfully selling educational products and services in their home countries to bring the GPA ELL and international dual diploma program to additional markets.


Recent Trends


International demand for U.S. secondary education content has significantly increased as a result of the demand for U.S. college and university degrees. According to the Institute of International Education, the number of students worldwide pursuing higher education degrees from countries outside of their home countries grew from 3.0 million in 2005 to 4.3 million in 2011, and is projected to reach 8.0 million by 2025.  As a result, international high schools have implemented dual diploma programs which allows students to receive a diploma from their local high school and from a U.S. based high school.


The Company is working to leverage local partnerships in countries where there is significant demand for U.S. K-12 content to provide products to the rapidly growing market of international students.


In addition, the growth and quality improvement in online learning and mounting pressure on educators to boost retention and graduation rates have contributed to a substantial growth in online credit recovery programs that allow students to earn credits toward high school graduation. More than half of the school districts in the U.S. offer online courses and services because of their efficiency, low cost and flexibility. We intend to develop and improve additional products to expand our presence in this rising market.


Results of Operations


Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014


During the three-month period ended September 30, 2015, we recorded revenue of $514,352, primarily from the Blended Schools division, acquired in 2014, as compared to $529,760 in revenue for the three months ended September 30, 2014. Total operating expenses for the three-month period ended September 30, 2015 were $1,239,517, consisting of salaries of our management and staff, consulting expenses and professional fees. This is compared to total operating expenses for the three-month period ended September 30, 2014 of $1,666,793, consisting of salaries of our management and staff, consulting expenses and professional fees.

 

Interest expense on our existing debt for the three-month periods ended September 30, 2015 and 2014 was $6,593 and $16,231, respectively. Amortization of intangibles and debt discount amounted to $93,055 and $129,718 for the three months ended September 30, 2015 and 2014, respectively.




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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 working capital of $1,628,546 and $3,374,291 in cash as of September 30, 2015, compared to working capital of $2,896,154 and $5,415,744 in cash as of June 30, 2015.


Net cash used by operating activities was $1,842,328 for the three months ended September 30, 2015, compared to net cash provided by operating activities of $84,050 for the three months ended September 30, 2014.  The increase of $1,926,377 of cash used by operating activities for the quarter was primarily a result of payments made on obligations, including debt settlements versus reduced cash collections of accounts receivable.


We had capital expenditures of $35,451 for the purchase of laptops for new management and staff members for the three months ended September 30, 2015, as well as a net outlay of $133,675 for intangibles for the video production project to enhance our course content.  We have no plans for the purchase of real property in the foreseeable future.


On August 3, 2015, the Company paid a total of $65,904 in full satisfaction of the one remaining outstanding Series AA debenture, which was in default at June 30, 2015, consisting of the principal amount due of $30,000 and accrued interest.


The ability of the Company to continue as a going concern is dependent on generating future profitable operations and raising additional capital needed until the Company generates profits. There can be no assurance that the Company will be able to raise the necessary funds when needed to finance its ongoing costs.  Management has developed new product offerings internationally as well as focused on increasing sales by hiring seven new sales team members to provide coverage for most of the United States and South America. The Company has also implemented cost reduction programs to reduce discretionary expenses.


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 included in our Annual Report on Form 10-K for the year ended June 30, 2015. In the first three months of fiscal 2016, there were no changes to the significant accounting policies.


Off Balance Sheet Arrangements


There are no off balance sheet arrangements.


ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


Not applicable.




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ITEM 4.

CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls


The Company has established disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and, as such, is accumulated and communicated to the Company’s management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management, together with our principal executive officer and principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of September 30, 2015. Based on their evaluation, the principal executive officer and principal financial officer concluded that, due to material weaknesses in our internal control over financial reporting as described below, our disclosure controls and procedures were not effective as of September 30, 2015.


Material Weaknesses


As previously reported in our Annual Report on Form 10-K for the year ended June 30, 2015, we identified the following material weaknesses in our internal control over financial reporting: (1) lack of sufficient resources to ensure compliance with U.S. generally accepted accounting principles and the rules and regulations of the SEC, especially with regards to equity-based transactions and tax accounting expertise; and (2) 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 2015 financial statements.


Management, together with our principal executive officer and principal financial officer, has identified the following additional material weaknesses in our internal control over financial reporting, in addition to those described above: (1) lack of segregation of duties; and (2) inadequate security over information technology.


In light of these material weaknesses in internal control over financial reporting, we completed substantive procedures, including the inspection of support for transactions and balances and tests of the mechanical accuracy of balances, prior to filing this Quarterly Report on Form 10-Q.  These additional procedures have allowed management to conclude that, notwithstanding the material weaknesses in our internal control over financial reporting, the consolidated financial statements included in this report fairly present, in all material respects, the Company’s financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.


In response to the material weaknesses, we have begun to explore and develop a remediation plan for implementing new internal controls over financial reporting and disclosure controls and procedures. Once finalized and placed in operation for a sufficient period of time, we will subject these controls and procedures to appropriate tests in order to determine whether they are operating effectively. Management, with oversight from the Board of Directors, is committed to the remediation of known material weaknesses as expeditiously as possible.


Changes in Internal Control over Financial Reporting


With the oversight of management and our Board of Directors, we have continued to evaluate the underlying causes of the material weaknesses. Other than with respect to the development of an ongoing plan for remediation of the material weaknesses, there has been no change to our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.




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PART II.  OTHER INFORMATION


ITEM 1.

LEGAL PROCEEDINGS


None.


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 Annual Report on Form 10-K for the year ended June 30, 2015, which could materially affect our business, financial condition and future results.  Except as set forth below, there have been no material changes to these risk factors as described in the Annual Report.


We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls could materially adversely affect our financial condition and ability to carry out our business plan.


For the year ended June 30, 2015, our management team, under the supervision and with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of the design and operation of our internal controls and determined that our internal control over financial reporting was not effective. At September 30, 2015, we concluded that our disclosure controls and procedures were not effective at a reasonable assurance level because of the material weaknesses in our internal control over financial reporting that continue to exist. Until we have been able to complete and test the effectiveness of the remediation of our internal controls and ensure the effectiveness of our disclosure controls and procedures, any material weaknesses may materially adversely affect our ability to report accurately our financial condition and results of operations in the future in a timely and reliable manner. In addition, although we continually review and evaluate internal control systems to allow management to report on the sufficiency of our internal controls, we cannot assure you that we will not discover additional weaknesses in our internal control over financial reporting. Any such additional weakness or failure to remediate the existing weakness could materially adversely affect our financial condition or ability to comply with applicable financial reporting requirements and the requirements.


ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


The Company issued no shares of its common stock during the quarter ended September 30, 2015 in unregistered transactions.


ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.


None.


ITEM 4.

MINE SAFETY DISCLOSURES.


Not applicable.


ITEM 5.

OTHER INFORMATION.


(a)  On July 21, 2015, the Company entered into a Video Production Agreement with Coolfire Studios, LLC (“Coolfire”) to produce 3,500 academic instruction videos at a cost of $530 per video, with various payments scheduled over a one-year period. The Company had the option to opt-out of this agreement until September 25, 2015, at which time it became a definitive agreement, obligating the Company to pay a total of $1.86 million over the course of one year. Pursuant to the terms of the agreement, Coolfire is responsible for obtaining all necessary licenses and production materials and staff necessary to produce the videos. The Agreement will terminate on July 31, 2016, unless earlier terminated by either party as a result of the other party’s breach, as provided in the agreement.


(b)  There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the filing of the Company’s Annual Report on Form 10-K for the year ended June 30, 2015.




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ITEM 6.

EXHIBITS


Exhibit No.

 

Description of Exhibit

 

 

 

10.1

 

Settlement Agreement and Mutual Release, effective as of September 24, 2015, by and among V3 Capital Partners, LLC, Scot Cohen, Oakway International Ltd., North Haven Equities, LLC, Gaurav Malhotra, Richard Abbe, Jonathan Rudney, Matthew Hull and Kyle Pollack and Sibling Group Holdings, Inc. (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 30, 2015).

10.2

 

Addendum to Settlement Agreement and Mutual Release, effective as of September 24, 2015, executed by Sibling Group Holdings, Inc., Scot Cohen, Oakway International Ltd. and Oakway International (Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 30, 2015).

10.3

 

Offer Letter between Sibling Group Holdings, Inc. and Julie Young (Incorporated herein by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K filed with the SEC on October 23, 2015).

10.4*

 

Video Production Agreement, dated as of July 21, 2015, between Sibling Group Holdings, Inc. and Coolfire Studios, LLC.

31.1*

 

Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

 

Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

 

Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*

 

XBRL Instance Document.

101.SCH*

 

XBRL Taxonomy Extension Schema Document.

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document.

———————

* Filed herewith.






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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 9, 2015

By:

/s/ Julie Young

 

 

 

Julie Young

 

 

 

Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

 

 

 

 

Dated:  November 9, 2015

By:

/s/ Angelle Judice

 

 

 

Angelle Judice

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial and Accounting Officer)

 

 

 

 

 












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