UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended:
June 30, 2015
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from _____________ to _____________
Commission File No. 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)
Issuer’s telephone number:
(603) 717-6279
Securities Registered pursuant
to Section 12(b) of the Act: None
Securities Registered pursuant
to Section 12(g) of the Exchange Act: None
Indicate by check mark if
the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No
x
Indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes x No
o
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes x No
o
Indicate by check mark whether
the registrant has submitted electronically and posted on its corporate Website, 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 if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
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
definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
o |
Accelerated filer |
o |
Non-accelerated filer |
o (Do not check if a smaller reporting company) |
Smaller reporting company |
x |
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No
x
The aggregate market value
of the voting and non-voting common equity held by non-affiliates of the registrant was $0 as of December 31, 2014, the last business
day of the registrant’s most recently completed second fiscal quarter.
At October 13, 2015, there were
47,625,000 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY
REFERENCE
None
TABLE OF CONTENTS
PART I |
3 |
Item 1. Business. |
3 |
Item 1a. Risk Factors. |
10 |
Item 1b. Unresolved Staff Comments. |
22 |
Item 2. Properties. |
22 |
Item 3. Legal Proceedings. |
22 |
Item 4. Mine Safety Disclosures. |
22 |
PART II |
23 |
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
23 |
Item 6. Selected Financial Data. |
23 |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
23 |
Item 7a. Quantitative and Qualitative Disclosures About Market Risk. |
26 |
Item 8. Financial Statements and Supplementary Data. |
26 |
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. |
26 |
Item 9a. Controls and Procedures. |
26 |
Item 9b. Other Information |
27 |
PART III |
28 |
Item 10. Directors, Executive Officers and Corporate Governance. |
28 |
Item 11. Executive Compensation |
29 |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
30 |
Item 13. Certain Relationships and Related Transactions, Director Independence. |
31 |
Item 14. Principal Accounting Fees and Services. |
31 |
PART IV |
32 |
Item 15. Exhibits, Financial Statement Schedules. |
32 |
SIGNATURES |
33 |
Throughout this report, unless
otherwise designated, the terms “we,” “us,” “our,” “the Company” and “our
company” refer to Knowledge Machine International, Inc., a Nevada corporation, and its consolidated subsidiary, Knowledge
Machine, Inc. All amounts in this report are in U.S. Dollars, unless otherwise indicated.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form
10-K contains “forward-looking statements,” as that term is defined under the Private Securities Litigation Reform
Act of 1995. The use of words such as “anticipates,” “estimates,” “expects,” “intends,”
“plans” and “believes,” among others, generally identify forward-looking statements. These forward-looking
statements are based on our management's expectations and assumptions about future events as of the date of this Annual Report
on Form 10-K, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.
Forward-looking statements include statements about our expectations, beliefs or intentions regarding our product offerings, business,
financial condition, results of operations, strategies or prospects. You can identify forward-looking statements by the fact that
these statements do not relate strictly to historical or current matters. Rather, 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. These
forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events
and financial performance. We undertake no obligation to update, and we do not have a policy of updating or revising, these forward-looking
statements.
PART I
ITEM 1. BUSINESS.
Historical Background
Our
Company was incorporated in the State of Nevada on December 27, 2012, to engage in the development and operation of a business
engaged in the distribution of high end cutlery sets produced in China. We conducted this business through October 22, 2014. On
October 22, 2014, we acquired an operating subsidiary, Knowledge Machine, Inc., a Nevada corporation, (“Knowledge Machine”)
and subsequently sold off our cutlery business. Knowledge Machine is a newly-formed technology company focused on targeting new
technologies, acquiring licensing rights to those technologies, forming joint ventures for initial product launch and commercialization
wherever feasible, and marketing our licensed technologies. Knowledge Machine is our only subsidiary.
Our
principal offices are located at 14 Hayward Brook Drive, Concord, NH 03301.
The
Company qualifies as an “emerging growth company” as defined in the Jumpstart our Business Startups Act (the “JOBS
Act”).
Acquisition of Knowledge
Machine and Change of Management
On October 22, 2014, we entered
into a contract with and completed the closing of the acquisition of Knowledge Machine in a stock-for-stock exchange in which we
issued 37,625,000 shares of our common stock on a pro rata basis to the shareholders of Knowledge Machine in return of all of the
outstanding shares of Knowledge Machine (the “Reorganization Agreement”). Knowledge Machine 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 on October 22, 2014, Mr. Kaspruk appointed Vivek R. Dave 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 to 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 ten-for-one 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 effective as of November 10, 2014. Articles of amendment
with the State of Nevada were filed to reflect the forward stock split and name change effective as of November 10, 2014.
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 had
and currently 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 who exchanged shares
under the Reorganization Agreement, including Messrs. Dave and Caswell, own 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 (the “Securities Act”), and may not be offered or sold in
the United States absent registration or an applicable exemption from registration requirements.
Business Overview
In connection with the closing
of the above transactions on October 22, 2014, we ceased our prior principal business operations (which were sold and transferred
to Mr. Kaspruk pursuant to the APA). Upon completion of these transactions, we acquired Knowledge Machine (which is now our wholly-owned
subsidiary) and became a technology company focused on targeting new technologies, acquiring licensing rights to those technologies,
and marketing our 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 acquire significant equity interests in these companies or 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. All references to business of the Company after the closing of the Reorganization Agreement refer to Knowledge
Machine International, Inc. and Knowledge Machine, Inc., collectively.
At its core, the business
processes of Knowledge Machine are anticipated to involve the following aspects:
| · | Identification of promising early–stage
technologies that have significant revenue potential within validated markets or within emerging markets |
| · | Technologies in the category above that
have issued patents or have patents pending |
| · | Creation and utilization of an IP-specific
search engine tool which will enable us to better match licensable IP across organizational and national boundaries, thereby resulting
in superior IP bundles for product definition and launch |
| · | Vetting of such early stage technologies
by our Science Advisory Board comprised of individuals with significant private and public sector experience with technology and
innovation |
| · | Structuring of licensing agreements, marketing
agreement, joint ventures, joint technology development agreements, or materials supply agreements depending on the specific business
opportunity and what would be best for advancing the purposes of the business plan |
| · | Specific technology focus areas such as
advanced materials, manufacturing, internet technologies and Big Data, biotech, and health care, especially in emerging markets
like India |
We are in the process of
evaluating a number of potential technologies, but we have not entered into any definitive agreements to acquire or exploit these
technologies.
In October 2015, we entered
into a non-binding letter of intent with an operating company, which, if consummated through a definitive agreement, would result
in a change of control of the Company. We are in the process of negotiating the terms of the proposed definitive agreement.
Science Advisory Board
Our Science Advisory Board was formed to perform
several critical functions including, but not limited to the following:
| · | Keep our list of target technologies up
to date, and fill in detail below each category as to which areas within the board technology focus areas are most attractive and
potentially profitable in the current environment; |
| · | Assist oversee the application of a systematic
project review process and take part in critical reviews/strategy meetings to closely advise our personnel; and |
| · | The Science Advisory Board is compensated
through our Equity Incentive Plan. |
The current members of our Science Advisory Board are:
Chief Scientist: Dr. Vivek R. Dave, Ph.D.,
CEO. Dr. Dave has degrees from Caltech and MIT and has extensive previous experience in the aerospace, defense, and additive
manufacturing / 3D Printing industries. He has held positions including Senior Engineer at Pratt and Whitney, Group Leader at Los
Alamos National Lab, and Chief Scientist at Sigma Labs (SGLB). He is currently the Chief Scientist for Sigma Labs Inc. He has over
50 publications and 10 patents or patents pending. He is a recognized expert in advanced aerospace and defense technology as well
as materials and materials processing.
Mr. Harshal Shah, Board Member and Asian
Market Advisor. Mr. Shah was a Truman Gray Scholar at MIT and MIT Sloan School of Management from which he has two Bachelors’
degrees in Electrical Engineering and Computer Science, and Management, with a minor in Economics. He has an MBA in Finance, Marketing
and Strategy from The Wharton School, University of Pennsylvania, and is an Andover Scholar from Phillips Academy in Andover, MA,
USA. Mr. Shah was with the Reliance Group, one of India’s largest conglomerates, which he joined in June 2005, as a member
of its Senior Leadership Team. At Reliance, he founded and spearheaded the Group’s corporate venture capital arm as CEO,
Reliance Venture Asset Management Ltd. and President, Reliance Capital Ltd. He was also keenly involved in strategy and implementation
for Reliance Capital Ltd since 2005. In 2010, he was elected, for three consecutive terms, as the President of American Alumni
Association of India. He is also a member of the MIT Sloan Executive Board and is on the Phillips Academy, Andover Asia Advisory
Council. Mr. Shah will be instrumental in generating Asian deal flow for Knowledge Machine.
Mr. Richard Mah, Board Member and Technology
Evaluation Lead. Mr. Mah is a high level executive within the commercial and government sectors having held positions of Principal
Associate Lab Director of Los Alamos National Lab and CEO of Sigma Labs (SGLB). At Los Alamos, Mr. Mah was in charge of all aspects
of the nuclear weapons program and ran a 5000+ person organization with annual budgets of $1B. He was also the Technology Licensing
Director for Los Alamos as well as a prominent figure in the University of California’s governance of the National Labs.
Mr. Mah has a background in metallurgy and degrees from the University of Illinois.
Dr. Charles Farrar, Ph.D. Dr.
Farrar is the Director of the Los Alamos Engineering Institute and is an Adjunct Professor at the University of California –
San Diego. A Civil Engineer by training, he is a world-recognized authority on smart structures and smart materials for a wide
range of applications. He is also a Fellow of the ASME, distinguished member of the Technical Staff and Laboratory Fellow at Los
Alamos National Laboratory.
Dr. Daniel Thoma, Ph.D. Dr. Thoma is
one of the premier metallurgists and materials scientists in the U.S. as well as internationally and currently serves as the Deputy
Division Director for the Materials Science and Engineering division at Los Alamos National Laboratory. Dr. Thoma is a Fellow of
many International technical societies include ASM and AIME. In his position at Los Alamos, he is significantly involved with IP
matters within the Materials Science and Engineering Division.
Mr. William H. King. Mr. King is a pioneer
in the aviation industry and has achieved many firsts including an advanced engine manufacturing process that allows military aircraft
to supercruise, i.e. reach supersonic speeds without afterburner. Mr. King was a Technology Manager at the Pratt and Whitney in
East Hartford, CT. He was very successful in technology transfer and commercialization from National Labs, Universities, and Research
Centers around the world. He has degrees in metallurgy from the University of Washington. He is a Fellow of the American Welding
Society.
Members of our Science Advisory
Board not only use their own efforts to target breakthrough technologies but they are also involved in the evaluation of such technologies
prior to entering into license or marketing agreements.
On April 25, 2014, an aggregate
of 11,500,000 shares of Knowledge Machine were granted to the members of our Science Advisory Board which were converted into
a like number of shares of the Company in connection with the closing of the Reorganization Agreement. Of these shares, 250,000
were cancelled and returned to the Company due to member resignation, 7,415,666 are vested and the remaining shares vest as follows:
1,915,666 on April 22, 2016 and 1,918,668 on April 22, 2017. Vesting is contingent on membership on the Science Advisory Board
as of the vesting date. Any unvested shares which lapse will be cancelled and returned to the authorized but unissued shares of
the Company. There was a resolution that suspended 2015 vesting and will similarly impact 2016 vesting. We have the option of
terminating the Science Advisory Board at any time, in which event any unvested shares would be cancelled and returned to the
authorized but unissued common stock of the Company.
Evaluation Process
Once a technology is targeted
on the deep web, either through web-based tools or through the efforts of our Science Advisory Board, management and our Science
Advisory Board will use various analytical techniques to evaluate the potential of the technology and whether it would be profitable
to either license or market. The process will include a checklist of expectations and will be systems engineering based.
Once the evaluation process
has been completed and we have decided that either licensing or marketing the technology may be profitable, we would enter into
negotiations with the owner of the technology. Negotiated arrangements could include licensing of the technology, a joint venture
arrangement with the owner, and marketing agreements. Licensing agreements would typically have two principal components: licensing
fees and royalties payments to the owner. Joint ventures would involve the development of joint work plans and allocation of resources
(monetary as well as personnel) from the two entities involved to achieve a commonly defined business plan and revenue target.
Marketing agreements may involve fees as well as royalty payments to enable Knowledge Machine to sell certain products or services
over different geographical regions. For both licensing and marketing agreements, we intend to always seek exclusivity for the
specific application of interest or the geographical region of interest. We may also attempt to jointly develop new technology.
Joint technology development agreements are agreements in which specific technologies are co-developed by Knowledge Machine and
a partner company. Both companies would retain possession of their pre-existing IP, and co-developed IP could be jointly assigned.
An integral part of such joint development agreements is a marketing and sales plan that would clearly define the revenue splits
between the two companies as it relates to the respective efforts put forth by both entities during the development of the specific
product or service in question. We feel that the combined experience of both management and our Science Advisory Board provides
us the ability to 1) acquire the licensing rights to a technology and to modify that technology to create a new and profitable
technology; or 2) acquire the marketing rights to a technology and to directly market the technology for a profit. We intend to
provide value by creating faster time to market, shorter times to revenues, and better chances for success through technology
and market risk reduction. We can also offer these services as outside consultants to our partner companies as part of our specific
agreement with them.
Products or Services
Targeting New Technologies
Score Technologies
On July 8, 2014, Knowledge Machine entered
into a Stock Subscription Agreement with Score Technologies, Inc., a Colorado corporation, (“Score”)
for the purchase of 100,000 shares of common stock of Score for $50,000. On August 4, 2014, the Stock Subscription Agreement was
subsequently cancelled and rescinded retroactively. The $50,000 payment made pursuant to the Stock Subscription Agreement was held
as a deposit towards partial payment on any future license agreements entered into between Score and us.
In addition, on July 2, 2014, we entered into
an Option Agreement with Score wherein Knowledge Machine paid a total of $25,000 for the option of entering into a license agreement
granting it the exclusive right to market and sell an application known as SCOREISPAPP (the “App”), proposed
to have been developed by Score, in the country of India. The option to enter into this license agreement would expire six months
after the date that Score notified KMI that the App was available for general sale and solicitation to the public. At that time,
Knowledge Machine would decide whether or not to exercise this option before the end of this calendar year.
As of the date of this present filing, it appears
that the App will not be developed and that the relationship between SCORE and Knowledge Machine will not progress and will not
go forward to produce a product to go to market. KMI has made demand for the return of its cash deposit but management does not
anticipate being able to collect the prior payment.
ARMS Technology
On June 23, 2014, Knowledge Machine entered
into a Stock Purchase Agreement with Allotrope Sciences Corporation, a Delaware corporation (“Allotrope”)
to purchase twelve percent of the total number of shares of Allotrope’s common stock for $150,000. Three payments of $50,000
each were due within ten, 30, and 90 business days of the signing of the agreement. The first payment of $50,000 was made and 4%
of Allotrope stock delivered to us prior to June 30, 2014. On October 14, 2014, the Company and Allotrope rescinded the original
agreement and are in the process of renegotiating the transaction.
Allotrope is a company that is commercializing
a new technology called ARMS under exclusive license agreements. ARMS stands for “Advanced Reactive Munitions and Structures.”
This new technology is ideally suited for unmanned aerial vehicles (“UAV”) or drone warfare and the security
needs and combat missions of the future for armies around the globe. Security needs of the future include counter-terrorism, drug
enforcement, counter piracy, and counter-insurgency in addition to potential threats posed by countries of states. These conflicts
are often in densely populated urban environments where avoiding collateral damage is essential, or conversely in very remote environments
where deploying large scale forces is impractical. UAVs and drones will find increasing use in both types of conditions.
UAVs and drones are currently an annual $7B
market growing at 5%+ compound annual growth rate (“CAGR”). Manufacturers are seeking to include new
weapon systems as part of their offerings, not just selling the aircraft only. ARMS is an ideal technology for this application
because it is very lightweight – up to 50% lighter than conventional weapons – and it packs a bigger punch because
the metal that makes up ARMS releases energy on impact – up to 50% higher energy output per pound. This means the weapons
can be made much lighter while still having the power required. Conversely, the weapons could be miniaturized for precision strike
in urban environments without collateral damage. We seek to enter into an agreement with Allotrope for the licensing of their technology
and to working with both foreign and domestic companies to commercialize the ARMS technology for UAV/drone use and to generate
revenues through material sales, licensing, and partnerships with manufacturers globally.
In addition, discussions are underway, in both
London and Switzerland, to establish offices at those locations.
Upon completion of financing, we intend to
initialize the use of our Science Advisory Board to begin identifying specific opportunities in the following technology spaces.
These other technologies are under consideration, but no definite agreement exists at this time.
| · | A joint development and manufacturing
agreement that would potentially give Knowledge Machine rights to a super-flexible conductor for high speed internet data cables
that would extend the ability of copper-based cables to go to higher data transfer rates without the use of fiber optics |
| · | The same material described above which
could be used for high end athletic orthotics and compression wear that will allow selective and multi-directional support of joints
during exercise to either avoid injuries from occurring in the first place or allow athletes to recover faster from injuries that
have already occurred |
| · | A 2.5D printing technology – i.e.
2D printing plus a slight 3D relief – that will be used for creation of fine art pieces. (Currently there is no art printing
technique that can emulate the organic manner in which oil paintings, murals, frescos, etc. are created by human artists.) |
| · | A super-energetic munitions technology
for US Government customers |
| · | A border incursion detection technology
for use in several nations once all required export licenses are obtained, if any are required |
Marketing and Sales
Marketing Plan/Study
We intend to conduct formal marketing studies
for the specific target technology areas we are seeking to help commercialize. For example, in collaboration with Allotrope, we
are working with TNO in the Netherlands, a recognized defense research establishment, to conduct a market survey for the specific
applicability of the ARMS technology to U.S. and NATO forces, and specifically what form factors and product manifestations will
be best suited for initial customer needs.
India Marketing
Management believes that after the landslide
election in India which brought Narendra Modi to power, there is a significant pro-growth, pro-business climate which is sweeping
in a new wave of Indian startups in fields as diverse as DNA therapies, computer science, energy, etc. With additional funding
we intend to create Knowledge Machine Pvt. Ltd. to be located in Mumbai, India, a wholly owned Indian subsidiary which would seek
outstanding opportunities in India that also could have strong market potential in Europe and North America. Harshal Shah, our
India-based Science Board Member and Asian Market Advisor, would play a significant role in this office.
Major Customers
We have continued to negotiate for a number
of new technologies and we intend to generate a mix of customers ranging from many individual consumers to large industrial companies
such as those involved in defense manufacturing.
Major Contracts
We remain in the startup
phase and there are no existing acquisition or sales contracts or arrangements at this time.
Competition
Competition for our products and services is
again divided according to the industry segment for the specific technologies that we are attempting to help commercialize. Potential
companies which could offer competing products and services are further discussed in the section below, but first the descriptions
of the industries to be addressed by us at this stage are described. The specific industry segments will now be discussed on a
product by product basis.
ARMS
In the U.S., there are well-established munitions
manufacturers such as ATK, Aerojet, General Dynamics–OTS, and Raytheon. In Europe, firms such as NAMMO in Norway, Rheinmetall
in Germany, BAE systems in the UK, and TDA Arements SAS in France are all possible customers for the ARMS technology. However,
a significant fraction of these firms are engaged in their own research and development to develop munitions and materials with
similar performance characteristics as ARMS.
Industry Information
For ARMS, the relevant industry details are
in two market segments: precision guided munitions or so-called smart weapons, and UAVs. For precision guided munitions, the worldwide
market is $3.6 billion and could reach $5.3 billion by 20181. India and the Middle East countries are leading arms
importers and account for a lot of the growth in this area, as does China. The U.S. UAV market alone for military applications
is expected to reach over $18 billion by 2018 and has a growth rate of 12% CAGR2. The reason why the UAV market is
important to ARMS is that ARMS would enable a new class of custom munitions specifically suited to UAVs to be designed and built.
Management believes UAV manufacturers are seeking to expand into these areas and offer more complete capabilities as opposed to
just the UAV platform itself.
______________________
1 http://www.defensenews.com/article/20140727/DEFREG04/307270018/Mideast-US-Lead-Sharp-Rise-Munitions-Market
2 http://www.marketresearchmedia.com/?p=509
Competitive Strategy
ARMS technology represents a new capability
and especially in the UAV space it offers the opportunity to create new series of products and offerings. As a result, it is not
a commodity but is at the high end of precision guided munitions capabilities.
In each marketspace that we intend to address,
we propose to similarly seek to offer products and services based on value and not competing strictly on price. Inevitably, however,
such a value-based offering cannot continue indefinitely without continued technological innovation, as competing offerings would
likely similarly try to position themselves based on their own value propositions. Therefore, to create sustainable advantage in
any given marketspace, partnerships will be essential to leverage the capabilities of other companies in other each individual
marketspace. This could take the form of joint development agreements, joint marketing and sales agreements, or even new joint
venture companies.
Intellectual Property
One of the main objectives of our company is
to identify promising and potentially breakthrough technology in different marketspaces and to obtain access to the enabling IP,
either through licensing, marketing and sales agreements, joint development agreements, joint ventures, or through jointly assigned
IP filings. Our business strategy and execution is therefore extremely dependent on IP and maximizing any potential return on IP.
Method of Protection
If we are able to identify appropriate technology
and enter into agreements or arrangements with the owners of the technology, we intend to file patents, either jointly with other
entities or on our own as required, in addition to filing trademarks, copyrights, and other IP protections as required and as beneficial
to our business.
Research and Development
Our business strategy of IP licensing and maximizing
return on IP necessarily involves research and development. However, in order to minimize costs internally, we will seek to conduct
this research through other partners. For example, in both the Score and ARMS technologies, significant research and development
funding was previously invested in these technologies in order to mature them to a state of development. We intend to similarly
leverage funds from joint venture partners in order to maximize the return on research and development investments and minimize
internal expenditures. For example, if we enter into a joint research and development agreement with additional revenue sharing
provisions, such an agreement would leverage whatever investments we make of money and manpower with those of our partner and define
a revenue split based on each firms individual contributions to the overall product or service thus created.
Government Regulation
The
types of products and services that we propose to develop are not anticipated to be subject to governmental regulations, with
the exception of technologies such as the ARMS technology. ARMS is subject to the International Traffic in Arms Regulations of
the U.S. Government (“ITAR”). ITAR is a set of U.S. government regulations that controls the export
and import of defense-related articles and services on the U.S. Munitions List. These regulations implement the provisions of
the Arms Export Control Act, and are described in Title 22 (Foreign Relations), Chapter I (Department of State), Subchapter M
of the Code of Federal Regulations. The Department of State’s Directorate of Defense Trade Controls interprets and enforces
ITAR. Its goal is to safeguard U.S. national security and further U.S. foreign policy objectives. The related Export Administration
Regulations (Code of Federal Regulations Title 15 chapter VII,
subchapter C) are enforced and interpreted by the Bureau of Industry and Security in
the Commerce Department. The Department of Defense is also involved in the review and approval process. Physical enforcement of
import and export laws at border crossings is performed by Customs and Border Protection, an agency of the Department of Homeland
Security.
Employees
As ofOctober 9, 2015, we
had no full-time employees. We are currently accomplishing our business objectives with contractors, including our President and
CEO who is currently providing services to the Company in a contractor capacity. Our President has provided these services without
compensation since January 1, 2015. If we are able to secure additional funding we intend to add personnel and full time employees
as determined by management and as per the needs of specific revenue, sales, and marketing objectives.
ITEM 1A. RISK FACTORS.
An investment in our Company
involves significant risks, including the risks described below. You should consult with your own financial and legal advisors
and carefully consider the material risks described below, together with all of the other information in this annual report on
Form 10-K. If any of the following risks actually occur, our business, financial condition and results of operations could suffer,
and the trading price of our common stock could decline.
Risks Related to Our Company
and Its Business
We do not have funds
sufficient to continue operations beyond December 31, 2015. If we fail to obtain additional funds for our proposed operations,
we will not be able to implement our current business plan and may be forced to liquidate the Company.
We presently have funds to
meet our cash flow requirements, which consist of preparing our financial statements and our reports which we file with the SEC,
for a very limited period. We have no funds to fully implement our business model. Our present and future capital requirements
to implement our business plan depend on many factors, including:
| · | the level of research and development
investment required to develop our product incorporating our licensed technologies, and maintain and improve our licensed technology
position; |
| · | the costs of identifying new technology
candidates; |
| · | our success in establishing and effecting
out-licensing agreements with strategic partners, the terms of these agreements and the success of these potential future licensees
and partners in selling our products; |
| · | the costs of investigating patents that
might block us from developing potential technology candidates; |
| · | the costs of recruiting and retaining
qualified personnel; |
| · | the costs associated with regulatory compliance; |
| · | the number of technology candidates we
pursue; |
| · | the costs of filing, prosecuting, defending
and enforcing patent claims and other intellectual property rights; |
| · | our need or decision to acquire or license
complementary technologies or new platform or technology candidate targets; and |
| · | the costs of financing unanticipated working
capital requirements and responding to competitive pressures. |
We currently have no agreements
or arrangements to provide funding to implement our current business plan. If we are unable to obtain the funds necessary for our
operations, we will be unable to acquire, maintain and improve, and market our licensed technologies. We will also be unable to
develop and commercialize our products and technologies, which would materially and adversely affect our business, liquidity and
results of operations.
We have a limited operating
history, are not currently profitable, do not expect to become profitable in the near future and may never become profitable.
We are a newly-formed technology
company with a limited operating history. We are not profitable and have incurred losses since inception. We have not generated
any net revenue since inception, expect to incur substantial losses for the foreseeable future, and may never become profitable.
We also expect to incur significant operating and capital expenditures and anticipate that our expenses and losses will increase
substantially in the foreseeable future as we:
| · | target and negotiate licensing and marketing
agreements with target technologies; |
| · | implement internal systems and infrastructure; |
| · | seek to develop licensed technologies; |
| · | hire management and other personnel; and |
| · | move licensed technology towards commercialization. |
Even if we are able to secure
funding to implement our business plan, we expect to continue to experience negative cash flow for the foreseeable future. As a
result, we will need to generate significant revenues in order to achieve and maintain profitability. We may not be able to generate
these revenues or achieve profitability in the future. If our licensed or marketed technologies do not achieve market acceptance,
we may never become profitable. Our failure to achieve or maintain profitability, or substantial delays in achieving profitability,
could negatively impact the value of our common stock and our ability to raise additional financing. A substantial decline in the
future value of our common stock would also affect the price at which we could sell shares to secure future funding, which could
dilute the ownership interest of current stockholders.
Even if we achieve profitability
in the future, we may not be able to sustain profitability in subsequent periods. Accordingly, it is difficult to evaluate our
business prospects. Moreover, our prospects must be considered in light of the risks and uncertainties encountered by an early-stage
company in competitive markets, such as the technology market, where market acceptance of our products is uncertain. There can
be no assurance that our efforts will ultimately be successful or result in revenues or profits.
Because of our limited
operating history, we cannot ensure the long-term successful operation of our business or the execution of our business plan.
Although Knowledge Machine,
our wholly owned subsidiary, entered into licensing and marketing agreements for various technologies prior to the closing of the
Reorganization Agreement, which agreements have been terminated, we have a limited operating history upon which to evaluate our
proposed business and prospects. Our proposed business operations will be subject to numerous risks, uncertainties, expenses and
difficulties associated with early stage enterprises. Such risks include, but are not limited to, the following:
| · | the absence of a lengthy operating history; |
| · | insufficient capital to fully realize
our operating plan; |
| · | expected continual losses for the foreseeable
future; |
| · | operating in multiple currencies; |
| · | social and political unrest; |
| · | our ability to anticipate and adapt to
a developing market(s); |
| · | acceptance of our licensed and marketed
technologies by consumers; |
| · | limited marketing experience; |
| · | a competitive environment characterized
by well-established and well-capitalized competitors; |
| · | the ability to identify, attract and retain
qualified personnel; and |
| · | reliance on key personnel. |
Because we are subject to
these risks, evaluating our business may be difficult, our business strategy may be unsuccessful and we may be unable to address
such risks in a cost-effective manner, if at all. If we are unable to successfully address these risks our business will be harmed.
The
future impact of the SEC’s investigation into the Company, if any, is unknown, but any future involvement in the investigation
could have a material effect on us.
On
December 23, 2014, we received a subpoena from the Miami Regional Office of the SEC that stated that the staff of the SEC is conducting
a formal, non-public investigation into several companies, including ours. We are cooperating with the SEC and are completing the
production of documents in response to the subpoena. In addition, the SEC may in the future require us to produce additional documents
or other materials.
In
general, the subpoena requires that we give the SEC a broad range of documents regarding both our parent and subsidiary companies.
Although the SEC has not publicly disclosed the goals and targets of its investigation, we believe that the SEC may be investigating
improper conduct which occurred prior to the reverse acquisition with Knowledge Machine. Nevertheless, until, if ever, the investigation
is made public, we will not know the identity of those targeted in the investigation.
We are unaware of the scope
or timing of the SEC’s investigation. As a result, we do not know how the SEC investigation is proceeding, when the investigation
will be concluded, or if we will become involved to a greater extent than in response to the December 2014 subpoena. If we receive
additional subpoenas or other requests for documents from the SEC, complying with any such future requests could distract the time
and attention of our officers and directors or divert our resources away from ongoing research and development programs. Furthermore,
it is possible that we currently are, or may hereafter become, a target of the SEC’s investigation. Any such investigation
could result in significant legal expenses, the diversion of management’s attention from our business plans, damage to our
proposed business and our reputation, and could subject us to a wide range of remedies, including an SEC enforcement action. An
adverse ruling in any regulatory proceeding could impose upon us fines, penalties, or other remedies which could have a material
adverse effect on any future results of operations and financial condition.
We have not yet commercialized
any products or technologies, and we may never become profitable.
We have not yet commercialized
any licensed or marketed technologies, and we may never be able to do so. We do not know when or if we will complete any of our
product development efforts or successfully commercialize any of our licensed or marketed products. Even if we are successful in
developing licensed products that reach commercialization, we will not be successful unless these products gain market acceptance.
The degree of market acceptance of these products will depend on a number of factors, including:
| · | the competitive environment; |
| · | our ability to enter into strategic agreements
with technology companies with strong marketing and sales capabilities; and |
| · | the adequacy and success of distribution,
sales and marketing efforts. |
Even if we successfully develop
one or more products that incorporate our licensed technologies, we may not become profitable.
We expect that we will
need to raise additional capital to meet our business requirements in the future, and such capital raising may be costly or difficult
to obtain and may dilute current stockholders’ ownership interests. An inability to raise the necessary capital or to do
so on acceptable terms would threaten the success of our business.
The Company is addressing
its liquidity issues by implementing initiatives to raise additional funds as well as other measures that will cover its anticipated
budget needs. Because of the uncertainties in our business, including the uncertainties discussed in this “Risk Factors”
section, we cannot assure that without additional financing, we will be able to maintain our operations as currently planned. Our
future capital requirements will depend on many factors, including the profitability of our current portfolio of technologies,
the number and development requirements of other technology candidates that we pursue, and the costs of operations. Because of
the numerous risks and uncertainties associated with the development and commercialization of our current portfolio of technologies
and technology candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated
with our anticipated operations. It is highly likely that we will need to raise additional funds through public or private debt
or equity financings to meet various objectives including, but not limited to:
| · | the progress of the development and marketing
of our current technology portfolio; |
| · | the number of new technologies we pursue; |
| · | the costs involved in filing and prosecuting
patent applications and enforcing or defending patent claims; |
| · | whether or not we establish our own sales,
marketing and/or manufacturing capabilities; |
| · | our ability to establish, enforce and
maintain selected strategic alliances and activities required for product development and commercialization; |
| · | our revenues, if any, from successful
development and commercialization of any technology candidates; |
| · | hiring qualified management and key employees; |
| · | responding to competitive pressures; and |
| · | maintaining compliance with applicable
laws. |
To carry out our business
plan and implement our strategy, we anticipate that we will need to obtain additional financing immediately and from time to time
in the future, and may choose to raise additional funds through strategic collaborations, public or private equity or debt financing,
a bank line of credit, asset sales or other arrangements. We cannot be sure that any additional funding, if needed, would be available
on terms favorable to us or at all. Furthermore, any additional capital raised through the sale of equity or equity-linked securities
may dilute our current stockholders’ ownership in us and could also result in a decrease in the market price of our common
stock. The terms of those securities issued by us in future capital transactions may be more favorable to new investors and may
include the issuance of warrants or other derivative securities, which may have a further dilutive effect. Furthermore, any debt
financing, if available, may subject us to restrictive covenants and significant interest costs. If we obtain funding through a
strategic collaboration, we may be required to relinquish our rights to certain of our technologies, products or marketing territories.
In addition, certain investors, including institutional investors, may be unwilling to invest in our securities since our common
stock is quoted on the OTCBB, and is not traded on a national securities exchange. Our inability to raise capital when needed would
harm our business, financial condition and results of operations, could cause our stock price to decline, and we may not be able
to continue operating if we do not generate sufficient revenues from operations.
We may incur substantial
costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance
fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection
with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition.
If we are unable to
attract and retain key personnel, it could adversely affect our ability to develop and market our products.
We have been unable to pay
the agreed consulting fees to our key personnel. While we intend to attempt to attract and retain key personnel to the best of
our ability, some of our competitors are likely to have greater resources and more experience than we do, making it difficult for
us to compete successfully for key personnel. If we are ultimately unable to attract and retain key personnel, we likely would
not be able to develop and market our products and licensed technologies. If we are unable to generate funds to pay and retain
key personnel or replace them, our business, financial condition and results of operations, would be materially adversely affected.
If we acquire or license
additional technology candidates, we may incur a number of costs and may experience other risks that could harm our business and
results of operations.
We may license additional
technology candidates. Any technology candidate we license from others will likely require additional development efforts prior
to commercial sale. All technology candidates are prone to risks of failure inherent in technology development, including the possibility
that the technology candidate or product developed based on licensed technology will not commercially accepted. In addition, we
cannot assure you that any technology candidate that we develop based on licensed technology will be manufactured or produced economically,
successfully commercialized or widely accepted in the marketplace. Moreover, integrating any newly acquired technology candidates
could be expensive and time-consuming. If we cannot effectively manage these aspects of our business strategy, our business may
not succeed.
We depend on key members
of our management and key consultants and will need to add and retain additional leading experts. Failure to retain our management
and consulting team and add additional leading experts could have a material adverse effect on our business, financial condition
and results of operations.
We are highly dependent on
our principal executive officer and other key management and technical personnel, including our Science Advisory Board. Our failure
to retain our Chairman, Vivek Dave, Ph.D. or any other key management and technical personnel, could have a material adverse effect
on our future operations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical,
and management personnel, among others, to continue the development and commercialization of our current portfolio and future licensed
technologies.
Our future success highly
depends on our ability to attract, retain and motivate personnel, including contractors, required for the development, maintenance
and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional
qualified employees or consultants. The loss of key personnel or the inability to hire and retain additional qualified personnel
in the future could have a material adverse effect on our business, financial condition and results of operations.
Under current U.S.
law, we may not be able to enforce employees’ covenants not to compete and therefore may be unable to prevent our competitors
from benefiting from the expertise of some of our former employees.
Although we intend to enter
into non-competition agreements with our key employees, in most cases within the framework of their employment agreements, we currently
do not have any employees. We do have a consulting agreement with Mr. Dave which does not contain non-competition provisions. Future
agreements may prohibit our key employees, if they cease working for us, from competing directly with us or working for our competitors
for a limited period. Under applicable U.S. law, we may be unable to enforce these agreements. If we cannot enforce our non-competition
agreements with our employees, then we may be unable to prevent our competitors from benefiting from the expertise of our former
employees, which could materially adversely affect our business, results of operations and ability to capitalize on our proprietary
information.
We face significant
competition and continuous technological change, and developments by competitors may render our licensed technologies obsolete
or non-competitive. If we cannot successfully compete with new or existing products, our marketing and sales will suffer
and we may not ever be profitable.
If we are able to fund and
implement our business plan we will likely compete against fully integrated technology companies and smaller companies that are
collaborating with larger technology companies, academic institutions, government agencies and other public and private research
organizations. In addition, many of these prospective competitors, either alone or together with their collaborative partners,
operate larger research and development programs than we do, and have substantially greater financial resources than we do.
If our prospective competitors
develop and commercialize technologies faster than we do, or develop and commercialize technologies that are superior to our technology
candidates, our commercial opportunities will be reduced or eliminated. The extent to which any of our technology candidates achieve
market acceptance will depend on competitive factors, many of which are beyond our control. Competition in the technology industry
is intense and has been accentuated by the rapid pace of development. Our competitors include large integrated technology companies,
universities, and public and private research institutions. Almost all of these entities have substantially greater research and
development capabilities and financial, scientific, manufacturing, marketing and sales resources than we do. These organizations
also compete with us to:
| · | attract parties for acquisitions, joint
ventures or other collaborations; |
| · | license proprietary technology that is
competitive with the technology we are developing; |
| · | attract and hire talented and other qualified
personal. |
Our competitors may succeed
in developing and commercializing products earlier than we do. Our competitors may also develop products or technologies that are
superior to those we are developing, and render our technology candidates or technologies obsolete or non-competitive. If we cannot
successfully compete with new or existing products and technologies, our marketing and sales will suffer and we may not ever be
profitable.
We may incur substantial
liabilities and may be required to limit commercialization of our licensed technologies in response to product liability lawsuits,
which may result in substantial losses.
Any of our product candidates
could cause adverse events, including injury. These adverse events may not be observed during product development, but may nonetheless
occur in the future. If any of these adverse events occur, they may render our technology candidates ineffective or harmful, and
our sales would suffer, materially adversely affecting our business, financial condition and results of operations.
In addition, potential adverse
events caused by our technology candidates could lead to product liability lawsuits. If product liability lawsuits are successfully
brought against us, we may incur substantial liabilities and may be required to limit the marketing and commercialization of our
technology candidates. Our business exposes us to potential product liability risks, which are inherent in the testing, manufacturing,
marketing and sale of licensed technologies and our products. We may not be able to avoid product liability claims. We currently
do not carry product liability insurance for our licensed technologies and products and may never do so. If, at any time, we are
unable to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability
claims, we may be unable to develop, market or commercialize our technology candidates. A successful product liability claim brought
against us in excess of our insurance coverage, if any, may cause us to incur substantial liabilities, and, as a result, our business,
liquidity and results of operations would be materially adversely affected. In addition, the existence of a product liability claim
could affect the market price of our common stock.
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. In addition, we are not eligible for certain forms of registration
statements, such as Form S-8 for equity compensation plans. We are also not permitted to rely on provisions of Rule 144 which
apply to issuers subject to the reporting obligations of the Exchange Act, which may make reliance on this rule by our shareholders
more difficult.
We may encounter difficulties
in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results of
operations and financial condition.
We may not be able to successfully
grow and expand. Successful implementation of our business plan will require management of growth, including potentially rapid
and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain
on our human and capital resources. To manage growth effectively, we will be required to continue to implement and improve our
operating and financial systems and controls to expand, train and manage our employee base. Our ability to manage our operations
and growth effectively requires us to continue to expend funds to enhance our operational, financial and management controls, reporting
systems and procedures and to attract and retain sufficient numbers of talented personnel. If we are unable to scale up and implement
improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls,
then we will not be able to make available the products required to successfully commercialize our licensed technologies. Failure
to attract and retain sufficient numbers of talented personnel will further strain our human resources and could impede our growth
or result in ineffective growth. Moreover, the management, systems and controls currently in place or to be implemented may not
be adequate for such growth, and the steps taken to hire personnel and to improve such systems and controls might not be sufficient.
If we are unable to manage our growth effectively, it will have a material adverse effect on our business, results of operations
and financial condition.
If we are unable to
obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured
loss or damage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected
if we experience difficulty in obtaining adequate directors’ and officers’ liability insurance.
If we are able to fully implement
our business plan, we may not be able to obtain insurance policies on terms affordable to us that would adequately insure our business
and property against damage, loss or claims by third parties. To the extent our business or property suffers any damages, losses
or claims by third parties, which are not covered or adequately covered by insurance, our financial condition may be materially
adversely affected.
We may be unable to obtain
and maintain sufficient insurance as a public company to cover liability claims made against our officers and directors. If we
are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers and directors
to manage the Company.
If we fail to maintain
an effective system of internal controls, we may not be able to accurately report our financial results or detect fraud. Consequently,
investors could lose confidence in our financial reporting and this may decrease the trading price of our stock.
We must maintain effective
internal controls to provide reliable financial reports and detect fraud. Our failure to properly maintain an effective system
of internal controls could harm our operating results and cause investors to lose confidence in our reported financial information.
In addition, such failure may cause us to suffer violations of the U.S. federal securities laws to the extent we are unable to
maintain effective internal controls. Any such loss of confidence or violations would have a negative effect on the trading price
of our stock.
Recent disruptions
in the financial markets and economic conditions could affect our ability to raise capital.
In past years, the U.S. and
global economies have taken a dramatic downturn as the result of the deterioration in the credit markets and related financial
crisis as well as a variety of other factors including, among other things, extreme volatility in securities prices, severely diminished
liquidity and credit availability, ratings downgrades of certain investments and declining valuations of others. The U.S. and certain
foreign governments have recently taken unprecedented actions in an attempt to address and rectify these extreme market and economic
conditions by providing liquidity and stability to the financial markets. If the actions taken by these governments are not successful,
the continued economic decline may cause a significant impact on our ability to raise capital, if needed, on a timely basis and
on acceptable terms or at all. In addition, we rely and intend to rely on third-parties, including our clinical research organizations,
third-party manufacturers and second source suppliers, and certain other important vendors and consultants. As a result of the
current volatile and unpredictable global economic situation, there may be a disruption or delay in the performance of our third-party
contractors and suppliers. If such third-parties are unable to satisfy their contractual commitments to us, our business could
be severely adversely affected.
Our current management
team has little or no experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately
comply with federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially
adversely affect our business, results of operations and financial condition.
Our current management team
has little or no experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with
any laws, rules, or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely
affect our business, results of operation, or financial conditions and could result in delays in achieving the development of an
active and liquid trading market for our common stock.
As an “emerging
growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.
As an “emerging growth
company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.
We are an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual
gross revenues of $1 billion or more, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first
sale of our common stock pursuant to an effective registration statement, (iii) the date on which we have, during the previous
three-year period, issued more than $1 billion in non-convertible debt or (iv) the date on which we are deemed a “large accelerated
issuer” as defined in Regulation S-K of the Securities Act. For so long as we remain an emerging growth company, we will
not be required to:
| · | have an auditor report on our internal
control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; |
| · | comply with any requirement that may be
adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s
report providing additional information about the audit and the financial statements (auditor discussion and analysis); |
| · | submit certain executive compensation
matters to shareholders advisory votes pursuant to the “say on frequency” and “say on pay” provisions (requiring
a non-binding shareholder vote to approve compensation of certain executive officers) and the “say on golden parachute”
provisions (requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in
connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act
of 2010; and |
| · | include detailed compensation discussion
and analysis in our filings under the Exchange Act, and instead may provide a reduced level of disclosure concerning executive
compensation. |
Although we intend to rely
on the exemptions provided in the JOBS Act if we recommence our reporting obligations, the exact implications of the JOBS Act for
us are still subject to interpretations and guidance by the SEC and other regulatory agencies. In addition, as our business grows,
we may no longer satisfy the conditions of an emerging growth company. We are currently evaluating and monitoring developments
with respect to these new rules and we cannot assure you that we will be able to take advantage of all of the benefits from the
JOBS Act.
Risks Relating to Our
Intellectual Property
If we fail to adequately
protect or enforce or secure rights to any patents we may own in the future, the value of our intellectual property rights would
diminish and our business and competitive position would suffer.
Our success, competitive
position, and future revenues, if any, depend in part on our ability to obtain and successfully leverage intellectual property
covering any prospective products incorporating our licensed technologies and technology candidates, know-how, methods, processes,
and other technologies, to protect our trade secrets, to prevent others from using our intellectual property and to operate without
infringing the intellectual property rights of third parties.
The risks and uncertainties
that we face with respect to our intellectual property rights include, but are not limited to, the following:
| · | the degree and range of protection any
patents will afford us against competitors; |
| · | if and when patents will issue; |
| · | whether or not others will obtain patents
claiming aspects similar to those covered by our own or licensed patents and patent applications; |
| · | we may be subject to interference proceedings; |
| · | we may be subject to opposition proceedings
in foreign countries; |
| · | any patents that are issued may not provide
meaningful protection; |
| · | we may not be able to develop additional
proprietary technologies that are patentable; |
| · | other companies may challenge patents
licensed or issued to us or our customers; |
| · | other companies may independently develop
similar or alternative technologies, or duplicate our technologies; |
| · | other companies may design around technologies
we have licensed or developed; |
| · | enforcement of patents is complex, uncertain
and expensive; and |
| · | whether we will need to initiate litigation
or administrative proceedings that may be costly whether we win or lose. |
If patent rights covering
any prospective products incorporating our licensed technology and methods are not sufficiently broad, they may not provide us
with any protection against competitors with similar products and technologies. Furthermore, if the United States Patent and Trademark
Office, or the USPTO, or foreign patent offices issue patents to us or our licensors, others may challenge the patents or design
around the patents, or the patent office or the courts may invalidate the patents. Thus, any patents we own or license from or
to third parties may not provide any protection against our competitors.
We cannot be certain that
patents will be issued as a result of any future applications, and we cannot be certain that any of our issued patents, licensed
from various licensors (or any other third-party in the future), will give us adequate protection from competing products. For
example, issued patents, including the patents licensed to us, may be circumvented or challenged, declared invalid or unenforceable,
or narrowed in scope.
In addition, since publication
of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the
first to make our inventions or to file patent applications covering those inventions.
It is also possible that
others may obtain issued patents that could prevent us from commercializing our licensed products or require us to obtain licenses
requiring the payment of significant fees or royalties in order to enable us to conduct our business. As to those patents that
we have licensed to us, our rights depend on maintaining our obligations to the licensor under the applicable license agreement,
and we may be unable to do so.
In addition to patents and
patent applications, we intend to depend upon trade secrets and proprietary know-how to protect any prospective licensed technology.
We intend to require our employees, consultants, advisors and collaborators to enter into confidentiality agreements that prohibit
the disclosure of confidential information to any other parties. We intend to require our employees and consultants to disclose
and assign to us their ideas, developments, discoveries and inventions. These agreements may not, however, provide adequate protection
for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure.
If licensors of any licensed
technologies acquired in the future determine not to protect the intellectual property rights that we license from them we may
be unable defend such intellectual property rights on our own or we may have to undertake costly litigation to defend the intellectual
property rights of the licensors ourselves. There can be no assurances that we will continue to have proprietary rights to any
of the intellectual property that we license from licensors, or otherwise have the right to use through similar strategic relationships.
Any loss or limitations on use with respect to our right to use such licensed intellectual property could have a material adverse
effect on our business, results of operations and financial condition.
Costly litigation may
be necessary to protect our prospective intellectual property rights and we may be subject to claims alleging the violation of
the intellectual property rights of others.
As we implement our business
plan, we may face significant expense and liability as a result of litigation or other proceedings relating to patents and other
intellectual property rights of others. In the event that another party has also filed a patent application or been issued a patent
relating to an invention or technology claimed by us in future applications, we may be required to participate in an interference
proceeding declared by the USPTO to determine priority of invention, which could result in substantial uncertainties and costs
for us, even if the eventual outcome were favorable to us. We, or our licensors, also could be required to participate in interference
proceedings involving issued patents and pending applications of another entity. An adverse outcome in an interference proceeding
could require us to cease using the technology or to license rights from prevailing third parties.
The cost to us of any patent
litigation or other proceeding relating to our licensed patents or patent applications, even if resolved in our favor, could be
substantial and could divert management’s resources and attention. Our ability to enforce our patent protection could be
limited by our financial resources, and may be subject to lengthy delays. If we are unable to effectively enforce our proprietary
rights, or if we are found to infringe the rights of others, we may be in breach of our various license agreements.
A third party may claim that
we are using inventions claimed by their patents and may go to court to stop us from engaging in our normal operations and activities,
such as research, development and the sale of any future products. Such lawsuits are expensive and would consume time and other
resources. There is a risk that the court will decide that we are infringing the third party’s patents and will order us
to stop the activities claimed by the patents, redesign our products or processes to avoid infringement or obtain licenses (which
may not be available on commercially reasonable terms or at all). In addition, there is a risk that a court will order us to pay
the other party damages for having infringed their patents.
Moreover, there is no guarantee
that any prevailing patent owner would offer us a license so that we could continue to engage in activities claimed by the patent,
or that such a license, if made available to us, could be acquired on commercially acceptable terms. In addition, third parties
may, in the future, assert other intellectual property infringement claims against us with respect to our product candidates, technologies
or other matters. Any claims of infringement asserted against us, whether or not successful, may have a material adverse effect
on us.
We rely on confidentiality
agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual property
to compete against us.
Although we believe that
we take reasonable steps to protect our intellectual property, including the use of agreements relating to the non-disclosure of
confidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of
the rights to the ideas, developments, discoveries and inventions of our employees and consultants while we employ them, the agreements
can be difficult and costly to enforce. Although we seek to obtain these types of agreements from our contractors, consultants,
advisors and research collaborators, to the extent that employees and consultants utilize or independently develop intellectual
property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with our
products. If a dispute arises, a court may determine that the right belongs to a third party. In addition, enforcement of our rights
can be costly and unpredictable. We also rely on trade secrets and proprietary know-how that we seek to protect in part by confidentiality
agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ, we still
face the risk that:
| · | these agreements may be breached; |
| · | these agreements may not provide adequate
remedies for the applicable type of breach; |
| · | our trade secrets or proprietary know-how
will otherwise become known; or |
| · | our competitors will independently develop
similar technology or proprietary information. |
International patent
protection is particularly uncertain, and if we are involved in opposition proceedings in foreign countries, we may have to expend
substantial sums and management resources.
Patent law outside the United
States is may be different than in the United States. Further, the laws of some foreign countries may not protect our intellectual
property rights to the same extent as the laws of the United States, if at all. A failure to obtain sufficient intellectual property
protection in any foreign country could materially and adversely affect our proposed business, results of operations and future
prospects. Moreover, we may participate in opposition proceedings to determine the validity of our foreign patents or our competitors’
foreign patents, which could result in substantial costs and divert management’s resources and attention.
Risks Related to Our Industry
We are subject to government
regulations and we may experience delays or may be unsuccessful in obtaining required regulatory approvals within or outside the
United States to market our proposed technology candidates, and even if we obtain approval, the approved indications may impair
our ability to successfully market the product or make commercial distribution not feasible.
Various aspects of our proposed
operations may be subject to federal, state or local laws, rules and regulations, any of which may change from time to time. Costs
arising out of any regulatory developments could be time-consuming and expensive and could divert management resources and attention
and, consequently, could adversely affect our business operations and financial performance.
Delays in regulatory approval,
limitations in regulatory approval and withdrawals of regulatory approval may have a material adverse effect on the Company. If
we experience significant delays in testing or receiving approvals, our product development costs, or our ability to license technology
candidates, will increase. Any product approvals that we receive in the future could also include significant restrictions on the
use or marketing of our licensed technologies. Product approvals, if granted, can be withdrawn for failure to comply with regulatory
requirements or upon the occurrence of adverse events following commercial introduction of the products. Failure to comply with
applicable regulatory requirements may result in criminal prosecution, civil penalties, recall or seizure of products, total or
partial suspension of production or injunction, as well as other regulatory action against our technology candidates or us. If
approval is withdrawn for a product, or if a product were seized or recalled, we would be unable to sell or license that product
and our revenues would suffer. In addition, outside the United States, our ability to market any of our potential licensed technologies
is contingent upon receiving market application authorizations from the appropriate regulatory authorities.
Risks Relating to Ownership
of Our Common Stock
We have not paid, and
do not intend to pay, dividends on our common stock and therefore, unless our common stock appreciates in value, our investors
may not benefit from holding our common stock.
We have not paid any cash
dividends on our common stock since inception. We do not anticipate paying any cash dividends our common stock in the foreseeable
future. As a result, investors in our common stock will not be able to benefit from owning our common stock unless the market price
of our common stock becomes greater than the price paid for the stock by investors.
The public trading
market for our common stock is volatile and may result in higher spreads in stock prices, which may limit the ability of our investors
to sell their shares at a profit, if at all.
Our common stock trades in
the over-the-counter market and is quoted on the OTCPink, with little trading volume or activity. The over-the-counter market for
securities has historically experienced extreme price and volume fluctuations during certain periods. These broad market fluctuations
may adversely affect the market price of our common stock and result in substantial losses to our investors. In addition, the spreads
on stock traded through the over-the-counter market are generally unregulated and higher than on stock exchanges, which means that
the difference between the price at which shares could be purchased by investors in the over-the-counter market compared to the
price at which they could be subsequently sold would be greater than on these exchanges. Significant spreads between the bid and
asked prices of the stock could continue during any period in which a sufficient volume of trading is unavailable or if the stock
is quoted by an insignificant number of market makers. Historically, our trading volume has been insufficient to significantly
reduce this spread and we have had a limited number of market makers sufficient to affect this spread. These higher spreads could
adversely affect investors who purchase the shares at the higher price at which the shares are sold, but subsequently sell the
shares at the lower bid prices quoted by the brokers. Unless the bid price for the stock exceeds the price paid for the shares
by the investor, plus brokerage commissions or charges, the investor could lose money on the sale. For higher spreads such as those
on over-the-counter stocks, this is likely a much greater percentage of the price of the stock than for exchange listed stocks.
There is no assurance that at the time an investor in our common stock wishes to sell the shares, the bid price will have sufficiently
increased to create a profit on the sale.
We do not know whether
a market for our common stock will be sustained or what the market price of our common stock will be and as a result it may be
difficult for investors to sell their shares of our common stock.
Although our common stock
is eligible for quotation on the OTC Pink, an active trading market for our shares has not commenced and may not be sustainable.
It may be difficult for investors to sell their shares without depressing the market price for the shares or at all. As a result
of these and other factors, investors may not be able to sell their shares at or above the offering price or at all. Further, an
inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to
enter into strategic partnerships or acquire companies or products by using our shares of common stock as consideration. If an
active market for our common stock does not develop or is not sustained, it may be difficult to sell your common stock.
Our Board can, without
stockholder approval, cause preferred stock to be issued on terms that adversely affect common stockholders or which could be used
to resist a potential take-over of the Company.
Under our Articles of Incorporation,
our Board is authorized to issue up to 5,000,000 shares of preferred stock, none of which are issued and outstanding. Also, our
Board, without stockholder approval, may determine the price, rights, preferences, privileges and restrictions, including voting
rights, of those shares. If the Board causes shares of preferred stock to be issued, the rights of the holders of our common stock
could be adversely affected. The Board’s ability to determine the terms of preferred stock and to cause its issuance, while
providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of our outstanding voting stock. Preferred shares issued by the
Board could include voting rights, or even super voting rights, which could shift the ability to control the Company to the holders
of the preferred stock. Preferred shares could also have conversion rights into shares of common stock at a discount to the market
price of the common stock which could negatively affect the market for our common stock. In addition, preferred shares would have
preference in the event of liquidation of the corporation, which means that the holders of preferred shares would be entitled to
receive the net assets of the corporation distributed in liquidation before the common stock holders receive any distribution of
the liquidated assets. We have no current plans to issue any shares of preferred stock.
The market price of
our common stock may fluctuate significantly, which could result in substantial losses by our investors.
The market price of our common
stock may fluctuate significantly in response to numerous factors, some of which are beyond our control, such as:
| · | announcements of technological innovations,
new products or product enhancements by us or others; |
| · | announcements by us of significant strategic
partnerships, out-licensing, in-licensing, joint ventures, acquisitions or capital commitments; |
| · | expiration or terminations of licenses,
research contracts or other collaboration agreements; |
| · | public concern as to the safety of products
we, our licensors or others develop; |
| · | success of research and development projects; |
| · | developments concerning intellectual property
rights or regulatory approvals; |
| · | variations in our and our competitors’
results of operations; |
| · | changes in earnings estimates or recommendations
by securities analysts, if our common stock is covered by analysts; |
| · | changes in government regulations or patent
decisions; |
| · | developments by our licensors; |
| · | developments in the technology industry; |
| · | the results of product liability or intellectual
property lawsuits; |
| · | future issuances of common stock or other
securities; |
| · | the addition or departure of key personnel; |
| · | announcements by us or our competitors
of acquisitions, investments or strategic alliances; |
| · | general market conditions, including the
volatility of market prices for shares of technology companies generally, and other factors, including factors unrelated to our
operating performance; and |
| · | the other factors described in this “Risk
Factors” section. |
These factors and any corresponding
price fluctuations may materially and adversely affect the market price of our common stock and result in substantial losses by
our investors.
Further, the stock market
in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations in the
past. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline
in the value of our common stock. Price volatility of our common stock might be worse if the trading volume of our common stock
is low. In the past, following periods of market volatility, stockholders have often instituted securities class action litigation.
If we were involved in securities litigation, it could have a substantial cost and divert resources and attention of management
from our business, even if we are successful. Future sales of our common stocks could also reduce the market price of such stock.
Moreover, the liquidity of
our common stock is limited, not only in terms of the number of shares that can be bought and sold at a given price, but by delays
in the timing of transactions and reduction in security analysts’ and the media’s coverage of us, if any. These factors
may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread between
the bid and ask prices for our common stock. In addition, without a large float, our common stock is less liquid than the stock
of companies with broader public ownership and, as a result, the trading prices of our common stock may be more volatile. In the
absence of an active public trading market, an investor may be unable to liquidate its investment in our common stock. Trading
of a relatively small volume of our common stock may have a greater impact on the trading price of our stock than would be the
case if our public float were larger. We cannot predict the prices at which our common stock will trade in the future.
Some or all of the “restricted”
shares of our common stock issued in connection with the Transaction or held by other of our stockholders may be offered from time
to time in the open market pursuant to an effective registration statement or Rule 144 promulgated under Regulation D of the Securities
Act, and these sales may have a depressive effect on the market for our common stock.
Raising additional
capital by issuing securities may cause dilution to existing stockholders.
We will need to raise substantial
future capital to continue to complete development and commercialize our products incorporating licensed technologies and technology
candidates and to conduct the research and development and regulatory activities necessary to bring our technology candidates to
market.
If we raise additional funds
through licensing arrangements with third parties, we may have to relinquish valuable rights to our technology candidates, or grant
licenses on terms that are not favorable to us. If we raise additional funds by issuing equity or convertible debt securities,
we will reduce the percentage ownership of our then-existing stockholders, and these securities may have rights, preferences or
privileges senior to those of our existing stockholders.
Because our common
stock may be a “penny stock,” it may be more difficult for investors to sell shares of our common stock, and the market
price of our common stock may be adversely affected.
Our common stock may be a
“penny stock” if, among other things, the stock price is below $5.00 per share, it is not listed on a national securities
exchange or it has not met certain net tangible asset or average revenue requirements. Broker-dealers who sell penny stocks must
provide purchasers of these stocks with a standardized risk-disclosure document prepared by the SEC. This document provides information
about penny stocks and the nature and level of risks involved in investing in the penny-stock market. A broker must also give a
purchaser, orally or in writing, bid and offer quotations and information regarding broker and salesperson compensation, make a
written determination that the penny stock is a suitable investment for the purchaser, and obtain the purchaser’s written
agreement to the purchase. Broker-dealers must also provide customers that hold penny stock in their accounts with such broker-dealer
a monthly statement containing price and market information relating to the penny stock. If a penny stock is sold to an investor
in violation of the penny stock rules, the investor may be able to cancel its purchase and get its money back.
If applicable, the penny
stock rules may make it difficult for investors to sell their shares of our common stock. Because of the rules and restrictions
applicable to a penny stock, there is less trading in penny stocks and the market price of our common stock may be adversely affected.
Also, many brokers choose not to participate in penny stock transactions. Accordingly, investors may not always be able to resell
their shares of our common stock publicly at times and prices that they feel are appropriate.
ITEM 1B. UNRESOLVED
STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES.
The Company’s principal
corporate office is located at the residence of our Chief Executive Officer located at 14 Hayward Brook Drive, Concord, NH 03301.
The office space is furnished at no cost to the Company. Management intends to seek permanent office space as needed in the future.
ITEM 3. LEGAL PROCEEDINGS.
Neither the Company nor its
subsidiary, Knowledge Machine, is a party to, nor is any of their property subject to, any legal proceedings which require disclosure
pursuant to this item.
ITEM 4. MINE SAFETY
DISCLOSURES.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our Common Stock is quoted
on the OTC Markets under the symbol “KNMX.” The Company’s common stock was approved for quotation on June 18,
2014. Active trading in the Company’s common stock has not commenced.
Holders
As of October 9, 2015 there
are approximately 44 stockholders. This number does not include an indeterminate number of stockholders whose shares are held by
brokers in street name. The holders of our common stock are entitled to one vote for each share held of record on all matters submitted
to a vote of stockholders. Holders of our common stock have no preemptive rights and no right to convert their common stock into
any other securities. There are no redemption or sinking fund provisions applicable to our common stock.
Dividends
We have not paid, nor declared,
any cash dividends since our inception and do not intend to declare or pay any such dividends in the foreseeable future. Our ability
to pay cash dividends is subject to limitations imposed by state law.
Securities Authorized
for Issuance Under Equity Compensation Plans
As of the year ended June
30, 2015, we had no compensation plans (including individual compensation arrangements) under which our Common Stock was authorized
for issuance.
ITEM 6. SELECTED FINANCIAL
DATA.
As a “smaller reporting
company”, we have elected not to provide the disclosure required by this item.
ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
Our
company was incorporated in the State of Nevada on December 27, 2012, to engage in the development and operation of a business
engaged in the distribution of high end cutlery sets produced in China. We conducted this business through October 22, 2014. On
October 22, 2014, we acquired an operating subsidiary, Knowledge Machine, Inc., a Nevada corporation, (“Knowledge Machine”)
and subsequently sold off our cutlery business. Knowledge Machine is a development stage technology company focused on targeting
new technologies, acquiring licensing rights to those technologies, and marketing our licensed technologies. Knowledge Machine
is our only subsidiary.
On October 22, 2014, we entered
into a contract with and completed the acquisition of Knowledge Machine in a stock-for-stock exchange in which we issued 37,625,000
shares of our common stock on a pro rata basis to the shareholders of Knowledge Machine in return of all of the outstanding shares
of Knowledge Machine (the “Reorganization Agreement”). Knowledge Machine also entered into a Stock Purchase
Agreement (the “SPA”) with Igor Kaspruk, the sole officer, director and principal shareholder of the
Company at the time, to acquired 2,464,716 shares of restricted stock held by him for $35,800. Following the closing of the Reorganization
Agreement and the SPA, we sold the assets relating to the prior business of the Company to Mr. Kaspruk in return of 1,535,284 shares
owned by him pursuant to an Asset Purchase Agreement between the Company and Mr. Kaspruk (the “APA”).
In addition, Knowledge Machine loaned $14,200 to the Company to repay outstanding prior cash advances made by Mr. Kaspruk to the
Company.
At the closing of the Reorganization
Agreement, Mr. Kaspruk appointed Vivek R. Dave 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 effective as of November 10, 2014. Articles of amendment
with the State of Nevada were filed to reflect the forward stock split and name change effective as of November 10, 2014.
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 will 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, will
own 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 (the “Securities
Act”), and may not be offered or sold in the United States absent registration or an applicable exemption from registration
requirements.
In connection with the closing
of the above transactions, we ceased our prior principal business operations (which were sold and transferred to Mr. Kaspruk pursuant
to the APA). Upon completion of these transactions, we acquired Knowledge Machine (which is now our wholly-owned subsidiary) and
became a technology company focused on targeting new technologies, acquiring licensing rights to those technologies, and marketing
licensed technologies. Knowledge Machine was incorporated in the State of Nevada on December 12, 2013, and commenced its operations
in 2013. All references to business of the Company after the closing of the Reorganization Agreement refer to Knowledge Machine
International, Inc. and Knowledge Machine, Inc., collectively.
Plan of Operations
Since its founding, Knowledge
Machine has been involved in several activities both on an organizational front as well as the business development front. Organizationally,
Knowledge Machine has created a Science Advisory Board that combines international business experience with high level science
and technology expertise. Additionally, Knowledge Machine has been in close contact with regional development authorities in various
states to see if there are potential teaming opportunities that take advantage of regional development funding or incentives. On
the business development front, in addition to the ARMS project, Knowledge Machine together with its Science Advisory Board has
reviewed dozens of potential technologies for future licensing or joint venture activities upon future funding. Examples of these
technologies include, but are not limited to:
| · | A new brain-wave based MMI – Man
Machine Interface – that could be used for a wide range of applications; |
| · | A weather prediction model and system
that significantly outperforms current models in the critical time period from 14 days to a year in advance; |
| · | New superenergetic materials for various
defense applications; |
| · | A 2.5D printing process, i.e. 2-D plus
relief, that has applications to fine art printing; |
| · | A spectrometric diagnostic method for
analyzing blood samples for evidence of traumatic brain injury, or TBI; and |
| · | A new super-elastic materials technology. |
Upon successful completion
of subsequent funding, we intend to pursue avenues which are the most promising based on recurring revenue potential. We estimate
that it will require approximately $1,500,000 in additional funding to finance our operations during the next 12 months and 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 may also seek alternative business activities. We have entered into a non-binding letter
of intent with an existing business, which if acquired would result in a change of control of the Company. We are in the process
of negotiating a definitive agreement for this transaction. There is no assurance that we will be successful in entering into a
definitive agreement with this entity.
Through our Asian Market
Advisor Harshal Shah, we are preparing a response to a solicited request for enhanced border security technology. This technology
will first be assessed for export control compliance before and specific offers are tendered to our Indian partners.
We are working with Allotrope
Inc. to commercialize BAM and ARMS primarily to US Government customers and to NATO forces with appropriate export licenses. In
July of 2014 Knowledge Machine and Allotrope met with TNO in the Netherlands to discuss the technology in an open, non-export-controlled
forum. The next steps are that TNO are anticipated to deliver before the end of this calendar year a series of white papers specifically
outlining market opportunities for these technologies within Europe and NATO as well as specific contacts at early adopter customers.
If funding is available,
Knowledge Machine intends to establish a European registered office in first calendar quarter 2016 in order to follow up with
these early adopter customers and to secure initial test and evaluation contracts. This would be the first step in evaluating
the suitability of the ARMS and BAM technologies for specific weapons systems, and, if successful, Knowledge Machine and Allotrope
would be compensated on a time and material contract basis. Following these initial test and evaluation contracts, material supply
agreements would be negotiated with various early adopter customers for supply of the related technologies. It is anticipated
that such material supply agreements would be in place by fourth calendar quarter of 2015, provided that: i) Knowledge Machine
is able to raise the required equity funds, ii) the test and evaluation contracts are successful, and iii) the early adopter customers
still have a validated need for the ARMS and BAM technology which has not been displaced by any other technology.
In addition to the above
technologies, Knowledge Machine intends to explore business development activities on the following technology areas:
·
Super-Flexible Conductors for High Speed Data Cables. Knowledge Machine is in discussions with the licensees of an MIT-developed
technology that could increase the capability of copper–based data cables to extend to data rates as high as 100 GB / second.
Knowledge Machine has an interest in the establishment of a pilot plant for the manufacture of such materials, and this is expected
to lead to material supply agreements to manufacture the wire under contract to the owners of the MIT technology for use by identified
early adopter customers.
·
Super-Flexible and Energy Absorbing Wires for Orthotics. Knowledge Machine is in discussions with this same group to explore
the development, marketing and sales of the same material for use in high end orthtics or high end compression athletic clothing
where these super-flexible elements could be woven into existing fabrics in order to provide selected reinforcement for joints
as well as other parts of the body. The advantage of this material over existing materials is that is can apply higher and more
controlled forces thereby preventing injuries by avoiding hyperextension of joints or limbs, or speeding up the recovery from such
injuries by preventing re-injury. It is expected that an agreement could be reached by second calendar quarter of 2015, provided
that we are able to successfully raise additional funds.
·
Super-Energetic Materials. This is a sensitive program for US Government customers and additional technical details cannot
be provided for security reasons. From a programmatic point of view, Knowledge Machine will be in a position to test initial small
scale prototypes by third calendar quarter of 2015, provided that additional funds are raised to fund this project. Starting in
fourth quarter of this calendar year and continuing to third calendar quarter of 2015, Knowledge Machine and its joint venture
partner, Allotrope, anticipate meeting regularly with US Government sponsors to review progress and to obtain additional government
funding for a larger scale demonstration project. This is expected to lead to a test and evaluation contract by third calendar
quarter of 2015, again subject to successful project launch and execution which in turn depends on the availability of additional
funding.
Results of Operations--Year
Ended June 30, 2015 Compared to the Period from December 12, 2013 (Date of Inception) through June 30, 2014 (Restated)
Gross Revenue.
No revenue was generated during the year ended June 30, 2015 or during the period from December 12, 2013 (Date of Inception) through
June 30, 2014. From the date of inception (December 12, 2013) until June 30, 2015, the Company was in the startup phase of its
operations and had not yet commenced principal operations.
General and Administrative
Expenses. General and administrative expenses for the year ended June 30, 2015 totaled $304,250, an increase of $168,714
or approximately 124% compared to general and administrative expenses of $135,536 for the partial year ended June 30, 2014. The
increase in the total general and administrative was primarily due to a full year ending June 30, 2015 compared to six and a half
months ending June 30, 2014.
Net Loss. For
the reasons stated above, our net loss for the year ended June 30, 2015 was ($379,335) or ($0.01) per share, an increase of $193,509,
compared to a net loss of ($185,826) or ($0.01) per share, during the period ended June 30, 2014.
Liquidity and Capital
Resources
As of June 30, 2015, we had cash of $50,744.
The Company had current liabilities of $65,274 consisting of accounts payable. We had a net working capital deficit of $9,995.
The accompanying financial statements of the
Company have been prepared contemplating a continuation of the Company as a going concern. The Company has reported a cumulative
net loss of ($565,161) since inception and had an accumulated deficit of ($565,161) at June 30, 2015.
Off-Balance Sheet Arrangements
We have no off-balance sheet
arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 7A. 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 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA.
The required financial statements
are included following the signature page of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There is no disclosure required
pursuant to this Item 9 of Form 10-K.
ITEM 9A. CONTROLS AND
PROCEDURES.
Evaluation of Disclosure
Controls and Procedures
Our management, with the
participation of our prior principal executive and financial officer, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rule 15d-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 and principal financial officer concluded
that our disclosure controls and procedures as of the end of the period covered by this report (based on the evaluation of these
controls and procedures required by Rule 15d-15(b) of the Exchange Act) were not 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 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. We believe that a control system, no matter how well designed and operated,
cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Management’s Annual
Report on Internal Control over Financial Reporting
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the
assets of our company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed our internal
control over financial reporting as of June 30, 2015, the end of our fiscal year. Management based its assessment on criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO 2013 Criteria). Management’s assessment included evaluation of such elements as the design and operating effectiveness
of key financial reporting controls, process documentation, accounting policies, and our overall control environment.
Based on our assessment,
management has concluded that our internal control over financial reporting was not effective, as of the end of the fiscal year,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external reporting purposes in accordance with generally accepted accounting principles.
Changes in Internal Control
Over Financial Reporting
There was no change in our
internal control over financial reporting (as defined in Rule 15d-15(f) of the Exchange Act) that occurred during the quarter ended
June 30, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The following table sets
forth information concerning our executive officers and directors, each of whom was appointed effective October 22, 2014:
Name |
Age |
Title |
Vivek R. Dave |
47 |
Director, Chairman, President, and CEO |
Taylor Caswell |
46 |
Director |
The Board believes that each
director named below is highly qualified and has the skills and experience required for effective service on the Board. The directors’
individual biographies below contain information about their experience, qualifications and skills that led the Board to appoint
them.
Dr. Vivek R. Dave, Ph.D. Dr. Dave earned
his BS California Institute of Technology with honor and his MS and PHD from MIT. Additionally, he has extensive previous experience
in the aerospace, defense, and additive manufacturing/3D printing industries. He has held positions including Senior Engineer at
Pratt and Whitney, Group Leader at Los Alamos National Lab, and Chief Scientist at Sigma Labs (SGLB). He also serves as a technical
consultant for Sigma Labs Inc., a NM-based company he had helped to found in 2010. He has over 50 publications and 10 patents or
patents pending. He is a recognized expert in advanced aerospace and defense technology as well as materials and materials processing.
Taylor Caswell. Mr.
Caswell’s career spans twenty years of private and government sector experience in renewable energy development, affordable
housing, community, and economic development, project finance, and sustainability solutions – all with integrated regulatory,
policy, and advocacy strategies. Since January 2009, Mr. Caswell has been the owner of Caswell Industries. Most recently, Mr. Caswell
has worked in the clean tech. world, launching two startups to develop utility-scale ground mounted solar generation project as
well as provide project development consulting services to a wide array of customers in both the fossil and renewable energy sectors,
efficiency retrofit financing, multifamily market and affordable housing development. His public service career includes his role
as a White House appointee to the U.S. Department of Housing and Urban Development and as senior Congressional staff in Washington,
D.C. Among his many awards and associations, he was named to the New Hampshire “40 Under 40” list of state leaders,
was elected Chairman of the U.S. Interagency Regional Council on Homelessness, and has served as Chair of the NH Energy and Climate
Collaborative, as a board member of The Nature Conservancy, and remains as Senior Advisor to the CleanTech Council.
The term of our directors’
appointment is until the next annual meeting of shareholders or until their successors are duly elected and qualified. At this
time, there are no plans to appoint our directors to any committees.
Legal Proceedings
During the past ten years
there have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material
to the evaluation of the ability and integrity of any of our directors or executive officers.
We are not aware of any legal
proceedings in which any director, officer or affiliate of our Company, any owner of record or beneficially of more than five percent
of any class of our voting securities, or any associate of any such director, officer, or affiliate of our Company, or security
holder is a party adverse to us or our subsidiaries or has a material interest adverse to us or our subsidiaries.
Family Relationships
There are no family relationships
between any director, executive officer, or person nominated or chosen by the Company to become a director or executive officer.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
The following table sets
forth information concerning the annual compensation awarded to, earned by, or paid to the named executive officer for all services
rendered in all capacities to our company and its subsidiaries for the years ended June 30, 2015 and 2014:
SUMMARY COMPENSATION TABLE
Name and Principal Position |
|
|
Year Ended June 30 |
|
|
Salary ($)(1) |
|
|
Stock Awards ($)(4) |
|
|
Total ($) |
|
Vivek Dave (2) |
|
|
2015 |
|
|
68,550(3) |
|
|
0 |
|
|
68,550 |
|
CEO |
|
|
2014 |
|
|
15,300 |
|
|
5,500 |
|
|
20,800 |
|
Igor Kaspruk (2) |
|
|
2015 |
|
|
0 |
|
|
|
|
|
0 |
|
CEO |
|
|
2014 |
|
|
0 |
|
|
|
|
|
0 |
|
(1) |
On March 11, 2014, Knowledge Machine entered into a consulting agreement effective January 1, 2014 with Northern New Hampshire Technical Associates LLC, an entity controlled by Mr. Dave (“NHTA”). Under the consulting agreement, NHTA provides consulting services for us regarding Mr. Dave’s service as Chairman of the Science Advisory Board and other consulting services requested by our board of directors. The term of the consulting agreement is for twelve months from the effective date and is automatically extended by one additional year. We initially agreed to pay NHTA $2,500 per month under the consulting agreement including reimbursement for all travel, entertainment and other reasonable business expenses incurred by NHTA incident to services rendered to us. The consulting agreement also includes an indemnification provision applicable to both NHTA and Mr. Dave. Effective September 2014, this monthly reimbursement was increased to $6,000 in light of the fact that Dr. Dave has assumed additional responsibilities as President and CEO. |
(2) |
Igor Kaspruk served as our sole executive officer and director from inception through October 22, 2014. From October 22, 2014 until the present Dr. Vivek R. Dave has served as our sole executive officer. |
(3) |
$36,000 was accrued and unpaid. |
(4) |
On April 23, 2014, the board of directors of Knowledge Machine issued at par value 5,500,000 restricted shares to Mr. Dave for services with 1,833,333 shares vesting immediately and the remaining. 3,666,667 shares vesting at later dates. On July 9, 2014, the board of directors of Knowledge Machine amended the Science Advisory Board Agreement with Mr. Dave and all unvested shares for Mr. Dave became fully vested. |
Equity Awards
No named officer held any
unexercised options, stock that had not vested, or equity incentive plan awards at June 30, 2015. There are six people holding
unvested stock – Taylor Caswell as well as the Science Advisory Board. As of June 30, 2015, there are 4,584,334 unvested
shares of stock.
Director Compensation
Taylor Caswell was issued
1,000,000 shares, of which $250 have vested and $750 will vest ratably through 2017. Except as provided above, no additional compensation
was paid to or earned by any director during the year ended June 30, 2015.
ITEM 12. SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets
forth certain information furnished by current management and others, concerning the beneficial ownership of our common stock as
of October 9, 2015, of (i) each person who is known to us to be the beneficial owner of more than five percent of our common stock;
(ii) all directors and named executive officers; and (iii) our directors and executive officers as a group:
Name and Address
of
Beneficial Owner |
Amount and
Nature of
Beneficial
Ownership(1) |
Percent
of Class(1) |
|
|
|
Vivek R. Dave
14 Hayward Brook Drive
Concord, NH 03301 |
5,500,000 |
11.5% |
|
|
|
Taylor Caswell
72 Long Hill Road
Hollis, NH 03049 |
1,000,000 |
2.1% |
|
|
|
Executive Officers
and
Directors as a
Group
(2 Persons) |
6,500,000 |
13.7% |
|
|
|
Igor Kaspruk
108 Dnipropetrovska
Doroha
Apt. 110
Odesa, Ukraine
65000 |
0 |
- |
|
|
|
Valerie Vekkos
3344 Hill St.
San Diego, CA 92106 |
3,000,000(2) |
6.3% |
|
|
|
Paul Sloan
6041 Fernwood Ave.
Woodland Hills,
CA 91367 |
2,500,000 |
5.2% |
|
|
|
Ira Goldfarb
1918 N. Olive St.
Apt. 3302
Dallas, TX 75201 |
2,450,000 |
5.1% |
|
|
|
Harshal Shah
1091 North Main
St.
Brockton, MA 02301 |
4,000,000 |
8.4% |
(1) | This table is based upon information supplied by officers, directors and principal stockholders
and is believed to be accurate. Unless otherwise indicated in the footnotes to this table, we believe that each of the stockholders
named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Beneficial
ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock subject to options, warrants, or other conversion privileges
currently exercisable or convertible, or exercisable or convertible within 60 days of the date of this table, are deemed outstanding
for computing the percentage of the person holding such option, warrant, or other convertible instrument but are not deemed outstanding
for computing the percentage of any other person. Where more than one person has a beneficial ownership interest in the same shares,
the sharing of beneficial ownership of these shares is designated in the footnotes to this table. As of October 9, 2015, we had
47,625,000 shares outstanding. |
(2) | Shares held in the Valerie V. Vekkos Trust of which, Valerie Vekkos is the trustee and has voting
and dispositive control of the shares. |
ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS, DIRECTOR INDEPENDENCE.
Certain Relationships
and Related Transactions
On April 23, 2014, the board
of directors of Knowledge Machine approved the grant of 5,500,000 restricted shares to Mr. Dave for services with 1,833,333 shares
vesting immediately and the remaining 3,666,667 shares vesting at later dates. On July 9, 2014, the board of directors of Knowledge
Machine amended the Science Advisory Board Agreement with Mr. Dave and all unvested shares for Mr. Dave became fully vested.
In January
2014, the Company entered into a consulting agreement with Northern New Hampshire Technical Associates, a company owned and controlled
by Mr. Dave, under which Mr. Dave performs services for the Company as an officer, director, and Science Advisory Board member
for $6,000 per month plus travel and expense reimbursement. This contract was renewed August 1, 2014 for a one-year period with
a one-year automatic extension. Also in January 2014, the Company entered into a consulting agreement with Zephyr Equities, a company
owned and operated by Valerie Vekkos, a significant shareholder and former director of the Company, under which Ms. Vekkos manages
corporate organizational matters and day-to-day operations of the Company for $3,500 per month plus travel and expense reimbursements.
This contract was renewed September 1, 2014 for a one-year period with a one-year automatic extension. The Company incurred a total
expense of $116,450 and $49,375 with these consultants during the year ended June 30, 2015 and the period of December 12, 2013
(inception) to June 30, 2014, respectively, of which $57,000 and $8,800 were outstanding at June 30, 2015 and 2014, respectively.
In June 2014, the Company entered into a Stock Purchase Agreement with Allotrope Sciences Corporation, a Delaware
corporation controlled by the Company’s President and CEO, to purchase 12% of the total number of shares of Allotrope’s
common stock for $150,000. Three payment installments of $50,000 each were due within 10, 30 and 90 business days of the
signing of the agreement on June 23, 2014, on which dates 4% increments of Allotrope’s common stock were deliverable to the
Company. The first payment of $50,000 was made and 4% of Allotrope stock was delivered to the Company prior to June 30, 2014,
and was impaired to $0 at June 30, 2014. Performance on the remaining two installments did not occur subsequently, and on
October 14, 2014, the Company and Allotrope rescinded the original agreement. 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.
Director Independence
Our securities are not listed
on a national securities exchange or in an inter-dealer quotation system which has requirements that directors be independent.
Therefore, we have adopted the independence standards of the American Stock Exchange, now known as the NYSE MKT LLC, to determine
the independence of our directors and those directors serving on our committees. These standards provide that a person will be
considered an independent director if he or she is not an officer of the company and is, in the view of the company’s board
of directors, free of any relationship that would interfere with the exercise of independent judgment. Our board of directors has
determined that Mr. Caswell meets this standard, and therefore, would be considered to be independent.
ITEM 14. PRINCIPAL ACCOUNTING
FEES AND SERVICES.
Audit Fee
The aggregate fees billed
for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of our annual
financial statement and review of financial statements included in our 10-Q reports and services normally provided by the accountant
in connection with statutory and regulatory filings or engagements were $29,242 for fiscal year ended June 30, 2015, and $0 for
fiscal year ended June 30, 2014.
Audit-Related Fees
The aggregate fees billed
in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related
to the performance of the audit or review of our financial statements that are not reported above were $0 for fiscal year ended
June 30, 2015 and $0 for fiscal year ended June 30, 2014.
Tax Fees
The aggregate fees billed
in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice,
and tax planning were $0 for fiscal year ended June 30, 2015, and $0 for fiscal year ended June 30, 2014.
All Other Fees
The aggregate fees billed
in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported
above were $0 for fiscal year ended June 30, 2015, and $0 for fiscal year ended June 30, 2014.
Audit Committee
We do not have an audit committee
currently serving and as a result our board of directors performs the duties of an audit committee. Our board of directors will
evaluate and approve in advance, the scope and cost of the engagement of an auditor before the auditor renders audit and non-audit
services. We do not rely on pre-approval policies and procedures.
PART IV
ITEM 15. EXHIBITS, FINANCIAL
STATEMENT SCHEDULES.
| (a) | Financial Statements Index |
The following financial statements
are filed with this report:
Report of Independent Registered
Public Accounting Firm
Consolidated Balance Sheets
at June 30, 2015 and 2014
Consolidated Statements
of Operations for the year ended June 30, 2015 and the period from December 12, 2013 (date of inception) through June 30, 2014
Consolidated Statements
of Cash Flows for the year ended June 30, 2015 and the period from December 12, 2013 (date of inception) through June 30, 2014
Consolidated Statements
of Stockholders’ Equity from inception (December 27, 2012) through June 30, 2015
Notes to Consolidated
Financial Statements
Exhibit Number |
Exhibit Description |
Form |
File No. |
Exhibit |
Filing Date |
Filed Here-
with |
2.1 |
Agreement and Plan of Reorganization dated October 22, 2104 |
10-K |
333-191175 |
2.1 |
10/28/14 |
|
2.2 |
Asset Purchase Agreement dated October 22, 2014 |
10-K |
333-191175 |
2.2 |
10/28/14 |
|
3.1 |
Articles of Incorporation |
10-K |
333-191175 |
3.1 |
10/28/14 |
|
3.2 |
Bylaws |
S-1 |
333-191175 |
3.2 |
9/16/13 |
|
10.1 |
General Release by Igor Kaspruk dated October 22, 2014 |
10-K |
333-191175 |
10.1 |
10/28/14 |
|
10.2 |
Stock Purchase Agreement dated October 22, 2014 |
10-K |
333-191175 |
10.2 |
10/28/14 |
|
10.3 |
Consulting Agreement effective January 1, 2014, with Northern New Hampshire Technical Associates LLC* |
10-K |
333-191175 |
10.6 |
10/28/14 |
|
10.4 |
Score Technologies Option Agreement dated July 2, 2014 |
10-K |
333-191175 |
10.7 |
10/28/14 |
|
16.1 |
Letter from John Scrudato, CPA to the Securities and Exchange Commission dated October 28, 2014. |
10-K |
333-191175 |
16.1 |
10/28/14 |
|
21.1 |
Subsidiaries |
10-K |
333-191175 |
21.1 |
10/28/14 |
|
31.1 |
Rule
15d-14(a) Certification by Principal Executive Officer and Principal Financial Officer |
|
|
|
|
X |
32.1 |
Section
1350 Certification of Principal Executive Officer and Principal Financial Officer |
|
|
|
|
X |
101.INS |
XBRL Instance Document |
|
|
|
|
X |
101.SCH |
XBRL Taxonomy Extension Schema Document |
|
|
|
|
X |
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
X |
101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
X |
101.LAB |
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
X |
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
X |
*Management contract, or
compensatory plan or arrangement, required to be filed as an exhibit.
SIGNATURE PAGE FOLLOWS
SIGNATURES
Pursuant to the requirements
of Section 13 or 15(d) 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: October 13,
2015 |
By: |
/s/ Vivek R. Dave, Ph.D. |
|
|
Vivek R. Dave, Ph.D., Chief Executive Officer |
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
NAME |
TITLE |
DATE |
|
|
|
/s/ Vivek R. Dave,
Ph.D. |
Chairman, Chief Executive
Officer and President |
October 13, 2015 |
Vivek R. Dave, Ph.D. |
(Principal executive, financial,
and accounting officer) |
|
|
|
|
/s/ Taylor Caswell |
Director |
October 13, 2015 |
Taylor Caswell |
|
|
PRITCHETT, SILER & HARDY,
P.C.
CERTIFIED PUBLIC ACCOUNTANTS
A PROFESSIONAL CORPORATION
1466 N. HIGHWAY 89 STE. 230
FARMINGTON, UTAH 84025
(801) 447-9572 FAX (801) 447-9578
![](image_001.jpg)
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Knowledge Machine International, Inc.
Concord, NH
We have audited the accompanying balance sheets
of Knowledge Machine International, Inc. (the Company) as of June 30, 2015 and 2014, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the year ended June 30, 2015 and the period of December 12, 2013 (inception)
to June 30, 2014. The Company’s management is responsible for these financial statements. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial position of the Company as of June 30, 2015 and 2014, and the
results of its operations and its cash flows for the periods then ended, in conformity with accounting principles generally accepted
in the United States of America.
The accompanying financial statements have
been prepared assuming Knowledge Machine International, Inc. will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has incurred losses since its inception, has a working capital deficit and has not yet established profitable
operations. These factors raise substantial doubt about the ability of the Company to continue as a going concern. Management’s
plans in regards to these matters are also described in Note 2. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ Pritchett, Siler & Hardy, P.C.
PRITCHETT, SILER & HARDY, P.C.
Farmington, Utah
October 9, 2015
Knowledge Machine International, Inc.
Consolidated Balance Sheets
June
30, 2015 and 2014 (Restated)
| |
June 30, 2015 | | |
June 30, 2014 | |
| |
| | |
(Restated) | |
ASSETS | |
| | | |
| | |
Current Assets | |
| | | |
| | |
Cash | |
$ | 50,744 | | |
$ | 461,285 | |
Prepaid Insurance | |
| 4,535 | | |
| – | |
Total Current Assets | |
| 55,279 | | |
| 461,285 | |
| |
| | | |
| | |
| |
| | | |
| | |
Other Assets | |
| | | |
| | |
Cash in Escrow | |
| – | | |
| 50,000 | |
Total Other Assets | |
| – | | |
| 50,000 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 55,279 | | |
$ | 511,285 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Accounts Payable | |
$ | 8,274 | | |
$ | 11,379 | |
Accounts Payable – Related Party | |
| 57,000 | | |
| 8,800 | |
Accrued Interest Payable | |
| – | | |
| 600 | |
Notes Payable - Convertible | |
| – | | |
| 650,000 | |
Total Current Liabilities | |
| 65,274 | | |
| 670,779 | |
| |
| | | |
| | |
TOTAL LIABILITIES | |
| 65,274 | | |
| 670,779 | |
| |
| | | |
| | |
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 June 30, 2015 | |
| 47,625 | | |
| 43,000 | |
43,000,000 issued and 35,331,999 outstanding at June 30, 2014 | |
| | | |
| | |
Additional Paid-In Capital | |
| 512,125 | | |
| (9,000 | ) |
Less Deferred Compensation | |
| | | |
| | |
4,584,334 and 7,668,001 common shares, respectively | |
| (4,584 | ) | |
| (7,668 | ) |
Accumulated Deficit | |
| (565,161 | ) | |
| (185,826 | ) |
Total Stockholders'
Equity (Deficit) | |
| (9,995 | ) | |
| (159,494 | ) |
| |
| | | |
| | |
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT) | |
$ | 55,279 | | |
$ | 511,285 | |
The accompanying notes are an integral part
of the consolidated financial statements.
Effects of the 10-for-1 forward stock split
effective November 10, 2014 have been retroactively applied to all periods presented.
Knowledge Machine International, Inc.
Consolidated Statements of Operations
Year Ended June 30, 2015
and
the Period from December 12, 2013 (Date of Inception) through June 30, 2014 (Restated)
| |
| | |
Period from | |
| |
| | |
December 12, 2013 | |
| |
Year Ended | | |
(Date of Inception) through | |
| |
June 30, 2015 | | |
June 30, 2014 | |
| |
| | |
(Restated) | |
REVENUE | |
$ | – | | |
$ | – | |
| |
| | | |
| | |
EXPENSES | |
| | | |
| | |
General & Administrative | |
| 304,250 | | |
| 135,536 | |
Total
Expenses | |
| 304,250 | | |
| 135,536 | |
| |
| | | |
| | |
OTHER INCOME (EXPENSE) | |
| | | |
| | |
Interest Expense | |
| (252 | ) | |
| (600 | ) |
Interest Income | |
| 167 | | |
| 310 | |
Impairment Loss | |
| (75,000 | ) | |
| (50,000 | ) |
Total
Other Income (Expense) | |
| (75,085 | ) | |
| (50,290 | ) |
| |
| | | |
| | |
INCOME (LOSS) BEFORE INCOME TAXES | |
| (379,335 | ) | |
| (185,826 | ) |
| |
| | | |
| | |
Current Income Tax Expense | |
| – | | |
| – | |
| |
| | | |
| | |
Deferred Income Tax Expense | |
| – | | |
| – | |
| |
| | | |
| | |
Net Income (Loss) | |
$ | (379,335 | ) | |
$ | (185,826 | ) |
| |
| | | |
| | |
Loss per Common
Share - Basic and Diluted | |
$ | (0.01 | ) | |
$ | (0.01 | ) |
| |
| | | |
| | |
Weighted Average Number of Shares | |
| | | |
| | |
Outstanding
- Basic and Diluted | |
| 46,960,959 | | |
| 22,058,540 | |
The accompanying notes are an integral part of the consolidated financial statements.
Effects of the 10-for-1 forward stock split effective November 10, 2014 have been retroactively applied to all periods presented.
Knowledge Machine International, Inc.
Consolidated
Statement of Stockholders' Equity (Deficit)
Year Ended June 30, 2015
and
the Period from December 12, 2013 (Inception) through June 30, 2014 (Restated)
| |
Common Stock Shares | | |
Common Stock Amount | | |
Additional Paid-in Capital | | |
Deferred Compensation | | |
Accumulated Deficit | | |
Totals | |
Balance December 12, 2013 (Inception) | |
| 9,000,000 | | |
$ | 9,000 | | |
$ | (9,000 | ) | |
$ | – | | |
$ | – | | |
$ | – | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued for cash | |
| 22,500,000 | | |
| 22,500 | | |
| – | | |
| – | | |
| – | | |
| 22,500 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued for services | |
| 11,500,000 | | |
| 11,500 | | |
| – | | |
| (7,668 | ) | |
| – | | |
| 3,832 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss for the period ended June 30, 2014 | |
| – | | |
| – | | |
| – | | |
| – | | |
| (185,826 | ) | |
| (185,826 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance June 30, 2014, (Restated) | |
| 43,000,000 | | |
$ | 43,000 | | |
$ | (9,000 | ) | |
$ | (7,668 | ) | |
$ | (185,826 | ) | |
$ | (159,494 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock cancelled | |
| (250,000 | ) | |
| (250 | ) | |
| – | | |
| 167 | | |
| – | | |
| (83 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock vested | |
| – | | |
| – | | |
| – | | |
| 3,667 | | |
| – | | |
| 3,667 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued in extinguishment of debt | |
| 2,875,000 | | |
| 2,875 | | |
| 572,125 | | |
| – | | |
| – | | |
| 575,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued for services | |
| 1,000,000 | | |
| 1,000 | | |
| – | | |
| (750 | ) | |
| – | | |
| 250 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Reorganization | |
| 1,000,000 | | |
| 1,000 | | |
| (51,000 | ) | |
| – | | |
| – | | |
| (50,000 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss for the year ended June 30, 2015 | |
| – | | |
| – | | |
| – | | |
| – | | |
| (379,335 | ) | |
| (379,335 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance June 30, 2015 | |
| 47,625,000 | | |
$ | 47,625 | | |
$ | 512,125 | | |
$ | (4,584 | ) | |
$ | (565,161 | ) | |
$ | (9,995 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
Effects of the 10-for-1 forward stock split effective November 10, 2014 have been retroactively applied to all periods presented.
Knowledge Machine International, Inc.
Consolidated Statements of Cash Flows
Year Ended June 30, 2015
and
the Period from December 12, 2013 (Inception) through June 30, 2014 (Restated)
| |
| | | |
Period from | |
| |
| | | |
December 12, 2013 | |
| |
Year Ended | | |
(Inception) through | |
| |
June 30, 2015 | | |
June 30, 2014 | |
| |
| | |
(Restated) | |
OPERATING ACTIVITIES | |
| | | |
| | |
Net
Income (Loss) | |
$ | (379,335 | ) | |
$ | (185,826 | ) |
Adjustments
to reconcile Net Income (Loss) to Net Cash (used) provided by operations: | |
| | | |
| | |
Noncash
Expenses: | |
| | | |
| | |
Stock Compensation | |
| 3,834 | | |
| 3,832 | |
Impairment Loss | |
| 75,000 | | |
| 50,000 | |
Change
in assets and liabilities: | |
| | | |
| | |
(Increase) in Prepaid Expenses | |
| (4,535 | ) | |
| – | |
Increase (Decrease) in Accounts Payable | |
| (3,105 | ) | |
| 11,379 | |
Increase in Accounts Payable – Related Party | |
| 48,200 | | |
| 8,800 | |
Increase (Decrease) in Accrued Interest | |
| (600 | ) | |
| 600 | |
NET CASH USED BY OPERATING ACTIVITIES | |
| (260,541 | ) | |
| (111,215 | ) |
| |
| | | |
| | |
INVESTING ACTIVITIES | |
| | | |
| | |
Purchase of Licensing Options | |
| (75,000 | ) | |
| – | |
Increase in Cash in Escrow | |
| – | | |
| (50,000 | ) |
Purchase of Equity Investment | |
| – | | |
| (50,000 | ) |
NET
CASH USED BY INVESTING ACTIVITIES | |
| (75,000 | ) | |
| (100,000 | ) |
| |
| | | |
| | |
FINANCING ACTIVITIES | |
| | | |
| | |
Repayment of Notes Payable | |
| (75,000 | ) | |
| – | |
Proceeds from Stock Issuance | |
| – | | |
| 22,500 | |
Proceeds from Notes Payable | |
| – | | |
| 650,000 | |
NET
CASH (USED) PROVIDED BY FINANCING ACTIVITIES | |
| (75,000 | ) | |
| 672,500 | |
| |
| | | |
| | |
| |
| | | |
| | |
NET CASH INCREASE (DECREASE) FOR PERIOD | |
| (410,541 | ) | |
| 461,285 | |
| |
| | | |
| | |
CASH AT BEGINNING OF PERIOD | |
| 461,285 | | |
| – | |
| |
| | | |
| | |
CASH AT END OF PERIOD | |
$ | 50,744 | | |
$ | 461,285 | |
| |
| | | |
| | |
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 year ended June 30, 2015
On November 10, 2014, a ten-for-one forward
stock split occurred and has been retroactively applied to all periods presented.
Of $650,000 in notes payable, $75,000
was repaid and $575,000 was extinguished via the issuance of 2,875,000 shares of common stock.
1,000,000 shares were 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. 83,000 of these shares had previously vested and 167,000 were unvested.
The Company distributed from escrow $50,000 and 1,000,000 shares of common stock in a reverse merger and recapitalization.
For
the period from December 12, 2013 (Date of Inception) through June 30, 2014
11,500,000 shares
issued for board services at $0.001 per share. Of these, 3,831,999 vested during the period and 7,668,001 are unvested.
The
accompanying notes are an integral part of the consolidated financial statements.
Effects of the 10-for-1 forward stock split
effective November 10, 2014 have been retroactively applied to all periods presented.
KNOWLEDGE MACHINE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 2015 and 2014 and for the periods then ended have
been made.
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 June 30,
2015 or 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 year ended June 30, 2015, the
Company recognized no interest and penalties. The Company had no accruals for interest and penalties at June 30, 2015 or 2014.
All tax years starting with 2013 are open for examination.
Stock Based Compensation – The
Company recognizes compensation costs to employees under ASC Topic No. 718, “Compensation – Stock Compensation.”
Under ASC Topic No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based
on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required
to provide services. Share based compensation arrangements include stock options, restricted share plans, performance based awards,
share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their
fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.
Equity instruments issued to other than employees
are recorded on the basis of the fair value of the instruments, as required by ASC Topic No. 505, “Equity Based Payments
to Non-Employees.” In general, the measurement date is when either (a) a performance commitment, as defined, is reached or
(b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related
to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the
FASB Accounting Standards Codification.
Loss Per Share – The computation
of loss per share is based on the weighted average number of shares outstanding during the period in accordance with ASC Topic
No. 260, “Earnings Per Share.”
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. 2015-01 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 June 30, 2014, an impairment loss of $50,000 was 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.
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 – Other Assets
Allotrope Sciences Corporation
In June 2014, the Company entered into
a Stock Purchase Agreement with Allotrope Sciences Corporation, a Delaware corporation controlled by the
Company’s President and CEO, to purchase 12% of the total number of shares of Allotrope’s common stock for
$150,000. Three payment installments of $50,000 each were due within 10, 30 and 90 business days of the signing of the
agreement on June 23, 2014, on which dates 4% increments of Allotrope’s common stock were deliverable to the Company.
The first payment of $50,000 was made and 4% of Allotrope stock was delivered to the Company prior to June 30, 2014. The two
remaining payments totaling $100,000 were included as liabilities on the Company’s balance sheet and the full agreement
amount of $150,000 was impaired to $0 at June 30, 2014. The liability and corresponding impairment loss have been removed
from the Company’s consolidated financial statements retroactively due to non-performance by both parties on the second
and third installments as of June 30, 2014 (see NOTE 8). Performance did not occur subsequently, and on October 14, 2014,
the Company and Allotrope rescinded the original agreement. 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.
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 paid the $50,000, but 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 June
30, 2015, the two parties have not entered into a license agreement and the cash has not been returned, and the Company has determined
the deposit to be impaired to $0.
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 June 30, 2015, the $25,000
has not been returned and the Company has determined the deposit to be impaired to $0.
NOTE 4 – Convertible Notes Payable
There were no notes payable outstanding at June 30, 2015. Notes
payable consisted of the following at June 30, 2014:
Note payable to Marietta Dermatology PSP FBO Myles Jerdan, with an annual interest rate of 0.28%, unsecured with interest accruing monthly and the principle balance due July 31, 2014, subsequently extinguished via issuance of common stock. | |
$ | 125,000 | |
| |
| | |
Note payable to Ruben Azrak and Victor Azrak, with an annual interest rate of 0.30%, unsecured with interest accruing monthly and the principle balance due July 31, 2014, subsequently $75,000 was repaid and $75,000 was extinguished via issuance of common stock. | |
| 150,000 | |
| |
| | |
Note payable to Jonathan Rahn, with an annual interest rate of 0.30%, unsecured with interest accruing monthly and the principle balance due July 31, 2014, subsequently extinguished via issuance of common stock. | |
| 50,000 | |
| |
| | |
Note payable to Shawn Henry German, with an annual interest rate of 0.28%, unsecured with interest accruing monthly and the principle balance due July 31, 2014, subsequently extinguished via issuance of common stock. | |
| 50,000 | |
| |
| | |
Note payable to Sam Esses, with an annual interest rate of 0.30%, unsecured with interest
accruing monthly and the principle balance due July 31, 2014, subsequently extinguished via issuance of common
stock. | |
| 75,000 | |
| |
| | |
Note payable to Seymore Rubin and Mark Rubin, with an annual interest rate of 0.30%, unsecured with interest accruing monthly and the principle balance due July 31, 2014, subsequently extinguished via issuance of common stock. | |
| 200,000 | |
| |
| | |
Total | |
| 650,000 | |
| |
| | |
Less current notes payable | |
| (650,000 | ) |
| |
| | |
Long-term notes payable | |
$ | – | |
The above notes payable were issued on various dates between February
and April 2014 with maturity dates ranging from May 31 to June 30, 2014. The original conversion terms required automatic conversion
in the event of a “Qualified Financing,” whereby the Company would receive gross proceeds in excess of $2,000,000 for
issuance of “QF Conversion Securities.” Stated conversion rate would be 80% of the purchase price per share of the
QF Conversion Securities paid by the investors in the Qualified Financing. On April 10, 2014, the notes payable were amended to
extend maturity dates to June 30, 2014 and reduce the Qualified Financing amount to $1,300,000. On May 29, 2014, a second amendment
was made to the notes extending the maturity dates to July 31, 2014 and requiring the Company to issue convertible preferred stock
in a Qualified Financing to induce conversion. On July 25, 2014, the third and final amendment was made extending the maturity
dates to August 1, 2014 and allowing conversion at any time at $.20 per share via mutual agreement for partial or full satisfaction
of the notes.
On July 29, 2015, the Noteholders issued conversion notices to the
Company requesting repayment of $75,000 (see Azrak note payable above) and conversion of $575,000 at $.20 per share, resulting
in the issuance of 2,875,000 shares of common stock. Accrued interest on the notes totaling $852 was repaid to the Noteholders.
Since the conversion terms were modified substantially from the original notes payable via amendments, the satisfaction of the
notes via issuance of stock is deemed an extinguishment of debt, rather than a true conversion. The noteholders as a group were
considered related entities in that they owned a combined 6.7% of the Company’s common stock prior to the extinguishment
and 12.6% subsequently, and as such the difference between the notes’ carrying value and fair market value of the stock issued
of $572,125 has been recorded in additional paid-in capital, rather than gain on extinguishment of debt.
NOTE 5 – Income Taxes
The Company accounts for income taxes in accordance with ASC Topic
No. 740. This standard requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit
or expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit
carryforwards.
The Company has available at June 30, 2015 and 2014, unused operating
loss carryforwards of approximately $565,161 and $185,826, respectively, which may be applied against future taxable income and
which expire in various years through 2034. However, if certain substantial changes in the Company’s ownership should occur,
there could be an annual limitation on the amount of net operating loss carryforward which can be utilized. The amount of and ultimate
realization of the benefits from the operating loss carryforwards for income tax purposes is dependent, in part, upon the tax laws
in effect, the future earnings of the Company and other future events, the effects of which cannot be determined. Because of the
uncertainty surrounding the realization of the loss carryforwards, the Company has established a valuation allowance equal to the
tax effect of the loss carryfowards of approximately $64,615 and $18,965 at June 30, 2015 and 2014, respectively, and therefore,
no deferred tax asset has been recognized for the loss carryforwards. The change in the valuation allowance is approximately $45,650
and $18,965, respectively, for the periods ended June 30, 2015 and 2014.
Deferred tax assets are comprised of the following:
| |
2015 | | |
2014 | |
Deferred tax assets: | |
| | | |
| | |
NOL carryover | |
| 84,774 | | |
$ | 27,874 | |
Organization Expense | |
| (1,409 | ) | |
| (1,409 | ) |
Impairment Loss | |
| (18,750 | ) | |
| (7,500 | ) |
Valuation allowance | |
| (64,615 | ) | |
| (18,965 | ) |
Net deferred tax asset | |
$ | – | | |
$ | – | |
NOTE 6 – 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, 83,000 of which had previously
vested and 167,000 were unvested. 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 June 30, 2015.
On July 29, 2014, $575,000 of convertible notes
payable were extinguished via issuance of 2,875,000 shares of common stock at a rate of $0.20 per share. The shares were recorded
at $0.001, or $2,875. The balance of $572,125 was recorded as additional paid in capital (see NOTE 4).
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 ten-for-one forward
stock split occurred on 1,000,000 shares of Songbird Development, Inc. acquired in the reverse merger and reorganization (see NOTE
1), resulting in an additional 9,000,000 shares being issued. The split has been retroactively applied to all periods presented
and does not effect any of the stock issuances described above.
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 June 30, 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 June
30, 2015 (750,000 unvested shares) increased deferred compensation by $750.
As of June 30, 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 two 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 June 30, 2015.
NOTE 7 – 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 periods ending June 30, 2015 and 2014:
| |
| | | |
Period from | |
| |
| | | |
December 12, 2013 | |
| |
Year Ended | | |
(Inception) through | |
| |
June 30, 2015 | | |
June 30, 2014 | |
Loss from continuing operations available to common
stockholders (numerator) | |
$ | (379,335 | ) | |
$ | (185,826 | ) |
| |
| | | |
| | |
Weighted average number of common shares outstanding used in loss per share during the
period (denominator) | |
| 46,960,959 | | |
| 22,058,540 | |
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 8 – Restatement
As explained in NOTE 3 above, 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 in three installments during the course of June through
September 2014. The liability of $100,000 and corresponding impairment loss originally recorded at June 30, 2014 have been removed
from the Company’s consolidated financial statements retroactively due to absence of full performance of the original contract
at June 30, 2014. Liabilities for the second and third installments were not incurred and corresponding investment assets not realizable
at June 30, 2014, but rather were stock purchase commitments requiring disclosure only until performance occurred on the dates
specified in the contract. The table below shows the effects of the June 30, 2014 restatement.
| |
Amount as | | |
| | | |
| | |
| |
Originally | | |
Restatement | | |
Restated | |
| |
Filed | | |
Adjustment | | |
Amount | |
As of June 30, 2014 | |
| | | |
| | | |
| | |
Due to Allotrope | |
$ | 100,000 | | |
$ | (100,000 | ) | |
$ | – | |
Accumulated deficit | |
| (285,826 | ) | |
| 100,000 | | |
| (185,826 | ) |
| |
| | | |
| | | |
| | |
Year Ended June 30, 2014 | |
| | | |
| | | |
| | |
Impairment Loss | |
| 150,000 | | |
| (100,000 | ) | |
| 50,000 | |
Total Expenses | |
| 285,536 | | |
| (100,000 | ) | |
| 185,536 | |
Net Loss | |
| 285,826 | | |
| (100,000 | ) | |
| 185,826 | |
Net Loss Per Share | |
$ | 0.013 | | |
$ | (0.0045 | ) | |
$ | 0.0085 | |
| |
| | | |
| | | |
| | |
Weighted Average Shares | |
| 22,058,540 | | |
| | | |
| 22,058,540 | |
NOTE 9 – 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 10 – Related Party Transactions
In January
2014, the Company entered into a consulting agreement with Northern New Hampshire Technical Associates, a company owned and controlled
by the Company’s President/CEO, under which the President/CEO performs services for the Company as an officer, director,
and Science Advisory Board member for $6,000 per month plus travel and expense reimbursement. This contract was renewed August
1, 2014 for a one-year period with a one-year automatic extension. Also in January 2014, the Company entered into a consulting
agreement with Zephyr Equities (“ZE”), a company owned and operated by a significant shareholder and former director
of the Company, under which ZE manages corporate organizational matters and day-to-day operations of the Company for $3,500 per
month plus travel and expense reimbursements. This contract was renewed September 1, 2014 for a one-year period with a one-year
automatic extension. The Company incurred a total expense of $116,450 and $49,375 with these consultants during the year ended
June 30, 2015 and the period of December 12, 2013 (inception) to June 30, 2014, respectively, of which $57,000 and $8,800 were
outstanding at June 30, 2015 and 2014, respectively.
In June 2014, the Company purchased an equity investment in Allotrope Sciences Corporation, a company controlled
by the Company’s President and CEO (see NOTE 3).
Exhibit 31.1
Certification
I, Vivek R. Dave, Ph.D., certify that:
1. I have reviewed this Form 10-K annual
report of Knowledge Machine International, Inc. Inc. for the year ended June 30, 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: October 13, 2015
/s/ Vivek R. Dave
Vivek R. Dave, Ph.D., President
(Principal Executive Officer and
Principal Financial Officer)
Exhibit 32.1
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 year ended June
30, 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: October 13, 2015
/s/ Vivek R. Dave
Vivek R. Dave, Ph.D., President
(Principal Executive Officer and Principal Financial Officer)
Dthera Sciences (GM) (USOTC:DTHR)
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