UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For Quarter Ended:   March 31, 2017
 
Commission File Number 000-54888
 
PURA NATURALS, INC.
(Exact name of registrant as specified in its charter)
 
Colorado
 
20-8496798
(State or other jurisdiction
 
(I.R.S. Employer
of incorporation or organization)
 
Identification No.)
 
23101 Lake Center Drive, Suite 100
Lake Forest, CA 92630
 (Address of principal executive offices) (Zip Code)
 
(855) 326-8537
  (Registrant's telephone number, including area code)

Yummy Flies, Inc.
(Former name, former address and former fiscal year, if change since last report)
 
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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 a 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 7(a)(2)(B) of the Securities Act . ☐

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

The number of shares of the registrant's only class of common stock issued and outstanding as of May 19, 2017 was 33,822,038 shares.
 
 
 

 
TABLE OF CONTENTS
 
PART I
FINANCIAL INFORMATION
 
 
TABLE OF CONTENTS
 
 
 
   
 
 
Page No.
 
 
 
 
PART I.
 
 
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
3
     
 
Condensed Consolidated Balance Sheets as of March 31, 2017 (Unaudited) and December 31, 2016
4
 
   
 
Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2017 and 2016
5
 
 
 
 
Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2017 and 2016
6
 
 
 
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
7
 
   
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations/Plan of Operation.
17
 
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
22
 
   
Item 4.
Controls and Procedures.
22
 
 
 
 
PART II
 
 
OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
23
 
   
Item 1A.
Risk Factors
23
 
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
23
 
   
Item 3.
Defaults Upon Senior Securities
23
 
   
Item 4.
Mine Safety Disclosures
23
 
   
Item 5.
Other Information
23
 
   
Item 6.
Exhibits
24
 
   
 
Signatures
25
 
   
 
   
 
 
 
 
 
 
 
- 2 -





PURA NATURALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS


   
March 31,
   
December 31,
 
   
2017
   
2016
 
   
(unaudited)
       
ASSETS
           
             
Current Assets:
           
   Cash
 
$
82,467
   
$
14,386
 
   Accounts receivable, net
   
41,167
     
45,791
 
   Due from related parties
   
39,390
     
31,908
 
   Prepaid expenses and other current assets
   
16,374
     
15,750
 
      Total current assets
   
179,398
     
107,835
 
                 
Intangible assets, net
   
830,010
     
851,719
 
      TOTAL ASSETS
 
$
1,009,408
   
$
959,554
 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
Current Liabilities:
               
   Accounts payable
 
$
262,457
   
$
264,224
 
   Accrued expenses
   
177,012
     
196,416
 
   Due to related parties
   
844,866
     
763,664
 
   Deferred income
   
72,808
     
72,808
 
   Notes payable
   
10,682
     
18,068
 
   Convertible note payable, net of discount of $77,735
   
265
         
   Derivative liability
   
126,810
         
      Total current liabilities
   
1,494,900
     
1,315,180
 
                 
Commitments and contingencies (Note 9)
               
                 
STOCKHOLDERS' DEFICIT
               
   Common stock, $0.001 par value, 500,000,000 shares authorized,  33,855,244 and
               
      33,612,376 shares issued and outstanding at March 31, 2017 and December 31, 2016
   
33,855
     
33,612
 
   Additional paid-in capital
   
2,445,394
     
1,956,536
 
   Accumulated deficit
   
(2,964,741
)
   
(2,345,774
)
      Total stockholders' deficit
   
(485,492
)
   
(355,626
)
      TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
 
$
1,009,408
   
$
959,554
 
 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
 

 



- 3 -


PURA NATURALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)


             
   
Three Months Ended March 31,
 
   
2017
   
2016
 
             
             
Sales
 
$
67,069
   
$
121,827
 
Cost of goods sold
   
46,802
     
45,329
 
Gross profit
   
20,267
     
76,498
 
                 
Operating expenses:
               
   Selling expenses
   
11,373
     
8,588
 
   General and administrative expenses
   
514,788
     
122,695
 
      Total operating expenses
   
526,161
     
131,283
 
Loss from operations
   
(505,894
)
   
(54,785
)
                 
Other income (expense)
               
   Interest expense
   
(98,911
)
   
(8,886
)
   Change in value of derivative liability
   
(14,162
)
   
-
 
      Total other income (expense)
   
(113,073
)
   
(8,886
)
Loss before provision for income taxes
   
(618,967
)
   
(63,671
)
                 
Provision for income taxes
   
-
     
-
 
                 
Net loss
 
$
(618,967
)
 
$
(63,671
)
                 
Weighted average shares outstanding
   
33,716,020
     
22,865,623
 
                 
Loss per share
 
$
(0.02
)
 
$
(0.00
)
 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
 
 
 


- 4 -




PURA NATURALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

 
   
Three Months Ended March 31,
 
   
2017
   
2016
 
             
             
OPERATING ACTIVITIES:
           
   Net loss
 
$
(618,967
)
 
$
(63,671
)
   Adjustments to reconcile net loss to
               
      net cash used in operating activities:
               
         Amortization
   
24,909
     
24,909
 
         Imputed interest
   
4,572
     
8,923
 
         Stock-based compensation
   
60,101
     
-
 
         Common stock issued for services
   
204,500
     
-
 
         Amortization of debt discount
   
265
     
-
 
         Change in value of derivative liability
   
14,162
     
-
 
         Financing costs
   
34,648
     
-
 
      Change in current assets and liability
           
-
 
         Accounts receivable
   
4,624
     
(25,885
)
         Due from related parties
   
(7,482
)
   
(21,863
)
         Inventory
   
-
     
3,447
 
         Prepaid expenses and other assets
   
(624
)
   
(132
)
         Accounts payable
   
(1,767
)
   
(78,823
)
         Accrued expenses
   
(19,404
)
   
20
 
         Due to related parties
   
76,630
     
177,342
 
         Deferred income
   
-
     
(31,707
)
Net cash used in operating activities
   
(223,833
)
   
(7,440
)
                 
INVESTING ACTIVITIES:
               
   Payment for intangible assets
   
(3,200
)
   
(850
)
   Decrease in restricted cash
   
-
     
99,900
 
Net cash provided by (used in) investing activities
   
(3,200
)
   
99,050
 
                 
FINANCING ACTIVITIES:
               
   Proceeds from sale of common stock
   
224,500
     
-
 
   Proceeds from issuance of convertible note payable
   
78,000
     
-
 
   Payments on note payable
   
(7,386
)
       
Net cash provided by financing activities
   
295,114
     
-
 
                 
NET INCREASE (DECREASE) IN CASH
   
68,081
     
91,610
 
                 
CASH, BEGINNING OF PERIOD
   
14,386
     
14,797
 
                 
CASH, END OF PERIOD
 
$
82,467
   
$
106,407
 
                 
CASH PAID FOR:
               
   Interest
 
$
-
   
$
-
 
   Income taxes
 
$
-
   
$
-
 



 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
 
 
 
- 5 -



PURA NATURALS, INC.
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.
 
 
 


- 6 -



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.
 
 
 

- 7 -



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.
 
 
 
- 8 -


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.
 
 
 
- 9 -



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.
 
 
 
 
- 10 -



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.
 
 
 
 

- 11 -




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.
 
 
 

 
- 12 -



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
 
 
 

 
- 13 -



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.
 
 
 


- 14 -



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.
 
 
 
- 15 -
 
 
 

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.


 



- 16 -

 

 

  Item  2.   Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and notes thereto included herein. In connection with, and because we desire to take advantage of, the "safe harbor"   provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on our behalf. We disclaim any obligation to update forward looking statements.

Overview and History

Pura Naturals, Inc., ("we," "our" or the "Company") was 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 shares of Common Stock were issued in exchange for every one 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 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 "Closing Date"), the Company entered into a Share Exchange Agreement (the "Share Exchange Agreement") by and among the Company, Pura Naturals, Inc., a Delaware corporation ("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, cancelled 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 thereunder, PURA – DE is now a majority 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.
 
 
 

- 17 -



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

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.

BeBetterFoam® is a unique, proprietary polymer process technology that is protected by a trade secret, completely owned by AIRTech and exclusively licensed to PURA - DE, and is incapable of being reverse engineered.

We have never been subject to any bankruptcy proceeding.
 
Our executive offices are located at 23101 Lake Center Drive, Suite 100, Lake Forest, CA 92630, telephone (855) 326-8537.
   
Results of Operations

Comparison of Results of Operations for the Three Months Ended March 31, 2017 and 2016

   
Three Months Ended
             
   
March 31,
   
March 31,
   
Dollar
   
Percentage
 
   
2017
   
2016
   
Change
   
Change
 
Sales
 
$
67,069
   
$
121,827
   
$
(54,758
)
   
-44.9
%
Cost of goods sold
   
46,802
     
45,329
     
1,473
     
3.2
%
Gross profit
   
20,267
     
76,498
     
(56,231
)
   
-73.5
%
Selling expenses
   
11,373
     
8,588
     
2,785
     
32.4
%
General and administrative expenses
   
514,788
     
122,695
     
392,093
     
319.6
%
Interest expense
   
98,911
     
8,886
     
90,025
     
1013.1
%
Change in value of derivative liability
   
14,162
     
-
     
14,162
     
N/A
 
Net loss
 
$
(618,967
)
 
$
(63,671
)
 
$
(555,296
)
   
872.1
%
 
 

 
- 18 -


Sales for the three months ended March 31, 2017 were $67,069 a decrease of $54,758or 44.9% from $121,827 for the same period in 2016.  The decrease was due to a transitional phase, and changes being made to the original marketing strategies employed by prior management.  The improvements being implemented over the last 2 Quarters involve tactics and strategies to engage consumers and build brand awareness.  First, we have reevaluated our low margin distribution model while examining and preparing for a more effective and efficient strategic model to grow profitable sales and increase shareholder value. While this process has in effect reduced our current revenue by pairing down our most unprofitable distribution partnerships, we will simultaneously benefit from improved margins and freeing up our limited resources to be repurposed towards the integration of more effective sales channels.  Moving forward, Pura is more aptly aligned and dedicated towards relevant and impactful marketing and sales strategies. The subsequent revenue and profit losses over the last few quarters, while hard fought, have resulted from the reliance on an ineffective sales distribution model defined by inelastic price points and slow brand recognition and engagement.   Paramount to this new strategy is the integration of a robust direct to consumer model which will incorporate digital marketing and media to effectively promote our products directly towards our targeted demographics. To this end we have separated and defined our products by product line for better market segmentation. In addition, several products in our Home and Health & Beauty lines are being rebranded to deliver more consumer appeal and benefit. This model will dramatically improve our capacity to best achieve our goals of telling the Pura story to the right consumers yielding a higher conversion rate with a greatly reduced cost of acquisition.  Furthermore, we have embarked on the support of a few key strategic marketing partners with proven expertise in creating brand awareness, product positioning and consumer engagement strategies and tactics to reach our near-term growth and profitability objectives.
 
Cost of goods sold for the three months ended March 31, 2017 were $46,802 an increase of $1,473 or 3.2% from $45,329 for the same period in 2016.  The increase was due to product mix changes.  Cost of goods sold as a percentage of sales was 69.8% for the three months ended March 31, 2017 compared to 37.2% for the same period in 2016.  Cost of goods sold increased as a percentage of sales was due to the purchase of bulk items that are expensed and not inventoried.
 
Selling expenses for the three months ended March 31, 2017 were $11,373 an increase of $2,785 or 32.4% from $8,588 for the 2016 period.  The increase was due to an increase in marketing promotions.
 
General and administrative expenses for the three months ended March 31, 2017 were $514,788 an increase of $392,093 or 319.6% from $122,695 for the same period in 2016.  The increase was principally due to an increase in stock-based compensation.
  
Liquidity and Capital Resources
 
As of March 31, 2017, we had $82,467 in cash.
 
At March 31, 2017, we had current assets of $179,398 and current liabilities of $1,494,900 resulting in a working capital deficit of $1,315,502. We have had losses since 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 $223,833 during the three months ended March 31, 2017, compared to $7,440 during the 2016 period.  The increase in cash used in operating activities is due to an increase in the net loss for the three months ended March 31, 2017 compared to the 2016 period.
  
Cash flows used in investing activities were $3,200 during the three months ended March 31, 2017 compared to cash provided by investing activities of $99,050 during the 2016 period.  The change is principally due to a decrease in restricted cash during the 2016 period.
 
Cash flows provided by financing activities were $295,114 and $0 during the three months ended March 31, 2017 and 2016, respectively.  The increase in cash provided by financing activities is due to the sale of common stock and the issuance of a convertible notes payable during the three months ended March 31, 2017 compared to the 2016 period; offset by increases in payments on note payable.
 
 
 
 

- 19 -



 
To date, our operations have not generated any profits.  We have funded our operating to date through the sales of common stock and issuance of notes payable and convertible notes payable.  Our ability to continue as a going concern is dependent upon use raising sufficient debt or equity capital to sustain operations until such time as we can generate a profit from our operations.    We are currently working with investors to provide us with the necessary funding, but there can be no assurances we will obtain such funding in the future.  Failure to obtain this additional financing will have a material negative impact on our ability to generate profits in the future.  
 
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 three months ended March 31, 2017.
 
Critical Accounting Policies

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.
 
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.  The Company's allowance for doubtful accounts was $0 at March 31, 2017 and December 31, 2016, respectively.
 
 
 


- 20 -

 

 

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.

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.
 
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.

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.
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.
 
 
 
 

- 21 -



Going Concern

Our net losses through March 31, 2017 raise some or substantial doubt about the Company's ability to continue as a going concern. Additionally, through our recent disclosures regarding the Company's financing with Mammoth Corporation, the degree of doubt about the Company's ability to continue as a going concern, in the view of management, has been diminished. Moreover, the Company has reported in other recent disclosures that the Company has hired key personnel in the areas of sales and marketing that further increase the likelihood that the Company will continue as a going concern.

  
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

 
ITEM 4.  CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures     –   Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Report.
 
These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our CEO and CFO to allow timely decisions regarding required disclosure.
 
Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of March 31, 2017, at the reasonable assurance level.    We believe our financial statements presented in this quarterly report on Form 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows for all periods presented herein.
  
Inherent Limitations   –   Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all error and all fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data.
 
Changes in Internal Control over Financial Reporting   –   There were no changes in our internal control over financial reporting during our three month period ended March 31, 2017, which were identified in conjunction with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 

 
   
- 22 -


PART II. OTHER INFORMATION
 
ITEM 1.  LEGAL PROCEEDINGS
 
None

  
ITEM 1A.  RISK FACTORS
 
We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.

 
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
Scott??

  
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
 
None

  
ITEM 4.  MINE SAFETY DISCLOSURES
 
Not applicable
 
 
ITEM 5.  OTHER INFORMATION

Not applicable

 
ITEM 6.  EXHIBITS
   
EXHIBIT
 
 
NUMBER
 
DESCRIPTION
 
 
 
31.1
 
Certification pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
32.1
 
Certification 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 Label Linkbase Document*              
 
 
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document*
 
 
 
 
 
 
- 23 -

SIGNATURES
 
Pursuant to the requirements of Section 12 of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on May 22, 2017.
 
 
 
 
PURA NATURALS, INC.
 
 
 
 
 
 
 
 By:   
/s/ Robert Doherty  
 
 
Robert Doherty , Principal Executive Officer
 
 
 
 
 
 By:  
/s/ Robert Doherty 
 
 
 Robert Doherty , Principal Financial Officer and Principal Accounting Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
- 24 -