SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
Quarterly Report Under Section 13 0r 15 (d) of
Securities Exchange Act of 1934
For Period ended December 31, 2001
Commission File Number 0-28287
KNOWLEDGE FOUNDATIONS, INC.
(formerly CALIPSO, INC.)
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Delaware 88-0418749
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(State of Incorporation) (I.R.S. Employer Identification Number)
7852 Colgate Avenue, Westminster, CA 92683
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(Address of Principal Executive Offices) (Zip Code)
(626) 444-5494
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(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 twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock at the latest practicable date.
As of February 1, 2002, the registrant had 39,133,718 shares of common stock,
$.001 par value, issued and outstanding.
PART 1 FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
KNOWLEDGE FOUNDATIONS, INC. (formerly Calipso, Inc.)
(a Development Stage Company)
BALANCE SHEET
UNAUDITED
Dec 31, 2001 March 31, 2001
Unaudited Audited
ASSETS
CURRENT ASSETS
CASH $ 727 $ 1,408
OTHER RECEIVABLES 60 60
-------------- ---------------
TOTAL CURRENT ASSETS 787 1,468
PROPERTY AND EQUIPMENT, NET 9,808 12,677
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TOTAL ASSETS $ 10,595 $ 14,145
============== ===============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 82,169 $ 176,797
ACCRUED LIABILITIES 246,826 98,170
NOTES PAYABLE 281,000 281,000
SUBORDINATED NOTES PAYABLE 300,000 300,000
DUE TO RELATED PARTIES 52,017 10,000
------------- --------------
TOTAL CURRENT LIABILITIES 962,012 865,967
------------- --------------
STOCKHOLDERS' (DEFICIT)
PREFERRED STOCK - $0.001 par
Value 20,000,000 shares
authorized, 0 shares
outstanding 0 0
COMMON STOCK - $0.001 par
Value 50,000,000 shares
authorized, 39,133,718
and 39,108,000 issued
and outstanding on 12/31/01
and 3/31/01 39,111 39,108
ADDITIONAL PAID IN CAPITAL (16,491) (25,746)
DEFICIT ACCUMULATED DURING
THE DEVELOPMENT STAGE (974,038) (865,184)
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TOTAL STOCKHOLDERS' (DEFICIT) $ (951,418) $ (851,822)
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TOTAL LIABILITIES & STOCKHOLDERS'
(DEFICIT) $ 10,595 $ 14,145
============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS (continued)
KNOWLEDGE FOUNDATIONS, INC.
STATEMENTS OF OPERATIONS
(a Development Stage Company)
For the Three Months and Nine Months Ended December 31, 2001
UNAUDITED
Three Months Ended Nine Months Ended
Dec 31, Dec 31, Dec 31, Dec 31,
2001 2000 2001 2000
REVENUE $ 0 $ 0 $ 0 $ 0
--------- --------- ---------- ---------
TOTAL REVENUE 0 0 0 0
DIRECT COSTS 0 0 0 0
--------- --------- ---------- ---------
TOTAL COST OF GOODS SOLD 0 0 0 0
--------- --------- ---------- ---------
GROSS PROFIT 0 0 0 0
OPERATING EXPENSES
DEPRECIATION 956 956 2,869 1,442
SALES & MARKETING
EXPENSE 0 19,408 0 19,408
GENERAL & 42,295 296,493 138,821 688,525
--------- --------- ---------- ---------
ADMINISTRATIVE EXP
TOTAL OPERATING EXPENSES 43,251 316,857 141,690 709,375
--------- --------- ---------- ---------
LOSS FROM OPERATIONS (43,251) (316,857) (141,690) (709,375)
OTHER (INCOME) & EXPENSE
INTEREST 10,475 7,804 31,346 15,483
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (53,726) (324,661) (173,036) (724,858)
--------- --------- ---------- ---------
EXTRAORDINARY ITEM-
GAIN ON EXTINGUISHMENT OF
DEBT (NET OF
INCOME TAXES) (64,180) 0 64,180 0
---------- --------- ---------- ---------
LOSS BEFORE TAXES 10,454 (324,661) (108,856) (724,858)
---------- --------- ---------- ---------
NET INCOME (LOSS) $10,454 $(324,661) (108,856) $(724,858)
========== ========== ========== ==========
BASIC AND DILUTED EARNINGS
(LOSS) BEFORE
EXTRAORDINARY ITEMS PER
SHARE (see Note 5) ($0.01) ($0.01) ($0.02) ($0.04)
========== ========== ========== =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
39,108,000 40,098,000 39,108,000 20,676,838
========== ========== ========== ==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS (continued)
KNOWLEDGE FOUNDATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(a Development Stage Company)
For the Nine Months Ended December 31, 2001 and 2000
UNAUDITED
.
Nine Months Ended Cumulative from
Dec 31, Dec 31, inception to
2001 2000 12/31/01
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS $(108,855) $(724,858) $(974,038)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION 2,869 1,442 5,267
GAIN ON EXTINGUISHMENT OF DEBT 64,180 0 64,180
COMMON STOCK ISSUED FOR
SERVICES 0 0 10,000
CHANGES IN ASSETS AND
LIABILITIES:
INCREASE IN OTHER CURRENT
ASSETS 0 (1,060) (60)
---------- --------- ---------
INCREASE IN ACCOUNTS PAYABLE (158,808) 185,134 17,989
INCREASE IN ACCRUED LIABILITIES 148,656 41,100 246,816
INCREASE IN DUE TO RELATED
PARTIES 42,017 4,000 52,017
---------- --------- ---------
NET CASH FLOWS USED IN OPERATING
ACTIVITIES: (9,941) (494,242) (577,829)
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
PURCHASE OF PROPERTY & EQUIPMENT AND
SOFTWARE 0 (15,075) (15,075)
---------- --------- ---------
NET CASH FLOWS USED IN INVESTING
ACTIVITY 0 (15,075) (15,075)
---------- --------- ---------
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES
PROCEEDS FROM ISSUANCE OF NOTES 0 575,000 581,000
PROCEEDS FROM THE SALE OF COMMON
STOCK 9,260 3,362 12,631
---------- --------- ---------
NET CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES 9,260 578,362 593,631
---------- --------- ---------
NET (DECREASE) IN CASH (681) 69,045 727
CASH AT BEGINNING OF PERIOD 1,408 0 0
---------- --------- ---------
CASH AT END OF PERIOD $727 $32,406 $727
========== ========= =========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
1. MANAGEMENT'S OPINION
In the opinion of management, the accompanying financial statements contain
all adjustments necessary to present fairly the financial position of the
company as of December 31, 2001 and March 31, 2001, and the statements of
operations for the nine months ended December 31, 2001 and 2000, and the
statements of cash flows for the nine months ended December 31, 2001 and
2000. The accompanying financial statements have been adjusted as of December
31, 2001 as required by Item 310 (b) of Regulation S-B to include all
adjustments, which in the opinion of management are necessary in order to
make the financial statements not misleading. The results of operations for
the nine months ended December 31, 2001 and 2000 are not necessarily
indicative of the results to be expected for the remainder of the year.
2. BASIS OF PRESENTATION
On September 18, 2000 Knowledge Foundations, Inc., ("KF") a private Delaware
corporation, was merged into Calipso, Inc., a public Delaware corporation.
The transaction was accomplished through an exchange of common shares, which
resulted in the shareholders of KF obtaining approximately eighty (80)
percent of the outstanding common shares of Calipso. On the merger date the
name of the company was changed from Calipso, Inc. to KF and the stock symbol
was changed to "KNFD". The merger was accounted for as a purchase. The
financial statements reflect the change in control and, exclusive of the pre-
merger activity of Calipso (which were insignificant), the Statement of
Operations and Statements of Cash Flow depict the activity of KF for the
quarter ended December 31, 2001 and 2000 and for the nine months ended
December 31, 2001 respectively.
The Company has been in the development stage since its inception. During
the development stage, the Company is primarily engaged in raising capital,
obtaining financing, developing its knowledge-based computing technology,
marketing, and administrative functions. The Company intends to produce a
knowledge-based operating system, related tools and applications, and system
integration services. The Company's primary target markets primarily are
knowledge owners, publishers, large commercial corporations, government
agencies and end-users.
3. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Risks and Uncertainties
While management believes that the Company can effectively compete because of
its technical advances in the type of software created by Dr. Ballard, Chief
Science Officer, the Company's ability to succeed will depend upon a number
of factors, including its ability to secure funding. The Company's viability
is substantially dependent upon the ability of current management to
effectuate the infusion of capital either as equity or loans into the
business. Commencing with the date of the merger between Calipso and
Knowledge Foundations (the private company), management has been unable to
obtain any substantial funding source. As the result of the lack of capital,
various personnel of the Company have been terminated, causing a slowdown of
Company operations. However certain programming events have continued. A
continued lack of capital may cause the Company to cease operations. Should
the Company be unable to implement its current plan of operations, which
requires an infusion of capital, management would investigate all options
available to retain value for the shareholders. Among, but not limited to,
the options that would be considered are:
Acquisition of another product or technology, which would create an
interest in a capital infusion;
A merger or acquisition of another business entity that has revenue and/or
long term growth potential; or
Cease business operations until such time as funds are available.
The Company has entered into discussions with several entities and
consultants for purposes of either capitalizing the Company or in some cases
merging with the Company. As part of the discussions, in one instance the
Company has executed a letter of understanding pertaining to a merger with
the Company. As a result of the Company having signed the letter concurrent
with this filing, the Company has not commenced due diligence on the
transaction. Therefore, the Company is not in a position to assess the
probability that the transaction will proceed, or if I were to proceed, that
the transaction will actually close. (See exhibit 10 filed herewith)
The Company is a start-up company subject to the substantial business risks
and uncertainties inherent to such an entity, including the potential risk of
business failure. In January 2001 most of the programming staff was laid off
due to the lack of investment capital.
The accompanying financial statements have been prepared on the basis of a
going concern, which contemplates the realization of assets and liquidation
of liabilities in the normal course of business.
Management is pursuing financing initiatives that would enhance the
development of the Company's products and provide sufficient capital for
marketing. However, there is no assurance the Company will be able to obtain
the sufficient equity financing or generate sufficient revenues on terms
satisfactory to the Company.
Use of Estimates
The Company's policy is to use the accrual method of accounting and to
prepare and present financial statements, which conform to accounting
principles generally accepted in the United States of America. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
4. EARNINGS (LOSS) PER SHARE
The Company has adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings Per Share." Under SFAS 128, basic earnings per share
is computed by dividing income available to common stockholders by the
weighted-average number of common shares assumed to be outstanding during the
period of computation. Diluted earnings per share is computed similar to
basic earnings per share except that the denominator is increased to include
the number of additional common shares that would have been outstanding if
the potential common shares had been issued and if the additional common
shares were dilutive. Because the Company has incurred net losses, basic and
diluted loss per share are the same as additional potential common shares
would be anti-dilutive.
5. NOTES PAYABLE
Convertible Subordinated Note Payable
The Company borrowed $300,000 from an unrelated third party in the form of a
convertible subordinated note (the "Note") on April 19, 2000. The Note is
subordinated to future borrowings from financial institutions. The Note is
unsecured and bears interest at 8% per annum which is payable semi-annually
beginning six months after the date of this Note, with the principal together
with all accrued but unpaid interest due on April 18, 2003. If an equity
financing event occurs where the Company issues common stocks or preferred
stocks to one or more unrelated third parties in exchange for at least an
aggregate of $3,000,000 or if the Company merges into a publicly traded
company and the stockholders of the Company own eighty percent (80%) of the
Company on a fully diluted basis after the merger, the holder of this note
has the right to convert all or any portion of the outstanding principal
amount of this Note into a stated number of shares computed by dividing such
principal amount by the conversion price per share offered in the equity
financing. In the event the equity financing involves a merger transaction,
the conversion price shall be $1.00 per share. Since the Company completed a
merger transaction (see Note 1), the note is currently convertible at $1.00
per share. The outstanding balance on this note payable totaled $300,000 at
December 31, 2001.
Due to the accrued interest not being paid as of December 31, 2001 the total
accrued interest of $47,151 and the Note principal of $300,000 is considered
to be in default of the Note terms as of December 31, 2001 and thus, has been
classified as a current liability on the balance sheet.
Notes Payable
The Company has borrowings from third parties totaling $75,000 under
unsecured notes payable. These notes payable accrue interest at 6% per
annum, and principal and accrued interest were due on or before January 1,
2002, or five days after receipt by the Company of additional debt or equity
financing in a sum of $500,000 or more. The note remains unpaid and is in
default on the date provision; additional financing exceeding $500,000 has
not occurred.
Notes Payable to Stockholders
The Company borrowed funds from one stockholder totaling $206,000 under
unsecured notes payable during the period ended March 31, 2001. These notes
payable accrue interest at 6% per annum, and are due on demand.
6. COMMITMENT
Royalty Agreement
The Company has entered into an agreement with regard to royalty fees between
the Company and one of its officers. In this agreement rights relative to
certain software designs have been assigned to the Company. The officer will
receive royalties ranging from 2% to 5% on net sales of such software designs
sold to others or deployed by the Company in a project for third parties.
7. CONTINGENCY
The Company currently has a claim filed against them by a consultant over
consideration with regard to a finders fee for potential equity financing.
The Company believes that neither the merit or future outcome of such a claim
nor potential damages is readily determinable as of December 31, 2001 and
therefore has not accrued any liability in the accompanying financial
statements.
8. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Notes Payable to Shareholders
The Company borrowed $206,000 from a shareholder, which obligation is a
demand note with a principal balance as of December 31, 2001 of $206,000 plus
$15,555 of accrued interest at 6% per annum, payable upon demand.
Additionally shareholders advanced $19,017 to the Company.
Office Rent Expense
As of December 31, 2001, the Company had a liability of $19,000 due to one of
the principal stockholders for renting a portion of his residence (on a month-
to-month basis) used as the Company's office for the period of April 6, 2000
through December 31, 2001. This amount is non-interest bearing. The total
office rent expense was $3,000 for the quarter ended December 31, 2001.
9. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS 141
In July 2001, FASB issued SFAS No. 141, "Business Combinations," which
is effective for business combinations initiated after June 30, 2001. SFAS
No. 141 eliminates the pooling of interest method of accounting for business
combinations and requires that all business combinations occurring on or
after July 1, 2001 are accounted for under the purchase method. The Company
does not expect SFAS No. 141 to have a material impact on its financial
statements.
SFAS 142
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which is effective for fiscal years beginning after
December 15, 2001. Early adoption is permitted for entities with fiscal
years beginning after March 15, 2001, provided that the first interim
financial statements have not been previously issued. SFAS No. 142 addresses
how intangible assets that are acquired individually or with a group of other
assets should be accounted for in the financial statements upon their
acquisition and after they have been initially recognized in the financial
statements. SFAS No. 142 requires that goodwill and intangible assets that
have indefinite useful lives not be amortized but rather be tested at least
annually for impairment, and intangible assets that have finite useful lives
be amortized over their useful lives. SFAS No. 142 provides specific
guidance for testing goodwill and intangible assets that will not be
amortized for impairment. In addition, SFAS No. 142 expands the disclosure
requirements about goodwill and other intangible assets in the years
subsequent to their acquisition. Impairment losses for goodwill and
indefinite-life intangible assets that arise due to the initial application
of SFAS No. 142 are to be reported as resulting from a change in accounting
principle. However, goodwill and intangible assets acquired after June 30,
2001 will be subject immediately to the provisions of SFAS No. 142. The
Company does not expect SFAS No. 142 to have a material effect on its
financial statements.
SFAS 143
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of intangible long-
lived assets and the associated asset retirement costs and is effective for
fiscal years beginning after June 15, 2002. The Company does not expect SFAS
No. 143 to have a material impact on its financial statements.
SFAS 144
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS 144 address financial accounting and reporting for
the impairment of long-lived assets and for long-lived assets to be disposed
of. The provisions of SFAS 144 are effective for financial statements issued
for fiscal years beginning after December 15, 2001, and interim periods
within these fiscal years, with early adoption encouraged. The Company does
not expect SFAS 144 to have a material impact of its financial statements.
10. GAIN ON EXTINGUISHMENT OF DEBT
The Company exchanged its common stock with a value of $9,256 for release of
$25,717 in accounts payable. Additionally a shareholder advanced $10,517 to
the Company to settle a creditor obligation of $58,238. The settlements
resulted in a gain on extinguishments of debt amounting to $64,180.
RISK FACTORS AND CAUTIONARY STATEMENTS
Cautionary Statement Regarding Forward-Looking Statements
The Company's Form 10K-SB, the Company's Annual Report to Shareholders,
any Form 10-QSB or any Form 8-K of the Company or any other written or oral
statements made by or on behalf of the Company may include forward-looking
statements which reflect the Company's current views with respect to future
events and financial performance. The words "believe," "expect,"
"anticipate," "intends," "estimate," "forecast," "project," and similar
expressions identify forward-looking statements.
The Company wishes to caution investors that any forward-looking
statements made by or on behalf of the Company are subject to uncertainties
and other factors that could cause actual results to differ materially from
such statements. These uncertainties and other factors include, but are not
limited to the Risk Factors listed below (many of which have been discussed
in prior SEC filings by the Company). Though the Company has attempted to
list comprehensively these important factors, the Company wishes to caution
investors that other factors could in the future prove to be important in
affecting the Company's results of operations. New factors emerge from time
to time and it is not possible for management to predict all of such factors,
nor can it assess the impact of each such factor on the business or the
extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements.
Readers are further cautioned not to place undue reliance on such forward-
looking statements as they speak only of the Company's views as of the date
the statement was made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Risk Factors
Our operating results are difficult to predict in advance and may fluctuate
significantly, and a failure to meet the expectations of analysts or our
stockholders would likely result in a substantial decline in our stock price.
There is little historical financial information that is useful in
evaluating our business, prospects and future operating results. You should
not rely on quarter-to-quarter comparisons of our results of operations as an
indication of our future performance. We expect our future operating results
to fluctuate significantly from quarter to quarter. If our operating results
fail to meet or exceed the expectations of analysts or investors, our stock
price would likely decline substantially. Factors that are likely to cause
our results to fluctuate include the following:
* the gain or loss of significant customers or significant changes in
purchasing volume;
* the amount and timing of our operating expenses and capital
expenditures;
* changes in the volume of our product sales and pricing concessions;
* the timing, rescheduling or cancellation of customer orders;
* the varying length of our sales cycles;
* the availability and pricing of competing products and technologies and
the resulting effect on sales and pricing of our products;
* our ability to specify, develop, complete, introduce and market new
products and technologies and bring them to volume production in a timely
manner;
* the rate of adoption and acceptance of new industry standards in our
target markets;
* the effectiveness of our product cost reduction efforts and those of our
suppliers;
* changes in the mix of products we sell; and
* changes in the average selling prices of our products.
There is a limited current public market for our common stock.
There is a limited public market for our common stock. Although our
common stock is listed on the OTC Bulletin Board, there is a limited volume
of sales, thus providing a limited liquidity into the market for our shares.
As a result of the foregoing, stockholders may be unable to liquidate their
shares for any reason.
We are highly dependent on Richard Ballard. The loss of Richard Ballard,
whose knowledge, leadership and technical expertise we rely upon, would harm
our ability to execute our business plan.
Our success depends heavily upon the continued contributions of Richard
Ballard whose knowledge, leadership and technical expertise would be
difficult to replace. If we were to lose his services, our ability to
execute our business plan would be harmed.
If we are unable to recruit, hire, train and retain additional sales,
marketing, operations, software engineering and finance personnel, our growth
will be impaired.
To grow our business successfully and maintain a high level of quality, we
will need to recruit, retain and motivate additional highly skilled sales,
marketing, software engineering and finance personnel. If we are not able to
hire, train and retain a sufficient number of qualified employees, our growth
will be impaired. In particular, we will need to expand our sales and
marketing organizations in order to increase market awareness of our products
and to increase revenue.
In addition, as a company focused on the development of complex
products, we will need to hire additional software engineering staff of
various experience levels in order to meet our product roadmap. The market
for skilled employees is extremely limited. We may have even greater
difficulty recruiting potential employees if prospective employees perceive
the equity component of our compensation package to be less valuable.
We are subject to various risks associated with technological change and if
we do not adapt our products to the changes our business will be adversely
affected.
The technology products market involves certain characteristics that
expose our existing and future technologies, and methodologies to the risk of
obsolescence. These characteristics included the following:
* rapid changes in technology;
* rapid changes in user and customer requirements;
* frequent new service or product introductions embodying new
technologies; and
* the emergence of new industry standards and practices.
Our performance will partially depend on our ability to license leading
technologies, enhance our existing services, and respond to technological
advances and emerging industry standards and practices on a timely and cost-
effective basis. The development of new technology entails significant
technical and business risks. We cannot predict if we will use new
technologies effectively or adapt our products to consumer, vendor,
advertising or emerging industry standards. If we were unable, for technical,
legal, financial or other reasons, to adapt in a timely manner in response to
changing market conditions or customer requirements, our business, results of
operations and financial condition could be materially adversely affected.
We may not be able to raise further financing or it may only be available on
terms unfavorable to our stockholders or us.
We believe that our available cash resources are insufficient to meet
our anticipated working capital and capital expenditure requirements. We need
to raise additional funds, to respond to business contingencies, which could
include the need to:
* maintain existing personal/ consultants;
* fund more rapid expansion;
* fund additional marketing expenditures;
* develop new products or enhance existing products;
* enhance our operating infrastructure;
* hire additional personnel;
* respond to competitive pressures; or
* acquire complementary businesses or technologies.
If we raise additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders
would be reduced, and these newly issued securities might have rights,
preferences or privileges senior to those of existing stockholders.
Additional financing might not be available on terms favorable to us, or at
all. If adequate funds were not available or were not available on acceptable
terms, our ability to fund our operations, take advantage of unanticipated
opportunities, develop or enhance our products or otherwise respond to
competitive pressures would be significantly limited.
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results and events could differ materially from
those projected, anticipated, or implicit, in the forward-looking statements
as a result of the risk factors set forth below and elsewhere in this report.
With the exception of historical matters, the matters discussed herein
are forward looking statements that involve risks and uncertainties. Forward
looking statements include, but are not limited to, statements concerning
anticipated trends in revenues and net income, the date of introduction or
completion of our products, projections concerning operations and available
cash flow. Our actual results could differ materially from the results
discussed in such forward-looking statements. The following discussion of our
financial condition and results of operations should be read in conjunction
with our financial statements and the related notes thereto appearing
elsewhere herein.
PART 1 FINANCIAL INFORMATION
Management's Plan of Operations
Pursuant to an Acquisition Agreement and Plan of Merger dated as of August 7,
2000 between Calipso, Inc., a Delaware corporation, and Knowledge
Foundations, Inc. ("KF"), a Delaware corporation, all the outstanding shares
of common stock of KF were exchanged for 33,918,400 shares of 144 restricted
common stock of Calipso in a transaction in which Calipso was the surviving
corporation. Prior to the Merger, on May 4, 2000 there were 9,039,600 common
shares issued and outstanding. As a result of the Merger, on September 18,
2000, 4,860,000 shares were cancelled leaving 4,179,600 issued and
outstanding. On September 18, 2000 35,918,400 shares were issued pursuant to
the terms and conditions of the Merger; providing for 40,098,000 issued and
outstanding post Merger. Of the 35,918,400 shares issued in the Merger, 2
million shares were issued collectively to Wright & Bleers and Oceanway
Investments, 1 million of which shares are subject to a lock up agreement in
addition to other conditions. During March 2001 the certain provisions of the
lock up agreement lapsed and 1 million common shares were cancelled as a
result. The number of shares issued to KF stockholders in the merger
represented 84.58% of the shares outstanding of 40,098,000 post merger common
shares.
The Merger between Calipso and KF was effective with the concurrent filing of
a Certificate of Merger with the Secretary of State in Delaware on September
18, 2000. At the effective time of the merger the name of the Calipso was
changed to Knowledge Foundations, Inc. As a result of the merger, the
33,918,400 shares that were issued to the Knowledge Foundations, Inc.
stockholders resulted in a change in control of the Company. Additionally new
officers and directors were appointed and elected. As the result of the
merger in which the shareholders of KF represent more than 80% of the
outstanding common shares and Calipso has had no prior operating history, the
financial statements presented reflect the operations of Knowledge
Foundations since its inception in April 2000.
During 2000, the Company issued promissory notes totaling $275,000 to sustain
operations. Funding for the Company has been accomplished the form of a
$300,000 convertible debenture prior to the merger and by additional advances
since the merger. Management is seeking up to $3 million in equity financing
necessary to advance its business plan briefly described below and in further
detail in its post-merger Form 8K filing filed with the Securities and
Exchange Commission in October 2000. There can be no assurance that the
Company will be successful in completing any or all of the proposed
financing, nor can there be any assurance that the Company will continue to
find investors for its promissory notes.
Since its inception in April 2000, KF has been in a development mode,
completed the merger with Calipso, has begun the process of commercializing
the software and knowledge base engineering process under license, and hired
senior software engineers, who were scheduled to produce new releases of the
software scheduled for the last half of 2001, and begun initial sales and
marketing programs. The programmers were laid off in January 2001 as planned
capital investment did not materialize at that time. KF has incurred
$43,251in operating expenses (accrued) during the quarter ended December 31,
2001 and $981,247 during the period from inception (April 6, 2000) through
December 31, 2001.
Knowledge Foundations, Inc. is a developer and marketer of knowledge
engineering software. KF possess an exclusive license for two generations of
successfully deployed knowledge engineering software tools, developed by the
Company's Chairman and Chief Science Officer, Dr Richard L. Ballard. Previous
versions of the software have been used in a variety of government
applications for the US Navy, US Air Force, US Army Strategic Defense
Command, NASA's Johnson Space Center and others. KF's software operates
transparently within the MS-Windows environment and has the capacity to
capture virtually any form of knowledge, and to code it for increased
processing speed, storage capacity and intuitive access to knowledge.
KF acquired the rights to its technology through a License and Royalty
Agreement entered into on April 6, 2000 by and between Richard L. Ballard and
Janet J. Pettitt (Ballard), husband and wife, and KF. The License and Royalty
Agreement provides KF with exclusive and transferable rights to Ballard's
software. Future inventions and software developments will be the exclusive
property of KF.
The Company intends to further develop the software for additional
capabilities, to obtain appropriate intellectual property protection, to
provide knowledge engineering services to clients and to market its software
tools to software application developers under license agreements.
Knowledge Foundations' software products are best described as knowledge-
based engineering and application development tools. Whereas current
information processing applications are limited to informational data content
with predictable outcomes, KF's software will use coded human knowledge to
assist a user in solving and managing unpredictable problems by answering
complex questions such as how, why, and most important - what if?
KF's technology will allow organizations to permanently store lessons
learned, contracted work products, and intellectual capital as a "knowledge
base". The Company's technology captures, codifies and integrates virtually
any form of knowledge into easily accessed and marketable formats. The
application of KF's software tools will provide a production process for
building small to large knowledge bases and assist companies in managing a
most important asset -- knowledge.
Software manufacturers will be able to license KF's software to enhance their
own information based applications. Individual users and corporate
enterprises alike will be able to permanently store their intellectual
capital, work products, experience, and learning in a knowledge base. These
knowledge bases will then be able to grow through the introduction of new
knowledge and be passed on from generation to generation.
KF's goal is to patent and establish its unique technology as an "industry
standard" for all knowledge based computing and plans to market its
technology to the world through licensing agreements.
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings.
The Company currently has a claim against them by a consultant over
consideration with regard to a finders fee for potential equity financing.
The Company believes that neither the merit or future outcome of such a claim
nor potential damages is readily determinable as of December 31, 2001 and
therefore has not accrued any liability in the accompanying financial
statements.
ITEM 2 Changes in Securities.
None.
ITEM 3 Defaults Upon Senior Securities.
Due to the accrued interest not being paid as of March 31, 2001, the total
accrued interest of $47,151 and the Note principal of $300,000 is considered
to be in default of the Note terms as of December 31, 2001.
The Company has borrowings from third parties totaling $75,000 under
unsecured notes payable. These notes payable accrue interest at 6% per
annum, and principal and accrued interest are due on or before January 1,
2002, or five days after receipt by the Company of additional debt or equity
financing in a sum of $500,000 or more. The note remains unpaid and is in
default on the date provision; additional financing exceeding $500,000 has
not occurred.
ITEM 4 Submission of Matters to a Vote of Securities Holders.
None.
ITEM 5: Other Information.
None
ITEM 6: Exhibits and Reports on 8-K:
Exhibit 10- Letter of Intent
Reports on Form 8-K.
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: February 19, 2002 By:/s/ Michael W. Dochterman
Michael W. Dochterman
President and Chief Executive Officer