UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period endedMarch 31, 2015
Or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________________to___________________________
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 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).
Yesx No o
Indicate by check mark whether the registrant has been subject to such filing requirements for the past 90 days.
Yeso No x
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 filer | ¨ | Accelerated filer | ¨ | ||
| Non-accelerated filer | ¨ | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of the registrant’s common stock on May 15, 2015, was 47,625,000.
TABLE OF CONTENTS
| PART I—FINANCIAL INFORMATION | 3 |
| Item 1. Financial Statements | 3 |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 15 |
| Item 4. Controls and Procedures | 15 |
| PART II—OTHER INFORMATION | 15 |
| Item 1A. Risk Factors | 15 |
| Item 6. Exhibits | 16 |
| 2 |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Knowledge Machine International, Inc.
Consolidated Balance Sheets
March 31, 2015 and June 30, 2014
| March 31, 2015 | June 30, 2014 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 87,249 | $ | 461,285 | ||||
| Total Current Assets | 87,249 | 461,285 | ||||||
| Other Assets | ||||||||
| Cash in Escrow | – | 50,000 | ||||||
| Deferred Stock Offering Costs | 14,919 | – | ||||||
| License Agreement Option | 25,000 | – | ||||||
| License Agreement Deposit | 50,000 | – | ||||||
| Total Other Assets | 89,919 | 50,000 | ||||||
| TOTAL ASSETS | $ | 177,168 | $ | 511,285 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | 56,734 | $ | 20,179 | ||||
| Accrued Interest Payable | – | 600 | ||||||
| Notes Payable - Convertible | – | 650,000 | ||||||
| Due to Allotrope | – | 100,000 | ||||||
| Total Current Liabilities | 56,734 | 770,779 | ||||||
| TOTAL LIABILITIES | 56,734 | 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; 47,625,000 issued and 43,040,666 outstanding at March 31, 2015 34,000,000 issued and 26,331,999 outstanding at June 30, 2014 | 47,625 | 34,000 | ||||||
| Additional Paid-In Capital | 512,125 | – | ||||||
| Less Deferred Compensation 4,584,334 and 7,668,001 common shares, respectively | (4,584 | ) | (7,668 | ) | ||||
| Retained Earnings (Deficit) | (434,732 | ) | (285,826 | ) | ||||
| Total Stockholders' Equity (Deficit) | 120,434 | (259,494 | ) | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 177,168 | $ | 511,285 | ||||
The accompanying notes are an integral part of these financial statements
| 3 |
Knowledge Machine International, Inc.
Consolidated Statements of Operations
Three and Nine Months Ended March 31, 2015, the Period from December 12, 2013 (Inception)
through March 31, 2014, and the Three Months Ended March 31, 2014
(Unaudited)
| Nine Months Ended | Three Months Ended | Period from December 12, 2013 (Inception) through | Three Months Ended | |||||||||||||
| March 31, 2015 | March 31, 2015 | March 31, 2014 | March 31, 2014 | |||||||||||||
| REVENUE | $ | – | $ | – | $ | – | $ | – | ||||||||
| EXPENSES | ||||||||||||||||
| General & Administration | 244,972 | 90,165 | 67,092 | 67,092 | ||||||||||||
| Non-cash Stock Compensation | 3,834 | – | – | – | ||||||||||||
| Total Expenses | 248,806 | 90,165 | 67,092 | 67,092 | ||||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest Expense | (252 | ) | – | – | – | |||||||||||
| Interest Income | 152 | 23 | 97 | 97 | ||||||||||||
| Total Other Income (Expense) | (100 | ) | 23 | 97 | 97 | |||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | (248,906 | ) | (90,142 | ) | (66,995 | ) | (66,995 | ) | ||||||||
| Current Income Tax Expense | – | – | – | – | ||||||||||||
| Deferred Income Tax Expense | – | – | – | – | ||||||||||||
| Net Income (Loss) | $ | (248,906 | ) | $ | (90,142 | ) | $ | (66,995 | ) | $ | (66,995 | ) | ||||
| Loss per Common Share - Basic and Diluted | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
| Weighted Average Number of Shares Outstanding - Basic and Diluted | 42,371,807 | 47,625,000 | 6,396,239 | 7,496,667 | ||||||||||||
The accompanying notes are an integral part of these financial statements
| 4 |
Knowledge Machine International, Inc.
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2015
and the Period from December 12, 2013 (Inception) through March 31, 2014
(Unaudited)
| Period from | ||||||||
| December 12, 2013 | ||||||||
| Nine Months Ended | (Inception) through | |||||||
| March 31, 2015 | March 31, 2014 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net Income (Loss) | $ | (248,906 | ) | $ | (66,995 | ) | ||
| 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 (decrease) in Cash in Escrow | (50,000 | ) | 54,487 | |||||
| Increase in Accounts Payable | 36,555 | – | ||||||
| Decrease in Accrued Interest | (600 | ) | – | |||||
| NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES | (259,117 | ) | (12,508 | ) | ||||
| 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 | ||||||||
| Proceeds from Notes Payable | – | 650,000 | ||||||
| Proceeds from Stock Issuance | – | 22,490 | ||||||
| Repayment of Notes Payable | (75,000 | ) | – | |||||
| Reorganization of the Company and Issuance of Stock | 50,000 | – | ||||||
| Increase in Deferred Stock Offering Costs | (14,919 | ) | – | |||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | (39,919 | ) | 672,490 | |||||
| NET CASH INCREASE (DECREASE) FOR PERIOD | (374,036 | ) | 659,982 | |||||
| CASH AT BEGINNING OF PERIOD | 461,285 | – | ||||||
| CASH AT END OF PERIOD | $ | 87,249 | $ | 659,982 | ||||
| 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 nine months ended March 31, 2015 | ||||||||
| On November 10, 2014, a one for ten forward stock split occurred. | ||||||||
| 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 | ||||||||
| 3,666,667 shares previously issued to a Director at $0.001 per share vested during the period. | ||||||||
| 250,000 shares previously issued for Board Services at $0.001 per share were cancelled during the period. | ||||||||
| For the period from December 12, 2013 (Date of Inception) through March 31, 2014 | ||||||||
| None | ||||||||
The accompanying notes are an integral part of these financial statements
| 5 |
KNOWLEDGE MACHINE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015
NOTE 1 – Summary of Significant Accounting Policies
Nature of Business –Knowledge Machine International, 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, it is intended that the Company’s Science Advisory Board will help mitigate technical, marketing, and financial risks of the Company.
In October 2014, the Company entered into and closed a stock 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.
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 March 31, 2015 and June 30, 2014 and for the three months and nine months ended March 31, 2015 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 March 31, 2015 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, accounts payable, and notes payable. The carrying amount of cash and accounts payable 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.
| 6 |
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 March 31, 2015 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 March 31, 2015, the Company recognized no interest and penalties. The Company had no accruals for interest and penalties at June 30, 2014 or March 31, 2015. 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 March 31, 2015 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.
| 7 |
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.
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 an original 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 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 March 31, 2015, 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.
| 8 |
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 were included as liabilities on the Company’s balance sheet at September 30, 2014. On October 14, 2014, the Company and Allotrope rescinded the original agreement and the liabilities were removed from the Company’s balance sheet. The companies 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.
Score Technologies, Inc.
On July 8, 2014, the Company and Score Technologies, Inc. entered into a Subscription Agreement for the purchase of 100,000 shares of common stock of Score (the “Shares”) by the Company for the sum of $50,000. The Company never received the Shares. On August 4, 2014, the Company and Score entered into a Rescission Agreement whereby all transactions contemplated by the Option Agreement, as disclosed below, were rescinded. The parties also agreed that Score would retain the $50,000 payment made by the Company pursuant to the Option Agreement and apply the payment to the first payment required to be made by the Company to Score in connection with the first license agreement between the parties. In addition, the parties agreed that if a license agreement was not entered into by February 15, 2015, Score would be required to repay to the Company the $50,000 payment, in cash, by no later than February 18, 2015. As of March 31, 2015, the two parties have not entered into a license agreement, but have maintained that the $50,000 received by Score from the Company will not be used for any other purpose other than to apply the payment to a future license agreement.
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. On January 6, 2015, the Company sent a letter to Score notifying Score that it is terminating the exclusive option to enter into a license agreement for India and demanding return of the $25,000 paid to Score. The termination of the option was based upon Score’s failure to produce to the Company the consumer marketable SCOREISPAPP referred to in the agreement. At March 31, 2015, the Option Agreement is still in effect, as the termination is still being contemplated by Score.
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) remained unvested and were 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 ended September 30, 2014 and 3,834,334 (valued at $3,834) remain unvested and are reflected as deferred compensation as of March 31, 2015.
| 9 |
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 ended September 30, 2014 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.
On October 22, 2014, the Company issued 1,000,000 shares of common stock as part of a reorganization of the Company.
On November 10, 2014, a one for ten forward stock split occurred, resulting in an additional 9,000,000 shares being issued. The split has been retroactively applied to all periods presented.
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 ended 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 March 31, 2015 is 3,834,334, representing deferred compensation of $3,834.
During the three months 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 March 31, 2015 (750,000 unvested shares) increased deferred compensation by $750.
As of March 31, 2015, 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 three 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 March 31, 2015.
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 three and nine months ended March 31, 2015:
| 3 Months Ended | 9 Months Ended | |||||||
| March 31, 2015 | March 31, 2015 | |||||||
| Loss from continuing operations available to common stockholders (numerator) | $ | (90,142 | ) | $ | (248,906 | ) | ||
| Weighted average number of common shares outstanding used in loss per share during the period (denominator) | 47,625,000 | 42,371,807 | ||||||
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.
| 10 |
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.
NOTE 7 - Recent Pronouncement
On June 10, 2014, the FASB issued update ASU 2014-10, Development Stage Entities (Topic 915). Amongst other things, the amendments in this update removed the definition of development stage entity from Topic 915, thereby removing the distinction between development stage entities and other reporting entities from US GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information on the statements of income, cash flows and shareholders’ equity, (2) label the financial statements as those of a development stage entity; (3) disclose a description of the development stage activities in which the entity is engaged and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The amendments are effective for annual reporting periods beginning after December 31, 2014 and interim reporting periods beginning after December 15, 2015, however entities are permitted to early adopt for any annual or interim reporting period for which the financial statements have yet to be issued. The Company has elected to early adopt these amendments and accordingly have not labeled the financial statements as those of a development stage entity and have not presented inception-to-date information on the respective financial statements.
| 11 |
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 their 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; |
| · | 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 agreements, 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 algorithms for science-based prediction in various fields, advanced materials, manufacturing, internet technologies and Big Data, biotech, and health care, especially in emerging markets such as India. |
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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 for 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 acquire 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 –Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014
Gross Revenue. Gross revenue for the three months ended March 31, 2015, was $0, compared to $0 in gross revenue for the three months ended March 31, 2014. Accordingly, there were no costs of goods sold. The Company was previously operating in the cutlery sales market but that business was sold and a new operating subsidiary was acquired which is operating in the technology market. This new line of business is in the development stage and has not yet recognized any revenue.
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General and Administrative Expenses. General and administrative expenses for the three months ended March 31, 2015 totaled $90,165, a 34% increase compared to general and administrative expenses of $67,092 for the three months ended March 31, 2014. 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 three months ended March 31, 2015 was $90,142, compared to net loss of $66,995 during the three months ended March 31, 2014. Management anticipates that the Company will experience significant losses from operations during the startup phase of its new business venture.
Results of Operations –Nine Months Ended March 31, 2015 Compared to the Period from December 12, 2013 (Date of Inception) through March 31, 2014
Gross Revenue. Gross revenue for the nine months ended March 31, 2015, was $0, compared to $0 in gross revenue for the period from December 12, 2013 (Date of Inception) through March 31, 2014. Accordingly, there were no costs of goods sold. The Company was previously operating in the cutlery sales market but that business was sold and a new operating subsidiary was acquired which is operating in the technology market. This new line of business is in the development stages and has not yet recognized any revenue.
General and Administrative Expenses. General and administrative expenses for the nine months ended March 31, 2015 totaled $244,972, a 265% increase compared to general and administrative expenses of $67,092 for the period from December 12, 2013 (Date of Inception) through March 31, 2014. 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.
Non-Cash Stock Compensation. Non-cash stock compensation for the nine months ended March 31, 2015 totaled $3,834, compared to non-cash stock compensation of $0 for the period from December 12, 2013 (Date of Inception) through March 31, 2014. Management believes that non-cash stock compensation 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 nine months ended March 31, 2015 was $248,906, compared to net loss of $66,995 during the period from December 12, 2013 (Date of Inception) through March 31, 2014. Management anticipates that the Company will experience significant losses from operations during the startup phase of its new business venture.
Liquidity and Capital Resources
As of March 31, 2015, we had cash of $87,249. We had current liabilities of $56,734 consisting of accounts payable. We had a working capital surplus of $30,515.
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 12, 2013 (date of inception) to March 31, 2015 with a net loss of $434,732.
Plan of Operation
We estimate that we will require approximately $1,500,000 to $3,000,000 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.
We are currently in the process of re-evaluating our technology portfolio during the first half of 2015. This revised technology portfolio may include previously discussed technologies, but may also include new technologies that we are at present discussing with potential partners.
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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 15(d)-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 fiscal quarter ended March 31, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1A. Risk Factors
We are a voluntary filer and are not required to file Exchange Act reports going forward and may cease to file reports at any time and for any reason without notice.
On February 13, 2014, our S-1 registration statement became effective which meant we became subject to certain reporting obligations of the Exchange Act. Under Section 15(d) of the Exchange Act such an issuer is subject to the periodic and current reporting requirements of Section 13(a) of that Act. These reports would include Forms 10-K, 10-Q, and 8-K, but would not include items such as beneficial ownership reports and proxy statements. The reporting obligation for such an issuer is automatically suspended if the class of securities is held by fewer than 300 record holders at the beginning of any fiscal year (other than a year in which the registration statement became effective). Such an issuer then becomes a voluntary filer. A voluntary filer may continue to file periodic reports on a voluntary basis; however, it is not required to do so.
On August 1, 2014, we had fewer than 300 record holders and, thus, our reporting obligations were automatically suspended. As such, we became a voluntary filer. Although we have continued to file our Exchange Act reports and have no plans to cease filing Exchange Act reports, we may cease to file our Exchange Act reports at any time and for any reason without notice. As a result, less information may be publicly available than would be otherwise contained in our reports.
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See “Item 1A – Risk Factors” as disclosed in Form 10-K as filed with the Securities and Exchange Commission on October 28, 2014.
Item 6. Exhibits
| SEC Ref. No. | Title of Document |
| 31.1 | Rule 15d-14(a) Certification by Principal Executive and Financial Officer |
| 32.1 | Section 1350 Certification of Principal Executive and 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: May 15, 2015 | By | /s/ Vivek R. Dave |
| Vivek R. Dave, Ph.D., Chief Executive Officer | ||
| (Principal Executive Officer and Principal | ||
| Financial Officer) | ||
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