UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) September 18, 2000
Commission file Number 000-28287
KNOWLEDGE FOUNDATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
(Formerly Calipso, Inc.)
Delaware 88-0418749
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7852 Colgate Avenue
Westminster, California 92683
(Address of principal executive offices) (Zip Code)
(626) 444-5494
(Registrant's Executive Office Telephone Number)
<PAGE>
CAUTIONARY STATEMENT CONCERNING
FORWARD LOOKING STATEMENTS
This 8K filing and the documents to which we refer you to in this filing
contain forward-looking statements. In addition, from time to time, we or our
representatives may make forward-looking statements orally or in writing. We
base these forward-looking statements on our expectations and projections
about future events, which we derive from the information currently available
to us. Such forward-looking statements relate to future events or our future
performance, including:
* our financial performance and projections;
* our growth in revenue and earnings; and
* our business prospects and opportunities.
You can identify forward-looking statements by those that are not
historical in nature, particularly those that use terminology such as "may,"
"will," "should," "expects," "anticipates," "contemplates," "estimates,"
"believes", "plans," "projected," "predicts," "potential" or "continue" or
the negative of these or similar terms. In evaluating these forward-looking
statements, you should consider various factors, including
* our ability to retain the business of our significant customers;
* our ability to keep pace with new technology and changing market needs;
and
* the competitive environment of our business.
These and other factors may cause our actual results to differ
materially from any forward-looking statement.
Forward-looking statements are only predictions. The forward-looking
events discussed in this filing, the documents to which we refer you and
other statements made from time to time by us or our representatives, may not
occur, and actual events and results may differ materially and are subject to
risks, uncertainties and assumptions about us. We are not obligated to
publicly update or revise any forward-looking statement, whether as a result
of uncertainties and assumptions, the forward-looking events discussed in
this filing, the documents to which we refer you and other statements made
from time to time by us or our representatives, might not occur.
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
Pursuant to an Acquisition Agreement and Plan of Merger (the "Merger
Agreement") dated as of August 7, 2000 between Calipso, Inc. ("Calipso" or
the "Company"), a Delaware corporation, and Knowledge Foundations, Inc.
("KFI"), a Delaware corporation, all the outstanding shares of common stock
of KFI were exchanged for 33,918,400 shares of 144 restricted common stock of
Calipso in a transaction in which Calipso was the surviving corporation. The
number of shares issued to KFI stockholders in the merger represented 84.58%
of the shares outstanding of 40,098,000 post merger.
The Merger between Calipso and KFI 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.
<PAGE>
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. See "Management" below.
Based on currently available information, after the consummation of the
Merger, the Company does not believe that there will be any beneficial owners
of more than five percent (5%) of the Common Stock except as set forth below.
<TABLE>
NAME AND ADDRESS SHARES
OF BENEFICIAL HOLDER BENEFICIALLY PERCENT OF CLASS
OWNED
<S> <C> <C>
Richard Ballard (1) 21,377,516 53.31%
Chairman
Jan Pettitt (1) (2) 4,277,622 10.66%
Director
Michael Dochterman (1) 4,638,412 11.56%
President and CEO, Director
Robert A. Dietrich (1) 2,576,884 6.43%
Vice President and CFO, Director
</TABLE>
(1) The address is 7852 Colgate Avenue, Westminster, California 92683.
(2) Jan Pettitt is the wife of Richard Ballard.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Pursuant to the terms and conditions of the merger between Calipso and
KFI the then present intellectual property of Calipso was transferred from
the Company according to an asset assignment agreement. As a result of the
merger, the Company effectively acquired the assets of Knowledge Foundations,
Inc. which are described below.
KNOWLEDGE FOUNDATIONS, INC. TECHNOLOGY
Business General
Knowledge Foundations, Inc. ("KFI" or the "Company") 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
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.
<PAGE>
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.
Products and Services
Software Tools
The computer's usefulness continues to evolve as both business tool and
personal assistant. About the time it appears that computers can't get any
faster, smaller or user-friendlier, the next generation of Microsoft or Intel
appears and new functions and capabilities are available. There are however,
two specific limits that are inherent to all computers and that are not going
away. First, the computer can only process "information" -- such as
contextual data, facts & figures, words, numbers, objects and pictures. This
is true because all computers use a machine coding language founded on design
principles that only process "information content." Second -- although
computers are more capable than ever before, they do not have a brain, can't
learn, and must depend on the brain work or knowledge of their user to
produce meaningful to maximum results.
KFI `s proprietary machine coding language is capable of capturing and
storing permanently the brain work that could only previously be performed
separately by a computer user - using his or her personal knowledge. This
coding language can capture virtually every kind of knowledge from original
sources while functioning symbiotically with traditional information based
computing systems.
With a knowledge base developed with KFI's software, knowledge or
intellectual capital can be linked and integrated with information content. A
user would then possess (in addition to the usual information retrieval) the
captured, stored and now useful thoughtful knowledge of an expert.
Over the past eight years, Dr. Ballard has turned theory and technology
into tools and completed projects for the U.S. Government's Defense and
Civilian Space programs. Dr. Ballard's theories and subsequent technology
have been nurtured by the U.S. Military Star Wars program, knowledge warfare,
management of trillions of dollars of resources, and fierce international
competition - all of which provided a rich, vital and sheltered venue for
developing and testing this technology. The first two generations of the
<PAGE>
software, named Mark I and Mark II, were used in these projects. KFI will
utilize the Mark II version (but deliver Mark III version) during 2000 and
into 2001, when the newest version of the software will be available. KFI
has begun related development work on the Mark III version, due for of its
first release in 3 rd Qtr, 2001.
The Mark III version will have at least four releases over the next
eighteen months:
1. Release 1: Reference publication and decision guidance tool. This is
targeted at publishers, producers, and contractors in large markets that
publish, maintain and employ massive, slowly evolving, tightly integrated
knowledge products.
2. Release 2: Reference service and management tool. This is targeted at
software tool developers, service contractors, corporate support units, and
entrepreneurs who build, service and maintain small to massive knowledge
products and services.
3. Release 3: Professional User tool: This is a basic version as an
application driver for professional application developers.
4. Release 4: Enterprise Developer tool. This is targeted at more complex
client server environments, with automated data import and file integration
needs.
Integration Services and Training Services
KFI will provide consulting and training services to clients and to
integrators (VARs, IT consultants) to assist in project feasibility analysis
and subsequent development of knowledge bases utilizing KFI's software tools.
It is anticipated that in the first two to three years, integration service
revenues will exceed license revenues. The goal is to quickly populate
target markets with completed knowledge base projects and to train 3rd party
developers in knowledge base development techniques. It is KFI's intention
to assist and train integrators within vertical markets in the development of
broad based industry applications and not to compete with them in deployment
of KFI's technology with additional users within that industry. KFI will
provide per seat licenses to such integrators for resale to industry
customers.
Based upon the prior experience of Dr. Ballard in eleven completed
projects, integration fees would likely range from $250,000 to $1 million per
project.
As KFI's knowledge base format becomes increasingly utilized for
knowledge capture and storage, it is anticipated that 1) a new commerce will
evolve wherein knowledge content will be the prime commodity; and 2) that end-
user knowledge base creation costs will also decrease because of readily
available knowledge content on the market. It is KFI's intention to assist
and train integrators within vertical markets in the development of broad
based industry applications and not to compete with them in deployment of
KFI's technology with additional users within that industry. KFI will provide
per seat licenses to such integrators for resale to industry customers.
Markets
KFI's "first of breed" technology will create new solutions where there is
no comparable competitive solution. Taking maximum advantage of market
leadership, KFI plans to penetrate and establish quickly its knowledge coding
technology as the knowledge-based computing industry "Standard" in four multi-
billion dollar markets. These four markets are:
* Market 1 - Knowledge Owners & Publishers Markets
* Market 2 - Knowledge Consuming Market
<PAGE>
* Market 3 - Retail Productivity Tool Market ("Killer Apps")
* Market 4 - Corporate IT Legacy Integration Market
The Company's initial marketing plan focuses on developing knowledge-based
tools and applications delivered directly to end-users as readily productive
knowledge bases, creating cash flow. The Company will continue its
application development and integration services to end users while stepping
up its program to license its tools to other integrators. The Company's
component licensing relationships target vertical market driven, system
developers who will build, integrate and market their own knowledge-based
applications over the new Mark III technology platform. It is also
anticipated that some of KFI's own integration/application development
service contractors will spin-off as licensed system developers.
The Company's midterm goal is to focus its in-house integration services
on new markets and challenging "first product applications", making way for
and not competing with its growing base of licensed system developers. With
this strategy, KFI's product development services revenue should plateau and
be overtaken and surpassed by licensed tool sales after the second year,
driven by consumer level "Killer Apps" and growing OEM component licensing.
The Company's long-term goal is to position its knowledge-based software
as the "Industry Standard" for all knowledge based computing. The Company's
products are designed to be scalable to facilitate applications from the
largest enterprise to the small individual consumer. The Company will
maintain an aggressive R&D program to maintain its technology lead and will
undertake an aggressive national and international patent strategy to protect
its leading position. The Company plans to use a very aggressive strategy of
competitive pricing to market its tools openly to every software company.
The goal is to make it easier to embrace KFI's software standard than to look
elsewhere or compete against it, thus advancing the ubiquity of KFI's
technology Standard.
Market 1 - Knowledge Owners & Publishers Markets
This first targeted market focuses on companies that own, publish,
and/or distribute great bodies of service or product documentation. The most
strategic are publishers of extremely popular reference products. Publication
in KFI's format offers unmatchable views and integration of everything a user
might need. Popular publications give KFI's technology a very large and well-
accepted showcase - a user base that will "pull" KFI's retail killer
application into retail stores.
The second strategic segment targets the professional and technical
references that define each industry's infrastructure. Massive publishing
companies own books and on-line references used by every doctor, lawyer,
insurance, finance and actuarial professional. Equipment manufactures, such
as Boeing, Airbus Cisco, AT&T, Nortel, distribute massive amount of knowledge
to their clients. KFI's coding densities and solutions for complexity, costs
and resource growth will allow infrastructure companies to replace a room
full of documents with tools that provide expert solutions in a few minutes.
In this market, KFI sells licenses, teams and offers prime development
support contracts on the business model tested and documented by Dr. Ballard
over the past decade. Through site licensed builder tools, this model is
sold to corporate and small business licensees allowing them to invade and
permeate every development market niche.
Market 2 - Knowledge Consuming Market
This market starts at the top, the executive management of knowledge
creating/consuming companies. It targets the Big 5 accounting/consulting and
IT consulting firms, the Fortune 1000, and other leading lights to help their
management and most prominent clients grasp the heretofore-unexpected
<PAGE>
opportunities of knowledge-based computing. These organizations live by their
perceived wisdom and foresight. KFI's vision, "flag-level" successes in
government, and remarkable tool capabilities will provide these professional
services firms with the capability to more effectively and efficiently
complete client engagements. The Company's technology and services are
compelling complements to the "Knowledge Management" practices these firms
are now almost universally offering to their business clients.
As seen by KFI, this market will experience the greatest long-term
benefit and financial savings - buying the tools of knowledge in lieu of
hiring, training and sustaining human heads for their knowledge storage
potential. With the Big 5, IT consulting and satisfied industry leaders as a
chorus, this effort endeavors to generate the management "pull" for knowledge-
based assets and employee work products formatted for executive knowledge
integration and decision support.
This "pull" brings in early, high-end development tool licenses; large
development services contracts that contribute heavily to overhead support,
and creates a solid industry base for the massive "killer application" sales
that come next.
Market 3 - Retail Productivity Tool Market ("Killer Apps")
This third targeted market provides a great revenue expansion potential
for KFI. KFI's "Killer Apps" are best compared to applications like Excel,
Access, Quicken, and MS Project. Mastery of these KFI productivity tools
brings a very substantial personal and resume enhancing income potential to
the developer. This mastery comes either in tool cost or ultimately in the
time and money spent for training and experience building. Like the tools
cited above, KFI's Killer Apps use and teach a powerful discipline called
"modeling" and to a greater degree than those cited, this modeling discipline
is applicable to every knowledge development task and subject.
The large investments and marketing push behind this first-of-kind
"knowledge mapping tool" should be timed to exploit the pull generated by
early press notice, critical product acclaim, and singular, knowledge
publishing successes. An early Internet-based "beta" release campaign will be
targeted initially toward academic and knowledge technology professionals who
are looking eagerly for their first ever, personal knowledge building tool.
Market 4 - Corporate IT Legacy Integration Market
This market signals several moves from a "safe" initial market
exclusivity and dominance position into markets that are orders of magnitude
larger -- into markets where the incumbents are already among the largest
companies in the world. KFI's fundamental position is unchanged; we wish to
establish a commercial standard for knowledge capture, storage, and exchange.
The company intends that this be an open standard that we to avoid promoting
any "would-be" licensee to seek or become a competitor.
Intentionally, the initial steps in this market will be very modest.
KFI's early tool releases for other markets will import from legacy database,
text processing, graphics, and productivity tool (spreadsheet, project, etc,)
and export through standard file and internet formats, local client servers,
and desktop drag-and-drop protocols.
KFI's unique "middle-ware" position starts where KFI's knowledge-based
computing technology integrates directly into legacy networks. Dr. Ballard's
approach to this market was demonstrated to the US Navy in 1997-99 in a three-
phase SBIR project. Dr. Ballard built a Virtual Database Interface,
establishing that it could take in knowledge of "any" system's protocols and
assumed behavior. The knowledge base could then configure its interface to
appear "plug-to-plug" compatible.
<PAGE>
Competition
KFI will enter many very competitive industries with a "first of its
kind" and "one-of-a-kind" knowledge capture and storage technology unlike
any known competing technology. KFI's strategy is to license its technology
as a software development tool to all entities that choose to compete in
every industry and every market where the capture and storage of knowledge
creates value. In essence, KFI's competition is whatever container now stores
and transfers knowledge, i.e., the human brain, books or other media. KFI's
technology creates a new economic model, unique format and media platform on
which knowledge storage and transfer can take place.
A quickly evolving and growing target market is the knowledge management
industry. Within this industry, there are several competing theories backed
by numerous technology vendors. In all cases, the theories and their
supporting vendors are limited by traditional information based computing
machine codes and architecture. Specifically, these limitations include the
inability to compute rational thought structures, theories, concepts,
believes, truths and experience. KFI's software development tools will
enable these vendors to add useful knowledge content to their existing
knowledge management applications. KFI views these vendors as potential
customers, not competitors.
Current knowledge management offerings are two fold: portal searches for
intranet and Internet information and documentation management. Both of these
techniques suffer from the same problem and therefore do not adequately
address the needs of knowledge base development and use. They use language to
connect to information bases passing as knowledge bases. There is very
limited use of concept classifications, such as taxonomies; a bare minimum
needed to describe learned knowledge in the form of solution processes or
theories or conclusions. KFI's software tool utilizes non-language dependent
ontology concept phrasing, which is necessary to adequately describe the
knowledge the expert learned or developed. These competing solutions will be
a significant factor in the market place.
In the case of applications competition, the reference publishing
industry, KFI's competition for knowledge storage and knowledge transfer is
the book. If a reader desires the knowledge contained within a book, the
reader must read cover to cover, eliminating unwanted content while linking
relevant content into the brain. KFI's technology will link all the content
of hundreds to thousands of books and give the same reader instantaneous
access to all that is known, cover to cover, without costing the reader the
"knowledge transfer" time of reading each book. KFI views these publishers
as potential customers, not competitors.
Over the past few decades, many unexpected and unpredictable competitors
have exploded into existence because of industry standard software
development tools that enabled information transfer and information commerce.
It is anticipated that KFI's knowledge-based software development tools will
be the catalyst for new industries, and new competitors within those
industries aimed at promoting knowledge transfer and knowledge commerce.
Management
As a result of the Merger, and pursuant to the terms of the Merger
Agreement the directors and officers of the Company are as set forth below
until their successors shall have been duly elected or appointed and
qualified, or until their earlier death, resignation or removal in accordance
with the Company's Corporation's Charter and Bylaws.
The management of KFI after the Effective Time of the Merger will be as
follows:
<PAGE>
Dr. Richard Ballard, Ph.D. -- Chairman and Chief Scientist: Dr. Ballard
is the founder and creator of KFI's technology. From August 1995 to March
2000, Dr. Ballard has been the sole proprietor of Knowledge Research and
Knowledge FoundationsT developing and delivering knowledge based software
tools and applications primarily to US Government Agencies and Software
Publishers. From April 2000 to present, Dr. Ballard has been Chairman of the
Board and Chief Scientist of KFI. His background includes hands-on executive
management of numerous start-up companies including Co-Director and Founder
of Apple Foundations for Steve Jobs & Mike Markula and Founder/Chairman of
TALMIS Division, International Data Corporation for Patrick McGovern. He has
received 128 software citations, developed 3 Management Software Workshops
and 21 Educational Software Workshops, been published in 35 publications and
technical reports. As a University of California professor and researcher,
he has developed and taught numerous classes over 15 years. Dr. Ballard will
manage all research and development functions as well as assisting with sales
activities.
Mr. Michael W. Dochterman - President, CEO and Director: From August
1995 to December 1995, Michael Dochterman was an independent business
consultant developing business plans, raising capital and providing executive
management for startup clients. From January 1996 to April 1999, Mr.
Dochterman served in various executive management positions launching several
new products and Divisions for Sempra Energy. From April 1999 to April 2000,
Mr. Dochterman developed KFI's business plan and from April 2000 to present,
has been CEO/President and a Board member of KFI. Mr. Dochterman's background
includes hands-on executive management and business consulting experience
providing operational guidance for numerous start-ups. He has more than
fifteen years experience as President or Vice President of private
enterprises and three years executive management experience in a Fortune 500
company. Mr. Dochterman will manage all corporate business activities as
well as first year sales and marketing functions.
Mr. Robert A. Dietrich - Executive Vice President, CFO and Director:
From August 1995 to March 2000, Robert Dietrich has been President/CEO and
Director of Semper Resources Corporation (SRCR.OB) and CyberAir
Communications, Inc., from January, 1998 to March, 2000. From April 2000 to
present, Mr. Dietrich has been CFO, Vice President of Operations, and a Board
member of KFI. His background includes hands-on executive management;
investment banking and financial consulting experience. He has more than
fifteen years experience as vice president (finance and operations) or
president of public and private enterprises and thirteen years with Big 5 and
regional CPA firms and technology based investment banking firms providing
financial and operations consulting and merger/acquisition and financial
structuring for clients. Mr. Dietrich is a CPA with a B.B.A. from Notre Dame
and an MBA from the University of Detroit. Mr. Dietrich will manage all
financial and accounting activities as well as operational management of
integration services.
Ms. Janet J. Pettitt - Director of Training Development, Director: From
August 1995 to March 2000, Jan Pettitt has been sole proprietor, founder of
Interactive Productions, a proprietorship that provided training for prior
customers of KFI's technology. She has 16 years of hands on experience as a
Master Corporate Software Trainer delivering and training trainers and end
users of published and proprietary software and hardware systems. Ms. Pettitt
has a B.A. from Fontbonne College and years of teaching experience at
Flourissant Valley Community College and Holy Names Academy.
Management Contracts
KFI has employment agreements with three of its directors, Richard
Ballard, Robert Dietrich and Michael Dochterman. Upon the effectiveness of
the Merger with Calipso, the Employment Agreements transferred to the
Surviving Corporation on the same terms and conditions with the Surviving
Corporation being the employer.
<PAGE>
Dochterman Employment Agreement. On April 6, 2000, the Board of Directors
appointed Michael W. Dochterman as CEO, President and director of KFI. Mr.
Dochterman subsequently entered into an Employment Agreement with KFI for a
term commencing May 1, 2000 and expiring March 31, 2004. This agreement
shall automatically be extended for additional one-year terms unless either
party gives written notice to terminate the agreement. Under the terms of
the agreement, Mr. Dochterman will receive a base annual salary of Ten
Thousand Dollars ($10,000) per month. Salary will be adjusted by the Board
of Directors each successive January 1st in an amount no less than a ten
percent (10%) increase. The agreement provides for the following additional
compensation:
a. Incentive Compensation. Mr. Dochterman will receive incentive
compensation annually calculated on EBITB (earnings before interest, taxes
and any other executive bonuses) as follows:
<TABLE>
EBITB Marginal Bonus
% Bracket
<S> <C> <C>
$0 - $500,000 3% Up to $15,000
$501,000-$1,500,000 4% $15,000 plus 4% of EBITB over $501,000
$1,500,001-$2,500,000 5% $55,000 plus 5% of EBITB over $1,500,001
$2,500,001-$3,500,000 6% $105,000 plus 6% of EBITB over $2,500,001
Over $3,500,000 7% $165,000 plus 7% of EBITB over $3,500,000
</TABLE>
b. Management by Objectives ("MBO") Bonus. Beginning May 1, 2000, and
recommencing each successive calendar year during the term of his employment
agreement, Mr. Dochterman shall receive a MBO Bonus for the incentive,
accomplishment, completion and/or delivery of predefined strategic objectives
that support the company's business. The Board of Directors shall assign a
specific economic MBO bonus value and payment schedule to each objective and
Mr. Dochterman will be paid the appropriate MBO bonus based on performance
and accomplishment of the objectives as determined by the Board of Directors.
c. Stock Purchase Agreement. Mr. Dochterman has purchased 4,597,400 shares
of KFI stock at a purchase price of $.00001 per share for an aggregate
purchase price of $459.74 subject to certain restrictions and an 83b Tax
Election. The purchased shares are subject to a repurchase right which means
KFI has the right to acquire portions of the purchased shares at the original
purchase price if for certain reasons Mr. Dochterman's employment is
terminated. Such repurchase right will lapse in a series of annual and
monthly installments over a three (3) year period. These shares shall be
vested at the rate of:
(i) Twenty-five percent (25%) of the shares immediately upon execution of
the agreement.
(ii) Twenty-five percent (25%) of the shares upon the first anniversary of
the agreement.
(iii)the balance of the shares in a series of twenty-four (24) equal
monthly installments upon the Mr. Dochterman's completion of each successive
month of service within the twenty-four (24) month period measured from the
date of the first anniversary of this agreement.
The Stock Purchase Agreement provides for the shares to be escrowed by
KFI. The shares shall be released in accordance with the above vesting
schedule. Until such time as the Corporation exercises the Repurchase
Right, Mr. Dochterman shall have all the rights of a shareholder
(including voting, dividend and liquidation rights) with respect to the
Purchased Shares, including the Purchased Shares held in escrow.
In addition to the above compensation, the agreement also provides for an
automobile allowance for Mr. Dochterman in the amount of $750.00 per month.
Mr. Dochterman's Employment Agreement contains a Nondisclosure provision but
does not contain a non-compete provision.
Dietrich Employment Agreement. On April 6, 2000, the Board of Directors
appointed Robert A. Dietrich as CFO, VP-OPS and as a director of KFI. Mr.
Dietrich subsequently entered into an Employment Agreement with KFI for a
term commencing May 1, 2000 and expiring March 31, 2004. The agreement shall
automatically be extended for additional one-year terms unless either party
<PAGE>
gives written notice to terminate the agreement. Under the terms of the
agreement Mr. Dietrich will receive a base annual salary of Ten Thousand
Dollars ($10,000) per month. Salary will be adjusted by the Board of
Directors each successive January 1st in an amount no less than a ten percent
(10%) increase. The agreement provides for the following additional
compensation:
a. Incentive Compensation. Mr. Dietrich will receive incentive
compensation annually calculated on EBITB as follows:
<TABLE>
EBITB Marginal Bonus
%
Bracket
<S> <C> <C>
$0 - $500,000 3% Up to $15,000
$501,000-$1,500,000 4% $15,000 plus 4% of EBITB over $501,000
$1,500,001-$2,500,000 5% $55,000 plus 5% of EBITB over $1,500,001
$2,500,001-$3,500,000 6% $105,000 plus 6% of EBITB over $2,500,001
Over $3,500,000 7% $165,000 plus 7% of EBITB over $3,500,000
</TABLE>
b. MBO Bonus. Beginning May 1, 2000 and recommencing each successive
calendar year during the term of the agreement, Mr. Dietrich shall receive a
MBO Bonus for the incentive, accomplishment, completion and/or delivery of
predefined strategic objectives that support the company's business. The
Board of Directors shall assign a specific economic MBO bonus value and
payment schedule to each objective and Mr. Dietrich will be paid the
appropriate MBO bonus based on performance and accomplishment of the
objectives as determined by the Board of Directors.
c. Stock Purchase Agreement. Mr. Dietrich has purchased 2,554,100 shares
of KFI stock at a purchase price of $.00001 per share for an aggregate
purchase price of $255.41 subject to certain restrictions and an 83b Tax
Election under an 83b election. The purchased shares are subject to a
repurchase right which means KFI has the right to acquire portions of the
purchased shares at the original purchase price if for certain reasons Mr.
Dietrich's employment is terminated. Such repurchase right will lapse in a
series of annual and monthly installments over a three (3) year period.
These shares shall be vested at the rate of:
(iv) twenty-five percent (25%) of the shares immediately upon execution of
the agreement.
(v) Twenty-five percent (25%) of the shares upon the first anniversary of
the agreement.
(vi) the balance of the shares in a series of twenty-four (24) equal monthly
installments upon the Mr. Dietrich completion of each successive month of
service within the twenty-four (24) month period measured from the date of
the first anniversary of this agreement.
The Stock Purchase Agreement provides for the shares to be escrowed by
KFI. The shares shall be released in accordance with the above vesting
schedule. Until such time as the Corporation exercises the Repurchase
Right, Mr. Dietrich shall have all the rights of a shareholder
(including voting, dividend and liquidation rights) with respect to the
Purchased Shares, including the Purchased Shares held in escrow.
In addition to the above compensation, the agreement also provides for an
automobile allowance for Mr. Dietrich in the amount of $750.00 per month.
Mr. Dietrich's Employment Agreement contains a Nondisclosure provision but
does not contain a non-compete provision.
Ballard Employment Agreement. On April 6, 2000, the Board of Directors
appointed Richard L. Ballard as Chairman, CSO and Director of KFI. Mr.
Ballard subsequently entered into an Employment Agreement with KFI for a term
commencing May 1, 2000 and expiring March 31, 2004. The agreement shall
automatically be extended for additional one-year terms unless either party
gives written notice to terminate the agreement. Under the terms of the
agreement Mr. Ballard will receive a base annual salary of Ten Thousand
Dollars ($10,000) per month. Salary will be adjusted by the Board of
Directors each successive January 1st in an amount no less than a ten percent
(10%) increase. The agreement provides for the following additional
compensation:
a. Incentive Compensation. Mr. Ballard will receive incentive compensation
annually calculated on EBITB as follows:
<PAGE>
<TABLE>
EBITB Marginal Bonus
% Bracket
<S> <C> <C>
$0 - $500,000 3% Up to $15,000
$501,000-$1,500,000 4% $15,000 plus 4% of EBITB over $501,000
$1,500,001-$2,500,000 5% $55,000 plus 5% of EBITB over $1,500,001
$2,500,001-$3,500,000 6% $105,000 plus 6% of EBITB over $2,500,001
Over $3,500,000 7% $165,000 plus 7% of EBITB over $3,500,000
</TABLE>
b. MBO Bonus. Beginning May 1, 2000 and recommencing each successive
calendar year the term of the agreement, Mr. Ballard shall receive a MBO
Bonus for the incentive, accomplishment, completion and/or delivery of
predefined strategic objectives that support the company's business. The
Board of Directors shall assign a specific economic MBO bonus value and
payment schedule to each objective and Mr. Ballard will be paid the
appropriate MBO bonus based on performance and accomplishment of the
objectives as determined by the Board of Directors.
In addition to the above compensation, the agreement also provides for an
automobile allowance for Mr. Ballard in the amount of $750.00 per month
Mr. Ballard's Employment Agreement contains a Nondisclosure provision but
does not contain a non-compete provision.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
Overview
The following discussion regarding the financial statements of KFI, a
development stage company, should be read in conjunction with the financial
statements and notes thereto included elsewhere in this filing. The financial
statements of Calipso pre merger are generally immaterial, as Calipso has had
limited operations, thus we have eliminated any discussion of Calipso's pre
merger operations. Further, Calipso's financial statements have had limited
changes since the filing of Calipso's Form 10-KSB for the period ending March
31, 2000.
Financial Status of KFI from the commencement period from inception (April 6,
2000 through June 30, 2000).
Revenues. KFI is a development stage enterprise as defined in SFAS #7, and
has generated no revenues during the audited period from inception. KFI is
devoting substantially all of its present efforts in acquiring its technologies
and in capital raising functions.
Costs and Expenses. KFI had operating expenses of $130,832 during the
audited period from inception.
Net Loss. KFI's net loss for the period from inception (April 6, 2000) to
June 30, 2000 was $134,945.
Liquidity and Capital Resources
KFI, being a development stage enterprise, experienced negative cash
flows from operations during its initial months of operations, which cash
flows resulted in a net loss of $134,945. As KFI expands its technology base
it may continue to experience net negative cash flows from operations,
pending receipt of license or sales revenues. Additionally, KFI will more
likely than not be required to obtain additional financing to fund
operations. During KFI's first quarter of business, KFI obtained a $300,000
unsecured convertible subordinated note payable, which bears interest at 8%
per annum which is paid semi-annually in arrears and the principal matures on
April 18, 2003. It is anticipated that upon completion of the Merger
referenced herein, that KFI will obtain additional equity and/or debt
financing to assist KFI in covering its net negative cash flow until
operations provide sufficient cash flows.
<PAGE>
DESCRIPTION OF CAPITAL STOCK AND VOTING RIGHTS
The following discussion is qualified in its entirety by reference to
the Delaware Charter Documents.
Common Stock
The Company's Articles of Incorporation authorizes the issuance of
100,000,000 shares of Common Stock, $.001par value per share, of which
approximately 40,098,000 shares were outstanding as of the post merger date
of September 20, 2000. Holders of shares of common stock are entitled to one
vote for each share on all matters to be voted on by the stockholders.
Holders of common stock have no cumulative voting rights. Holders of shares
of common stock are entitled to share ratably in dividends, if any, as may be
declared, from time to time by the Board of Directors in its discretion, from
funds legally available therefor. In the event of a liquidation, dissolution
or winding up of the Company, the holders of shares of common stock are
entitled to share pro rata all assets remaining after payment in full of all
liabilities including distributions to preferred stockholders, if any.
Holders of common stock have no preemptive rights to purchase the Company's
common stock. All of the outstanding shares of common stock are validly
issued, fully paid and non-assessable.Preferred Stock
The Company's Articles of Incorporation also authorizes the issuance of
20,000,000 shares of Preferred Stock, $.001 par value per share, of which
there were no shares outstanding as of this date.
Price Range of Shares and Dividends
As of August 4, 2000, there were approximately 85 record holders of
Shares. The Common Stock traded on OTCBB, under the symbol "CPSJ" and on
September 21, 2000 the symbol was changed to "KNFD." The Company's Transfer
Agent and Registrar is Signature Stock and Transfer. The Company has not
declared or paid any dividends on the Common Stock and does not intend to do
so prior to the Merger.
The following table sets forth, for each of the periods indicated, the
high and low sales quotations per Share as reported by OTCBB.
SALE PRICE
HIGH LOW
May 2000 $3.00 $1.00
June 2000 3.00 2.01
July 2000 2.63 1.38
On August 10, 2000, the last full trading day before the first public
announcement of the intention to commence the Merger, the last reported sale
quotation of the Shares on the OTCBB was $1.38 per Share.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Registrant has appointed Corbin & Wertz, Irvine, California, as
registrant's independent accountants for the fiscal year ending December 31,
2000. This is a change in accountants recommended by registrant's Audit
Committee and approved by registrant's Board. Corbin & Wertz was engaged by
<PAGE>
registrant on September 18, 2000. Barry L. Friedman ("Friedman") has served
as registrant's independent accountants since registrant's formation in 1998.
The audit reports issued by Friedman with respect to the registrant's
financial statements for 1999 and 1998 did not contain an adverse opinion or
disclaimer of opinion, and were not qualified as to uncertainty, audit scope
or accounting principles. During 1999 and 1998 (and any subsequent interim
period), there have been no disagreements between the registrant and Friedman
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of Friedman, would have caused it to make a
reference to the subject matter of the disagreement in connection with its
audit report. Moreover, none of the events listed in Item 304-(a) (1) (v) of
Regulation S-K occurred during 1999 or 1998 or any subsequent interim period.
The change in accountants does not result from any dissatisfaction with
the quality of professional services rendered by Friedman as the independent
accountants of registrant. The change in accountants follows registrant's
merger with Calipso's (after name change - Knowledge Foundations, Inc.)
merger with Knowledge Foundations, Inc.
ITEM 5. OTHER EVENTS
On September 21, 2000 Knowledge Foundations, Inc. issued a press release
(the "Press Release") announcing the completion of the merger between Calipso
and Knowledge Foundations, Inc. In the Press Release KFI also announced the
change of its name from Calipso to Knowledge Foundations, Inc. and the change
in its Ticker Symbol from "CPSJ" to "KNFD."
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
Resignations of the Company's officers and directors occurred concurrent
with closing of merger. The new officers and directors are referenced in Item
2.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements:
a) Knowledge Foundations, Inc. (Attached)
Report of Independent Auditor
Balance Sheet For The Period Ending June 30, 2000
Statement of Operations For The Period April 6, 2000 (Inception)
through June 30, 2000
Statement of Stockholders' Deficit For The Period April 6, 2000
(Inception) through June 30, 2000.
Statement of Cash Flows For The Period April 6, 2000 (Inception)
through June 30, 2000
Notes to Financial Statements
b) *Calipso Financial Statements - Incorporated by reference from 10SB
filing in November 1999.
c) Proforma Condensed Consolidated - derived from the audited financial
statements of KFI for the period April 6, 2000 through June 30, 2000
and of Calipso for period ending March 31, 2000.
Consolidated Balance Sheet
Consolidated Statement of Operations
<PAGE>
Exhibit Description
2.1 Agreement and Plan of Merger, dated August 7, 2000
between Calipso and Knowledge Foundations, Inc.
3 (i) Certificate of Merger, dated August 17, 2000, filed
with the Secretary of State, Delaware RE: Merger
between Calipso and Knowledge Foundations, Inc.
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
foward 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.
3.1* Articles of Incorporation of Knowledge Foundations,
Inc. (formerly Calipso, Inc.) filed on May 31, 1994 -
Incorporated by reference from the Calipso 10SB
filing in November, 1999
3.2* By-laws of Knowledge Foundations, Inc. (formerly
Calipso, Inc.) - Incorporated by reference from the
Calipso 10SB filing in November 1999.
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.
10.1 License and Royalty Agreement dated April 6, 2000
between Richard L. Ballard and Janet J. Pettitt and
Knowledge Foundations, Inc.
10.2 Employment Contract of Michael W. Dochterman dated
May 1, 2000.
10.3 Employment Contract of Robert A. Dietrich dated May
1, 2000.
16 Letter of Barry Friedman re: change in certifying
accountant
99.1 Text of Press Release dated September 21, 2000
ITEM 8. CHANGE IN FISCAL YEAR
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report on Form 8-K to be signed on
its behalf by the undersigned hereunto duly authorized.
KNOWLEDGE FOUNDATIONS,INC.
By/s/ Michael Dochterman
Michael W.Dochterman, President
Date: September 26, 2000
<PAGE>
EXHIBIT INDEX
Financial Statements:
a) Knowledge Foundations, Inc. (Attached)
Report of Independent Auditor
Balance Sheet For The Period Ending June 30, 2000
Statement of Operations For The Period April 6, 2000 (Inception)
through June 30, 2000
Statement of Stockholders' Deficit For The Period April 6, 2000
(Inception) through June 30, 2000.
Statement of Cash Flows For The Period April 6, 2000 (Inception)
through June 30, 2000
Notes to Financial Statements
b) *Calipso Financial Statements - Incorporated by reference from 10SB
filing.
c) Proforma Condensed Consolidated - derived from the audited financial
statements of KFI for the period April 6, 2000 through June 30, 2000
and of Calipso for period ending March 31, 2000.
Exhibit Description
2.1 Agreement and Plan of Merger, dated August 7, 2000
between Calipso and Knowledge Foundations, Inc.
3 (i) Certificate of Merger, dated August 17, 2000, filed
with the Secretary of State, Delaware RE: Merger
between Calipso and Knowledge Foundations, Inc.
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
foward 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.
3.1* Articles of Incorporation of Knowledge Foundations,
Inc. (formerly Calipso, Inc.) filed on May 31, 1994 -
Incorporated by reference from the Calipso 10SB
filing in November, 1999
3.2* By-laws of Knowledge Foundations, Inc. (formerly
Calipso, Inc.) - Incorporated by reference from the
Calipso 10SB filing in November 1999.
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.
10.1 License and Royalty Agreement dated April 6, 2000
between Richard L. Ballard and Janet J. Pettitt and
Knowledge Foundations, Inc.
10.2 Employment Contract of Michael W. Dochterman dated
May 1, 2000.
10.3 Employment Contract of Robert A. Dietrich dated May
1, 2000.
16 Letter of Barry Friedman re: change in certifying
accountant
99.1 Text of Press Release dated September 21, 2000
*Incorporated by Reference
