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 ended March 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).
Yes
x No o
Indicate by check mark whether the registrant
has been subject to such filing requirements for the past 90 days.
Yes
o 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).
Yes
x No o
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. 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 |
|
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Item 4. Controls and Procedures |
15 |
|
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PART II—OTHER INFORMATION |
15 |
|
|
Item 1A. Risk Factors |
15 |
|
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Item 6. Exhibits |
16 |
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
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
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
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.
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.
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.
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.
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.
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.
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. |
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.
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.
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.
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 |
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) |
Exhibit 31
Certification
I, Vivek R. Dave, Ph.D., certify that:
1. I have reviewed this Form 10-Q quarterly
report of Knowledge Machine International, Inc. for the quarter ended March 31, 2015;
2. Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f)
and 15d–15(f)) for the registrant and have:
(a) Designed such
disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
(b) Designed such
internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the
effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed in
this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying
officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant
deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud,
whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: May 15, 2015
/s/ Vivek R. Dave
Vivek R. Dave, Ph.D., President
(Principal Executive Officer and
Principal Financial Officer)
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with
the quarterly report of Knowledge Machine International, Inc. (the “Company”) on Form 10-Q for the quarter ended March
31, 2015, as filed with the Securities and Exchange Commission (the “Report”), the undersigned principal executive
and financial officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that:
|
(1) |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 15, 2015
/s/ Vivek R. Dave
Vivek R. Dave, Ph.D., President
(Principal Executive Officer and Principal Financial Officer)
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