The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
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 company for common stock of the Delaware company.
Effective July 18, 2016, the Company and Pura - DE entered into a share exchange agreement by and among the Company, Pura – DE and certain stockholders of Pura - DE. Pursuant to the share exchange agreement, the Company exchanged the outstanding common and preferred stock of Pura - DE for shares of common stock of the Company. On the closing date, the Company issued 23,187,876 shares of common stock to the Pura - DE. In addition, shares issuable under outstanding options of Pura - DE will be exercisable into shares of common stock of Company, pursuant to the terms of such instruments. At the closing date, Robert Lee, the holder of 30,536,100 shares of the Company's common stock, agreed to cancelation of such shares leaving 7,625,700 shares issued and outstanding. Upon completion of the foregoing transactions, the Company had 30,813,576 shares of common stock issued and outstanding. As a result of the share exchange agreement and the other transactions contemplated thereunder, Pura - DE is now a wholly owned subsidiary of the Company.
The exchange of shares with Pura - DE was accounted for as a reverse acquisition under the purchase method of accounting since Pura - DE obtained control of the Company. Accordingly, the merger of Pura - DE into the Company was recorded as a recapitalization of Pura - DE, Pura - DE being treated as the continuing entity. The historical financial statements presented are the financial statements of Pura - DE. The share exchange agreement was treated as a recapitalization and not as a business combination; therefore, no pro forma information is disclosed. At the date of this transaction, the net liabilities of the legal acquirer, Pura - CO, were $20,040.
The Company is engaged in the marketing and sales of consumer products through the use of direct sales, brokers and distributors to wholesalers, mass merchandisers, retail stores and on the internet.
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.
Going Concern
These consolidated financial statements ("CFS") were prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the Company obtaining necessary equity and debt financing until it can generate sustainable revenue. There is no guarantee the Company will be able to raise adequate equity or debt financing or generate profitable operations. For 2016 and 2015, the Company incurred net losses of $1,557,796 and $1,566,232, respectively, and had negative cash flows from operations of $821,304 and $1,389,300, respectively. These CFS do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Management intends to raise additional funds through equity or debt financing and to generate cash from the sale of the Company's products resulting from waste conversion of selected feedstocks and services from water remediation.
PURA NATURALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note 2 – Summary of Significant Accounting Policies
Accounting Method
The Company's CFS are prepared using the accrual method of accounting. The Company has elected a fiscal year ending on December 31.
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 have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP 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.
Cash
Cash and cash equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. As of December 31, 2016 and 2015, the Company did not have any cash equivalents.
Restricted Cash
At December 31, 2015, the Company was required to maintain a separate bank account with a financial institution as collateral for a Company credit card. In March 2016, the Company canceled the credit card and the balance is the restricted account became available to the Company.
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. The Company's allowance for doubtful accounts was $0 and $0 at December 31, 2016 and 2015, respectively.
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. At December 31, 2016, all of the inventory was finished goods inventory.
PURA NATURALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note 2 – Summary of Significant Accounting Policies (continued)
Intangible Assets
Intangible assets consist of a license with a related party and amounts paid to obtain trademarks. Intangible assets are being amortized over 120 months.
Long-Lived Assets
The Company applies ASC Topic 360,
Property, Plant, and Equipment
, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review at December 31, 2016 and 2015, the Company
believes
there was no impairment of its long-lived assets.
Fair Value of Financial Instruments
For certain of the Company's financial instruments, including cash and equivalents, restricted cash, accounts receivable, advances to suppliers, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.
FASB ASC Topic 820,
Fair Value Measurements and Disclosures
, requires disclosure of the fair value of financial instruments held by the Company. FASB ASC Topic 825,
Financial Instruments
, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
|
·
|
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
|
|
·
|
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
·
|
Level 3 inputs to the valuation methodology us one or more unobservable inputs which are significant to the fair value measurement.
|
The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic 480,
Distinguishing Liabilities from Equity
, and FASB ASC Topic 815,
Derivatives and Hedging
.
As of December 31, 2016 and 2015, respectively, the Company did not identify any assets and liabilities required to be presented on the balance sheet at fair value.
PURA NATURALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note 2 – Summary of Significant Accounting Policies (continued)
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.
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.
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. There were 0 and 1,109,363 options outstanding as of December 31, 2016 and 2015, respectively.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740,
Income Taxes
. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.
Prior to July 1, 2015, the Company was a limited liability company and was treated as a partnership for federal and state income tax purposes with all income tax liabilities and/or benefits of the Company being passed through to its members in accordance with their respective percentage ownership. As such, no recognition of federal or state income taxes for the Company was provided for the period from January 1, 2015 to June 30, 2015, in the accompanying CFS.
Basic and Diluted Earnings (Loss) Per Share
Earnings per share is calculated in accordance with ASC Topic 260,
Earnings Per Share
. Basic earnings per share ("EPS") is based on the weighted average number of common shares outstanding. Diluted EPS is based on the assumption that all dilutive convertible shares and stock warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. There were 1,156,250 and 1,713,206 potentially dilutive securities outstanding during 2016 and 2015, respectively.
PURA NATURALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note 2 – Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update ("ASU") 2017-01,
Business Combinations (Topic 805) Clarifying the Definition of a Business
. The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date. The Company is in the process of evaluating the impact of this accounting standard update.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash,
which requires restricted cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet. ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its CFS.
In October 2016, the FASB issued ASU 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory
, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its CFS.
In August 2016, the FASB issued ASU 2016-15
, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments
. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its CFS.
In March 2016, the FASB issued ASU 2016-09,
Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting
. ASU 2016-09, which amends several aspects of accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, and classification in the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its CFS.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its CFS.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15,
Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern
, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. ASU 2014-15 requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2014-15 on the Company's CFS.
PURA NATURALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note 2 – Summary of Significant Accounting Policies (continued)
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers
. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle-based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company's CFS.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future CFS.
Note 3 – Intangible Assets
The following are the details of intangible assets at December 31, 2016 and 2015:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
License
|
|
$
|
996,346
|
|
|
$
|
996,346
|
|
Trademark
|
|
|
4,825
|
|
|
|
3,250
|
|
|
|
|
1,001,171
|
|
|
|
999,596
|
|
Less accumulated amortization
|
|
|
(149,452
|
)
|
|
|
(49,817
|
)
|
Intangible assets, net
|
|
$
|
851,719
|
|
|
$
|
949,779
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for 2016 and 2015 was $99,635 and $49,817, respectively.
The following summarizes estimated future amortization expense as of December 31, 2016 related to intangible assets:
Years ending December 31,
|
|
|
|
|
2017
|
|
|
$
|
100,117
|
|
2018
|
|
|
|
100,117
|
|
2019
|
|
|
|
100,117
|
|
2020
|
|
|
|
100,117
|
|
2021
|
|
|
|
100,117
|
|
Thereafter
|
|
|
|
351,134
|
|
|
|
|
$
|
851,719
|
|
PURA NATURALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note 4 –Related Party Transactions
The Company has balances outstanding that are due from affiliated companies and payable to affiliated companies. These amounts are payable upon demand and are non-interest bearing. At December 31, 2016 and 2015, the amounts due from related parties was $31,908 and $0, respectively. At December 31, 2016 and 2015, the amounts due to related parties was $763,664 and $742,677, respectively.
During 2015, the Company entered into a license agreement for 10 years with Advanced Innovative Recovery Technologies, Inc. a stockholder of the Company. In connection with the license, the Company issued 927,516 shares of common stock and agreed to pay $375,000 on each of June 30, 2016 and 2017. The value of the common stock of $300,000 was based on recent sales of the Company's common stock. The value of the license is $996,346 which equals the common stock issued that was valued at $300,000 plus $696,346, the present value of the two payments of $375,000. The Company has not made the $375,000 payment that was due June 30, 2016; as a result, the Company has accrued interest on the unpaid balance at the rate of 5% per month.
Note 5 – Convertible Note Payable
On June 2, 2016, the Company entered into convertible note payable agreement for $400,000 with an investor of which $200,000 was funded in June 2016 and $200,000 in July 2016. The convertible note is unsecured, bears interest at 4%, and was due December 31, 2016. The convertible note payable contains a provision that allows the note holder to convert the outstanding balance into shares of the Company's common stock at $0.75 per share. The Company determined the convertible note payable did not contain a beneficial conversion feature as the conversion price was greater than Company's current stock price. As of December 31, 2016, the entire convertible note of $400,000 was converted into 533,000 shares of the Company's common stock.
Note 6 – Note Payable
During 2016 the Company issued a note for $30,000. The note payable accrues interest at 74% per annum requires daily payments of $163, is due on August 10, 2017 and is secured by a personal guarantee of a former officer. At December 31, 2016, the balance outstanding was $18,068.
Note 7 – Members' Interest/Stockholders' Equity
Members' Interest
During 2015, the Company issued 440,500 units to employees and consultants for services that were valued at $220,250. The value of the units issued for services was based on the most recent sale of the Company's membership units for cash.
PURA NATURALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note 7 – Members' Interest/Stockholders' Equity (continued)
Common stock
During 2016, the Company issued shares of common stock as follows:
|
·
|
447,533 shares for services valued at $278,803. The shares were valued based on the Company's stock price at the date of issuance;
|
|
·
|
401,427 shares for cash of $304,500;
|
|
·
|
1,739,093 shares upon the exercise of stock options;
|
|
·
|
533,000 shares for the conversion of a convertible note payable; and
|
|
·
|
7,625,700 shares in connection with the reverse merger transaction described in Note 1.
|
During 2015, the Company issued shares of common stock as follows:
|
·
|
19,262,223 shares for 12,460,500 membership units;
|
|
·
|
2,675,884 shares for cash of $1,500,000; and
|
|
·
|
927,516 shares for a license agreement.
|
Stock options
The following is a summary of stock option activity:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
Life
|
|
|
Value
|
|
Outstanding, December 31, 2014
|
|
|
1,461,695
|
|
|
|
0.003
|
|
|
|
*
|
|
|
$
|
468,202
|
|
Granted
|
|
|
251,511
|
|
|
|
0.003
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2015
|
|
|
1,713,206
|
|
|
|
0.003
|
|
|
|
*
|
|
|
$
|
959,229
|
|
Granted
|
|
|
1,690,887
|
|
|
|
0.001
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(508,750
|
)
|
|
|
0.001
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,739,093
|
)
|
|
|
0.003
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2016
|
|
|
1,156,250
|
|
|
|
0.001
|
|
|
|
4.59
|
|
|
$
|
2,554,156
|
|
Exercisable, December 31, 2016
|
|
|
231,250
|
|
|
|
0.001
|
|
|
|
4.59
|
|
|
$
|
510,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* - the options do not have an expiration date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PURA NATURALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note 7 – Members' Interest/Stockholders' Equity (continued)
The exercise price for options outstanding at December 31, 2016:
Outstanding
|
|
|
Exercisable
|
|
Number of
|
|
|
Exercise
|
|
|
Number of
|
|
|
Exercise
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
1,156,250
|
|
|
$
|
0.001
|
|
|
|
231,250
|
|
|
$
|
0.001
|
|
For options granted during 2016 and 2015 where the exercise price was less than the stock price at the date of the grant, the weighted-average fair value of such options was $0.65 and $0.51 per share, respectively, and the weighted-average exercise price of such options was $0.001 and $0.003, respectively. No options were granted during 2016 and 2015 where the exercise price was equal to or greater than the stock price at the date of grant.
The fair value of the stock options is being amortized to stock option expense over the vesting period. The Company recorded stock option expense of $167,003 and $129,432 during 2016 and 2015, respectively. At December 31, 2016, the unamortized stock option expense was $601,012 which will be amortized to expense through June 30, 2019.
The assumptions used in calculating the fair value of options granted using the Black-Scholes option- pricing model for options granted in 2016 and 2015 are as follows:
Risk-free interest rate
|
|
1.07 - 1.74%
|
Expected life of the options
|
|
2.5 years
|
Expected volatility
|
|
350%
|
Expected dividend yield
|
|
0%
|
Note 8 – Income Taxes
Prior to July 1, 2015 the Company was a limited liability company and was treated as a partnership for federal and state income tax purposes with all income tax liabilities and/or benefits of the Company being passed through to its members in accordance with their respective percentage ownership. As such, no recognition of federal or state income taxes for the Company was provided for the period from January 1, 2015 to June 30, 2015.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A full valuation allowance is established against all net deferred tax assets as of December 31, 2016 based on estimates of recoverability. While the Company has optimistic plans for its business strategy, it determined that such a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to its ability to generate sufficient profits from its new business model. Because of the impacts of the valuation allowance, there was no income tax expense or benefit for 2016 and 2015.
PURA NATURALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note 8 – Income Taxes
(continued)
A reconciliation of the differences between the effective and statutory income tax rates for year ended December 31, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal statutory rates
|
|
$
|
(529,651
|
)
|
|
|
34.0
|
%
|
|
$
|
(532,519
|
)
|
|
|
34.0
|
%
|
State income taxes
|
|
|
(77,890
|
)
|
|
|
5.0
|
%
|
|
|
(78,312
|
)
|
|
|
5.0
|
%
|
Pass through loss to LLC members
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
303,519
|
|
|
|
-19.4
|
%
|
Stock compensation
|
|
|
173,864
|
|
|
|
-11.2
|
%
|
|
|
44,039
|
|
|
|
-2.8
|
%
|
Valuation allowance against net deferred tax assets
|
|
|
433,677
|
|
|
|
-27.8
|
%
|
|
|
263,273
|
|
|
|
-16.8
|
%
|
Effective rate
|
|
$
|
-
|
|
|
|
0.0
|
%
|
|
$
|
-
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016 and 2015, the significant components of the deferred tax assets are summarized below:
|
|
2016
|
|
|
2015
|
|
Deferred income tax asset
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
696,949
|
|
|
$
|
263,273
|
|
Total deferred income tax asset
|
|
|
696,949
|
|
|
|
263,273
|
|
Less: valuation allowance
|
|
|
(696,949
|
)
|
|
|
(263,273
|
)
|
Total deferred income tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company recorded as of December 31, 2016 and 2015 a valuation allowance of $696,949 and $263,273, respectively, as it believes that it is more likely than not that the deferred tax assets will not be realized in future years. Management has based its assessment on the Company's lack of profitable operating history.
The Company annually conducts an analysis of its tax positions and has concluded that it has no uncertain tax positions as of December 31, 2016 and 2015.
The Company has net operating loss carry-forwards of approximately $1,787,000 as of December 31, 2016. Such amounts are subject to IRS code section 382 limitations and expire in 2030. The 2014 to 2016 tax years are still subject to audit. As a limited liability company, through June 30, 2015, in the event of an examination of the Company's tax return for the periods prior to July 1, 2015, the tax liability of the members could be changed if an adjustment in the Company's income (loss) is ultimately sustained by the taxing authorities.
Note 9 – Commitments and Contingencies
From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. There are no pending significant legal proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on the Company's financial position. The Company maintains a head office at 23101 Lake Center Drive, Suite 100, Lake Forest, CA 92630. This property is leased until 3/31/2018 at a rate of $ 2,636.12 / per month.
PURA NATURALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note 10 – Restatement of Previously Issued Financial Statements
During 2015, the Company entered into a license agreement with a related party that was not originally reflected in its previously issued financial statements.
The following tables present the restated financial statements as of and for the year ended December 31, 2015. All the adjustments are a result of recording the license agreement entered into in 2015.
CONSOLIDATED BALANCE SHEET
|
|
As of December 31, 2015
|
|
|
|
|
|
As Originally
|
|
|
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
14,797
|
|
|
$
|
-
|
|
|
$
|
14,797
|
|
Restricted cash
|
|
|
99,900
|
|
|
|
-
|
|
|
|
99,900
|
|
Accounts receivable, net
|
|
|
84,565
|
|
|
|
-
|
|
|
|
84,565
|
|
Inventory
|
|
|
3,447
|
|
|
|
-
|
|
|
|
3,447
|
|
Prepaid expenses and other current assets
|
|
|
9,681
|
|
|
|
-
|
|
|
|
9,681
|
|
Total current assets
|
|
|
212,390
|
|
|
|
-
|
|
|
|
212,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
3,250
|
|
|
|
946,529
|
|
|
|
949,779
|
|
TOTAL ASSETS
|
|
$
|
215,640
|
|
|
$
|
946,529
|
|
|
$
|
1,162,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
256,558
|
|
|
$
|
-
|
|
|
$
|
256,558
|
|
Accrued expenses
|
|
|
2,525
|
|
|
|
-
|
|
|
|
2,525
|
|
Due to related parties
|
|
|
28,813
|
|
|
|
365,798
|
|
|
|
394,611
|
|
Deferred income
|
|
|
88,505
|
|
|
|
-
|
|
|
|
88,505
|
|
Total current liabilities
|
|
|
376,401
|
|
|
|
365,798
|
|
|
|
742,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to related parties
|
|
|
-
|
|
|
|
348,066
|
|
|
|
348,066
|
|
TOTAL LIABILITIES
|
|
|
376,401
|
|
|
|
713,864
|
|
|
|
1,090,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
21,938
|
|
|
|
927
|
|
|
|
22,865
|
|
Additional paid-in capital
|
|
|
537,944
|
|
|
|
299,073
|
|
|
|
837,017
|
|
Accumulated deficit
|
|
|
(720,643
|
)
|
|
|
(67,335
|
)
|
|
|
(787,978
|
)
|
Total stockholders' deficit
|
|
|
(160,761
|
)
|
|
|
232,665
|
|
|
|
71,904
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
215,640
|
|
|
$
|
946,529
|
|
|
$
|
1,162,169
|
|
PURA NATURALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note 10 – Restatement of Previously Issued Financial Statements (continued)
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
For the Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Originally
|
|
|
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
479,204
|
|
|
$
|
-
|
|
|
$
|
479,204
|
|
Cost of goods sold
|
|
|
191,493
|
|
|
|
-
|
|
|
|
191,493
|
|
Gross profit
|
|
|
287,711
|
|
|
|
-
|
|
|
|
287,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
112,439
|
|
|
|
-
|
|
|
|
112,439
|
|
General and administrative expenses
|
|
|
1,674,169
|
|
|
|
49,817
|
|
|
|
1,723,986
|
|
Total operating expenses
|
|
|
1,786,608
|
|
|
|
49,817
|
|
|
|
1,836,425
|
|
Loss from operations
|
|
|
(1,498,897
|
)
|
|
|
(49,817
|
)
|
|
|
(1,548,714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
0
|
|
|
|
(17,518
|
)
|
|
|
(17,518
|
)
|
Total other income (expense)
|
|
|
0
|
|
|
|
(17,518
|
)
|
|
|
(17,518
|
)
|
Loss before provision for income taxes
|
|
|
(1,498,897
|
)
|
|
|
(67,335
|
)
|
|
|
(1,566,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,498,897
|
)
|
|
$
|
(67,335
|
)
|
|
$
|
(1,566,232
|
)
|
PURA NATURALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note 10 – Restatement of Previously Issued Financial Statements (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For the Year Ended December 31, 2015
|
|
|
|
|
|
As Originally
|
|
|
|
|
|
|
|
|
|
Presented
|
|
|
Restatement
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,498,897
|
)
|
|
$
|
(67,335
|
)
|
|
$
|
(1,566,232
|
)
|
Adjustments to reconcile net loss to
|
|
|
|
|
|
|
|
|
|
|
|
|
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
-
|
|
|
|
49,817
|
|
|
|
49,817
|
|
Imputed interest
|
|
|
-
|
|
|
|
17,518
|
|
|
|
17,518
|
|
Stock-based compensation
|
|
|
129,432
|
|
|
|
-
|
|
|
|
129,432
|
|
Common stock issued for services
|
|
|
220,250
|
|
|
|
-
|
|
|
|
220,250
|
|
Change in current assets and liabilities:
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Accounts receivable
|
|
|
(74,277
|
)
|
|
|
-
|
|
|
|
(74,277
|
)
|
Inventory
|
|
|
(2,667
|
)
|
|
|
-
|
|
|
|
(2,667
|
)
|
Prepaid expenses and other assets
|
|
|
(9,681
|
)
|
|
|
-
|
|
|
|
(9,681
|
)
|
Accounts payable
|
|
|
76,110
|
|
|
|
-
|
|
|
|
76,110
|
|
Accrued expenses
|
|
|
25
|
|
|
|
-
|
|
|
|
25
|
|
Due to related parties
|
|
|
(214,092
|
)
|
|
|
-
|
|
|
|
(214,092
|
)
|
Deferred income
|
|
|
(15,503
|
)
|
|
|
-
|
|
|
|
(15,503
|
)
|
Net cash used in operating activities
|
|
|
(1,389,300
|
)
|
|
|
-
|
|
|
|
(1,389,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment for intangible assets
|
|
|
(450
|
)
|
|
|
-
|
|
|
|
(450
|
)
|
Increase in restricted cash
|
|
|
(99,900
|
)
|
|
|
-
|
|
|
|
(99,900
|
)
|
Net cash used in investing activities
|
|
|
(100,350
|
)
|
|
|
-
|
|
|
|
(100,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
1,500,000
|
|
|
|
-
|
|
|
|
1,500,000
|
|
Net cash provided by financing activities
|
|
|
1,500,000
|
|
|
|
-
|
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH
|
|
|
10,350
|
|
|
|
-
|
|
|
|
10,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF PERIOD
|
|
|
4,447
|
|
|
|
-
|
|
|
|
4,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, END OF PERIOD
|
|
$
|
14,797
|
|
|
$
|
-
|
|
|
$
|
14,797
|
|