The number of shares of the registrant's only class of common stock issued and outstanding as of August 7, 2017 was 33,855,244 shares.

 

 

 

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See accompanying notes to the condensed consolidated financials statements.

 

 

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JUNE 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

NOTE 1 — MANAGEMENT'S REPRESENTATION

 

The accompanying condensed consolidated financial statements of Pura Naturals, Inc (the "Company," "Pura," "we," or "our"), were prepared in accordance with accounting principles generally accepted in the United States, or "GAAP". In the opinion of the Company's management, the unaudited condensed consolidated financial statements were prepared on the same basis as the audited consolidated financial statements ("CFS") in the Annual Report on Form 10-K for the year ended December 31, 2016, and include all normal recurring adjustments necessary for the fair presentation of the Company's statement of financial position as of June 30, 2017, and its results of operations for the three and six months ended June 30, 2017 and 2016 and cash flows for the six months ended June 30, 2017 and 2016. The condensed consolidated balance sheet as of December 31, 2016 was derived from the December 31, 2016 audited financial statements. The interim financial information contained in this quarterly report is not necessarily indicative of the results to be expected for any other interim period or for the entire year

It is suggested that these condensed CFS be read in conjunction with the audited CFS and notes thereto for the year ended December 31, 2016 included in the Company's Annual Report on Form 10-K. The report of the Company's independent registered public accounting firm on the CFS included in Form 10-K contains a qualification regarding the substantial doubt about the Company's ability to continue as a going concern.

 

NOTE 2 - ORGANIZATION AND SUMMARY SIGNIFICANT ACCOUNTING POLICIES

 

Pura Naturals, Inc. (formerly Yummy Flies, Inc.) (the "Company" or "Pura - CO") was incorporated under the laws of the State of Colorado on December 26, 2005.  On November 17, 2016, the Company changed its name from Yummy Flies, Inc. to Pura Naturals, Inc.

Pura Naturals, Inc., ("Pura - DE") was incorporated on April 20, 2015 under the laws of the state of Delaware.  Prior to incorporating in Delaware, the Company was incorporated on October 21, 2013 under the laws of the state of Nevada as a limited liability company.  On June 30, 2015, the Company exchanged membership interests in the Nevada company for common stock of the Delaware company.

Effective July 18, 2016, the Company and Pura - DE entered into a share exchange agreement by and among the Company, Pura – DE and certain stockholders of Pura - DE.  Pursuant to the share exchange agreement, the Company exchanged the outstanding common and preferred stock of Pura - DE for shares of common stock of the Company.  On the closing date, the Company issued 23,187,876 shares of common stock to the Pura - DE.   In addition, shares issuable under outstanding options of Pura - DE will be exercisable into shares of common stock of Company, pursuant to the terms of such instruments. At the closing date, Robert Lee, the holder of 30,536,100 shares of the Company's common stock, cancelled such shares leaving 7,625,700 shares issued and outstanding.  Upon completion of the foregoing transactions, the Company had 30,813,576 shares of common stock issued and outstanding.  As a result of the share exchange agreement and the other transactions contemplated thereunder, Pura - DE is now a wholly owned subsidiary of the Company.

The exchange of shares with Pura - DE was accounted for as a reverse acquisition under the purchase method of accounting since Pura - DE obtained control of the Company. Accordingly, the merger of Pura - DE into the Company was recorded as a recapitalization of Pura - DE, Pura - DE being treated as the continuing entity. The historical financial statements presented are the financial statements of Pura - DE. The share exchange agreement was treated as a recapitalization and not as a business combination; therefore, no pro forma information is disclosed. At the date of this transaction, the net liabilities of the legal acquirer, Pura - CO, were $20,040.

The Company is engaged in the marketing and sales of consumer products through the use of direct sales, brokers and distributors to wholesalers, mass merchandisers, retail stores and on the internet.

 

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The unaudited CFS are prepared by the Company, pursuant to the rules and regulations of the Securities Exchange Commission ("SEC"). The information furnished herein reflects all adjustments, consisting only of normal recurring adjustments, which in the opinion of management, are necessary to fairly state the Company's financial position, the results of its operations, and cash flows for the periods presented. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") were omitted pursuant to such rules and regulations. The results of operations for the six months ended June 30, 2017 are not necessarily indicative of the results for the year ending December 31, 2017.

On November 17, 2016, the Company effected a 3.7 to 1 forward stock split.  All share and per share information was retroactively restated to reflect this forward stock split.

The Company's financial statements are prepared using the accrual method of accounting. The Company elected a fiscal year ending on December 31.

 

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses.

The accompanying condensed CFS include the accounts of the Company and its wholly-owned subsidiary, PURA - DE, and were prepared in conformity with US GAAP.  All significant intercompany transactions and balances have been eliminated.

The preparation of financial statements in conformity with 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 reporting amounts of revenues and expenses during the reporting period.

 

The Company's significant estimates and assumptions include the fair value of financial instruments; allowance for doubtful accounts; and obsolescence; and interest rate; revenue recognized or recognizable; sales returns and allowances; valuation of derivative liabilities, valuation of options, income tax rate, income tax provision, deferred tax assets and valuation allowance of deferred tax assets; and the assumption that the Company will continue as a going concern. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

 

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The Company grants credit to customers under credit terms that it believes are customary in the industry and does not require collateral to support customer receivables. The Company currently does not provide an allowance for doubtful collections, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. Normal receivable terms vary from 30-90 days after the issuance of the invoice and typically would be considered past due when the term expires. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer.  The Company's allowance for doubtful accounts was $0 at June 30, 2017 and December 31, 2016, respectively.

 

Gross margin is equal to product sales, net of allowances less cost of goods sold. Cost of goods sold is associated with sales of our products and includes direct costs associated with the purchase of components, and costs associated with the packaging, preparation, and shipment of the product.

Intangible assets consist of a license with a related party and amounts paid to obtain trademarks.  Intangible assets are being amortized over 120 months.

The Company follows the provisions of ASC Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review at June 30, 2017 and December 31, 2016, the Company believes there was no impairment of its long-lived assets.

The Company classifies amounts billed for shipping and handling as revenue in accordance with FASB ASC 605-45-50-2, Shipping and Handling Fees and Costs. Shipping and handling fees and costs are included in cost of sales.

Inventories are valued at the lower of cost or net realizable value. Cost is determined on an average cost basis which approximates actual cost on a first-in, first out basis and includes raw materials, labor and manufacturing overhead.

At each balance sheet date, the Company evaluates its ending inventories for excess quantities and obsolescence.

The Company considers historical demand and forecast in relation to the inventory on hand, market conditions and product life cycles when determining obsolescence and net realizable value. Provisions are made to reduce excess or obsolete inventories to their estimated net realizable values. Once established, write-downs are considered permanent adjustments to the cost basis of the excess or obsolete inventories.

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JUNE 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

 

The Company applies the provisions of ASC 815-10, Derivatives and Hedging ("ASC 815-10"). Derivatives within the scope of ASC 815-10 must be recorded on the balance sheet at fair value. During the six months ended June 30, 2017, the Company issued convertible debentures and recorded derivative liabilities related to the embedded conversion feature of the convertible notes.

 

The fair value of these derivative liabilities on the grant date was $314,347 as computed using the Black-Scholes-Merton option pricing model. Due to the reset provisions within the embedded conversion features the Company determined that the Black-Scholes-Merton Model was most appropriate for valuing this instrument.

 

In March 2017, the Company sold convertible promissory note that contain an embedded conversion feature and were accounted for as derivative instruments in accordance with relevant accounting guidance. At the date of grant, the embedded conversion feature was valued at $112,433 which represents the fair value as computed using the Black-Scholes-Merton option pricing model.

 

The Company re-measured the fair values of its derivative liabilities as of each period end and recorded an aggregate decrease of $35,389 in the fair value of the derivative liabilities as a component of other expense during the six months ended June 30, 2017.

In April 2017, the Company sold convertible promissory note that contain an embedded conversion feature and was accounted for as derivative instruments in accordance with relevant accounting guidance. At the date of grant, the embedded conversion feature was valued at $201,914 which represents the fair value as computed using the Black-Scholes-Merton option pricing model.

 

The Company re-measured the fair values of its derivative liabilities as of each period end and recorded an aggregate decrease of $35,742 in the fair value ("FV") of the derivative liabilities as a component of other expense during the six months ended June 30, 2017.

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the FV of financial instruments held by the Company. FASB ASC Topic 825, Financial Instruments, defines FV, and establishes a three-level valuation hierarchy for disclosures of FV measurement that enhances disclosure requirements for FV measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their FVs because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

·

Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

·

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

·

Level 3 inputs to the valuation methodology us one or more unobservable inputs which are significant to the FV measurement.

The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic 480, Distinguishing Liabilities from Equity, and FASB ASC Topic 815, Derivatives and Hedging. 

The Company uses Level 2 inputs for its valuation methodology for its derivative liability as its FV was determined by using the Black-Scholes-Merton pricing model based on various assumptions. The Company's derivative liability is adjusted to reflect FV at each period end, with any increase or decrease in the FV being recorded in results of operations as adjustments to FV of derivatives.

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JUNE 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

 

 

The Company uses a weighted average Black-Scholes-Merton option pricing model with the following assumptions to measure the FV of derivative liability at June 30, 2017:

 

 

The following table represents the Company's derivative liability activity for the six months June 30, 2017:  

 

The following table represents the Company's derivative liability activity for the three months June 30, 2017:

 

		Amount
Derivative liability balance, March 31, 2017		$	126,594
Issuance of derivative liability during the three months ended June 30, 2017			201,914
Change in derivative liability during the three months ended June 30, 2017			(85,292	)
Derivative liability balance, June 30, 2017		$	243,216

 

The following table shows the classification of the Company's liabilities at June 30, 2017 that are subject to FV measurement and the rollforward of these liabilities from December 31, 2016:

 

 

 

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As of December 31, 2016 the Company did not identify any assets and liabilities required to be presented on the balance sheet at FV.

The carrying amounts of the Company's cash, accounts payable and accrued expenses approximate their estimated FVs due to the short term maturities of those financial instruments. The Company believes the carrying amount of its promissory note, net of discount approximates its FV based on rates and other terms currently available to the Company for similar debt instruments.

The Company recognizes revenue from sales of consumer products to wholesalers, mass merchandisers and retail stores. The Company's revenue recognition policies comply with FASB ASC Topic 605. Revenue is recognized at the date of delivery to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as deferred income.

 

In some instances, the Company receives payments prior to delivery of its products, whereupon such revenues are deferred until the revenue recognition criteria are met.

 

The Company records stock-based compensation in accordance with FASB ASC Topic 718, Compensation – Stock Compensation. FASB ASC Topic 718 requires companies to measure compensation cost for stock-based employee compensation at FV at the grant date and recognize the expense over the employee's requisite service period. The Company recognizes in the statement of operations the grant-date FV of stock options and other equity-based compensation issued to employees and non-employees. There were 1,156,250 options outstanding as of June 30, 2017 and December 31, 2016.

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Under ASC 740, a tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. The adoption had no effect on the Company's financial statements.

Earnings per share is calculated in accordance with ASC Topic 260, Earnings Per Share. Basic earnings per share ("EPS") is based on the weighted average number of common shares outstanding. Diluted EPS is based on the assumption that all dilutive convertible shares and stock warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

 

 

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JUNE 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

 

In periods of losses from operations, basic and diluted income per share from operations are also the same, as ASC 260-10 requires the use of the denominator used in the calculation of loss per share from operations in all other calculations of earnings per share presented, despite the dilutive effect of potential common shares.

Based on the conversion prices in effect, the potentially dilutive effects of 1,156,250 options were not considered in the calculation of EPS as the effect would be anti-dilutive on June 30, 2017. There were no options outstanding as of June 30, 2016.

There were 1,156,250 potentially dilutive securities outstanding as of June 30, 2017 and December 31, 2016.

In July 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-11, Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features, II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. (the "ASU").  Part I of this ASU changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features and clarifies existing disclosure requirements.  Part II does not have an accounting effect.  The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 with early adoption permitted. Management is currently evaluating the potential impact of these changes on the CFS of the Company.

 

In January 2017, the FASB issued an Accounting Standards Update ("ASU") 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date. The Company is in the process of evaluating the impact of this ASU.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires restricted cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet. ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is in the process of evaluating the impact of this ASU on its CFS.

 

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted.  The Company is in the process of evaluating the impact of this ASU on its CFS.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is in the process of evaluating the impact of this ASU on its CFS.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is in the process of evaluating the impact of this ASU on its CFS.

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In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements.  ASU 2014-15 requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued.  An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern.  ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter.  This adoption of this ASU had no impact on the Company's CFS.

In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers.  ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle-based approach for determining revenue recognition.  ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract.  The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.  ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017.   Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein.  Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption.  The Company is in the process of evaluating the impact of ASU 2014-09 on the Company's CFS.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.

 

NOTE 3 - GOING CONCERN AND MANAGEMENT PLANS

 The Company incurred losses from operations of $923,869 for the six months ended June 30, 2017 and $1,412,646 for the year ended December 31, 2016, and had an accumulated deficit of $3,346,824 at June 30, 2017. In addition, the Company used cash in operating activities of $590,133 for the six months ended June 30, 2017. These factors raise substantial doubt about the Company's ability to continue as a going concern.

 

 

There are significant risks and uncertainties which could negatively affect the Company's operations. These are principally related to (i) the absence of a distribution network for the Company's products, (ii) the absence of any significant commitments or firm orders for the Company's products. The Company's limited sales to date for the Company's products make it impossible to identify any trends in the Company's business prospects. Accordingly, there can be no assurance that we will be able to pay obligations which we may incur in the future.

 

The Company's only sources of additional funds to meet continuing operating expenses, fund additional development and fund additional working capital are through the sale of securities and/or debt instruments. We are actively seeking additional debt or equity financing, but no assurances can be given that such financing will be obtained or what the terms thereof will be. The Company may need to discontinue a portion or all of our operations if the Company is unsuccessful in generating positive cash flow or financing for the Company's operations through the issuance of securities.

 

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On May 22, 2017, the Company entered into an agreement with Advanced Innovative Recovery Technologies, Inc. to, as of March 31, 2017, cancel their debt.  The Company issued 1,300,000 shares of Common Stock with a total stated value equal to that of the agreed upon principal of $750,000 and penalties of $168,750, for a total agreed upon amount of $918,750.  In connection with this payment in full, during the six months ended June 30, 2017, the Company recorded a gain on settlement of a liability of $43,120, which is included in other expenses and income in the accompanying unaudited Condensed Consolidated Statements of Operations.

NOTE 6 – Note Payable

During 2016 the Company issued a note for $30,000.  The note payable accrues interest at 74% per annum requires daily payments of $163, is due on August 10, 2017 and is secured by a personal guarantee of a former officer. The outstanding balance was $3,295 and $18,068 at June 30, 2017 and December 31, 2016, respectively.

 

NOTE 7 - Note Payable - Related Party

During the quarter ended June 30, 2017, the Company issued a note for $55,000 to a Shareholder, including an original issue discount of $5,000.  The note payable accrues interest at a rate of 8% and is due on July 8, 2017 and is secured by a security interest in all assets of the Company. The outstanding balance was $55,000 and $0 at June 30, 2017 and December 31, 2016, respectively.

 

NOTE 8 - Convertible Note Payable

During the three months ended March 31, 2017, the Company issued a convertible note payable to an accredited investor for $78,000.  The convertible note payable (i) is unsecured, (ii) bears interest 4.25%, and (iii) is due on January 18, 2018.  The convertible note payable is convertible at any time during the period beginning on the date which is 180 days from March 30, 2017 at the option of the investor into shares of the Company's common stock that is determined by dividing the amount to be converted by 61% of the average of three lowest trading prices of the Company's common stock during the 10 day period prior to date of conversion.

Due to the potential adjustment in the conversion price associated with this convertible note payable based on the Company's stock price, the Company determined that the conversion feature is considered a derivative liability.  The embedded conversion feature was initially calculated to be $112,433 which is recorded as a derivative liability as of the date of issuance.  The derivative liability was recorded as a debt discount to the convertible note payable up to the face amount of the convertible note with the excess of $34,436 being recorded as a financing cost.  The debt discount of $78,000 is being amortized over the term of the convertible note.  The Company recognized interest expense of $24,389 during the six months ended June 30 2017 for the amortization of the debt discount.

On April 7, 2017, the Company issued to a accredited investor a Convertible Promissory Note (the "Note") of $570,000 that matures nine months from the date of issuance or January 7, 2018.

The Company will receive the $570,000 in three tranches as follows:

(1) $200,000 upon signing of the Note, the Securities Purchase Agreement and Registration Rights Agreement of which $50,000 may be sent to the Company's auditor to complete the audit for the fiscal year ended December 31, 2016);

(2) $150,000 upon filing of the Registration Statement and receipt of the Shares; and

(3) $150,000 upon the Registration Statement becoming effective.

 

 

 

 

 

 

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NOTE 9 – Stockholders' Deficit

During the six months ended June 30, 2017, the Company issued shares of common stock as follows:

·

100,000 shares for services valued at $204,500.  The shares were valued based on the Company's stock price at the date of issuance; and

·

142,868 shares for cash of $224,500.

The following is a summary of stock option activity:

The FV of the stock options is being amortized to stock option expense over the vesting period. The Company recorded stock option expense of $120,202 and $0 during the six months ended June 30, 2017 and 2016, respectively. At June 30, 2017, the unamortized stock option expense was $480,810 which will be amortized to expense through June 30, 2019.

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. There are no pending significant legal proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on the Company's financial position.

The Company maintains a head office at 23101 Lake Center Drive, Suite 100, Lake Forest, CA 92630. This property is

leased until 3/31/2018 at a rate of $ 2,636.12 / per month.

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NOTE 11 – SUBSEQUENT EVENTS

On July 5, 2017 ("Issue Date"), Pura Naturals, Inc. (the "Company") entered into a Securities Purchase Agreement ("Purchase Agreement"), with an accredited investor pursuant to which the Company issued and sold for $200,000 (the "Purchase Price") securities consisting of (a) original issue discount promissory note for $220,000 (collectively, the "Note") and (b) 85,000 restricted shares (collectively, the "Shares"). The Note is subject to a one-time interest charge of 8%, and the principal amount underlying each Note and the interest accrued thereon is due and payable on the six-month anniversary of the Issue Date.  The Company may prepay the obligation within a 90-day period immediately following the issuance date by paying 135% of the outstanding balance.  Upon the occurrence of any event of default that has not been cured as described in the Note, each note holder shall have the right, but not the obligation, to convert the outstanding balance of the Note along with all unpaid interest into an aggregate number of shares of the Company's Common Stock ("Conversion Shares") at a conversion price equal to 60% of the average of the three lowest sale price occurring during the five (5) trading days immediately preceding the applicable conversion date on which the purchaser elects to convert all or part of the Note.

On July 11, 2017, the Company paid $55,679 to a Shareholder in satisfaction of the 8% Note  due on July 8, 2017.  There were no penalties and the security interest in all assets of the Company released (see Note 7).

On July 12, 2017, the Company file a Registration Statement and in accordance with terms of the Convertible Promissory Note (see Note 7 - Convertible Promissory Note)..

On July 13, 2017 the Company received the second tranche of $150,000 from the Convertible Promissory Note issued April 7, 2017.   The balance of this Note subsequent to receipt of the second tranche is $399,000 with $6,000 included in the balance to be paid for debt issuance costs on behalf of the Company.

In accordance with the Purchase Agreement for the Note, the Company upon filing the S-1, delivered to the Investor, a Convertible Promissory Note for $330,000 representing the commitment fee of 3%.  The Convertible Note Payable bears no interest, unless an uncured default occurs and is due nine months after the issuance date.  The convertible note payable is convertible at any time at the option of the investor into shares of the Company's common stock that is determined by dividing the amount to be converted by 65% of the low trade of the Company's common stock during the 30 trading days prior to date of conversion. 

 

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PURA - DE, a Delaware corporation, was formed in 2013. PURA – DE partnered with Advanced Innovative Recovery Technology, Inc. (AIRTech), to create a revolutionary and proprietary bio-based foam called BeBetterFoam® that is made from renewable resources instead of petroleum. PURA- DE markets and sells a line of cleaning products based on the BeBetterFoam® platform for consumer kitchen and bathroom, with additional products for outdoor hobbies (fishing and boating , spas and pools), pet care, infant care and industrial use currently under development.  The Bath & Body line and household (including kitchen) sponges are Oleophilic which means, among other things, that it absorbs oil, grease and grime, removes impurities from skin (cleansing and applying/removing make- up), is latex-free.  PURA - DE products are also non-toxic, contain Plant-Based/ renewable resources, have a carbon-negative footprint (removes more carbon than is created), contain no petroleum by-products, use no adhesives or glues, and are infused with soap that is 100% Natural, bio-degradable, sustainable, Vegan, gluten-free, contains botanicals and essential oils; SLS-, Sulfate, Paraben-, and BPA- Free.   The BeBetterFoam® is hydrophobic, which means it resists and does not support bacteria.  PURA - DE believes that the BeBetterFoam® also is up to 40 times stronger than the leading kitchen sponge brand.

 

 

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Pura Marine, the Marine Division of Pura Naturals, offers biologically-based oil-absorbent technologies to the commercial and consumer markets. Working alongside industrial partners, Pura Marine developed environmentally sustainable oil spill prevention products and solutions targeted towards the marine oil transport, oil refining and trucking industries. Pura Marine also provides plant-based foam products to the recreational boating and fishing industries.

The BeBetterFoam® is hydrophobic, which means it resists and does not support bacteria.  PURA believes the BeBetterFoam® also is up to 40 times stronger than the leading kitchen sponge brand.  BeBetterFoam® is a unique, proprietary polymer process technology that is protected by a trade secret, completely owned by Pura through an acquisition transaction with AIRTech in May 2017, and we believe this technology is incapable of being reverse engineered. Previously, those formulations and been exclusively licensed to from AIRTech to PURA – DE. 

Our Strategy

Today, the global economy continues to encourage manufacturers toward adopting an environmentally conscious effort in the development of industrial and consumer products. Countries like China and the U.S. have taken the lead in this global effort by proposing criteria for businesses to become more "green." The European Union began to follow suit by requiring companies within the EU with more than 500 employees to report on environmental and sustainability issues by the end of 2016. As "going green" is continuing to be a major focal point among the business environment, the demand for earth conscious products and businesses continue to grow and be more desirable.

In the past, we expanded our earth conscious strategy throughout all aspects of our business practices. This provided us with a competitive advantage by allowing ourselves to establish a presence among the environmentally conscious market space. In order to increase our market share regarding the environmentally conscious market space, we will have to increase our product awareness within the space we have already captured as a means to gain market expansion.

Our Products

We offer a diverse line of cleaning products with applications across several sectors, and are increasing our market presence in the eco-conscious cleaning product market.  We continue gain market share against classic cleaning products like the kitchen sponge and Bilge Boom. Our Company operates in four business segments: Health Care, Consumer, Marine, and Oil Spill Prevention.  Recent sales at "big box stores" that carry the Pura Naturals brand demonstrate that our products are gaining recognition and popularity in the U.S.  This market acceptance positions Pura Naturals to expand to other North American markets like Canada and Latin Americas.

Our cleaning sponge technologies surpass the industry's standard for foam products.  Thus, we plan to introduce new products using our foam technologies that will target industries in which we have never before held a market share. We plan to introduce our infused sponge products to the automobile, equine, and furniture industries to reach new customers and to increase our overall market share of the cleaning products market.

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Product Portfolio

 The Company currently has the following products available and one product in development:

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Pura Naturals Health & Beauty

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3-in-1 Cleansing System

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soap infused facial bars - Citrus Splash, Eucalyptus Breeze and Lavender Mist

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soap infused body bars – Active Charcoal, Lavender Mist and Unscented

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Pura Naturals Kitchen & Household Sponges

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Kitchen Sponges

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soap infused sponges with and without scrubbers

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Household Sponges

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soap infused sponges with and without scrubbers

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Pura Marine

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3-in-1 Galley Scrubber

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Fisherman's Cleansing Bar

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Pura Spill Pad

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Pura Bilge Boom

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Pura Diesel Fuel Bib

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Pura Scrubber Plug

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Pura Naturals Pet

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products in development

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Pura Naturals Equine

We have never been subject to any bankruptcy proceeding.

Our executive offices are located at 23101 Lake Center Drive, Suite 100, Lake Forest, CA 92630, telephone (855) 326-8537.

  

Results of Operations

Comparison of Results of Operations for the Six Months Ended June 30, 2017 and 2016

		Six Months ended June 30,								Dollar				Percentage
		2017				2016				Change				Change
Sales		$	166,450			$	250,375			$	(83,925	)			-33.52	%
Cost of goods sold			106,557				109,828				(3,271	)			-2.98	%
Gross profit			59,893				140,547				(80,654	)			-57.39	%
Selling expenses			11,464				23,131				(11,667	)			-50.44	%
General and administrative expenses			972,298				588,259				384,039				65.28	%
Interest expense			191,434				18,542				172,892				932.43	%
Change in value of derivative liability			(71,130	)			-				(71,130	)			100.00	%
Gain on note settlement			(43,120	)			-				(43,120	)			100.00	%
Net loss		$	(1,001,053	)		$	(489,385	)		$	(511,668	)			104.55	%

 

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Sales for the six months ended June 30, 2017 were $166,450 a decrease of $83,925 or 33.52% from $250,375 for the same period in 2016.  The decrease was due to a transitional phase, and changes being made to the beginning marketing strategies implemented by prior management.  The changes being implemented over the last three Quarters involve tactics and strategies to engage consumers and build brand awareness. First, we have reevaluated our low margin distribution model while examining and preparing for a more effective and efficient strategic model to grow profitable sales and increase shareholder value. While this process has in effect reduced our current revenue by pairing down our most unprofitable distribution partnerships, we will simultaneously benefit from improved margins and freeing up our limited resources to be repurposed towards the integration of more effective sales channels. 

Moving forward, Pura is more aptly aligned and dedicated towards relevant and impactful marketing and sales strategies. The subsequent revenue and profit losses over the last few quarters, while hard fought, resulted from the reliance on an ineffective sales distribution model defined by inelastic price points and slow brand recognition and engagement.   Paramount to this new strategy is the integration of a robust direct to consumer model which will incorporate digital marketing and media to effectively promote our products directly towards our targeted demographics. To this end we separated and defined our products by product line for better market segmentation. In addition, several products in our Home and Health & Beauty lines are being rebranded to deliver more consumer appeal and benefit. This model will dramatically improve our capacity to best achieve our goals of telling the Pura story to the right consumers yielding a higher conversion rate with a greatly reduced cost of acquisition.  Furthermore, we have embarked on the support of a few key strategic marketing partners with proven expertise in creating brand awareness, product positioning and consumer engagement strategies and tactics to reach our near-term growth and profitability objectives.

Cost of goods sold for the six months ended June 30, 2017 were $106,557 a decrease of $3,271 or 2.98% from $109,828 for the same period in 2016.  The decrease was due to product mix changes.  Cost of goods sold as a percentage of sales was 64.02% for the six months ended June 30, 2017 compared to 43.87% for the same period in 2016.  Cost of goods sold increased as a percentage of sales due to the reduction in the purchase of bulk items that are expensed and not inventoried.

 

Selling expenses for the six months ended June 30, 2017 were $11,464 a decrease of $11,667 or 50.44% from $23,131 for the 2016 period.  The decrease was due to a decrease in marketing promotions.

 

General and administrative expenses for the six months ended June 30, 2017 were $972,298 an increase of $384,039 or 65.28% from $588,259 for the same period in 2016.  The increase was principally due to approximately $109,000 in salary and benefits, approximately $199,000 in professional fees comprised of marketing consultants, legal and accounting fees, approximately $19,000 in general and liability insurance, amortization of approximately $50,000 and other costs of approximately $7,039.

During the six months ended June 30, 2017, the Company incurred interest expense of $191,434 compared to $18,542 for the same period in 2016. For the six months ended June 30, 2017, the interest expense of $191,434 comprised of $57,933 in interest expense, $98,854 in amortization of debt issuance costs, original issue discount, debt financing costs and debt discount attributable to the Notes Payable. Also incurred was debt financing costs of $34,647. 

During the six months ended June 30, 2017, the Company incurred a gain in the fair value change of derivative liability of $71,130 as compared to $0 for the same period in 2016.

During the six months ended June 30, 2017, the Company incurred a gain on note settlement of $43,120 as compared to $0 for the same period in 2016.  This was due to the settlement of the related party note payable.

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Comparison of Results of Operations for the Three Months Ended June 30, 2017 and 2016

		Three Months ended June 30,								Dollar				Percentage
		2017				2016				Change				Change
Sales		$	99,381			$	128,548			$	(29,167	)			-22.69	%
Cost of goods sold			59,752				64,499				(4,747	)			-7.36	%
Gross profit			39,629				64,049				(24,420	)			-38.13	%
Selling expenses			91				22,251				(22,160	)			-99.59	%
General and administrative expenses			457,510				456,928				582				0.13	%
Interest expense			92,523				9,657				82,866				858.09	%
Change in value of derivative liability			(85,292	)			-				(85,292	)			100.00	%
Gain on note settlement			(43,120	)			-				(43,120	)			100.00	%
Net loss		$	(382,083	)		$	(424,787	)		$	42,704				-10.05	%

Selling expenses for the three months ended June 30, 2017 were $91 a decrease of $22,160 or 99.59% from $22,251 for the 2016 period.  The decrease was due to a decrease in marketing promotions.

 

General and administrative expenses for the three months ended June 30, 2017 were $457,510 an increase of $582 or 0.13% from $456,928 for the same period in 2016.

During the three months ended June 30, 2017, the Company incurred interest expense of $92,523 as compared to $9,657 for the same period in 2016. For the three months ended June 30, 2017, the interest expense of $92,523 comprised of ($6,066) in interest expense, $98,589 in amortization of debt issuance costs, original issue discount, debt financing costs and debt discount attributable to the Notes Payable. 

During the three months ended June 30, 2017, the Company incurred a gain in the fair value change of derivative liability of $85,292 as compared to $0 for the same period in 2016.

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Liquidity and Capital Resources

 

As of June 30, 2017, we had $711 in cash as compared to $14,386 at December 31, 2016.

 

At June 30, 2017, we had current assets of $247,055 and current liabilities of $991,135 resulting in a working capital deficit of $744,080 as compared to current assets of $107,835 and current liabilities of $1,315,180, resulting in a working capital deficit of $1,207,345 at December 31, 2016.

 

Net cash used in operating activities was $590,133 during the six months ended June 30, 2017, compared to $317,622 during the same period in 2016.  The increase in cash used in operating activities is due to an increase in the net loss for the six months ended June 30, 2017 compared to the same period in 2016.

  

Cash flows used in investing activities were $5,705 during the six months ended June 30, 2017 compared to $1,300 during the same period in 2016.  The change is principally due to an increase in payment for intangible assets.

 

Cash flows provided by financing activities were $582,163 and $215,004 during the six months ended June 30, 2017 and 2016, respectively.  The increase in cash provided by financing activities is due to the sale of common stock and the issuance of a convertible notes payable during the six months ended June 30, 2017 compared to the same period in 2016; offset by increases in payments on note payable.

 

To date, our operations have not generated any profits.  We have funded our operating to date through the sales of common stock and issuance of notes payable and convertible notes payable.  Our ability to continue as a going concern is dependent upon use raising sufficient debt or equity capital to sustain operations until such time as we can generate a profit from our operations.    We are currently working with investors to provide us with the necessary funding, but there can be no assurances we will obtain such funding in the future.  Failure to obtain this additional financing will have a material negative impact on our ability to generate profits in the future.  

 

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.

 

  

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.

 

ITEM 4.  CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures   –   Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Report.

 

These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our CEO and CFO to allow timely decisions regarding required disclosure.

 

Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of June 30, 2017, at the reasonable assurance level.    We believe our financial statements presented in this quarterly report on Form 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows for all periods presented herein.

  

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Inherent Limitations   –   Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all error and all fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data.

 

Changes in Internal Control over Financial Reporting   –   There were no changes in our internal control over financial reporting during our three month period ended June 30, 2017, which were identified in conjunction with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

In April 2017 the Company sold a Convertible Promissory Note to an accredited investors for a purchase price of $570,000.

 

The Company relied on Section 4(a)(2) and Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended, for the offer and sale of the securities recited above in as much as the offers and sales were made to accredited investors that had access to substantially the information required to be delivered in a registered offering and we did not undertake any form of general solicitation or general advertising. The Company relied on Section 4(a)(2) in making the issuances to the consultants.

 

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