UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2015 |
Or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from _______________________to___________________________ |
Commission File Number: 333-191175
Knowledge
Machine International, Inc.
(Exact name of registrant as specified in its
charter)
Nevada |
90-0925768 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
14 Hayward Brook Drive, Concord, NH |
03301 |
(Address of principal executive offices) |
(Zip Code) |
(603) 717 - 6279
(Registrant’s telephone number, including
area code)
Indicate by check mark whether the registrant
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports).
Yes
x No o
Indicate by check mark whether the registrant
has been subject to such filing requirements for the past 90 days.
Yes
o No x
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes
x No o
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
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Large accelerated filer |
o |
Accelerated filer |
o |
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Non-accelerated filer |
o |
Smaller reporting company |
x |
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Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
o No x
The number of shares outstanding of the registrant’s common
stock on November 20, 2015, was 47,625,000.
TABLE OF CONTENTS
PART
I – FINANCIAL INFORMATION |
3 |
Item 1. Financial Statements |
3 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
14 |
Item 4. Controls and Procedures |
15 |
PART
II – OTHER INFORMATION |
16 |
Item 1. Legal Proceedings |
16 |
Item 1A. Risk Factors |
16 |
Item 5. Other Information |
16 |
Item 6. Exhibits |
16 |
SIGNATURES |
17 |
PART I – FINANCIAL
INFORMATION
Item 1. Financial Statements
Knowledge Machine International, Inc.
Consolidated Balance Sheets
September 30, 2015 and June 30, 2015
(Unaudited)
| |
September 30, 2015 | | |
June 30, 2015 | |
ASSETS | |
| | | |
| | |
Current Assets | |
| | | |
| | |
Cash | |
$ | 26,328 | | |
$ | 50,744 | |
Prepaid Expenses | |
| 8,236 | | |
| 9,119 | |
Total
Current Assets | |
| 34,564 | | |
| 59,863 | |
| |
| | | |
| | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 34,564 | | |
$ | 59,863 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) | |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Accounts Payable | |
$ | 16,083 | | |
$ | 8,274 | |
Accounts Payable - Related Party | |
| 82,000 | | |
| 57,000 | |
Total
Current Liabilities | |
| 98,083 | | |
| 65,274 | |
| |
| | | |
| | |
TOTAL LIABILITIES | |
| 98,083 | | |
| 65,274 | |
| |
| | | |
| | |
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 43,290,666 | |
| 47,625 | | |
| 47,625 | |
outstanding at September 30, 2015 | |
| | | |
| | |
47,625,000 issued and 43,040,666 | |
| | | |
| | |
outstanding at June 30, 2015 | |
| | | |
| | |
Additional Paid-In Capital | |
| 512,125 | | |
| 512,125 | |
Retained Earnings (Deficit) | |
| (623,269 | ) | |
| (565,161 | ) |
Total
Stockholders' Equity (Deficit) | |
| (63,519 | ) | |
| (5,411 | ) |
| |
| | | |
| | |
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT) | |
$ | 34,564 | | |
$ | 59,863 | |
The accompanying notes are an integral part
of these financial statements.
Knowledge
Machine International, Inc.
Consolidated Statements of Operations
Three Months Ended September 30, 2015 and 2014 (Restated)
(Unaudited)
| |
Three
Months Ended September 30, 2015 | | |
Three
Months Ended September 30, 2014 | |
| |
| | |
(Restated) | |
REVENUE | |
$ | – | | |
$ | – | |
| |
| | | |
| | |
EXPENSES | |
| | | |
| | |
General
& Administrative | |
| 58,112 | | |
| 65,126 | |
Total Expenses | |
| 58,112 | | |
| 65,126 | |
| |
| | | |
| | |
OTHER INCOME (EXPENSE) | |
| | | |
| | |
Interest Expense | |
| – | | |
| (252 | ) |
Interest Income | |
| 4 | | |
| 86 | |
Total Other Income (Expense) | |
| 4 | | |
| (166 | ) |
| |
| | | |
| | |
INCOME (LOSS) BEFORE INCOME TAXES | |
| (58,108 | ) | |
| (65,292 | ) |
| |
| | | |
| | |
Current Income Tax Expense | |
| – | | |
| – | |
| |
| | | |
| | |
Deferred Income
Tax Expense | |
| – | | |
| – | |
| |
| | | |
| | |
Net Income (Loss) | |
$ | (58,108 | ) | |
$ | (65,292 | ) |
| |
| | | |
| | |
Loss per Common
Share - Basic and Diluted | |
$ | (0.00 | ) | |
$ | (0.00 | ) |
| |
| | | |
| | |
Weighted
Average Number of Shares Outstanding - Basic and Diluted | |
| 47,625,000 | | |
| 45,229,620 | |
The accompanying notes are an integral part
of these financial statements.
Knowledge Machine International, Inc.
Consolidated Statements of Cash Flows
Three Months Ended September 30, 2015 and 2014
(Unaudited)
| |
Three
Months Ended September 30, 2015 | | |
Three
Months Ended September 30, 2014 | |
| |
| | |
(Restated) | |
OPERATING ACTIVITIES | |
| | | |
| | |
Net Income (Loss) | |
$ | (58,108 | ) | |
$ | (65,292 | ) |
Adjustments to reconcile Net Income (Loss) to
Net Cash (used) provided by operations: | |
| | | |
| | |
Noncash Expenses: | |
| | | |
| | |
Stock Compensation | |
| 250 | | |
| 3,834 | |
Change in assets and liabilities: | |
| | | |
| | |
Decrease in Prepaid Expenses | |
| 633 | | |
| – | |
Increase (Decrease) in Accounts Payable | |
| 7,809 | | |
| (10,717 | ) |
Increase (Decrease) in Accounts Payable - Related Party | |
| 25,000 | | |
| (50 | ) |
(Decrease) in Accrued Interest | |
| – | | |
| (600 | ) |
NET
CASH USED BY OPERATING ACTIVITIES | |
| (24,416 | ) | |
| (72,825 | ) |
| |
| | | |
| | |
INVESTING ACTIVITIES | |
| | | |
| | |
Purchase of Licensing Options | |
| – | | |
| (75,000 | ) |
(Increase) in Cash in Escrow | |
| – | | |
| (700 | ) |
NET CASH USED BY INVESTING ACTIVITIES | |
| – | | |
| (75,700 | ) |
| |
| | | |
| | |
FINANCING ACTIVITIES | |
| | | |
| | |
Increase in Deferred Offering Costs | |
| – | | |
| (14,919 | ) |
Repayment of Notes Payable | |
| – | | |
| (75,000 | ) |
NET CASH USED BY FINANCING ACTIVITIES | |
| – | | |
| (89,919 | ) |
| |
| | | |
| | |
NET CASH DECREASE FOR PERIOD | |
| (24,416 | ) | |
| (238,444 | ) |
CASH AT BEGINNING OF PERIOD | |
| 50,744 | | |
| 461,285 | |
CASH AT END OF PERIOD | |
$ | 26,328 | | |
$ | 222,841 | |
| |
| | | |
| | |
Supplemental Disclosure for Cash Flow Information | |
| | | |
| | |
Cash paid during the period for: | |
| | | |
| | |
Interest | |
$ | – | | |
$ | 852 | |
Income Taxes | |
$ | – | | |
$ | – | |
Supplemental Schedule of Noncash Investing and Financing Activities: | |
| | | |
| | |
For the three months ended September 30, 2015 | |
| | | |
| | |
250,000 shares previously issued to a Director at $0.001 per share vested during the period. | |
For the three months ended September 30, 2014 | |
Of $650,000 in notes payable, $75,000 was repaid and $575,000 was converted to 2,875,000 shares of capital stock | |
1,000,000 shares issued to a Director at
$0.001 per share. Of these, 250,000 vested during the period and 750,000 are unvested. | |
250,000 shares previously issued for Board Services at $0.001 per share were cancelled during the period. | |
The accompanying notes are an integral part
of these financial statements.
KNOWLEDGE MACHINE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 September 30, 2015 and June 30, 2015 and for the three months
ended September 30, 2015 and 2014 have been made. Certain information and footnote disclosures normally included in financial statements
prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. Management suggests these
condensed financial statements be read in conjunction with the June 30, 2015 audited financial statements and notes thereto. The
results of operations for the three months ended September 30, 2015 and 2014 are not necessarily indicative of the operating results
for the full year.
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 September
30, 2015 or June 30, 2015 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 three months ended September 30,
2015 and 2014, the Company recognized no interest and penalties. The Company had no accruals for interest and penalties at September
30, 2015 or June 30, 2015. All tax years starting with 2013 are open for examination.
Stock Based Compensation – The
Company recognizes compensation costs to employees under ASC Topic No. 718, “Compensation – Stock Compensation.”
Under ASC Topic No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based
on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required
to provide services. Share based compensation arrangements include stock options, restricted share plans, performance based awards,
share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their
fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.
Equity instruments issued to other than employees
are recorded on the basis of the fair value of the instruments, as required by ASC Topic No. 505, “Equity Based Payments
to Non-Employees.” In general, the measurement date is when either (a) a performance commitment, as defined, is reached or
(b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related
to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the
FASB Accounting Standards Codification.
Loss Per Share – The computation
of loss per share is based on the weighted average number of shares outstanding during the period in accordance with ASC Topic
No. 260, “Earnings Per Share.”
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 periods
ended September 30, 2015 and 2014, no impairment losses were recorded.
Accounting Estimates – The
preparation of financial statements in conformity with generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, the disclosures
of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimated by management.
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.
Reclassification – Certain prior
year amounts have been reclassified for consistency with the current period presentation. The Company has concluded that it was
appropriate to classify Deferred Compensation, representing unvested stock issued to management and consultants, as a Prepaid
Expense rather than Equity. Accordingly, the Company has revised the classification to report Deferred Compensation under the
Current Asset Prepaid Expenses captain on the Consolidated Balance Sheets. This change in classification does not affect the previously
reported Consolidated Statements of Operations or Cash Flows.
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 6). 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. At June
30, 2015, the Company determined to terminate their dealings with Score due to Score’s nonperformance, and impaired the deposit
to $0. As of September 30, 2015, the cash had not been returned.
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 Company impaired the deposit to $0, and at September 30, 2015, the $25,000 had not been returned.
NOTE 4 – Stockholders’ Equity
Common Stock
The Company has authorized 200,000,000 shares
of common stock, $.001 par value.
In February, March and April 2014, the Company
issued 22,500,000 shares to officers and investors for cash of $22,500, or $0.001 per share.
On April 22, 2014, the Company issued 11,500,000
shares of the Company’s common stock to the Company’s Science Advisory Board members as noncash compensation for services
to be rendered valued at $11,500 or $0.001 per share. Of these shares, 3,831,999 (valued at $3,832) vested during the period ended
June 30, 2014 and 7,668,001 (valued at $7,668) remained unvested and were reflected as prepaid expenses 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 prepaid
expenses as of September 30, 2015.
On July 29, 2014, $575,000 of convertible notes
payable was 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.
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 another 250,000 (valued at $250) vested during the quarter ended September 30,
2015. 500,000 (valued at $500) remain unvested. 250,000 shares will vest each year on August 25 in 2016 and 2017 as long as the
individual remains as a Director of the Company. The unvested shares are reflected as prepaid expenses at September 30, 2015.
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 affect 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 prepaid expenses 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 September 30, 2015 is 3,834,334, representing prepaid expenses 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 September
30, 2015 (500,000 unvested shares) increased prepaid expenses by $500.
As of September 30, 2015, the balance of unvested
compensation cost expected to be recognized is $4,334 and is recorded as a prepaid expense on the Consolidated Balance Sheets.
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 September 30, 2015.
NOTE 5 – Loss Per Share
The following data show the amounts used in
computing loss per share and the effect on income and the weighted average number of shares of dilutive potential common stock
for the periods ending September 30, 2015 and 2014:
| |
Three Months Ended | | |
Three Months Ended | |
| |
September 30, 2015 | | |
September 30, 2014 | |
Loss from continuing operations available to common stockholders (numerator) | |
$ | (58,108 | ) | |
$ | (65,292 | ) |
| |
| | | |
| | |
Weighted average number of common shares outstanding used in loss per share during the period (denominator) | |
| 47,625,000 | | |
| 36,229,620 | |
Dilutive loss per share was not presented
as the Company had no common equivalent shares for all periods presented that would affect the computation of diluted loss per
share or its effect is anti-dilutive.
NOTE 6 – 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 and perpetuated
through September 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. Although the Company did incur the remaining liability
totaling $100,000 for the second and third installments at September 30, 2014 pursuant to the terms of the original agreement,
the Company never received the accompanying Allotrope shares and other events that gave rise to the agreement’s official
rescission on October 14, 2014 existed prior to September 30, 2014. Thus, the rescission qualifies as a recognized subsequent event,
which requires removal of the $100,000 liability at September 30, 2014 via restatement.
The table below shows the effects of the September
30, 2014 restatement. Since the impairment loss was originally recorded during the year ended June 30, 2014, only the September
30, 2014 balance sheet is affected by the restatement. There is no change in any statement of operations line items or net loss
per share.
| |
Amount as | | |
| | | |
| | |
| |
Originally | | |
Restatement | | |
Restated | |
| |
Filed | | |
Adjustment | | |
Amount | |
As of September 30, 2014 | |
| | | |
| | | |
| | |
Due to Allotrope | |
$ | 100,000 | | |
$ | (100,000 | ) | |
$ | – | |
Accumulated deficit | |
| (351,118 | ) | |
| 100,000 | | |
| (251,118 | ) |
NOTE 7 – 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 8 – 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 $30,150 with these consultants and made repayments of $5,150 during the three months ended
September 30, 2015 (net increase of $25,000), and incurred a total expense of $55,013 with these consultants and made repayments
of $55,063 during the three months ended September 30, 2014 (net decrease of $50). Of the expenses incurred, $82,000 and $57,000
were outstanding at September 30, 2015 and June 30, 2015, respectively.
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis
of Financial Condition and Results of Operations analyzes the major elements of our balance sheets and statements of income. This
section should be read in conjunction with our Annual Report on Form 10-K for the year ended June 30, 2015, and our interim financial
statements and accompanying notes to these financial statements. All amounts are in U.S. dollars.
Forward-Looking Statement Notice
This quarterly report on Form 10-Q contains
forward-looking statements about our expectations, beliefs or intentions regarding, among other things, our product development
efforts, business, financial condition, results of operations, strategies or prospects. In addition, from time to time, we or our
representatives have made or may make forward-looking statements, orally or in writing. Forward-looking statements can be identified
by the use of forward-looking words such as “believe,” “expect,” “intend,” “plan,”
“may,” “should” or “anticipate” or their negatives or other variations of these words or other
comparable words or by the fact that these statements do not relate strictly to historical or current matters. These forward-looking
statements may be included in, but are not limited to, various filings made by us with the SEC, press releases or oral statements
made by or with the approval of one of our authorized executive officers. Forward-looking statements relate to anticipated or expected
events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have
not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ
materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual
activities or results to differ materially from the activities and results anticipated in forward-looking statements, including,
but not limited to, those set forth in our most recent annual report referenced below.
This report identifies important factors which
could cause our actual results to differ materially from those indicated by the forward-looking statements, particularly those
set forth under Item 1A – Risk Factors as disclosed in the Annual Report on Form 10-K as filed with the Securities and Exchange
Commission on October 13, 2015.
All forward-looking statements attributable
to us or persons acting on our behalf speak only as of the date of this report and are expressly qualified in their entirety by
the cautionary statements included in this report. We undertake no obligations to update or revise forward-looking statements to
reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In evaluating
forward-looking statements, you should consider these risks and uncertainties.
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 newly-formed 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 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, 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; |
| · | A new super-elastic materials technology;
and |
| · | An advanced explosives technology for
mining. |
These various discussions and a multitude of
additional discussions not specifically referenced herein did not result in any material or definitive business agreements.
We are presently reviewing several possible
transactions which could result in the merging of the Company with other business entities. As of the date of this filing there
are no definitive business agreements that have resulted from these discussions and possible letters of intent. Depending on the
specifics of each possible transaction, it is anticipated that additional funds will be needed and will be raised through sale
of the Company’s equity. At this time management does not have a specific target number as to the funds that will be raised
as this number depends greatly on which potential transaction will be finalized and will lead to a definitive business agreement.
Results of Operations –Three Months
Ended September 30, 2015 Compared to the Three Months Ended September 30, 2014
Gross Revenue. Gross revenue
for the three months ended September 30, 2015 and 2014 was $0. Accordingly, there were no costs of goods sold. The Company was
previously operating in the cutlery sales market but that business was sold and a new operating subsidiary was acquired which is
operating in the technology market. This new line of business is in the development stage and has not yet recognized any revenue.
General and Administrative Expenses.
General and administrative expenses for the three months ended September 30, 2015 totaled $58,112, a 10.8% decrease compared to
general and administrative expenses of $65,126 for the three months ended September 30, 2014. Management believes that general
and administrative expenses will increase significantly with the Company’s new business venture, particularly for professional,
legal, and accounting fees going forward.
Net Loss. For the reasons stated
above, our net loss for the three months ended September 30, 2015 was $58,108, compared to net loss of $65,292 during the three
months ended September 30, 2014. Management anticipates that the Company will experience significant losses from operations during
the startup phase of its new business venture.
Liquidity and Capital Resources
As of September 30, 2015, we had cash of $26,328
and prepaid expenses of $8,236, which is comprised of prepaid insurance and unvested stock issued to directors and Science Advisory
Board members as prepayment for future services. We had current liabilities of $98,083 consisting of accounts payable and accounts
payable-related parties. We had a working capital deficit of $63,519.
The accompanying financial statements have
been prepared contemplating a continuation of the Company as a going concern. We had ongoing operations during the period from
December 12, 2013 (date of inception) to September 30, 2015 with an accumulated deficit of $623,269.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
As a smaller reporting company, we have elected
not to provide the disclosure required by this item.
Item 4. Controls and Procedures
Evaluation of disclosure controls and
procedures
Our management, with the participation of our
Chief Executive Officer who is also our principal financial officer, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rule 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”))
as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer concluded that our disclosure
controls and procedures as of the end of the period covered by this report were 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 Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and
communicated to the Company’s management, including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial
reporting
There has been no change in our internal control
over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during our most recent fiscal quarter ended September
30, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER
INFORMATION
Item 1. Legal Proceedings
On November 12, 2015, the Securities and Exchange
Commission (the “Commission”) notified the Company that the Commission had concluded its investigation as to
Songbird Development, Inc., now known as Knowledge Machine International, Inc., and that it did not intend to recommend an enforcement
action by the Commission against the Company. The notification also stated that, pursuant to Commission Release 5310, the notice
must in no way be construed as indicating that the party has been exonerated or that no action my ultimately result from the staff’s
investigation.
Item 1A. Risk Factors
See “Item 1A – Risk Factors”
as disclosed in Form 10-K as filed with the Securities and Exchange Commission on October 13, 2015.
Item 5. Other Information
On October 19, 2015, the board of directors
of the Company approved, through unanimous written consent, amendments to the Articles of Incorporation of the Company,
as amended (the “Amendments”). The first amendment to the amended Articles which was approved by the board
was adding an Article XIX which would read as follows:
The Corporation expressly opts-out
of, and elects not to be governed by, the "Combinations with Interested Stockholders" provisions contained in NRS §§
78.411 through 78.444, inclusive—all as permitted under NRS § 78.434.
The second amendment to the amended Articles
which was approved by the board was a 1:6.469 reverse stock split of the outstanding shares of Common Stock of the Company.
On October 20, 2015, the Company received written
consents from shareholders representing 26,857,000 of 47,625,000 votes outstanding (56.39%) approving the Amendments.
Implementation of the Amendments was later
abandoned by the board of directors.
Item 6. Exhibits
SEC Ref. No. |
Title of Document |
31.1 |
Rule 15d-14(a) Certification by Principal Executive and Financial Officer |
32.1 |
Section 1350 Certification of Principal Executive and Financial Officer |
101.INS |
XBRL Instance Document |
101.SCH |
XBRL Taxonomy Extension Schema Document |
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document |
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Knowledge Machine International, Inc. |
|
|
|
|
|
|
Date: November 23, 2015 |
By |
/s/ Vivek R. Dave |
|
|
Vivek R. Dave, Ph.D., Chief Executive Officer |
|
|
(Principal Executive Officer and Principal |
|
|
Financial Officer) |
Exhibit 31.1
Certification
I, Vivek R. Dave, Ph.D., certify that:
1. I have reviewed this Form 10-Q quarterly
report of Knowledge Machine International, Inc. for the quarter ended September 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: November 23, 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 quarter ended September
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: November 23, 2015
/s/ Vivek R. Dave
Vivek R. Dave, Ph.D., President
(Principal Executive Officer and Principal Financial Officer)
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