250,000 shares previously issued to a Director at $0.001 per share vested during the period.
Of
$650,000 in notes payable, $75,000 was repaid and $575,000 was converted to 2,875,000 shares of capital stock.
1,000,000
shares issued to a Director at $0.001 per share. Of these, 250,000 vested during the
period and 750,000 are unvested.
3,666,667 shares previously issued to a Director at $0.001 per share vested during the period
250,000 shares previously issued for Board Services at $0.001 per share were cancelled during the period
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
NOTE 1 – Summary of Significant
Accounting Policies
Nature of Business –
Knowledge
Machine International, Inc. is a Nevada corporation (the “Company”), incorporated December 12, 2013.
The Company is a technology company which
intends to focus on new technologies, acquiring licensing rights to those technologies, and marketing its licensed technology.
The Company seeks to create a portfolio of technologies to change the method of technology transfer and technology startups involving
licensing of intellectual property. The Company intends to introduce tools and processes that management believes would remove
various biases, blind spots, and cultural pathologies and make commercialization of technology a more systematic and process-driven
approach. The Company intends to acquire intellectual property and marketing and sales rights to these technologies and then develop
these companies through partnership or joint venture arrangements. Additionally, it is intended that the Company’s Science
Advisory Board will help mitigate technical, marketing, and financial risks of the Company.
In October 2014, the Company entered into
and closed a stock purchase agreement wherein the shareholders of the Company became the controlling shareholders of a public company,
Songbird Development Inc. The Company has assumed the public reporting obligations of the public company.
Basis of Presentation
– The
accompanying financial statements have been prepared by the Company in accordance with Article 8 of U.S. Securities and Exchange
Commission Regulation S-X. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position, results of operations and cash flows at March 31, 2016 and June 30, 2015 and for the
three and nine months ended March 31, 2016 and 2015 have been made. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.
Management suggests these condensed financial statements be read in conjunction with the June 30, 2015 audited financial statements
and notes thereto. The results of operations for the period ended March 31, 2016 is not necessarily indicative of the operating
results for the full year.
Income Taxes
–
The
Company accounts for income taxes in accordance with ASC Topic No. 740, “Accounting for Income Taxes.”
The Company adopted the provisions of ASC
Topic No. 740, “Accounting for Income Taxes,” at the date of inception on December 12, 2013. As a result of the implementation
of ASC Topic No. 740, the Company recognized no increase in the liability for unrecognized tax benefits.
The Company has no tax positions at March
31, 2016 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 periods ended March 31,
2016 and 2015, the Company recognized no interest and penalties. The Company had no accruals for interest and penalties at March
31, 2016 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 other than to
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.”
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 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.
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.
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 payment was initially recorded as a cost-method investment
and impaired to $0 at June 30, 2014. The two remaining payments totaling $100,000 were never made and corresponding stock never
issued, and on October 14, 2014, the Company and Allotrope rescinded the original agreement.
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 March 31, 2016, the $50,000 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 notified 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 agreements. At June 30, 2015, the Company impaired
the deposit to $0, and at March 31, 2016, the $25,000 had not been returned.
Prepaid Expenses
Prepaid expenses consist of $4,334 in deferred
stock compensation (NOTE 4) that vests according to underlying contracts, and $5,168 in prepaid insurance that is amortized ratably
over the term of January 20, 2016 through January 20, 2017.
NOTE 4 – Stockholders’ Equity
Common Stock
The Company has authorized 200,000,000
shares of common stock, $0.001 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 March 31, 2016.
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.
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 March
31, 2016.
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 March 31, 2016 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
March 31, 2016 (500,000 unvested shares) increased prepaid expenses by $500.
As of March 31, 2016, 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 March 31, 2016.
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 March 31, 2016 and 2015:
|
|
Three Months Ended 03-31-16
|
|
|
Three Months Ended 03-31-15
|
|
|
Nine Months Ended 03-31-16
|
|
|
Nine Months Ended 03-31-15
|
|
Loss from continuing operations
available to common stockholders (numerator)
|
|
$
|
(46,200)
|
|
|
$
|
(90,142)
|
|
|
$
|
(167,071)
|
|
|
$
|
(248,906)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding used in loss per share during the period (denominator)
|
|
|
47,625,000
|
|
|
|
47,625,000
|
|
|
|
47,625,000
|
|
|
|
42,371,807
|
|
Dilutive loss per share was not presented
as the Company had no common equivalent shares for all periods presented that would affect the computation of diluted loss per
share or its effect is anti-dilutive.
NOTE 6 – Subsequent Events
The Company has evaluated subsequent events
from the balance sheet date through the date the financial statements were issued and determined there are no items to disclose.
NOTE 7 – 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 $92,925 with these consultants and made repayments of $10,100 during the nine months ended
March 31, 2016. In addition, these consultants paid expenses of $11,189 on behalf of the Company for a net increase of $94,014.
The Company incurred a total expense of $89,708 with these consultants and made repayments of $76,008 during the nine months ended
March 31, 2015 (net increase of $13,700). Of the expenses incurred, $151,014 and $57,000 were outstanding at March 31, 2016 and
June 30, 2015, respectively.