U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2008. |
| 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: 0-28311
SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
TEXAS (State or other jurisdiction of incorporation or organization) | 76-027334 (IRS Employer Identification Number) |
333 Hudson Street, Suite 901, New York, NY 10013
(Address of Principal Executive Office) (Postal Code)
(212) 414-9600
(Issuer’s telephone number)
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
| Large Accelerated Filer o | Accelerated Filer o | Non-Accelerated Filer o | Smaller Reporting Company x |
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.
Yes x No o
State the number of shares outstanding of each of the issuer’s classes of common equity, as of August 19, 2008: 13,074,066 shares of common stock.
Page | ||||
| PART I. | ||||
| ITEM 1. FINANCIAL STATEMENTS | 3 | |||
| Balance Sheet as of June 30, 2008 (unaudited) and December 31, 2007 (audited) | 4 | |||
| Statement of Operations for the three and six months ended June 31, 2008 and 2007 and the period December 28, 1988 (inception) to June 30, 2008 (unaudited) | 5 | |||
| Statement of Cash Flows for the six months ended June 30, 2008 and 2007 and the period December 28, 1988 (inception) to June 30, 2008 (unaudited) | 6 | |||
| Statement of Stockholder’s Equity (Deficit) for the period December 28, 1988 (inception) to June 30, 2008 (unaudited) | 8 | |||
| Notes to Financial Statements (unaudited) | 11 | |||
ITEM 2. MANAGEMENT'S PLAN OF OPERATION | 21 | |||
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 27 | |||
ITEM 4T. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES | 27 | |||
| PART II. | ||||
ITEM 1. LEGAL PROCEEDINGS | 29 | |||
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 29 | |||
ITEM 3. DEFAULTS UPON SENIOR SECURITIES | 29 | |||
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 29 | |||
ITEM 5. OTHER INFORMATION | 29 | |||
ITEM 6. EXHIBITS | 29 | |||
SIGNATURES | 30 | |||
INDEX TO EXHIBITS | 31 | |||
-2-
As used herein the terms “Company,” “we,” “our”, and “us” refer to Sibling Entertainment Group Holdings, Inc., formerly, Sona Development Corp., a Texas corporation, unless otherwise indicated. In the opinion of management, the accompanying unaudited financial statements included in this Form 10-Q reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.
The consolidated balance sheet at December 31, 2007 has been derived from the audited financial statements at that date but does not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements.
-3-
| SIBLING ENTERTAINMENT GROUP HOLDINGS, INC. |
| (A Development Stage Company) |
| (Unaudited) |
June 30, 2008 | December 31, 2007 | |||||||
ASSETS | (Unaudited) | (Audited) | ||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | — | $ | — | ||||
| Escrow with Attorney | 1,000 | 1,000 | ||||||
| Deposits | 604 | 604 | ||||||
| Total current assets | 1,604 | 1,604 | ||||||
| Receivable from Related Party | 2,698,119 | 2,594,170 | ||||||
| INVESTMENT | 1 | 1 | ||||||
| TOTAL ASSETS | $ | 2,699,724 | $ | 2,595,775 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued liabilities | $ | 57,291 | $ | 105,889 | ||||
| Amounts due to related parties | 249,828 | 194,233 | ||||||
| Short-term Loan Payable, net of discount | 2,710,295 | 2,257,190 | ||||||
| Total current liabilities | $ | 3,017,414 | $ | 2,557,312 | ||||
| STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Capital Stock , $0.0001 par value; 100,000 shares authorized; 13,074,066 issued and outstanding, | 1,307 | 1,307 | ||||||
| Additional paid-in capital | 3,983,824 | 3,982,824 | ||||||
| Deficit accumulated during the development stage | (4,302,821 | ) | (3,945,668 | ) | ||||
| Total stockholder’s equity (deficit) | (317,690 | ) | 38,463 | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS EQUITY | $ | 2,699,724 | $ | 2,595,775 | ||||
The accompanying notes are an integral part of these financial statements.
-4-
| SIBLING ENTERTAINMENT GROUP HOLDINGS, INC. |
| (A Development Stage Company) |
| (Unaudited) |
| Three months ended, | Six months ended, | Amounts From December 28,1988 (Inception) to | ||||||||||||||
| June 30, | June 30, | June 30, | ||||||||||||||
| 2008 | 2007 | 2008 | 2007 | 2008 | ||||||||||||
| General and administrative costs | $ | 19,504 | $ | 95,709 | $ | 54,125 | $ | 156,364 | $ | 2,897,818 | ||||||
| Recovery of consulting fees | - | - | - | - | (45,000 | ) | ||||||||||
| Gain (Loss) from Operations | (19,504 | ) | (95,709 | ) | (54,125 | ) | (156,364 | ) | (2,852,818 | ) | ||||||
| Interest income | 86,235 | 8,900 | 169,274 | 8,900 | 337,617 | |||||||||||
| Interest expense | (211,389 | ) | (73,229 | (472,302 | ) | (281,386 | (1,243,574 | ) | ||||||||
| Gain on forgiveness of debt | - | - | - | - | 8,000 | |||||||||||
| Write down of promissory notes (note 7) | - | - | - | - | (552,046 | ) | ||||||||||
| Net Loss | $ | (144,658 | ) | $ | (160,038 | ) | $ | (357,153 | ) | $ | (428,850 | ) | $ | (4,302,821 | ) | |
| Loss per common share - basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.03 | ) | ||||
| Weighted average common shares - | ||||||||||||||||
| basic and diluted | 13,074,766 | 13,074,766 | 13,074,766 | 12,854,944 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
-5-
| SIBLING ENTERTAINMENT GROUP HOLDINGS, INC. |
| (A Development Stage Company) |
| (Unaudited) |
Six months ended, June 30, | Cumulative Amounts From December 28,1988 (inception) to June 30, | |||||||||
| 2008 | 2007 | 2008 | ||||||||
| OPERATING ACTIVITIES | ||||||||||
| Net loss | (357,153 | ) | (428,850 | ) | (4,302,821 | ) | ||||
| Adjustments to reconcile net loss to net cash (used in) operating activities: | — | |||||||||
| Common stock issued for consulting fees | — | — | 853,400 | |||||||
| Common stock issued for services | — | — | 70,830 | |||||||
| Common stock issued for finance costs | — | — | 187,500 | |||||||
| Beneficial conversion feature on convertible debt | — | 208,157 | 208,157 | |||||||
| Amortization of debt discount | 298,810 | 78,362 | 679,400 | |||||||
| Common stock issued for organization costs | — | — | 33 | |||||||
| Interest accretion on related party notes | (172,524 | ) | — | (338,821 | ) | |||||
| Common stock issued for other services | — | — | 79,903 | |||||||
| Gain on forgiveness of debt | — | — | (8,000 | ) | ||||||
| Write down of promissory notes | — | — | 552,047 | |||||||
| Changes in non-cash working capital items | — | — | — | |||||||
| Accrued Receivable from Related Party | — | — | — | |||||||
| Accounts payable and accrued liabilities | 106,697 | (8,847 | ) | 659,731 | ||||||
| Advances and deposits | — | (5,066 | ) | (604 | ) | |||||
| Accrued and unpaid amounts due to related parties | 55,595 | 67,104 | 216,160 | |||||||
| Net cash used in operating activities | (68,575 | ) | (89,140 | ) | (1,143,085 | ) | ||||
| Net cash provided by (used in) investing activities: | ||||||||||
| Promissory notes | — | — | (550,000 | ) | ||||||
| Proceeds from repayment of related party interest | 68,575 | — | 195,650 | |||||||
| Advances to related party | — | (1,249,622 | ) | (2,555,000 | ) | |||||
| Loan to Smart Card Technologies Co. Ltd. | — | — | (600,000 | ) | ||||||
| Net cash provided by (used in) investing activities | 68,575 | (1,249,622 | ) | (3,509,350 | ) | |||||
-6-
| SIBLING ENTERTAINMENT GROUP HOLDINGS, INC. |
| (A Development Stage Company) |
| STATEMENTS OF CASH FLOWS |
| (Unaudited) |
Six months ended, June 30, | Cumulative Amounts From December 28, 1988 (inception) to June 30, | |||||||||
Net cash provided by financing activities | 2008 | 2007 | 2008 | |||||||
| Advances from related parties | — | 88,450 | 656,568 | |||||||
| Proceeds from loan/short term debt | — | 1,450,000 | 3,235,000 | |||||||
| Escrow Account | — | (200,000 | ) | (200,000 | ) | |||||
| Common stock issued for cash | — | — | 760,867 | |||||||
| Net cash provided by financing activities | — | 1,338,450 | 4,652,435 | |||||||
| NET INCREASE (DECREASE) IN CASH | — | (312 | ) | — | ||||||
| CASH, BEGINNING OF PERIOD | — | 345 | — | |||||||
| CASH, END OF PERIOD | — | 33 | — | |||||||
SUPPLEMENTAL CASH FLOW INFORMATION AND NON-CASH INVESTING AND FINANCING ACTIVITIES (Note 6)
The accompanying notes are an integral part of these financial statements.
-7-
SIBLING ENTERTAINMENT GROUP HOLDINGS, INC. | |||||||||||
| (A Developmental Stage Company) | |||||||||||
| December 28, 1988 (Inception) to June 30, 2008 | |||||||||||
Deficit Accumulated | |||||||||||||||||||
| Common Stock | Additional Paid-in | Stock | During the Development | ||||||||||||||||
| Shares | Amount | Capital | Subscriptions | Stage | Total | ||||||||||||||
| Balance at December 28, 1988 (date of inception) | — | — | — | — | — | — | |||||||||||||
| Stock issued for organization costs | 33,000 | $ | 33,000 | $ | (32,967 | ) | — | — | $ | 33 | |||||||||
| Net loss | — | — | — | — | $ | (33 | ) | (33 | ) | ||||||||||
| Balances at December 31, 1988 to December 31, 1996 | 33,000 | 33,000 | (32,967 | ) | — | (33 | ) | — | |||||||||||
| 1,000 for 1 stock split | 32,967,000 | — | — | — | — | — | |||||||||||||
| Cancelled 30,000,000 shares | (30,000,000 | ) | (32,700 | ) | 32,700 | — | — | — | |||||||||||
| Stock issued for cash at $5.00 per share | 20,000 | 2 | 99,998 | — | — | 100,000 | |||||||||||||
| Net loss | — | — | — | — | (80,025 | ) | (80,025 | ) | |||||||||||
| Balance at December 31, 1997 | 3,020,000 | 302 | 99,731 | — | (80,058 | ) | 19,975 | ||||||||||||
| Stock issued for services at $0.10 per share | 95,000 | 10 | 9,490 | — | — | 9,500 | |||||||||||||
| Stock issued for cash at $0.14 per share | 52,800 | 5 | 7,795 | $ | (2,722 | ) | — | 5,028 | |||||||||||
| Net loss | — | — | — | — | (33,798 | ) | (33,798 | ) | |||||||||||
| Balance at December 31, 1998 | 3,167,800 | 317 | 117,016 | (2,722 | ) | (113,856 | ) | 705 | |||||||||||
| Net loss | — | — | — | — | (66,662 | ) | (66,662 | ) | |||||||||||
| Balance at December 31, 1999 | 3,167,800 | 317 | 117,016 | (2,722 | ) | (180,518 | ) | (65,957 | ) | ||||||||||
| The accompanying notes are an integral part of these financial statements. |
-8-
Deficit Accumulated | |||||||||||||||||||
| Common Stock | Additional Paid-in | Stock | During the Development | ||||||||||||||||
| Shares | Amount | Capital | Subscriptions | Stage | Total | ||||||||||||||
| 2 for 1 stock split | 3,167,800 | 317 | (317 | ) | — | — | — | ||||||||||||
| Stock issued for consulting fees at $2.00 per share | 320,000 | 32 | 639,968 | — | — | 640,000 | |||||||||||||
| Stock issued to settle trade payables at $2.00 per share | 20,540 | 2 | 41,078 | — | — | 41,080 | |||||||||||||
| Stock issued for services at $2.00 per share | 11,960 | 2 | 23,918 | — | — | 23,920 | |||||||||||||
| Stock issued per preemptive rights | 192 | — | 17 | — | — | 17 | |||||||||||||
| Stock subscriptions received | — | — | — | 2,722 | — | 2,772 | |||||||||||||
| Net loss | — | — | — | — | (1,018,914 | ) | (1,018,914 | ) | |||||||||||
| Balance at December 31, 2000 | 6,688,292 | 670 | 821,680 | — | (1,199,432 | ) | (377,082 | ) | |||||||||||
| Stock issued for consulting fees and payables at $0.08 per share | 687,500 | 68 | 54,932 | — | — | 55,000 | |||||||||||||
| Stock issued at $0.08 per share for rent payable | 535,000 | 54 | 42,746 | — | — | 42,800 | |||||||||||||
| Net loss | — | — | — | — | (227,672 | ) | (227,672 | ) | |||||||||||
| Balance at December 31, 2001 | 7,910,792 | 792 | 919,358 | — | (1,427,104 | ) | (506,954 | ) | |||||||||||
| 1 for 10 reverse stock split | (7,119,708 | ) | (713 | ) | 713 | — | — | — | |||||||||||
| Stock subscribed for converted debts | — | — | — | 641,953 | — | 641,953 | |||||||||||||
| Net loss | — | — | — | — | (180,733 | ) | (180,733 | ) | |||||||||||
| Balance at December 31, 2002 | 791,084 | 79 | 920,071 | 641,953 | (1,607,837 | ) | (45,734 | ) | |||||||||||
| Stock issued for cash at $0.10 per share | 280,000 | 28 | 27,972 | — | — | 28,000 | |||||||||||||
| Stock issued for converted debts | 5,598,947 | 560 | 641,393 | (641,953 | ) | — | — | ||||||||||||
| Stock issued for debt settlement at $0.20 per share | 280,538 | 28 | 56,080 | — | — | 56,108 | |||||||||||||
| Stock issued for debt settlement at $0.20 per share | 52,500 | 5 | 10,495 | — | — | 10,500 | |||||||||||||
| Stock issued for debt settlement at $0.10 per share | 50,000 | 5 | 4,995 | — | — | 5,000 | |||||||||||||
| Net loss | — | — | — | — | (100,115 | ) | (100,115 | ) | |||||||||||
| Balance at December 31, 2003 | 7,053,069 | 705 | 1,661,006 | — | (1,707,952 | ) | (46,241 | ) | |||||||||||
| Stock issued for debt settlement at $0.10 per share | 735,782 | 73 | 73,505 | — | — | 73,578 | |||||||||||||
| Stock issued for debt settlement at $0.10 per share | 50,000 | 5 | 4,995 | — | — | 5,000 | |||||||||||||
| Stock issued for services at $0.15 per share | 65,000 | 6 | 9,744 | — | — | 9,750 | |||||||||||||
| Stock issued for debt settlement at $0.10 per share | 86,000 | 9 | 8,591 | — | — | 8,600 | |||||||||||||
| Stock issued for debt settlement at $0.16 per share | 277,314 | 28 | 44,717 | — | — | 44,745 | |||||||||||||
| Stock issued for cash at $0.35 per share | 871,572 | 87 | 304,963 | — | — | 305,050 | |||||||||||||
| Subscriptions receivable | — | — | — | (35,000 | ) | — | (35,000 | ||||||||||||
| Net loss | — | — | — | — | (447,411 | ) | (447,411 | ) | |||||||||||
| Balance at December 31, 2004 | 9,138,737 | 913 | 2,107,521 | (35,000 | ) | (2,155,363 | ) | (81,929 | ) | ||||||||||
| The accompanying notes are an integral part of these financial statements. |
-9-
Deficit Accumulated | |||||||||||||||||||
| Common Stock | Additional Paid-in | Stock | During the Development | ||||||||||||||||
| Shares | Amount | Capital | Subscriptions | Stage | Total | ||||||||||||||
| Stock issued for cash at $0.35 per share | 914,288 | 91 | 319,909 | — | — | 320,000 | |||||||||||||
| Stock issued for debt settlement at $0.10 per share | 1,147,680 | 115 | 114,653 | — | — | 114,768 | |||||||||||||
| Stock issued for debt settlement at $0.50 per share | 50,000 | 5 | 24,995 | — | — | 25,000 | |||||||||||||
| Subscriptions received | — | — | — | 35,000 | — | 35,000 | |||||||||||||
| Net loss | — | — | — | — | (407,256 | ) | (407,256 | ) | |||||||||||
| Balance at December 31, 2005 | 11,250,705 | 1,124 | 2,567,078 | — | (2,562,619 | ) | 5,583 | ||||||||||||
Stock issued for finance costs at $0.35 per share (Note 7) | 150,000 | 15 | 52,485 | — | — | 52,500 | |||||||||||||
| Stock issued for consulting fees at $0.36 per share | 100,000 | 10 | 35,990 | — | — | 36,000 | |||||||||||||
| Stock issued for consulting fees at $0.40 per share | 176,000 | 18 | 70,382 | — | — | 70,400 | |||||||||||||
Stock issued for finance costs At $0.45 per share (Note 7) | 300,000 | 30 | 134,970 | — | — | 135,000 | |||||||||||||
| Net loss | — | — | — | — | (532,610 | ) | (532,610 | ) | |||||||||||
| Balance at December 31, 2006 | 11,976,705 | 1,197 | 2,860,905 | — | (3,095,229 | ) | (233,127 | ) | |||||||||||
| Beneficial conversion feature on convertible debt | — | — | 208,157 | — | — | 208,157 | |||||||||||||
| Stock issued for conversion of debt | 1,097,361 | 110 | 219,362 | — | — | 219,472 | |||||||||||||
| Debt forgiveness - related party debt | — | — | 16,000 | — | — | 16,000 | |||||||||||||
| Warrants Issued with Loans Payable | — | — | 678,400 | — | — | 678,400 | |||||||||||||
| Net loss | — | — | — | — | (850,438 | ) | (850,438 | ||||||||||||
| Balance at December 31, 2007 | 13,074,066 | 1,307 | 3,982,824 | — | (3,945,668 | ) | 38,463 | ||||||||||||
| Value of warrants issued | — | — | 1,000 | — | — | 1,000 | |||||||||||||
| Net loss | — | — | — | — | (357,153 | ) | (357,153 | ) | |||||||||||
| Balance at June 30, 2008 | 13,074,066 | 1,307 | 3,983,824 | — | (4,302,821 | ) | (317,690 | ) | |||||||||||
| The accompanying notes are an integral part of these financial statements. |
-10-
SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
June 30, 2008
1 - Organization and Basis of Presentation
(a) Organization
Sibling Entertainment Group Holdings, Inc., formerly Sona Development Corp. (the “Company”) was incorporated as Houston Produce Corporation under the laws of the State of Texas on December 28, 1988. The Company was organized primarily for the purpose of importing fruits and vegetables from Latin America. On December 28, 2002, the Company changed its name to Sona Development Corp. The Company is currently pursuing a potential merger with Sibling Entertainment Group, Inc. ("Sibling"), an entertainment development and production company based in New York City, as described in Note 9. The Company is considered a development stage company in accordance with Statement of Financial Accounting Standards (SFAS) No. 7.
(b) Basis of Presentation and Going Concern
The accompanying unaudited financial statements have been prepared in accordance (i) accounting principles generally accepted in the United State of America (“GAAP”) for interim financial information and (ii) the rules of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q. The financial statements do not include all of the information and footnote disclosures required by GAAP for complete financial statements. These statements should be read in conjunction with Sibling’s audited financial statements and notes thereto for the year ended December 31, 2007, included in Form 10-KSB filed with the SEC on May 6, 2008. In the opinion of management, the accompanying unaudited financial statements include all adjustments, primarily consisting of normal adjustments, necessary for the fair presentation of the balance sheet and results of operations for the interim period. The results of operations for the six months ended June 30, 2008 are not necessarily indicative of the results of operations to be expected for the full year ending December 31, 2008. The financial statements have been prepared on the basis of a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
The Company has not generated any revenues or completed development of any commercially acceptable products or services to date and has incurred losses of $(4,302,821) since inception, and further significant losses are expected to be incurred in the Company’s development stage. The Company will depend almost exclusively on outside capital through the issuance of common shares, and advances from related parties to finance ongoing operating losses. The ability of the Company to continue as a going concern is dependent on raising additional capital and ultimately on generating future profitable operations.
There can be no assurance that the Company will be able to raise the necessary funds when needed to finance its ongoing costs. These factors raise substantial doubts about the ability of the Company to continue as a going concern. The accompanying financial statements do not include any adjustments relative to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.
-11-
SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
June 30, 2008
2 - Summary of Significant Accounting Policies
(a) Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
(b) Income Taxes
The Company utilizes SFAS No. 109, “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 financials statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financials reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the period in which the difference are expected to affect taxable income.
(c) Financial Instruments
In accordance with the requirements of SFAS No. 107, “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, amounts due to related parties and short term loans payable approximate fair values due to the short-term maturity of the instruments.
-12-
SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - Summary of Significant Accounting Policies (continued)
(d) Stock-Based Compensation
On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004) (SFAS No. 123R), Share-Based Payment, which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. In January 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 107, which provides supplemental implementation guidance for SFAS No. 123R. SFAS No. 123R eliminates the ability to account for stock-based compensation transactions using the intrinsic value method under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and instead generally requires that such transactions be accounted for using a fair-value-based method. The Company uses the Black-Scholes-Merton (“BSM”) option-pricing model to determine the fair-value of stock-based awards under SFAS No. 123R, consistent with that used for pro forma disclosures under SFAS No. 123, Accounting for Stock-Based Compensation. The Company has elected the modified prospective transition method as permitted by SFAS No. 123R and accordingly prior periods have not been restated to reflect the impact of SFAS No. 123R. The modified prospective transition method requires that stock-based compensation expense be recorded for all new and unvested stock options, restricted stock, restricted stock units, and employee stock purchase plan shares that are ultimately expected to vest as the requisite service is rendered beginning on January 1, 2006 the first day of the Company’s fiscal year 2006. Stock-based compensation expense for awards granted prior to January 1, 2006 is based on the grant date fair-value as determined under the pro forma provisions of SFAS No. 123.
Prior to the adoption of SFAS No. 123R, the Company measured compensation expense for its employee stock-based compensation plans using the intrinsic value method prescribed by APB Opinion No. 25. The Company applied the disclosure provisions of SFAS No. 123 as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, as if the fair-value-based method had been applied in measuring compensation expense. Under APB Opinion No. 25, when the exercise price of the Company’s employee stock options was equal to the market price of the underlying stock on the date of the grant, no compensation expense was recognized.
-13-
SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2 - Summary of Significant Accounting Policies (continued)
(e) Stock-Based Compensation (continued)
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force (“EITF”) in Issue No. 96-18. 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 EITF 96-18.
(f) Loss per Share
The Company computes loss per share in accordance with SFAS No. 128, “Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period including stock options and warrants, using the treasury method, and preferred stock, using the if-converted method. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.
(g) Recent Accounting Pronouncements
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. This Statement permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 159 did not have a material impact on its financial statements.
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SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2 - Summary of Significant Accounting Policies (continued)
(g) Recent Accounting Pronouncements (continued)
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measures”. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), expands disclosures about fair value measurements, and applies under other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 does not require any new fair value measurements. However, the FASB anticipates that for some entities, the application of SFAS No. 157 will change current practice. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, which for the Company would be the fiscal year beginning January 1, 2008. The adoption of SFAS No. 157 did not have a material impact on the financial statements.
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SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3 - Related Party Receivable
In conjunction with a short-term financing, the amounts received were lent to a related party, Sibling Theatrical Inc. at an annual interest rate of 13% payable quarterly. As of June 30, 2008, the balance due was $2,555,000 including accrued interest income of $143,119.
4 - Due to Related Parties
Related party payables consist of the following:
June 30, 2008 | ||||
| Due to a significant shareholder (a) | $ | 90,069 | ||
| Unsecured payable to a shareholder with no specific terms and due on demand (b) | — | |||
| Due to an officer (c) | — | |||
| Due to a company with a director in common (d) | 159,759 | |||
| $ | 249,828 | |||
The following represents related party transactions paid or accrued during the six months ended June 30, 2008 and 2007.
| 2008 | 2007 | ||||||
| Consulting fees paid or accrued to a significant shareholder (a) | $ | 21,000 | $ | 49,000 | |||
| Rent paid or accrued to a shareholder (b) | — | 3,000 | |||||
| Consulting fees paid or accrued to a director (d) | — | 37,800 | |||||
| $ | 21,000 | $ | 89,800 | ||||
The above transactions are in the normal course of operation and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
(a) At June 30, 2008, the amount of $64,857 was due to a significant shareholder for cash loans and interest, consulting fees and reimbursable expenses. As of June 30, 2008, the Company was indebted to this shareholder for cash loans of $21,600 which bear interest at a rate of 10% per annum and is due from the proceeds of the next financing arranged by the Company. At June 30, 2008, the Company had accrued $3,612 of interest on the loans. The loans are unsecured and due on demand. If the loan is not paid in full from the proceeds of the Company’s next financing, the lender will also be entitled to a one-time late charge equal to 2% of the outstanding principal amount of the loan. Overdue payments will bear interest at 12% per annum until paid.
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SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
June 30, 2008
At June 30, 2008, the Company was indebted $90,069 to this shareholder for consulting fees and reimbursable expenses. This additional debt bears no interest and has no set terms of repayment.
4 - Due to Related Parties (continued)
In February of 2007, the Company issued 1,097,361 shares of restricted common stock with a value of $0.20 per share to this significant shareholder in settlement of an outstanding balance of $219,472 for loans, accrued interest on the loans, reimbursable expenses incurred on behalf of the Company and consulting fees. The settlement resulted in a charge to interest expense of $208,157 as a result of a beneficial conversion feature during the six months ended June 30, 2007.
(b) On June 28, 2007, the sole paid officer resigned and was replaced by directors and officers of SEGI.
(c) At June 30, 2008, the amount of $159,759 was due to a company with a common director for loans, interest and reimbursable expenses. The Company was indebted to this related company for loans of $51,450 which bear interest at a rate of 10% per annum. At June 30, 2008, the Company had accrued $4,864 of interest on the loans. The loans are unsecured and due on demand. In addition, the Company owed $91,356 for reimbursable expenses, which bear no interest.
5 - Short-Term Notes Payable
During the period of May through August of 2007, the Company borrowed $2,555,000 from various individuals payable in six months from the date of borrowing at an annual interest rate of 13% through June 1, 2008, or at an annual interest rate of 15% if extended to June 1, 2009. In conjunction with this financing, the lenders received for each unit equal to $10,000, 10,000 stock purchase warrants to purchase 10,000 shares of common stock at $1.00/share and 10,000 stock purchase warrants to purchase 10,000 shares of common stock at $ 2.50/share. The warrants expire within five years of the loan. The value of these warrants using the Black-Sholes method was $678,400 and was recorded as a discount to the debt and is amortized over the life of the debt. Amortization of the debt discount of $121,681 and $298,810 was charged to interest expense during the three and six months ending June 30, 2008. The fair value of the warrants were estimated using the following assumptions:
| Expected volatility | - 61 | % | ||
| Expected dividends | - 0 | |||
| Expected term | - 5 years | |||
| Risk-free rate | - 5.25 | % |
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SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5 - Short-term Notes Payable (continued)
If the Company undertakes an underwritten public offering of securities for a total subscription of $6,000,000, prior to the Maturity Date, in lieu of repayment of principal and interest on the Notes, at the Note holder’s option, the Note holder may acquire securities in the Qualified Offering in the amount of such principal and interest.
6 - Income Taxes
The Company accounts for its income taxes in accordance with FASB No. 109, “Accounting for Income Taxes.” As of June 30, 2008, the Company had net operating loss carry forwards that may be available to reduce future years’ taxable income and will expire commencing in 2015. Availability of loss usage is subject to change of ownership limitations under Internal Revenue Code 382. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards.
7 - Capital Stock
(a) Stock options
The Company has not issued any options on its common stock to date and has not recorded any stock-based compensation with respect to stock options.
(b) Stock issuances
For the period January 1, 2008 though June 30, 2008, the Company did not issue any new shares of common stock.
In February of 2007, the Company issued 1,097,361 shares at $.20 per share to a significant shareholder in settlement of an outstanding balance of $219,472 for cash loans, accrued interest, reimbursable expenses and consulting fees. The settlement resulted in a charge to interest expense of $208,157 as a result of a beneficial conversion feature during the six months ended June 30, 2007.
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SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 8 - Supplemental Cash Flow Information
Actual amounts paid for interest and income taxes for the six months ended June 30, 2008 and 2007 are as follows:
| Six months ended June 30, | |||||||
| 2008 | 2007 | ||||||
| Interest | $ | 68,575 | $ | — | |||
| Income taxes | $ | — | $ | — | |||
During the six months ended June 30, 2007, the Company issued 1,097,361 shares at $.20 per share to a significant shareholder in settlement of an outstanding balance of $219,472 for loans, accrued interest, reimbursable expenses and consulting fees. The settlement resulted in a charge to interest expense of $208,157 as a result of a beneficial conversion feature.
9 - Investment
Proposed Merger with Idea One
The Company entered into a letter of intent on May 20, 2004 (as amended through November 2005), with Idea One, Inc., a private company involved in the development of battery cell technology,. The letter of intent did not culminate in a definitive agreement.
Over the term of the letter of intent, the Company loaned Idea One, Inc. a total of $550,000 through a series of convertible promissory notes. These notes were written down to $1 as of December 31, 2005 as management determined they were not collectible and further, if the Idea One shares were received, it was not possible to determine their value.
As of April 30, 2006, the Company agreed to convert the outstanding balance, including accrued interest, of $595,642, at $0.40 per share, to 1,489,106 common shares of Idea One, Inc., in full satisfaction of the loan receivable. The Idea One, Inc. shares were received in the second quarter of 2006. As of June 30, 2008, these shares are recorded at $1.
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SIBLING ENTERTAINMENT GROUP HOLDINGS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
10 - Proposed Merger with Sibling
On February 9, 2007, the share holders of the Company approved an Agreement of Acquisition and Plan of Reorganization, as amended, to acquire four wholly owned subsidiaries: Sibling Theatricals, Inc., Sibling Pictures, Inc., Sibling Music Corp., and Sibling Properties, Inc. from Sibling Entertainment Group, Inc an entertainment development and production company based in New York City
.
Under the reorganization, the Company is to acquire each of Sibling's four wholly owned subsidiaries and three wholly owned subsidiaries of Sibling Pictures, Inc., all of which own and or control each of Sibling's respective divisions and operations of live-stage theatrical operations, music, independent feature films and theatrical real estate.
The definitive agreement anticipates a share exchange pursuant to which the Company will issue up to 33,267,472 shares of common stock for all the issued and outstanding shares of the Sibling subsidiaries on the closing date. The Company will further grant 16,239,972 share purchase warrants with terms ranging from 3 to 5 years at exercise prices ranging from $0.275 a share to $1.00 per share.
The closing of the Agreement of Acquisition and Plan of Reorganization remains subject to the applicable registration requirements of the Securities Exchange Act of 1934, as amended. The Company intends to close the acquisition of the Sibling Entertainment Group, Inc. subsidiaries as soon as is practicable.
On August 19, 2008, the Agreement as amended anticipates a share exchange pursuant to which the Company will issue up to 37,208,900 shares of common stock for all the issued and outstanding shares of Sibling’s subsidiaries on the closing date and will issue up to 571,340 additional shares reserved for convertible debentures and consulting agreements. The Company will further deliver 26,657,424 purchase warrants with terms ranging from 3 to 5 years at exercise prices ranging from $0.275 a share to $1.00 per share to certain shareholders of Sibling as part of the consideration for the transaction.
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CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risk, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “could”, “would”, “expect”,” plan”,” anticipate”, “believer”, “estimate”, “continue”, or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those listed under the heading “Risk Factors” and those listed in our other Securities and Exchange Commission filings. The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report.
Overview
We are a development stage company which has no operating revenue since inception. We are incorporated under the laws of the State of Texas. On November 27, 2002, the Company changed its name to “Sona Development Corp.” as part of a corporate restructuring designed to make the Corporation more attractive to prospective business opportunities. Management has since been searching for a suitable business opportunity to become part of the Company by acquisition or combination.
On June 28, 2006, the Company entered into an Agreement of Acquisition and Plan of Reorganization (the “Agreement”) with Sibling Entertainment Group, Inc. (“Sibling”). The Agreement provides for the Company’s acquisition of Sibling’s subsidiaries. Sibling is an entertainment development and production company based in New York City.
On May 14, 2007, the Company changed its name to “Sibling Entertainment Group Holdings, Inc.”
The Agreement provides that the Company will acquire each of Sibling’s four wholly owned subsidiaries: Sibling Theatricals, Inc. (“STI”), Sibling Pictures, Inc., Sibling Music Corp., Sibling Properties, Inc, and their subsidiaries including Dick Foster Productions, Inc., Adrenaline MMA, Inc., Hats Holdings, Inc. amongst others all of which own and or control each of Sibling’s respective divisions and operations of live-stage theatrical operations, music, independent feature films and theatrical real estate.
Shareholder approval for this transaction has been obtained. The closing of the Agreement of Acquisition and Plan of Reorganization remains subject to the applicable registration requirements of the Securities Exchange Act of 1934, as amended.
Subsequent to our February 9, 2007 shareholders meeting, the SEC has advised us that we are required to file a Form S-4 registration statement with the SEC and have such S-4 registration statement declared effective by the SEC to close our transaction with Sibling Entertainment Group, Inc. We filed the Form S-4 registration statement on August 13, 2007. The Form S-4 is still under review by the SEC. Based on the requirement to file an S-4 registration statement, we may change the structure of the transaction with Sibling Entertainment Group, Inc.
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The Company’s long term plan is to operate within the entertainment industry.
Specifically, we plan to continue Sibling’s business as follows:
| · | Purchase and exploitation of literary rights as well as investments in the production of both film and live-stage events including the following: |
| · | The management of Adrenaline MMA Inc. (“Adrenaline MMA”) for the production and promotion of Mixed Martial Arts (“MMA”) Events. Adrenaline MMA headed by Monte Cox intends to produce several fighting events over the next several years. |
| · | Adrenaline MMA has also entered into two letter of agreement to acquire up to 80% of Extreme Challenge LLC (a fight promotions company) and Extreme Challenge Management LLC (a fighter management company), two companies founded and wholly owned by Monte Cox. Adrenaline MMA has also taken an option to purchase upon to 30% of Water Channel, Inc. (a cable television network for water related industries) and a letter of agreement with Water Channel, Inc. to take an equal ownership and interest in a second television network related to the mixed martial arts industry. |
| · | HATS! - A Musical for the Rest of Your Life” (“HATS!”) is based upon the women and spirit of Red Hat Society, Inc. (“RHS”). The musical premiered in Denver, Colorado at the New Denver Civic Theatre on October 7, 2006 and ran through December 31, 2006 and subsequently had three productions.: Harrah’s New Orleans Hotel & Casino (New Orleans) from January 25, 2007 to April 21, 2007; and the Royal George Theatre in Chicago, Illinois from April 20, 2007 to July 29, 2007; and Harrah’s Hotel & Casino (Las Vegas) from January 12, 2008 to June 19, 2008 through Dick Foster Productions (a subsidiary of Sibling Theatricals, Inc.) A license with Tampa Bay Performing Arts Center for the rights to produce HATS! throughout the State of Florida beginning January 1, 2008 for two years with an option to renew for an additional two years with the first production which ran from in the Jaeb Theatre January 24 - May 11, 2008 |
| · | License and production of additional companies of HATS! under Sibling Theatricals, Inc. wholly owned subsidiary Hats Holdings, Inc. through an exclusive licensing agreement with the RHS to develop and produce HATS! including sequels and future home video, pay-per-view events and DVD recordings. |
| · | Optimize revenue by licensing the HATS! trademarks and by selling HATS! Cast Album through Sibling Music, Inc.. |
| · | Development of a new musical, subject to negotiations with the world-renowned comedian and entertainer Jerry Lewis, based upon his book “DEAN & ME,” a story of his life with Dean Martin. |
| · | Development of a new musical, subject to negotiations to produce a new musical in New Orleans “WHITE NOISE.” |
| · | Development of a new musical, subject to negotiations to produce a new musical in New Orleans “WHITE NOISE.” |
| · | The continued distribution and selling of the HATS! cast album through retail, theatrical venue and internet outlets and the production of additional cast albums of other future productions. |
| · | Negotiations with Bernstein Corporations Entertainment, Inc. to acquire the intellectual properties, label imprint (Finer Arts Records and TransWorld Records, M Bernstein Music Publishing ASCAP, Bernstein Artists Management) and related artist recording contracts and |
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record/music CD inventory to be made part of SMC, a wholly owned subsidiary of the Company which Richard Bernstein is an officer.
| · | Evaluating our option to produce the screenplay REEL LOVE as an independent feature film. |
| · | Negotiations with URL Productions, Inc. to co-produce “Once Around the Sun” as a feature film previously produced Off- Broadway. |
| · | Strategic investments in third party theatrical productions. |
| · | Development of an independent film production business by leveraging the acquisition of SPI and its subsidiaries Sibling Pictures Fund, LLC; Reel Love on Film LLC and Reel Love Productions, Inc. |
| · | Growing our management and consulting business with regional not-for-profit and professional theatre companies |
| · | Ongoing management of the Denver Civic Theatre, Inc. (a not-for-profit organization, "DCT") for which our officers and directors serve as members of its board of directors. |
| · | Formation of alliances with companies that possess rights or agreements desired by us including: |
| · | an ongoing relationship with Sibling Entertainment, Inc. (see related parties). |
Our plan to coordinate the efforts between film, theatre, real estate, management and music publishing follow the natural synergies that exist between the various industries and their components. It is sometimes more difficult to develop a new theatrical project without securing the venue, and owning sufficient theatres provides the ability for a production company combined with a theatre owner to assure a production access needed to advance a commercial project. It is planned that when we do have our own theatrical production to present in our own theaters, the production will be able to rent our venues creating a source of sustaining income.
As both a theatre owner/manager and presenter of original works, the long-term income derived from the licensing of literary rights may benefit us in two ways. Many literary works developed for the stage may also have potential as a feature film. Access and acquisition cost barriers may be reduced with a common producer of both film and theatre. As we continue to develop a management company for both real estate and theatrical productions, we will be able to secure additional revenue sources common to the industry.
Another natural synergy between the theatre and movie industries includes music publishing originated or released in association with a musical or a movie. We continue to seek partners and potential companies for acquisition within the recording and music publishing industry.
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Results of Operations
For the six months ended June 30, 2008, the Company’s operations were limited to satisfying continuous public disclosure requirements, seeking our alternative business opportunities, and entering into an agreement with Sibling.
The Company has not generated revenues since inception and due to the nature of our search for a suitable business opportunity, cannot determine whether we will ever generate revenue from operations and may continue at a loss.
Net Loss
For the period from inception to June 30, 2008, the Company recorded a net loss of $4,302,821. The Company’s net loss is primarily attributable to general and administrative expenses and the write down of promissory notes. The general and administrative expenses include incorporation costs, offering costs, accounting costs, and costs associated with the preparation of disclosure documentation in connection with registration pursuant to the Exchange Act of 1934.
We expect to continue to operate at a loss through fiscal 2008 and cannot determine whether we will ever generate revenues from operations.
Capital Expenditures
The Company expended no amounts on capital expenditures for the period from December 28, 1988 (inception) to June 30, 2008.
Liquidity and Capital Resources
The Company is in the development stage and, since inception, has experienced significant changes in liquidity, capital resources and shareholders’ equity. The Company had current and total assets of $1,604 and $2,699,724 respectively as of June 30, 2008. These assets consist of an escrow with attorney of $1,000, a related party receivable of $2,698,119, and investments of $1. Net stockholders equity (deficit) in the Company was $(317,690) at June 30, 2008.
The Company borrowed an aggregate of $51,450 as of June 30, 2008 from Sibling Entertainment Group, Inc. (“SEGI”) on several convertible promissory notes. The convertible promissory notes, as amended, bore interest of 10% per annum payable upon demand.
The Company’s current assets are not sufficient to conduct its plan of operation over the next twelve (12) months and will have to seek further debt or equity financing to fund operations from shareholder loans or private equity placements. As of the time of this filing, the Company had completed a private offering in the aggregate of $2,555,000. The Company has no further current commitments or arrangements with respect to sources of funding. If additional funding becomes necessary, no assurances can be given that funding, if available would be available to the Company on acceptable terms. The Company’s inability to obtain funding would have a material adverse affect on its plan of operation.
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The Company does not anticipate an incremental increase in legal, accounting and other costs associated with the business combination with SEGI.
The Company has no current plans for the purchase or sale of any plant or equipment.
Critical Accounting Policies
In Note 2 to the attached interim financial statements for the periods ended June 30, 2008 and 2007 included in this Form 10-Q, we discuss those accounting policies that are considered significant in determining the results of operations and our financial position. We believe that the accounting principles utilized by us conform to accounting principles generally accepted in the United States of America.
The preparation of financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. On an on-going basis, we evaluate estimates. We base our estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying value of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions.
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Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measures”. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), expands disclosures about fair value measurements, and applies under other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 does not require any new fair value measurements. However, the FASB anticipates that for some entities, the application of SFAS No. 157 will change current practice. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, which for the Company would be the fiscal year beginning January 1, 2008. The adoption of SFAS No. 157 did not have a material impact on the financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. This Statement permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 159 did not have a material impact on the financial statements.
Going Concern
The Company’s auditor’s, as of December 31, 2007, expressed substantial doubt as to our ability to continue as a going concern as a result of recurring losses, lack of revenue-generating activities and an accumulated deficit which reached ($3,945,668) as of Decemeber 31, 2007. The Company’s ability to continue as a going concern is subject to the ability of the Company to realize a profit from operations and /or obtain funding from outside sources. Since the Company has no revenue generating operations, management’s plan to address the Company’s ability to continue as a going concern over the next twelve months, include: (i) obtaining debt funding from private placement sources; (ii) obtaining additional funding from the sale of the Company’s securities; and (iii) obtaining loans and grants from various financial
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The Company is subject to certain market risks, including changes in interest rates and currency exchange rates. The Company does not undertake any specific actions to limit those exposures.
ITEM 4T. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
a) Evaluation of disclosure controls and procedures.
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the interim or annual financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
The Company’s management did not assess the effectiveness of the Company’s internal control over financial reporting as of June 30, 2008 in accordance with a recognized framework, due to its lack of resources. However, we have identified what we believe to be material weaknesses.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses identified were (i) lack of segregation of duties, (ii) lack of sufficient resources with SEC, generally accepted accounting principles (GAAP) and tax accounting expertise; and (iii) inadequate security over information technology. These control deficiencies resulted in audit adjustments to the Company’s 2007 annual financial statements. Accordingly, management has determined that these control deficiencies constitute material weaknesses.
Because of these material weaknesses, management concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2007, this report does not include an attestation report of our registered public accounting firm regarding our internal controls over financial reporting.
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The auditors did not test the effectiveness of nor relied on the internal controls of the Company for the fiscal quarter ended June 30, 2008.
(b) Changes in internal controls over financial reporting.
The Company is in the process of correcting the internal control deficiencies through ongoing remediation efforts. However, these efforts individually and in the aggregate may not be sufficient to fully eliminate the weakness that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
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None.
None.
During the period of May through August of 2007, the Company borrowed $2,555,000 from various individuals payable on June 1, 2008 (the “Maturity Date”) at an annual interest rate of 13% (the “Notes”). In the event that the Company does not undertake a new offering of debt or equity securities, or securities convertible into debt or equity securities, in the amount of no less than $6.0 million prior to the Maturity Date, the Notes shall be extended an additional year; however, the Notes shall bear interest at a rate of 15% per annum and payable quarterly. As of August 19, 2008, $79,950 is currently past due.
None.
None.
Exhibits required to be attached by Item 601 of Regulation S-B are listed in the Index to Exhibits on page 32 this Form 10-Q, and are incorporated herein by this reference.
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In accordance with the requirements of the Securities Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, hereunto duly authorized, this 19th day of August 2008.
Sibling Entertainment Group Holdings, Inc.
August 19, 2008
/s/ Mitchell Maxwell
Mitchell Maxwell
Chief Executive Officer
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Exhibit No. | Page No. | Description | ||
| 31.1 | Attached | Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 31.2 | Attached | Certification of the Chief financial Offer pursuant to Rule 13aq-14 of the Securities and Exchange Act of 1934 as amended as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 32.1 | Attached | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 32.2 | Attached | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* Incorporated from prior filings made with the Securities and Exchange Commission.
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