The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017 (UNAUDITED) AND DECEMBER 31, 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 company for common stock of the Delaware company.
Effective July 18, 2016, the Company and Pura - DE entered into a share exchange agreement by and among the Company, Pura – DE and certain stockholders of Pura - DE. Pursuant to the share exchange agreement, the Company exchanged the outstanding common and preferred stock of Pura - DE for shares of common stock of the Company. On the closing date, the Company issued 23,187,876 shares of common stock to the Pura - DE. In addition, shares issuable under outstanding options of Pura - DE will be exercisable into shares of common stock of Company, pursuant to the terms of such instruments. At the closing date, Robert Lee, the holder of 30,536,100 shares of the Company's common stock, cancelled such shares leaving 7,625,700 shares issued and outstanding. Upon completion of the foregoing transactions, the Company had 30,813,576 shares of common stock issued and outstanding. As a result of the share exchange agreement and the other transactions contemplated thereunder, Pura - DE is now a wholly owned subsidiary of the Company.
The exchange of shares with Pura - DE was accounted for as a reverse acquisition under the purchase method of accounting since Pura - DE obtained control of the Company. Accordingly, the merger of Pura - DE into the Company was recorded as a recapitalization of Pura - DE, Pura - DE being treated as the continuing entity. The historical financial statements presented are the financial statements of Pura - DE. The share exchange agreement was treated as a recapitalization and not as a business combination; therefore, no pro forma information is disclosed. At the date of this transaction, the net liabilities of the legal acquirer, Pura - CO, were $20,040.
The Company is engaged in the marketing and sales of consumer products through the use of direct sales, brokers and distributors to wholesalers, mass merchandisers, retail stores and on the internet.
The unaudited consolidated financial statements are prepared by the Company, pursuant to the rules and regulations of the Securities Exchange Commission ("SEC"). The information furnished herein reflects all adjustments, consisting only of normal recurring adjustments, which in the opinion of management, are necessary to fairly state the Company's financial position, the results of its operations, and cash flows for the periods presented. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") were omitted pursuant to such rules and regulations. The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the results for the year ending December 31, 2017.
Stock Split
On November 17, 2016, the Company effected a 3.7 to 1 forward stock split. All share and per share information was retroactively restated to reflect this forward stock split.
PURA NATURALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017 (UNAUDITED) AND DECEMBER 31, 2016
Going Concern
These financial statements have been 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 the three months ended March 31, 2017, the Company incurred a net loss of $491,892, and had negative cash flows from operations of $145,833, and at March 31, 2017, the Company had a working capital deficit and stockholders' deficit of $1,188,427 and $358,417, respectively. These financial statements 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.
Note 2 – Summary of Significant Accounting Policies
Accounting Method
The Company's financial statements are prepared using the accrual method of accounting. The Company elected a fiscal year ending on December 31.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, PURA - DE,
and have been prepared in conformity with US GAAP. All significant intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with US 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 March 31, 2017 and December 31, 2016, the Company did not have any cash equivalents.
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 at March 31, 2017 and December 31, 2016, respectively.
PURA NATURALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017 (UNAUDITED) AND DECEMBER 31, 2016
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 follows the provisions of ASC Topic 360,
Property, Plant, and Equipment
, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review at March 31, 2017 and December 31, 2016, the Company
believes
there was no impairment of its long-lived assets.
Derivative Financial Instruments
The Company evaluates all of its agreements to determine if they create instruments that are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a weighted average Black-Scholes-Merton option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of March 31, 2017, the Company's only derivative financial instrument was an embedded conversion feature associated with convertible note payable due to certain provisions that allow for a change in the conversion price based on a percentage of the Company's stock price at the date of conversion.
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.
Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("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.
|
PURA NATURALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017 (UNAUDITED) AND DECEMBER 31, 2016
The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic 480,
Distinguishing Liabilities from Equity
, and FASB ASC Topic 815,
Derivatives and Hedging
.
The Company 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 March 31, 2017 and December 31, 2016, respectively, the Company did not identify any assets and liabilities required to be presented on the balance sheet at fair value.
The Company uses Level 2 inputs for its valuation methodology for its derivative liability as its fair value was determined by using the Black-Scholes-Merton pricing model based on various assumptions. The Company's derivative liability is adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives.
At March 31, 2017, the Company identified the following liability that is required to be presented on the balance sheet at fair value:
|
|
Fair Value
|
|
|
Fair Value Measurements at
|
|
|
|
As of
|
|
|
March 31, 2017
|
|
Description
|
|
March 31, 2017
|
|
|
Using Fair Value Hierarchy
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability - conversion feature
|
|
$
|
126,810
|
|
|
$
|
-
|
|
|
|
126,810
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
126,810
|
|
|
$
|
-
|
|
|
|
126,810
|
|
|
|
-
|
|
As of December 31, 2016, respectively, the Company did not identify any assets and liabilities required to be presented on the balance sheet at fair value.
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 1,156,250 options outstanding as of March 31, 2017 and December 31, 2016.
PURA NATURALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017 (UNAUDITED) AND DECEMBER 31, 2016
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. The adoption had no effect on the Company's financial statements.
Basic and Diluted Earnings 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 2017 and 2016, respectively related to options outstanding.
Recent Accounting Pronouncements
In January 2017, the FASB issued an Accounting Standards Update ("ASU") 2017-01,
Business Combinations (Topic 805) Clarifying the Definition of a Business
. The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date. The Company is in the process of evaluating the impact of this 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 consolidated financial statements.
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 consolidated financial statements.
PURA NATURALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017 (UNAUDITED) AND DECEMBER 31, 2016
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 consolidated financial statements.
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. This adoption of this accounting standard update had no impact on the Company's consolidated financial statements.
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 consolidated financial statements.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15,
Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern
, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. ASU 2014-15 requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter. This adoption of this accounting standard update had no impact on the Company's consolidated financial statements.
In May 2014, FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle-based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company's 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 SEC did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.
PURA NATURALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017 (UNAUDITED) AND DECEMBER 31, 2016
Note 3 – Intangible Assets
The following are the details of intangible assets at March 31, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
License
|
|
$
|
996,346
|
|
|
$
|
996,346
|
|
Trademark
|
|
|
8,025
|
|
|
|
4,825
|
|
|
|
|
1,004,371
|
|
|
|
1,001,171
|
|
Less accumulated amortization
|
|
|
(174,361
|
)
|
|
|
(149,452
|
)
|
Intangible assets, net
|
|
$
|
830,010
|
|
|
$
|
851,719
|
|
Amortization expense for the three months ended March 31, 2017 and 2016 was $24,909 and $24,909, respectively.
The following summarizes estimated future amortization expense as of March 31, 2017 related to intangible assets:
Year Ending March 31,
|
|
|
|
2018
|
|
$
|
100,437
|
|
2019
|
|
|
100,437
|
|
2020
|
|
|
100,437
|
|
2021
|
|
|
100,437
|
|
2022
|
|
|
100,437
|
|
Thereafter
|
|
|
327,825
|
|
|
|
$
|
830,010
|
|
Note 4 – Due from Related Parties/Due to Related Parties
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 March 31, 2017 and December 31, 2016, the amounts due from related parties was $39,390 and $31,908, respectively. At March 31, 2017 and December 31, 2016, the amounts due to related parties was $844,866 and $763,664, respectively.
During 2015, the Company entered into a license agreement for 10 years with Advanced Innovative Recovery Technologies, Inc. a stockholder of the Company. To pay for 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.
PURA NATURALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017 (UNAUDITED) AND DECEMBER 31, 2016
Note 5 – Note Payable
During 2016 the Company issued a note for $30,000. The note payable accrues interest at 74% per annum requires daily payments of $163, is due on August 10, 2017 and is secured by a personal guarantee of a former officer. The outstanding balance was $10,682 and $18,068 at March 31, 2017 and December 31, 2016, respectively.
Note 6 - Convertible Note Payable
During the three months ended March 31, 2017, the Company issued a convertible note payable to an investor for $78,000. The convertible note payable (i) is unsecured, (ii) bear interest 4.25%, and (iii) is due on January 18, 2018. The convertible note payable is convertible at any time at the option of the investor into shares of the Company's common stock that is determined by dividing the amount to be converted by 61% of the average of three lowest trading prices of the Company's common stock during the 10 day period prior to date of conversion.
Due to the potential adjustment in the conversion price associated with this convertible note payable based on the Company's stock price, the Company determined that the conversion feature is considered a derivative liability. The embedded conversion feature was initially calculated to be $112,648 which are recorded as a derivative liability as of the date of issuance. The derivative liability was recorded as a debt discount to the convertible note payable up to the face amount of the convertible note with the excess of $34,648 being recorded as a financing cost. The debt discount of $78,000 is being amortized over the term of the convertible note. The Company recognized interest expense of $265 during the three months ended March 31 2017 for the amortization of the debt discount.
Note 7 - Derivative Liability
The convertible note payable discussed in Note 6 has a conversion price that is adjusted based on the Company's stock price which results in the conversion feature being recorded as a derivative liability.
The fair value of the derivative liability is recorded and shown separately under current liabilities. Changes in the fair value of the derivative liability is recorded in the statement of operations under other income (expense).
The Company uses a weighted average Black-Scholes-Merton option pricing model with the following assumptions to measure the fair value of derivative liability at March 31, 2017:
Stock price
|
|
$
|
1.62
|
|
Risk free rate
|
|
|
1.03
|
%
|
Volatility
|
|
|
150
|
%
|
Conversion/ Exercise price
|
|
$
|
0.69
|
|
Dividend rate
|
|
|
0
|
%
|
Term (years)
|
|
|
0.80
|
|
PURA NATURALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017 (UNAUDITED) AND DECEMBER 31, 2016
The following table represents the Company's derivative liability activity for the three months ended March 31, 2017:
|
|
Amount
|
|
|
|
|
|
Derivative liability balance, December 31, 2016
|
|
$
|
-
|
|
Issuance of derivative liability during the three months ended March 31, 2017
|
|
|
112,648
|
|
Change in derivative liability during the three months ended March 31, 2017
|
|
|
14,162
|
|
Derivative liability balance, March 31, 2017
|
|
$
|
126,810
|
|
Note 8 – Stockholders' Deficit
Common stock
During the three months ended March 31, 2017, the Company issued shares of common stock as follows:
|
·
|
100,000 shares for services valued at $204,500. The shares were valued based on the Company's stock price at the date of issuance; and
|
|
·
|
142,868 shares for cash of $224,500.
|
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, 2016
|
|
|
1,156,250
|
|
|
|
0.001
|
|
|
|
4.59
|
|
|
$
|
2,554,156
|
|
Granted
|
|
|
0
|
|
|
|
0.001
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
0
|
|
|
|
0.001
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
0
|
|
|
|
0.003
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2017
|
|
|
1,156,250
|
|
|
|
0.001
|
|
|
|
4.35
|
|
|
$
|
1,871,969
|
|
Exercisable, March 31, 2017
|
|
|
323,750
|
|
|
|
0.001
|
|
|
|
4.35
|
|
|
$
|
524,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $60,101 and $0 during the three months ended March 31, 2017 and 2016, respectively. At March 31, 2017, the unamortized stock option expense was $540,911 which will be amortized to expense through June 30, 2019.
PURA NATURALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017 (UNAUDITED) AND DECEMBER 31, 2016
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.
Note 10 – Subsequent Events
As previously disclosed by the Company in the 8K filed on April 13, 2017, on April 7, 2017, the Company entered into a Securities Purchase Agreement ("SPA") with Mammoth Corporation, a Nevada corporation and accredited investor ("Mammoth"), pursuant to which the Company, at its option, may issue and sell to Mammoth up to $10,000,000 of the Company's registered common stock (the "Shares") in a 24-month period after the registration of the Shares. Pursuant to the SPA, the amount of each individual advance, up to $1,000,000, is at the discretion of the Company subject to certain limitations described herein.
On April 7, 2017, the Company also entered into a Registration Rights Agreement ("RRA") with Mammoth whereby the Company agreed to provide certain registration rights under the Securities Act of 1933, as amended (the "Securities Act"), and applicable state laws. Pursuant to the RRA, the Company shall register the Shares pursuant to a registration statement on Form S-1 (or on such other form as is available to the Company within 45 days of the execution of the Agreements) (the "Registration Statement"). In addition, the Company agreed to use its best efforts to cause such registration statement to be declared effective within one hundred twenty (120) days after the initial filing with the Securities Exchange Commission ("SEC"). Pursuant to the terms of the SPA and RRA, the Company shall reserve a sufficient number of shares of the Company's common stock for the purpose of enabling the Company to issue Shares pursuant to the Agreements.
Subject to the terms and conditions of the SPA and RRA, including that there is an effective Registration Statement, the Company, at its sole and exclusive option, may issue and sell to Mammoth, and Mammoth shall purchase from the Company, the Shares upon the Company's delivery of written notices to Mammoth.
The aggregate maximum amount of all purchases that Mammoth shall be obligated to make under the Agreements shall not exceed $10,000,000. Once a written notice is received by Mammoth, it shall not be terminated, withdrawn or otherwise revoked by the Company.
The amount for each purchase of the Shares as designated by the Company in the applicable draw down notices shall be calculated by the average of the last three days' closing price of the Company common shares; however, shall not in any case exceed (i) 4.9% of the then-current shares outstanding or (ii) the previous 10-day average trading volume of the draw down shares multiplied by 3. There shall be a maximum draw down investment amount of $1,000,000.
The purchase price for the Shares to be paid by Mammoth shall be the average of the lowest three closing prices during the last five consecutive trading days following the delivery by the Company of a notice.
On April 7, 2017, the Company issued to Mammoth a Convertible Promissory Note (the "Note") in the amount of $570,000 that matures nine months from the date of issuance or January 7, 2018, to fund the costs and fees associated with the transactions described herein. As part of the transaction, Robert Doherty and Robert Switzer, both officers and directors of the Company, entered into a Security Agreement with Mammoth whereby they each individually pledged 250,000 common shares of the Company as collateral on the Note.
PURA NATURALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017 (UNAUDITED) AND DECEMBER 31, 2016
On April 7, 2017, the Company issued to Mammoth a Convertible Promissory Note (the "Note") in the principal amount of $570,000 (inclusive of any fees) that matures nine months from the date of issuance, or January 7, 2018. In exchange for the Note, Mammoth agreed to provide bridge financing to the Company in three tranches as follows:
(1) $200,000 upon signing of the Note, the Securities Purchase Agreement and Registration Rights Agreement (described in Item 1.01 of this Current Report) (of which $50,000 may be sent to the Company's auditor to complete the audit for the fiscal year ended December 31, 2016);
(2) $150,000 upon filing of the Registration Statement and receipt of the Shares; and
(3) $150,000 upon the Registration Statement becoming effective.
Pursuant to the terms of the Note, the Company is not required to make any payments on the Note until maturity, and no interest shall accrue except in default. Prepayment of the Note is permitted without penalty; however, Mammoth has the right to convert all or any portion of the balance of the Note beginning six months after the issuance date, at a conversion price per share of seventy-five percent (75%) of the lowest trading price during the valuation period or "look back" period immediately preceding and including the date of conversion (as defined and calculated pursuant to the Note). There is no minimum conversion price.
Should the Company default on the Note, the default interest rate shall be the lower of 18% per annum or the highest rate permitted under applicable law. The date of conversion is also adjustable in accordance with the Note's terms in the event certain capital reorganization, merger, or liquidity events of the Company as further described in the Note.
Additionally, The Company's Chief Executive Officer Robert Doherty and the Company's Chief Financial Officer Robert Switzer entered into a Security Agreement with Mammoth Corporation whereby each of them pledged 250,000 of the Company's shares (currently held by each of them individually) as collateral for the Note, to be returned upon repayment of the outstanding balance or its conversion to shares of the Company.