NOTE 1 - ORGANIZATION AND OPERATIONS
KollagenX Corp. (formerly known as Integrated Electric Systems Corp. and previously Raider Ventures, Inc.) was incorporated in the State of Nevada on March 5, 2007 as Northern Minerals, Inc. Our original business was to engage in the acquisition, exploration and development of natural resource properties. On July 17, 2014 our board of directors approved, both, a letter of intent and the preparation of an agreement and plan to acquire 100% of the outstanding common shares of KollagenX, Inc. a California corporation, and to effect a name change from Integrated Electric Systems Corp. to KollagenX Corp., for the sole purpose of expanding the KollagenX, Inc. business plan for the distribution of personal beauty products.
Articles of Merger to effect the merger between the newly created KollagenX Corp. and Integrated, and to change the name, from Integrated to KollagenX, were filed with and became effective with the Nevada Secretary of State on July 23, 2014. The name change was reviewed by the Financial Industry Regulatory Authority (FINRA) and approved for filing with an effective date of July 30, 2014 and became effective with the Over-the-Counter Bulletin Board at the opening of trading on July 30, 2014 under the symbol "KGNX". Our new CUSIP number is 50043U107.
A Share Exchange Agreement, between the newly created KollagenX Corp., KollagenX, Inc. and the shareholders of KollagenX, Inc. became effective August 4, 2014, transferring 10,000,000 common shares of KollagenX Corp. to the KollagenX, Inc. shareholders, in return for 100% of the issued and outstanding shares of KollagenX, Inc. Consequently, the operating results of KollagenX Inc are included in the consolidated condensed financial statements for the period August 4, 2014 thru September 30, 2014.
KollagenX, Inc., a California corporation, was incorporated on May 15, 2009 as QWR, Inc. and changed its name to KollagenX Inc. on October 8, 2013.
NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the financial statements of the Company for the year ended March 31, 2014 and notes thereto included in the Company's Form 10-K. The Company follows the same accounting policies in the preparation of interim reports.
Operating results for the three and six months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ended March 31, 2014.
Summary of Significant Accounting Policies
This summary of significant accounting policies of KollagenX Corp. is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management who is responsible for the integrity and objectivity of the financial statements. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.
KOLLAGENX CORP.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash
Cash consists of petty cash, checking, savings, and money market accounts. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of September 30, 2014 and March 31, 2014.
The Company maintains its cash in bank deposit accounts which, at times, may exceed federal insured limits.
Accounts Receivable
Accounts receivable are carried at their estimated collectible amounts. The Company provides allowances for uncollectible accounts receivable equal to the estimated collection losses that will be incurred in collection of all receivables. Accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. The Company’s management determines which accounts are past due and if deemed uncollectible, the Company charges off the receivable in the period the determination is made. The Company generally requires no collateral to secure its ordinary accounts receivable.
Property and Equipment
Property and equipment are stated at cost and depreciated using both straight-line and accelerated methods over estimated useful lives ranging from 3 to 5 years. Upon disposition of property and equipment, related gains and losses are recorded in operations. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expenses as incurred.
Inventory
Substantially all inventory consists of finished goods and is valued based upon first-in first-out ("FIFO") cost, not in excess of market. The determination of whether the carrying amount of inventory requires a write-down is based on a detailed evaluation of inventory relative to any potential slowing moving products or discontinued items as well as the market conditions for the specific inventory items.
KOLLAGENX CORP.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Advertising
The Company generally expenses advertising costs as incurred.
Depreciation and amortization
Depreciation and amortization expense primarily consists of the non-cash write-down of tangible and intangible assets over their expected economic lives. We expect this expense to continue to grow in absolute dollars and potentially as a percentage of revenue as we continue to grow and incur capital expenditures to improve our technological infrastructure and acquire assets through potential future acquisitions.
Revenue Recognition
Revenue consists of product sales at market minus any discount afforded to a client or customer, and professional services and products sold.
We recognize revenue when persuasive evidence of an arrangement exists, pricing is fixed and determinable, collection is reasonably assured and delivery or performance of service has occurred. Customer prepayments are reflected as deferred revenue as long as there is persuasive evidence that the purchased product will be shipped within a reasonable time.
Sales revenue is recognized upon the shipment of merchandise to customers.
Professional and consulting services related to the implementation and use of our products, are generally performed on a fixed fee basis under separate service arrangements.
Fair Value of Financial Instruments
The Company’s financial instruments include cash, accounts receivable, accounts payable, and notes payable. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at September 30, 2014 and March 31, 2014. The Company did not engage in any transaction involving derivative instruments.
As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The three levels of the fair value hierarchy are described below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
KOLLAGENX CORP.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Recent Accounting Pronouncements
On June 10, 2014, the Financial Accounting Standards Board ("FASB") issued update ASU 2014-10, Development Stage Entities (Topic 915). Amongst other things, the amendments in this update removed the definition of development stage entity from Topic 915, thereby removing the distinction between development stage entities and other reporting entities from US GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information on the statements of income, cash flows and shareholders’ equity, (2) label the financial statements as those of a development stage entity; (3) disclose a description of the development stage activities in which the entity is engaged and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The amendments are effective for annual reporting periods beginning after December 31, 2014 and interim reporting periods beginning after December 15, 2015, however entities are permitted to early adopt for any annual or interim reporting period for which the financial statements have yet to be issued. The Company has elected to early adopt these amendments and accordingly have not labeled the financial statements as those of a development stage entity and have not presented inception-to-date information on the respective financial statements.
There are no other recent accounting pronouncements that are expected to have a material effect on the Company’s financial statements.
Share-based Compensation - The Company recognizes share-based compensation, including stock option grants, warrants and restricted stock grants at their fair value on the grant date. Share based payment awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. Compensation expense is generally recognized on a straight-line basis over the vesting period.
Dividends - The payment of dividends by the Company in the future will be at the discretion of the Board of Directors and will depend on earnings, capital requirements and financial condition, as well as other relevant factors. The Company does not intend to pay any cash dividends in the foreseeable future but intend to retain all earnings, if any, for use in the business.
Earnings (Loss) per Share - Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss), adjusted for changes in income or loss that resulted from the assumed conversion of convertible shares, by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
The computation of basic and diluted loss per share for the periods presented is equivalent since the Company had continuing losses. The Company had no common stock equivalents as of September 30, 2014.
Risks and Uncertainties - The Company’s operations and future are dependent in a large part on its ability to develop its business model in a competitive market. The Company intends to operate in an industry that is subject to intense competition and change in consumer demand. The Company's operations are subject to significant risk and uncertainties including financial and operational risks and the potential risk of business failure. The Company’s inability to meet its business plan and target customer demand may have a material adverse effect on its financial condition, results of operations and cash flows.
KOLLAGENX CORP.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Income Taxes - Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized or settled. Deferred income tax assets are reduced by valuation allowances when necessary.
Assessing whether deferred tax assets are realizable requires significant judgment. The Company considers all available positive and negative evidence, including historical operating performance and expectations of future operating performance. The ultimate realization of deferred tax assets is often dependent upon future taxable income and therefore can be uncertain. To the extent the Company believes it is more likely than not that all or some portion of the asset will not be realized, valuation allowances are established against the Company’s deferred tax assets, which increase income tax expense in the period when such a determination is made.
Income taxes include the largest amount of tax benefit for an uncertain tax position that is more likely than not to be sustained upon audit based on the technical merits of the tax position. Settlements with tax authorities, the expiration of statutes of limitations for particular tax positions, or obtaining new information on particular tax positions may cause a change to the effective tax rate. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes on the statements of operations.
NOTE 3- ACQUISITION OF KOLLAGENX INC.
On August 4, 2014, the Company completed the acquisition of KollagenX Inc. a California corporation in the cosmetics business.
The purchase price, for 100% of the issued and outstanding common shares of KollagenX Inc., was 10,000,000 restricted common shares of KollagenX Corp issued to the shareholders of KollagenX Inc.
The operating results of KollagenX Inc are included in the condensed combined financial statements, from the date of acquisition, August 4, 2014 through September 30, 2014.
NOTE 4 - GOING CONCERN
The accompanying financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the financial statements, during the six months ended September 30, 2014, the Company incurred net losses of $143,556 and as of the same date had an accumulated deficit of $453,919. If the Company is unable to generate profits and is unable to continue to obtain financing for its working capital requirements, it may have to curtail its business sharply or cease business altogether. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The financial statements do not include any adjustment relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company is taking certain steps to provide the necessary capital to continue its operations. These steps included, but are not limited to: 1) focus on sales to minimize the need for capital at this stage; 2) converting part of the outstanding accounts payable to equity; 3) raising equity financing; 4) continuous focus on reductions in cost where possible.
KOLLAGENX CORP.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 5 – PREPAID EXPENSES
On September 22, 2014 the Company entered into a twenty-four month consulting agreement, with a Company that has expertise in providing management advice and financial services advice. The entire fee of $160,000 was paid in advance and will be amortized in equal monthly amounts over the twenty-four months. $2,222 was amortized for the period September 22, 2014 through September 30, 2014.
NOTE 6 – NOTES PAYABLE AND NOTES PAYABLE – RELATED PARTIES
| | | | | | September 30, | | | March 31, | |
| | | | | | 2014 | | | 2014 | |
| Unsecured non interest bearing loan payable, no maturity date | | | | | $ | 88,747 | | | | - | |
| Unsecured non interest bearing loan payable, no maturity date | | | | | | 68,809 | | | | - | |
| Unsecured non interest bearing loan payable, no maturity date | | | | | | 22,023 | | | | - | |
| Unsecured non interest bearing loan payable, no maturity date | | | | | | 74,106 | | | | - | |
| | | | | | $ | 253,685 | | | $ | - | |
| | | | | | | | | | | | |
| 4% unsecured promissory note payable, dated August 13, 2012 , due August 13, 2014 | | $ | 30,000 | | | | | | | $ | 30,000 | |
| 4% unsecured promissory note payable, dated December 18, 2012 due December 18, 2014. | | | 50,000 | | | | | | | | 50,000 | |
| 4%Unsecured promissory note payable, dated June 13, 2013 , due June 13, 2015. | | | 20,000 | | | | | | | | 20,000 | |
| 4% unsecured promissory note payable, dated October 7, 2013 , due October 7, 2014. | | | 10,000 | | | | | | | | 10,000 | |
| 4% unsecured promissory note payable, dated December 18, 2013, due December 18, 2014. | | | 5,000 | | | | | | | | 5,000 | |
| 4% unsecured promissory note payable, dated February 19, 2014 , due February 19, 2015. | | | 5,000 | | | | | | | | 5,000 | |
| 4% unsecured promissory note payable, dated April 16, 2014 , due April 16, 2015. | | | 10,000 | | | | | | | | - | |
| 4% unsecured promissory note payable, dated June 24, 2014 , due June 24, 2015. | | | 6,000 | | | | 136,000 | | | | - | |
| 3% convertible due February 21, 2016 | | | | | | $ | 199,975 | | | | | |
| 6% unsecured promissory note payable dated July 31, due January 31, 2015 | | | | 16,562 | | | | - | |
| 6% unsecured promissory note payable dated July 31, due July 31, 2015 | | | | | | | 25,000 | | | | - | |
| | | | | | | $ | 377,537 | | | $ | 120,000 | |
| | | | | | | | | | | | | |
| Related party debt | | | | | | | 36,400 | | | | - | |
| Related party debt | | | | | | | 63,579 | | | | - | |
| | | | | | | $ | 99,979 | | | $ | - | |
KOLLAGENX CORP.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 7 - STOCKHOLDERS' DEFICIT
As of September 30, 2014, there were 54,000,000 shares of common stock outstanding, and 1,000,000 preferred shares outstanding. 10,000,000 common shares were to be issued pursuant to the Stock Exchange agreement for services rendered.
Preferred Stock
As of September 30, 2014, there were 25,000,000 preferred shares authorized and 1,000,000 preferred shares outstanding. The board of directors had previously set the voting rights for the preferred stock at 1 share of preferred to 250 common shares.
The holders of the Class A Preferred Stock shall vote for the election of directors, and shall have full voting rights, except that each Class A Preferred share shall ensure one holder to seven hundred fifty (750) votes for each one (1) Class A Preferred Share held. The Class A Preferred Stock shall not be redeemable but the holders shall be entitled, at any time, to convert their shares into shares of the Company’s Common Stock at the rate of one (1) share of Class A Preferred Stock for one (1) share of Common Stock.
Common Stock
On August 4, 2014 pursuant to the Stock Exchange Agreement, for the acquisition of 100% of the outstanding common shares of KollagenX Inc., the Company agreed to issue 10,000,000 of its Common Shares to the shareholders of KollagenX Inc. The shares were issued on November 14, 2014.
NOTE 8 - RELATED PARTY TRANSACTIONS
As of September 30, 2014, KollagenX Inc. owed $46,300 and $63,579 to each of its two directors respectively.
NOTE 9 - SUBSEQUENT EVENTS
On November 14, 2014 a shareholder cancelled and returned, to the Company, 10,000,000 shares of the Company’s common stock. On the same date the Company issued 10,000,000 shares of its common stock to the shareholders of KollagenX Inc.
