SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d) of
Securities Exchange Act of 1934
For Period ended September 30, 2000
Commission File Number 0-28287
KNOWLEDGE FOUNDATIONS, INC.
(formerly CALIPSO, INC.)
---------------------------------------------------------
Delaware 88-0418749
--------------------------- ------------------------------
(State of Incorporation) (I.R.S. Employer
Identification Number)
7852 Colgate Avenue, Westminster, CA 92683
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(Address of Principal Executive Offices) (Zip Code)
(626) 444-5494
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(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 twelve 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock at the latest practicable date.
As of November 15, 2000, the registrant had 40,098,000 shares of common
stock, $.001 par value, issued and outstanding.
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
KNOWLEDGE FOUNDATIONS, INC. (formerly Calipso, Inc.)
(a Development Stage Company)
BALANCE SHEET
UNAUDITED
<TABLE>
Sept 30
2000
------
ASSETS
<S> <C>
CURRENT ASSETS
CASH $32,406
OTHER RECEIVABLES 60
PREPAID EXPENSES 1,000
--------
TOTAL CURRENT ASSETS 33,466
PROPERTY AND EQUIPMENT, NET 5,890
---------
TOTAL ASSETS $ 39,356
</TABLE>
===========
LIABILITIES AND STOCKHOLDERS'(DEFICIT)
<TABLE>
<S> <C>
CURRENT LIABILITIES
ACCOUNTS PAYABLE $108,865
ACCRUED LIABILITIES 22,326
DUE TO RELATED PARTIES 5,000
---------
TOTAL CURRENT LIABILITIES 136,191
SUBORDINATED NOTES PAYABLE 300,000
------------
TOTAL LIABILITIES 436,191
STOCKHOLDERS' (DEFICIT)
COMMON STOCK - $.001 par value
50,000,000 shares authorized, 40,098,000
issued and outstanding at 9/30/00 40,098
ADDITIONAL PAID IN CAPITAL (36,736)
ACCUMULATED DEFICIT (400,197)
--------------
TOTAL STOCKHOLDERS' (DEFICIT) (396,835)
------------
TOTAL LIABILITIES & STOCKHOLDERS'(DEFICIT) $ 39,356
============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
FINANCIAL STATEMENTS (continued)
<TABLE>
KNOWLEDGE FOUNDATIONS, INC.
STATEMENTS OF OPERATIONS
(a Development Stage Company)
For the Three Months and Six Months Ended September 30, 2000
UNAUDITED
Three Months Ended Six Months Ended
Sept 30,00 Sept 30, 99 Sept 30, 00 Sept 30,99
<S> <C> <C> <C> <C>
REVENUE $ 0 $ 0 $ 0 $ 0
---------- ------------ ------------ -----------
- -
TOTAL REVENUE 0 0 0 0
DIRECT COSTS 0 0 0 0
TOTAL COST OF GOODS 0 0 0 0
SOLD
GROSS PROFIT 0 0 0 0
OPERATING EXPENSES
DEPRECIATION 331 0 486 0
GENERAL & 261,354 0 392,032 0
ADMINISTRATIVE EXP ----------- ---- ------------ ----
TOTAL OPERATING 261,685 0 392,518 0
EXPENSES ---------- ----------
LOSS FROM OPERATIONS (261,685) 0 (392,518) 0
OTHER INCOME & EXPENSE 3,566 0 7,679 0
----------- ----- ---------- ------
TOTAL OTHER (INCOME) & 3,566 0 7,679 0
EXPENSE
LOSS BEFORE TAXES (265,251) 0 (400,197) 0
----------- ------------
NET LOSS $(265,251) $0 $(400,197) $0
== ======== ===
BASIC AND DILUTED ($0.02) $0 ($0.04) $0
EARNINGS (LOSS) PER
SHARE (see Note 5)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 13,428,343 6,696,000 10,863,596 6,696,000
OUTSTANDING
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
FINANCIAL STATEMENTS (continued)
<TABLE>
KNOWLEDGE FOUNDATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(a Development Stage Company)
For the Six Months Ended September 30, 2000
UNAUDITED
Sept 30 Sept 30
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
NET LOSS (400,197) 0
ADJUSTMENTS TO RECONCILE NET
LOSS TO NET
CASH USED IN OPERATING
ACTIVITIES:
DEPRECIATION 485 0
CHANGES IN ASSETS AND
LIABILITIES:
INCREASE IN OTHER CURRENT (1,060) 0
ASSETS
INCREASE IN ACCOUNTS PAYABLE 108,865 0
INCREASE IN ACCRUED 22,326 0
LIABILITIES
INCREASE IN DUE TO RELATED 5,000 0
PARTIES ----------------- ---------------
NET CASH FLOWS USED IN OPERATING (264,581) 0
ACTIVITIES: ----------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES
PURCHASE OF PROPERTY & (6,375) 0
EQUIPMENT AND SOFTWARE ----------------- ---------------
NET CASH FLOWS USED IN INVESTING (6,375) 0
ACTIVITY ----------------- ---------------
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES
PROCEEDS FROM ISSUANCE OF 300,000 0
NOTES (see Note 6)
PROCEEDS FROM THE SALE OF 3,362 0
COMMON STOCK ----------------- ---------------
NET CASH FLOWS PROVIDED BY 303,362 0
FINANCING ACTIVITIES ----------------- ---------------
NET INCREASE (DECREASE) IN CASH 32,406 0
CASH AT BEGINNING OF PERIOD 0 0
$ 32,406 $0
CASH AT END OF PERIOD ================= ===============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
FINANCIAL STATEMENTS (continued)
NOTES TO FINANCIAL STATEMENTS
1. MANAGEMENT'S OPINION
In the opinion of management, the accompanying financial statements contain
all adjustments necessary to present fairly the financial position of the
company as of September 30, 2000 and 1999, and the results of operations for
the six months ended September 30, 2000 and 1999, and the changes in cash for
the six months ended September 30, 2000 and 1999. The accompanying financial
statements have been adjusted as of September 30, 2000 as required by Item
310 (b) of Regulation S-B to include all adjustments which in the opinion of
management are necessary in order to make the financial statements not
misleading. The results of operations for the six months ended September 30,
2000 and 1999 are not necessarily indicative of the results to be expected
for the remainder of the year.
2. BASIS OF PRESENTATION
On September 18, 2000 Knowledge Foundations, Inc, ("KF") a private Delaware
corporation, was merged into Calipso, Inc., a public Delaware corporation.
The transaction was accomplished through an exchange of common shares, which
resulted in the shareholders of KF obtaining approximately eighty (80)
percent of the outstanding common shares of Calipso. On the merger date the
name of the company was changed from Calipso, Inc. to Knowledge Foundations,
Inc. and the stock symbol was changed to "KNFD". The merger was accounted for
as a purchase. The financial statements reflect the change in control and,
exclusive of the pre-merger activity of Calipso (which were insignificant),
the Statement of Operations and Statements of Cash Flow depict the activity
of Knowledge Foundations for the quarter ended September 30, 2000 and for the
six months ended September 30, 2000 respectively. Knowledge Foundations, Inc.
(private) was incorporated on April 6, 2000. Proforma results for three
months and six months periods are not presented as Calipso's operations were
insignificant.
3. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Nature of Operations
Calipso, Inc. was incorporated in Delaware on May 31, 1994. Calipso, prior to
the merger on September 18, 2000, had not conducted any business activity.
Knowledge Foundations, Inc. ("KF"), was incorporated on April 6, 2000
according to the laws of Delaware. KF has been in the development stage
since its inception. During the development stage, the Company is primarily
engaged in raising capital, obtaining financing, developing its knowledge-
based computing technology, advertising and marketing the Company, and
administrative functions. The Company intends to produce a knowledge-based
operating system, related tools and applications, and system integration
services delivered to every potential application area. The Company's
primary target markets primarily are knowledge owners, publishers, large
commercial corporations, government agencies and end-users.
Risks and Uncertainties
The Company is a start-up company subject to the substantial business risks
and uncertainties inherent to such an entity, including the potential risk of
business failure.
The accompanying financial statements have been prepared on the basis of a
going concern, which contemplates the realization of assets and liquidation
of liabilities in the normal course of business.
Management is pursuing financing initiatives that would enhance the
development of the Company's products and provide sufficient capital for
marketing. However, there is no assurance the Company will be able to obtain
<PAGE>
the sufficient equity financing or generate sufficient revenues on terms
satisfactory to the Company.
4. BASIS OF ACCOUNTING
The Company's policy is to use the accrual method of accounting and to
prepare and present financial statements which conform to generally accepted
accounting principles. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
5. EARNINGS (LOSS) PER SHARE
The Company has adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings Per Share." Under SFAS 128, basic earnings per share
is computed by dividing income available to common stockholders by the
weighted-average number of common shares assumed to be outstanding during the
period of computation. Diluted earnings per share is computed similar to
basic earnings per share except that the denominator is increased to include
the number of additional common shares that would have been outstanding if
the potential common shares had been issued and if the additional common
shares were dilutive. Because the Company has incurred net losses, basic and
diluted loss per share are the same as additional potential common shares
would be anti-dilutive.
6. CONVERTIBLE SUBORDINATED NOTE PAYABLE
On April 19, 2000 Knowledge Foundation, Inc. executed a 8% Convertible
Subordinated Promissory Note due April 18, 2003 in the sum of $300,000. The
holder of this note has the right to convert all or any portion of the
outstanding principal amount of this Note into a stated number of shares
computed by dividing such principal amount by the conversion price per share
offered in the equity financing. In the event the equity financing involves
an merger transaction, the conversion price shall be $1.00 per share.
7. COMMITMENT
Royalty Agreement
The Company has entered into an agreement with regard to royalty fees between
the Company and one of its officers. In this agreement rights relative to
certain software designs have been assigned to the Company. The officer will
receive royalties ranging from 2% to 5% on net sales of such software designs
sold to others or deployed by the Company in a project for third parties
8. CONTINGENCY
The Company currently has a claim filed against them by a consultant over
consideration with regard to a finders fee for potential equity financing.
The Company believes that neither the merit or future outcome of such a claim
nor potential damages is readily determinable as of September 30, 2000 and
therefore has not accrued any liability in the accompanying financial
statements.
<PAGE>
PART 1 FINANCIAL INFORMATION
Management's Plan of Operations
Pursuant to an Acquisition Agreement and Plan of Merger dated as of August 7,
2000 between Calipso, Inc., a Delaware corporation, and Knowledge
Foundations, Inc. ("KF"), a Delaware corporation, all the outstanding shares
of common stock of KF were exchanged for 33,918,400 shares of 144 restricted
common stock of Calipso in a transaction in which Calipso was the surviving
corporation. Prior to the Merger, on May 4, 2000 there were 9,039,600 common
shares issued and outstanding. As a result of the Merger, on September 13,
2000, 4,860,000 shares were cancelled leaving 4,179,600 issued and
outstanding. On September 13, 2000 35,918,400 shares were issued pursuant to
the terms and conditions of the Merger; providing for 40,098,000 issued and
outstanding post Merger. Of the 35,918,400 shares issued in the Merger, 2
million shares were issued collectively to Wright & Bleers and Oceanway
Investments, 1 million of which shares are subject to a lock up agreement in
addition to other conditions. The number of shares issued to KF stockholders
in the merger represented 84.58% of the shares outstanding of 40,098,000 post
merger common shares.
The Merger between Calipso and KF was effective with the concurrent filing of
a Certificate of Merger with the Secretary of State in Delaware on September
18, 2000. At the effective time of the merger the name of the Calipso was
changed to Knowledge Foundations, Inc. As a result of the merger, the
33,918,400 shares that were issued to the Knowledge Foundations, Inc.
stockholders resulted in a change in control of the Company. Additionally new
officers and directors were appointed and elected. As the result of the
merger in which the shareholders of KF represent more than 80% of the
outstanding common shares and Calipso has had no prior operating history,
the financial statements presented reflect the operations of Knowledge
Foundations since its inception in April 2000.
The Company maintains a cash balance sufficient to sustain operations until
such time as management can raise the funding necessary to advance its
business plan briefly described below and in further detail in its post-
merger Form 8K filing filed with the Securities and Exchange Commission in
October 2000. Funding for the Company has been accomplished the form of a
$300,000 convertible debenture prior to the merger and by additional advances
since the merger. Management is currently in late stage negotiations with a
placement agent to market a private placement of unregistered equity
securities in excess of $3 million. There can be no assurance that the
Company will be successful in completing any or all of the proposed
financing.
Since its inception in April 2000, KF has been in a development mode, has
been seeking the completion of the merger with Calipso, has begun the process
of commercializing the software and knowledge base engineering process under
license, and hired senior software engineers (including two PhDs) who will
produce new releases of the software scheduled for the last half of 2001. KF
has incurred $265,251 in operating expenses during the quarter ended
September 30 and $134,946 during the prior quarter.
Knowledge Foundations, Inc. is a developer and marketer of knowledge
engineering software. KFI possess an exclusive license for two generations of
successfully deployed knowledge engineering software tools, developed by the
Company's Chairman and Chief Science Officer, Dr Richard L. Ballard. Previous
versions of the software have been used in a variety of government
applications for the US Navy, US Air Force, US Army Strategic Defense
Command, NASA's Johnson Space Center and others. Knowledge Foundations'
software operates transparently within the MS-Windows environment and has the
capacity to capture virtually any form of knowledge, and to code it for
increased processing speed, storage capacity and intuitive access to
knowledge.
KFI acquired the rights to its technology through a License and Royalty
Agreement entered into on April 6, 2000 by and between Richard L. Ballard and
<PAGE>
Janet J. Pettitt (Ballard), husband and wife, and KFI. The License and
Royalty Agreement provides KFI with exclusive and transferable rights to
Ballard's software. Future inventions and software developments will be the
exclusive property of KFI.
The Company intends to further develop the software for additional
capabilities, to obtain appropriate intellectual property protection, to
provide knowledge engineering services to clients and to market its software
tools to software application developers under license agreements.
Knowledge Foundations' software products are best described as knowledge-
based engineering and application development tools. Whereas current
information processing applications are limited to informational data content
with predictable outcomes, KFI's software will use coded human knowledge to
assist a user in solving and managing unpredictable problems by answering
complex questions such as how, why, and most important - what if?
KFI's technology will allow organizations to permanently store lessons
learned, contracted work products, and intellectual capital as a "knowledge
base". The company's technology captures, codifies and integrates virtually
any form of knowledge into easily accessed and marketable formats. The
application of KFI's software tools will provide a production process for
building small to large knowledge bases and assist companies in managing a
most important asset -- knowledge.
Software manufacturers will be able to license KFI's software to enhance
their own information based applications. Individual users and corporate
enterprises alike will be able to permanently store their intellectual
capital, work products, experience, and learning in a knowledge base. These
knowledge bases will then be able to grow through the introduction of new
knowledge and be passed on from generation to generation.
KFI's goal is to patent and establish its unique technology as an "industry
standard" for all knowledge based computing and plans to market its
technology to the world through licensing agreements.
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings.
The Company currently has a claim filed against them by a consultant over
consideration with regard to a finders fee for potential equity financing.
The Company believes that neither the merit or future outcome of such a claim
nor potential damages is readily determinable as of September 30, 2000 and
therefore has not accrued any liability in the accompanying financial
statements. Incorporate by reference Form 8-K Report (Date of Earliest Event
Reported) September 18, 2000.
ITEM 2 Changes in Securities.
Pursuant to an Acquisition Agreement and Plan of Merger dated as of August 7,
2000 between Calipso, Inc., a Delaware corporation, and Knowledge
Foundations, Inc. ("KF"), a Delaware corporation, all the outstanding shares
of common stock of KF were exchanged for 33,918,400 shares of 144 restricted
common stock of Calipso in a transaction in which Calipso was the surviving
corporation. Prior to the Merger, on May 4, 2000 there were 9,039,600 common
shares issued and outstanding. As a result of the Merger, on September 13,
2000, 4,860,000 shares were cancelled leaving 4,179,600 issued and
outstanding. On September 13, 2000 35,918,400 shares were issued pursuant to
the terms and conditions of the Merger; providing for 40,098,000 issued and
outstanding post Merger. Of the 35,918,400 shares issued in the Merger, 2
million shares were issued collectively to Wright & Bleers and Oceanway
Investments, 1 million of which shares are subject to a lock up agreement in
addition to other conditions. The number of shares issued to KF stockholders
in the merger represented 84.58% of the shares outstanding of 40,098,000 post
merger common shares.
<PAGE>
The Merger between Calipso and KF was effective with the concurrent filing of
a Certificate of Merger with the Secretary of State in Delaware on September
18, 2000. At the effective time of the merger the name of the Calipso was
changed to Knowledge Foundations, Inc. As a result of the merger, the
33,918,400 shares that were issued to the Knowledge Foundations, Inc.
stockholders resulted in a change in control of the Company. Additionally new
officers and directors were appointed and elected. As the result of the
merger in which the shareholders of KF represent more than 80% of the
outstanding common shares and Calipso has had no prior operating history,
the financial statements presented reflect the operations of Knowledge
Foundations since its inception in April 2000.
Incorporated by reference Form 8-K Report (Date of Earliest Event Reported)
September 18, 2000:
Exhibit Description
3 (i) (a) Certificate of Amendment of Certificate of
Incorporation, dated August 17, 2000, re: 36:1
forward split of shares.
3 (i) (b) Certificate of Amendment of Certificate of
Incorporation, dated August 17, 2000, re: 1.35:1
forward split of shares.
3 (i) (c) Certificate of Amendment of Certificate of
Incorporation, dated August 17, 2000, re: change
authorized to 100,000,000 common shares at $.001 par
value and 20,000,000 preferred shares at $.001 par
value.
4 (a) Stock Repurchase Agreement - dated September 18,
2000 between Calipso and Wright & Bleers and Ocean
Way Investments, Ltd.
4 (b) Lock Up Agreement - dated September 18, 2000 between
Calipso and Wright & Bleers and Ocean Way
Investments, Ltd.
ITEM 3 Defaults Upon Senior Securities.
None
ITEM 4 Submission of Matters to a Vote of Securities Holders.
Incorporated by reference: Schedule 14C Information Statement Pursuant to
Section 14 (c) of the Securities Exchange Act of 1934 dated August 22, 2000
re: notice of written consent of stockholders in lieu of special meeting of
shareholders to be effective September 12, 2000.
ITEM 5 Information required in lieu of form 8-K:
None
ITEM 6 Exhibits and Reports on 8-K:
a) Exhibit #27.1, "Financial Data Schedule"
b) A Form 8-K was filed as of the event of the merger between Calipso, Inc.
and Knowledge Foundations, Inc. on September 18, 2000.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: November 17, 2000 By: /s/ Michael W. Dochterman
Michael W. Dochterman
President and Chief Executive Officer
