NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
AS OF SEPTEMBER 30, 2016
(UNAUDITED)
NOTE 1 – ORGANIZATION, NATURE OF BUSINESS
AND GOING CONCERN
(A) Organization
Bang Holdings Corp. was
incorporated in the State of Colorado on May 13, 2014. The Company was organized to develop and sell E-Cigarette products.
Bang Vapor, Inc. was incorporated
in the State of Florida on October 27, 2014. The Company was organized to develop and sell E-Cigarette products.
Bang Digital Media, Inc.
was incorporated in the State of Florida on November 23, 2015. The Company was organized to develop digital and electronic media.
(B) Basis of Presentation
The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States for interim information Regulation S-K. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of
management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been
included. Operating results for the nine-month period ended September 30, 2016 may not necessarily be indicative of the results
that may be expected for the year ending December 31, 2016.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related disclosures of the Company as of December 31, 2015 and for
the year then ended, which were filed with the Securities and Exchange Commission ("SEC") on Form 10-K on April 14,
2016.
(C) Principles of Consolidation
The accompanying condensed
consolidated financial statements include the accounts of Bang Holdings Corp. and its wholly owned subsidiaries Bang Vapor, Inc.
(from October 27, 2014) and Bang Digital Media, Inc. (from November 23, 2015) and are hereafter referred to as (the “Company’).
All intercompany accounts have been eliminated in the consolidation.
(D) Going Concern
For the nine months ended September 30, 2016, the Company has incurred net operating losses and used cash
in operations. As of September 30, 2016, the Company has an accumulated deficit of $3,208,873 and used cash in operations of $355,831.
The company is also in default on the repayment of its convertible note payable of $500,000. Losses have principally occurred as
a result of the substantial resources required for marketing of the Company’s products which included the general and administrative
expenses associated with its organization and product development.
These conditions raise
substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do
not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts
and classifications of liabilities that may result from the outcome of these uncertainties. Management believes that the actions
presently being taken to obtain additional funding and implement its strategic plan provides the opportunity for the Company to
continue as a going concern.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(A) Cash and Cash Equivalents
The Company considers all
highly liquid temporary cash instruments with a maturity of three months or less to be cash equivalents.
(B) Use of Estimates in Financial Statements
The presentation of financial
statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”)
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 during the period covered
by these financial statements include the valuation of website costs, valuation of deferred tax asset, stock based compensation
and beneficial conversion features on convertible debt.
(C) Fair value measurements and Fair
value of Financial Instruments
The Company adopted FASB
ASC Topic 820, Fair Value Measurements. ASC Topic 820 clarifies the definition of fair value, prescribes methods for measuring
fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1-Inputs are unadjusted
quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted
quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities
in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by
observable market data.
Level 3-Inputs are unobservable
inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing
the asset or liability based on the best available information.
The Company did not identify
any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with ASC Topic 820.
Due to the short-term nature
of all financial assets and liabilities, their carrying value approximates their fair value as of the balance sheet dates.
(D) Computer and Equipment and Website
Costs
Computer Equipment and
Website Costs are capitalized at cost, net of accumulated depreciation. Depreciation is calculated by using the straight-line method
over the estimated useful lives of the assets, which is three to five years for all categories. Repairs and maintenance are charged
to expense as incurred. Expenditures for betterments and renewals are capitalized. The cost of computer equipment and the related
accumulated depreciation are removed from the accounts upon retirement or disposal with any resulting gain or loss being recorded
in operations.
Software maintenance costs
are charged to expense as incurred. Expenditures for enhanced functionality are capitalized.
The Company has adopted
the provisions of ASC 350-50-15, “Accounting for Web Site Development Costs.” Costs inured in the planning stage of
a website are expensed as research and development while costs incurred in the development stage are capitalized and amortized
over the life of the asset, estimated to be three years.
|
|
Depreciation/
|
|
|
Amortization
|
Asset Category
|
|
Period
|
Furniture and fixtures
|
|
5 Years
|
Computer equipment
|
|
3 Years
|
Website costs
|
|
3 Years
|
Computer and equipment
and website costs consisted of the following:
|
|
September
30,
2016
|
|
|
December
31,
2015
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
6,845
|
|
|
$
|
6,845
|
|
Website development
|
|
|
-
|
|
|
|
17,174
|
|
Total
|
|
|
6,845
|
|
|
|
24,019
|
|
Impairments
|
|
|
-
|
|
|
|
(17,174
|
)
|
Accumulated depreciation
|
|
|
(2,447
|
)
|
|
|
(1,420
|
)
|
Balance
|
|
$
|
4,398
|
|
|
$
|
5,425
|
|
Depreciation expense for
the nine months ended September 30, 2016 and 2015 was $1,027 and $906, respectively.
(E) Inventories
The Company’s inventories
consist entirely of purchased finished goods. Inventories are stated at lower of cost or market. Cost is determined on the first-in,
first-out basis.
(F) Revenue Recognition
The Company recognizes
revenue on arrangements in accordance with FASB ASC Topic. 605 “Revenue Recognition”. In all cases, revenue is
recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed
and collectability of the resulting receivable is reasonably assured. The Company recognizes revenue when the products are shipped
to the customers and collectability is reasonable assured.
The Company recognizes
revenue from advertising transactions when there is persuasive evidence of an arrangement, delivery has occurred, the sales price
is fixed or determinable and collectability is reasonably assured.
(G) Advertising, Marketing and Promotion Costs
Advertising, marketing
and promotion expenses are expensed as incurred and are included in selling, general and administrative expenses on the accompanying
statement of operations. For the nine months ended September 30, 2016 and 2015, advertising, marketing and promotion expense was
$32,971 and $38,677, respectively.
(H) Segments
The Company operates in
one segment and therefore segment information is not presented.
(I) Loss Per Share
The basic loss per share
is calculated by dividing the Company’s net loss available to common shareholders by the weighted average number of common
shares during the period. The diluted loss per share is calculated by dividing the Company’s net loss by the diluted weighted
average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic
weighted number of shares adjusted for any potentially dilutive debt or equity. The Company had 969,277 shares issuable upon the
exercise of options and warrants and 1,468,571 shares issuable upon conversion of convertible notes payable that were not included
in the computation of dilutive loss per share because their inclusion is anti-dilutive for nine months ended September 30, 2016.
The Company had 1,514,286 shares issuable upon the exercise of options and warrants and 1,428,571 shares issuable upon conversion
of convertible notes payable that were not included in the computation of dilutive loss per share because their inclusion is anti-dilutive
for nine months ended September 30, 2015.
(J) Stock-Based Compensation
The Company recognizes
compensation costs to employees under FASB ASC Topic 718, Compensation – Stock Compensation. Under FASB ASC Topic. 718,
companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair
value and recognize the costs in the financial statements over the period during which employees are required to provide services.
Share based compensation arrangements include stock options, restricted share plans, performance based awards, share appreciation
rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such
compensation amounts, if any, are amortized over the respective vesting periods of the option grant.
Equity instruments issued
to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB ASC Topic 505, Equity
Based Payments to Non-Employees. In general, the measurement date is when either a (a) performance commitment, as defined, is reached
or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related
to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the
FASB Accounting Standards Codification.
(K) Income Taxes
The Company accounts for
income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, 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. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
(L
) Shipping and Handling Costs
The Company includes shipping
and handling fees billed to customers as revenue and shipping and handling costs to customers as cost of revenue.
(M) Recent Accounting Pronouncements
In May 2014, the FASB issued
a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S.
GAAP. The standard’s core principle (issued as ASU 2014-09 by the FASB), is that a company will recognize revenue when it
transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to
be entitled in exchange for those goods or services. These may include identifying performance obligations in the contract, estimating
the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate
performance obligation. The new guidance must be adopted using either a full retrospective approach for all periods presented in
the period of adoption or a modified retrospective approach. In August 2015, the FASB issued ASU No. 2015-14, which defers the
effective date of ASU 2014-09 by one year, and would allow entities the option to early adopt the new revenue standard as of the
original effective date. This ASU is effective for public reporting companies for interim and annual periods beginning after December
15, 2017. The Company is currently evaluating its adoption method and the impact of the standard on its condensed consolidated
financial statements.
In February 2016, the FASB
issued ASU 2016-02,
Leases
, which will amend current lease accounting to require lessees to recognize (i) a lease liability,
which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use
asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease
term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were
made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently reviewing
the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
In March 2016, the FASB
issued ASU No. 2016-09,
Compensation – Stock Compensation
(topic 718). The FASB issued this update to improve the
accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees.
Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences;
(b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The updated
guidance is effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal years.
Early adoption of the update is permitted. The Company is currently evaluating the impact of the new standard.
In April 2016, the FASB
issued ASU 2016–10
Revenue from Contract with Customers (Topic 606): identifying Performance Obligations and Licensing.
The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this
Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance,
while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers
to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license
provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time)
or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are
intended render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply
with Topic 606. The Company is currently reviewing the provisions of this ASU to determine if there will be any impact on our results
of operations, cash flows or financial condition.
Recent accounting pronouncements
issued by FASB (including the Emerging Issues Task Force), the AICPA and the SEC, did not or are not believed by the Company management,
to have a material impact on the Company’s present or future financial statements.
NOTE 3 – PREPAID EXPENSES
On November 12, 2015, the Company issued 100,000 shares of common stock with a fair value of $50,000 for
a consulting agreement expiring on February 1, 2016. For the nine months ended September 30, 2016, the Company expensed $19,753.
The balance in prepaid expenses related to the above common stock issuance was $0 as of September 30, 2016 and $19,753 as of December
31, 2015.
NOTE 4 – LOAN PAYABLE
The Company entered in
an agreement with a third party for a loan for gross proceeds of $6,500. The loan is non-interest bearing and matures in April
2017.
NOTE 5 – CONVERTIBLE NOTES PAYABLE
On July 25, 2016, the Company
entered into an agreement for the issuance of a convertible note to a third party lender for $50,000. The note accrues interest
at 10% per annum maturing on July 25, 2017 and is convertible into common stock at the discretion of the holder at a conversion
price of $1.50 per share, subject to adjustment.
On July 29, 2016, the Company
entered in an agreement with a third party for a convertible promissory note for gross proceeds of $10,000. The note bears interest
at 10% per annum, is due on July 29, 2017 and is convertible into common stock at the discretion of the holder at a conversion
price of $1.50 per share, subject to adjustment.
NOTE 6 – CONVERTIBLE NOTES PAYABLE – RELATED PARTIES
On August 22, 2014 the
Company entered into an agreement to issue an unsecured convertible promissory note for $500,000 and security purchase agreement
for 1,000,000 shares of common stock for $350,000 ($0.35 per share), respectively with a related party. The note bears interest
at an annual rate of 10% and is payable on or before 12 months from the date of issuance. The Company issued the holder a total
of 1,500,000 warrants exercisable at a cashless conversion price of $0.35 for a period of 5 years. The warrants were valued using
the Black-Scholes Option Pricing Model with the following assumptions: dividend yield of 0%, annual volatility of 353%, risk free
interest rate of 1.68%, and expected life of 5 years for a fair value of $524,960. The Company allocated $190,900 for the fair
value of the convertible note payable. In addition, the note may be converted at any time, at the option of the holder, into shares
of the Company’s common stock at a conversion price of $0.35 per share, subject to adjustment. The Company recorded a debt
discount of $190,900 for the fair value of the beneficial conversion feature and $190,900 for the value of the warrants received.
As of September 30, 2016 and December 31, 2015 the Company amortized $381,800 and accrued interest of $107,630 and $68,082, respectively.
As of September 30, 2016 and December 31, 2015 the convertible note payable was in default.
On January 29, 2016, the
Company’s President loaned the Company $30,000 pursuant to a convertible debenture. The Loan bears interest at 10% per annum,
is due on January 29, 2017 and is convertible into common stock at the discretion of the holder at a conversion price of $2.00
per share, subject to adjustment. Pursuant to the note agreement, for a period of one year following the Initial Closing Date,
the Company shall agree to or not issue any Common Stock or securities convertible into or exercisable for shares of Common Stock
(or modify any of the foregoing which may be outstanding) to any person or entity at a price per share or conversion or exercise
price per share which shall be less than the conversion price in effect at such time without the consent of the purchaser, then
the conversion price shall be reduced to such lower price. Under ASC 815-40-15, the Company is required to account for convertible
debt with reset provisions when the following three items are present (1) one or more underlying amounts or payments are required
(2) no initial net investment or an initial net investment that is smaller than would be required for other types of contracts
(3) its terms require or permit net settlement, it can be readily settled net by means outside the contract or it provides for
delivery of an asset that puts the recipient in a position not substantially different from the net settlement. ASC 815-40-15 further
defines the requirement that the assets are readily convertible to cash. Due to the lack of a public market for the Company’s
securities, the Company determined that the convertible notes payable were not readily convertible to cash and therefore no derivative
liability has been recorded.
In addition, the Company
agreed to issue 30,000 warrants with an exercise price of $1.50 per share that expire on January 29, 2021. The Company recorded
a debt discount of $10,500 for the value of the warrants received. As of September 30, 2016, the Company amortized $10,500 and accrued
interest of $1,887, respectively and fully paid off the note.
NOTE 7 – STOCKHOLDERS’ EQUITY
The Company is authorized
to issue 500,000,000 shares of common stock, par value $0.0001, and 50,000,000 shares of preferred stock, par value $0.0001.
During the nine months
ended September 30, 2016, the Company issued 273,340 shares for the receipt of gross proceeds of $310,006.
During the nine months
ended September 30, 2016, the Company issued 3,000 shares for the settlement of an outstanding payable of $1,500.
During the nine months
ended September 30, 2016, a related party converted 600,009 warrants into 600,009 shares of common stock and the Company received
proceeds of $210,000.
During the nine months ended September 30, 2016, the Company issued 69,007 shares of common stock and
recorded stock-based compensation of $66,868 which is included in total stock-based compensation.
NOTE 8 – OPTIONS AND WARRANTS
The following tables summarize
all options grants to employees for the period ended September 30, 2016 and the related changes during the period are presented
below:
|
|
Number of Options
|
|
|
Weighted Average
Exercise Price
|
|
Stock Options
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
300,000
|
|
|
$
|
0.50
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
Balance at September 30, 2016
|
|
|
300,000
|
|
|
$
|
0.50
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Price
|
|
|
Number
Outstanding at
September 30,
2016
|
|
|
Weighted
Average
Remaining
Contractual
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable at
September 30,
2016
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
0.50
|
|
|
|
300,000
|
|
|
|
—
|
|
|
$
|
0.50
|
|
|
|
200,000
|
|
|
$
|
0.50
|
|
During the nine months ended September 30, 2016, the Company recorded total option expense of $18,989.
As of September 30, 2016, the future value on unvested stock options was $13,757. The intrinsic value of the vested stock option
at September 30, 2016 was $186,000.
The following tables summarize
all warrant grants to for the period ended September 30, 2016 and the related changes during the period are presented below.
|
|
Number of Warrants
|
|
|
Weighted Average
Exercise Price
|
|
Stock Warrants
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
1,214,286
|
|
|
$
|
0.35
|
|
Granted
|
|
|
55,000
|
|
|
|
0.65
|
|
Exercised
|
|
|
(600,009
|
)
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
Balance at September 30, 2016
|
|
|
669,277
|
|
|
$
|
1.30
|
|
As discussed in Note 6
above, the Company issued 30,000 warrants with an exercise price of $1.50 per share that expire January 29, 2021. The warrants
were valued using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield of 0%, annual volatility
of 314%, risk free interest rate of 1.33%, and expected life of 5 years with a fair value of $10,500.
During the nine months
ended September 30, 2016, the Company issued 25,000 warrants to a consultant with an exercise price of $1.00 per share that expire
May 26, 2018. The warrants were valued using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield
of 0%, annual volatility of 347%, risk free interest rate of 1.33%, and expected life of 2 years with a fair value of $24,653.
NOTE 9 – RELATED PARTIES
On August 22, 2014 the
Company entered into an agreement to issue an unsecured convertible promissory note for $500,000 and security purchase agreement
for 1,000,000 shares of common stock for $350,000 ($.35 per share), respectively with a related party. The note bears interest
at an annual rate of 10% and is payable on or before 12 months from the date of issuance. The Company issued the holder a total
of 1,500,000 warrants exercisable at a cashless conversion price of $.35 for a period of 5 years. The warrants were valued using
the Black-Scholes Option Pricing Model with the following assumptions: dividend yield of 0%, annual volatility of 353%, risk free
interest rate of 1.68%, and expected life of 5 years for a fair value of $524,960. The Company allocated $190,800 for the fair
value of the convertible note payable. In addition, the note may be converted at any time, at the option of the holder, into shares
of the Company’s common stock at a conversion price of $0.35 per share, subject to adjustment. The Company recorded a debt
discount of $190,800 for the fair value of the beneficial conversion feature and $190,900 for the value of the warrants received.
As of September 30, 2016 and December 31, 2015 the Company amortized the entire debt discount and recorded accrued interest of
$107,630 and $68,082, respectively. See Note 6.
On October 1, 2015 the Company entered into a property lease agreement with a Director of the Company
and father of the President. The term of the lease is for one year with an annual rent of $30,000 per year. The Company at it option
has the right to extend for 9 additional years. On July 1, 2016, the lease was cancelled and the Company entered into a new lease
agreement (see below). As of September 30, 2016 and December 31, 2015 the Company accrued rent of $22,500 and $7,500 under the
lease agreement. Rent expense under the lease for the three months ended September 30, 2016 and 2015 was $0. Rent expense under
the lease for the nine months ended September 30, 2016 and 2015 was $15,000 and $0.
On July 1, 2016 the
Company entered into a property lease agreement with a Director of the Company and father of the President. The term of the lease
is for one year with an annual rent of $30,000 per year. The Company at it option has the right to extend for 10 additional years.
As of September 30, 2016 the Company accrued rent of $7,500 under the lease agreement. Rent expense under the lease for the three
and nine months ended September 30, 2016 was $7,500.
On January 29, 2016, the
Company’s President loaned the Company $30,000 pursuant to a convertible debenture. The Loan bears interest at 10% per annum,
is due on January 29, 2017 and is convertible into common stock at the discretion of the holder. In addition, the Company agreed
to issue 30,000 warrants that expire January 29, 2021. In addition, the note may be converted at any time, at the option of the
holder, into shares of the Company’s common stock at a conversion price of $0.35 per share, subject to adjustment. The Company
recorded a debt discount of $10,500 for the value of the warrants received. As of September 30, 2016, the Company amortized $10,500
and accrued interest of $1,887, respectively and fully paid off the note (See Note 5).
In February, 2016, the
Company President advanced the Company an additional $7,500. These amounts were repaid as of September 30, 2016.
Prior to July 1, 2016, the Company leased office space on a month to month basis from the Company president.
The monthly rental payment was $2,000 per month. No formal lease existed under the agreement. For the three months ended September
30, 2016 and 2015, the Company recorded rent expense of $0 and $6,000, respectively. For the nine months ended September 30, 2016
and 2015, the Company recorded rent expense of $12,000 and $17,500, respectively. As of September 30, 2016, the Company accrued
rent of $35,500 due to the Company’s president.
As of September 30, 2016 and December 31, 2015 the Company owed its President accrued salary of $148,803
and $38,200, respectively.
NOTE 10 – SUBSEQUENT EVENTS
On October 10, 2016,
the Company entered into an agreement for the issuance of a convertible note to a third party lender for $25,000. The note accrues
interest at 10% per annum maturing on October 10, 2017 and is convertible into common stock at the discretion of the holder at
a conversion price of $1.50 per share, subject to adjustment.
On October 24, 2016,
the Company entered into a stock purchase agreement with a third party. The agreement allows the third party to purchase 6,633
of the Company’s shares at a price of $9,950.09 ($1.50 per share).