NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 2016
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
Organization
Kange Corp. ("Kange," the "Company," "we," "us," or "our") was incorporated under the laws of the State of Nevada on August 16, 2013 (Inception). We are a development stage company developing mobile software products, for Apple and Android platforms, starting in Estonia and Europe, which is our initial intended market. Apple is a trademark of Apple Inc., and Android is a trademark of Alphabet Inc.
Basis of Presentation
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars. The Company's year-end is November 30.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance with generally accepted accounting principles. For certain of our financial instruments, including cash, accounts payable, accrued expenses, and short-term loans the carrying amounts approximate fair value due to their short maturities.
The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.
KANGE CORP.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 2016
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. The Company sustained net losses of $83,132 and used cash in operating activities of $36,526 for the year ended November 30, 2016. The Company had working capital deficit, stockholders' deficit and accumulated deficit of $68,405, $68,405 and $620,228, respectively, at November 30, 2016. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The Company's continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue receiving investment capital and loans from third parties to sustain its current level of operations. The Company is in the process of securing working capital from investors for common stock, convertible notes payable, and/or strategic partnerships. No assurance can be given that the Company will be successful in these efforts.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying financial statements include the amortization period for intangible assets, valuation and impairment valuation of intangible assets, depreciable lives of the web site and property and equipment, valuation of warrants and beneficial conversion feature debt discounts, valuation of derivatives, valuation of share-based payments and the valuation allowance on deferred tax assets.
Reclassifications
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses, total assets, or stockholders' equity as previously reported.
Net Earnings (Loss) Per Share
In accordance with ASC 260-10, "Earnings per Share," basic net earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Dilutive common stock equivalent shares which may dilute future earnings per share consist of convertible notes convertible into 2,851,185 common shares. Equivalent shares are not utilized when the effect is anti-dilutive (see Note 3).
KANGE CORP.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 2016
Effect of Recent Accounting Pronouncements
The Company reviews new accounting pronouncements as issued. No new pronouncements had any material effect on these unaudited financial statements. The accounting pronouncements issued subsequent to the date of these unaudited financial statements that were considered significant by management were evaluated for the potential effect on these unaudited financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these unaudited financial statements as presented and does not anticipate the need for any future restatement of these unaudited condensed financial statements because of the retro-active application of any accounting pronouncements issued subsequent to November 30, 2016 through the date these unaudited financial statements were issued.
NOTE 2 – ASSIGNMENT OF CONTRACTUAL RIGHTS
On November 9, 2015, in exchange for 5,000,000 shares of common stock of the Company, the Company was assigned by AMJ Global, LLC ("AMJ Global"), a company beneficially owned by Dr. Arthur Malone, Jr., the Company's chief executive officer and director, the contractual rights of AMJ Global pursuant to its agreements with Blabeey, Inc. ("Blabeey"), a mobile App designer focused on social media and messaging. The irrevocable assignment, transferred and conveyed in its entirety to the Company, all of AMJ Global's rights and obligations that are stipulated and set forth in every and all agreements between AMJ Global and Blabeey, including, but not limited to, the agreement between AMJ Global and Blabeey dated October 26, 2015. The transaction was, due to the structure of the agreement, between entities under common control and therefore the amount of the historical cost of the assets, $471,672, was recorded as an expense as there is no fixed and determinable future value, and the expense was recorded as a loss on the acquisition of contractual rights. See Notes 5 and 6.
NOTE 3 – CONVERTIBLE NOTES PAYABLE TO RELATED PARTIES, NET OF DISCOUNTS
Convertible notes payable, net of discounts, all classified as current at November 30, 2016 and November 30, 2015, consists of the following:
Convertible notes to related parties, net of discounts
|
|
November 30, 2016
|
|
|
November 30, 2015
|
|
|
|
|
|
|
|
|
|
Principal,
|
|
|
|
|
|
|
|
|
Principal,
|
|
|
|
|
|
|
Debt
|
|
|
net of
|
|
|
|
|
|
Debt
|
|
|
net of
|
|
|
|
Principal
|
|
|
Discount
|
|
|
Discounts
|
|
|
Principal
|
|
|
Discount
|
|
|
Discounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMJ Global, LLC (a)
|
|
$
|
9,935
|
|
|
$
|
-
|
|
|
$
|
9,935
|
|
|
$
|
9,935
|
|
|
$
|
(9,363
|
)
|
|
$
|
572
|
|
AMJ Global, LLC
|
|
|
18,128
|
|
|
|
-
|
|
|
|
18,128
|
|
|
|
18,128
|
|
|
|
(16,332
|
)
|
|
|
1,796
|
|
AMJ Global, LLC
|
|
|
19,901
|
|
|
|
-
|
|
|
|
19,901
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
AMJ Global, LLC
|
|
|
6,287
|
|
|
|
(2,170
|
)
|
|
|
4,117
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
54,251
|
|
|
$
|
(2,170
|
)
|
|
$
|
52,081
|
|
|
$
|
28,063
|
|
|
$
|
(25,695
|
)
|
|
$
|
2,368
|
|
_________
(a) Assigned from Victor Stepanov on March 15, 2016.
On November 9, 2015, the Company executed a convertible promissory note with Victor Stepanov, the former chief executive officer and director of the Company, for $9,935, in exchange for accrued compensation pursuant to his employment agreement with the Company. The note bears interest at the rate of 12% per annum, which accrues monthly. As of November 30, 2016 and 2015, the accrued interest was $1,265 and $72, respectively. The note matures on November 8, 2016. The note has a conversion feature of $0.02 per share. A beneficial conversion feature of $9,935 was recorded and will be accreted monthly from the issuance date of the note through maturity. As of November 30, 2016 and November 30, 2015, $9,935 and $572, respectively, has been recorded as a beneficial conversion feature expense. On March 15, 2016, Mr. Stepanov assigned this convertible promissory note to AMJ Global, LLC ("AMJ Global"). See Notes 5 and 6.
KANGE CORP.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 2016
On November 9, 2015, the Company executed a convertible promissory note with AMJ Global, a company which is beneficially owned by Dr. Arthur Malone, Jr., the chief executive officer and director of the Company, for $18,128. This note was created due to the assignment of the balance due to shareholder (see Note 5), which was assigned to AMJ Global on November 9, 2015. The note bears interest at the rate of 12% per annum, which accrues monthly. As of November 30, 2016 and 2015, the accrued interest was $2,310 and $131, respectively. The note matures on November 8, 2016. The note has a conversion feature of $0.02 per share. A beneficial conversion feature of $18,128 was recorded and was accreted monthly from the issuance date of the note through maturity. As of November 30, 2016 and 2015, $18,128 and $1,796, respectively, has been recorded as a beneficial conversion feature expense. See Note 5.
On February 5, 2016, the Company executed a convertible promissory note with AMJ Global for $19,901. This note was in exchange for the payment of certain vendors of the Company. The note bears interest at the rate of 12% per annum, which accrues monthly. As of November 30, 2016, the accrued interest was $1,960. The note matures on February 4, 2017. The note has a conversion feature of $0.02 per share. The underlying stock value at date of issuance was $0.90. A beneficial conversion feature of $19,901 was recorded and was accreted monthly from the issuance date of the note through maturity. As of November 30, 2016, $19,901 has been recorded as a beneficial conversion feature expense. See Note 5.
On April 6, 2016, the Company executed a convertible promissory note with AMJ Global for $6,287. This note was in exchange for the payment of certain vendors of the Company. The note bears interest at the rate of 12% per annum, which accrues monthly. As of November 30, 2016, the accrued interest was $493. The note matures on April 6, 2017. The note has a conversion feature of $0.02 per share. The underlying stock value at date of issuance was $2. A beneficial conversion feature of $6,287 was recorded and will be accreted monthly from the issuance date of the note through maturity. As of November 30, 2016, $4,117 has been recorded as a beneficial conversion feature expense. See Note 5.
NOTE 4 – COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of November 30, 2016, there were no pending or threatened lawsuits.
NOTE 5 – RELATED PARTY TRANSACTIONS
In support of the Company's efforts and cash requirements, it may rely on advances from related parties until such time that the Company can support its operations or attains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by shareholders. Amounts represent advances or amounts paid in satisfaction of liabilities. The advances are considered temporary in nature and have not been formalized by a promissory note.
On August 16, 2013, our sole director and principal shareholder advanced $678 to the Company to fund its initial incorporation with the Nevada Secretary of State. The sole director and principal shareholder loaned a further $500 to the Company on October 30, 2013 as working capital. During October 2014, a director had loaned $10,300 to the Company for working capital. During the fiscal year 2015, through November 9, 2015, an additional $6,650 was loaned to the Company. On November 9, 2015, the total for the loan from this director was $18,128 and it was assigned to AMJ Global, a company controlled by Dr. Arthur Malone, Jr., the Company's chief executive officer and director. The Company executed a convertible note payable to AMJ Global for $18,128. This note was created due to the assignment of the balance due to shareholder (see Note 3), which was assigned to AMJ Global on November 9, 2015.
KANGE CORP.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 2016
On February 5, 2016, the Company executed a convertible promissory note with AMJ Global for $19,901. This note was in exchange for the payment of certain vendors of the Company. The note bears interest at the rate of 12% per annum, which accrues monthly. The note matures on June 8, 2016. The note has a conversion feature of $0.02 per share. See Note 3.
On March 15, 2016, Mr. Stepanov assigned his convertible promissory note to AMJ Global. See Note 3.
On April 6, 2016, the Company executed a convertible promissory note with AMJ Global for $6,287. This note was in exchange for the payment of certain vendors of the Company. The note bears interest at the rate of 12% per annum, which accrues monthly. The note matures on April 6, 2017. The note has a conversion feature of $0.02 per share. See Note 3.
In the year ended November 30, 2016, the Company had $10,250 of general and administrative expenses paid by AMJ Global, a company beneficially owned by Dr. Arthur Malone, Jr., the chief executive officer and director of the Company. As of November 30, 2016 and 2015, the Company had accrued expenses to related party balances of $6,029 and $3,504. The Company has not yet agreed to terms for repayment.
NOTE 6 – COMMON STOCK
Common Stock
The Company was authorized to issue up to 75,000,000 shares of common stock, par value $0.001 per share. Each outstanding share of common stock entitles the holder to one vote per share on all matters submitted to a stockholder vote. All shares of common stock are non-assessable and non-cumulative, with no pre-emptive rights.
On August 29, 2013, the Company issued 3,000,000 shares of common stock for cash proceeds of $3,000 at $0.001 per share.
On September 23, 2013, the Company issued 1,400,000 shares of common stock for cash proceeds of $7,000 at $0.005 per share.
On October 17, 2013, the Company issued 1,120,000 shares of common stock for cash proceeds of $11,200 at $0.01 per share.
On November 9, 2015, the Company issued 5,000,000 shares of common stock to AMJ Global in exchange for the assignment of the rights AMJ Global holds in regards to the agreement with Blabeey (see Note 3). The Company's stock is thinly traded and there are no other transactions to establish the valuation of the issuance therefore the original historical costs ($471,672) of the assets to be acquired under the contractual rights was recorded as the value of the shares issued as a result of a non-cash transaction between entities under common control. The value per share, based on this transaction, is $0.094. See Notes 3 and 5.
On November 9, 2015, the Company issued 50,000 shares of common stock to Victor Stepanov, the former chief executive officer and director, pursuant to the terms of his employment agreement with the Company. The Company's stock is thinly traded and there are no other transactions to establish the valuation of the issuance therefore the valuation used for the AMJ Global transaction of $0.094 per share was utilized, thus, the value of the services was recorded as $4,700. See Note 5.
There were 10,570,000 shares of common stock issued and outstanding as of November 30, 2016.
NOTE 7 – INCOME TAXES
For the fiscal year 2015 and 2014, there was no provision for income taxes and deferred tax assets have been entirely offset by valuation allowances.
As of November 30, 2016 and 2015, the Company has net operating loss carry forwards of approximately $108,832 and $25,700, respectively. The carry forwards expire through the year 2036. The Company's net operating loss carry forwards may be subject to annual limitations, which could reduce or defer the utilization of the losses as a result of an ownership change as defined in Section 382 of the Internal Revenue Code.
KANGE CORP.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 2016
The Company's tax expense differs from the "expected" tax expense for Federal income tax purposes (computed by applying the United States Federal tax rate of 34% to loss before taxes), as follows:
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For the Years Ended
|
|
|
|
November 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Tax expense (benefit) at the statutory rate
|
|
$
|
(28,265
|
)
|
|
$
|
(171,511
|
)
|
State income taxes, net of federal income tax benefit
|
|
|
-
|
|
|
|
(933
|
)
|
Non-deductible items
|
|
|
-
|
|
|
|
162,772
|
|
Change in valuation allowance
|
|
|
28,265
|
|
|
|
9,672
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
The tax effects of the temporary differences between reportable financial statement income and taxable income are recognized as deferred tax assets and liabilities.
The tax effect of significant components of the Company's deferred tax assets and liabilities at November 30, 2016 and 2015, respectively, are as follows:
|
|
November 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
37,937
|
|
|
$
|
9,672
|
|
Less: Deferred tax asset valuation allowance
|
|
|
(37,937
|
)
|
|
|
(9,672
|
)
|
Total net deferred tax assets
|
|
$
|
-
|
|
|
|
-
|
|
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
Because of the historical earnings history of the Company, the net deferred tax assets for 2016 and 2015 were fully offset by a 100% valuation allowance. The valuation allowance for the remaining net deferred tax assets was $37,937 and $9,672 as of November 30, 2016 and 2015, respectively.
NOTE 8 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events from November 30, 2016 through the date the financial statements were available to be issued and has determined that there have been no subsequent events after November 30, 2016 for which disclosure is required.