UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2016

 

Commission File Number: 333-204011

 

BANG HOLDINGS CORP.

(Name of registrant as specified in its charter)

 

Colorado		46-5707130
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

1400 NE Miami Gardens Drive, Suite 202, North Miami Beach, FL 33179

 

(Address of principal executive offices) (Zip Code)

 

(305) 600-2417

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) 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 ¨ No x

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 

 

Large accelerated Filer	¨	Accelerated Filer	¨
Non-accelerated Filer	¨	Small Reporting Company	x
(Do not check if smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

As of August 18, 2016 there were 23,232,213 shares of common stock issued and outstanding.

 

 

TABLE OF CONTENTS

 

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements.	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	22
Item 4.	Controls and Procedures.	22
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.	23
Item 1A.	Risk Factors.	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	25
Item 3.	Defaults Upon Senior Securities.	25
Item 4.	Mine Safety Disclosures.	25
Item 5.	Other Information.	25
Item 6.	Exhibits.	26

 

   

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

 

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

 

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

 

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

BANG HOLDINGS, CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		June 30,				December 31,
		2016				2015
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash		$	218,670			$	17,264
Prepaid expenses			595				19,753
Inventory			72,398				72,398
TOTAL CURRENT ASSETS			291,663				109,415
FURNITURE AND EQUIPMENT, Net			4,740				5,425
TOTAL ASSETS		$	296,403			$	114,840
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable		$	44,045			$	36,113
Accrued expenses			602,199				480,650
Loan payable			6,500				-
Due to related party			8,100				8,100
Convertible notes payable - related party, Net of discounts of $8,716 and $0, respectively			523,899				500,000
TOTAL CURRENT LIABILITIES			1,184,743				1,024,863
COMMITMENTS AND CONTINGENCIES			-				-
STOCKHOLDERS’ DEFICIT
Preferred stock, $0.0001 par value, 50,000,000 shares authorized, no shares issued and outstanding			-				-
Common stock, $0.0001 par value, 500,000,000 shares authorized, 23,172,209 and 22,318,364 shares issued and outstanding, respectively			2,319				2,234
Additional paid in capital			2,054,784				1,545,780
Accumulated deficit			(2,945,443	)			(2,458,037	)
TOTAL STOCKHOLDERS' DEFICIT			(888,340	)			(910,023	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	296,403			$	114,840

 

See accompanying notes to condensed consolidated financial statements.

 

  

BANG HOLDINGS, CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		For the Three Months Ended								For the Six Months Ended
		June 30, 2016				June 30, 2015				June 30, 2016				June 30, 2015
Revenue
Sales		$	63			$	-			$	123			$	-
Cost of goods sold			49				-				105				-
Gross Profit			14				-				18				-
OPERATING EXPENSES
Sales and marketing			23,330				18,960				34,159				32,263
Professional fees			91,559				29,380				101,975				126,486
General and administrative			124,887				302,391				320,702				498,202
Total Operating Expenses			239,776				350,731				456,836				656,951
NET LOSS FROM OPERATIONS			(239,762	)			(350,731	)			(456,818	)			(656,951	)
OTHER EXPENSES
Interest expense			(15,829	)			(107,654	)			(30,588	)			(214,126	)
Total Other Expenses			(15,829	)			(107,654	)			(30,588	)			(214,126	)
Net loss before provision for income taxes			(255,591	)			(458,385	)			(487,406	)			(871,077	)
Provision for Income Taxes			-				-				-				-
NET LOSS		$	(255,591	)		$	(458,385	)		$	(487,406	)		$	(871,077	)
Net loss per share - basic and diluted		$	(0.01	)		$	(0.02	)		$	(0.02	)		$	(0.04	)
Weighted average number of shares outstanding during the period - basic and diluted			22,968,873				21,430,700				22,776,997				21,365,033

 

See accompanying notes to condensed consolidated financial statements.

  

  

BANG HOLDINGS, CORP.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

FOR THE SIX MONTHS ENDED JUNE 30, 2016

(UNAUDITED)

 

																		Additional
		Preferred								Common								Paid-in				Accumulated
		Shares				Par				Shares				Par				Capital				Deficit				Total
Balance December 31, 2015			-			$	-				22,318,364			$	2,234			$	1,545,780			$	(2,458,037	)		$	(910,023	)
Stock Issued for Cash			-				-				213,336				21				219,981				-				220,002
Exercise of common stock warrants			-				-				600,009				60				209,940				-				210,000
Compensation for services			-				-				37,500				4				28,331				-				28,335
Warrants issued for services			-				-				-				-				24,653				-				24,653
Stock option expense			-				-				-				-				14,099				-				14,099
Common stock issued for settlement of payable			-				-				3,000				-				1,500				-				1,500
Discount on convertible note issued as warrants			-				-				-				-				10,500				-				10,500
Net loss			-				-				-				-				-				(487,406	)			(487,406	)
Balance June 30, 2016			-			$	-				23,172,209			$	2,319			$	2,054,784			$	(2,945,443	)		$	(888,340	)

 

See accompanying notes to condensed consolidated financial statements.

 

   

BANG HOLDINGS, CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(UNAUDITED)

 

		For the Six Months Ended
		June 30, 2016				June 30, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(487,406	)		$	(871,077	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation			95,485				164,748
Amortization of debt discount			4,399				189,330
Depreciation expense			685				564
Changes in operating assets and liabilities:
Increase in deposits			-				(4,027	)
Increase in prepaid expenses			(595	)			-
Increase in accounts payable and accrued expenses			120,836				216,723
Net Cash Used In Operating Activities			(266,596	)			(303,739	)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for purchase of fixed assets			-				(13,676	)
Net Cash Used In Investing Activities			-				(13,676	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from related party			7,500				-
Repayments of related party advances			(7,500	)			-
Proceeds from loans payable			8,000				-
Proceeds from convertible note - related party			30,000				-
Proceeds from exercise of warrants			210,000				-
Proceeds from sale of securities			220,002				65,350
Net Cash Provided By Financing Activities			468,002				65,350
NET INCREASE / (DECREASE) IN CASH			201,406				(252,065	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			17,264				376,668
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	218,670			$	124,603
Supplemental cash flow information:
Cash paid for income taxes		$	-			$	-
Cash paid for interest expense		$	-			$	-

 

See accompanying notes to condensed consolidated financial statements.

 

  

BANG HOLDINGS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 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 six-month period ended June 30, 2016 may not necessarily be indicative of the results that may be expected for the year ending December 31, 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 six months ended June 30, 2016, the Company has incurred net operating losses and used cash in operations. As of June 30, 2016, the Company has an accumulated deficit of $2,945,443 and used cash in operations of $266,596. 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:

 

  

		June 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			(2,105	)			(1,420	)
Balance		$	4,740			$	5,425

 

Depreciation expense for the six months ended June 30, 2016 and 2015 was $685 and $564, 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 six months ended June 30, 2016 and 2015, advertising, marketing and promotion expense was $16,804 and $8,127, 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 869,277 shares issuable upon the exercise of options and warrants and 1,443,571 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 six months ended June 30, 2016. The Company had 1,650,000 shares issuable upon the exercise of options and warrants and 1,428,591 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 six months ended June 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 six months ended June 30, 2016, the Company expensed $19,753. As of June 30, 2016 and December 31, 2015, the balance was $0 and $19,753, respectively.

 

NOTE 4 – LOAN PAYABLE

 

The Company entered into 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 – 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 June 30, 2016 and December 31, 2015 the Company amortized $381,800 and accrued interest of $80,548 and $68,082, respectively. As of June 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 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 June 30, 2016, the Company amortized $4,399 and accrued interest of $1,258, respectively.

 

NOTE 6 – STOCKHOLDERS’ EQUITY

 

The Company is authorized to issue up to 500,000,000 shares of common stock, par value $0.0001, and up to 50,000,000 shares of preferred stock par value $0.0001.

 

 

  

During the six months ended June 30, 2016, the Company issued 213,336 shares for the receipt of gross proceeds of $220,002.

 

During the six months ended June 30, 2016, the Company issued 3,000 shares for the settlement of an outstanding payable of $1,500.

 

During the six months ended June 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 six months ended June 30, 2016, the Company issued 37,500 shares of common stock and recorded stock-based compensation of $28,335 which is included in total stock-based compensation.

 

NOTE 7 – OPTIONS AND WARRANTS

 

The following tables summarize all options grants to employees for the period ended June 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 June 30, 2016			300,000			$	0.50

 

				Options  Outstanding												Options Exercisable
Price				Number Outstanding at June 30, 2016				Weighted Average Remaining Contractual				Weighted Average Exercise Price				Number Exercisable at June 30, 2016				Weighted Average Exercise Price
$	0.50				300,000				—			$	0.50				200,000			$	0.50

 

During the six months ended June 30, 2016, the Company recorded total option expense of $14,099. As of June 30, 2016, the future value on unvested stock options was $18,622.

 

The following tables summarize all warrant grants to for the period ended June 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 June 30, 2016			669,277			$	1.30

 

As discussed in Note 5 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 six months ended June 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 8 – 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 June 30, 2016 and December 31, 2015 the Company amortized the entire debt discount and recorded accrued interest of $93,014 and $68,082, respectively. See Note 5.

 

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 June 30, 2016, the Company amortized $4,399 and accrued interest of $1,258, respectively. See Note 5.

 

In February, 2016, the Company President advanced the Company an additional $7,500. These amounts were repaid as of June 30, 2016.

 

For the six months ended June 30, 2016 and 2015, the Company recorded rent expense of $12,000 and $11,500, respectively. As of June 30, 2016, the Company accrued rent of $35,500 due to the Company’s president.

 

As of June 30, 2016 and December 31, 2015 the Company owed its President accrued salary of $109,803 and $38,200, respectively.

 

On October 1, 2015 the Company entered into lease with the 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. As of June 30, 2016 and December 31, 2015 the Company accrued $15,000 and $7,500.

 

NOTE 9 – SUBSEQUENT EVENTS

 

During July 2016, the Company executed stock purchase agreements with third parties for the sale of 60,004 shares of common stock and the Company received gross proceeds of $90,004.

 

On July 1, 2016, the Company entered into a property lease with the 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 has a ten year option to extend for terms of the lease, for a one year term.

 

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.

 

  

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS

 

The following discussion and analysis of the results of operations and financial condition of Bang Holdings Corp. (the “Company”, “we”, “us” or “our”) should be read in conjunction with the financial statements of Bang Holdings Corp. and the notes to those financial statements that are included elsewhere in this Form 10-Q. This discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors and Business sections in the financial statements and footnotes included in the Company’s Form 10-K filed on April 14, 2016 for the year ended December 31, 2015. Words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions are used to identify forward-looking statements.

 

The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

 

Bang Holdings Corp. was incorporated in the state of Colorado on May 13, 2014. It is a brand management and digital advertising company that provides content and an influencer-based marketing network to the cannabis industry. We are a development-stage company and since our inception we have generated only minimal revenues from business operations.

 

Our independent registered public accounting firm has issued a going concern opinion. This means there is substantial doubt that we can continue as an on-going business unless we obtain additional capital to pay our ongoing operational costs. Accordingly, we must locate sources of capital to pay our operational costs.

 

Our operational expenditures are primarily related to development of Bang’s multi-channel advertising network, marketing costs associated with attracting and retaining users, and the costs related to being a fully reporting company with the Securities and Exchange Commission.

 

2015 was a transformative year for Bang Holdings. We quintupled the direct reach of our 4TwentyToday network of channels over the course of the year to around 500,000 users and expanded the reach of our social influencer network to more than 11 million. Further, in the first half of 2016, we have grown our user base to nearly one million subscribers. At five persons, our core team has remained small and highly efficient, and has built a firm foundation for growth in the quarters and years to come.

 

Business Overview

  

Bang Holdings Corp wholly owns two subsidiaries, Bang Digital Media, a cannabis focused digital media company, and Bang Vapor, an e-juice company that can crossover to the cannabis market.

 

On May 9, 2016, the Food and Drug Administration (FDA) announced the issuance of a final rule (the “Rule”) deeming all tobacco products, including “electronic cigarettes” and their components and parts, subject to the Federal Food, Drug, and Cosmetic Act (the FD&C Act), as amended by the Family Smoking Prevention and Tobacco Control Act (Tobacco Control Act). As a result of the new Rule, all electronic cigarette products will be subject to the same FD&C Act provisions and relevant regulatory requirements to which cigarettes are subject. Due to this increased regulatory scrutiny, the Company has shifted its focus to concentrate primarily on the cannabis focused media segment of its operations.

 

Bang Digital Media is the hub for all ‘cannabusiness’ related advertising, content creation, technology and marketing. It consists of two divisions, the multi-platform 4TTnetwork, and a network of social media influencers that we call the Green Monkey Network.

 

The 4TTnetwork is comprised primarily of specifically targeted audiences. These are 4TwentyToday, VaporBang, and 4TT/V which cross the social media platforms of Facebook, Twitter, Massroots, Instagram and YouTube.

 

   

4TwentyToday is a digital, multi-platform channel that enables us to target advertising for Bang Holdings products and services across social media platforms. We currently have in excess of one million users of our network, with a steady growth rate of around two percent per week. By continuing to create targeted, quality content for this community on a daily basis 4TwentyToday has, for example, created one of the most actively engaged marijuana pages on Facebook. This has built high levels of trust and goodwill in the community, which will be convertible to revenues once we have reached a critical mass of users.

 

Using the same skillset, we are developing VaporBang – a digital, multi-platform community for vaping enthusiasts. At more than 86,000 strong, ours is the largest vaping community on Facebook.

 

Our most successful post on Facebook in 2015 had 5.4 million views, leading to 309,000 “reactions,” 95,000 “shares,” and 92,000 “comments.” The post was created to build upon our social media footprint related to our business, not specifically towards our products.

 

The ‘Green Monkey Network’ is a network of social media influencers who are open to working as ambassadors in the marijuana industry. These influencers expanded the Bang network by more than 10 million users.

 

Ultimately, the key performance indicator (“KPI”) of Bang Digital Media is in the direct and expanded growth of our networks. By continuing to grow 4TwentyToday and the ‘Green Monkey Network’ to 100 million users we will have the digital reach to propel marijuana-friendly brands into the spotlight.

  

Plan of Operations

 

Bang will continue to build partnerships with influential social media personalities and celebrities in several key genres to serve as brand ambassadors for our clients. By continuing to give a unique platform to YouTubers and Vine stars to monetize their social media followings, Bang will be able to build brand awareness and employ an army of influencers to sell and promote product. Compensation to social media personalities and celebrities will be bonus incentivized along with a commission structure.  Therefore, we anticipate no up-front expenditures.

 

Results of Operations

 

For the three months ended June 30, 2016 and for three months ended June 30, 2015

 

Revenue

 

We generated revenue of $63 for the three month period ended June 30, 2016 compared to $0 for the comparable period ended June 30, 2015.

 

Operating Expenses

 

We incurred operating expenses of $239,776 for the three month period ended June 30, 2016, as compared to $350,731 for the comparable period ended June 30, 2015, a decrease of $110,955. The decrease in operating expenses is primarily attributable to a decrease of $177,504 in general and administrative expenses. This decrease was offset by an increase of $62,179 in professional fees.

 

Interest Expense

 

Interest expense for the three months ended June 30, 2016 was $15,829, as compared to $107,654 for the comparable period ended June 30, 2015, a decrease of $91,825. The decrease in interest expense is primarily attributable to the full accretion of the debt discount on the August 2014 convertible promissory note in 2015.

 

Net Loss

 

We had a net loss of $255,591 for the three month period ended June 30, 2016, as compared to $458,385 for the comparable period ended June 30, 2015, a decrease of $202,794. The decrease in net loss is primarily attributable to the significant decreases in operating expenses and interest expense.

 

  

For the six months ended June 30, 2016 and for six months ended June 30, 2015

 

Revenue

 

We have generated $123 in revenue for the six month period ended June 30, 2016, as compared to $0 for the comparable period ended June 30, 2015.

 

Operating Expenses

 

We incurred operating expenses of $456,836 for the six month period ended June 30, 2016, as compared to $656,951 for the comparable period ended June 30, 2015, a decrease of $200,115. The decrease in operating expenses is primarily attributable to a decrease of $177,500 in general and administrative expenses. In addition to this decrease in general and administrative expenses, professional fees for the six months ended June 30, 2016 decreased by $24,511 compared to the six months ended June 30, 2015.

 

Interest Expense

 

Interest expense for the six months ended June 30, 2016 was $30,588, as compared to $214,126 for the comparable period ended June 30, 2015, a decrease of $183,538. The decrease in interest expense is primarily attributable to the full accretion of the debt discount on the August 2014 convertible promissory note in 2015.

 

Net Loss

 

We had a net loss of $487,406 for the six month period ended June 30, 2016 as compared to $871,077 for the comparable period ended June 30, 2015, a decrease of $383,671. The decrease in net loss is primarily due to the significant decreases in operating expenses and interest expense.

 

Liquidity and Capital Resources

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. We have been funding our operations through the sale of our common stock and loans.

 

Our primary uses of cash have been for payroll and operating expenses. The following trends are reasonably likely to result in a material decrease in our liquidity in the near term:

 

  

·	Development of a Company website

 

·	Exploration of potential marketing and advertising opportunities, and

 

·	The cost of being a public company

 

Our net revenues are not sufficient to fund our operating expenses. At June 30, 2016, we had a cash balance of $218,670. Since inception, we raised $500,000 and $350,000 from the sale of warrants and a convertible debenture to Platinum Partners Liquid Opportunity Master Fund LP, $66,600 from the sale of common stock through a private placement, $30,000 from a convertible debenture, $8,000 from loans payable and $210,000 from the exercise of warrants to fund our operating expenses, pay our obligations, and grow our company. On April 20, 2016, the Company executed a stock purchase agreement with a third party for the sale of 200,000 shares of common stock and the Company received gross proceeds of $200,000. On April 21, 2016, a related party converted 142,857 warrants into 142,857 shares of common stock and the Company received proceeds of $50,000. On June 10, 2016, a related party converted 142,857 warrants into 142,857 shares of common stock and the Company received proceeds of $50,000.

 

We currently have no material commitments for capital expenditures. We may be required to raise additional funds, particularly if we are unable to generate positive cash flow as a result of our operations. We estimate that based on current plans and assumptions, that our available cash will not be sufficient to satisfy our cash requirements under our present operating expectations, without further financing, through December 2016. Other than working capital, we presently have no other alternative source of working capital. We may not have sufficient working capital to fund the expansion of our operations and to provide working capital necessary for our ongoing operations and obligations. We may need to raise significant additional capital to fund our operating expenses, pay our obligations, and grow our company. We do not anticipate we will be profitable in 2016.  Therefore, our future operations may be dependent on our ability to secure additional financing.  Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail our marketing and development plans and possibly cease our operations.

 

We anticipate that depending on market conditions and our plan of operations, we may incur operating losses in the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern.

 

Our liquidity may be negatively impacted by the significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. 

 

Liquidity and Capital Resources

 

Working Capital

 

The following table summarizes total current assets, liabilities and working capital at June 30, 2016, compared to December 31, 2015:

 

  

		June 30, 2016				December 31, 2015				Increase/(Decrease)
Current Assets		$	291,663			$	109,415			$	182,248
Current Liabilities		$	1,184,743			$	1,024,863			$	159,880
Working Capital Deficit		$	(893,080	)		$	(915,448	)		$	(22,368	)

 

At June 30, 2016, we had a working capital deficit of $(893,080), as compared to working capital deficit of $(915,448) at December 31, 2015, a decrease of $(22,368).

 

Net Cash Used In Operating Activities

 

Net cash used in operating activities of $(266,596) for the six months ended June 30, 2016 consisted primarily of an increase in accounts payable and accrued expenses of $120,836 and loss from operations adjusted by non-cash items totaling $100,569.

 

Net Cash Provided By (Used In) Investing Activities

 

There was no cash provided by (used in) investing activities for the six months ended June 30, 2016 compared to $13,676 used for the purchase of fixed assets during the six months ended June 30, 2015.

 

Net Cash Provided By Financing Activities

 

Net cash provided by investing activities of $468,002 for the six months ended June 30, 2016 consisted primarily of proceeds of loans payable of $8,000, proceeds from convertible note – related party of $30,000, proceeds from exercise of warrants of $210,000 and proceeds from the private placement of securities of $220,002. During the six months ended June 30, 2015, the Company received proceeds of $65,350 from the private placement of securities.

 

  

Off-Balance Sheet Arrangements

 

As of June 30, 2016, we had no off-balance sheet arrangements.

 

Critical Accounting Policies and Estimates

  

Use of Estimates in Financial Statements

  

The presentation 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 during the period covered by these financial statements include the valuation of website costs, valuation of deferred tax asset, stock based compensation and any beneficial conversion features on convertible debt.

 

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 date. 

 

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. 

 

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. 

 

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.

 

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We do not hold any derivative instruments and do not engage in any hedging activities.

 

ITEM 4

CONTROLS AND PROCEDURES

 

We carried out an evaluation required by Rule 13a-15 of the Exchange Act under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” and “internal control over financial reporting” as of the end of the period covered by this Report.

 

Evaluation of Disclosure Controls and Procedures

 

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Board and the Chief Executive Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Report. In making this assessment, management used the criteria set forth by the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon that evaluation, management concluded that the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management to allow timely decisions regarding required disclosure.

 

  

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee, (2) lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (3) inadequate segregation of duties consistent with control objectives; (4) lack of expertise with complex GAAP and Securities and Exchange Commission ("SEC") reporting matters and (5) management is dominated by one individual without adequate compensating controls. The aforementioned material weaknesses were identified by our Principal Executive and Financial Officer in connection with the review of our financial statements as of June 30, 2016. At this time, management has decided that given the risks associated with this lack of segregation of duties, the potential benefit of adding additional personnel to clearly segregate duties does not justify the expenses associated with such benefit. Management will periodically review this matter and may make modifications, including adding additional personnel, it determines appropriate.

  

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the three months ended June 30, 2016 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II: OTHER INFORMATION

 

ITEM 1 - LEGAL PROCEEDINGS

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

ITEM I A - RISK FACTORS

 

With the exception of the Risk Factor listed below, there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K, filed with the SEC on April 14, 2016.

 

The application of the Federal Food, Drug and Cosmetic Act to all tobacco products, including products like the Company’s vaporizers, will have a material adverse effect on our business.

 

On May 9, 2016, the Food and Drug Administration (FDA) announced the issuance of a final rule (the “Rule”) deeming all tobacco products, including “electronic cigarettes” and their components and parts, subject to the Federal Food, Drug, and Cosmetic Act (the FD&C Act), as amended by the Family Smoking Prevention and Tobacco Control Act (Tobacco Control Act). As a result of the new Rule, all electronic cigarette products will be subject to the same FD&C Act provisions and relevant regulatory requirements to which cigarettes are subject, with respect to the following:

 

1. Enforcement action against products determined to be adulterated or misbranded (other than enforcement actions based on lack of a marketing authorization during an applicable compliance period);

 

2. Required submission of ingredient listing and reporting of HPHCs;

 

3. Required registration of tobacco product manufacturing establishments and product listing;

 

4. Prohibition against sale and distribution of products with modified risk descriptors (e.g., "light," "low," and "mild" descriptors) and claims unless FDA issues an order authorizing their marketing;

 

5. Prohibition on the distribution of free samples (same as cigarettes);

 

6. Premarket review requirements;

 

  

7. Implementation of minimum age and identification restrictions to prevent sales to individuals under age 18;

 

8. Inclusion of a health warning; and

 

9. Prohibition of sale of electronic cigarettes in vending machines, unless in a facility that never admits youth.

 

The application of the Rule will result in additional expenses, could affect the markets we sell our products in, could require us to change our advertising and labeling and method of marketing our products, any of which would have a substantial adverse effect on our business, results of operation and financial condition.  In addition, the application process of our products by the FDA could cost the Company several hundred thousand dollars.

 

We may face the same governmental actions aimed at conventional cigarettes and other tobacco products.

 

The tobacco industry expects significant regulatory developments to take place over the next few years, driven principally by the World Health Organization’s Framework Convention on Tobacco Control, or the FCTC. The FCTC is the first international public health treaty on tobacco, and its objective is to establish a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation. Regulatory initiatives that have been proposed, introduced or enacted include:

 

●

the levying of substantial and increasing tax and duty charges;

 

●

restrictions or bans on advertising, marketing and sponsorship;

 

●

the display of larger health warnings, graphic health warnings and other labeling requirements;

 

●

restrictions on packaging design, including the use of colors and generic packaging;

 

●

restrictions or bans on the display of tobacco product packaging at the point of sale, and restrictions or bans on cigarette vending machines;

 

●

requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents levels;

 

●

requirements regarding testing, disclosure and use of tobacco product ingredients;

 

●

increased restrictions on smoking in public and work places and, in some instances, in private places and outdoors;

 

●

elimination of duty free allowances for travelers; and

 

●

encouraging litigation against tobacco companies.

 

If vaporizers and/or electronic cigarettes are subject to one or more significant regulatory initiates enacted under the FCTC, our business, results of operations and financial condition could be materially and adversely affected.

 

  

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On January 13, 2016, a related party converted 285,714 warrants into 285,714 shares of common stock and the Company received proceeds of $100,000. 

 

On January 26, 2016, a related party converted 28,581 warrants into 28,581 shares of common stock and the Company received proceeds of $10,000. 

 

On March 29, 2016, the Company issued 3,000 shares of common stock for the settlement of an outstanding payable of $1,500.

 

On April 15, 2016, the Company issued 37,500 shares of common stock and recorded stock-based compensation of $28,335 which is included in total stock-based compensation.

 

On April 21, 2016, the Company issued 200,000 shares of common stock for the receipt of gross proceeds of $200,000.

 

On April 22, 2016, a related party converted 142,857 warrants into 142,857 shares of common stock and the Company received proceeds of $50,000. 

 

On May 17, 2016, the Company issued 6,668 shares of common stock for the receipt of gross proceeds of $10,000.

 

On May 26, 2016, the Company issued 25,000 warrants to a consultant with an exercise price of $1.00 per share that expire May 26, 2018.

 

On June 10, 2016, a related party converted 142,857 warrants into 142,857 shares of common stock and the Company received proceeds of $50,000. 

 

On June 24, 2016, the Company issued 6,668 shares of common stock for the receipt of gross proceeds of $10,002. 

 

The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

  

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

 

As of June 30, 2016, the Company is in default on the repayment of its convertible note payable of $500,000. The notes accrue interest at 10% per annum and were due and payable as of August 2, 2015. (See “Note 5 – Convertible Notes Payable – Related Party” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for additional details about the principal and interest amounts of debt included in liabilities subject to compromise on the accompanying unaudited condensed consolidated balance sheet at June 30, 2016).

 

ITEM 4 - MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5 - OTHER INFORMATION

 

On July 11, 2016, the Company executed a stock purchase agreement with a third party for the sale of 20,000 shares of common stock and the Company received gross proceeds of $30,000.

 

On July 19, 2016, the Company executed a stock purchase agreement with third parties for the sale of 40,004 shares of common stock and the Company received gross proceeds of $60,004.

 

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.

 

On July 1, 2016, the Company entered into a property lease with the 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 has a ten year option to extend for terms of the lease, for a one year term.

 

   

ITEM 6. EXHIBITS

 

Exhibits
31.1		Certification of Principal Executive Officer of the Registrant pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer of the Registrant pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer pursuant to 18U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Principal Financial Officer of the Registrant pursuant to 18U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Schema
101.CAL		XBRL Taxonomy Calculation Linkbase
101.DEF		XBRL Taxonomy Definition Linkbase
101.LAB		XBRL Taxonomy Label Linkbase
101.PRE		XBRL Taxonomy Presentation Linkbase

 

*In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.

 

  

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	BANG HOLDINGS CORP.
Date: August 19, 2016	By:	/s/ Steve Berke
		Steve Berke, Chief Executive Officer (Principal Executive Officer)

 

Date: August 19, 2016	By:	/s/ Adam Mutchler
		Adam Mutchler, Chief Financial Officer (Principal Financial Officer)