EX-99.2 32 v084285_ex99-2.htm
 

 

SONA DEVELOPMENT CORP.
(A Development Stage Company)

FINANCIAL STATEMENTS

DECEMBER 31, 2006

 
 
 

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

BALANCE SHEETS

STATEMENTS OF OPERATIONS

STATEMENT OF STOCKHOLDERS’ DEFICIT
 
STATEMENTS OF CASH FLOWS

NOTES TO FINANCIAL STATEMENTS

 
16
 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Stockholders and Board of Directors of Sona Development Corp.:

We have audited the accompanying balance sheets of Sona Development Corp. (the “Company”) (a development stage company) as at December 31, 2006 and 2005 and the statements of operations, stockholders’ deficit, and cash flows for the years then ended and the cumulative period from December 28, 1988 (inception) to December 31, 2006. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements for the period from December 28, 1998 (inception) to December 31, 2002 were reported on by other auditors and reflect a total net loss of $1,607,837 of the related cumulative totals. The other auditors’ reports have been furnished to us, and our opinion, insofar as it relates to amounts included for such prior periods, is based solely on the reports of such other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2006 and 2005 and the results of its operations and its cash flows and the changes in stockholders’ deficit for the years then ended and for the period from December 28, 1998 (inception) to December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has no revenue or cash flow from operations and its liabilities exceed its assets. Since the Company’s incorporation it has incurred an accumulated deficit of $3,095,229 as of December 31, 2006. The Company also had a working capital deficiency of $233,128 as of December 31, 2006. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


“DMCL”

DALE MATHESON CARR-HILTON LABONTE LLP
CHARTERED ACCOUNTANTS
March 22, 2007
Vancouver, Canada

 
17
 
 
SONA DEVELOPMENT CORP.
(A Development Stage Company)
 
BALANCE SHEETS

   
2006
  
2005
  
     
$ 
  
 
$
  
ASSETS
              
CURRENT
              
Cash
    
345
    
28,644
  
     
345
    
28,644
  
INVESTMENT (Note 7)
    
1
    
1
  
     
346
    
28,645
  
LIABILITIES AND STOCKHOLDERS' (EQUITY) DEFICIT
              
CURRENT
              
Accounts payable and accrued liabilities
    
17,900
    
6,371
  
Amounts due to a related party (Note 3)
    
215,572
    
16,691
  
     
233,472
    
23,062
  
COMMITMENTS (Note 8)
              
               
STOCKHOLDERS' DEFICIT
              
Capital Stock (Note 5)
              
Authorized
              
100,000,000 common shares with par value of $0.0001
              
Issued and outstanding
              
11,976,705 common shares
              
(December 31, 2005 - 11,250,705)
    
1,197
    
1,124
  
Additional paid-in capital
    
2,860,905
    
2,567,078
  
Deficit accumulated during the development stage
    
(3,095,229
)
  
(2,562,619
)
     
(233,127
)
  
5,583
  
     
346
    
28,645
  
 
The accompanying notes are an integral part of these financial statements.
 
18
 
SONA DEVELOPMENT CORP.
(A Development Stage Company)
 
STATEMENTS OF OPERATIONS
 

 
 
December 31,
 
Cumulative
Amounts From
December 28,1988
(inception
to December 31, 
  
   
2006
  
2005
  
 2006
  
   
$ 
  
$ 
   $   
               
General and administrative costs
    
482,610
    
182,256
    
2,598,230
  
Recovery of consulting fees
    
-
    
-
    
(45,000
)
     
(482,610
)
  
(182,256
)
  
(2,553,230
)
Interest income
    
-
    
-
    
2,047
  
Gain on forgiveness of debt
    
-
    
-
    
8,000
  
Write down of promissory notes (Note 7)
    
(50,000
)
  
(225,000
)
  
(552,046
)
                     
 Net loss for the year
    
(532,610
)
  
(407,256
)
  
(3,095,229
)
                     
Loss per common share - basic and diluted
    
(0.05
)
  
(0.04
)
      
                     
Weighted average common shares -
                    
 basic and diluted
    
11,619,576
    
10,106,956
        

The accompanying notes are an integral part of these financial statements.
 
19
 
SONA DEVELOPMENT CORP.
(A Development Stage Company)
 
STATEMENTS OF CASH FLOWS
December 28, 1988 ( Inception) to December 31, 2006

 
 
December 31,
  
Cumulative Amounts From December 28, 1988 (inception) to December 31, 
  
   
2006
  
2005
  
 2006
  
OPERATING
  
 $
  
 $
  
 $
  
               
 Net loss for the year
    
(532,610
)
  
(407,256
)
  
(3,095,229
)
 Items not involving an outlay of cash
                    
 Common stock issued for consulting fees
    
106,400
    
25,000
    
853,400
  
 Common stock issued for services
    
-
    
-
    
70,830
  
 Common stock issued for finance costs
    
187,500
    
-
    
187,500
  
 Common stock issued for organization costs
    
-
    
-
    
33
  
 Common stock issued for other services
    
-
    
-
    
79,903
  
 Gain on forgiveness of debt
    
-
    
-
    
(8,000
)
 Write down of promissory notes
    
50,000
    
225,000
    
552,047
  
 Changes in non-cash working capital items
                    
 Prepaid expenses
    
-
    
3,000
    
-
  
 Accounts payable and accrued liabilities
    
11,530
    
(30,539
)
  
449,995
  
 Accrued and unpaid fees to related parties
    
51,882
    
-
    
51,882
  
     
(125,299
)
  
(184,795
)
  
(857,640
)
INVESTING
                    
 Promissory notes
    
(50,000
)
  
(225,000
)
  
(550,000
)
 Loan to Smart Card Technologies Co. Ltd.
    
-
    
-
    
(600,000
)
     
(50,000
)
  
(225,000
)
  
(1,150,000
)
FINANCING
                    
 Advances from a related party
    
147,000
    
18,150
    
567,118
  
 Loans payable
    
-
    
-
    
680,000
  
 Common stock issued for cash
    
-
    
355,000
    
760,867
  
     
147,000
    
373,150
    
2,007,985
  
NET INCREASE (DECREASE) IN CASH
    
(28,299
)
  
24,433
    
345
  
CASH, BEGINNING OF YEAR
    
28,644
    
4,211
    
-
  
                     
CASH, END OF YEAR
    
345
    
28,644
    
345
  
                     
SUPPLEMENTAL CASH FLOW INFORMATION (Note 5)
                    

 
The accompanying notes are an integral part of these financial statements.
 
20

 
SONA DEVELOPMENT CORP.
(A Developmental Stage Company)
 
STATEMENT OF STOCKHOLDERS' EQUITY
December 28, 1988 ( Inception) to December 31, 2006

                   
Deficit
      
                   
Accumulated
      
           
Additional
      
During the
      
   
Common Stock
  
Paid-in
  
Stock
  
Development
      
   
Shares
  
Amount
  
Capital
  
Subscriptions
  
Stage
  
Total
  
       
 $ 
  
 $ 
  
 $ 
  
 $ 
  
 $ 
  
                           
Balance at December 28, 1998
(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
)
                                       
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
)
                                       
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
)
 
 
The accompanying notes are an integral part of these financial statements.
21

SONA DEVELOPMENT CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

Note 1 - Nature of Operations and Basis of Presentation

(a) Organization

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 for sale in the United States market and it was dormant until its reactivation in March 1997. In June 1997, the Company changed its name to Net Master Consultants, Inc. 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 8. The Company is considered a development stage company in accordance with Statement of Financial Accounting Standards (SFAS) No. 7.

(b) Going Concern

The financial statements have been prepared on the basis of a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated any revenues or completed development of any commercially acceptable products or services to date, has a working capital deficiency of $233,127 at December 31, 2006 and has incurred losses of $3,095,229 since inception, and further significant losses are expected to be incurred in the Company’s development stage. The Company will depend almost exclusively on outside capital through the issuance of common shares, and advances from related parties to finance ongoing operating losses. The ability of the Company to continue as a going concern is dependent on raising additional capital and ultimately on generating future profitable operations. There can be no assurance that the Company will be able to raise the necessary funds when needed to finance its ongoing costs. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The accompanying financial statements do not include any adjustments relative to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

22
 
SONA DEVELOPMENT CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
 
Note 2 - Summary of Significant Accounting Policies

(a) Use of Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles 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) Foreign Currency Translation

The Company considers the U.S. dollar its functional currency. Monetary assets and liabilities resulting from foreign currency transactions are translated into U.S. dollar equivalents using the year end conversion rates. Revenues, expenses, receipts and payments are translated throughout the year at exchange rates prevailing at the date of the transaction. Exchange gains and losses are included in the loss for the year.

(c) Income Taxes

The Company follows the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis (temporary differences). The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

(d) 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 and amounts due to related parties approximate fair values due to the short-term maturity of the instruments.

23
 
SONA DEVELOPMENT CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

Note 2 - Summary of Significant Accounting Policies (continued)

(e) 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. As the Company did not grant any stock options in 2005, no pro forma information is provided.

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.

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.

24
 
SONA DEVELOPMENT CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

Note 2 - Summary of Significant Accounting Policies (continued)

(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 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140”, to simplify and make more consistent the accounting for certain financial instruments. SFAS No. 155 amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, to permit fair value remeasurement for any hybrid financial instrument with an embedded derivative that otherwise would require bifurcation, provided that the whole instrument is accounted for on a fair value basis. SFAS No. 155 amends SFAS No. 140, “Accounting for the Impairment or Disposal of Long-Lived Assets”, to allow a qualifying special-purpose entity to hold a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 applies to all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006, with earlier application allowed. This standard is not expected to have a significant effect on the Company’s future reported financial position or results of operations.

In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". This statement requires all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable, and permits for subsequent measurement using either fair value measurement with changes in fair value reflected in earnings or the amortization and impairment requirements of Statement No. 140. The subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value eliminates the necessity for entities that manage the risks inherent in servicing assets and servicing liabilities with derivatives to qualify for hedge accounting treatment and eliminates the characterization of declines in fair value as impairments or direct write-downs. SFAS No. 156 is effective for an entity's first fiscal year beginning after September 15, 2006. This adoption of this statement is not expected to have a significant effect on the Company’s future reported financial position or results of operations.

25
 
SONA DEVELOPMENT CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

Note 2 - Summary of Significant Accounting Policies (continued)

(g) Recent Accounting Pronouncements (continued)

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” This Statement requires an employer to recognize the over funded or under funded status of a defined benefit post retirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position, and to recognize changes in that funded status in the year in which the changes occur through comprehensive income.  SFAS No. 158 is effective for fiscal years ending after December 15, 2006. The Company does not expect that the implementation of SFAS No. 158 will have any material impact on its financial position and results of operations.

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 Company is currently evaluating the impact of SFAS No. 157 but does not expect that it will have a material impact on its financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB No. 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB No. 108 requires companies to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. SAB No. 108 is effective for periods ending after November 15, 2006. The Company is currently evaluating the impact of adopting SAB No. 108 but does not expect that it will have a material effect on its 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 Company is currently assessing the impact of SFAS No. 159 on its financial position and results of operations.

26
 
SONA DEVELOPMENT CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

Note 3 - Due to Related Parties

Related party payables consist of the following:
 
   
December 31,
 
   
2006
  
2005
  
           
Due to a significant shareholder (a)
  
$
199,572
 
$
11,691
 
Unsecured payable to a shareholder with no specific
terms and due on demand (b)
    
16,000
   
5,000
 
               
   
$
215,572
  
$
16,691
  

The following represents related party transactions paid or accrued during the years ended December 31, 2006 and 2005.
 
   
2006
  
2005
  
Consulting fees paid or accrued to a director (c)
  
$
110,500
  
$
72,949
  
               
Consulting fees paid or accrued to a significant shareholder (a)
    
60,900
   
42,000
 
               
Rent paid or accrued to a shareholder (b)
    
12,000
   
8,000
 
               
   
$
183,400
  
$
122,949
  

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. Refer to Note 7.

(a) The amounts due to related parties at December 31, 2006 of $199,572 significant (2005 - $11,691) are due to a significant shareholder for cash loans, consulting fees and reimbursable expenses. The Company is indebted to this significant shareholder for cash loans of $147,000 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 December 31, 2006, the Company had accrued $8,526 of interest on the loans. The loans are unsecured and due on demand. The Company has also issued 450,000 restricted common shares to the lender as additional consideration for the loans. These shares were valued at $187,500. 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.
 
At December 31, 2006, the Company was also indebted $44,046 to this significant shareholder for consulting fees and reimbursable expenses. This additional debt bears no interest and has no set term of repayment. (Refer to Note 9)

27
 
SONA DEVELOPMENT CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

Note 3 - Due to Related Parties (continued)

On May 30, 2006, the Company issued 126,000 shares of common stock in settlement of $50,400 of consulting fees due to this significant shareholder.
 
(b) In May of 2005, the Company entered into an agreement with a shareholder for office rent and expenses at $1,000 per month.

(c) On December 1, 1999, the Company entered into a consulting agreement with the Company’s sole officer and director. The agreement has an automatic renewal provision unless terminated by either party. In fiscal 2006, the Company incurred $110,500 (2005 - $72,949) in consulting fees to this director, of which $56,000 was paid by issuance of common stock.

(d) See Note 5 for additional related party transactions.

Note 4 - Income Taxes

The Company accounts for its income taxes in accordance with FASB No. 109, “Accounting for Income Taxes.” As of December 31, 2006, 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 carryforwards.

Note 5 - 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

On September 15, 2006, the Company issued 300,000 shares of common stock with a fair value of $135,000 to a shareholder as partial consideration for bridge financing.

On May 30, 2006, the Company issued 126,000 shares of common stock with a fair value of $31,500 to a shareholder for consulting fees.
 
On May 30, 2006, the Company issued 50,000 shares of common stock with a fair value of $20,000 to a director for consulting fees.
 
28
 
SONA DEVELOPMENT CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
 
On May 8, 2006, the Company issued 100,000 shares of common stock with a fair value of $36,000 to a director for consulting fees.

Note 5 - Capital Stock (continued)

(b) Stock issuances (continued)

On February 17, 2006, the Company issued 150,000 shares of common stock with a fair value of $52,500 to a shareholder as partial consideration for $50,000 in bridge financing from the shareholder.

On December 15, 2005, the Company issued 50,000 shares of common stock with a fair value of $25,000 to a director for consulting fees.

On October 19, 2005, the Company issued 1,025,680 shares of common stock in settlement of $102,568 of debt.

During 2005, the Company issued 914,288 shares of its common stock at $0.35 per share for proceeds of $320,000.

On April 5, 2005, 122,000 shares of common stock were issued to a significant shareholder in settlement of $12,200 of debt.

Note 6 - Supplemental Cash Flow Information

Actual amounts paid for interest and income taxes for 2006 and 2005 are as follows:
 
   
2006
  
2005
  
Interest
  
$
-
  
$
-
  
               
Income taxes
    
-
    
-
  
 
During the year ended December 31, 2006, the Company issued:

(a) 126,000 shares of common stock with a fair value of $31,500 to a shareholder for consulting fees.

(b) 150,000 shares of common stock with a fair value of $56,000 to a director for consulting fees.

(c) 450,000 shares of common stock with a fair value of $187,500 to a shareholder as partial consideration for bridge financing.

During the year ended December 31, 2005, the Company issued:
 
29
 
SONA DEVELOPMENT CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

(a) 1,147,680 common stock for settlement of $114,768 of debt.

(b) 50,000 common stock for consulting services valued at $25,000.

Note 7 - Investment

Proposed Idea One Merger
On May 20, 2004, as amended November 1 and 19, 2004, December 28, 2004, March 22, 2005, April 22, 2005, July 15, 2005, and November 14, 2005, the Company entered into a letter of intent, to merge with Idea One, 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 a total of $550,000 through a series of convertible promissory notes. Interest of $2,046 was accrued on these notes during 2004 however the Company did not continue to accrue interest beyond December 31, 2004, and the notes were written down to $1 as of December 31, 2005 because management determined they were not collectible.

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, in full satisfaction of the loan receivable. The Idea One shares were received in the second quarter of 2006. As of December 31, 2006, these shares are recorded at $1.

Note 8 - Proposed Merger with Sibling

On June 28, 2006 as amended December 15, 2006, the Company executed a definitive agreement of acquisition and plan of reorganization (the "Agreement") with Sibling Entertainment Group, Inc. ("Sibling"), an entertainment development and production company based in New York City. Under the terms of the Agreement, which is subject to shareholder approval, the Company is to acquire each of Sibling's four wholly owned subsidiaries: Sibling Theatricals, Inc., Sibling Pictures, Inc., Sibling Music Corp., Sibling Properties, Inc. 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 Agreement anticipates a share exchange pursuant to which the Company will issue up to 36,190,085 shares of common stock for all the issued and outstanding shares of the Sibling subsidiaries on the closing date. The Company will further grant 22,865,324 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.

On February 9, 2007, the expected closing date of the Agreement, the shareholders approved the Agreement and name change. The closing of the Agreement remains subject to the applicable registration requirements of the Securities Exchanges Act of 1934, as amended, specifically the filing and effectiveness of an S-4 registration statement to be filed with the SEC. Based upon the requirement to file an S-4 registration statement, the Company may change the structure of the transaction with Sibling.
 
30
 
SONA DEVELOPMENT CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

Note 9 - Subsequent Events
 
Subsequent to year-end, the Company issued 1,097,361 shares to a significant shareholder in settlement of an outstanding balance of $219,472 for cash loans, accrued interest, reimbursable expenses and consulting fees. The amount of $199,572 was due to this shareholder at December 31, 2006 (Note 3a). The balance due to this shareholder increased in 2007 for cash loans of $16,400 and consulting fees of $3,500.