UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
o | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
x | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromAugust 1, 2014 to October 22, 2014
Commission File Number:333-191175
Knowledge Machine International, Inc.
(Exact name of registrant as specified in its charter)
Nevada | 90-0925768 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
14 Hayward Brook Drive, Concord, NH | 03301 |
(Address of principal executive offices) | (Zip Code) |
(603) 717 - 6279 | |
(Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filero | Accelerated filero |
Non-accelerated filero | Smaller reporting companyx |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Nox
The number of shares outstanding of the registrant’s common stock on December 8, 2014, was 47,625,000.
TABLE OF CONTENTS
Page
PART I – FINANCIAL INFORMATION | 3 |
Item 1. Financial Statements | 3 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 26 |
Item 4. Controls and Procedures | 26 |
PART II – OTHER INFORMATION | 27 |
Item 1A. Risk Factors | 27 |
Item 5. Other Information | 27 |
Item 6. Exhibits | 27 |
SIGNATURES | 28 |
2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Songbird Development Inc.
Balance Sheets
October 22, 2014 and July 31, 2014
October 22, 2014 | July 31, 2014 | |||||||
(Unaudited) | (Audited) | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 9,971 | $ | 9,966 | ||||
Total Current Assets | 9,971 | 9,966 | ||||||
Fixed Assets | ||||||||
Buildings and Land | 14,000 | 14,000 | ||||||
Vehicles | 8,300 | 8,300 | ||||||
Total Fixed Assets | 22,300 | 22,300 | ||||||
TOTAL ASSETS | $ | 32,271 | $ | 32,266 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
Loan Payable - Related Party | $ | 14,995 | $ | 14,200 | ||||
Total Current Liabilities | 14,995 | 14,200 | ||||||
TOTAL LIABILITIES | 14,995 | 14,200 | ||||||
Stockholders' Equity | ||||||||
Preferred Stock, $0.001 par; 5,000,000 shares authorized; | ||||||||
None issued and outstanding | – | – | ||||||
Common Stock, $0.001 par; 70,000,000 shares authorized; | ||||||||
5,000,000 issued and outstanding at October 22, 2014 and July 31, 2014 | 5,000 | 5,000 | ||||||
Additional Paid-In Capital | 39,000 | 39,000 | ||||||
Deficit accumulated during the development stage | (26,724 | ) | (25,934 | ) | ||||
Total Stockholders' Equity | 17,276 | 18,066 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 32,271 | $ | 32,266 |
The accompanying notes are an integral part of these financial statements.
3 |
Songbird Development Inc.
Statements of Operations
Period Ended October 22, 2014 and Three Months Ended October 31, 2013
(Unaudited)
Period August 1, 2014 | Three Months Ended | |||||||
to October 22, 2014 | October 31, 2013 | |||||||
REVENUE | $ | 7,600 | $ | 45,830 | ||||
COST OF GOODS SOLD | ||||||||
Cutlery Set Purchases | 6,365 | 15,900 | ||||||
Sales Commission Paid | 1,200 | 1,500 | ||||||
Total Cost of Goods Sold | 7,565 | 17,400 | ||||||
GROSS PROFIT | 35 | 28,430 | ||||||
OPERATING EXPENSES | ||||||||
General & Administration | 75 | 643 | ||||||
Professional Fees | 750 | 1,067 | ||||||
Total Operating Expenses | 825 | 1,710 | ||||||
Net Income (Loss) | $ | (790 | ) | $ | 26,720 | |||
Loss per Common Share - Basic and Diluted | $ | (0.00 | ) | $ | 0.01 | |||
Weighted Average Number of Shares Outstanding - Basic and Diluted | 5,000,000 | 4,000,000 |
The accompanying notes are an integral part of these financial statements.
4 |
Songbird Development Inc.
Statements of Cash Flows
Period Ended October 22, 2014 and Three Months Ended October 31, 2013
(Unaudited)
Period August 1, 2014 | Three Months Ended | |||||||
to October 22, 2014 | October 31, 2013 | |||||||
OPERATING ACTIVITIES | ||||||||
Net Income (Loss) | $ | (790 | ) | $ | 26,720 | |||
FINANCING ACTIVITIES | ||||||||
Increase in Loan from Related Party | 795 | 2,000 | ||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 795 | 2,000 | ||||||
NET CASH INCREASE (DECREASE) FOR PERIOD | 5 | 28,720 | ||||||
CASH AT BEGINNING OF PERIOD | 9,966 | 489 | ||||||
CASH AT END OF PERIOD | $ | 9,971 | $ | 29,209 | ||||
Supplemental Disclosure for Cash Flow Information | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | – | $ | – | ||||
Income Taxes | $ | – | $ | – | ||||
Supplemental Schedule of Noncash Investing and Financing Activities: | ||||||||
For the period August 1, 2014 to October 22, 2014: None | ||||||||
For the three months ended October 31, 2013: None |
The accompanying notes are an integral part of these financial statements.
5 |
SONGBIRD DEVELOPMENT, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
OCTOBER 22, 2014
NOTE 1 – Organization and Description of Business
Songbird Development Inc. (the “Company”) was incorporated under the laws of the State of Nevada on December 27, 2012. The Company was formed to engage in the development and operation of a business engaged in the distribution of high end cutlery sets produced in China. The Company is in the development stage. Because it was not able to raise sufficient capital to execute its business plan, it is now engaged in discussions with third parties regarding alternative directions for the Company that could enhance shareholder value. Subsequent to the date of these financial statements (see Note 8), the Company entered into a definitive agreement to change its direction.
NOTE 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared by the Company in accordance with Article 8 of U.S. Securities and Exchange Commission Regulation S-X. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at October 22, 2014 and July 31, 2014 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. Management suggests these condensed financial statements be read in conjunction with the July 31, 2014 audited financial statements and notes thereto included in the Company’s Form 10-K. The results of operations for the periods ended October 22, 2014 and October 31, 2013 are not necessarily indicative of the operating results for the full year.
Basis of Accounting
The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a July 31 year end.
Basic Earnings (loss) Per Share
ASC No. 260, “Earnings Per Share”, specifies the computation, presentation and disclosure requirements for earnings (loss) per share for entities with publicly held common stock. The Company has adopted the provisions of ASC No. 260.
Basic net earnings (loss) per share amounts are computed by dividing the net earnings (loss) by the weighted average number of common shares outstanding. Diluted earnings (loss) per share are the same as basic earnings (loss) per share due to the lack of dilutive items in the Company.
Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. In accordance with ASC No. 250 all adjustments are normal and recurring.
6 |
Income Taxes
Income taxes are provided in accordance with ASC No. 740, Accounting for Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry-forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Property, Plant and Equipment
The Company accounts for its long-lived assets in accordance with Accounting Standards Codification (“ASC”) Topic 360. Property, plant and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and improvements are capitalized. As property and equipment are sold or retired, the applicable cost and accumulated depreciation are removed from the accounts and any resulting gain or loss thereon is recognized as operating expenses.
Depreciation is calculated after the asset is placed in service using the straight-line method over the estimated useful lives or, in the case of leasehold improvements, the term of the related lease, including renewal periods, if shorter. Estimated useful lives are as follows:
Buildings 40 years
Equipment 5-15 years
The Company reviews property, plant and equipment and all amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Recoverability is based on estimated undiscounted cash flows. Measurement of the impairment loss, if any, is based on the difference between the carrying value and fair value.
Impairment of Long-Lived Assets
The Company accounts for its long-lived assets in accordance with Accounting Standards Codification (“ASC”) Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company annually assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. The Company determined that none of its long-term assets at October 22, 2014 or July 31, 2014 were impaired.
Revenue
The Company records revenue on the accrual basis when all goods and services have been performed and delivered, the amounts are readily determinable, and collection is reasonably assured.
Advertising
The Company expenses its advertising when incurred.
7 |
NOTE 3 – Recent Accounting Pronouncements
The Company has early adopted the provisions of ASU No. 2014-10 “Development Stage Entities” which generally removes the requirements for added disclosures about development stage activities.
The Company has evaluated all the recent accounting pronouncements through the date the financial statements were issued and filed with the Securities and Exchange Commission and believe that none of them will have a material effect on the Company’s financial statements.
NOTE 4 – Going Concern
The accompanying financial statements are presented on a going concern basis. The Company had ongoing operations during the period from December 27, 2012 (date of inception) to October 22, 2014 with a net loss of $26,724. There is no guarantee that the Company will continue to generate revenues. This condition raises substantial doubt about the Company’s ability to continue as a going concern. The Company is currently in the development stage, management believes that the Company’s acquisition plans as described in Note 8 are sufficient to cover the expenses they will incur during the next twelve months.
NOTE 5 – Related Party Transactions
The sole officer and director of the Company may, in the future, become involved in other business opportunities as they become available. He may face a conflict in selecting between the Company and those other business opportunities. The Company has not formulated a policy for the resolution of such conflicts.
As of October 22, 2014 and July 31, 2014, $14,995 and $14,200, respectively, are owed to the Company’s sole officer and director from funds he loaned the Company. The loan is non-interest bearing with no specific repayment terms. He is also the person transacting the Company’s current operations and controls the Company’s cash balances.
As further disclosed in Note 8, on October 22, 2014, in connection with an acquisition of Knowledge Machine, Inc., all of the Company’s operations, assets and liabilities were transferred to the Company’s sole officer and director for the return and cancellation of 1,535,284 shares of common stock.
NOTE 6 – Stock Transactions
On July 10, 2013, the Company offered and sold to its sole officer and director a total of 4,000,000 shares of common stock for a purchase price of $0.001 per share, for aggregate proceeds of $4,000.
During the year ended July 31, 2014, the Company sold 1,000,000 shares of common stock to 35 independent shareholders. The shares were sold at a price of $0.04 each for total proceeds of $40,000. The Offering was closed on February 21, 2014 and the certificates were delivered on April 15, 2014.
As of October 22, 2014 and July 31, 2014, the Company had 5,000,000 shares of common stock issued and outstanding.
NOTE 7 – Stockholders’ Equity
The stockholders’ equity section of the Company contains the following classes of capital stock as of October 22, 2014 and July 31, 2014:
Preferred stock, $0.001 par value: 5,000,000 shares authorized; zero issued and outstanding as of October 22, 2014 and July 31, 2014.
Common stock, $0.001 par value: 70,000,000 shares authorized; 5,000,000 shares issued and outstanding as of October 22, 2014 and July 31, 2014
8 |
NOTE 8 – Subsequent Events
The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued and determined there are no items to disclose, except as noted below.
On October 22, 2014, the Company entered into a contract with and completed the acquisition of Knowledge Machine, Inc., a Nevada corporation, in a stock-for-stock exchange in which the Company issued 37,625,000 shares of its common stock on a pro rata basis to the shareholders of Knowledge Machine in return of all of the outstanding shares of Knowledge Machine (the “Reorganization Agreement”). Knowledge Machine also entered into a Stock Purchase Agreement (the “SPA”) with the sole officer, director and principal shareholder of the Company at the time, to acquire 2,464,716 shares of restricted stock held by him for $35,800. Following the closing of the Reorganization Agreement and the SPA, the Company sold the assets relating to the prior business of the Company to the former principal executive officer in return of 1,535,284 shares owned by him pursuant to an Asset Purchase Agreement (the “APA”). In addition, Knowledge Machine advanced $14,200 to the Company to repay outstanding prior cash advances made by a former officer to the Company.
At the closing of the Reorganization Agreement, new management was appointed. Thereafter, in connection with the closing of the SPA and the APA, the 4,000,000 restricted shares of common stock purchased by Knowledge Machine and the Company from the former principal shareholder in the above transactions were cancelled and returned the authorized but unissued common stock of the Company.
In connection with the closing of the Reorganization Agreement, the board of directors approved a one-for-ten forward stock split of the pre-closing outstanding shares and a change of the Company’s name to “Knowledge Machine International, Inc.” The stock split and name change were effective on November 10, 2014.
The Company has changed its year end to June 30th.
9 |
Knowledge Machine, Inc.
Balance Sheets
September 30, 2014 and June 30, 2014
September 30, 2014 | June 30, 2014 | |||||||
(Unaudited) | (Audited) | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 222,841 | $ | 461,285 | ||||
Total Current Assets | 222,841 | 461,285 | ||||||
Other Assets | ||||||||
Cash in Escrow | 50,700 | 50,000 | ||||||
Deferred Stock Offering Costs | 14,919 | – | ||||||
License Agreement Option | 25,000 | – | ||||||
License Agreement Deposit | 50,000 | – | ||||||
Total Other Assets | 140,619 | 50,000 | ||||||
TOTAL ASSETS | $ | 363,460 | $ | 511,285 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts Payable | $ | 9,412 | $ | 20,179 | ||||
Accrued Interest Payable | – | 600 | ||||||
Notes Payable - Convertible | – | 650,000 | ||||||
Due to Allotrope | 100,000 | 100,000 | ||||||
Total Current Liabilities | 109,412 | 770,779 | ||||||
TOTAL LIABILITIES | 109,412 | 770,779 | ||||||
Stockholders' Equity (Deficit) | ||||||||
Preferred Stock, $0.001 par; 1,000,000 shares authorized; | ||||||||
None issued and outstanding | – | – | ||||||
Common Stock, $0.001 par; 200,000,000 shares authorized; | ||||||||
37,625,000 issued and 33,040,666 outstanding at September 30, 2014 | ||||||||
34,000,000 issued and 26,331,999 outstanding at June 30, 2014 | 37,625 | 34,000 | ||||||
Additional Paid-In Capital | 572,125 | – | ||||||
Less Deferred Compensation | ||||||||
4,584,334 and 7,668,001 common shares, respectively | (4,584 | ) | (7,668 | ) | ||||
Retained Earnings (Deficit) | (351,118 | ) | (285,826 | ) | ||||
Total Stockholders' Equity (Deficit) | 254,048 | (259,494 | ) | |||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 363,460 | $ | 511,285 |
The accompanying notes are an integral part of these financial statements.
10 |
Knowledge Machine, Inc.
Statement of Operations
Three Months Ended September 30, 2014
(Unaudited)
REVENUE | $ | – | ||
EXPENSES | ||||
General & Administration | 61,292 | |||
Non-cash Stock Compensation | 3,834 | |||
Total Expenses | 65,126 | |||
OTHER INCOME (EXPENSE) | ||||
Interest Expense | (252 | ) | ||
Interest Income | 86 | |||
Total Other Income (Expense) | (166 | ) | ||
INCOME (LOSS) BEFORE INCOME TAXES | (65,292 | ) | ||
Current Income Tax Expense | – | |||
Deferred Income Tax Expense | – | |||
Net Income (Loss) | $ | (65,292 | ) | |
Loss per Common Share - Basic and Diluted | $ | (0.00 | ) | |
Weighted Average Number of Shares Outstanding - Basic and Diluted | 36,229,620 |
The accompanying notes are an integral part of these financial statements.
11 |
Knowledge Machine, Inc.
Statement of Cash Flows
Three Months Ended September 30, 2014
(Unaudited)
OPERATING ACTIVITIES | ||||
Net Income (Loss) | $ | (65,292 | ) | |
Adjustments to reconcile Net Income (Loss) to Net Cash (used) provided by operations: | ||||
Noncash Expenses: | ||||
Stock Compensation | 3,834 | |||
Change in assets and liabilities: | ||||
(Increase) in Cash in Escrow | (700 | ) | ||
Increase in Accounts Payable | (10,767 | ) | ||
Increase in Accrued Interest | (600 | ) | ||
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES | (73,525 | ) | ||
INVESTING ACTIVITIES | ||||
Purchase of Option of License Agreement with Score | (25,000 | ) | ||
Deposit towards License Agreement with Score | (50,000 | ) | ||
NET CASH (USED) BY INVESTING ACTIVITIES | (75,000 | ) | ||
FINANCING ACTIVITIES | ||||
Repayment of Notes Payable | (75,000 | ) | ||
Increase in Deferred Stock Offering Costs | (14,919 | ) | ||
NET CASH PROVIDED BY FINANCING ACTIVITIES | (89,919 | ) | ||
NET CASH INCREASE (DECREASE) FOR PERIOD | (238,444 | ) | ||
CASH AT BEGINNING OF PERIOD | 461,285 | |||
CASH AT END OF PERIOD | $ | 222,841 | ||
Supplemental Disclosure for Cash Flow Information | ||||
Cash paid during the period for: | ||||
Interest | $ | 852 | ||
Income Taxes | $ | – |
Supplemental Schedule of Noncash Investing and Financing Activities: | ||||
For the three months ended September 30, 2014 | ||||
Of $650,000 in notes payable, $75,000 was repaid and $575,000 was converted to 2,875,000 shares of capital stock. | ||||
1,000,000 shares issued to a Director at $0.001 per share. Of these, 250,000 vested during the period and 750,000 are unvested. | ||||
250,000 shares previously issued for Board Services at $0.001 per share were cancelled during the period. |
The accompanying notes are an integral part of these financial statements.
12 |
KNOWLEDGE MACHINE, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014
NOTE 1 – Summary of Significant Accounting Policies
Nature of Business –Knowledge Machine, Inc. is a Nevada corporation (the “Company”), incorporated December 12, 2013.
The Company is a technology company which intends to focus on new technologies, acquiring licensing rights to those technologies, and marketing its licensed technology. The Company seeks to create a portfolio of technologies to change the method of technology transfer and technology startups involving licensing of intellectual property. The Company intends to introduce tools and processes that management believes would remove various biases, blind spots, and cultural pathologies and make commercialization of technology a more systematic and process-driven approach. The Company intends to acquire intellectual property and marketing and sales rights to these technologies and then develop these companies through partnership or joint venture arrangements. Additionally, the Company’s Science Advisory Board is intended to help mitigate technical, market, and financial risks of these companies.
Basis of Presentation – The accompanying financial statements have been prepared by the Company in accordance with Article 8 of U.S. Securities and Exchange Commission Regulation S-X. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at September 30, 2014 and June 30, 2014 and for the three months ended September 30, 2014 have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. Management suggests these condensed financial statements be read in conjunction with the June 30, 2014 audited financial statements and notes thereto. The results of operations for the period ended September 30, 2014 are not necessarily indicative of the operating results for the full year.
Property and Equipment –Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized upon being placed in service. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated life has been determined to be three years unless a unique circumstance exists, which is then fully documented as an exception to the policy.
Fair Value of Financial Instruments – The Company accounts for fair value measurements in accordance with accounting standard ASC 820-10-50, “Fair Value Measurements.” This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.
The Company’s financial instruments consist of cash, payables, and notes payable. The carrying amount of cash and payables approximates fair value because of the short-term nature of these items. The carrying amount of notes payable approximates fair value as the individual borrowings bear interest at market interest rates and are also short-term in nature.
13 |
Income Taxes–The Company accounts for income taxes in accordance with ASC Topic No. 740, “Accounting for Income Taxes.”
The Company adopted the provisions of ASC Topic No. 740, “Accounting for Income Taxes,” at the date of inception on December 12, 2013. As a result of the implementation of ASC Topic No. 740, the Company recognized no increase in the liability for unrecognized tax benefits.
The Company has no tax positions at September 30, 2014 and June 30, 2014 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the period ended September 30, 2014, the Company recognized no interest and penalties. The Company had no accruals for interest and penalties at June 30, 2014 or September 30, 2014. All tax years starting with 2013 are open for examination.
Stock Based Compensation – The Company recognizes compensation costs to employees under ASC Topic No. 718, “Compensation – Stock Compensation.” Under ASC Topic No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share based compensation arrangements include stock options, restricted share plans, performance based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.
Equity instruments issued to other than employees are recorded on the basis of the fair value of the instruments, as required by ASC Topic No. 505, “Equity Based Payments to Non-Employees.” In general, the measurement date is when either (a) a performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the FASB Accounting Standards Codification.
Loss Per Share –The computation of loss per share is based on the weighted average number of shares outstanding during the period in accordance with ASC Topic No. 260, “Earnings Per Share.”
Accounts Receivable and Allowance for Doubtful Accounts – Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts. The Company determines the allowance for doubtful accounts by identifying potential troubled accounts and by using historical experience and future expectations applied to an aging of accounts. Trade accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded as income when received. The allowance for doubtful accounts at September 30, 2014 and June 30, 2014 was $0 and $0 respectively.
Long-Lived and Intangible Assets –Long-lived assets and certain identifiable definite life intangibles to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows and the estimated liquidation value of such long-lived assets, and provides for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the long-lived assets. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.
Recently Enacted Accounting Standards – The FASB established the Accounting Standards Codification (“Codification” or “ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) issued under authority of federal securities laws are also sources of GAAP for SEC registrants.
14 |
Recent Accounting Standards Updates (“ASU”) through ASU No. 2014-16 contain technical corrections to existing guidance or affect guidance to specialized industries. These updates have no current applicability to the Company or their effect on the financial statements would not have been significant. The Company has early adopted the provisions of ASU No. 2014-10 “Development Stage Entities” which generally removes the requirements for added disclosures about development stage activities.
Cash Equivalents - The Company considers all highly liquid investments with a maturity of three months or less at date of purchase to be cash equivalents.
Concentration of Credit Risk – The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
Organization Expenditures – Organizational expenditures are expensed as incurred for Securities Exchange Commission (SEC) filings, but capitalized and amortized for income tax purposes.
Cost Method Investments – These are investments in equity securities having no readily determinable fair value (i.e. the shares are not publicly traded), and where the equity method (i.e. 20% or greater ownership) or consolidation method (i.e. greater than 50% ownership or if the Company has significant influence over the operating and financial policies of the investee company) do not apply.
These long-term investments are carried at cost until disposed of or until written down due to impairment. Impairment is tested annually at the individual security level (or more often if an event or changes in circumstances has occurred that may have a significant adverse effect on the fair value of the investment). An investment is deemed impaired when its fair value is less than its book carrying value. During the period ended September 30, 2014, no impairment losses were recorded.
Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated by management.
Revenue Recognition – The Company’s revenue is derived primarily from providing services under contractual agreements. The Company recognizes revenue in accordance with ASC Topic No. 605 based on the following criteria: Persuasive evidence of an arrangement exists, services have been rendered, the price is fixed or determinable, and collectability is reasonably assured.
Deferred Stock Offering Costs – Costs related to proposed stock offerings are deferred and will be offset against the proceeds of the offering in additional paid in capital. In the event a stock offering is unsuccessful, the costs related to the offering will be written off directly to expense.
NOTE 2 – Going Concern
The Company was only recently formed and has not yet achieved profitable operations. The ability of the Company to continue as a going concern is dependent on expanding income opportunities. Management anticipates that future contracts will allow the Company to achieve profitable operations. There is no assurance that the Company will be successful in raising additional capital or in achieving profitable operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
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NOTE 3 – Cost Method Investments
Allotrope Sciences Corporation
In June 2014, the Company entered into a Stock Purchase Agreement with Allotrope Sciences Corporation, a Delaware corporation, to purchase 12% of the total number of shares of Allotrope’s common stock for $150,000. Three payments of $50,000 each were due within 10, 30 and 90 business days of the signing of the agreement on June 23, 2014. The first payment of $50,000 was made prior to June 30, 2014. The two remaining payments totaling $100,000 are included as a liability on the Company’s balance sheet at September 30, 2014. On October 14, 2014, the Company and Allotrope rescinded the original agreement and are in the process of renegotiating the transaction, with the intent that the $50,000 would be used towards future joint venture activities. The investment in Allotrope is carried on the cost method. An impairment loss of $150,000 was recorded during the period ending June 30, 2014 because the Company was unable to determine a fair market value of the investment.
Score Technologies, Inc.
On July 8, 2014, the Company entered into an agreement with Score Technologies, Inc. for the purchase of 100,000 shares of stock in consideration of $50,000. On August 4, 2014, the agreement was subsequently cancelled and rescinded retroactively. The $50,000 payment made pursuant to the agreement is being held as a deposit towards partial payment on any future license agreements entered into between the Company and Score. In addition, on July 2, 2014, the Company entered into an option agreement with Score wherein the Company paid a total of $25,000 for the option of entering into a license agreement.
NOTE 4 – Stockholders’ Equity
Common Stock
The Company has authorized 200,000,000 shares of common stock, $.001 par value.
In February, March and April 2014, the Company issued 22,500,000 shares to officers and investors for cash of $22,500, or $0.001 per share.
On April 22, 2014, the Company issued 11,500,000 shares of the Company’s common stock to the Company’s Science Advisory Board members as noncash compensation for services to be rendered valued at $11,500 or $0.001 per share. Of these shares, 3,831,999 (valued at $3,832) vested during the period ended June 30, 2014 and 7,668,001 (valued at $7,668) remain unvested and are reflected as deferred compensation as of June 30, 2014. On August 13, 2014, 250,000 shares previously issued to a Science Advisory Board member were cancelled. The shares were valued at $0.001, or $250. An additional 3,666,667 shares (valued at $3,667) vested during the three months ending September 30, 2014 and 3,834,334 (valued at $3,834) remain unvested and are reflected as deferred compensation as of September 30, 2014.
On July 29, 2014, $575,000 of convertible notes payable were converted to common stock at a rate of five shares of stock per $1.00 (shares valued at $0.20 per share). A total of 2,875,000 shares of common stock were issued as part of the conversions. The shares were recorded at $0.001, or $2,875. The balance of $572,125 was recorded as additional paid in capital.
On August 25, 2014, the Company issued 1,000,000 shares of common stock to a Director. The shares were valued at $0.001, or $1,000. Of these shares, 250,000 (valued at $250) vested during the quarter and 750,000 (valued at $750) remain unvested. 250,000 shares will vest each year on August 25 in 2015, 2016 and 2017 as long as individual remains as a Director of the Company.
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Deferred Compensation
During the period ended June 30, 2014, 11,500,000 shares of common stock were issued to the Company’s Science Advisory Board members at $0.001 per share. The unvested portion of the shares at June 30, 2014 (7,668,001 unvested shares) increased deferred compensation by $7,668. During the three months ending September 30, 2014, 167,000 of the unvested shares were cancelled, and an additional 3,666,667 shares vested. The unvested number of shares at September 30, 2014 is 3,834,334, representing deferred compensation of $3,834.
During the period ended September 30, 2014, 1,000,000 shares of common stock were issued to a Director at $0.001 per share. The unvested portion of the shares at September 30, 2014 (750,000 unvested shares) increased deferred compensation by $750.
As of September 30, 2014, the balance of unvested compensation cost expected to be recognized is $4,584 and is recorded as a reduction of stockholders’ equity. The unvested compensation is expected to be recognized over the weighted average period of approximately 3 years (through August 25, 2017).
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock, $0.001 par value. There were none issued and outstanding at September 30, 2014.
NOTE 5 – Loss Per Share
The following data show the amounts used in computing loss per share and the effect on income and the weighted average number of shares of dilutive potential common stock for the period ended September 30, 2014:
Loss from continuing operations available to common stockholders (numerator) | $ | (65,292 | ) | |
Weighted average number of common shares outstanding used in loss per share during the Period (denominator) | 36,229,620 |
Dilutive loss per share was not presented as the Company had no common equivalent shares for all periods presented that would affect the computation of diluted loss per share or its effect is anti-dilutive.
NOTE 6 – Subsequent Events
The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued and determined there are no items to disclose, except as noted below.
In October 2014, the Company entered into and closed a reverse purchase agreement wherein the shareholders of the Company became the controlling shareholders of a public company, Songbird Development Inc. The Company has assumed the public reporting obligations of the public company.
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SONGBIRD DEVELOPMENT INC.
AND KNOWLEDGE MACHINE, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[Unaudited]
The following unaudited pro forma condensed combined balance sheet aggregates the balance sheet of Songbird Development Inc., a Nevada corporation (the “Company”) as of October 22, 2014 and the balance sheet of Knowledge Machine, Inc., a Nevada corporation (“KMI”) as of September 30, 2014 accounting for the transaction as a reorganization of KMI in a manner similar to a reverse purchase with the issuance of common stock of the Company for all the issued and outstanding shares of KMI and using the assumptions described in the following notes, giving effect to the transaction, as if the transaction had occurred as of the end of the period. The transaction was completed on October 22, 2014.
The following unaudited pro forma condensed combined statement of operations combines the results of operations of the Company for the period August 1, 2014 to October 22, 2014 and the results of operations of KMI for the three months ending September 30, 2014 as if the transaction had occurred at the beginning of the periods.
The pro forma condensed combined financial statements should be read in conjunction with the separate financial statements and related notes thereto of the Company and KMI. These pro forma financial statements are not necessarily indicative of the combined financial position, had the acquisition occurred at the end of the periods indicated above, or the combined results of operations which might have existed for the periods indicated or the results of operations as they may be in the future.
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SONGBIRD DEVELOPMENT INC.
AND KNOWLEDGE MACHINE, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
[Unaudited]
October 22, 2014
ASSETS
Songbird | Knowledge | |||||||||||||||
Development Inc. | Machine, Inc. | Pro Forma | ||||||||||||||
October 22, 2014 | September 30, 2014 | Increase | Pro Forma | |||||||||||||
[Company] | [KMI] | (Decrease) | Combined | |||||||||||||
ASSETS: | ||||||||||||||||
[C] | (9,971 | ) | ||||||||||||||
Cash | $ | 9,971 | $ | 222,841 | [F] | $ | (800 | ) | $ | 222,041 | ||||||
Cash in Escrow | – | 50,700 | [E] | (50,000 | ) | – | ||||||||||
[F] | (700 | ) | ||||||||||||||
Deferred Stock Offering Costs | – | 14,919 | 14,919 | |||||||||||||
License Agreement Option | – | 25,000 | 25,000 | |||||||||||||
License Agreement Deposit | – | 50,000 | 50,000 | |||||||||||||
Buildings and Land | 14,000 | – | [C] | (14,000 | ) | – | ||||||||||
Vehicles | 8,300 | – | [C] | (8,300 | ) | – | ||||||||||
Investment in subsidiary | – | – | [A] | 37,625 | – | |||||||||||
[B] | (37,625 | ) | ||||||||||||||
$ | 32,271 | $ | 363,460 | $ | (83,771 | ) | $ | 311,960 |
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) | ||||||||||||||||
LIABILITIES: | ||||||||||||||||
Accounts payable | $ | – | $ | 91,412 | $ | – | $ | 9,412 | ||||||||
Due to Allotrope | 100,000 | – | 100,000 | |||||||||||||
[C] | (795 | ) | ||||||||||||||
Loan payable – related party | 14,995 | – | [E] | (14,200 | ) | |||||||||||
Total Liabilities | 14,995 | 109,412 | (14,995 | ) | 109,412 | |||||||||||
STOCKHOLDERS’ (DEFICIT): | ||||||||||||||||
[A] | 37,625 | |||||||||||||||
[B] | (37,625 | ) | ||||||||||||||
[C] | (4,000 | ) | ||||||||||||||
Common stock | 5,000 | 37,625 | [D] | 9,000 | 47,625 | |||||||||||
[B] | (26,724 | ) | ||||||||||||||
[C] | (27,476 | ) | ||||||||||||||
[D] | (9,000 | ) | ||||||||||||||
[E] | (35,800 | ) | ||||||||||||||
Additional paid in capital | 39,000 | 572,125 | [F] | (1,500 | ) | 510,625 | ||||||||||
Less deferred compensation | – | (4,584 | ) | – | (4,584 | ) | ||||||||||
Accumulated Deficit | (26,724 | ) | (351,118 | ) | [B] | 26,724 | (351,118 | ) | ||||||||
Total Stockholders’ (Deficit) | 17,276 | 254,048 | (68,776 | ) | 202,548 | |||||||||||
$ | 32,271 | $ | 363,460 | $ | (83,771 | ) | $ | 311,960 |
See Notes To Unaudited Pro Forma Condensed Financial Statements.
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SONGBIRD DEVELOPMENT INC.
AND KNOWLEDGE MACHINE, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
[Unaudited]
Songbird | Knowledge | |||||||||||||||
Development, Inc. | Machine, Inc. | |||||||||||||||
For the Period | For the three | |||||||||||||||
August 1, 2014 to | months ended | Pro Forma | ||||||||||||||
October 22, 2014 | September 30, 2014 | Increase | Pro Forma | |||||||||||||
[Company] | [KMI] | (Decrease) | Combined | |||||||||||||
REVENUE | $ | 7,600 | $ | – | $ | – | $ | 7,600 | ||||||||
COST OF GOODS SOLD: | ||||||||||||||||
Cutlery set purchases | 6,365 | – | – | 6,365 | ||||||||||||
Sales commissions paid | 1,200 | – | – | 1,200 | ||||||||||||
Gross Profit | 35 | – | – | 35 | ||||||||||||
EXPENSES: | ||||||||||||||||
General and administrative | 75 | 61,292 | – | 61,367 | ||||||||||||
Professional fees | 750 | – | – | 750 | ||||||||||||
Non-cash stock compensation | – | 3,834 | – | 3,834 | ||||||||||||
Total Expenses | 825 | 65,126 | – | 65,951 | ||||||||||||
INCOME (LOSS) FROM OPERATIONS | (790 | ) | (65,126 | ) | – | (65,916 | ) | |||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Interest expense | – | (252 | ) | – | (252 | ) | ||||||||||
Interest income | – | 86 | – | 86 | ||||||||||||
Total Other Income (Expense) | – | (166 | ) | – | (166 | ) | ||||||||||
INCOME (LOSS) FROM OPERATIONS BEFORE PROVISION FOR TAXES | (790 | ) | (65,292 | ) | – | (66,082 | ) | |||||||||
PROVISION FOR INCOME TAXES | – | – | – | – | ||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS | (790 | ) | (65,292 | ) | – | (66,082 | ) | |||||||||
DISCONTINUED OPERATIONS | – | – | – | – | ||||||||||||
NET INCOME (LOSS) | $ | (790 | ) | $ | (65,292 | ) | $ | – | $ | (66,082 | ) | |||||
BASIC NET (LOSS) PER COMMON SHARE (Note 4) | $ | (.001 | ) |
See Notes To Unaudited Pro Forma Condensed Financial Statements.
20 |
SONGBIRD DEVELOPMENT INC.
AND KNOWLEDGE MACHINE, INC.
NOTES TO PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[Unaudited]
NOTE 1 – SONGBIRD DEVELOPMENT, INC.
Songbird Development Inc. (the “Company”) was organized under the laws of the State of Nevada on December 27, 2012. The Company was formed to engage in the development and operation of a business engaged in the distribution of high end cutlery sets produced in China. The Company is in the development stage. The Company was not able to raise sufficient capital to execute their business plan and is now engaged in discussions with third parties regarding alternative directions for the Company that could enhance shareholder value.
NOTE 2 – KNOWLEDGE MACHINE, INC.
Knowledge Machine, Inc. (“KMI”) was organized under the laws of the State of Nevada on December 12, 2013. The Company is a technology company which intends to focus on new technologies, acquiring licensing rights to those technologies, and marketing its licensed technology. The Company seeks to create a portfolio of technologies to change the method of technology transfer and technology startups involving licensing of intellectual property. The Company intends to introduce tools and processes that management believes would remove various biases, blind spots, and cultural pathologies and make commercialization of technology a more systematic and process-driven approach. The Company intends to acquire intellectual property and marketing and sales rights to these technologies and then develop these companies through partnership or joint venture arrangements. Additionally, the Company’s Science Advisory Board is intended to help mitigate technical, market, and financial risks of these companies.
NOTE 3 – PROFORMA ADJUSTMENTS
On October 22, 2014, KMI was acquired by the Company pursuant to an Agreement and Plan of Reorganization. The agreement called for the Company to issue 37,625,000 shares of common stock to the shareholders of KMI for a controlling ownership interest of the Company in a transaction wherein KMI would became a wholly-owned subsidiary of the Company.
The ownership interests of the former owners of KMI in the combined enterprise will be greater than that of the ongoing shareholders of the Company and, accordingly, the management of KMI will assume operating control of the combined enterprise. Consequently, the acquisition is accounted for as the recapitalization of KMI, wherein KMI purchased the assets of the Company and accounted for the transaction as a reverse purchase for accounting purposes.
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Proforma adjustments on the attached financial statements include the following:
[A] | To record the issuance of 37,625,000 shares of common stock pursuant to the Agreement and Plan of Reorganization. |
[B] | To eliminate the common stock accounts of KMI and the prior retained earnings of the Company. |
[C] | To record the cancellation of 4,000,000 shares of common stock from a shareholder of Songbird Development and the elimination of capital assets and other residual balances of Songbird. |
[D] | To record the forward split of 1,000,000 shares of common stock from shareholders of Songbird Development into 10,000,000 shares. |
[E] | To record repayment of the related party loan payable of $14,200 and $35,800 to purchase stock for cancellation. |
[F] | To record payment of the expenses of closing of $1,500. |
NOTE 4 – PROFORMA (LOSS) PER SHARE
The proforma (loss) per share is computed based on the number of shares outstanding, after adjustment for shares issued in the acquisition, as though all shares issued in the acquisition had been outstanding from the beginning of the periods presented.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets and statements of income. This section should be read in conjunction with our Annual Report on Form 10-K for the year ended July 31, 2014, and our interim financial statements and accompanying notes to these financial statements. All amounts are in U.S. dollars.
Forward-Looking Statement Notice
This quarterly report on Form 10-Q contains forward-looking statements about our expectations, beliefs or intentions regarding, among other things, our product development efforts, business, financial condition, results of operations, strategies or prospects. In addition, from time to time, we or our representatives have made or may make forward-looking statements, orally or in writing. Forward-looking statements can be identified by the use of forward-looking words such as “believe,” “expect,” “intend,” “plan,” “may,” “should” or “anticipate” or their negatives or other variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical or current matters. These forward-looking statements may be included in, but are not limited to, various filings made by us with the SEC, press releases or oral statements made by or with the approval of one of our authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, those set forth in our most recent annual report referenced below.
This report identifies important factors which could cause our actual results to differ materially from those indicated by the forward-looking statements, particularly those set forth under Item 1A – Risk Factors as disclosed in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission on October 28, 2014.
All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligations to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In evaluating forward-looking statements, you should consider these risks and uncertainties.
Description of Business
Prior to October 22, 2014, we were engaged in the distribution of high end cutlery sets produced in China. On October 22, 2014, we acquired an operating subsidiary, Knowledge Machine, Inc., a Nevada corporation, (“Knowledge Machine”) and subsequently sold off our current business. Knowledge Machine is a development stage technology company focused on targeting new technologies, acquiring licensing rights to those technologies, and marketing its licensed technologies. Whenever feasible and supported by business plans, we intend to form joint ventures and partnerships to share risks and rewards associated with bringing new and innovative products and services to market. We do not intend to become an investment company as defined in the Investment Company Act of 1940, as amended. Knowledge Machine was incorporated in the State of Nevada on December 12, 2013, and commenced its operations in 2013.
At its core, the business processes of Knowledge Machine are anticipated to involve the following aspects:
· | Identification of promising early–stage technologies that have significant revenue potential within validated markets or within emerging markets, including technologies which have issued patents or have patents pending; |
· | Creation and utilization of an IP-specific search engine tool which will enable us to better match licensable IP across organizational and national boundaries, thereby resulting in superior IP bundles for product definition and launch; |
· | Vetting of such early stage technologies by Knowledge Machine’s Science Advisory Board comprised of individuals with significant private and public sector experience with technology and innovation; |
· | Structuring of licensing agreements, marketing agreement, joint ventures, joint technology development agreements, or materials supply agreements depending on the specific business opportunity and what would be best for advancing the purposes of the business plan; and |
· | Focusing on specific technology areas such as advanced materials, manufacturing, internet technologies and Big Data, biotech, and health care, especially in emerging markets such as India. |
23 |
Acquisition of Knowledge Machine
On October 22, 2014, we entered into a contract with and completed the acquisition of Knowledge Machine in a stock-for-stock exchange in which we issued 37,625,000 shares of our common stock on a pro rata basis to the shareholders of Knowledge Machine in return of all of the outstanding shares of Knowledge Machine (the “Reorganization Agreement”). We also entered into a Stock Purchase Agreement (the “SPA”) with Igor Kaspruk, the sole officer, director and principal shareholder of the Company at the time, to acquired 2,464,716 shares of restricted stock held by him for $35,800. Following the closing of the Reorganization Agreement and the SPA, we sold the assets relating to the prior business of the Company to Mr. Kaspruk in return of 1,535,284 shares owned by him pursuant to an Asset Purchase Agreement between the Company and Mr. Kaspruk (the “APA”). In addition, Knowledge Machine loaned $14,200 to the Company to repay outstanding prior cash advances made by Mr. Kaspruk to the Company.
At the closing of the Reorganization Agreement, Mr. Kaspruk appointed Vivek R. Dave, Ph. D, and Taylor Caswell to serve as directors of the Company and subsequently resigned as an officer and director of the Company. Thereafter, in connection with the closing of the SPA and the APA, the 4,000,000 restricted shares of common stock purchased by Knowledge Machine and the Company from Mr. Kaspruk in the above transactions were cancelled and returned the authorized but unissued common stock of the Company.
As a result of the above transactions a change of control of the Company occurred from Mr. Kaspruk to Messrs. Dave and Caswell who assumed management control of the Company.
In connection with the closing of the Reorganization Agreement, the board of directors approved a one-for-ten forward stock split of the pre-closing outstanding shares and a change of the Company’s name to “Knowledge Machine International, Inc.” The forward stock split and name change were approved by written consent of Mr. Kaspruk as a majority shareholder immediately prior to the closing of the Reorganization Agreement. The name change and forward stock split were effected on November 10, 2014, as reflected in articles of amendment filed with the State of Nevada.
Upon completion of the above transactions, giving effect to the forward split of the pre-closing shares and cancellation of Mr. Kaspruk’s shares, we have 47,625,000 shares of our common stock outstanding. Of these shares Messrs. Dave and Caswell own 6,500,000 shares or approximately 13.7% of our Company’s outstanding stock. Former shareholders of Knowledge Machine, including Messrs. Dave and Caswell, received 37,625,000 shares of the Company, representing approximately 80% of the outstanding shares. The securities issued in the closing of the Reorganization Agreement were not and will not be registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
Results of Operations –Period Ended October 22, 2014 Compared to the Three Months Ended October 31, 2013
Gross Revenue. Gross revenue for the period from August 1, 2014 through October 22, 2014, was $7,600, compared to $45,830 in gross revenue for the three months ended October 31, 2013. Likewise cost of goods sold was significantly reduced. During the period ended October 22, 2014, fewer sales of cutlery sets occurred as the Company anticipated changing its business direction. Management does not believe that the gross revenues and cost of goods sold from prior periods will be indicative of future gross revenue or cost of goods sold since the prior business was sold and a new operating subsidiary acquired as of the end of this period.
General and Administrative Expenses. General and administrative expenses for the period ended October 22, 2014 totaled $825, a decrease of $885 or approximately 52% compared to general and administrative expenses of $1,170 for the three months ended October 31, 2013. Management believes that general and administrative expenses will increase significantly with the Company’s new business venture, particularly for professional, legal, and accounting fees going forward.
Net Loss. For the reasons stated above, our net loss for the period ended October 22, 2014 was ($790) or ($0.00) per share, compared to net income of $26,720, or $0.1 per share, during the three months ended October 31, 2013. Management anticipates that the Company will experience significant losses from operations during the startup phase of its new business venture.
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Liquidity and Capital Resources
As of October 22, 2014, we had cash of $9,971. We had current liabilities of $14,995 consisting of a loan payable to our sole officer and director, Igor Kaspruk. We had a working capital deficit of ($5,024). With the change of business ventures as of the end of this period, we do not anticipate that these amounts will be indicative of future operations.
The accompanying financial statements have been prepared contemplating a continuation of the Company as a going concern. We had ongoing operations during the period from December 27, 2012 (date of inception) to October 22, 2014 with a net loss of $26,724.
Plan of Operation
We estimate that we will require approximately $1,500,000 to $2,000,000 in additional funding to finance Knowledge Machine’s operations during the next 12 to 18 months. We intend to seek this additional financing through sales of equity securities, although we currently have no commitments or arrangements for the additional financing needed.
Some of the business areas we had mentioned in previous filings include:
· | SCORE – a high speed internet data protocol which we believe is well-suited to the rapidly growing mobile Internet market in Asian countries such as India; |
· | Border security technology that aims at producing lower cost, more widely available technical solutions; |
· | New categories of munitions technologies that could find applications in the rapidly growing UAV space; and |
· | New superflexible advanced materials that could have applications in many products ranging from cloud computing hardware and infrastructure to sporting goods applications. |
As we develop our detailed business plans for ongoing operations, management is critically reviewing these previously mentioned market areas as well as considering potential new areas including the following:
· | Design methods for additive manufacturing leveraging the 3D printing process; |
· | Advanced weather prediction technologies that could improve the predictability of weather events with serious or adverse economic impact further in advance than what is possible with current models; and |
· | New print-making technologies in the fine arts markets. |
The specific plans that are being developed will be subject to our ability to raise additional funds.
Results of Operations of Knowledge Machine. Knowledge Machine did not generate any revenue in the three months ended September 30, 2014. As of September 30, 2014, we had $222,841 in cash on hand.
Liquidity and Capital Resources of Knowledge Machine. As of September 30, 2014, Knowledge Machine had cash of $222,841. It had current liabilities of $109,412 consisting of accounts payable and an amount due a venture partner. We had a working capital of $113,429. The accompanying financial statements of Knowledge Machine have been prepared contemplating a continuation of Knowledge Machine as a going concern. Knowledge Machine has not generated revenue from operations since inception and is dependent upon further financing to realize its business plan.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we have elected not to provide the disclosure required by this item.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer who is also our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
There has been no change in our internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during our most recent period ended October 22, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1A. Risk Factors
See “Item 1A – Risk Factors” as disclosed in Form 10-K as filed with the Securities and Exchange Commission on October 28, 2014.
Item 5. Other Information
On December 8, 2014, our board of directors approved a change in the fiscal year end of the Company from July 31st to June 30th as reflected in this transition report to conform to the year end of our wholly owned subsidiary, Knowledge Machine, Inc.
Item 6. Exhibits
SEC Ref. No. | Title of Document |
31.1 | Rule 13a-14(a) Certification by Principal Executive Officer and Principal Financial Officer |
32.1 | Section 1350 Certification of Principal Executive Officer and Principal Financial Officer |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Knowledge Machine International, Inc. | ||
Date: December 8, 2014 | By: | /s/ Vivek R. Dave |
Vivek R. Dave, Ph.D., Chief Executive Officer |
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