SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C.  20549

                                 FORM 10-KSB

          [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                      SECURITIES EXCHANGE ACTS OF 1934

         [] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                      SECURITIES EXCHANGE ACTS OF 1934

                  For the fiscal year ended: March 31, 2001

                      Commission File Number: 000-28287

                         KNOWLEDGE FOUNDATIONS, INC.
           (Exact name of registrant as specified in our charter)

          Delaware                                     88-0418749
     (State or other jurisdiction of    (I.R.S. Employer Identification No.)
     incorporation or organization)

          7852 Colgate Ave.
          Westminster, CA                              92683
     (Address of principal executive offices)          (Zip Code)

      Registrant's telephone number including area code: (626) 444-5494

         Securities registered pursuant to Section 12(b) of the Act:
                                    None

         Securities registered pursuant to Section 12(g) of the Act:
                       Common Stock, $0.001 par value
                              (Title of Class)

     Indicate by check mark whether the registrant (a) 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 ____

     Indicate  by  check mark if disclosure of delinquent filers pursuant  to
Item  405  of  Regulation  S-K  is not contained  herein,  and  will  not  be
contained,  to  the  best of registrant's knowledge, in definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-K.  [     ]

     The  number of shares of Common Stock, $0.001 par value, outstanding  on
June 30, 2001, was 39,108,000 shares, held by approximately 76 stockholders.

<PAGE>

                         KNOWLEDGE FOUNDATIONS, INC.
                             FOR THE YEAR ENDED
                               March 31, 2001

                               Index to Report
                               On Form 10-KSB


PART I                                                               Page

Item 1.  Business                                                        2-9
Item 2.  Properties                                                        9
Item 3.  Legal Proceedings                                                 9
Item 4.  Submission of Matters to a Vote of Security Holders               9

PART II

Item 5.  Market for Registrant's Common Equity and
         Related Stockholder Matters                                       9
Item 6.  Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                       10
Item 7.  Financial Statements and Supplementary Data                      15
Item 8.  Changes in and Disagreements With Accountants on Accounting and
          Financial Disclosure                                            15

PART III

Item 9.  Directors and Executive Officers of the Registrant               15
Item 10. Executive Compensation                                           22
Item 11. Security Ownership of Certain Beneficial Owners and Management   23
Item 12. Certain Relationships and Related Transactions                   24

PART IV

Item 13. Exhibits, Financial Statement Schedules and
          Reports on Form 8-K                                             24

Signatures                                                                25

<PAGE>

     This  form 10-KSB contains forward-looking statements within the meaning
of   the  federal  securities  laws.  These  forward-looking  statements  are
necessarily based on certain assumptions and are subject to significant risks
and uncertainties. These forward-looking statements are based on management's
expectations  as of the date hereof, and the Company does not  undertake  any
responsibility to update any of these statements in the future. Actual future
performance  and results could differ from that contained in or suggested  by
these  forward-looking statements as a result of factors set  forth  in  this
Form  10-KSB (including those sections hereof incorporated by reference  from
other filings with the Securities and Exchange Commission), in particular  as
set forth in the "Management's Discussion and Analysis" under Item 6.

     In  this  form  10-KSB references to "Knowledge", "The  Company",  "we",
"us", and "our" refer to Knowledge Foundations, Inc.

PART I

ITEM 1.   BUSINESS

Overview

      Knowledge  Foundations, Inc. (formerly a private Delaware corporation)
was  incorporated in Delaware on April 6, 2000 and pursuant to the terms and
conditions of an Agreement and Plan of Merger, executed on August  7,  2000,
as  amended,  merged into Calipso, Inc. On September 18,  2000  the  Company
changed  its name from Calipso, Inc. to Knowledge Foundations, Inc. and  the
private  Delaware  corporation ceased to exist.  Concurrently,  the  Company
changed its trading symbol on the OTCBB from CPSJ to KNFD.

     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  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   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.   The

<PAGE>

Company's  ability to develop the software and provide service to clients  is
dependent upon the Company successfully obtaining sufficient capital, without
which the Company will not be able to proceed.

     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 and 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 brainwork 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 brainwork 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.

<PAGE>

     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 nine 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
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  2001  and
into 2002, when the newest version of the software should be available.   KFI
has  begun  related  development work on the Mark III  version,  but  require
additional funding to proceed.

     The Mark III version will have at least four releases:

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  third
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.

<PAGE>

     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.

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 and Publishers Markets
*    Market 2 - Knowledge Consuming Market
*    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 upon receiving adequate financing, 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.

<PAGE>

Market 1 - Knowledge Owners and 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
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.

<PAGE>

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; the  Company
intends  to  establish a commercial standard for knowledge capture,  storage,
and  exchange.  The  company intends that this be an open standard  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.

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.

<PAGE>

     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,
beliefs, 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.

Employees

     As of March 31, 2001, we had two full time and one part time employees.
The employees are located at our headquarters in California.

      Our  proposed  personnel  structure can be  divided  into  three  broad
categories:   management  and  professional,  administrative,   and   project
personnel.  As  in  most small companies, the divisions between  these  three
categories  are  somewhat indistinct, as employees  are  engaged  in  various
functions as projects and workload demands.

<PAGE>

     We  are dependent upon the services of Dr. Richard L. Ballard, Chairman
of the Company and Chief Technical Officer.  Our future success also depends
on  our  ability to attract and retain other qualified personnel, for  which
competition is intense. The loss of Dr. Ballard or our inability to  attract
and retain other qualified employees could have a material adverse effect on
us.

Risks

      While  management  believes that the Company  can  effectively  compete
because  of  its  technical advances in the type of software created  by  Dr.
Ballard,  the  Company's  ability to succeed will depend  upon  a  number  of
factors, including its ability to secure funding.  The Company's viability is
substantially dependent upon the ability of current management to  effectuate
the  infusion  of  capital  either as equity  or  loans  into  the  business.
Commencing  with  the  date  of  the merger  between  Calipso  and  Knowledge
Foundations (the private company), management has been unable to  obtain  any
substantial  funding source.  As the result of the lack of  capital,  various
personnel of the Company have been terminated, causing a slowdown of  Company
operations.  However certain programming events have continued.  A  continued
lack  of  capital  may  cause the Company to cease  operations.   Should  the
Company be unable to implement its current plan of operations, which requires
an  infusion  of capital, and then in that event management would investigate
all  options available to retain value for the shareholders.  Among, but  not
limited to, the options that would be considered are:

     Acquisition  of  another product or technology, which  would  create  an
     interest in a capital infusion;

     A  merger  or  acquisition of another business entity that  has  revenue
     and/or long term growth potential; or

     Cease business operations until such time as funds are available.

Additional Information

     We  are  subject  to  the informational requirements of  the  Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith,  will
file  reports,  proxy statements and other information with  the  Commission.
Such  reports,  proxy statements and other information may  be  inspected  at
public  reference facilities of the Commission at Judiciary Plaza, 450  Fifth
Street N.W., Washington D.C. 20549; Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; 7 World Trade Center, New  York,
New  York, 10048; and 5670 Wilshire Boulevard, Los Angeles, California 90036.
Copies of such material can be obtained from the Public Reference Section  of
the  Commission  at Judiciary Plaza, 450 Fifth Street N.W., Washington,  D.C.
20549  at  prescribed  rates. For further information, the  SEC  maintains  a
website  that contains reports, proxy and information statements,  and  other
information regarding reporting companies at (http://www.sec.gov).

<PAGE>


ITEM 2.   PROPERTIES

     The Company's main offices are rented from a shareholder and are located
at  7852  Colgate Avenue, Westminster, CA 92683 and the telephone  number  is
(626) 444-5494, .  The Company pays rent at the rate of $1000 per month.

ITEM 3.   LEGAL PROCEEDINGS

        The  Company  has  a potential claim threatened  against  them  by  a
consultant  over  consideration with regard to a finder's 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
March  31,  2001  and  therefore  has  not  accrued  any  liability  in   the
accompanying financial statements.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No  matter  was  submitted to a vote of security  holders,  through  the
solicitation of proxies or otherwise, during the fourth quarter of  our  year
ended March 31, 2001.

PART II

ITEM 5.   MARKET  FOR  REGISTRANT'S  COMMON EQUITY  AND  RELATED  STOCKHOLDER
          MATTERS

     Our  Common  Stock  is traded in the over-the-counter securities  market
through  the  National Association of Securities Dealers Automated  Quotation
Bulletin  Board  System, under the symbol "KNFD".  The following  table  sets
forth the high and low prices for our Common Stock as reported by the OTC:BB.
The  quotations reflect inter-dealer prices, without retail mark-up, markdown
or commission, and may not necessarily represent actual transactions.
<TABLE>
                                       2001
Months                   Average Low         Average High
<S>                    <C>                  <C>
April 2000               No trades           No trades
May 2000                 $1.00               $3.00
June 2000                $2.01               $3.00
July 2000                $1.38               $2.63
August 2000              $1.38               $2.56
September 2000           $1.50               $2.00
October 2000             $1.75               $6.25
November 2000            $5.25               $5.25
December 2000            $1.75               $4.00
January 2001             $1.75               $1.75
February 2001            $2.25               $2.50
March 2001               $0.63               $0.75
</TABLE>
<PAGE>

     As  of  June  30,  2001,  we had approximately 76  stockholders  of  the
39,108,000 shares outstanding.

     We have never declared or paid dividends on our Common Stock.  We intend
to  follow  a policy of retaining earnings, if any, to finance the growth  of
the  business  and  do  not  anticipate paying  any  cash  dividends  in  the
foreseeable future.  The declaration and payment of future dividends  on  the
Common  Stock  will be at the sole discretion of the Board of  Directors  and
will   depend   on   our  profitability  and  financial  condition,   capital
requirements,  statutory and contractual restrictions, future  prospects  and
other factors deemed relevant.

ITEM 6.   MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION  AND
          RESULTS OF OPERATIONS

     The following discussion and analysis should be read in conjunction with
our  Financial Statements and the notes thereto appearing elsewhere  in  this
document.

RISK FACTORS AND CAUTIONARY STATEMENTS

Cautionary Statement Regarding Forward-Looking Statements

     The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 and is filing this
cautionary statement in connection with such safe harbor legislation. The
Company's Form 10K-SB, the Company's Annual Report to Shareholders, any Form
10-QSB or any Form 8-K of the Company or any other written or oral statements
made by or on behalf of the Company may include forward-looking statements
which reflect the Company's current views with respect to future events and
financial performance. The words "believe," "expect," "anticipate,"
"intends," "estimate," "forecast," "project," and similar expressions
identify forward-looking statements.

     The Company wishes to caution investors that any forward-looking
statements made by or on behalf of the Company are subject to uncertainties
and other factors that could cause actual results to differ materially from
such statements. These uncertainties and other factors include, but are not
limited to the Risk Factors listed below (many of which have been discussed
in prior SEC filings by the Company). Though the Company has attempted to
list comprehensively these important factors, the Company wishes to caution
investors that other factors could in the future prove to be important in
affecting the Company's results of operations. New factors emerge from time
to time and it is not possible for management to predict all of such factors,
nor can it assess the impact of each such factor on the business or the
extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements.

     Readers are further cautioned not to place undue reliance on such
forward-looking statements as they speak only of the Company's views as of
the date the statement was made. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.

<PAGE>

Risk Factors

Our operating results are difficult to predict in advance and may fluctuate
significantly, and a failure to meet the expectations of analysts or our
stockholders would likely result in a substantial decline in our stock price.

     There is little historical financial information that is useful in
evaluating our business, prospects and future operating results. You should
not rely on quarter-to-quarter comparisons of our results of operations as an
indication of our future performance. We expect our future operating results
to fluctuate significantly from quarter to quarter. If our operating results
fail to meet or exceed the expectations of analysts or investors, our stock
price would likely decline substantially. Factors that are likely to cause
our results to fluctuate include the following:

*    the gain or loss of significant customers or significant changes in
  purchasing volume;

*    the amount and timing of our operating expenses and capital
  expenditures;

*    changes in the volume of our product sales and pricing concessions;

*    the timing, rescheduling or cancellation of customer orders;

*    the varying length of our sales cycles;

*    the availability and pricing of competing products and technologies and
  the resulting effect on sales and pricing of our products;

*    our ability to specify, develops, complete, introduce and market new
  products and technologies and bring them to volume production in a timely
  manner;

*    the rate of adoption and acceptance of new industry standards in our
  target markets;

*    the effectiveness of our product cost reduction efforts and those of our
  suppliers;

*    changes in the mix of products we sell; and

*    changes in the average selling prices of our products.

There is a limited current public market for our common stock.

     There is a limited public market for our common stock. Although our
common stock is listed on the OTC Bulletin Board, there is a limited volume
of sales, thus providing a limited liquidity into the market for our shares.
As a result of the foregoing, stockholders may be unable to liquidate their
shares for any reason.

<PAGE>

We are highly dependent on Richard Ballard. The loss of Richard Ballard,
whose knowledge, leadership and technical expertise we rely upon, would harm
our ability to execute our business plan.

     Our success depends heavily upon the continued contributions of Richard
Ballard whose knowledge, leadership and technical expertise would be
difficult to replace.  If we were to lose their services, our ability to
execute our business plan would be harmed.

If we are unable to recruit, hire, train and retain additional sales,
marketing, operations, software engineering and finance personnel, our growth
will be impaired.

To  grow  our business successfully and maintain a high level of quality,  we
will  need  to recruit, retain and motivate additional highly skilled  sales,
marketing, software engineering and finance personnel. If we are not able  to
hire, train and retain a sufficient number of qualified employees, our growth
will  be  impaired.  In  particular, we will need to  expand  our  sales  and
marketing organizations in order to increase market awareness of our products
and to increase revenue.

     In addition, as a company focused on the development of complex
products, we will need to hire additional software engineering staff of
various experience levels in order to meet our product roadmap. The market
for skilled employees is extremely limited. We may have even greater
difficulty recruiting potential employees if prospective employees perceive
the equity component of our compensation package to be less valuable.

We are subject to various risks associated with technological change and if
we do not adapt our products to the changes our business will be adversely
affected.

     The technology products market involves certain characteristics that
expose our existing and future technologies, and methodologies to the risk of
obsolescence. These characteristics included the following:

*    rapid changes in technology;
*    rapid changes in user and customer requirements;
*    frequent new service or product introductions embodying new
     technologies; and
*    the emergence of new industry standards and practices.

     Our performance will partially depend on our ability to license leading
technologies, enhance our existing services, and respond to technological
advances and emerging industry standards and practices on a timely and cost-
effective basis. The development of new technology entails significant
technical and business risks. We cannot predict if we will use new
technologies effectively or adapt our products to consumer, vendor,
advertising or emerging industry standards. If we were unable, for technical,
legal, financial or other reasons, to adapt in a timely manner in response to
changing market conditions or customer requirements, our business, results of
operations and financial condition could be materially adversely affected.

<PAGE>

We may not be able to raise further financing or it may only be available on
terms unfavorable to our stockholders or us.

     We believe that our available cash resources are insufficient to meet
our anticipated working capital and capital expenditure requirements. We need
to raise additional funds, to respond to business contingencies, which could
include the need to:

*    maintain existing personal/ consultants;

*    fund more rapid expansion;

*    fund additional marketing expenditures;

*    develop new products or enhance existing products;

*    enhance our operating infrastructure;

*    hire additional personnel;

*    respond to competitive pressures; or

*    acquire complementary businesses or technologies.

     If we raise additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders
would be reduced, and these newly issued securities might have rights,
preferences or privileges senior to those of existing stockholders.
Additional financing might not be available on terms favorable to us, or at
all. If adequate funds were not available or were not available on acceptable
terms, our ability to fund our operations, take advantage of unanticipated
opportunities, develop or enhance our products or otherwise respond to
competitive pressures would be significantly limited.

      This  report contains forward-looking statements within the meaning  of
Section  27A of the Securities Act of 1933 and Section 21E of the  Securities
Exchange Act of 1934. Actual results and events could differ materially  from
those  projected, anticipated, or implicit, in the forward-looking statements
as a result of the risk factors set forth below and elsewhere in this report.

      With  the exception of historical matters, the matters discussed herein
are  forward looking statements that involve risks and uncertainties. Forward
looking  statements  include, but are not limited to,  statements  concerning
anticipated  trends in revenues and net income, the date of  introduction  or
completion  of our products, projections concerning operations and  available
cash  flow.  Our  actual  results could differ materially  from  the  results
discussed in such forward-looking statements. The following discussion of our
financial  condition and results of operations should be read in  conjunction
with  our  financial  statements  and the  related  notes  thereto  appearing
elsewhere herein.

<PAGE>

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.

     Knowledge  Foundations, Inc. (a development stage  company)  ("KFI"),  a
private Delaware corporation, was incorporated on April 6, 2000 according  to
the  laws  of  Delaware.  On September 18, 2000, KFI was merged into  Calipso
Inc.  ("Calipso").   Under the terms of the merger agreement,  all  of  KFI's
outstanding common stock (33,618,500 shares of $0.0001 per value  stock)  was
converted  into 33,918,400 shares of $0.001 per value stock of Calipso,  Inc.
common  stock.  At the date of the transaction, Calipso had 4,179,600  shares
of  common stock outstanding.  As part of the merger agreement, KFI ceased to
exist  as  a separate legal entity, and Calipso changed its name to Knowledge
Foundations,  Inc. (the "Company").  The Company had treated the  transaction
as  a  reverse acquisition for accounting purposes since the KFI stockholders
had  control  of  the combined entity before and after the  transaction.   As
Calipso  had  no  substantive assets, liabilities, or  operations  as  of  or
through September 18, 2000, the Company recorded the reverse acquisition as a
reorganization  of  the  Company's stockholders'  equity,  with  the  Company
recording the issuance of 4,179,600 shares of the former Calipso stockholders
for no consideration.

     The  Company  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, and administrative  functions.   The
Company intends to produce a knowledge-based operating system, related  tools
and  applications,  and  system integration services. The  Company's  primary
target  markets primarily are knowledge owners, publishers, large  commercial
corporations, government agencies and end-users.

Financial Status of KFI for the year ended March 31, 2001

     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.  The lack of funds during  the
fourth  quarter  of  FY  2001  has resulted  in  the  layoff  of  programming
personnel.  Dr.  Ballard, however, continues to design  and  program  certain
segments of Mark 3.

     Costs  and  Expenses. KFI had operating expenses of $839,558 during  the
audited period from inception.

     Net Loss. KFI's net loss for the year ended March 31, 2001 was $865,184.

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 $865,184. The lack of funds during the fourth

<PAGE>

quarter  of FY 2001 has resulted in the layoff of programming personnel.  Dr.
Ballard, however, continues to design and program certain segments of Mark 3.
As KFI expands its technology base it may continue to experience net negative
cash flows from operations, pending receipt of license or sales revenues.

       Since  the merger consummated in September 2000, the Company has  been
seeking  additional financing.  Except for debt financing of $281,000  raised
since  September  2000 the Company has been unsuccessful  in  raising  equity
capital.   The  Company  will continue to seek equity  capital  to  fund  its
development stage operations as well as seek a merger partner.

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, $.001 par value  per  share,  of  which
approximately  39,108,000 were outstanding as of March 31, 2001.  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 March 31, 2001
ITEM 7.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See  Index  to  Financial Statements and Financial  Statement  Schedules
appearing on page F-1 through F-10 of this Form 10-KSB

ITEM 8.   CHANGES  IN  AND  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING  AND
          FINANCIAL DISCLOSURE

     No Changes to Report

<PAGE>


PART III

ITEM 9.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
          SECTION 16(a) OF THE EXCHANGE ACT.

     The following table sets forth the names, positions with the Company and
ages  of the executive officers and directors of the Company. Directors  will
be  elected at the Company's annual meeting of shareholders and serve for one
year  or  until  their successors are elected and qualify. The  Board  elects
officers  and their terms of office are, excepting to the extent governed  by
employment contract, at the discretion of the Board.
<TABLE>
          Name             Age                      Title
<S>                       <C>    <C>
Dr. Richard L. Ballard      60    Chairman, Chief Science Officer
Michael W. Dochterman       46    CEO & President, Director
Robert A. Dietrich          55    CFO, Vice President - Operations, Director
Joel Vest                   54    Director
Janet J.  Pettitt           61    Training Director, Director
</TABLE>
Management

     Dr.  Richard  Ballard, Ph.D. -- Chairman and Chief Science Officer:  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.

<PAGE>

     Mr.  Robert A. Dietrich -Vice President - Operations, 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.

     Mr.  Joel B. Vest - Director:  During the past five years, Mr. Vest  has
consulted,  created,  produced, directed and  managed  community  events  and
consumer/trade shows from concept through launch.

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.

LIMITATION OF LIABILITY OF DIRECTORS

The  By-laws of the Company provide as follows: "Except as hereinafter stated
otherwise, the Corporation shall indemnify all of its officers and directors,
past, present and future, against any and all expenses incurred by them,  and
each of them including but not limited to legal fees, judgments and penalties
which may be incurred, rendered or levied in any legal action brought against
any  or all of them for or on account of any act or omission alleged to  have
been  committed while acting within the scope of their duties as Officers  or
Directors of this Corporation."

<PAGE>

BOARD OF DIRECTORS COMMITTEES AND COMPENSATION

Compensation Committee Interlocks and Insider Participation

     The  Board of Directors does not have a Compensation Committee.  Michael
W.  Dochterman, President and CEO, oversaw the compensation of our  executive
officers.

Board of Director's Report on Executive Compensation

     General.   As  noted  above,  our Board of Directors  does  not  have  a
Compensation  Committee and, accordingly, during the  year  ended  March  31,
2001,  the  Board of Directors, through the Chairman and President,  reviewed
and approved the compensation of our executive officers.

     Loans. From time to time our Board of Directors may approve loans to our
officers  and employees. The amounts and timing of these loans are  based  on
our  financial position at the time of grant and made at the sole  discretion
of  the  Board  of Directors.  There were no loans to officers  or  employees
outstanding as of March 31, 2001.

     Overall  Policy:  Messers  Ballard,  Dochterman  and  Dietrich  are  all
compensated  under employment agreements detailed above.   As  the  Company's
cash  position did not allow adherence to minimum compensation as  contracted
per  employment  agreements,  the  Company has  accrued  $63,800  as  payroll
liability for the officers as of March 31, 2001.

     As  overall  policy, however, the Board continues to believe that  long-
term compensation tied to the creation of stockholder value should constitute
a  significant  component of the compensation to be earned by  our  executive
officers.   In  this  respect, it will be the Board's policy  to  attempt  to
restrain  base  cash compensation (subject to competitive  pressures),  while
providing  the  incentive  for Management to increase  stockholder  value  by
providing  such officers with significant numbers of market-price stock  that
will  not confer value upon the officers unless and until the Company's share
price  rises.  As of March 31, 2001 the Board of Directors has not adopted  a
stock  option  plan  for  employees, but  expects  that  stock  options  will
constitute  a significant component of the compensation package  provided  to
executive officers.

     The  Board  believes that cash bonuses are, at times, appropriate  based
upon  the  performance  of the Company's business compared  to  our  internal
expectations and general business conditions.

           Section 16(a) Beneficial Ownership Reporting Compliance

           Section  16(a) of the Securities Exchange Act of 1934, as  amended
(the  "Exchange Act"), requires Knowledge Foundations executive officers  and
directors,  and  persons  who  beneficially own  more  than  ten  percent  of
Knowledge's common stock, to file initial reports of ownership and reports of
changes  in ownership with the SEC. Executive officers, directors and greater
than ten percent beneficial owners are required by SEC regulations to furnish
Knowledge  with  copies of all Section 16(a) forms they file.  Based  upon  a
review  of  the  copies of such forms furnished to Knowledge Foundations  and

<PAGE>

written  representations from Knowledge Foundations  executive  officers  and
directors, Knowledge believes that during fiscal 2001 all forms 3 and 4  were
filed  on  a  timely basis for Knowledge Foundations executive  officers  and
directors.

ITEM 10.  EXECUTIVE COMPENSATION

The  following  table sets forth the compensation of the Company's  executive
officers and directors during each of the fiscal years since inception of the
Company. The remuneration described in the table does not include the cost to
the  Company of benefits furnished to the named executive officers, including
premiums  for health insurance and other benefits provided to such individual
that  are  extended in connection with the conduct of the Company's business.
The  value of such benefits cannot be precisely determined, but the executive
officers  named  below did not receive other compensation in  excess  of  the
lesser  of  $50,000 or 10% of such officer's cash compensation  exclusive  of
loans footnoted herein.
<TABLE>
Summary Compensation Table
                                                               Long Term
                             Annual Compensation              Compensation


 Name and Principal                         Other Annual  Restricted
      Position         Year  Salary  Bonus  Compensation    Stock    Options
<S>                  <C>    <C>     <C>     <C>          <C>        <C>
Dr. Richard L.         2001  92,400    0           4,500      0         0
Ballard
Chairman and Chief
Science Officer



Michael W.             2001  77,400    0          19,500      0         0
Dochterman
President & CEO,
Director



Robert A. Dietrich     2001  53,700    0           4,500      0         0
CFO, Vice President,
Director



Joel Vest              2001    0       0          20,500      0         0
Director



Janet J. Pettitt       2001  12,000    0               0      0         0
Director, Training
Director
</TABLE>
<PAGE>

Compensation of Directors

   All  directors will be reimbursed for expenses incurred in attending Board
   or committee meetings.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners.

      The following table sets forth certain information as of March 31, 2001
with  respect to the beneficial ownership of common stock by (i) each  person
who  to the knowledge of the Company, beneficially owned or had the right  to
acquire more than 10% of the Outstanding common stock, (ii) each director  of
the Company and (iii) all executive offices and directors of the Company as a
group.
<TABLE>

        Name of Beneficial Owner (1)               Number         Percent
                                                 Of Shares     Of Class (2)
<S>                                            <C>             <C>
Dr. Richard L. Ballard (3)                          21,377,516         54.7%
Michael W. Dochterman                                4,638,412         11.9%
Robert A. Dietrich                                   2,576,884          6.6%
Janet J. Pettitt (3)                                 4,277,622         10.9%
Joel Vest                                              412,346          1.0%

All Directors & Officers as a Group                 33,282,980         85.1%
</TABLE>
(1)  As  used in this table, "beneficial ownership" means the sole or  shared
    power to vote, or to direct the voting of, a security, or the sole or shared
     investment power with respect to a security (i.e., the power to dispose of,
     or to direct the disposition of, a security).  In addition, for purposes of
     this  table,  a  person is deemed, as of any date, to  have  "beneficial
     ownership" of any security that such person has the right to acquire within
     60 days after such date.
(2)  Figures are rounded to the nearest percentage. Less than 1% is reflected
     as 0%.
(3)  Ms. Pettitt and Dr. Ballard are husband and wife.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Notes Payable to Shareholders:

The Company borrowed $206,000 from a shareholder, which obligation is a
demand note with a principal balance as of March 31, 2001 of $206,000 plus
$5,017 of accrued interest at 6% per annum, payable upon demand.
Office Rent Expense

<PAGE>

As of March 31, 2001, the Company had a liability of $10,000 due to one of
the principal stockholders for renting a portion of his residence (on a month-
to-month basis) used as the Company's office for the period of April 6, 2000
through March 31, 2001.  This amount is non-interest bearing.  The total
office rent expense was $12,000 for the period ended March 31, 2001.

Consulting Services

As of March 31, 2001, the Company had incurred $36,500 consulting services
that were rendered by two officers who are also principal stockholders of the
Company.  Such consulting service charges were paid in full during the year
ended March 31, 2001.

ITEM  13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  Documents filed as part of this Report

     1.   Financial Statements:

     A.   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

          1.   Independent Auditors Report                         F-1
          2.   Financial Statements:
                    Balance Sheet                                  F-2
                    Statement of Operation                         F-3
                    Statement of Changes in Stockholders'          F-4
                    Statement of Cash Flows                        F-5
                    Notes to Consolidated Financial StatementsF-6 - F-15

     All  schedules  are  omitted  because they are  not  applicable  or  the
required  information  is shown in the consolidated financial  statements  or
notes thereto.

     2.   During the fiscal year 2001, the Company filed the following 8-Ks.
               Merger  of  Calipso,  Inc.  and  Knowledge  Foundations,   Inc
               September 2000.

     3.   Subsequent  to  the end of the fiscal year, the Company  filed  the
          following reports on Form 8-K
               None

<PAGE>

     4.   Exhibits

Exhibit                                Description
Number
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.
99.1**       Text of Press Release dated September 21, 2000

*            Incorporated by Reference
**           Incorporated by Reference filed in Form 8-K on 9/27/2000
<PAGE>

                                 SIGNATURES

      Pursuant  to the requirements of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on our behalf by the undersigned, thereunto duly authorized.

KNOWLEDGE FOUNDATIONS, INC.             DATED: July 16, 2001



By:/s/ Robert Dietrich
     ___________________
     CFO


      Pursuant  to the requirements of the Securities Exchange Act  of  1934,
this  report has been signed below by the following persons on behalf of  the
registrant and in the capacities and on the dates indicated.

Signature                     Title                         Date

/s/ Richard Ballard           Chairman           July 16, 2001


/s/ Michael Dochterman        CEO & President    July 16, 2001


/s/ Robert Dietrich           CFO, VP, Director  July 16, 2001


/s/ Joel Vest                 Director           July 16, 2001


/s/ Janet Pettie              Director           July 16, 2001

<PAGE>
INDEPENDENT AUDITORS' REPORT



To the Board of Directors
Knowledge Foundations, Inc.


We have audited the accompanying balance sheet of Knowledge Foundations, Inc.
(a development stage company) (the "Company") as of March 31, 2001, and the
related statements of operations, stockholders' deficit and cash flows for
the period April 6, 2000 (date of inception) through March 31, 2001.  These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.

We  conducted  our  audit  in  accordance with auditing  standards  generally
accepted  in  the United States of America. Those standards require  that  we
plan  and perform the audit to obtain reasonable assurance about whether  the
financial  statements are free of material misstatement.  An  audit  includes
examining,  on a test basis, evidence supporting the amounts and  disclosures
in the financial statements.  An audit also includes assessing the accounting
principles  used  and significant estimates made by management,  as  well  as
evaluating the overall financial statement presentation.  We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all  material respects, the financial position of the Company as of March 31,
2001,  and  the results of its operations and its cash flows for  the  period
April  6, 2000 (date of inception) through March 31, 2001 in conformity  with
accounting principles generally accepted in the United States of America.

The  accompanying financial statements have been prepared assuming  that  the
Company  will  continue  as a going concern.  As shown  in  the  accompanying
financial statements, the Company is a development stage company which has  a
low  cash  balance at March 31, 2001, and has experienced significant  losses
since inception with no revenues.  These factors, and other factors discussed
in  Note  2  to  the financial statements raise substantial doubt  about  the
ability of the Company to continue as a going concern.  Management's plans in
regard to these matters are described in Note 2.  The financial statements do
not  include  any  adjustments that might result from  the  outcome  of  this
uncertainty.

                                        CORBIN & WERTZ


Irvine, California
July 6, 2001

<PAGE>
<TABLE>
BALANCE SHEET
ASSETS                                                 March 31,
                                                         2001
<S>                                                  <C>
Current assets:
 Cash                                                 $    1,408
 Other                                                        60
                                                      ----------
        Total current assets                               1,468

Equipment, net of accumulated depreciation of $2,398      12,677
                                                      ----------

                                                      $   14,145
                                                      ==========
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S>                                                  <C>
Current liabilities:
 Accounts payable                                     $  176,797
 Due to related parties                                   10,000
 Accrued payroll and payroll taxes                        69,300
 Accrued interest to stockholders                          5,017
 Accrued interest                                         23,853
 Notes payable                                            75,000
     Notes payable to stockholders                       206,000
 Convertible subordinated note payable                   300,000
                                                      ----------
     Total current liabilities                           865,967
                                                      ----------
Commitments and contingencies

Stockholders' deficit:
  Preferred stock, $0.001 par value; 20,000,000
     shares authorized; no
    shares issued or outstanding                               -
  Common stock, $0.001 par value; 100,000,000
   shares authorized;
   39,108,000 shares issued and outstanding               39,108
 Additional paid-in capital                             (25,746)
 Deficit accumulated during the development stage      (865,184)
                                                    ------------
     Total stockholders' deficit                       (851,822)
                                                    ------------
                                                    $     14,145
                                                    ============
</TABLE>
<PAGE>
Statement of Operation

<TABLE>
                                                     April    6,
                                                     2000
                                                     (Date    of
                                                     Inception)
                                                     Through
                                                      March 31,
                                                        2001

<S>                                                <C>
Revenues                                              $       -

Operating expenses                                      839,558

Other income (expense):
 Interest income                                          3,244
 Interest expense                                       (28,870)
                                                     ------------
Net loss                                             $ (865,184)
                                                     ===========
Net loss available to common stockholders per
  common share                                        $   (0.02)
                                                     ===========
Weighted average number of common shares
  outstanding                                          35,980,478
                                                      ===========
</TABLE>
<PAGE>
Statement of Changes in Stockholders'
<TABLE>
                          Common Stock     Paid-in     Deficit       Total
                       Shares      Amount  Capital   Accumulated Stockholders'
                                                       During       Deficit
                                                     Development
                                                        Stage
<S>                   <C>        <C>      <C>        <C>          <C>
Balance, April 6,
2000                          -   $     -  $      -    $       -    $       -

Sale of shares to
founders at $0.0001
per share on April 6,
2000
   (adjusted for
change in par value
to $0.001 per share
as a result
   of the merger)     33,618,500    33,618  (30,256)            -        3,362

Shares issued in
connection with
merger on September
18, 2000:
     Stock dividend
to founders             299,900       300     (300)            -            -
     Shares issued
for acquisition of
Calipso, Inc.         4,179,600     4,180   (4,180)            -            -
     Shares issued to
service providers     1,000,000     1,000   (1,000)            -            -

Shares issued to
third party on
January 9, 2001 for
services rendered,
   valued at $1.00
per share                10,000        10     9,990            -       10,000

Net loss                      -         -         -    (865,184)    (865,184)
                      -------------------------------------------------------
Balance, March 31,
2001                  39,108,000   $39,108 $(25,746)   $(865,184)   $(851,822)
                      ========================================================

</TABLE>
<PAGE>
Statement of Cash Flows
<TABLE>
                                                     April    6,
                                                     2000  (Date
                                                     of
                                                     Inception)
                                                     Through
                                                      March 31,
                                                        2001

<S>                                                 <C>
Cash flows from operating activities:
 Net loss                                            $(865,184)
 Adjustments to reconcile net loss to
  net cash used in operating
   activities:
    Depreciation                                         2,398
    Common stock issued for services                    10,000
    Changes in operating assets and liabilities:
      Other assets                                        (60)
      Accounts payable                                 176,797
      Due to related parties                            10,000
      Accrued payroll and payroll taxes                 69,300
      Accrued interest                                  28,870
                                                    ----------
 Net cash used in operating activities                (567,879)
                                                    ----------
Cash flows used in investing activities:
 Purchases of equipment                               (15,075)
                                                    ----------
Cash flows from financing activities:
 Proceeds from borrowings on notes payable             581,000
 Proceeds from the sale of common stock                  3,362
                                                    ----------
 Net cash provided by financing activities             584,362
                                                    ----------
Net increase in cash                                      1,408

Cash at beginning of period                                   -
                                                     ----------
Cash at end of period                                 $   1,408
                                                     ==========
Supplemental disclosure of cash flow information:
 Cash paid during the period for income taxes        $     800
                                                     =========

</TABLE>
<PAGE>
Notes to Consolidated Financial Statements

NOTE 1 - ORGANIZATION AND BUSINESS

Knowledge Foundations, Inc. (a development stage company) ("KFI"), a  private
Delaware corporation, was incorporated on April 6, 2000 according to the laws
of  Delaware.   On  September  18, 2000, KFI was  merged  into  Calipso  Inc.
("Calipso").   Under  the  terms  of  the  merger  agreement,  all  of  KFI's
outstanding common stock (33,618,500 shares of $0.0001 per value  stock)  was
converted  into 33,918,400 shares of $0.001 per value stock of Calipso,  Inc.
common  stock.  At the date of the transaction, Calipso had 4,179,600  shares
of  common stock outstanding.  As part of the merger agreement, KFI ceased to
exist  as  a separate legal entity, and Calipso changed its name to Knowledge
Foundations,  Inc. (the "Company").  The Company had treated the  transaction
as  a  reverse acquisition for accounting purposes since the KFI stockholders
had  control  of  the combined entity before and after the  transaction.   As
Calipso  had  no  substantive assets, liabilities, or  operations  as  of  or
through September 18, 2000, the Company recorded the reverse acquisition as a
reorganization  of  the  Company's stockholders'  equity,  with  the  Company
recording the issuance of 4,179,600 shares of the former Calipso stockholders
for no consideration.   Also the pro forma presentation of the Calipso merger
as  if it occurred in April 6, 2000 are not presented as the results would be
immaterial to the Company's results.

The  Company  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, and administrative functions.  The Company intends
to   produce   a   knowledge-based  operating  system,  related   tools   and
applications,  and system integration services. The Company's primary  target
markets   primarily  are  knowledge  owners,  publishers,  large   commercial
corporations, government agencies and end-users.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

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.

The Company has a loss of $865,184 for the period from April 6, 2000 (date of
inception)  through  March 31, 2001 and balances in cash  of  $1,408  and  in
stockholders'  deficit  of  $851,822 as of March  31,  2001.   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  generate  sufficient
revenues or obtain the sufficient equity or debt funds when needed,  or  that
such  funds,  if available, will be obtainable on terms satisfactory  to  the
Company.    The  accompanying  financial  statements  do  not   include   any
adjustments that might result from the outcome of this uncertainty.

<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued

Use of Estimates

The  preparation  of  financial  statements  in  conformity  with  accounting
principles  generally  accepted  in the United  States  of  America  requires
management to make estimates and assumptions that affect the reported amounts
of   assets  and  liabilities  and  disclosures  of  contingent  assets   and
liabilities at the date of the financial statements, as well as the  reported
amounts of revenues and expenses during the reporting period.  Actual results
could differ from those estimates.

Fair Value of Financial Instruments

Financial  Accounting Standards Board ("FASB") issued Statement of  Financial
Accounting Standards No. 107 ("SFAS 107"), "Disclosures About Fair  Value  of
Financial   Instruments."  SFAS  107  requires  disclosure  of   fair   value
information  about financial instruments when it is practicable  to  estimate
that  value.   The carrying amount of the Company's cash, trade payables  and
accrued  expenses approximates their estimated fair values due to the  short-
term  maturities  of  those financial instruments.  For  the  notes  payable,
related-party notes payable and convertible subordinated note payable, it was
not  practicable to estimate the fair value as no market currently exists for
such financial instruments.

Customer Concentration

Management's  intention  is that the Company will not  be  dependent  on  any
single customer or group of customers for a significant portion of its annual
sales.  The Company's customer base will change on a continuous basis as  new
customers are added or removed.

Concentration of Credit Risk

Cash  balances are maintained at a financial institution.  Accounts  at  this
bank are insured by the Federal Deposit Insurance Corporation ("FDIC") up  to
$100,000.  At times, the Company may maintain funds at this bank in excess of
these insured amounts.

Equipment

Equipment  is  stated at cost.  Depreciation is computed using the  straight-
line method over an estimated useful life of three years.

Betterments, renewals, and extraordinary repairs that extend the lives of the
assets are capitalized; other repairs and maintenance charges are expensed as
incurred.  The cost and related accumulated depreciation applicable to assets
retired are removed from the accounts, and the gain or loss on disposition is
recognized in current operations.

<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued

Long-Lived Assets

The  Company accounts for the impairment and disposition of long-lived assets
in accordance with Statement of Financial Accounting Standards No. 121 ("SFAS
121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of."  In accordance with SFAS 121, long-lived assets to
be  held  are reviewed for events or changes in circumstances, which indicate
that  their  carrying value may not be recoverable.  At March 31,  2001,  the
Company has determined that there is no impairment of long-lived assets.

Income Taxes

The Company accounts for income taxes under Statement of Financial Accounting
Standards  No. 109 ("SFAS 109"), "Accounting for Income Taxes."   Under  SFAS
109,  deferred tax assets and liabilities are recognized for the  future  tax
consequences  attributable  to differences between  the  financial  statement
carrying amounts of existing assets and liabilities and their respective  tax
bases.   Deferred tax assets and liabilities are measured using  enacted  tax
rates  expected  to  apply  to taxable income in the  years  in  which  those
temporary  differences are expected to be recovered or settled.  A  valuation
allowance  is provided for significant deferred tax assets when  it  is  more
likely than not that such assets will not be recovered.

Earnings 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.

Comprehensive Income

The  Company has adopted Statement of Financial Accounting Standards No.  130
("SFAS   130"),  "Reporting  Comprehensive  Income."  SFAS  130   establishes
standards  for  reporting  and  display  of  comprehensive  income  and   its
components  in a full set of general-purpose financial statements.  SFAS  130
had no impact on the accompanying financial statements as the Company has  no
items of comprehensive income.

<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued

Segments of Business

The  Company has adopted Statement of Financial Accounting Standards No.  131
("SFAS  131"),  "Disclosures  about Segments of  an  Enterprise  and  Related
Information"  was  issued.  SFAS 131 changes the way public companies  report
information  about  segments  of their business  in  their  annual  financial
statements and requires them to report selected segment information in  their
quarterly  reports  issued  to stockholders.  It  also  requires  entity-wide
disclosures about the products and services an entity provides, the  material
countries  in  which  it  holds assets and reports  revenues  and  its  major
customers.   The Company currently operates in one segment, as  disclosed  in
the accompanying statement of operations.

New Accounting Pronouncements

In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133   ("SFAS  133"),  "Accounting  for  Derivative  Instruments  and  Hedging
Activities."   SFAS  133 establishes accounting and reporting  standards  for
derivative instruments, including certain derivative instruments embedded  in
other  contracts,  and for hedging activities.  It requires  that  an  entity
recognize  all  derivatives as either assets or liabilities  on  the  balance
sheet  at their fair value.  This statement, as amended by SFAS 137 and  138,
is  effective for financial statements for all fiscal quarters of all  fiscal
years  beginning  after  June  15, 2000.  The Company  does  not  expect  the
adoption  of  this  standard to have a material  impact  on  its  results  of
operations, financial position or cash flows as it currently does not  engage
in any derivative or hedging activities.

NOTE 3 - PROPERTY AND EQUIPMENT

Equipment consists of the following as of March 31, 2001:
<TABLE>
<S>                                                   <C>
          Computer equipment and software             $  14,106
          Office equipment                                  969
                                                      ---------
                                                         15,075
          Less accumulated depreciation                 (2,398)
                                                     ----------
                                                      $  12,677
                                                     ==========
</TABLE>
<PAGE>

NOTE 4 - NOTES PAYABLE

Convertible Subordinated Note Payable

The Company borrowed $300,000 from an unrelated third party in the form of  a
convertible  subordinated note (the "Note") on April 19, 2000.  The  Note  is
subordinated to future borrowings from financial institutions.  The  Note  is
unsecured  and  bears interest at 8% per annum which is payable semi-annually
beginning six months after the date of this Note, with the principal together
with  all  accrued but unpaid interest due on April 18, 2003.  If  an  equity
financing  event occurs where the Company issues common stocks  or  preferred
stocks  to  one or more unrelated third parties in exchange for at  least  an
aggregate  of  $3,000,000 or if the Company merges  into  a  publicly  traded
company and the stockholders of the Company own eighty percent (80%)  of  the
Company  on a fully diluted basis after the merger, 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.  Since the Company completed a
merger  transaction (see Note 1), the note is currently convertible at  $1.00
per  share. The outstanding balance on this note payable totaled $300,000  at
March 31, 2001.  Interest expense incurred during the period ended March  31,
2001  was  $22,751, which is included in accrued interest in the accompanying
balance sheet at March 31, 2001.

Due  to  the accrued interest not being paid as of March 31, 2001, the  total
accrued interest of $22,751, the Note principal of $300,000 is considered  to
be  in  default  of the Note terms as of March 31, 2001 and  thus,  has  been
classified as a current liability on the balance sheet.

Notes Payable

The Company borrowed funds from third parties totaling $75,000 under
unsecured notes payable during the period ended March 31, 2001.  These notes
payable accrue interest at 6% per annum, and principal and accrued interest
are due on or before January 1, 2002, or five days after receipt by the
Company of additional debt or equity financing in a sum of $500,000 or more.
Interest expense incurred during the period ended March 31, 2001 was $1,102,
which is included in accrued interest in the accompanying balance sheet at
March 31, 2001.

Notes Payable to Stockholders

The Company borrowed funds from one stockholder totaling $206,000 under
unsecured notes payable during the period ended March 31, 2001.  These notes
payable accrue interest at 6% per annum, and are due on demand.  Interest
expense incurred during the period ended March 31, 2001 was $5,017, which is
included in accrued interest to stockholders in the accompanying balance
sheet at March 31, 2001.

<PAGE>

NOTE 5 - STOCKHOLDERS' EQUITY

Preferred Stock

The Company has authorized 20,000,000 shares of preferred stock to be issued.
These shares may be issued in one or more series as determined by the board
of directors.  At the time of determination, the rate of dividends (whether
cumulative or non-cumulative), redemption features and liquidation
preferences will be established.  At March 31, 2001, no preferred stock
determinations have been made by the board of directors.

Common Stock

On  April  6,  2000  (date  of inception), KFI had  issued  an  aggregate  of
33,618,500 shares of common stock at $0.0001 par value per share for  $3,362.
During  the merger on September 18, 2000, the Company converted these  shares
into  33,918,400 shares of $0.001 par value common stock of the Company  (see
Note  1).  In addition, 2,000,000 shares of common stock were issued  to  two
unrelated investment companies as a fee for providing services in the merger,
of  which  1,000,000 shares were escrowed and were to be earned upon delivery
of  $3,000,000 in equity financing cumulatively within 180 days of merger  to
the  Company.   On  March  17,  2001, these 1,000,000  escrowed  shares  were
canceled  due to the equity financing requirements not being accomplished  by
the  investment  companies.  These shares were reflected in the  accompanying
financial  statements as if they were never issued, as they were granted  and
cancelled within the same fiscal year end and were never earned.

On  January  9, 2001, the Company issued 10,000 shares of common stock  to  a
third party for consulting services valued at $10,000.

NOTE 6 - RELATED PARTIES

Office Rent Expense

As of March 31, 2001, the Company had a liability of $10,000 due to one of
the principal stockholders for renting a portion of his residence (on a month-
to-month basis) used as the Company's office for the period of April 6, 2000
through March 31, 2001.  This amount is non-interest bearing.  The total
office rent expense was $12,000 for the period ended March 31, 2001.

Consulting Services

As of March 31, 2001, the Company had incurred $36,500 consulting services
that were rendered by two officers who are also principal stockholders of the
Company.  Such consulting service charges were paid in full during the year
ended March 31, 2001.

<PAGE>

                            NOTE 7 - INCOME TAXES

The tax effects of temporary differences that give rise to deferred taxes at
March 31, 2001 are as follows:

     Deferred tax asset:
       Net operating loss carryforward                $ 346,000
     Total gross deferred tax asset                     346,000

     Less valuation allowance                          (346,000)

       Net deferred tax asset                         $       -


No  current provision for income taxes for the period ended March 31, 2001 is
required,  except  for  minimum state taxes of $800  (which  is  recorded  in
operating  expenses  in  the accompanying financial  statements),  since  the
Company incurred losses during the period.

As of March 31, 2001, the Company had net operating loss carryforwards of
approximately $865,000 for both federal and state income tax reporting
purposes, which expire in 2021 and 2006, respectively.

Management  cannot determine if it is more likely than not that the  deferred
tax  asset  will  be utilized and as such has recorded a valuation  allowance
equal to the entire asset.  For the period ended March 31, 2001, the increase
in the valuation allowance totaled $346,000.

NOTE 8 - 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.  As
of  and for the period ended March 31, 2001, the Company has not recorded any
royalties due to the officer under this agreement.

<PAGE>

 NOTE 8 - COMMITMENT, continued

Employment Agreements

The  Company has four-year employment agreements with three of its employees,
who  are  also  executives and principal stockholders of  the  Company.   The
agreements, which will expire on March 31, 2004, provide each employee with a
base  salary  of approximately $10,000 per month.  Under the agreements,  the
Company  has bonus plans whereby these executives can earn bonuses  based  on
net  income and other factors.  In addition, the Company has stock repurchase
rights  to repurchase shares back from two of the three executives if  either
of these executives' employment is terminated.

NOTE 9 - CONTINGENCY

The  Company  has a potential claim threatened against them by  a  consultant
over  consideration  with  regard  to a finder's  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 March  31,
2001  and  therefore  has  not  accrued any  liability  in  the  accompanying
financial statements.