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EX-21.1 - PURA NATURALS, INC.ex21_1.htm
EX-32.1 - PURA NATURALS, INC.ex32_1.htm
EX-31.2 - PURA NATURALS, INC.ex31_2.htm
EX-31.1 - PURA NATURALS, INC.ex31_1.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2017
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____ to ____
 
Commission file number 000-54888
 
PURA NATURALS, INC.  
(Exact name of registrant as specified in its charter)

Colorado
20-8496798
(State or Other Jurisdiction of 
(I.R.S. Employer
Incorporation or Organization) 
Identification Number)

23101 Lake Center Drive, Suite 100
Lake Forest, CA 92630
 (Address of principal executive offices)

(855) 326-8537
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:  NONE
 
Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.001 Par Value
(Title of Each Class)
 
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes     No 
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes     No 
 
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 
 
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      No 
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company", and "emerging growth company", in Rule 12b-2 of the Exchange Act.

Large accelerated filer
 
Accelerated filer
Non-accelerated filer  
 
Smaller reporting company  
(Do not check if smaller reporting company)
 
Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes     No 
 
As of June 30, 2017, the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold was approximately $15.30 million.
 
The number of shares outstanding of each of the issuer's classes of common stock, as of March 26, 2018 is as follows:
 
               Class of Securities              
 
               Shares Outstanding              
Common Stock, $0.001 par value
 
43,698,963
 







 

PURA NATURALS, INC.

TABLE OF CONTENTS
 
PART I
 
Item 1.
Business
1
 
Item 1A.
Risk Factors
5
 
Item 1B.
Unresolved Staff Comments
12
 
Item 2.
Properties
13
 
Item 3.
Legal Proceedings
13
 
Item 4.
Mine Safety Disclosures
13
     
PART II
 
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
14
 
Item 6.
Selected Financial Data
15
 
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
16
 
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
21
 
Item 8.
Financial Statements and Supplementary Data
21
 
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
21
 
Item 9A.
Controls and Procedures
22
 
Item 9B.
Other Information
23
PART III
 
Item 10.
Directors, Executive Officers and Corporate Governance
24
 
Item 11.
Executive Compensation
26
 
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
30
 
Item 13.
Certain Relationships and Related Transactions, and Director Independence
31
 
Item 14.
Principal Accounting Fees and Services
32
PART IV
 
Item 15.
Exhibits, Financial Statement Schedules
34
 
Item 16.
Form 10-K Summary
34
SIGNATURES
35
FINANCIAL STATEMENTS
F-1
 
 
 

 
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Statements contained in this annual report include "forward-looking statements" within the meaning of such term in Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause actual financial or operating results, performances or achievements expressed or implied by such forward-looking statements not to occur or be realized. Forward-looking statements made in this annual report generally are based on our best estimates of future results, performances or achievements, predicated upon current conditions and the most recent results of the companies involved and their respective industries. Forward-looking statements may be identified by the use of forward-looking terminology such as "may", "will", "could", "should", "project", "expect", "believe", "estimate", "anticipate", "intend", "continue", "potential", "opportunity" or similar terms, variations of those terms or the negative of those terms or other variations of those terms or comparable words or expressions. Potential risks and uncertainties include, among other things, such factors as:
 
 
·
concentration of our customer base and fulfillment of existing customer contracts;
 
·
our ability to maintain pricing;
 
·
deterioration of the credit markets;
 
·
increased vulnerability to adverse economic conditions due to indebtedness;
 
·
competition within our industry;
 
·
asset impairment and other charges;
 
·
our identifying, making and integrating acquisitions;
 
·
our plans to identify and acquire products that we believe will be prospective for acquisition and development;
 
·
loss of key executives;
 
·
the ability to employ skilled and qualified workers;
 
·
work stoppages and other labor matters;
 
·
inadequacy of insurance coverage for certain losses or liabilities;
 
·
federal legislation and state legislative and regulatory initiatives relating to the energy industry;
 
·
costs and liabilities associated with environmental, health and safety laws, including any changes in the interpretation or
enforcement thereof;
 
·
future legislative and regulatory developments;
 
·
our beliefs regarding the future of our competitors;
 
·
our expectation that the demand for our products services will eventually increase; and
 
·
our expectation that we will be able to raise capital when we need it.
 
These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" set forth in this Annual Report on Form 10-K for the year ended December 31, 2017, any of which may cause our company's or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks may cause the Company's or its industry's actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.
 
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.
 
As used in this Annual Report on Form 10-K and unless otherwise indicated, the terms "we," "us," "our," or the "Company" refer to Pura Naturals, Inc. (Colorado) and our subsidiary Pura Naturals, Inc. (Delaware).   The term "PURA" refers to our operating subsidiary, Pura Naturals, Inc. (Delaware).  Unless otherwise specified, all dollar amounts are expressed in United States dollars.
 
 


 

 
PART I

ITEM 1.  BUSINESS

Overview of Our Business

Pura Naturals, Inc. (the "Company") markets and sells a line of cleaning, health, beauty and marine products based on the BeBetterFoam® platform for consumer kitchen, bathroom, body and face with additional products for outdoor hobbies (fishing and boating, spas and pools), infant care and industrial use currently through our operating subsidiary Pura Naturals, Inc., a Delaware corporation ("PURA").  PURA was formed in 2013.  The inspiration for the Company's creation was the Gulf of Mexico oil spill in 2010. This massive spill released over 200 million gallons of oil along the Gulf Coast, making it one of the worst oil disasters in history. The immediate impact on the environment and wildlife was devastating.

The BeBetterFoam® is hydrophobic, which means it resists water which does not support bacteria growth.  PURA believes that 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, owned by  PURA, and is incapable of being reverse engineered.

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 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.

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 has 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.
 
Sales by Product Line:
     
  Household and Kitchen
 
$
292,067
 
  Health and Beauty
   
142,817
 
  Marine Products
   
16,497
 
   
$
451,381
 
 
Recent Developments

Business Developments
In January, 2017, the Company made new key appointments to the Company's senior management team and initiated additional marketing efforts across all product lines of the Company to drive growth.

In February, 2017, the Company entered into a private label manufacturing supply arrangement with Permatex, a subsidiary of Illinois Tool Works, to manufacture and supply the first sponge infused with Permatex's grease cuttings soap, Fast Orange, for an all-in-one hand and body cleaning product. The Company continues to manufacture and supply such product for Permatex as of this filing.
 
 

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In April, 2017, the Company expanded the digital marketing strategies and introduced Mammoth Corporation as a capital partner.

In May, 2017, the Company acquired the formulas for their foam products, cancelling the licensing arrangement and debt related to the license, increasing the Company's intellectual property base.  A patent application was also filed with the United States Patent Office for an invention known as a scupper plug involving oil and hydrocarbon filtration using the Company's foam as a filtration media.

In July, 2017, the Company received, and later filled, orders for the Company's soap-infused body sponge for over 1,000 Walmart stores, and began the Pura Clean Club through the company website www.puracleanclub.com.

In August, 2017, the Company's launched a proprietary liquid bio-degreaser that is all natural to compliment the Company's anti-bacterial grease and grime cleaning sponge product lines.

In October, 2017, the Company was a sponsor of the World Food Championship in Orange Beach, Florida.  Company officials proudly attended the event, where the Company's grease and grime cleaning sponges and degreaser were used to clean the contestant's kitchens. In this same month, the Company contracted with three additional partners to strengthen the public communications and product marketing efforts of the Company.

In December, 2017, the partnership between the Company and the Georgia Aquarium was established to further the Company's mission to aid in the protection of the environment.  That same month, the Company's household sponge products became qualified to sell to Supervalu stores in their locations in the United States.

In February, 2018, a private label agreement was reached to supply the Company's all natural liquid bio-degreaser to police departments in major cities in the United States.

In March, 2018, a new line of health and beauty products with CBD and hemp seed oils was launched in the expanding industry surrounding the benefits of CBD oils in topical applications.

Trademarks
In addition to the trademarks existing before 2017, the Company applied for and/or was awarded the following trademarks during 2017:  Pura Cleanse, Pura Clean, 3 – in – 1 Pura Cleanse, Pura Marine, Puratastic and the Pura Clean Club.  Thus far in 2018, the Company has applied for the following trademarks:  Grease Beast and Tru + Pure.

Tax Cut and JOBS Act
 
On December 22, 2017 the Tax Cuts and JOBS Act (the "Act") was signed into law. The Act changed many aspects of U.S. corporate income taxation and included the reduction of the corporate income tax rate from 35% to 21%. The Act also included implementation of a territorial system and imposition of a one-time tax on deemed repatriated earnings of foreign subsidiaries. At December 31, 2017 we had not completed our accounting for the tax effects of enactment of the Act; however we made a reasonable estimate of the net effects on our existing deferred tax balances and the one-time transition tax. We will continue to assess our provision for income taxes as future guidance becomes available, however we do not currently anticipate significant revisions will be necessary. Any such revisions will be treated in accordance with the measurement period guidance outlined in Staff Accounting Bulletin No. 118.

History
 
We were incorporated on December 26, 2005, in the State of Colorado under the name "Yummieflies.com, Inc."  In March 2010 we filed an amendment to our Articles of Incorporation changing our name to "Yummy Flies, Inc."  We previously were engaged in marketing and selling of hand crafted fly fishing ties and other fishing accessories that had been developed by management.  We underwent a change of control in July 2016, following which we acquired our new, and current, business lines.  We change the Company name to Pura Naturals, Inc. in November 2016.
 
 
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Share Exchange Agreement

Effective July 18, 2016 the Company, entered into that certain Share Exchange Agreement (the "Share Exchange Agreement") by and among the Company, PURA and certain shareholders of PURA (the "PURA Shareholders").  Pursuant to the Share Exchange Agreement, the Company exchanged the outstanding common and preferred stock of PURA held by the PURA Shareholders for shares of common stock of the Company on approximately a 1:4.2 basis, (after giving effect to certain share cancellations).  At closing, Robert Lee, the holder of 8,289,000 shares of the Company's common stock, agreed to their cancelation.  Other than Robert Lee, shareholders of Company's common stock held approximately 1,926,000 shares.  Also on the Closing Date, the Company issued approximately 6,267,000 shares of common stock to the PURA shareholders.   In addition, shares issuable under outstanding options of PURA were exercisable into shares of common stock of the Company, pursuant to the terms of such instruments.  The shares of PURA common stock issuable upon exercise of options were exchanged for approximately 470,000 Shares of the Company's common stock.  Immediately after closing, the holders of the majority shares of PURA common stock have exchanged their shares into a majority of the shares of the issued and outstanding shares of the Company's common stock.

As a result of the Share Exchange Agreement and the other transactions contemplated thereunder, PURA became a majority owned subsidiary of the Company.
 
The Name Change and Stock Split

On November 4, 2013, the Company filed Articles of Amendment to its Amended Articles of Incorporation (the "Articles of Amendment") with the Secretary of State of the State of Colorado effecting a 3.7 for 1 forward stock split of the Company's common stock (the "Forward Stock Split"), and increase in the authorized shares of common stock to 500,000,000 (the "Share Increase") and a name change of the Company to Pura Naturals, Inc. (the "Name Change", and together with the Forward Stock Split and Share Increase, the "Corporate Actions").

The Forward Stock Split did not change the value of any stockholder's shares of common stock with the par value remaining at $0.001 or any stockholder's ownership percentage of the common stock, except for minimal changes resulting from the treatment of fractional shares. We did not issue any fractional shares as a result of the Forward Stock Split. The number of shares issued to each stockholder was rounded up to the nearest whole number if, as a result of the Forward Stock Split, the number of shares owned by any stockholder would not be a whole number.

The Forward Stock Split proportionately increased all issued and outstanding shares of our common stock, as well as common stock underlying stock options, warrants and other common stock based equity grants outstanding and the respective exercise prices were proportionately increased in accordance with the terms of the agreements governing such securities. Shares of common stock reserved for issuance upon the conversion of our convertible notes were also proportionately reduced and the respective conversion prices were proportionately increased.

The Corporate Actions and the Amended Articles became effective on November 16, 2016 following compliance with notification requirements of the Financial Industry Regulatory Authority and the expiration of a 20-day waiting period following mailing of notification to shareholders of the actions taken by written consent.

Available Information
 
We file with the SEC our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to reports to be filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, on official business days during the hours of 10 a.m. to 3 p.m. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
 
 
 
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Our corporate headquarters are located at 23101 Lake Center Drive, Suite 100, Lake Forest, CA 92630.  Our telephone number is (855) 326-8537. We maintain a website at www.puranaturalsproduct.com that links to our electronic SEC filings and contains information about our subsidiaries which is not a part of this report.  All the above documents are available free of charge on our website as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC

Industry Overview

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 have 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 plan 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 product acceptance against classic cleaning products like the kitchen sponge and Bilge Boom. We operate in four business segments: Health, 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. In this regard, 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 during 2018.

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 water which does not support bacteria growth.  We believe the BeBetterFoam® is also 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 Recovery Technologies, Inc ("AIRTech") in May 2017, and we believe this technology is incapable of being reverse engineered. Previously, those formulations had been exclusively licensed to from AIRTech to PURA. 

Our Suppliers

AIRTech is our main manufacturer/suppliers for the products branded under the name of "Pura Natural." which account for 100% of out supplies in the year ended December 31, 2017 Our supplier selection was made largely to impart to the strategic alliance we built alongside AIRTech.
 

 

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Our Customers

Pura Naturals products are sold through numerous distribution channels, including directly to consumer and through numerous retailers, wholesalers, brokers and distributors throughout the United States. Pura Naturals products are also available direct to consumer through our own e-commerce website, and Amazon.com. Through our on line sales we sell to many small customers along with large retail accounts.

The following tables set forth those customers which accounted for 10% or more of our sales in 2017:
Name of Customer
Sales Percentage
Amazon
29.30%
Global Trend Sales
27.36%
Jacent Strategic
11.15%
Sales and Marketing

Pura Naturals increased our sales distribution channel through the addition of new distributors and retail partnership including Target Stores, Meijer's Supermarkets and CVS. Pura Naturals also received media coverage in several magazines including Family Circle (Top Cleaning Award), and received recommendations during a Today Show airing of Spring Cleaning Tips segment in 2016. In addition, we managed to utilize PR services provided by PlanetJES Inc, to assist with marketing efforts.

Pura Marine formed a strategic relationship with the television program Anglers Chronicles.  Our products have received significant exposure during the airing of the weekly television series.  We also attended two radio broadcasts hosted by Anglers Chronicles.  Pura Marine also signed agreements with representation firms in California and Texas to market its products.

Pura Naturals was successful in building consumer and brand awareness through several key strategic partnerships including PERMATEX, Angler Chronicles, GA Aquarium and World Food Championships. We also grew our Amazon and online sales revenues, while expanding our retail opportunities within Walmart, Supervalue and Jacent Strategic Merchandising. The Company launched additional products including Pura Pro Bio Degreaser and Pura Cleanse 3-in-1 Face, which hold great potential in the all-natural degreaser and health and beauty verticals respectively. In addition, the Company's executive management held growth strategy meetings to discuss how best to increase brand awareness at the consumer level. As a result, the Company is looking to partner with a large direct response television campaign specialist to bring the Pura Naturals brand into over 100 million households while promoting the value propositions of our flagship Pura Clean Total Home cleaning sponges. Management anticipates contracting with a prominent direct response television company by early 2018.

We believe that consumers care more about what solutions the product provided rather then what the brand represented. With the knowledge and understanding we acquired from our targeted consumers, we felt it was necessary to make a change in our marketing efforts by focusing more on utilizing social media. Since the mid 2017, we have noticed a gradual increase in the demand for our products as we began to acquire more reorders from key vendors.

Competition
 
In the household market, Pura Naturals competes directly with 3M which holds a majority of the market share and owns Scotch-Brite® Scour Pads, Scotch-Brite® Scrub Sponges and O-Cel-O™ Sponges.  The bright yellow and green Scotch Brite sponge is one of the most recognizable products on market While Pura Naturals products cater more towards the environmentally conscious consumers, the 3M's distribution channels are well carved out, and they have familiarity from retailers and consumers alike. The bright yellow and green Scotch Brite sponge is one of the most recognizable products on market. For the Pura Natural Health, Beauty and Skin care products, primary competitors are from the Proctor & Gamble and Unilever brands of products.  The Marine division's primary competitor is 3M.
 
 
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Increased competition could reduce our operating margins, profitability and result in a loss of market share. Some of our existing and potential competitors may have competitive advantages, such as more advertising funds and broader coverage and exclusive arrangements in desirable locations. These competitors could provide a wider range of media and advertising ads, which could cause us to lose market share or reduce prices in order to compete, which could decrease our revenues, gross margins and profits. We cannot guarantee that we will be able to compete against these existing and new competitors.

Our Intellectual Property
 
As of December 31, 2017, we have 10 registered trademarks and no copyrights or patent rights. 

Trademarks we hold are: "Pura Naturals", "Better Clean | Better Planet", "Mighty Soap Sponges", "Tiny Sponge, Mighty Clean", "Pura Naturals Pet, "Pura Baby", "Pura Marine", "Pura Tips",and "Pura Pet".

Our Research and Development
 
No material costs have been incurred on research and development activities for 2017 and 2016.  We do not expect to incur significant research and development costs in the coming future.  All true material development is performed by the licensor.  The Company is working with AirTech to develop products infused with hemp seed oils.  Due to the chemical expertise held by individuals at both AirTech and the Company, research and development costs have been minimal.
 
Employees
 
As of December 31, 2017, the Company had 7 employees at our office located at 23101 Lake Center Drive, Suite 100, Lake Forest, CA.

Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We believe we maintain a satisfactory working relationship with our employees and we have not experienced any significant labor disputes or work stoppage or any difficulty in recruiting staff for our operations.

The Company has and maintains a Qualified Employee Stock Incentive Plan as a means of alternative compensation for employees and key consultants in which distributions are made in the discretion of the Board of Directors and the Chief Executive Officer.

The Company provides and contributes towards medical and dental insurance for the employees. We believe we are in material compliance with the relevant laws in that particular.  In the future, the Company intends to offer employees with additional benefits, including pension or retirement plans.
 
Government Regulation
 
Manufacturing

The manufacturing of the Company's products takes place in California. The laws and regulations of the United States, California, and local jurisdiction where the Company's products are manufactured require certain general safety guidelines for the raw materials that are used in the Company's products, as well as for employees in the workplace.

The manufacturing process for the Company's products complies with "best practices", does not involve toxic materials or emissions, is effluent, involves production of PH neutral products, results in a negative carbon footprint manufacturing value, and is compliant with all known and applicable safety laws and regulations.

Labeling

The labeling of the Company's products is compliant with the laws of the United States as those laws may be applicable. None of the products made and sold by the Company constitute a food, drug or intended cosmetic governed under the United States Food and Drug Administration. The statements made on the labels of the Company's products regarding the functions of the products, the contents and volumes within the packaging, and the pricing do not conflict with any known rule or regulation and accurately reflect the nature and efficacy of the products.
 
 
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Advertising
 
United States and California advertising laws and regulations set forth certain content requirements for advertisements in the United States and California, which include prohibitions on, among other things,  misleading content.

Violation of these regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information.

The Company implemented procedures to ensure the contents of all advertisements are properly reviewed for accuracy and truthfulness prior to publication.

Environmental Matters
 
The Company's operations are subject to various environmental regulations. We believe that we are in substantial compliance with applicable laws, rules and regulations relating to the protection of the environment and that our compliance will have no material effect on our capital expenditures, earnings or competitive position.

ITEM 1A. RISK FACTORS

Risks Related to Our Company
 
There is substantial doubt about our ability to continue as a going concern.
 
We have not generated any profit from operations since our inception. We expect our operating expenses will increase over the next 12 months to continue our development activities. Based on our average monthly expenses and current burn rate, we estimate we will need to raise an additional $1,000,000 to 5,000,000 over the next 24 months. This amount could increase if we encounter difficulties that we cannot anticipate at this time or if we acquire other businesses. As of the date of this filing, we had cash and cash equivalents of approximately $88,600 through cash reserves.  We do not expect to raise significant capital through debt financing from traditional lending sources since we are not currently generating a profit from operations. Therefore, we only expect to raise money through equity financing via the sale of our common stock or equity-linked securities such as convertible debt. If we cannot raise the money that we need in order to continue to operate our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations. If any of these were to occur, there is a substantial risk that our business would fail. If we are unsuccessful in raising additional financing, we may need to curtail, discontinue or cease operations.
 
We have limited operating history of the new line of business.  As such, no assurance that we will be profitability.
 
We have a limited operating history with PURA and, accordingly, have a limited operating history on which to base an evaluation of our business. Our business must be considered in light of the risks, expenses and problems frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets which involve technology. Our proposed operations are subject to all of the risks inherent in the establishment of a new business enterprise. Accordingly, the likelihood of our success must be considered in the light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with the starting and expansion of a business and the relatively competitive environment in which we will operate.

Unanticipated delays, expenses and other problems such as setbacks in product development, product manufacturing, and market acceptance are frequently encountered in establishing a new business such as ours. There can be no assurance that the Company will be successful in addressing such risks, and any failure to do so could have a material adverse effect on the Company's business, results of operations and financial condition.
 
 

- 5 -

 

 
Because of our limited operating history, we have limited historical financial data on which to base planned operating expenses. Accordingly, our expense levels, which are, to a large extent, variable, will be based in part on our expectations of future revenues. As a result of the variable nature of many of our expenses, we may be unable to adjust spending in a timely manner to compensate for any unexpected delays in the development and marketing of our products or any subsequent revenue shortfall. Any such delays or shortfalls will have an immediate adverse impact on our business, operating results and financial condition.
 
The Company has not achieved profitability on a quarterly or annual basis to date. To the extent that net revenue does not grow at anticipated rates or that increases in its operating expenses precede or are not subsequently followed by commensurate increases in net revenue, or that the Company is unable to adjust operating expense levels accordingly, the Company's business, results of operations and financial condition will be materially and adversely affected. There can be no assurance that the Company's operating losses will not increase in the future or that the Company will ever achieve or sustain profitability.
 
We may need to raise additional funds in the future that may not be available on acceptable terms or at all.
 
We may need to raise additional funds via the sale of our common stock or equity-linked securities such as convertible debt in the future to fund our business plan, for potential acquisitions or investments, or for general corporate purposes. When we issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. If we incur additional debt, it may increase our leverage relative to our earnings or to our equity capitalization, requiring us to pay additional interest expenses. We may not be able to obtain financing on favorable terms, or at all, in which case, we may not be able to develop or enhance our products, execute our business plan, take advantage of future opportunities or respond to competitive pressures.

Our margins fluctuate which leads to further uncertainty in our profitability model.
 
While the Company will have the potential ability to negotiate prices that benefit its clients and affect its profitability as it garners market-share and increases its book of business, margins in the energy business are fluid, and the Company's margins vary based upon the supplier and the customer. This will lead to continued uncertainty in margins from quarter to quarter.
 
If demand for our products does not develop as expected our projected revenues and profits will be affected.

Our future profits are influenced by many factors, including economics, and will be predicated on a stable and/or growing market and consumption of health/beauty, cleaning and marine products. We believe, and our growth expectations assume, that the markets for our suite of products will continue to grow, that we will increase our penetration of these markets and that our anticipated revenue from selling into this market will continue to increase.

If our expectations as to the size of these markets and our ability to sell our products and services in this market are not correct, our revenue may not materialize and our business will be harmed. 
 
 
- 6 -

 
 
Operating results may fluctuate and may fall below expectations in any fiscal quarter.
 
Our operating results are difficult to predict and are expected to fluctuate from quarter to quarter due to a variety of factors, many of which are outside of our control. Factors that may cause our operating results to fluctuate include:
 
 
·
our ability to arrange financing for operations;
 
·
our ability to acquire products to resell to our customers;
 
·
changes in federal, state and local government policies and programs
 
·
the timing of orders where we recognize revenue on a percentage of completion basis;
 
·
a customer's decision to delay our work, on or other risks involved with, a particular order;
 
·
availability and costs of labor and equipment;
 
·
the addition of new customers or the loss of existing customers;
 
·
the size and scale of new customers;
 
·
our ability to control costs, including operating expenses;
 
·
changes in the mix of our products;
 
·
the length of our sales cycle;
 
·
the productivity and growth of our sales force;
 
·
changes in pricing by us or our competitors, or the need to provide discounts to win business;
 
·
costs related to the acquisition and integration of companies or assets;
 
·
general economic trends or geopolitical events such as war or incidents of terrorism; and
 
·
future accounting pronouncements and changes in accounting policies.
  
As a result, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results or future predictions prepared by the Company as an indication of our future performance. If our revenue or operating results fall in any period, the value of our common stock would likely decline. 
 
 
 
- 6 -


 

Our business is at risk if we lose key personnel or is unable to attract and integrate additional skills personnel.

The success of our business depends in large part on the skill of our personnel. Accordingly, it is critical that we maintain, and continue to build, a highly experienced management team and specialized workforce, including engineers, project management, and business development and sales professionals. Competition for personnel, particularly those with expertise in the consumer goods industries, is high, and identifying candidates with the appropriate qualifications can be costly and difficult. We may not be able to hire the necessary personnel to implement our business strategy given our anticipated hiring needs, or we may need to provide higher compensation or more training to our personnel than we currently anticipate.
 
In the event, we are unable to attract, hire and retain the requisite personnel and subcontractors, we may experience delays in completing orders in accordance with customer schedules and pricing, which may have an adverse effect on our financial results, harm our reputation and cause us to curtail our pursuit of new customers/orders. Further, any increase in demand for personnel may result in higher costs, which in turn may have an adverse effect on our business, financial condition and operating results and harm our relationships with our customers.
 
Our future success is particularly dependent on the vision, skills, experience and effort of our senior management team, including our executive officers and our president and chief executive officer. If we were to lose the services of any of our executive officers or key employees, our ability to effectively manage our operations and implement our strategy could be harmed and our business may suffer. 

We operate in a highly competitive industry and competitors may compete more effectively.
 
Many of our competitors have longer operating histories and greater resources than us, and could focus their substantial financial resources to develop a competing business model, develop products or services that are more attractive to potential customers than what we offer or convince our potential customers that they should require financing arrangements that would be impractical for smaller companies to offer. Our competitors may also offer products at prices below cost and/or devote significant sales forces to competing with us or attempt to recruit our key personnel by increasing compensation, any of which could improve their competitive positions. Any of these competitive factors could make it more difficult for us to attract and retain customers; cause us to lower our prices in order to compete, and reduce our market share and revenue, any of which could have a material adverse effect on our financial condition and operating results. We can provide no assurance that we will continue to effectively compete against our current competitors or additional companies that may enter our markets.
  
We may be unable to manage our growth effectively.
 
We expect our business and operations to expand rapidly and we anticipate that further expansion of our organization and operations will be required to achieve our expectations for future growth. In addition, in order to manage our expanding operations, we will also need to improve our management, operational and financial controls and our reporting systems and procedures. All of these measures will require significant expenditures and will demand the attention of management. If we do not continue to enhance our management personnel and our operational and financial systems and controls in response to growth in our business, we could experience operating inefficiencies that could impair our competitive position and could increase our costs more than we had planned. If we are unable to manage growth effectively, our business, financial condition and operating results could be adversely affected.
 
We plan to expand our business, in part, through future acquisitions.
 
We plan to use acquisitions of companies or assets to expand our capabilities, expand our geographic markets, add experienced management and increase our product offerings. However, we may be unable to implement this growth strategy if we cannot identify suitable acquisition candidates, reach agreement with acquisition targets on acceptable terms or arrange required financing for acquisitions on acceptable terms. In addition, the time and effort involved in attempting to identify acquisition candidates and consummate acquisitions may divert members of our management from the operations of our company.
 
 
 

- 7 -

 

 
Any future acquisitions could disrupt business.

Historically, we have not made any acquisitions as part of our growth strategy.  However, we plan to use acquisitions of companies or assets to expand our project skill-sets and capabilities, expand our geographic markets, add experienced management and increase our product and service offerings. Yet, we may be unable to implement this growth strategy if we cannot identify suitable acquisition candidates, reach agreement with acquisition targets on acceptable terms or arrange required financing for acquisitions on acceptable terms. In addition, the time and effort involved in attempting to identify acquisition candidates and consummate acquisitions may divert members of our management from the operations of our company.
 
If we are successful in consummating acquisitions, those acquisitions could subject us to a number of risks, including:
 
 
·
the purchase price we pay could significantly deplete our cash reserves or result in dilution to our existing stockholders;
 
·
we may find that the acquired company or assets do not improve our customer offerings or market position as planned;
 
·
we may have difficulty integrating the operations and personnel of the acquired company;
 
·
key personnel and customers of the acquired company may terminate their relationships with the acquired company as a result
of the acquisition;
 
·
we may experience additional financial and accounting challenges and complexities in areas such as tax planning and
financial reporting;
 
·
we may assume or be held liable for risks and liabilities as a result of our acquisitions, some of which we may not discover
during our due diligence or adequately adjust for in our acquisition arrangements;
 
·
we may incur one-time write-offs or restructuring charges in connection with the acquisition;
 
·
we may acquire goodwill and other intangible assets that are subject to amortization or impairment tests, which could result in
future charges to earnings; and
 
·
we may not be able to realize the cost savings or other financial benefits we anticipated.
 
These factors could have a material adverse effect on our business, financial condition and operating results.

We may incur a variety of costs to engage in future acquisitions of companies, products or technologies, and the anticipated benefits of those acquisitions may never be realized.
 
As a part of our business strategy, we may make acquisitions of, or significant investments in, complementary companies, products or technologies, although no acquisitions or investments are currently pending. Any future acquisitions would be accompanied by risks such as:
 
 
·
difficulties in assimilating the operations and personnel of acquired companies;
 
·
diversion of our management's attention from ongoing business concerns;
 
·
our potential inability to maximize our financial and strategic position through the successful incorporation of acquired
technology and rights into our products;
 
·
additional expense associated with amortization of acquired assets;
 
·
charges at the time of acquisitions related to the expensing of process research and development;
 
·
the exposure to additional debt to fund an acquisition;
 
·
dilution to existing shareholders should the Company raise additional equity;
 
·
maintenance of uniform standards, controls, procedures and policies; and
 
·
impairment of existing relationships with employees, suppliers and customers as a result of the integration of new
management personnel.
 
We cannot guarantee that we will be able to successfully integrate any business, products, technologies or personnel that we might acquire in the future, and our failure to do so would have a material adverse effect on our business, financial condition and operational results.
 
 
 
- 8 -

 

 

   
International operations could expose business to additional risks.
 
We expect to generate a portion of sales outside the United States in the future. International expansion and sales is one of our growth strategies, and we expect our revenue and operations outside of North America will expand in the future. These operations will be subject to a variety of risks that we do not face in the United States including:
 
 
·
increased travel, infrastructure and legal and compliance costs associated with multiple international locations;
 
·
additional withholding taxes or other taxes on our foreign income, and tariffs or other restrictions on foreign trade or investment;
 
·
imposition of, or unexpected adverse changes in, foreign laws or regulatory requirements, many of which differ from those in the United States;
 
·
increased exposure to foreign currency exchange rate risk;
 
·
longer payment cycles for sales in some foreign countries and potential difficulties in enforcing contracts and collecting accounts receivable;
 
·
difficulties in repatriating overseas earnings;
 
·
general economic conditions in the countries in which we operate; and
 
·
political unrest, war, incidents of terrorism or responses to such events.
 
Our overall success in international markets will depend, in part, on our ability to succeed in differing legal, regulatory, economic, social and political conditions. We may not be successful in developing and implementing policies and strategies that will be effective in managing these risks in each country where we do business. Our failure to manage these risks successfully could harm our international operations, reduce our international sales and increase our costs, thus adversely affecting our business, financial condition and operating results.

Insurance and contractual protections may not always cover lost revenue.
 
Although we possess insurance, warranties from suppliers, and subcontractors obligations to meet certain performance levels and attempt, where feasible, to pass risks we cannot control to our customers, the proceeds of such insurance, warranties, performance guarantees or risk sharing arrangements may not be adequate to cover lost revenue, increased expenses or liquidated damages payments that may be required in the future.
 
We rely on outside consultants, employees, manufacturers and suppliers.
 
We will rely on the experience of outside consultants, employees, manufacturers and suppliers. In the event that one or more of these consultants or employees terminates employment with the Company, or becomes unavailable, suitable replacements will need to be obtained and there is no assurance that such employees or consultants could be obtained under conditions favorable to us.
 
We rely on Strategic relationships to promote our products.
 
We will rely on strategic partnerships with outside companies and individuals to promote and supply certain of our products, thus making the future success of our business particularly contingent on the efforts of other parties. An important part of our strategy is to promote acceptance of our products through technology and product alliances with certain distributors who we feel could assist us with our promotion strategies. Our dependence on outside distributors, however, raises potential risks with respect to the future success of our business. Our success is dependent on the successful completion and commercial deployment of our products and services and on the future commitment of our distributors to our products and technology.
 
We rely on our suppliers.
 
We will rely on key vendors and suppliers to provide high quality products and services on a consistent basis. The Company uses outside assembly facilities and contract manufacturers to produce quantities of materials these include, manufacturing facilities, warehouses, shippers, testing facilities and other critical vendor partners. The future success of the Company is contingent on the efforts and performance of these suppliers. Although in the past we have obtained adequate quantities of raw materials and finished product on acceptable terms to meet our requirements, we may have difficulty in locating or using alternative resources should supply problems arise with the current suppliers. An interruption or reduction in the source of supply of any of the component materials, or an unanticipated increase in vendor prices, could materially affect our operating results and damage customer relationships as well as our business.
 
 
 
- 9 -

 
 


There can be no assurance that we will generate sufficient revenues to support our operation or a positive cash flow.
 
There can be no assurance that our proposed operations will result in sufficient revenues to enable us to operate at profitable levels or to generate positive cash flow. As a result of the Company's limited operating history and the nature of the markets in which it competes, the Company may not be able to accurately predict its revenues. Any failure by the Company to accurately make such predictions would have a material adverse effect on the Company's business, results of operations and financial condition. Further, the Company's current and future expense levels are based largely on its investment plans and estimates of future revenues. The Company expects operating results to fluctuate significantly in the future as a result of a variety of factors, many of which are outside of the Company's control. Factors that may adversely affect the Company's operating results include, among others, demand for the products of the Company, the budgeting cycles of potential customers, lack of enforcement of or changes in governmental regulations or laws, the amount and timing of capital expenditures and other costs relating to the expansion of the Company's operations, the introduction of new or enhanced products and services by the Company or its competitors, the timing and number of new hires, changes in the Company's pricing policy or those of its competitors, the mix of products, increases in the cost of raw materials, technical difficulties with the products, incurrence of costs relating to future acquisitions, general economic conditions, and market acceptance of the company's products. As a strategic response to changes in the competitive environment, the Company may from time to time make certain pricing, service or marketing decisions or business combinations that could have a material adverse effect on the Company's business, results of operations and financial condition. Any seasonality is likely to cause quarterly fluctuations in the Company's operating results, and there can be no assurance that such patterns will not have a material adverse effect on the Company's business, results of operations and financial condition. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall.
 
If we are unable to successfully recruit and retain qualified personnel, we may not be able to continue our operations.
 
In order to successfully implement and manage our business plan, we will depend upon, among other things, successfully recruiting and retaining qualified personnel having experience in the consumer goods industry. Competition for qualified individuals is intense. We may not be able to find, attract and retain qualified personnel on acceptable terms. If we are unable to find, attract and retain qualified personnel with technical expertise, our business operations could suffer.
 
If we fail to protect our intellectual property, our planned business could be adversely affected.
 
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary. Unauthorized use of our proprietary technology could harm our business. Litigation to protect our intellectual property rights can be costly and time-consuming to prosecute, and there can be no assurance that we will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation action.
 
We may be subject to lawsuits related to products we purchase from our suppliers or the services performed by our providers.
 
In the future, we may be a party to, or may be otherwise responsible for, pending or threatened lawsuits or other claims related to products we purchase from our approved manufacturers and suppliers. We intend to require our approved providers to have product liability insurance, but there can be no assurance that such product liability insurance will be sufficient to protect us against potential liability. Additionally, there is no certainty that we will not be named in an action for product liability. Such cases and claims may raise difficult and complex factual and legal issues and may be subject to many uncertainties and complexities, including, but not limited to, the facts and circumstances of each particular case or claim, the jurisdiction in which each suit is brought, and differences in applicable law. Upon resolution of any pending legal matters or other claims, we may incur charges in excess of established reserves. Product liability lawsuits and claims, safety alerts or product recalls in the future, regardless of their ultimate outcome, could have a material adverse effect on our business and reputation and on our ability to attract and retain customers and joint venture partners. Our business, profitability and growth prospects could suffer if we face such negative publicity.
 
 
 
- 10 -


 

 
 
Risks Related to Our Products
 
We face a risk of defective products and, as a result, a damaged reputation.
 
If any of our products contain defects, or have reliability, quality or compatibility problems, our reputation could be damaged significantly and customers might be reluctant to use our products, which could result in the loss of revenues. We may have to invest significant capital and other resources to correct these problems. Such expenditures to correct defects and the effect on our reputation could have a material adverse effect on the business, financial condition and results of operations of the Company.
 
We face the risk of product liability claims and uninsured losses.
 
We face an inherent business risk of exposure to product liability claims in the event that the use of our technology or products is alleged to have resulted in adverse effects. To date, no claim for damages has been asserted against the Company. There can be no assurance that liability claims will not exceed the coverage limits of any policies purchased by the Company or that such insurance will continue to be available on commercially reasonable terms or at all. If the Company does not or cannot maintain sufficient liability insurance, its ability to operate may be significantly impaired. In addition, liability claims could have a material adverse effect on the business, financial condition and results of operations of the Company.
 
We have comprehensive insurance, including liability, fire, and extended coverage. Certain losses of a catastrophic nature such as from floods, tornadoes, thunderstorms and earthquakes are uninsurable or not economically insurable. Such "Acts of God," work stoppages, regulatory actions or other causes, could interrupt operations and adversely affect our business.
 
It is incumbent upon us to keep up with technological change so that our products can maintain their demand in the marketplace.
 
There can be no assurance that our competitors will not succeed in developing or marketing products or technologies that are more effective and/or less costly and which render the Company's products obsolete or non-competitive. In addition, new technologies and procedures could be developed that replace or reduce the value of our products. Our success will depend in part on our ability to respond quickly to technological changes through the development and introduction of new products and to successfully market these products. There can be no assurance that new product development efforts will result in any commercially successful products. A failure to develop and successfully market new products could have a material adverse effect on our business, financial condition and results of operations.
 
Risks Relating to Our Common Stock
 
If we issue additional shares in the future, it will result in the dilution of our existing stockholders.
 
Our articles of incorporation authorize the issuance of up to 500,000,000 shares of our common stock, with a par value of $0.001 per share. Our board of directors may choose to issue some or all of such shares to acquire one or more companies or products and to fund our overhead and general operating requirements. The issuance of any such shares will reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current stockholders. Further, such issuance may result in a change of control of our company.
 

 


- 11 -

 



Trading of our stock is restricted by the Securities Exchange Commission's penny stock regulations, which may limit a stockholder's ability to buy and sell our common stock.
 
The Securities and Exchange Commission has adopted regulations which generally define "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors". The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

FINRA sales practice requirements may also limit a stockholder's ability to buy and sell our stock.
 
In addition to the "penny stock" rules described above, the Financial Industry Regulatory Authority ("FINRA") has rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our stock.
 
The price of our common stock may be negatively impacted by factors that are unrelated to our operations.
 
Although our common stock is currently listed for quotation on the OTC Markets and a market is established and trading has begun, trading through the OTCQB is frequently thin and highly volatile. There is no assurance that a sufficient market will continue in our stock, in which case it could be difficult for stockholders to sell their stock. The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.

Because we may not be able to attract the attention of major brokerage firms, it could have a material impact upon the price of our common stock.
 
It is not likely that securities analysts of major brokerage firms will provide research coverage for our common stock since the firm itself cannot recommend the purchase of our common stock under the penny stock rules referenced in an earlier risk factor. The absence of such coverage limits the likelihood that an active market will develop for our common stock. It may also make it more difficult for us to attract new investors at times when we require additional capital.
 
 

- 12 -

 
 

 
Our bylaws contain provisions indemnifying our officers and directors against all costs, charges and expenses incurred by them.
 
Our bylaws contain provisions with respect to the indemnification of our officers and directors against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, actually and reasonably incurred by them, including an amount paid to settle an action or satisfy a judgment in a civil, criminal or administrative action or proceeding to which they are made parties by reason of their being or having been our directors or officers.
 
We do not intend to pay dividends on the shares of stock of our company and any gain on an investment in our company will need to come through an increase in our stock's price, which may never happen.
 
We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding currently not provided for in our financing plan, our funding sources may prohibit the payment of a dividend. Because we do not intend to declare dividends, any gain on an investment in our company will need to come through an increase in the stock's price. This may never happen and investors may lose all of their investment in our company.

Due to factors beyond our control, our stock price may be volatile.
 
The market price for our common stock has been highly volatile at times. As long as the future market for our common stock is limited, shareholders may only be able to sell them at a loss.

In addition, the stock markets have experienced extreme price and volume fluctuations in recent years that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many such companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. These broad market fluctuations may adversely affect the trading price of our common stock. In the past, following periods of volatility in the market price of a company's securities, class action litigation has often been instituted against such company. Any litigation of this type brought against us could result in substantial costs and a diversion of our management's attention and resources, which would harm our business, operating results and financial condition.

ITEM 1B.  UNRESOLVED STAFF COMMENTS
 
None. 
 
 
ITEM 2.  PROPERTIES
 
We maintain our head office at 23101 Lake Center Drive, Suite 100, Lake Forest, CA 92630.  This property is leased until March 31, 2018 at a rate of $ 2,636.12 per month.  Effective February 21, 2018, the lease was extended to March 31, 2019.  The basic rent is abated for April 2018 with rent of $3,494.25 from May 1, 2018 to March 31, 2019.  We believe that all our property has been adequately maintained, is generally in good condition, and is suitable and adequate for our business.
 
 
 
- 13 -

 
 
 

ITEM 3.  LEGAL PROCEEDINGS
 
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business.

There is one litigation matters presently.

The Company is seeking remedies against James Kordenbrock ("Kordenbrock"), a prior officer, for breach of contract and related theories, in a binding arbitration proceeding demanded by the Company and to be heard in Orange County, California.  The arbitration has been scheduled for August 2018. The material allegations against James Kordenbrock are that he departed the Company without adequate notice and breached fiduciary duties to the company during his employment.  The material allegations by Kordenbrock against the Company are that he is owed compensation and that removal of the restrictive legend on certain stock he owns in the Company was wrongfully delayed, and he has named certain Officers and Directors of the Company and other individuals as parties on the latter allegations. There is no ability to assess the likelihood of a recovery against James Kordenbrock at this stage of the proceedings other than to remark that the Company believes that it will prevail in the proceedings and that Kordenbrock's allegations have no merit. Based on an initial determination by the Arbitrator upon a review of evidence presented by the Company for the purpose of seeking a pre-arbitration remedy, a portion of the order issued by the Arbitrator supports the Company's belief that Kordenbrock breached his fiduciary duties to the Company and that the Company will prevail against Kordenbrock at the Arbitration on the claims asserted by the Company.
 

ITEM 4.   MINE SAFETY DISCLOSURES.

Not applicable.
 
 
 
- 14 -

 
 
PART II
 
ITEM 5.  
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Market for Our Common Stock

Since November 23, 2016, our common stock has been quoted on the OTCQB, which is part of the OTC Market Group's quotation system. We were initially traded under the symbol "YMMF" but beginning in November 2016, our stock began trading under the symbol "PNAT".

The following table sets forth, for the periods indicated, the high and low closing prices of our common stock. These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.  
 
   
Closing Prices (1)
 
   
High
   
Low
 
FISCAL YEAR ENDED DECEMBER 31, 2017:
           
  Fourth Quarter
 
$
0.35
   
$
0.07
 
  Thrid Quarter
 
$
0.77
   
$
0.36
 
  Second Quarter
 
$
1.52
   
$
0.46
 
  First Quarter
 
$
3.57
   
$
1.16
 
                 
FISCAL YEAR ENDED DECEMBER 31, 2016:
               
  Fourth Quarter
 
$
2.21
   
$
0.30
 
  Thrid Quarter
 
$
0.30
   
$
0.15
 
  Second Quarter
   
n/a
     
n/a
 
  First Quarter
   
n/a
     
n/a
 
                             
 
(1)  The above tables set forth the range of high and low closing prices per share of our common stock as reported by www.bloomberg.com for the periods indicated.
 
Approximate Number of Holders of Our Common Stock
 
As of December 31, 2017, the Company had approximately 120 stockholders of record at VStock Transfer Agent and 38,996,503 shares of common stock were issued and outstanding. As of April 10, 2018, the Company had approximately 120 stockholders of record at VStock Transfer Agent and 44,698,963 shares of common stock were issued and outstanding Because some of our common stock is held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
  
Our registrar and transfer agent for our common stock is VStock Transfer. It's address is 18 Lafayette, Woodmere, NY 11598, USA and their telephone number and facsimile are +1 212-828-8436and +1 646-536-3179, respectively.
 
Dividend Policy
 
The Company has not declared any dividends since incorporation and does not anticipate doing so in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

Our board of directors has discretion on whether to pay dividends unless the distribution would render us unable to repay our debts as they become due. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.
 
Securities Authorized for Issuance Under Equity Compensation Plans
 
See Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, "Securities Authorized for Issuance Under Equity Compensation Plans".
 
 
 

- 14 -

 

 

Recent Sales of Unregistered Securities
   
From January through December 2017, the Company entered into a series of stock purchase agreements with accredited investors for the sale of 142,868 shares of its common stock for $224,500.
 
Unless otherwise set forth above, the securities described above were not registered under the Securities Act of 1933, as amended (the "Securities Act"), or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) under the Securities Act and Regulation D promulgated thereunder and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving any public offering.

Date of Issuance
 
Shares Issued
   
Value ($)
 
January 5, 2017
   
1,170
   
$
2,000
 
January 9, 2017
   
5,348
     
10,000
 
January 10, 2017
   
5,000
     
10,000
 
January 12, 2017
   
9,091
     
10,000
 
January 18, 2017
   
2,336
     
5,000
 
January 18, 2017
   
8,000
     
20,000
 
January 18, 2017
   
20,000
     
50,000
 
January 19, 2017
   
1,923
     
5,000
 
January 27, 2017
   
40,000
     
50,000
 
January 30, 2017
   
10,000
     
12,500
 
February 3, 2017
   
40,000
     
50,000
 
November 2, 2017
   
300,000
     
54,750
 
November 21, 2017
   
300,000
     
23,250
 
December 11, 2017
   
500,000
     
38,363
 
     
1,242,868
   
$
340,863
 
 
Purchases of Our Equity Securities
 
No repurchases of our common stock were made during 2017. 


ITEM 6.  SELECTED FINANCIAL DATA
 
Smaller reporting companies are not required to provide the information required by this item.
 
 
 
 

- 15 -

 

 
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview and History

We were incorporated on December 26, 2005, in the State of Colorado under the name "Yummieflies.com Inc."  In March 2010, we filed an amendment to our Articles of Incorporation changing our name to "Yummy Flies, Inc."  In November 2016, we filed an amendment to our Articles of Incorporation changing our name to "Pura Naturals, Inc."  In September 2010, we engaged in a forward split of our issued and outstanding Common Stock whereby nine (9) shares of Common Stock were issued in exchange for every one (1) share then issued and outstanding.  In addition, in November 2016, we engaged in a forward split of our issued and outstanding Common Stock whereby 3.7 shares of Common Stock were issued in exchange for every one (1) share then issued and outstanding.  All references to our issued and outstanding Common Stock in this Report are presented on a post-forward split basis unless otherwise indicated.
 
Effective July 18, 2016, the Company entered into that certain Share Exchange Agreement by and among the Company, Pura Naturals, Inc., PURA and the PURA Shareholders.  Pursuant to the Share Exchange Agreement, the Company exchanged the outstanding common and preferred stock of PURA held by the PURA Shareholders for shares of common stock of the Company.  At closing, Robert Lee, the holder of 30,536,100 shares of common stock, agreed to cancelation of such shares.  Other than Robert Lee, shareholders of Company common stock held 7,625,700 shares.  Also at closing, the Company issued 23,187,876 shares of common stock to the PURA Shareholders.   In addition, shares issuable under outstanding options of PURA – DE will be exercisable into shares of common stock of the Company, pursuant to the terms of such instruments. 

As a result of the Share Exchange Agreement and the other transactions contemplated thereunder, PURA is now a wholly owned subsidiary of the Company.

The exchange of shares with PURA was accounted for as a reverse acquisition under the purchase method of accounting since PURA obtained control of the Company. Accordingly, the merger of PURA into the Company was recorded as a recapitalization of PURA, PURA  being treated as the continuing entity. The historical financial statements presented are the financial statements of PURA.

PURA markets and sells a line of cleaning products based on the BeBetterFoam® platform, a revolutionary and proprietary bio-based foam, 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. BeBetterFoam® is a unique, proprietary polymer process technology that is protected by a trade secret, completely owned by AIRTech and sold to PURA, and is incapable of being reverse engineered.

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.

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 has 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.
 
 
 

- 16 -



 
Results of Operations
 
Comparison of Results of Operations for the Years Ended December 31, 2017 and 2016
 
   
Years Ended December 31,
             
   
2017
   
2016
   
Dollar Change
   
Percentage Change
 
Sales
   
451,381
     
400,465
     
50,916
     
12.7
%
Cost of goods sold
   
286,875
     
233,453
     
53,422
     
22.9
%
Gross Profit
   
164,506
     
167,012
     
(2,506
)
   
(1.5)
%
Selling expense
   
73,747
     
62,269
     
11,478
     
18.4
%
General and administrative expense
   
4,349,432
     
1,517,389
     
2,832,043
     
186.6
%
Interest expense
   
(1,399,860
)
   
(145,150
)
   
(1,254,710
)
   
864.4
%
Gain on debt extinguishment
   
42,855
     
-
     
42,855
     
100.0
%
Change in fair value of derivative liabilities
   
646,768
     
-
     
646,768
     
100.0
%
Net loss
   
(4,968,910
)
   
(1,557,796
)
   
(3,411,114
)
   
219.0
%

Sales for the year ended December 31, 2017 were $451,381, an increase of $50,916 or 12.7% from the year ended December 31, 2016.  The increase was due to the change in marketing approach, the exit of a non-profitable customer and increased sales to existing customers.
 
Cost of goods sold for the year ended December 31, 2017 were $286,875 an increase of $53,422 or 22.9% from the year ended December 31, 2016.  The increase was due to the increase in sales.  Cost of goods sold as a percentage of sales was 63.6% for 2017 compared to 58.3% for 2016.  Cost of goods sold increased as a percentage of sales due to the increase in the purchase of bulk items that are expensed and not inventoried as well as increased cost to manufacture the product.

Selling expenses for the year ended December 31, 2017 were $73,747 an increase of $11,478 or 18.4% from the year ended December 31, 2016.  The increase was due to an increase in retaining outside marketing consultants and media promotions.
 
General and administrative expenses for the year ended December 31, 2017 were $4,349,432 an increase of $2,832,042 or 186.6% from the year ended December 31, 2016.  The major components of the increase was due to:
 
 

- 17 -

 
 
   
2017
   
2016
   
Change
 
Payroll and payroll related expense
 
$
2,434,137
   
$
808,447
   
$
1,625,690
 
Commitment Fees
   
300,000
     
-
     
300,000
 
Travel
   
24,052
     
56,678
     
(32,626
)
Insurance
   
40,334
     
-
     
40,334
 
Professional Fees:
                       
  Accountants
   
133,529
     
57,147
     
76,382
 
  Marketing/Trade Shows
   
80,075
     
122,043
     
(41,968
)
  Edgar preparation
   
20,866
     
2,010
     
18,856
 
  Sales consultants
   
4,622
     
250
     
4,372
 
  Media/Website
   
54,873
     
15,149
     
39,724
 
  Legal
   
65,266
     
12,092
     
53,174
 
  Investor and public relations
   
775,412
     
6,325
     
769,087
 
  Transfer Agent
   
10,206
     
3,201
     
7,005
 
  Business consultants
   
-
     
7,000
     
(7,000
)
Royalty expense
   
-
     
16,812
     
(16,812
)
Amortization expense
   
101,742
     
99,635
     
2,107
 
Other general & administrative expenses
   
304,318
     
310,601
     
(6,283
)
     
4,349,432
     
1,517,389
     
2,832,042
 
 

There were increases in certain expenses:

·
Payroll and Payroll related expenses increased by $1,625,690 due to additional employees, the issuance of common stock and bonus accrual under the employment contract and issuance of options;
·
Convertible Promissory Note for a Commitment fee of $300,000;
·
Insurance increased by $40,334 due to obtaining Directors and Officers insurance;
·
Accounting fees increased by $76,382 due to additional work performed during the quarter and year end;
·
Edgar preparation fees increased $18,856 due to additional SEC filings and increased cost of quarterly filings;
·
Sales consultants increased by $4,372 due to cost incurred to promote new products;
·
Media/website increase by $39,724 due to work performed for the Company's website and creation of promotional videos;
·
Legal fees increased by $53,174 due to fees related to the lawsuit with the former CEO as well as increased SEC requirements;
·
Investor and public relations increased by $769,087 due to additional programs for Investor and Public relations.  $608,000 was paid in common stock, the remaining 161,087 was paid in cash.
·
Transfer agent fees increase $7,005 due to increased share issuance.
·
Commitment fee increased by $300,000.  The commitment fee is 3% of the commitment amount of $10,000,000 (See Note 8 of the financial statements)

The above increase were offset by the following decreases:

·
Travel expenses decreased by $32,626 due to less travel by management and sales teams for product promotion;
·
Marketing/Trade shows decreased by $41,968 due to decreased participation in trade shows;
·
Business consultants decreased by $7,000 due to transitioning to larger investors and public relations firms;
·
Royalty expense decreased by $16,812 due to the purchase of the license agreement.

Interest expense for 2017 was $1,399,860 an increase of $1,254,710 or 864.4% from 2016.  The increase was mainly due to the increase in amortization of debt discounts, prepayment penalties and interest recognized in connection with the derivative liabilities associated with the convertible notes party in for the year ended December 31, 2017 as compared to the year ended December 31, 2016.

Liquidity and Capital Resources
 
As of December 31, 2017, we had $67,422 in cash.
 
At December 31, 2017, we had current assets of $360,256 and current liabilities of $2,681,237 resulting in a working capital deficit of $2,320,981. We have experienced losses since our inception. This raises substantial doubt about our ability to continue as a going concern.  The accompanying financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
 
Net cash used in operating activities was $1,108,611 during the year ended December 31, 2017, compared to $821,304 in net cash used during the year ended December 31, 2016.  The increase in cash used in operating activities is due to the increase of $3,422,114 in the net loss for fiscal 2017 compared to fiscal 2016 and changes in operating assets and liabilities.
  
Cash flows used by investing activities was $5,705 during the year ended December 31,  2017 compared to cash provided by investing activities of $98,325 during the year ended December 31, 2016.  The increase in cash used by investing activities is due to trademark acquisition.
 
 
 
 
- 18 -

 
 
Cash flows provided by financing activities were $1,167,352 and $722,568 during  the years ended December 31, 2017 and 2016, respectively.  The increase in cash provided by financing activities is due to the increase in proceeds from the issuance of convertible debt, offset by a reduction cash received from the sale of common stock and repayment of notes payable and convertible debt during the year ended December 31, 2017 compared to the year ended December 31, 2016.  For the future, we expect to raise money through equity financing via the sale of our common stock or equity-linked securities such as convertible debt. If we cannot raise the money that we need in order to continue to operate our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations.

Convertible Note Financings
 
 On April 7, 2017, the Company issued to an accredited investor a Convertible Promissory Note of $570,000 that matures on January 7, 2018.  The Company will receive the $570,000 in three tranches.  The first tranche of $200,000 was received upon signing of the Convertible Promissory Note, the Securities Purchase Agreement and Registration Rights Agreement. Tranche #2 of $150,000 was received upon,the filing Rights Agreement.  Tranche #3 of $150,000 was not received since the Registration Statement did not become effective.  There is no interest on this Convertible Promissory Note.

On July 5, 2017, the Company issued to an institutional lender a $20,000 Original Issue Discount 8% Fixed Rate Convertible Debenture in the principal amount of $220,000, due January 6, 2018.

On July 14, 2017, the Company issued to an institutional lender a $30,000 Original Issue Discount Convertible Promissory Note in the principal amount of $330,000, due April 17, 2018.

On September 20, 2017, the Company issued to an institutional lender a $4,500 Original Issue Discount 12% Convertible Note in the principal amount of $75,000, due September 20, 2018.

On September 12, 2017, the Company issued a 12% Convertible Promissory Note in the principal amount of $160,500 due September 12, 2018 to an institutional lender.
 
On December 18, 2017, the Company issued $750 Original Issue Discount 4.25% Convertible Secured Redeemable Note in the principal amount of $125,000 due October 23, 2018 to an institutional lender.
To date, our operations have not generated any profits.  We have funded our operating to date through product sales, the sales of our common stock, issuance of notes and convertible notes.  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.  
Inflation
 
Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the year ended December 31, 2017.
 
Critical Accounting Estimates
 
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable 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. Actual results may differ from these estimates under different assumptions or conditions. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.
 
 
 
- 18 -

 
 

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions 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. It is possible that accounting estimates and assumptions may be material to the Company due to the levels of subjectivity and judgment involved.

Accounts Receivable

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.

Inventory

Inventory is valued at the lower of the inventory's cost (first in, first out basis) or the current market price of the inventory. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower.

Long-Lived Assets

The Company applies 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.
 
Revenue Recognition

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.

Products sold through the Company's ecommerce site are recorded when products are shipped and title passes to customers.  Sales by third-party sellers are recognized when the item is sold by the third-party seller and our collectability is reasonably assured.

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.
 
 
 
- 19 -

 


Stock-Based Compensation

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 fair value 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 fair value of stock options and other equity-based compensation issued to employees and non-employees.

Contractual Obligations
 
Our significant contractual obligations as of December 31, 2017, are as follows:
   
Less than One Year
   
One to Three Years
   
Three to Five Years
   
More than Five Years
   
Total
 
Lease
 
$
-
   
$
59,955
   
$
-
   
$
-
   
$
59,955
 
Convertible Notes
   
1,288,138
     
-
     
-
     
-
     
1,288,138
 
Total
 
$
1,288,138
   
$
59,955
   
$
-
   
$
-
   
$
1,348,093
 


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.
 
Going Concern

The consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates, the realization of assets and satisfaction of liabilities in the normal course of business. We incurred losses from operations of $4,258,673 and $1,412,646 for the years ended December 31, 2017 and 2016, respectively, and had an accumulated deficit of $1,565,299 at December 31, 2017. In addition, we used cash from operating activities of $1,108,611 for the year ended December 31, 2017.  These factors raise substantial doubt about our ability to continue as a going concern.

The Company will require additional funding to execute its future strategic business plan. Successful business operations and its transition to attaining profitability are dependent upon obtaining additional financing and achieving a level of revenue adequate to support its cost structure. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

Our only sources of additional funds to meet continuing operating expenses, fund additional research and 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. We may need to discontinue a portion or all of our operations if we are unsuccessful in generating positive cash flow or financing for our operations through the issuance of securities.
 
 
 

- 19 -

 

 

Recent Accounting Pronouncements
 
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. .

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.

In April 2016, the FASB issued ASU 2016–10 Revenue from Contracts 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 judgment necessary to comply with Topic 606.

Management has considered all recent accounting pronouncements issued since and their potential effect on our financial statements. The Company's management believes that these recent pronouncements will not have a material effect on the Company's consolidated financial statements.

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

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
The follow discussion about our market risk disclosures involves forward-looking statements. Actual results could differ from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. We do not use derivative financial instruments for speculative or trading purposes.
 
Interest Rate Sensitivity
 
We have no significant interest-bearing assets and our convertible promissory notes and short-term loans are fixed rate securities. Our current exposure to market risk for changes in interest rates relates primarily to the interest income generated by our cash deposits in banks and the fair value of our invested securities. Although we do not believe that interest rate has had a material impact on our financial position or results of operations to date, increase in interest rates in the future could increase interest cost on our new debt and could adversely impact our ability to refinance existing debt and limit our acquisition and development activities.
 
 
 
- 21 -

 


Foreign Currency Exchange Risk
 
We currently have no significant exposure to foreign exchange risk.

Inflation Risk
 
Inflationary factors such as increases in the costs to acquire advertising rights and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of revenues if the selling prices of our services do not increase with these increased costs.
 

ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Consolidated Financial Statements
 
The financial statements required by this item begin on page F-1 hereof. 
 

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.


ITEM 9A.    CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures
 
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports filed under the Securities Exchange Act of 1934, as amended, 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, including the Company's president and chief executive officer (who is the Company's principal executive officer) and the Company's chief financial officer, treasurer, and secretary (who is the Company's principal financial officer and principal accounting officer) to allow for timely decisions regarding required disclosure. In designing and evaluating the Company's disclosure controls and procedures, the Company's management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Company's management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The ineffectiveness of the Company's disclosure controls and procedures was due to material weaknesses identified in the Company's internal control over financial reporting, described below.
 
Management's Report on Internal Control over Financial Reporting
 
Management is responsible for establishing and maintaining adequate internal control over the Company's financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002. Our management, with the participation of the Company's principal executive officer and principal financial officer has conducted an assessment, including testing, using the criteria in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") (2013). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. This assessment included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, the Company's management concluded its internal control over financial reporting was not effective as of December 31, 2017. The ineffectiveness of the Company's internal control over financial reporting was due to the following material weaknesses which are indicative of many small companies with small staff:

(i)
inadequate segregation of duties consistent with control objectives; and

(ii)
ineffective controls over period end financial disclosure and reporting processes.
 
 
- 23 -

 

 
Our management feels the weaknesses identified above have not had any material effect on our financial results. However, we are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the next fiscal year, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses.

Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
 
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
 
Changes in Internal Control Over Financial Reporting
 
There were no changes in our internal control over financial reporting during the year ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.
 
Management's Remediation Plan
 
We plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes in the next fiscal year as resources allow:
 
 
(i)
appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management and  implement modifications to our financial controls to address such inadequacies; and

(ii)
adopt sufficient written policies and procedures for accounting and financial reporting.
 
The remediation efforts set out in (i) is largely dependent upon our company securing additional financing to cover the costs of hiring the requisite personnel and implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
 
Management believes that despite our material weaknesses set forth above, our financial statements for the year ended December 31, 2017 are fairly stated, in all material respects, in accordance with U.S. GAAP.

ITEM 9B.    OTHER INFORMATION

Not applicable
 
 


- 23 -

 

 

PART III
 
ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
Directors and Executive Officers
 
The following table sets forth the names, ages and positions held with respect to each Director and Executive Officer of the Company as of the date of this Annual Report.


Name
Age
 
Position
Director Since
Robert Doherty
57
 
Chief Executive Officer and Chairperson of the Board
November 1, 2016
Robert Switzer
53
 
Corporate Secretary and Director
November 1, 2016
Derek Duhame
53
 
President and Director
January 12, 2017
Akio Ariura
59
 
Chief Financial Officer
May 23, 2017
Daniel Kryger
56
 
Director
May 23, 2017
 
Each Director serves until our 2018 annual stockholders meeting and until their respective successors are duly elected and qualified or earlier resignation or removal.

Robert Doherty

Since February of 2014, Mr. Doherty has served as the President and then the Chief Executive Officer of Pura Naturals Inc, a publically traded company.  From April 2012 until joining Pura Naturals Inc. Mr. Doherty served as the President of ALM Tech Group a Tier I and Tier II military supplier of metal machining and advanced composite fabricated parts and assemblies.  Prior to joining ALM Tech Group. Mr. Doherty served as the President of two advanced composites armor companies LCOA Composites and ArmorStruxx.  Both companies were start-up armor suppliers.  ArmorStruxx was critical in the design and supply of composite armor for the MRAP program, supplying complete armor assemblies to Navistar Defense (MaxPro MRAP) and BAE (RG 33 MRAP).
 
Mr. Doherty earned a BSChE in Chemical Engineering from Rutgers University and an MBA from the University of Phoenix.
 
 
 
- 24 -

 

 
Mr. Doherty has various proprietary technical rights and 2 patents in his name.

Mr. Doherty is subject to a written employment agreement with the Company.
 
Robert Switzer

Mr. Switzer has 25 years of experience in business and executive management, with particular expertise and passion for start-ups. Through the years, Robert has gained vast experience in a wide array of business matters for companies of all sizes.

Mr. Switzer has been a Member of the Board of Directors and the Secretary for the Company since 2015 and became Chief Operations Officer in mid-2016.  Robert also served as executive vice president for Advanced Innovative Recovery Technologies, Inc. from early 2014 to late 2016, and thereafter served as President for approximately 12 months thereafter.

Mr. Switzer was President of Business Development Services Corporation from December 2012 to early 2014.

Prior to 2014, Mr. Switzer's experience includes work for law practices, mortgage brokerages, and as a consultant and executive business coach for a number of private and public companies.

Mr. Switzer's 29 years of expertise includes business start-up consulting, organizational controls, operational design, business development, intellectual property development, sales and marketing development, public relations assistance, trade secret maximization, financial forecasting and modeling, asset management, reorganizations, expansions, mergers and acquisitions, capital financing, executive management coaching, business valuations, regulatory compliance, divestitures, law, litigation, contract writing and enforcement, commercial and secured transactions, and complex dispute resolution.

As a start-up specialist, Mr. Switzer's has taken businesses from very simple beginning concepts to millions of dollars in sales. As a reorganization specialist, Mr. Switzer has restructured debt and equity, reduced liabilities, revitalized net revenue, and accomplished a total turn-around.  Typically, Mr. Switzer is able to quickly change management pathways from being stagnant or non-productive, to being profitable and providing investor returns. Robert has doubled and tripled the value of intellectual property rights for various business organizations.  

 Mr. Switzer's education includes a Bachelor of Science in Business Administration, with a Finance Major, from the University of Arizona in 1986. Robert completed his Post-Graduate Juris Doctor degree from the University of San Diego, School of Law in 1989.   

Mr. Switzer is subject to a written employment agreement with the Company.

Derek Duhame

Since November 2013 until December 2016 Mr. Duhame was the Chief Operating Officer of Impact Strategic Marketing Insights, a private marketing and sales consulting firm engaged in developing new business and growth strategies for small and medium sized companies. From October 2012 until October 2013, Mr. Duhame served as a Spinal device account manager for Altrux Medical and also attended Medical Sales College. From November 2011 until September 2012, Mr. Duhame was the Regional Sales Director, Waste Solutions for Rocktenn, a publicly held commercial cardboard and recycling company. From 1996-From January 2009 to until August 2011, Mr. Duhame was a Partner and vice president of sales for Smarter Flush Distributors, a private company that marketed and sold environmentally friendly water saving devices. From October 1996, Mr. Duhame was first a National Accounts Manager and from December 2004 until September 2008, the Vice President of DistribuTech, a division of Consumer Source, Inc., a private media publishing and distribution company.

Mr. Duhame received a B.S. in Business Management from Arizona State University.

Mr. Switzer is subject to a written employment agreement with the Company.
 
 
 

- 25 -


 

 

Akio Ariura

Since July 2015 until February 2017, Mr. Ariura served as the Chief Financial Officer of Spiral Toys, Inc, a publicly-traded corporation engaged in providing mobile-connected, wireless entertainment technology.  From April 2014 until joining Spiral Toys, Inc. Mr. Ariura served as an independent contractor for various entities such as Kibush Capital Corporation, providing accounting and other financial and management services.  From August 2006, Mr. Ariura was first, the Chief Financial Officer, and from November 2008 until April 2014, the Chief Financial and Operating Officer, of Radient Pharmaceuticals Corporation, a former publicly-traded corporation engaged in the research, development, manufacturing, sale and marketing of the Onko-Sure ® test kit, a proprietary in-vitro diagnostic cancer test.  From September 2004 until joining Radient Pharmaceuticals Corporation, Mr. Ariura was employed by Resources Global Professionals, providing both public and private companies with consulting services relating to Sarbanes-Oxley compliance, SEC filings and special project financial and management services. 

Mr. Ariura received a B.S. in Business Administration from University of Southern California.

Mr. Ariura is not subject to a written employment agreement with the Company.

Daniel Kryger

Possesses over 25 years of experience in management, compliance and leadership positions.

Since September 2016 to present, Mr. Kryger serves as the Chief Compliance Officer, Director, Trading, supervision/Compliance & Operations for Prime Executions, Inc.  In this role, Mr. Kryger is responsible for compliance and supervision for all NYSE listed trading/sales, provides supervisory support through direct supervision, oversight and analysis of risk assessments, improvement of supervisory practices to meet today's evolving regulatory environment, responds to and work with regulatory audits and inquiries and manages buy and sell side institutional accounts.

From December 2015 to September 2016, Mr. Kryger was the Chief Operations Officer for Princeton Securities Group.  In this role, Mr. Kryger managed and oversaw brokerage operations and staff, supervised daily trading activity and on an ad hoc basis process trades ,organize workflow, set priorities and monitor activity to ensure completion, worked with clients/staff to ensure operational questions/procedures were satisfied, ensured timeliness of client product reports/services, prepared/oversaw assignment schedules paying attention to deadlines/status
and coordinate/oversee various projects throughout operational teams


From May 2009 to December 2016, Mr. Kryger was the Managing Director, Compliance/Supervision, Trading/Investment Banking for Benjamin & Jerold Brokerage, LLC.  Mr. Kryger was responsible for compliance/supervision for all NYSE cash equities trading and managed public and private accounts for sell side institutional equities business.

Mr. Kryger is subject to a written employment agreement with the Company.

Identification of Certain Significant Employees

We have no employees who are not executive officers, but who are expected to make a significant contribution to our business.

Family Relationships
 
There are no family relationships between any directors or officers of the Company.
 
 
- 26 -

 


Involvement in Certain Legal Proceedings
 
To the best of our knowledge, none of our directors or executive officers has, during the past ten years:
 
1.
had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
  
2.
been convicted in a criminal proceeding or is a named subject to a pending criminal (excluding traffic violations and other minor offenses);
  
3.
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities; or
  
4.
been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity  Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
 
Compliance with Section 16(a) of the Exchange Act
 
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors and beneficial owner of more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission statements of ownership and changes in ownership. The same persons are required to furnish us with copies of all Section 16(a) forms they file. We believe that, during fiscal 2017, all of our executive officers, directors and beneficial owner of more than 10% of a registered class of our equity securities complied with the applicable filing requirements.

In making these statements, we have relied upon examination of the copies of all Section 16(a) forms provided to us and the written representations of our executive officers, directors and beneficial owner of more than 10% of a registered class of our equity securities.

Code of Business Conduct and Ethics
 
A Code of Business Conduct and Ethics is a written standard designed to deter wrongdoing and to promote (a) honest and ethical conduct, (b) full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements, (c) compliance with applicable laws, rules and regulations, (d) prompt reporting of violations of the code to an appropriate person and (e) accountability for adherence to the Code. We are not currently subject to any law, rule or regulation requiring that we adopt a Code of Business Conduct and Ethics. However, we have adopted a code of business conduct and ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Such code of business conduct and ethics is available on our corporate website at www.puranaturalsproducts.com.
 
Committees of Board of Directors
 
There are currently is the Compensation Committee of the Board of Directors. Our board of directors is of the view that it is appropriate for us not to have a standing nominating or audit committee because the current size of our board of directors does not facilitate the establishment of a separate committee. Our board of directors has performed, and will perform adequately, the functions of any specific committee.
 
Board Oversight of Risk
 
Our Board of Directors recognizes that, although risk management is a primary responsibility of the Company's management, the Board plays a critical role in oversight of risk. The Board, in order to more specifically carry out this responsibility, has assigned certain task focusing on reviewing different areas including strategic, operational, financial and reporting, compensation, compliance, corporate governance and other risks to the relevant Board Committees as summarized above. Each Committee then reports to the full Board ensuring the Board's full involvement in carrying out its responsibility for risk management.

 
- 27 -

 
 



ITEM 11.  EXECUTIVE COMPENSATION
 
Summary Compensation Table

The following table sets forth information concerning all compensation awarded to, earned by or paid during fiscal years 2017 and 2016, to the Named Executive Officers:
 
Name and Principal Position
Year
Salary
Bonus
Stock
Awards
($)
Options Awards ($)
Non-Equity
Incentive Plan
Compensation
($)
Change in Pension
Value and Non-
Qualified Deferred
Compensation
Earnings
($)
All Other
Compensation
($)
Total
($)
Robert Doherty, Chief Executive Officer and Chairman
2017
                -
                -
                 -
  350,975
                        -
               62,500
                              -
   413,475
 
2016
                -
                -
                 -
     65,702
                        -
                           -
                              -
     65,702
                   
James Kordenbrock, Chief Executive, Officer and Director
2017
                -
                -
                 -
                 -
                        -
                           -
                              -
                 -
 
2016
   147,667
                -
                 -
        11,174
                        -
                           -
                              -
    158,841
                   
Robert Switzer, Secretary and Director
2017
     
  350,909
 
               56,250
   
 
2016
                -
                -
                 -
     60,085
                        -
                           -
                              -
     60,085
                   
Derek Duhame, President
2017
    87,500
 
  246,500
   138,444
 
               27,500
 
  499,944
 
2016
                -
                -
                 -
                 -
                        -
                           -
                              -
                 -
                   
Daniel Kreyger, Board Member
2017
     21,000
 
     97,388
       
    118,388
 
2016
                -
                -
                 -
                 -
                        -
                           -
                              -
                 -
                   
Akio Ariura, Chief Financial Officer
2017
    42,000
                -
                 -
                 -
                        -
                           -
                              -
     42,000
 
2016
                -
                -
                 -
                 -
                        -
                           -
                              -
                 -
 
                                
 
(1) 
 Compensation for 2017 results from PURA.
 
 
(2)
As required by SEC rules, amounts in the column "Stock Awards" present the aggregate grant date fair value of awards made each year computed in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification™ 718 Compensation—Stock Compensation ("FASB ASC 718"). The grant date fair value of each of the executives' award is measured based on the closing price of our common stock on the date of grant.
 
These amounts do not reflect whether the recipient has actually realized or will realize a financial benefit from the awards. Under generally accepted accounting principles, compensation expense with respect to stock awards granted to our employees, executives and directors is generally recognized over the requisite services period. The SEC's disclosure rules previously required that we present stock award information based on the amount recognized during the corresponding year for financial statement reporting purposes with respect to these awards. However, the recent changes in the SEC's disclosure rules require that we now present stock award amounts using the grant date fair value of the awards granted during the corresponding year.
 
 
The number of stock awards vested to each of the Named Executive Officers for his/her service rendered in each fiscal period was summarized as follows:

Currently, we do not provide any employees, including our named executive officers any company sponsored retirement benefits.
 
 
- 28 -

 

Employment Agreements

The Company has entered into employment agreements with our Named Executive Officers, except for the Chief Financial Officer as described below.

Each agreement provides for certain payments and benefits to the executive upon separation from us as described below in "Potential Payments Upon Termination or Change in Control." Each agreement also contains certain restrictive covenants for our benefit and requires the executive to maintain the confidentiality of our confidential information. The equity awards described in each agreement will be subject to such other terms as set forth in the employment agreements.

Robert Doherty

On October 1, 2017, as the Company's Chief Executive Officer, the Company, entered into an employment agreement with Mr. Doherty. The term of the employment agreement will expire on October 1, 2022. The term will thereafter automatically extend for successive one-year periods, but Mr. Doherty's employment may at any time be terminate in accordance with provisions within the employment agreement.  Pursuant to his employment agreement, Mr. Doherty will receive an annual base salary of $250,000.  Mr. Doherty at his option may defer base salary which will accrue interest at 10% per annum, and shall, upon Mr. Doherty's written request to the Board, be convertible into options for shares of common stock of the Company on a quarterly basis, where the conversion shall be equal to a 25% to the market price of the Company's shares at the time of the conversion, and where each option's strike price shall be at $.001 per share.

Mr. Doherty shall be eligible to participate in the Company's common stock incentive plan as in effect from time to time.  As of October 1, 2017 ("Effective Date"), the Compensation Committee of the Board of Directors has granted Mr. Doherty, 500,000 shares of stock in the Company at par value of $.001 which shall be issued upon execution the agreement, and 2,500,000 stock options at a purchase price of $.001 per share with a vesting schedule as follows: 25% of the options shall vest immediately upon the effective date, 25% of the options shall vest upon the Company reaching $1,000,000 in aggregate total sales revenue earned after the effective date, 25% of the options shall vest upon the Company reaching $2,000,000 in aggregate total sales revenue earned after the effective date, and the remaining unvested shares shall vest upon the Company reaching $3,000,000 in sales revenue earned after the effective date. The Company may grant Mr. Doherty additional stock options, restricted stock units or other awards under the Company's common stock incentive plan based on individual and Company performance criteria to be established by the Board.

Robert Switzer

On October 1, 2017, the Company, entered into an employment agreement with Mr. Switzer. The term of the employment agreement will expire on October 1, 2022. The term will thereafter automatically extend for successive one-year periods, but Mr. Switzer's's employment may at any time be terminate in accordance with provisions within the employment agreement.  Pursuant to his employment agreement, Mr. Switzer's will receive an annual base salary of $225,000.  Mr. Switzer's at his option may defer base salary which will accrue interest at 10% per annum, and shall, upon Mr. Switzer's written request to the Board, be convertible into options for shares of common stock of the Company on a quarterly basis, where the conversion shall be equal to 25% to the market price of the Company's shares at the time of the conversion, and where each option's strike price shall be at $.001 per share.

Mr. Switzer shall be eligible to participate in the Company's common stock incentive plan as in effect from time to time.  As of October 1, 2017, the Compensation Committee of the Board of Directors has granted Mr. Switzer, 500,000 shares of stock in the Company at par value of $.001 which shall be issued upon execution the agreement, and 2,500,000 stock options at a purchase price of $.001 per share with a vesting schedule as follows: Twenty-Five Percent (25%) of the options shall vest immediately upon the effective date, 25% of the options shall vest upon the Company reaching $1,000,000 in aggregate total sales revenue earned after the effective date, 25% of the options shall vest upon the Company reaching $2,000,000 in aggregate total sales revenue earned after the effective date, and the remaining unvested shares shall vest upon the Company reaching $3,000,000 in sales revenue earned after the effective date. The Company may grant Mr. Switzer additional stock options, restricted stock units or other awards under the Company's common stock incentive plan based on individual and Company performance criteria to be established by the Board.
 
 
 
- 29 -

 


Derek Duhame

On October 1, 2017, the Company, entered into an employment agreement with Mr. Duhame. The term of the employment agreement will expire on October 1, 2022. The term will thereafter automatically extend for successive one-year periods, but Mr. Duhame's employment may at any time be terminate in accordance with provisions within the employment agreement.  Pursuant to his employment agreement, Mr. Duhame will receive an annual base salary of $200,000.  Mr. Duhame at his option may defer base salary which will accrue interest at 10% per annum, and shall, upon Mr. Duhame's written request to the Board, be convertible into options for shares of common stock of the Company on a quarterly basis, where the conversion shall be equal to 25% to the market price of the Company's shares at the time of the conversion, and where each option's strike price shall be at $.001 per share.

Mr. Duhame  shall be eligible to participate in the Company's common stock incentive plan as in effect from time to time.  As of October 1, 2017, the Compensation Committee of the Board of Directors has granted Mr. Duhame, 250,000 shares of stock in the Company at par value of $.001 which shall be issued upon execution of the agreement, and 1,500,000 stock options at a purchase price of $.001 per share with a vesting schedule as follows: 25% of the options shall vest immediately upon the effective date, 25% of the options shall vest upon the Company reaching $1,000,000 in aggregate total sales revenue earned after the effective date, 25% of the options shall vest upon the Company reaching $2,000,000 in aggregate total sales revenue earned after the effective date, and the remaining unvested shares shall vest upon the Company reaching $3,000,000 in sales revenue earned after the Effective Date. The Company may grant Mr. Duhame additional stock options, restricted stock units or other awards under the Company's common stock incentive plan based on individual and Company performance criteria to be established by the Board.

Elements of Post‑Termination Compensation and Benefits
 
Employment Agreements
 
The Company has employment agreements with the certain of our executive officers. The employment agreements provide for certain payments and benefits to the executive officer upon the executive officer's separation from us as described below in "Potential Payments Upon Termination or Change in Control".
Change in Control Provisions for Equity Awards
 
Change in Control Provisions in the Employment Agreement.
 
If, upon or within one year of a Change of Control occurring at any time during the employment term, the Company or a succeeding entity terminates Robert Doherty, Robert Switzer, Derek Duhame and Daniel Kryger without Cause or Executive terminates his employment for Good Reason , the Company or the succeeding entity's obligation to Executive shall be (i) unpaid Base Salary, bonus and benefits accrued up to the effective date of termination, (ii) if there is no unpaid bonus earned for the year of termination, an amount equal to the product of 100% of Executive's Base Salary multiplied by a fraction, the numerator of which is the number of days he is employed by the Company during the year in which the termination occurs and the denominator of which is 365 and, if the date of termination occurs prior to the date on which the annual bonus, if any, for the immediately preceding year would otherwise be paid, an amount equal to the annual bonus that would have been paid to Executive for such immediately preceding year, based on the actual achievement of applicable performance goals and without regard to whether Executive is employed on the date the bonus otherwise would have been paid, (iii) a lump sum payment equal to Executive's then-current Base Salary for a period of thirty-six (36) months, and (iv) if Executive is eligible for and timely elects COBRA coverage for health insurance coverage, payment of Executive's COBRA premiums for health insurance coverage for himself and his eligible dependents for a period of up to eighteen (18) months, payments to be made on a monthly basis when the premiums are due, and in the event of the death of Executive before the expiration of such eighteen (18)-month period, the Company shall, for the remainder of such period, continue to pay the COBRA premiums for the Executive's dependents (including his spouse, if any) who were receiving COBRA coverage at the time of his death. In the event of a without Cause Change of Control termination or a without Good Reason Change of Control termination, each as described herein, the payments in this Section 7(a) shall be in lieu of, and not in addition to, any severance pay or benefits set forth in Sections 6(b) or 6(c), whichever may apply. Notwithstanding anything to the contrary contained herein or in any award agreement between Executive and the Company, in the event of a Change of Control (as defined below), (i) all unvested stock awards held by Executive, including stock options described in Section 3(b) and any other subsequent awards, shall become fully vested upon the Change of Control and, if applicable, immediately exercisable; (ii) each such award, and each already vested award described in Section 3(b), which is a stock option shall continue to be exercisable for the remainder of its term; and (iii) with respect to any award that is subject to the attainment of performance objectives or specified performance criteria, such performance objectives and criteria shall be deemed satisfied at the target level and any performance period shall be deemed to end as of the date of the Change of Control. As a condition to his receipt of the post-employment payments and benefits under this Section 7(a), other than the vesting of awards described in the preceding sentence, Executive must be in compliance with Section 5 of this Agreement, and must execute, return, not rescind and comply with a release of claims agreement in favor of the Company, related entities and individuals and the succeeding entity, within the timeframe and in a form to be prescribed by the Company or a succeeding entity. The severance amount described in clauses (ii) and (iii) of the first sentence of this paragraph shall be paid in a lump sum on the ninetieth (90th) day after the date of Executive's termination of employment (but in any event not later than March 15 of the year following the year in which Executive's employment terminates), provided that the Company has received the signed general release of claims agreement and Executive has not rescinded such agreement within the rescission period set forth in such agreement.
 
 
 
- 29 -

 
 

Potential Payments Upon Termination or Change in Control  

The employment agreements with  Robert Doherty, Robert Switzer, Derek Duhame and Daniel Kryger provide for certain payments and benefits upon a separation from us. To the extent applicable, "cause" and "good reason" are defined in the employment agreements.

Grants of Plan-Based Awards
 
The following table sets forth information regarding grants of awards to the Named Executive Officers during 2017.

Named Executive Officer
2017
2016
Robert Doherty
     3,000,000
       92,500
James Kordenbrock
                    -
       46,250
Robert Switzer
     3,000,000
       92,500
Derek Duhame
     1,850,000
                 -
Akio Ariura
                    -
                 -

Name
 
Grant Date
 
All Other Stock Awards: Number of Shares of Stock or Units (#)
   
All Other Options Awards: Number of Securities Underlying Options (#)
   
Exercise or
 Base Price of
Options
Awards
($/share)
   
Grant Date
Fair Value of
Stock and
Options
Awards
   
Closing
Price on
Grant Date ($/share)
 
Robert Doherty
 
10/1/2017
   
-
     
2,500,000
   
$
0.001
   
$
0.37
   
$
0.37
 
   
10/1/2017
     500,000        -              0.37     0.37   
                                             
                                             
Robert Switzer
 
10/1/2017
   
-
     
2,500,000
   
$
0.001
   
$
0.37
   
$
0.37
 
   
10/1/2017
      500,000        -              0.37      0.37  
                                             
                                             
Derek Duhame
 
2/11/2017
   
50,000
     
-
           
$
2.66
   
$
2.66
 
 
8/21/2017
    50,000        -              0.55      0.55  
    10/1/2017      -        1,500,000        0.001    
 0.37      0.37  
    10/1/2017      250,000        -              0.37      0.37  
 
         
 
           
$
   
$
 
Akio Ariura
       
-
     
-
     
-
     
-
     
-
 
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
 
 


- 29 -



 
Outstanding Equity Awards at Fiscal Year-End
 
The following table sets forth the equity awards outstanding at December 31, 2017 for each of the named executive officers:
 

Name
 
Number of
securities
underlying
unexercised
options,
exercisable
   
Number of
securities
underlying
unexercised
options,
uunexercisable
   
Equity
incentive
plan awards:
number of
securities
underlying
unexercised
unearned
   
Options
exercise
price
($)
 
Options
expiration
date
 
Number of
shares or
units of
stock that
have not
vested (#)
   
Market
value of
shares or
units of
stock that
have not
vested
($)
   
Equity
incentive plan
awards:number
of unearned
shares or other
rights that
have not
vested
(#)
   
Equity
incentive
plan awards:
market
or payout
value of
unearned
shares or
 other rights
that have
not vested
($)
 
Robert Doherty, CEO and Director
   
46,250
     
277,500
     
-
   
$
0.001
 
August 3, 2021
   -      -      
-
     
-
 
     
625,000
     
1,875,000
     
-
   
$
0.001
 
October 1, 2022
               
-
     
-
 
                                       
-
     
-
     
-
     
-
 
Robert Switzer, Corporate Secretary
   
46,250
     
277,500
     
-
   
$
0.001
 
August 3, 2021
   
-
     
-
     
-
     
-
 
     
625,000
     
1,875,000
           
$
0.001
 
October 1, 2022
   
-
     
-
     
-
     
-
 
                                       
-
     
-
     
-
     
-
 
Derek Duhame, President
   
375,000
     
1,125,000
     
-
   
$
0.001
 
October 1, 2022
   
-
     
-
     
-
     
-
 
                                                                   
Akio Ariura
   
-
     
-
     
-
     
-
 
                              -
   
-
     
-
     
-
     
-
 
 
 

 



 

Potential Payments upon Termination or Change-in Control
 
The employment agreements with current Named Executives may be terminated by giving the other party three-month advance notice. Other than as disclosed above, the Company does not have change-in-control arrangements with any of its current Named Executives, and the Company is not obligated to pay severance or other enhanced benefits to executive officers upon termination of their employment. Accordingly, there is no potential payments payable to our current Named Executive Officers upon termination or change-in control.

Director Compensation

Compensation paid to the Directors of the Company in 2017 is disclosed above.

All the compensation packages for each of directors are proposed by an executive and approved by the Board of Directors. Director compensation packages in 2018 may or will be adopted and will generally consist of cash compensation and long-term incentive equity compensation.
 
Limitation of Liability and Indemnification of Officers and Directors
 
Our bylaws provide for the indemnification of our present and prior directors and officers or any person who may have served at our request as a director or officer of another corporation in which we own shares of capital stock or of which we are a creditor, against expenses actually and necessarily incurred by them in connection with the defense of any actions, suits or proceedings in which they, or any of them, are made parties, or a party, by reason of being or having been director(s) or officer(s) of us or of such other corporation, in the absence of negligence or misconduct in the performance of their duties. This indemnification policy could result in substantial expenditure by us, which we may be unable to recoup.
 
Insofar as indemnification by us for liabilities arising under the Securities Exchange Act of 1934, as amended, may be permitted to our directors, officers and controlling persons pursuant to provisions of the Articles of Incorporation and Bylaws, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy and is, therefore, unenforceable. In the event that a claim for indemnification by such director, officer or controlling person of us in the successful defense of any action, suit or proceeding is asserted by such director, officer or controlling person in connection with the securities being offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
 
At the present time, there is no pending litigation or proceeding involving a director, officer, employee or other agent of ours in which indemnification would be required or permitted. We are not aware of any threatened litigation or proceeding which may result in a claim for such indemnification.
 
 
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following tables set forth information as of April 10, 2018, regarding the beneficial ownership of our common stock (a) by each stockholder who is known by the Company to own beneficially in excess of 5% of our outstanding common stock; (b) by each of the Company's officers and directors; (c) and by the Company's officers and directors as a group. Except as otherwise indicated, all persons listed below have (i) sole voting power and investment power with respect to their shares of common stock, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their shares of stock.
 
 
 

- 30 -

 



Title of Class
Name and Address
of Beneficial Owner
Office, If Any
Amount and Nature
of Beneficial
Ownership (1)
Percent
of
Class (6)
           
Common Stock
Robert Doherty (2)
CEO and Director
                               3,160,147
6.72%
 
Common Stock
Robert Switzer (3)
Secretary and Director
                               2,019,432
4.30%
 
Common Stock
Daniel Kryger (4)
Director
                                  475,000
1.01%
 
Common Stock
Derek Duhame (5)
President
                                  725,000
1.54%
 
All Officers and Directors as a group (4 persons named above)
   
                               6,379,579
13.57%
 
Common Stock
Advanced Innovative Recovery Tech
5 % Security Owner
                             11,980,365
25.49%
 
Common Stock
James Kordenbrock
5 % Security Owner
                               3,060,674
6.51%
 
Total Shares Owned by Persons Named Above
   
                             21,420,618
45.57%
 
                                  
 
(1)  Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.

(2) Mr. Robert Doherty owns an aggregate of 977,948 shares common stock directly, 1,236,685 held by Advanced Materials Technology and holds 717,500 of vested options exercisable within the 60 days to purchase the Company's common stock.  In addition, included in the beneficial ownership amount are 228,014 shares held by immediate family members.

(3) Mr. Robert Switzer owns an aggregate of 1,195,005 shares common stock directly, 106,927 held by The AAA Switzer Trust and holds 717,500 of vested options exercisable within the 60 days to purchase the Company's common stock.

(4) Mr. Daniel Kryger owns an aggregate of 225,000 shares common stock directly and holds 250,000 of vested options exercisable within the 60 days to purchase the Company's common stock.

(5) Mr. Derek Duhame owns an aggregate of 350,000 shares common stock directly and holds 375,000 of vested options exercisable within the 60 days to purchase the Company's common stock.

(6)  The percent of class is based on shares of common stock issued and outstanding as of April 10, 2018.

Securities Authorized for Issuance Under Equity Compensation Plans

On August 3, 2016, the Company adopted The 2016 Qualified Employee Stock Incentive Plan (the "Incentive Plan") that provides for the issuance of stock or options to purchase stock to employees, consultants, and professionals at the discretion of the Board of Directors.  The Incentive Plan provides for the issuance of up to 1,500,000 or more shares and/or options to purchase shares in each fiscal and in any subsequent year the plan is extended. As of December 2017, three options to purchase 1,665,000 total shares of the Company common stock had been issued under the Incentive Plan, as follows:

 
 
 
 

- 31 -

 


Equity Compensation Plan Information
Plan Category
 
Number of securities to be issued upon the exercise of outstanding options, warrants and rights
 
Weighted average exercise price of outstanding options, warrants and rights
 
Number of securities remaining available for future issuances under equity compensation plans (excluding securities reflected in cloumn (a))
 
   
(a)
 
(b)
 
(c)
 
Equity compensation plans approved by security holders
             
Equity compensation plans not approved by security holders
     
7,443,750
   
$
0.001
     
50,000
 
Total
     
7,443,750
   
$
0.001
     
50,000
 
 
Changes in Control

There are no arrangements known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of the Company.

 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Related Party Transactions

Except as set forth below, during our last two fiscal years, we have not entered into any material transactions or series of transactions that would be considered material in which any director or executive officer or beneficial owner of 5% or more of any class of our capital stock, or any immediate family member of any of the preceding persons, had a direct or indirect material interest:
 
AirTech, a non-controlling shareholder of the Company, was a Licensor of three formulations and related technology to the Company pursuant to an Exclusive License Agreement ("License Agreement") dated June 18, 2015.  AirTech also provided contract manufacturing for the Company as part of the licensing arrangement.  The License Agreement was for 10 years, and was renewable for an additional 10 year term at the election of the Company. As consideration for such rights under the License Agreement, the Company agreed to1) pay AirTech a one-time up-front License Fee of $750,000 (half of which was deferred for 12 months and the other half deferred for 24 months), 2) pay a 3% royalty from net sales during the term of the Licensing Agreement, and 3) transfer 600,000 shares of Company common stock to AirTech. 

The Company did not make the $375,000 payment that was due June 30, 2016 or the $375,000 due on June 30, 2017; as a result, the Company has accrued interest on the unpaid balance at the rate of 5% per month.  The Company made a partial payment of $97,656 in April 2017 towards the outstanding balance.

On May 22, 2017, the Company entered into an agreement with AirTech. to, as of March 31, 2017, cancel its debt and acquire the formula. The Company issued 1,300,000 shares of its 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 year ended December 31, 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 Consolidated Statements of Operations.
 
Robert Doherty is a current Officer and Director of AirTech. At the time of entering into the License Agreement (above) and in 2016 Robert Switzer was an Officer of AirTech.
 
 
 
- 32 -

 

Related Party Transaction Policy
 
Our Company has a written Related Party Transaction Policy, or the Policy, for the purpose of describing the procedures used to identify, review, approve and disclose, if necessary, any transaction in which (i) the Company is a participant and (ii) a related person has or will have a direct or indirect material interest.

Once a related party transaction in which the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year has been identified, the Audit Committee must review the transaction for approval or ratification. In determining whether to approve or ratify a related party transaction, the Audit Committee shall consider all relevant facts and circumstances, including the following factors:

the benefits to the Company of the transaction;
the nature of the related party's interest in the transaction;
whether the transaction would impair the judgment of a director or executive officer to act in the best interest of the Company and its stockholders;
the potential impact of the transaction on a director's independence; and
any other matters the Audit Committee deems appropriate.

No director may participate in any discussion, approval or ratification of a transaction in which he or she is a related person.
 
Promoters and Certain Control Persons
 
We did not have any promoters at any time during the past five fiscal years.
 

ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES

MJF & Associates, APC ("MJF") is our Principal Independent Registered Public Accountants engaged to audit our financial statements for the fiscal years ended December 31, 2017 and 2016. The following table shows the fees that we paid or accrued for the audit and other services provided by MJF for the fiscal years ended December 31, 2017 and 2016.
  
Audit Fees

This category consists of fees for professional services rendered by our principal independent registered public accountant for the audit of our annual financial statements, review of financial statements included in our quarterly reports and services that are normally provided by the independent registered public accounting firms in connection with statutory and regulatory filings or engagements for those fiscal years.

Fee Category
 
2017
   
2016
 
Audit Fees
 
$
53,750
   
$
43,000
 
Audit-Related Fees
 
$
--
   
$
--
 
Tax Fees
 
$
--
   
$
--
 
All Other Fees
 
$
--
   
$
--
 

 
 
- 33 -

 
 
Audit-Related Fees
 
This category consists of fees for assurance and related services by our principal independent registered public accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under "Audit Fees". The services for the fees disclosed under this category include consultations concerning financial accounting and reporting standards.
 
Tax Fees
 
This category consists of fees for professional services rendered by our principal independent registered public accountant for tax compliance, tax advice, and tax planning.

All Other Fees
 
This category consists of fees for services provided by our principal independent registered public accountant other than the services described above.

Policy on Pre-Approval of Audit Services
 
The Audit Committee pre-approves all services, including both audit and non-audit services, provided by our independent registered public accounting firm. All audit services (including statutory audit engagements as required under local country laws) must be accepted by the Audit Committee before the audit commences.
 
Each year, management and the independent registered public accounting firm will jointly submit a pre-approval request, which will list each known and/or anticipated audit and non-audit service for the upcoming calendar year and which will include associated budgeted fees. The Audit Committee will review the requests and approve a list of annual pre-approved non-audit services.
 
All services provided by MJF & Associates, APC during the fiscal years ended December 31, 2017 and 2016 were pre-approved by the Audit Committee.
 
 
 

- 33 -



PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
(a) The following consolidated financial statements are filed as a part of this Form 10-K:
 
 (i)
Reports of Independent Registered Public Accounting Firms
 
 (ii)
Consolidated Balance Sheets as of December 31, 2017 and 2016
 
 (iii)
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2017 and 2016
 
 (iv)
Consolidated Statement of Stockholders' Equity for the years ended December 31, 2017 and 2016
 
 (v)
Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016
 
 (vi)
Notes to Consolidated Financial Statements
 

(b) The following Exhibits are filed as part of this Annual Report on Form 10-K:
 
Exhibit No.
 
Description
3.1
 
Articles of Incorporation (incorporated herein by reference from Exhibit 3.1 to Registrant's Registration Statement on Form S-1 filed with the SEC on December 15, 2010)
3.2
 
Articles of Amendment to Articles of Incorporation ( incorporated herein by reference from Exhibit 3.4 to Registrant's Registration Statement on Form S-1 filed with the SEC on December 15, 2010)
3.3
 
Articles of Amendment of Amended Articles of Incorporation (incorporated herein by reference from Exhibit 3.1 to Registrant's Current Report on Form 8-K filed with the SEC on November 21, 2106).
3.4
 
By-Laws (incorporated herein by reference from Exhibit 3.2 to Registrant's Registration Statement on Form S-1 filed with the SEC on December 15, 2010)
10.1
 
Form of Share Exchange Agreement, effective as of July 18, 2016, by and among Yummy Flies, Inc., PURA Naturals, Inc. and shareholders of PURA Naturals, Inc. (incorporated herein by reference from Exhibit 2.1 to Registrant's Current Report on Form 8-K filed with the SEC on July 26, 2106).
10.2
 
Form of Securities Purchase Agreement dated April 7, 2017, by and between Mammoth Corporation and PURA Naturals, Inc. ((incorporated herein by reference from Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the SEC on April 26, 2107).
10.3
 
Form of Registration Rights Agreement dated April 7, 2017, by and between Mammoth Corporation and PURA Naturals, Inc. (incorporated herein by reference from Exhibit 10.2 to Registrant's Current Report on Form 8-K filed with the SEC on April 26, 2107).
10.4
 
Form of Security Agreement dated April 7, 2017, by and between Robert Doherty, Robert Switzer, and Mammoth Corporation (incorporated herein by reference from Exhibit 10.4 to Registrant's Current Report on Form 8-K filed with the SEC on April 26, 2107).
10 .5
 
Convertible Promissory Note Due Nine Months After Issuance Date dated April 7, 2017, by and between Mammoth Corporation and PURA Naturals, Inc. (incorporated herein by reference from Exhibit 10.3 to Registrant's Current Report on Form 8-K filed with the SEC on April 26, 2107).
10.6
 
Form of Securities Purchase Agreement dated July 5, 2017, by and between Vista Capital Investments, LLC and PURA Naturals, Inc.*
10.7
 
Promissory Note Due Six Months After Issuance Date dated July 5, 2017, by and between Vista Capital Investments, LLC and PURA Naturals, Inc.*
10.8
 
Amendment #1 to Promissory Note Dated July 5, 2017.*
10.9
 
Amendment #2 to Promissory Note Dated July 5, 2017.*
10.10
 
Convertible Note Due Twelve Months After Issuance Date dated September 20, 2017, by and between EMA Financial, LLC and PURA Naturals, Inc.*
10.11
 
Form of Securities Purchase Agreement dated September 20, 2017, by and between EMA Financial, LLC and PURA Naturals, Inc.*
10.12
 
Convertible Promissory Note Due Twelve Months After Issuance Date dated September 12, 2017, by and between JSJ Investments Inc. and PURA Naturals, Inc.*
10.13
 
Form of Securities Purchase Agreement dated October 23, 2017, by and between GS Capital Partners, LLC and PURA Naturals, Inc.*
10.14
 
Convertible Secured Redeemable Note Due Twelve Months After Issuance Date dated October 23, 2017, by and between GS Capital Partners, LLC and PURA Naturals, Inc.*
10.15
 
Convertible Secured Redeemable Note Due Twelve Months After Issuance Date dated December 18, 2017, by and between GS Capital Partners, LLC and PURA Naturals, Inc.*
10.16
 
Form of Securities Purchase Agreement dated December 18, 2017, by and between GS Capital Partners, LLC and PURA Naturals, Inc.*
10.17
 
Convertible Secured Redeemable Note Due Twelve Months After Issuance Date dated December 18, 2017, by and between GS Capital Partners, LLC and PURA Naturals, Inc.*
10.18
 
Form of Securities Purchase Agreement dated February 8, 2018, by and between Geneva Roth Remark Holdings, Inc and PURA Naturals, Inc.*
10.19
 
Convertible Promissory Note Dated February 8, 2018, Due November 20, 2018, by and between Geneva Roth Remark Holdings, Inc and PURA Naturals, Inc.*
10.20
 
Convertible Promissory Note Dated March 5, 2018, Due December 15, 2018, by and between Geneva Roth Remark Holdings, Inc and PURA Naturals, Inc.*
10.30
 
Convertible Redeemable Note , Due Twelve Months After Issuance Date Dated March 6, 2018, by and between ONE44 Capital, LLC and PURA Naturals, Inc.*
10.40
 
Form of Securities Purchase Agreement dated March 6, 2018, by and between ONE44 Capital LLC Holdings, Inc and PURA Naturals, Inc.*
21.1
 
Subsidiaries of the registrant.*
31.1
 
Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2
 
Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1
 
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2
 
Certification of Chief Financial Officer Pursuant to 18 U.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 Extension Schema Document
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
 
XBRL Taxonomy Extension Labels Linkbase Document
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document

 * Filed herewith
 
 

- 34 -



 

SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) 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.
 


 
PUR NATURALS, INC
 
 
 
 
 
 
By:
/s/  Robert Doherty
 
 
Robert Doherty
 
 
Chief Executive Officer
 
 
(Principal Executive Officer)
 
Date: April 17, 2018
 
 
 
 
 
 
 
 
By:
/s/  Akio Ariura
 
 
 
 
 
Chief Financial Officer
 
 
(Principal Financial and Accounting Officer)
 
Date: April 17, 2018
 
 
  
 
 
- 35 -





PURA NATURALS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


 
Contents
 
Page
     
Report of Independent Registered Public Accounting Firm
 
F-2
 
 
 
Consolidated Balance Sheets as of December 31, 2017 and 2016
 
F-3
 
 
 
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2017 and 2016
 
F-4
 
 
 
Consolidated Statements of Stockholders' Deficit for the years ended December 31, 2017 and 2016
 
F-5
 
 
 
Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016
 
F-6
 
 
 
Notes to Consolidated Financial Statements 
  F-7
 
 
 
 
 
F - 1

 
 
 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 

To the Board of Directors and Stockholders of
Pura Naturals, Inc.

Opinion on the financial statements

We audited the accompanying consolidated balance sheets of Pura Naturals, Inc. ("the Company") as of December 31, 2017 and 2016, and the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the two years in the period ended December 31, 2017 and the related notes (collectively referred to as "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis of Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. For the years ended December 31, 2017 and 2016, the Company incurred a net loss of $4,968,910 and $1,557,796, respectively, and had negative cash flows from operations of $1,108,611 and $821,304, respectively. The Company may need to discontinue a portion or all of our operations if we are unsuccessful in generating positive cash flow or financing for our operations through the issuance of securities. These factors, among others, as discussed in Note 1 to the consolidated financial statements, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We have served as the Company's auditor since 2017.

 

 
 
MJF & Associates
Los Angeles, California
April 17, 2018
 
 
 

 
 
 
F - 2

 
 
PURA NATURALS, INC
 
Consolidated Balance Sheets
 
             
     
December 31,
   
December 31,
 
   
2017
   
2016
 
             
ASSETS
 
CURRENT ASSETS
           
Cash
 
$
67,422
   
$
14,386
 
Accounts receivable
   
66,427
     
45,791
 
Due from related parties
   
11,890
     
31,908
 
Inventory
   
105,087
     
-
 
Prepaid expenses and other current assets
   
109,430
     
15,750
 
Total Current Assets
   
360,256
     
107,835
 
OTHER ASSETS
               
Intangible assets, net
   
755,682
     
851,719
 
Total Other Assets
   
755,682
     
851,719
 
TOTAL ASSETS
 
$
1,115,938
   
$
959,554
 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
 
                 
CURRENT LIABILITIES
               
Accounts payable
 
$
321,250
   
$
264,224
 
Accrued expenses
   
226,273
     
196,416
 
Due to related parties
   
392,037
     
763,664
 
Deferred revenues
   
72,808
     
72,808
 
Note payable
   
-
     
18,068
 
Convertible note payable, net of discount of $506,237 as of December 31, 2017
   
781,901
     
-
 
Derivative liabilities
   
897,968
     
-
 
             
-
 
Total Current Liabilities
   
2,692,237
     
1,315,180
 
                 
COMMITMENTS AND CONTIGENCIES
               
                 
STOCKHOLDERS' DEFICIT
               
Common stock: par value $0.001, 500,000,000 shares authorized;
               
   39,029,709 and 33,612,376 shares issued and outstanding,
   respectively, as of December 31, 2017 and December 31, 2016.
   
39,030
     
33,612
 
Common stock to be issued
   
85
     
-
 
Additional paid-in capital
   
5,710,270
     
1,956,536
 
Accumulated deficit
   
(7,325,684
)
   
(2,345,774
)
TOTAL STOCKHOLDERS' DEFICIT
   
(1,576,299
)
   
(355,626
)
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)
 
$
1,115,938
   
$
959,554
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 

 

F - 3

 

 
PURA NATURALS, INC.
 
Consolidated Statements of Operations
 
   
             
       
   
Years Ended December 31,
 
   
2017
   
2016
 
             
             
Sales
 
$
451,381
   
$
400,465
 
Cost of goods sold
   
286,875
     
233,453
 
GROSS PROFIT
   
164,506
     
167,012
 
                 
OPERATING EXPENSES
               
Selling expense
   
73,747
     
62,269
 
General and administrative
   
4,360,432
     
1,517,389
 
Total Operating Expenses
   
4,434,179
     
1,579,658
 
LOSS FROM OPERATIONS
   
(4,269,673
)
   
(1,412,646
)
OTHER EXPENSE
               
Interest (expense)
   
(1,399,860
)
   
(145,150
)
Gain on debt extinguishment
   
42,855
     
-
 
Change in fair value of derivative liabilities
   
646,768
     
-
 
Total Other Expense
   
(710,237
)
   
(145,150
)
LOSS BEFORE INCOME TAX PROVISION
   
(4,979,910
)
   
(1,557,796
)
Income tax provision
   
-
     
-
 
NET (LOSS)
 
$
(4,979,910
)
 
$
(1,557,796
)
                 
NET INCOME (LOSS) PER COMMON SHARE
               
Net loss per share
               
BASIC AND DILUTED
 
$
(0.14
)
 
$
(0.06
)
                 
Weighted average common
               
  shares outstanding
               
BASIC AND DILUTED
   
35,407,320
     
27,585,344
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
 

F - 4

 

 
PURA NATURALS, INC.
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
 
   
   
                           
 
         
Total
 
   
Members' Interest
   
Common Stock
   
Additional
Paid-in
   
Accumulated
   
Stockholders'
Equity
 
   
Units
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
(Deficit)
 
Balance, December 31, 2015, restated
   
-
   
$
-
     
22,865,623
   
$
22,865
   
$
837,017
   
$
(787,978
)
 
$
71,904
 
                                                         
Common stock issued for services
                   
447,533
     
447
     
278,356
             
278,803
 
Common stock issued for cash
                   
401,427
     
402
     
304,098
             
304,500
 
Common stock issued for exercise of stock options
                   
1,739,093
     
1,739
     
(1,739
)
           
-
 
Common stock issued for convertible note payable
                   
533,000
     
533
     
399,467
             
400,000
 
Common stock issued in connection with reverse merger
                   
7,625,700
     
7,626
     
(27,666
)
           
(20,040
)
Fair value of options
                                   
167,003
             
167,003
 
Net loss
                                           
(1,557,796
)
   
(1,557,796
)
                                                         
Balance, December 31, 2016
   
-
     
-
     
33,612,376
     
33,612
     
1,956,536
     
(2,345,774
)
   
(355,626
)
                                                         
Common stock issued for services
                   
2,342,000
     
2,342
     
1,556,636
             
1,558,978
 
Common stock issued for cash
                   
142,868
     
143
     
224,357
             
224,500
 
Fair value of options
                                   
840,327
             
840,327
 
Exercise of options
                   
462,500
     
463
     
77,238
             
77,701
 
Common stock issued for debt payment
                   
1,300,000
     
1,300
     
869,700
             
871,000
 
Common stock issued as inducement shares
                                   
62,730
             
62,730
 
Common stock to be issued
                           
-
                     
85
 
Conversion of convertible debt into equity
                   
1,100,000
     
1,100
     
115,262
             
116,362
 
Common stock issued for accounts payable
                   
69,965
     
70
     
7,484
             
7,554
 
Unadjusted balance from prior entity
                                   
-
             
-
 
Net loss
                                           
(4,979,910
)
   
(4,979,910
)
Balance, December 31, 2017
   
-
   
$
-
     
39,029,709
   
$
39,030
   
$
5,710,270
   
$
(7,325,684
)
 
$
(1,576,299
)
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 


F - 5

 

 



PURA NATURALS, INC.
 
Consolidated Statements of Cash Flows
 
   
             
      
Years Ended
 
   
December 31,
 
   
2017
   
2016
 
             
OPERATING ACTIVITIES:
           
Net income/(loss)
 
$
(4,979,910
)
 
$
(1,557,796
)
Adjustments to reconcile net loss to net cash used
               
  in operating activities:
               
Imputed interest
   
835
     
27,519
 
Amortization of intangible assets
   
101,742
     
99,635
 
Amortization of debt discount and original issue discount
   
1,181,750
     
-
 
Change in fair value of derivative instruments
   
(646,769
)
   
-
 
Shares-based compensation related to common stock
   
918,028
     
167,003
 
Gain on debt extinguishment
   
(42,855
)
   
-
 
Convertible note issued for commitment fee
   
330,000
     
-
 
Common stock issued for services
   
1,566,531
     
278,803
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
(20,636
)
   
38,774
 
Inventory
   
(105,087
)
   
3,447
 
Due from related parties
   
20,018
     
(31,908
)
Prepaid expenses and other current assets
   
(93,680
)
   
(6,069
)
Accounts payable
   
94,196
     
(12,374
)
Deferred salary
   
146,250
     
-
 
Accrued expenses
   
(4,729
)
   
193,891
 
Due to related parties
   
425,705
     
(6,532
)
Deferred revenue
   
-
     
(15,697
)
Cash Used in Operating Activities
   
(1,108,611
)
   
(821,304
)
                 
INVESTING ACTIVITIES:
               
Payments for intangible assets
   
(5,705
)
   
(1,575
)
Decrease in restricted cash
   
-
     
99,900
 
Cash Provided from Investing Activities
   
(5,705
)
   
98,325
 
                 
FINANCING ACTIVITIES:
               
Advances from related party
   
19,500
     
-
 
Common shares to be issued as part of convertible note
   
62,815
     
-
 
Repayment of note payable
   
(73,068
)
   
-
 
Payment of note payable - Related Party
   
(52,645
)
   
-
 
Payment on convertible note payable
   
(78,000
)
   
(11,932
)
Proceeds from the issuance of convertible debt
   
1,009,250
     
400,000
 
Proceeds from sale of common stock for cash
   
224,500
     
304,500
 
Proceeds from issuance of note payable
   
55,000
     
30,000
 
    Net Cash Provided by Financing Activities
   
1,167,352
     
722,568
 
NET CHANGE IN CASH
   
53,036
     
(411
)
CASH AT BEGINNING OF YEAR
   
14,386
     
14,797
 
CASH AT END OF YEAR
 
$
67,422
   
$
14,386
 
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
               
Interest paid
 
$
265,617
   
$
-
 
Income tax paid
 
$
-
   
$
-
 
                 
Non-Cash Investing and Financing Activities:
               
Common stock issued for convertible note payable
 
$
116,362
   
$
400,000
 
Common stock issued for license
 
$
871,000
   
$
300,000
 
Increase in amount due to related party for license
 
$
168,750
   
$
696,346
 
Expense & Debt paid by third party on behalf of Company
 
$
50,000
   
$
-
 
Debt discount for new issuances
 
$
1,405,766
   
$
-
 
Original Issue Discount
 
$
95,250
   
$
-
 
Common Stock to be issued as inducement shares for convertible debt
 
$
85
   
$
-
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
 
F - 6

 
 


PURA NATURALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016


Note 1 - Organization and Basis of Presentation

Organization and Line of Business
 
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 corporation for common stock of the Pura - DE.

Effective July 18, 2016, the Company entered into that certain share exchange agreement by and among the Company, Pura - DE") and certain shareholders of Pura – DE  (the "PURA Shareholders").  Pursuant to the Share Exchange Agreement, the Company exchanged the outstanding common and preferred stock of Pura - DE held by the PURA Shareholders for shares of common stock of the Company.  At the closing date, Robert Lee, the holder of 30,536,100 shares of common stock, agreed to cancelation of such shares.  Other than Robert Lee, shareholders of Company common stock held 7,625,700 shares.  Also on the closing date, the Company issued 23,187,876 shares of common stock to the PURA shareholders.   In addition, shares issuable under outstanding options of Pura – DE will be exercisable into shares of common stock of the Company, pursuant to the terms of such instruments.  As a result of the share exchange agreement and the other transactions contemplated there under, Pura - DE became 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.

Stock Split

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

Note 2 – Summary of Significant Accounting Policies

 Accounting Method

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




PURA NATURALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016



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

Principles of Consolidation

The accompanying CFS include the accounts of the Company and its wholly-owned subsidiary, PURA - DE, and have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP").  All significant intercompany transactions and balances were eliminated.

Use of Estimates and Assumptions

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.