Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - DTHERA SCIENCESFinancial_Report.xls
EX-31 - CERTIFICATION - DTHERA SCIENCESknmx_10q-ex3100.htm
EX-32 - CERTIFICATION - DTHERA SCIENCESknmx_10q-ex3200.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2014

 

Or

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________________to___________________________

 

Commission File Number: 333-191175

 

Knowledge Machine International, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada 90-0925768
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
14 Hayward Brook Drive, Concord, NH 03301
(Address of principal executive offices) (Zip Code)

 

(603) 717 - 6279

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer . ¨ Accelerated filer . ¨  
  Non-accelerated filer . ¨ Smaller reporting company x  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨  No x

 

The number of shares outstanding of the registrant’s common stock on February 17, 2015, was 47,625,000.

 

 
 

 

 

TABLE OF CONTENTS

 

  Page
   
PART I—FINANCIAL INFORMATION 3
   
Item 1.  Financial Statements 3
   
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations 12
   
Item 3.  Quantitative and Qualitative Disclosures About Market Risk 15
   
Item 4.  Controls and Procedures 15
   
PART II—OTHER INFORMATION 15
   
Item 1.  Legal Proceedings 15
   
Item 1A.  Risk Factors 16
   
Item 6.  Exhibits 16
   
SIGNATURES 17

 

 

 

2
 

 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Knowledge Machine International, Inc.

Consolidated Balance Sheets

December 31, 2014 and June 30, 2014

 

   December 31, 2014   June 30, 2014 
   (Unaudited)   (Audited) 
ASSETS          
Current Assets          
Cash  $154,417   $461,285 
Total Current Assets   154,417    461,285 
           
           
Other Assets          
Cash in Escrow       50,000 
Deferred Stock Offering Costs   14,919     
License Agreement Option   25,000     
License Agreement Deposit   50,000     
Total Other Assets   89,919    50,000 
           
TOTAL ASSETS  $244,336   $511,285 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current Liabilities          
Accounts Payable  $33,760   $20,179 
Accrued Interest Payable       600 
Notes Payable - Convertible       650,000 
Due to Allotrope       100,000 
Total Current Liabilities   33,760    770,779 
           
TOTAL LIABILITIES   33,760    770,779 
           
Stockholders' Equity (Deficit)          
Preferred Stock, $0.001 par; 1,000,000 shares authorized; None issued and outstanding        
Common Stock, $0.001 par; 200,000,000 shares authorized;
47,625,000 issued and 43,040,666 outstanding at December 31, 2014
34,000,000 issued and 26,331,999 outstanding at June 30, 2014
   47,625    34,000 
Additional Paid-In Capital   512,125     
Less Deferred Compensation 4,584,334 and 7,668,001 common shares, respectively   (4,584)   (7,668)
Retained Earnings (Deficit)   (344,590)   (285,826)
Total Stockholders’ Equity (Deficit)   210,576    (259,494)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)  $244,336   $511,285

 

The accompanying notes are an integral part of these financial statements

 

3
 

 

Knowledge Machine International, Inc.

Consolidated Statements of Operations

Three Months and Six Months Ended December 31, 2014

and the Period from December 12, 2013 (Date of Inception) through December 31, 2013

(Unaudited)

 

           Period from 
           December 12, 2013 
   Six Months    Three Months   (Date of Inception) 
   Ended   Ended   through 
   December 31, 2014   December 31, 2014   December 31, 2013 
             
REVENUE  $   $   $ 
                
EXPENSES               
General & Administration   154,807    93,515     
Non-cash Stock Compensation   3,834         
Total Expenses   158,641    93,515     
                
OTHER INCOME (EXPENSE)               
Interest Expense   (252)        
Interest Income   129    43     
Total Other Income (Expense)   (123)   43     
                
INCOME (LOSS) BEFORE INCOME TAXES   (158,764)   (93,472)    
                
Current Income Tax Expense            
                
Deferred Income Tax Expense            
                
Net Income (Loss)  $(158,764)  $(93,472)  $ 
                
Loss per Common Share - Basic and Diluted  $(0.00)  $(0.00)  $ 
                
Weighted Average Number of Shares Outstanding - Basic and Diluted   39,802,310    43,375,000    0 

 

 

The accompanying notes are an integral part of these financial statements

 

 

4
 

Knowledge Machine International, Inc.

Consolidated Statements of Cash Flows

Six Months Ended December 31, 2014

and the Period from December 12, 2013 (Date of Inception) through December 31, 2013

(Unaudited)

 

       Period from 
       December 12, 2013 
   Six Months    (Date of Inception) 
   Ended   through 
   December 31, 2014   December 31, 2013 
OPERATING ACTIVITIES          
Net Income (Loss)  $(158,764)  $ 
Adjustments to reconcile Net Income (Loss)  to Net Cash (used) provided by operations:          
Noncash Expenses:          
Stock Compensation   3,834     
Change in assets and liabilities:          
Decrease in Cash in Escrow   (50,000)    
Increase in Accounts Payable   13,581     
Decrease in Accrued Interest   (600)    
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES   (191,949)    
           
INVESTING ACTIVITIES          
Purchase of Option of License Agreement with Score   (25,000)    
Deposit towards License Agreement with Score   (50,000)    
NET CASH (USED) BY INVESTING ACTIVITIES   (75,000)    
           
FINANCING ACTIVITIES          
Repayment of Notes Payable   (75,000)    
Reorganization of the Company and Issuance of Stock   50,000     
Increase in Deferred Stock Offering Costs   (14,919)    
NET CASH PROVIDED BY FINANCING ACTIVITIES   (39,919)    
           
NET CASH INCREASE (DECREASE) FOR PERIOD   (306,868)    
           
CASH AT BEGINNING OF PERIOD   461,285     
           
CASH AT END OF PERIOD  $154,417   $ 
           
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 six months ended December 31, 2014          
On November 10, 2014, a one for ten forward stock split occurred.          
Of $650,000 in notes payable, $75,000 was repaid and $575,000 was converted to 2,875,000 shares of capital stock.          
1,000,000 shares issued to a Director at $0.001 per share. Of these, 250,000 vested during the period and 750,000 are unvested.          
250,000 shares previously issued for Board Services at $0.001 per share were cancelled during the period.          
           
For the period from December 12, 2013 (Date of Inception) through December 31, 2013          
None          

 

The accompanying notes are an integral part of these financial statements 

5
 

 

KNOWLEDGE MACHINE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014

 

 

NOTE 1 – Summary of Significant Accounting Policies

 

Nature of Business – Knowledge Machine, 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 December 31 and June 30, 2014 and for the three months and six months ended December 31, 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, 2014 audited financial statements and notes thereto. The results of operations for the period ended December 31, 2014 are not necessarily indicative of the operating results for the full year.

 

Property and Equipment – Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized upon being placed in service. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated life has been determined to be three years unless a unique circumstance exists, which is then fully documented as an exception to the policy.

 

Fair Value of Financial Instruments - The Company accounts for fair value measurements in accordance with accounting standard ASC 820-10-50, “Fair Value Measurements.”  This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures.  The three levels are defined as follows:

 

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.

 

The Company’s financial instruments consist of cash, payables, and notes payable. The carrying amount of cash and payables 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.

 

6
 

 

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 December 31, 2014 and June 30, 2014 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

 

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the period ended December 31, 2014, the Company recognized no interest and penalties. The Company had no accruals for interest and penalties at June 30, 2014 or December 31, 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.”

 

Accounts Receivable and Allowance for Doubtful Accounts – Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts. The Company determines the allowance for doubtful accounts by identifying potential troubled accounts and by using historical experience and future expectations applied to an aging of accounts. Trade accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded as income when received. The allowance for doubtful accounts at December 31, 2014 and June 30, 2014 was $0 and $0 respectively.

 

Long-Lived and Intangible Assets – Long-lived assets and certain identifiable definite life intangibles to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows and the estimated liquidation value of such long-lived assets, and provides for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the long-lived assets. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.

 

7
 

 

Recently Enacted Accounting Standards – The FASB established the Accounting Standards Codification (“Codification” or “ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) issued under authority of federal securities laws are also sources of GAAP for SEC registrants.

 

Recent Accounting Standards Updates (“ASU”) through ASU No. 2014-16 contain technical corrections to existing guidance or affect guidance to specialized industries. These updates have no current applicability to the Company or their effect on the financial statements would not have been significant. The Company has early adopted the provisions of ASU No. 2014-10 “Development Stage Entities” which generally removes the requirements for added disclosures about development stage activities.

 

Cash Equivalents - The Company considers all highly liquid investments with a 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 Securities Exchange Commission (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 December 31, 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.

 

Revenue Recognition – The Company’s revenue is derived primarily from providing services under contractual agreements. The Company recognizes revenue in accordance with ASC Topic No. 605 based on the following criteria: Persuasive evidence of an arrangement exists, services have been rendered, the price is fixed or determinable, and collectability is reasonably assured.

 

Deferred Stock Offering Costs – Costs related to proposed stock offerings are deferred and will be offset against the proceeds of the offering in additional paid in capital. In the event a stock offering is unsuccessful, the costs related to the offering will be written off directly to expense.

 

 

NOTE 2 – Going Concern

 

The Company was only recently formed and has not yet achieved profitable operations. The ability of the Company to continue as a going concern is dependent on expanding income opportunities. Management anticipates that future contracts will allow the Company to achieve profitable operations. There is no assurance that the Company will be successful in raising additional capital or in achieving profitable operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

8
 

 

NOTE 3 – Cost Method Investments

 

Allotrope Sciences Corporation

 

In June 2014, the Company entered into a Stock Purchase Agreement with Allotrope Sciences Corporation, a Delaware corporation, to purchase 12% of the total number of shares of Allotrope’s common stock for $150,000. Three payments of $50,000 each were due within 10, 30 and 90 business days of the signing of the agreement on June 23, 2014. The first payment of $50,000 was made prior to June 30, 2014. The two remaining payments totaling $100,000 were included as a liability on the Company’s balance sheet at September 30, 2014. On October 14, 2014, the Company and Allotrope rescinded the original agreement and the liability was removed from the Company’s balance sheet. The companies are in the process of renegotiating the transaction, with the intent that the $50,000 would be used towards future joint venture activities. The investment in Allotrope is carried on the cost method.

 

Score Technologies, Inc.

 

On July 8, 2014, the Company entered into an agreement with Score Technologies, Inc. for the purchase of 100,000 shares of stock in consideration of $50,000. On August 4, 2014, the agreement was subsequently cancelled and rescinded retroactively. The $50,000 payment made pursuant to the agreement is being held as a deposit towards partial payment on any future license agreements entered into between the Company and Score. In addition, 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.

 

 

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) remain unvested and are reflected as deferred compensation as of June 30, 2014. On August 13, 2014, 250,000 shares previously issued to a Science Advisory Board member were cancelled. The shares were valued at $0.001, or $250. An additional 3,666,667 shares (valued at $3,667) vested during the three months ended September 30, 2014 and 3,834,334 (valued at $3,834) remain unvested and are reflected as deferred compensation as of December 31, 2014.

 

On July 29, 2014, $575,000 of convertible notes payable were converted to common stock at a rate of five shares of stock per $1.00 (shares valued at $0.20 per share). A total of 2,875,000 shares of common stock were issued as part of the conversions. The shares were recorded at $0.001, or $2,875. The balance of $572,125 was recorded as additional paid in capital.

 

On August 25, 2014, the Company issued 1,000,000 shares of common stock to a Director. The shares were valued at $0.001, or $1,000. Of these shares, 250,000 (valued at $250) vested during the quarter and 750,000 (valued at $750) remain unvested. 250,000 shares will vest each year on August 25 in 2015, 2016 and 2017 as long as individual remains as a Director of the Company.

 

On October 22, 2014, the Company issued 1,000,000 shares of common stock as part of a reorganization of the Company.

 

On November 10, 2014, a one for ten forward stock split occurred, resulting in an additional 9,000,000 shares being issued. The split has been retroactively applied to all periods presented.

 

9
 

 

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 December 31, 2014 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 December 31, 2014 (750,000 unvested shares) increased deferred compensation by $750.

 

As of December 31, 2014, the balance of unvested compensation cost expected to be recognized is $4,584 and is recorded as a reduction of stockholders’ equity. The unvested compensation is expected to be recognized over the weighted average period of approximately three years (through August 25, 2017).

 

Preferred Stock

 

The Company is authorized to issue 1,000,000 shares of preferred stock, $0.001 par value. There were none issued and outstanding at December 31, 2014.

 

 

NOTE 5 – Loss Per Share

 

The following data show the amounts used in computing loss per share and the effect on income and the weighted average number of shares of dilutive potential common stock for the three and six months ended December 31, 2014:

 

   3 Months Ended   6 Months Ended 
   12-31-2014   12-31-2014 
Loss from continuing operations available to common stockholders (numerator)  $(93,472)  $(158,764)
           
Weighted average number of common shares outstanding used in loss per share during the Period (denominator)   43,375,000    39,802,310 

 

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.

 

 

10
 

 

 

NOTE 6 – Subsequent Events

 

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.

 

The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued and determined there are no additional items to disclose.

 

 

NOTE 7 - Recent Pronouncement

 

On June 10, 2014, the Financial Accounting Standards Board ("FASB") issued update ASU 2014-10, Development Stage Entities (Topic 915). Amongst other things, the amendments in this update removed the definition of development stage entity from Topic 915, thereby removing the distinction between development stage entities and other reporting entities from US GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information on the statements of income, cash flows and shareholders’ equity, (2) label the financial statements as those of a development stage entity;  (3) disclose a description of the development stage activities in which the entity is engaged and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.  The amendments are effective for annual reporting periods beginning after December 31, 2014 and interim reporting periods beginning after December 15, 2015, however entities are permitted to early adopt for any annual or interim reporting period for which the financial statements have yet to be issued. The Company has elected to early adopt these amendments and accordingly have not labeled the financial statements as those of a development stage entity and have not presented inception-to-date information on the respective financial statements

 

 

11
 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets and statements of income. This section should be read in conjunction with our Annual Report on Form 10-K for the year ended July 31, 2014, and our interim financial statements and accompanying notes to these financial statements. All amounts are in U.S. dollars.

 

Forward-Looking Statement Notice

 

This quarterly report on Form 10-Q contains forward-looking statements about our expectations, beliefs or intentions regarding, among other things, our product development efforts, business, financial condition, results of operations, strategies or prospects. In addition, from time to time, we or our representatives have made or may make forward-looking statements, orally or in writing. Forward-looking statements can be identified by the use of forward-looking words such as “believe,” “expect,” “intend,” “plan,” “may,” “should” or “anticipate” or their negatives or other variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical or current matters. These forward-looking statements may be included in, but are not limited to, various filings made by us with the SEC, press releases or oral statements made by or with the approval of one of our authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, those set forth in our most recent annual report referenced below.

 

This report identifies important factors which could cause our actual results to differ materially from those indicated by the forward-looking statements, particularly those set forth under Item 1A – Risk Factors as disclosed in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission on October 28, 2014.

 

All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligations to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In evaluating forward-looking statements, you should consider these risks and uncertainties.

 

Description of Business

 

Prior to October 22, 2014, we were engaged in the distribution of high end cutlery sets produced in China. On October 22, 2014, we acquired an operating subsidiary, Knowledge Machine, Inc., a Nevada corporation, (“Knowledge Machine”) and subsequently sold off our current business. Knowledge Machine is a development stage technology company focused on targeting new technologies, acquiring licensing rights to those technologies, and marketing its licensed technologies. Whenever feasible and supported by business plans, we intend to form joint ventures and partnerships to share risks and rewards associated with bringing new and innovative products and services to market. We do not intend to become an investment company as defined in the Investment Company Act of 1940, as amended. Knowledge Machine was incorporated in the State of Nevada on December 12, 2013, and commenced its operations in 2013.

 

At their core, the business processes of Knowledge Machine are anticipated to involve the following aspects:

 

·Identification of promising early-stage technologies that have significant revenue potential within validated markets or within emerging markets, including technologies which have issued patents or have patents pending;

 

·Vetting of such early stage technologies by Knowledge Machine’s Science Advisory Board comprised of individuals with significant private and public sector experience with technology and innovation;

 

12
 

 

 

·Structuring of licensing agreements, marketing agreements, joint ventures, joint technology development agreements, or materials supply agreements depending on the specific business opportunity and what would be best for advancing the purposes of the business plan; and

 

·Focusing on specific technology areas such as algorithms for science-based prediction in various fields, advanced materials, manufacturing, internet technologies and Big Data, biotech, and health care, especially in emerging markets such as India.

 

Acquisition of Knowledge Machine

 

On October 22, 2014, we entered into a contract with and completed the acquisition of Knowledge Machine in a stock-for-stock exchange in which we issued 37,625,000 shares of our common stock on a pro rata basis to the shareholders of Knowledge Machine in return for all of the outstanding shares of Knowledge Machine (the “Reorganization Agreement”). We also entered into a Stock Purchase Agreement (the “SPA”) with Igor Kaspruk, the sole officer, director and principal shareholder of the Company at the time, to acquire 2,464,716 shares of restricted stock held by him for $35,800. Following the closing of the Reorganization Agreement and the SPA, we sold the assets relating to the prior business of the Company to Mr. Kaspruk in return of 1,535,284 shares owned by him pursuant to an Asset Purchase Agreement between the Company and Mr. Kaspruk (the “APA”). In addition, Knowledge Machine loaned $14,200 to the Company to repay outstanding prior cash advances made by Mr. Kaspruk to the Company.

 

At the closing of the Reorganization Agreement, Mr. Kaspruk appointed Vivek R. Dave, Ph. D, and Taylor Caswell to serve as directors of the Company and subsequently resigned as an officer and director of the Company. Thereafter, in connection with the closing of the SPA and the APA, the 4,000,000 restricted shares of common stock purchased by Knowledge Machine and the Company from Mr. Kaspruk in the above transactions were cancelled and returned the authorized but unissued common stock of the Company.

 

As a result of the above transactions a change of control of the Company occurred from Mr. Kaspruk to Messrs. Dave and Caswell who assumed management control of the Company.

 

In connection with the closing of the Reorganization Agreement, the board of directors approved a one-for-ten forward stock split of the pre-closing outstanding shares and a change of the Company’s name to “Knowledge Machine International, Inc.” The forward stock split and name change were approved by written consent of Mr. Kaspruk as a majority shareholder immediately prior to the closing of the Reorganization Agreement. The name change and forward stock split were effected on November 10, 2014, as reflected in articles of amendment filed with the State of Nevada.

 

Upon completion of the above transactions, giving effect to the forward split of the pre-closing shares and cancellation of Mr. Kaspruk’s shares, we have 47,625,000 shares of our common stock outstanding. Of these shares Messrs. Dave and Caswell own 6,500,000 shares or approximately 13.7% of our Company’s outstanding stock. Former shareholders of Knowledge Machine, including Messrs. Dave and Caswell, received 37,625,000 shares of the Company, representing approximately 80% of the outstanding shares. The securities issued in the closing of the Reorganization Agreement were not and will not be registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

 

Results of Operations –Three Months Ended December 31, 2014 Compared to the period from December 12, 2013 (Date of Inception) through December 31, 2013

 

Gross Revenue. Gross revenue for the three months ended December 31, 2014, was $0, compared to $0 in gross revenue for the period from December 12, 2013 (Date of Inception) through December 31, 2013. 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.

 

13
 

 

General and Administrative Expenses. General and administrative expenses for the three months ended December 31, 2014 totaled $93,515, a 100% increase compared to general and administrative expenses of $0 for the period from December 12, 2013 (Date of Inception) through December 31, 2013. 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 December 31, 2014 was ($93,472), compared to net income of ($0), during the period from December 12, 2013 (Date of Inception) through December 31, 2013. Management anticipates that the Company will experience significant losses from operations during the startup phase of its new business venture.

 

Results of Operations –Six Months Ended December 31, 2014 Compared to the period from December 12, 2013 (Date of Inception) through December 31, 2013

 

Gross Revenue. Gross revenue for the six months ended December 31, 2014, was $0, compared to $0 in gross revenue for the period from December 12, 2013 (Date of Inception) through December 31, 2013. Accordingly, there were no costs of goods sold. The Company was previously operating in the cutlery sales market but that business was sold and a new operating subsidiary was acquired which is operating in the technology market. This new line of business is in the development stages and has not yet recognized any revenue.

 

General and Administrative Expenses. General and administrative expenses for six months ended December 31, 2014 totaled $154,807, a 100% increase compared to general and administrative expenses of $0 for the period from December 12, 2013 (Date of Inception) through December 31, 2013. Management believes that general and administrative expenses will increase significantly with the Company’s new business venture, particularly for professional, legal, and accounting fees going forward.

 

Non-Cash Stock Compensation. Non-cash stock compensation for six months ended December 31, 2014 totaled $3,834, a 100% increase compared to non-cash stock compensation of $0 for the period from December 12, 2013 (Date of Inception) through December 31, 2013. Management believes that non-cash stock compensation will increase significantly with the Company’s new business venture, particularly for professional, legal, and accounting fees going forward.

 

Net Loss. For the reasons stated above, our net loss for the six months ended December 31, 2014 was ($158,764), compared to net income of ($0) during the period from December 12, 2013 (Date of Inception) through December 31, 2013. 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 December 31, 2014, we had cash of $154,417. We had current liabilities of $33,760 consisting of accounts payable. We had a working capital surplus of $120,657. With the change of business ventures as of the end of this period, we do not anticipate that these amounts will be indicative of future operations.

 

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 December 31, 2014 with a net loss of $344,590.

 

Plan of Operation

 

We estimate that we will require approximately $1,500,000 to $3,000,000 in additional funding to finance Knowledge Machine’s operations during the next 12 to 18 months. We intend to seek this additional financing through sales of equity securities, although we currently have no commitments or arrangements for the additional financing needed.

 

We are currently in the process of re-evaluating our technology portfolio during the first calendar quarter of 2015. This revised technology portfolio may include previously discussed technologies, but may also include new technologies that we are at present discussing with potential partners.

 

 

14
 

 

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 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in internal control over financial reporting

 

There has been no change in our internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during our most recent fiscal quarter ended December 31, 2014, 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 December 23, 2014, we received a subpoena dated December 22, 2014, from the U.S. Securities and Exchange Commission (the “SEC”) requesting certain corporate documents in connection with a non-public formal investigation of several companies by the SEC’s Division of Enforcement, including our company. In addition, the SEC may in the future require us to produce additional documents or other materials or provide representatives for testimony.

 

Management is fully cooperating with the SEC and is completing the production of documents in response to the subpoena. In general, the subpoena requires that we give the SEC a broad range of documents regarding both the parent and its operating subsidiary. Management is 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 current subpoena. If we receive additional subpoenas or other requests for documents from the SEC, complying with any such future requests could require additional time and attention from our officers and directors. Additionally, it may be necessary to allocate corporate financial resources to adequately respond to this matter. Prompted by the SEC inquiry and to guide upcoming strategic discussions, we are conducting an internal investigation of the circumstances surrounding our organization and our public offering in early 2014.

 

15
 

 

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 28, 2014.

 

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.

 

Item 6. Exhibits

 

SEC Ref. No. Title of Document
31.1 Rule 13a-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

 

 

 

 

16
 

 

 

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: February 23, 2015 By /s/ Vivek R. Dave
    Vivek R. Dave, Ph.D., Chief Executive Officer
    (Principal Executive Officer and Principal
    Financial Officer)

 

 

 

 

 

 

 

 

17