Sibling Group Holdings, Inc. - FORM 10-Q - June 15, 2016

Attached files

file filename
EX-31.2 - CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - Sibling Group Holdings, Inc.ex31-2.htm
EX-32.1 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - Sibling Group Holdings, Inc.ex32-1.htm
EX-31.1 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - Sibling Group Holdings, Inc.ex31-1.htm
EX-10.2 - CONVERTIBLE PROMISSORY NOTE BETWEEN THE COMPANY AND DUOHUI TU DATED AS OF FEBRUARY 22, 2016. - Sibling Group Holdings, Inc.ex10-2.htm
EX-10.1 - CONVERTIBLE PROMISSORY NOTE BETWEEN THE COMPANY AND XUMEI LI DATED AS OF FEBRUARY 22, 2016. - Sibling Group Holdings, Inc.ex10-1.htm
EX-4.1 - FORM OF WARRANT - Sibling Group Holdings, Inc.ex41.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
 
þ  Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2016.

o  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  o Accelerated filer  o
       
             Non-accelerated filer  o 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.  211,529,291 shares of common stock are outstanding as of June 15, 2016.
 
TABLE OF CONTENTS

     
   
Page
                  
  
                  
 
PART I.  FINANCIAL INFORMATION
  
     
 
  2
  3
  4
  5
19
23
23
     
 
PART II.  OTHER INFORMATION
  
     
24
24
24
24
25
25
25
     
  26
 

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 this Quarterly Report on Form 10-Q, 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 Quarterly Report, except as specifically dated, is as of March 31, 2016.
 

PART I.  FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

SIBLING GROUP HOLDINGS, INC.
d/b/a GLOBAL PERSONALIZED ACADEMICS
Condensed Consolidated Balance Sheets

   
March 31, 2016
    
June 30, 2015
  
   
(Unaudited)
        
ASSETS
            
             
Current assets
            
Cash
  
$
59,360
    
$
5,415,744
  
Accounts receivable, net
    
131,707
      
50,605
  
Prepaid expenses
    
572,439
      
288,075
  
Total current assets
    
763,506
      
5,754,424
  
                 
Fixed Assets, net
    
44,068
      
15,632
  
Intangible assets, net
    
1,484,806
      
1,231,295
  
     
1,528,874
      
1,246,927
  
                 
Total assets
  
$
2,292,380
    
$
7,001,351
  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
                 
Current liabilities
                
Accounts payable
  
$
683,226
    
$
1,852,602
  
Accrued liabilities
    
11,218
      
165,571
  
Deferred revenue
    
426,647
      
645,830
  
Short-term notes payable
    
100,000
      
130,000
  
Due to related party
    
27,366
      
27,367
  
Due to shareholders
    
36,900
      
36,900
  
Total current liabilities
    
1,285,357
      
2,858,270
  
                 
Long-term liabilities                
Long-term note payable, net of discount of $ 77,947 and $0, respectively
  
 
122,053
    
 
0
  
             
 
  
Total liabilities
    
1,407,410
    
 
2,858,270
  
                 
Commitments and contingencies (Note 9)                
                 
Stockholders’ equity                
     Preferred stock, $0.0001 par value, 500,000 authorized, 500,000 issued and outstanding at March 31, 2016 and June 30, 2015    
962,000
      
962,000
  
Common stock, $0.0001 par value; 500,000,000 shares authorized; 211,529,291 and 202,509,291 issued and outstanding at March 31, 2016 and June 30, 2015.
    
21,153
      
20,251
  
Additional paid-in capital
    
19,521,222
      
18,800,182
  
Accumulated deficit
    
(19,619,405
)
    
(15,639,352
)
Total stockholders' equity
    
884,970
      
4,143,081
  
                 
Total liabilities and stockholders' equity
  
$
2,292,380
    
$
7,001,351
  

See accompanying notes to the unaudited condensed consolidated financial statements.
 
 
SIBLING GROUP HOLDINGS, INC.
d/b/a GLOBAL PERSONALIZED ACADEMICS
Condensed Consolidated Statements of Operations
(Unaudited)

   
Three months ended
    
Nine months ended
  
   
March 31,
    
March 31,
  
   
2016
    
2015
    
2016
    
2015
  
                         
Revenues
  
$
532,670
    
$
601,363
    
$
1,541,566
    
$
1,701,497
  
                                 
Cost of goods sold
    
485,573
      
846,846
      
1,533,864
      
1,255,950
  
                                 
Gross profit (loss)
    
47,097
      
(245,483
 )    
7,702
      
445,547
  
                                 
Operating expenses
                                
General and administrative
    
1,071,736
      
463,991
      
2,967,527
      
2,340,895
  
Professional fees
    
146,790
      
245,889
      
723,959
      
1,130,461
  
Total operating expenses
    
1,218,526
      
709,880
      
3,691,486
      
3,471,356
  
                                 
Loss from operations
    
(1,171,429
)
    
(955,363
)
    
(3,683,784
)
    
(3,025,809
)
                                 
Other income (expense)
                                
Other (expense)
    
-
      
60,414
      
-
      
(199,023
)
Interest income (expense)
    
(4,668
)
    
(107,029
)
    
(12,842
)
    
(202,212
)
Financing costs - warrants
    
(412,500
)
    
-
      
(412,500
)
    
-
  
Impairment of Urban Planet assets acquired
    
-
      
(1,722,408
 )    
-
      
(1,722,408
)
Gain on debt settlements
    
-
      
15,109
      
129,073
      
(136,062
)
Total other income (expense)
    
(417,168
)
    
(1,753,914
 )    
(296,269
)
    
(2,259,705
)
                                 
Net loss
  
$
(1,588,597
)
  
$
(2,709,277
)
  
$
(3,980,053
)
  
$
(5,285,514
)
                                 
Net loss per share
  
$
(0.01
)
  
$
(0.04
)
  
$
(0.02
)
  
$
(0.09
)
                                 
Weighted average shares outstanding, basic and diluted
    
204,689,950
      
75,180,353
      
203,230,891
      
55,714,103
  
 
See accompanying notes to the unaudited condensed consolidated financial statements.
 
 
SIBLING GROUP HOLDINGS, INC.
d/b/a GLOBAL PERSONALIZED ACADEMICS
Condensed Consolidated Statements of Cash Flows
(Unaudited)

   
Nine months ended
  
   
March 31,
  
   
2016
    
2015
  
Cash flows from operating activities
            
Net loss
  
$
(3,980,053
)
  
$
(5,285,514
)
Adjustments to reconcile net loss to net cash (used in) operating activities
          
Common stock issued for directors/board committee fees
    
15,000
      
97,200
  
Common stock issued for financing
    
-
      
31,145
  
Common stock issued for services
    
-
      
967,087
  
Common stock issued for compensation
    
205,500
      
604,800
  
Impairment for Urban Planet intangibles
    
-
      
1,722,408
  
Beneficial conversion feature rights
    
2,751
      
85,259
  
Financing costs - warrants
    
412,500
      
0
  
Depreciation
    
8,421
      
-
  
Amortization of intangibles and debt discount
    
279,164
      
397,410
  
Changes in operating assets and liabilities
                
Accounts receivable
    
(81,102
)
    
91,061
  
Due from affiliates
    
-
      
1,069
  
Accounts payable
    
(1,161,134
)
    
434,572
  
Accrued liabilities
    
(154,353
)
    
(189,510
)
Deferred revenue
    
(219,182
)
    
(25,721
)
Prepaid expenses
    
(284,364
)
    
(31,070
)
Net cash (used in) operating activities
    
(4,956,852
)
    
(1,099,804
)
                 
Cash flows from investing activities
                
Cash acquired from Urban Planet acquisition
    
-
      
29,756
  
Purchase of fixed assets
    
(36,857
)
    
-
  
Additional investing in intangibles
    
(532,675
)
    
-
  
Net cash (used in) operating activities
    
(569,532
)
    
29,756
  
                 
Cash flows from financing activities
                
Sale of common stock, net
    
-
      
2,881,000
  
Due to related party
    
-
      
98,135
  
Due to shareholders
    
-
      
36,900
  
Repayment of notes payable
    
(130,000
)
    
-
  
Proceeds of convertible note
            
250,000
  
Repayment of convertible note
    
-
      
(275,000
)
Repayment of line of credit
    
-
      
(100,000
 ) 
Proceeds of short term notes payable
    
100,000
      
100,000
  
Proceeds of long term notes payable
    
200,000
      
-
  
Net cash provided by (used in) financing activities
    
170,000
      
2,991,035
  
                 
Net change in cash
    
(5,356,384
)
    
1,920,987
  
Cash, beginning of period
    
5,415,744
      
27,250
  
Cash, end of period
  
$
59,360
    
$
1,948,237
  
                 
Supplemental disclosure of cash flow information
                
Cash paid for interest
  
$
4,929
    
$
98,411
  
Cash paid for income taxes
  
$
-
    
$
-
  
                 
Supplemental disclosure of non-cash operating and financing activities
                
Common stock issued for settlement of accounts payable
  
$
8,245
    
$
15,499
  
Beneficial conversion feature of long-term note payable
  
$
80,698
    
$
-
  
Financing costs - warrants
  
$
412,500
    
$
-
  
 
See accompanying notes to the unaudited condensed consolidated financial statements.
 
 
SIBLING GROUP HOLDINGS, INC.
 
d/b/a GLOBAL PERSONALIZED ACADEMICS
 
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2016 AND JUNE 30, 2015
 
Note 1 - Nature of Operations and Liquidity
 
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’s name changed on May 14, 2007 to "Sibling Entertainment Group Holdings, Inc." and on August 15, 2012, the Company’s 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 intends to formally change its name 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 (“Series A Preferred”) to the shareholders of Urban Planet in exchange for all of the issued and outstanding shares of Urban Planet.   In addition, we agreed to issue an additional 2,000,000 shares of common stock 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.
 
Each share of Series A Preferred 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 Series A Preferred into that number of shares of common stock determined by dividing the stated value of such shares of Series A Preferred, which is $10.00 per shares of Series A Preferred, by the conversion price. The conversion price of the Series A Preferred 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.
 
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 December 31, 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.
 
Liquidity and Management’s Plan
 
Historically, our principal sources of cash have included revenue from operating activities, proceeds from the issuance of common and preferred stock, and proceeds from the issuance of short-term debt. Our principal uses of cash have included cash used in operations, payments relating to purchases of property and equipment and repayments of borrowings. We expect that our principal uses of cash in the future will be for product development, further development of intellectual property, as well as general working capital and capital expenditure requirements.
 
We had a working capital deficit of $521,851 and $59,360 in cash as of March 31, 2016, compared to working capital of $2,896,154 and $5,415,744 in cash as of June 30, 2015.  Management believes that the Company’s current cash and cash equivalents will not be sufficient to meet working capital and capital expenditure requirements for the next 12 months.  As a result, 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. Management is therefore seeking to raise additional debt and/or equity capital.  There can be no assurance that the Company will be able to raise the necessary funds when needed to finance its ongoing working capital requirements.
 
While we used a substantial amount of cash since June 30, 2015, management believes the investments made to develop new product offerings internationally, additions to its executive management and sales team to capitalize on future growth opportunities throughout the U.S. South America, China, among others, and investments made in infrastructure and curriculum development, will provide the foundation for near-term revenue growth.  Until such time as we are able to generate positive cash flow from operations, management will continue to focus on reducing discretionary costs and expenses, matching staffing levels with existing and forecasted sales levels, and directing existing cash resources to activities intended to increase revenue. 
 
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.  These condensed consolidated financial statements should be read in conjunction with the more complete information and the Company’s audited consolidated financial statements and related notes thereto included in the Company’s annual report on Form 10-K for the year ended June 30, 2015.  The operating results for the three and nine months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending June 30, 2016.
 
 
(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 nine months ended March 31, 2016, the Company had a net loss of $3,980,053 and negative cash flow from operations of $4,956,852. 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.
 
(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, valuation of equity instruments, beneficial conversion rights, 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 March 31, 2016 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 nine months ended March 31, 2016 and the year ended June 30, 2015, the Company recorded an impairment charge of $0 and $1,722,408, respectively.
 
(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 nine months ended March 31, 2016 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).
 
(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 March 31, 2016 and June 30, 2015 there were common stock equivalents outstanding of 95,204,762 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.
 
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.
 
In January 2016, the FASB issued an ASU, “ASU 2016 – 01 Recognition and Measurement of Financial Assets and Financial Liabilities,” intended to improve the recognition and measurement of financial instruments. The ASU affects public and private companies, not-for-profit organizations, and employee benefit plans that hold financial assets or owe financial liabilities.
 
The new guidance makes targeted improvements to existing GAAP by: requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.
 
The ASU on recognition and measurement will take effect for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For private companies, not-for-profit organizations, and employee benefit plans, the standard becomes effective for fiscal years beginning after December 15, 2018, and for interim periods within fiscal years beginning after December 15, 2019.

 
The ASU permits early adoption of the own credit provision (referenced above). Additionally, it permits early adoption of the provision that exempts private companies and not-for-profit organizations from having to disclose fair value information about financial instruments measured at amortized cost.
 
In March 2016, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (ASU) “ASU 2016 – 09 Improvements to Employee Share-Based Payment Accounting” which is intended to improve the accounting for employee share-based payments. The ASU affects all organizations that issue share-based payment awards to their employees.  The ASU, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, simplifies several aspects of the accounting for share-based payment award transactions, including; the income tax consequences, classification of awards as either equity or liabilities, and  the classification on the statement of cash flows.  The ASU simplifies two areas specific to private companies, with regards to the expected term and intrinsic value measurements.   The ASU simplifies the following areas to private and public companies; (a) tax benefits and tax deficiencies with regards to the differences between book and tax deductions, (b) changes in the excess tax benefits classification in the statement of cash flows, (c) make an entity wide accounting policy election for accrual of vested awards verses individual awards, (d) changes in the amount qualifying as an equity award classification subject to statutory tax withholdings, (e) clarification in the classification of shares withheld for statutory tax withholdings on the statement of cash flows.
 
For public companies, the amendments in this ASU, are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For private companies, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any organization in any interim or annual period.
 
In April 2016, the FASB issued an ASU “ASU 2016 – 10  Revenue from Contract with Customers (Topic 606): Identifying Performance Obligations and Licensing”.  The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended render more detailed implementation guidance with the expectation to reduce the degree of judgment necessary to comply with Topic 606.  The amendments in this Update affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update2014-09 by one year.
 
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 Preferred 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.
 
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 Series A Preferred 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 Series A Preferred into that number of shares of common stock determined by dividing the stated value of such shares of Series A Preferred, which is $10.00 per share of Series A Preferred, by the conversion price. The conversion price of the Series A Preferred 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 had been acquired as of July 1, 2014 are as follows:
 
 
Three months ended
  
Nine months ended
  
 
March 31, 2015
  
March 31, 2015
  
Revenues
   $ 601,385     $ 2,019,676  
                 
Net Loss
   $ (2,771,118 )   $ (5,666,133 )
 
 
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:
 
   
March 31,
2016
    
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
 
  
555,000
      
0
  
Total
    
2,232,950
      
1,914,832
  
Less accumulated amortization
    
(748,144
)
    
(683,537
)
Net
  
$
1,484,806
    
$
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:
 
   
March 31,
2016
    
June 30,
2015
  
Accrued compensation
  
$
0
    
$
82,984
  
Accrued interest
    
1,904
      
39,188
  
Accrued miscellaneous
    
9,314
      
43,399
  
   
$
11,218
    
$
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:
 
   
March 31,
2016
    
June 30,
2015
  
Short-term note– related party (a)
  
$
100,000
    
$
100,000
  
Due to shareholders and related party (b)
    
64,266
      
64,267
  
Outstanding debenture in default (c)
    
0
      
30,000
  
Total short-term notes payable due to shareholder and due to related party
  
$
164,266
    
$
194,267
  
 
(a)
On February 17, 2016, the Company entered into a short-term loan in the amount of $100,000 with a related party, bearing an annual interest rate of 5%.  At March 31, 2016, accrued interest on this loan was $589.
 
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 December 31, 2015 and June 30, 2015, the note had accrued interest in the amount of $0 and $375, respectively.  Payment in full was made in November 2015.
 
(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.
 
 
(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 (“Old 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 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.  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 included in accounts payable at year-end is $0.
 
Note 7 – Long-Term Convertible Notes Payable
 
The Company received $200,000 in loan proceeds from a third party investor pursuant to the terms of a Convertible Promissory Note in the principal amount of $500,000 (“Convertible Note”). The Convertible Note has an interest rate of 12% during the first year and 10% for the second year through the maturity date of February 21, 2018. The accrued interest at March 31, 2016 was $1,315.
 
The holder has the right to convert any or the entire outstanding principal of the Convertible Note into shares of common stock at the rate of $0.02 per share.
 
The Company recorded debt discount in the amount of $80,698 to be amortized ratably over two years. The accumulated amortization recorded on this discount as of March 31, 2016 was $2,751.
 
The Company signed a second Convertible Promissory Note with a third party investor in the amount of $500,000, with the same terms and conditions as the Convertible Note.   No funds were received during the quarter ended March 31, 2016 under either the Convertible Note or the Convertible Promissory Note (together, the “Notes”); however, the Company received $440,000 from the Convertible Promissory Note subsequent to the end of the quarter.
 
Each of the Notes, as executed, require the Company issue warrants for up to a total of 37,500,000 shares of common stock rather than 25,000,000 shares, respectively, within a three-year term at an exercise price equal to $0.04 per share.  However, management believes that the number of shares issuable upon exercise of each of the warrants was calculated in error without objection from the holders thereof, and that the number of shares issuable upon exercise of each warrant should be 25,000,000 shares. As a result, the value of the warrants as recorded reflects the value of 25,000,000 shares rather than 37,500,000 shares.  See Note 8 – Capital Stock, for disclosure regarding the valuation of the warrants, including the method and assumptions utilized by management in determining valuation.
 
Note 8 - Capital Stock
 
On February 22, 2016, warrants to purchase 50,000,000 shares of the Company’s common stock at $0.04 per share were issued in financing agreements with the holders of the Notes. These warrants were valued using the Black Scholes pricing method using the following assumptions: stock price - $0.02, strike price - $$0.04, expected volatility 175.19%, interest rate – 1%, dividend rate – 0%, and expected term – three years. The value of 25,000,000 warrants totaling $412,500, was charged as financing expense. The value of the remaining 25,000,000 warrants was recorded as a beneficial conversion feature of the Convertible Note in the amount of $80,698, which will be amortized over the life of the Convertible Note.
 
As disclosed in Note 7 – Long-Term Convertible Notes Payable, each of the Notes, as executed, require the Company issue warrants for up to a total of 37,500,000 shares of common stock rather than 25,000,000 shares, respectively, within a three-year term at an exercise price equal to $0.04 per share.  However, management believes that the number of shares issuable upon exercise of each of the warrants was calculated in error without objection from the holders thereof, and that the number of shares issuable upon exercise of each warrant should be 25,000,000 shares. As a result, the value of the warrants as recorded reflects the value of 25,000,000 shares rather than 37,500,000 shares.
 
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.
 
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.
 
During the nine months ended March 31, 2016, the Company issued the following shares of common stock:
 
The Company issued 2,000,000 shares of common stock in accordance with the Company’s Board of Directors’ compensation policy. The stock issued was fair valued at $0.03 per share for a total fair value of $60,000, which will be expensed quarterly during the year ended December 31, 2016.
 
The Company issued 6,850,000 shares of common stock for compensation to officers and employees. The stock issued was fair valued at $0.03 per share for a total fair value of $205,500.
 
The Company issued 170,000 shares of common stock in conversion of outstanding debts. The stock issued was fair valued at $0.0485 per share for a total value of $8,245.

 
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 Series A Preferred pursuant to the Share Exchange Agreement with Urban Planet. Each share of Series A Preferred 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 Series A Preferred into that number of shares of common stock determined by dividing the stated value of such shares of Series A Preferred, which is $10.00 per shares of Series A Preferred, by the conversion price. The conversion price of the Series A Preferred 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 Series A Preferred converted. The total estimated fair value of the Series A Preferred issued was $962,000 based on an as converted basis for the acquisition of Urban Planet.
 
During the nine months ended March 31, 2016, the Company issued no shares of preferred stock.
 
Warrants
 
On February 22, 2016, warrants to purchase 50,000,000 shares of the Company’s common stock at $0.04 per share were issued in a financing agreement with the holder of the Convertible Note.  These warrants were valued using the Black Scholes pricing method using the following assumptions:  stock price - $0.02, strike price - $$0.04, expected volatility 175.19%, interest rate – 1%, dividend rate – 0%, and expected term – three years.  The value of 25,000,000 warrants totaling $412,500, was charged as financing expense.  The value of the remaining 25,000,000 warrants was recorded as a beneficial conversion feature of the Convertible Note in the amount of $80,698, which will be amortized over the life of the Convertible Note.
 
Warrant activity as of March 31, 2016 and the year ended June 30, 2015 is summarized as follows:
 
   
Twenty-one months ended
 March 31, 2016
  
   
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 December 31, 2015
    
45,204,762
    
$
0.075
  
Granted
    
50,000,000
    
$
0.04
  
Exercised
    
0
      
0
  
Cancelled/expired
    
0
      
—
  
Warrants exercisable at March 31, 2016
    
95,204,762
    
$
0.057
  
 
The total warrants outstanding at March 31, 2016 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 9 – 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.
 
During fiscal 2015, the Company entered into an Advisory Fee Agreement in connection with advisory, due diligence, and financing activities performed by the Advisor in connection with the transaction with Shenzhen.  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 SPA Warrants received pursuant to the Securities Purchase Agreement.  The Advisory Fee Agreement ended September 24, 2015 after the Settlement Agreement and Mutual Release, fully described below was signed.
 
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 December 31, 2015 provide for the rights to purchase an aggregate of 45,204,762 shares of common stock.
 
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; which were issued on March 10, 2016; 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.
 
Note 10 – Subsequent Events
 
Subsequent to the quarter ended March 31, 2016, the Company received loan proceeds from a related party of $150,000 under the terms of a a bridge loan agreement dated April 15, 2016, and $440,000 in proceeds from a $500,000 convertible promissory note issued to a third party investor.  Each of the loans accrue interest at the rate of 12% during the first year and 10% for the second year through the maturity date of February 21, 2018.  
 
 
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 more than 10% of our revenues.

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

 
Recent Developments

During the quarter ended March 31, 2016, the Company received $100,000 pursuant to the terms of a Bridge Loan Agreement with a related party (the "Bridge Note"). The Bridge Note is due and payable in full, on or before June 30, 2016 or no later than 30 days after the Company receives financing of at least US $1.0 million.  In addition, the Company received $200,000 in loan proceeds from a third party investor pursuant to the terms of a Convertible Promissory Note in the principal amount of $500,000 (“Convertible Note”).
 
The Company signed a second Convertible Note with a related party investor in the amount of $500,000, with the same terms and conditions as the first Convertible Note.  No funds have been received currently from this Convertible Note.
 
Subsequent to the quarter ended March 31, 2016, the Company received loan proceeds from a related party of $150,000 under the terms of a a bridge loan agreement dated April 15, 2016, and $440,000 in proceeds from a $500,000 convertible promissory note issued to a third party investor.  Each of the loans accrue interest at the rate of 12% during the first year and 10% for the second year through the maturity date of February 21, 2018.  
 
Results of Operations
 
Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015

Revenue
 
During the three-month period ended March 31, 2016, we recorded revenue of $532,670, primarily from the Blended Schools division acquired in 2014, as compared to $601,363 in revenue for the three months ended March 31, 2015. The decrease in revenue is principally attributable to issues with the Pennsylvania State budget.  The Pennsylvania State Legislature had been unable to pass a budget which has left School Districts without funding.  The majority of the Blended Schools Division sales are in Pennsylvania, and the budget impasse has adversely affected sales during the period ended March 31, 2016 and the year-to-date period.  While no assurances can be given, due to the Company’s sales cycle, which principally results in the negotiation of contracts during the nine months ending June 30, and our existing and anticipated sales pipeline, we believe that our sales will significantly increase through the end of the current fiscal year, and accelerate beginning in fiscal 2016/2017.

Sales, General and Administrative Expense
 
Total operating expenses for the three-month period ended March 31, 2016 were $1,218,526, compared to total operating expenses for the three-month period ended March 31, 2015 of $709,880, an increase of 72%.  Operating expenses consist of salaries of our management and staff, consulting expenses and professional fees.  The increase in operating expenses during the period ended March 31, 2016 is principally attributable to the addition of sales and other personnel during the recent period compared to the quarter ended March 31, 2015.
 
Interest Expense
 
Interest expense on our existing debt for the three-month periods ended March 31, 2016 and 2015 was $4,668 and $107,029, respectively. Amortization of intangibles and debt discount amounted to $93,056 and $173,530 for the three months ended March 31, 2016 and 2015, respectively.

Income Taxes
 
There is no income tax expense recorded for the three months ended March 31, 2016 and 2015, due to the Company's net losses.  As of March 31, 2016, the Company has tax net operating loss carry forwards and a related deferred tax asset, offset by a full valuation allowance.

Net Loss

Our net loss for the three months ended March 31, 2016 was $1,588,597, as compared to a net loss of $2,709,277 for the three months ended March 31, 2015. This year-over-year decrease in net loss is primarily attributable to the Impairment of Urban Planet assets acquired recognized in the three months ended March 31, 2015.  On a per share basis, our loss was $0.01 per share for the three months ended March 31, 2016, as compared to a loss of $0.04 per share for the three months ended March 31, 2016.

 
Nine Months Ended March 31, 2016 Compared to Nine Months Ended March 31, 2015

Revenue
 
During the nine-month period ended March 31, 2016, we recorded revenue of $1,541,566 compared to $1,701,497 in revenue for the nine months ended March 31, 2015, both principally attributable to the Blended Schools division, a decrease of 9%. The decrease is principally due to issues with the Pennsylvania State budget. The Pennsylvania State Legislature had been unable to pass a budget which has left School Districts without funding. Although revenue declined in the current quarter compared to the comparable quarter in 2015, and while no assurances can be given, due to the Company’s sales cycle, which principally results in the negotiation of contracts during the nine months ending June 30, and our existing and anticipated sales pipeline, we believe that our sales will increase through the end of the current fiscal year, and accelerate beginning in fiscal 2016/2017.
 
Sales, General and Administrative Expense
 
Total operating expenses for the nine-month period ended March 31, 2016 were $3,691,486, compared to total operating expenses for the nine-month period ended March 31, 2015 of $3,471,356, an increase of 6%.  Operating expenses consist of salaries of our management and staff, consulting expenses and professional fees.  Operating expenses during the period ended March 31, 2016 reflect the increase in sales and other personnel during the period compared to the quarter ended March 31, 2015., and non-recurring payments of certain contractual, travel, and other costs incurred in connection with the anticipated rollout of our programs in China, which added approximately $253,000 in costs during the nine-month period ended March 31, 2016.

Interest Expense
 
Interest expense on our existing debt for the nine periods ended March 31, 2016 and 2015 was $12,842 and $202,212 respectively. Amortization of intangibles and debt discount amounted to $279,164 and $397,410 for the nine months ended March 31, 2016 and 2015, respectively.

Income Taxes
 
There is no income tax expense recorded for the nine months ended March 31, 2016 and 2015, due to the Company's net losses.  As of March 31, 2016, the Company has tax net operating loss carry forwards and a related deferred tax asset, offset by a full valuation allowance.

Net Loss
 
Our net loss for the nine months ended March 31, 2016 was $3,980,053, as compared to a net loss of $5,285,514 for the nine months ended March 31, 2015. This year-over-year decrease in net loss is primarily attributable to other expenses during the nine-month period ending March 31, 2015, which were non-recurring, and, to a lesser extent, a gain on debt settlements, offset, in principal part, by a gross loss during the nine-month period ending March 31, 2016. On a per share basis, our loss was $0.02 per share for the nine months ended March 31, 2016, as compared to a loss of $0.09 per share for the nine months ended March 31, 2015.

Liquidity and Capital Resources

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had a working capital deficit of $521,851 and $59,360 in cash as of March 31, 2016, compared to working capital of $2,896,154 and $5,415,744 in cash as of June 30, 2015.  The decrease is principally attributable to the addition of the new management team, payments relating to purchases of equipment and repayments of borrowings.

Net cash used by operating activities was $4,956,852 for the nine months ended March 31, 2016, compared to $1,099,804 for the nine months ended March 31, 2015.  The increase of $3,857,048 of cash used by operating activities for the quarter was primarily a result of payments made on obligations, including accounts payable and debt settlements versus reduced cash collections of accounts receivable.

 
We had capital expenditures of $36,857 for the purchase of laptops for new management and staff members for the nine months ended March 31, 2016, as well as a net outlay of $532,675 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.
 
Historically, our principal sources of cash have included revenue from operating activities, proceeds from the issuance of common and preferred stock, and proceeds from the issuance of short-term debt.   During the quarter ended March 31, 2016, the Company received $100,000 pursuant to the terms of a Bridge Loan Agreement with a related party (the "Bridge Note"). The Bridge Note is due and payable in full, on or before June 30, 2016 or no later than 30 days after the Company receives financing of at least US $1.0 million.  In addition, the Company received $200,000 in loan proceeds from a third party investor pursuant to the terms of a Convertible Promissory Note in the principal amount of $500,000 (“Convertible Note”). The Company signed a second Convertible Note with a related party investor in the amount of $500,000, with the same terms and conditions as the Convertible Note.  No funds have been received currently from this Convertible Note.
 
The proceeds from the Bridge Note and the Convertible Note, together with cash advances from third parties subsequent to March 31, 2016, are anticipated to only be sufficient to provide for our working capital needs for at least the next three months; however, management believes that the Company’s current cash and cash equivalents will not be sufficient to meet working capital and capital expenditure requirements beyond such period.  As a result, 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. Management is therefore seeking to raise additional debt and/or equity capital.  There can be no assurance that the Company will be able to raise the necessary funds when needed to finance its ongoing working capital requirements, or to repay the proceeds advanced under the Convertible Note or by third parties when such amounts become due.
 
Our principal uses of cash have included cash used in operations, payments relating to purchases of property and equipment and repayments of borrowings. We expect that our principal uses of cash in the future will be for product development, further development of intellectual property, as well as general working capital and capital expenditure requirements.
 
While we used a substantial amount of cash since June 30, 2015, management believes the investments made to develop new product offerings internationally, additions to its executive management and sales team to capitalize on future growth opportunities throughout the U.S. South America, China, among others, and investments made in infrastructure, will provide the foundation for future revenue growth.  Until such time as we are able to generate positive cash flow from operations, management will continue to focus on reducing discretionary costs and expenses, matching staffing levels with existing and forecasted sales levels, and and directing existing cash resources to activities intended to increase revenue. 

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.

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 March 31, 2016. 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 March 31, 2016.

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.

 
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.

 In the event that we are unable to repay our debt when due, we may have to seek additional financing, and no assurances can be given that such financing would be available on a timely basis, on terms that are acceptable or at all.
 
The Company currently has issued and outstanding short-term notes and other liabilities totaling $1,407,410 at March 31, 2016, of which $100,000 is represented by short-term notes payable.  Failure to meet the repayment or other obligations of our existing debt upon demand by any of our creditors on or before its due date could have a material adverse affect our business, results of operations and financial condition and threaten our financial viability.
 
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 nine months ended March 31, 2016, 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 March 31, 2016, 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 nine months ended March 31, 2016 in unregistered transactions.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

None.

 
ITEM 4.   MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5.   OTHER INFORMATION.

(a)  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.

ITEM 6.  EXHIBITS

     
Exhibit No.
  
Description of Exhibit
     
4.1*
  
Form of Warrant issued in connection with the Convertible Promissory Note and Convertible Note between the Company and the holders thereof dated as of February 22, 2016
10.1*
  
Convertible Promissory Note between the Company and Xumei Li dated as of February 22, 2016
10.2*
  
Convertible Promissory Note between the Company and Duohui Tu dated as of February 22, 2016.
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.

 
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:  June 16, 2016
By:
/s/ Julie Young
  
   
Julie Young
  
   
Chief Executive Officer
  
   
(Principal Executive Officer)
  
       
Dated:  June 16 , 2016
By:
/s/ Angelle Judice
  
   
Angelle Judice
  
   
Chief Financial Officer
  
   
(Principal Financial and Accounting Officer)
  
       
 

 
 
-26-

 

Sibling Group Holdings, Inc. Reports