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Pura Naturals, Inc. – ‘10-Q’ for 6/30/19

On:  Friday, 9/13/19, at 12:38pm ET   ·   For:  6/30/19   ·   Accession #:  1079974-19-478   ·   File #:  0-54888

Previous ‘10-Q’:  ‘10-Q’ on 9/9/19 for 3/31/19   ·   Next & Latest:  ‘10-Q’ on 1/21/20 for 9/30/19

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

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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:   June 30, 2019

Commission File Number 000-54888

PURA NATURALS, INC.

(Exact name of registrant as specified in its charter)

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)

N/A

(Former name, former address and former fiscal year, if change since last report)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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, a smaller reporting company, or an emerging growth company.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(1) of the Exchange Act ☐   

The number of shares of the registrant's only class of common stock issued and outstanding as of September 13, 2019 was 910,838,833 shares.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

Pura Naturals, Inc.

Consolidated Balance Sheets

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

Pura Naturals, Inc.

Consolidated Statements of Operations

(Unaudited)

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

Pura Naturals, Inc.

Consolidated Statements of Stockholders’ Deficit

(Unaudited)

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

Pura Naturals, Inc.

Consolidated Statements of Cash Flows

(Unaudited) 

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

Pura Naturals, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Six Months Ended June 30, 2019

Note 1 – Organization and Basis of Presentation

Organization and Line of Business

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

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

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

The 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 financial statements were prepared by the Company, pursuant to the rules and regulations of the Securities Exchange Commission ("SEC"). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. 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 ("U.S. GAAP") were omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company's Annual Report on Form 10-K filed with the SEC on July 24, 2019. The results for the six months ended June 30, 2019, are not necessarily indicative of the results to be expected for the year ending December 31, 2019.

Note 2 - Summary of Significant Accounting Policies

Revenue Recognition

The Company recognizes revenue from sales of consumer products to wholesalers, mass merchandisers and retail stores . In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (Topic 606) “Revenue from Contracts with Customers.” Topic 606 supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition” (Topic 605). The new standard’s core principal is that an entity will recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring good or services to a customer. The principals in the standard are applied in five steps: 1) Identify the contract(s) with a customer; 2) Identify the performance obligations in the contract; 3) Determine the transaction price; 4) Allocate the transaction price to the performance obligations in the contract; and 5) Recognize revenue when (or as) the entity satisfies a performance obligation.

Pura Naturals, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Six Months Ended June 30, 2019

ASU No. 2014-09, Revenue from Contracts with Customers ("Topic 606"), became effective for us on January 1, 2018. We applied the "modified retrospective" transition method for open contracts for the implementation of Topic 606. As sales are and have been primarily through distributors, and we have no significant post delivery obligations, this did not result in a material recognition of revenue on our accompanying consolidated financial statements for the cumulative impact of applying this new standard. We made no adjustments to our previously-reported total revenues, as those periods continue to be presented in accordance with our historical accounting practices under Topic 605, Revenue Recognition.

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 8,193,750 and 8,193,750 options outstanding as of June 30, 2019 and December 31, 2018, respectively.

Basic and Diluted Earnings (Loss) Per Share

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

 Reclassification

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

Recent Accounting Pronouncements

In June 2018, the FASB issued Accounting Standards Update (“ASU”) ASU 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services and aligns most of the guidance on such payments to nonemployees with the requirements for share-based payments granted to employees. ASU 2018-07 is effective on January 1, 2019. Early adoption is permitted. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

Pura Naturals, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Six Months Ended June 30, 2019

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 adoption of this ASU did not have a material impact on the Company’s consolidated financial statements as the Company did not have any leases covered by this new ASU.

Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

Note 3 – Going Concern

The Company's consolidated financial statements were prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The Company has incurred losses from operations since its change of ownership, management and line of business on July 18, 2016. Management recognizes successful business operations and the Company's transition to attaining profitability are dependent upon obtaining additional financing and achieving a level of revenue adequate to support its cost structure. These conditions raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of uncertainties. 

The Company incurred losses from operations of $1,606,614 for the six months ended June 30, 2019 and $3,394,068 for the year ended December 31, 2018, and had an accumulated deficit of $15,788,992 at June 30, 2019. In addition, the Company used cash in operating activities of $99,592 for the six months ended June 30, 2019. These factors raise substantial doubt about the Company's ability to continue as a going concern.

While the Company is attempting to establish an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern, the Company's cash position may not be adequate to support the Company's daily operations. Management intends to raise additional funds by seeking equity and/or debt financing; however there can be no assurances that it will be successful in those efforts. The ability of the Company to continue as a going concern is dependent upon the Company's ability to obtain financing, further implement its business plan, and generate revenues.

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

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

The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Pura Naturals, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Six Months Ended June 30, 2019

 Note 4 – Intangible Assets

The following are the details of intangible assets at June 30, 2019 and December 31, 2018:

Amortization expense for the six months ended June 30, 2019 and 2018 was $49,817 and $49,835, respectively.

The following summarizes estimated future amortization expense as of June 30, 2019 related to intangible assets:

Note 5 –Related Party Transactions

The Company has balances outstanding that are due from affiliated companies and payable to affiliated companies.  These amounts are payable upon demand and are non-interest bearing. 

Due to Related Parties - Advanced Innovative Recovery Technologies, Inc.

During the six months ended June 30, 2019 and 2018, the overhead allocation charged to the Company from Advanced Innovative Recovery Technologies, Inc. a stockholder of the Company, was $60,000 and $60,000, respectively for office space provided and other items such as minor warehouse space, office / warehouse supplies and resource function allocation. In addition there was $31,096 and $40,200, respectively, of payroll allocated from AirTech to Company for the six months ended June 30, 2019 and 2018. The amounts charged from Advanced Innovative Recovery Technologies, Inc, included in cost of goods sold was $84,341 and $89,804 of the total cost of goods sold the six months ended June 30, 2019 and 2018, respectively. Amounts owed to Advanced Innovative Recovery Technologies, Inc as of June 30, 2019 and December 31, 2018 was $751,757 and $588,916, respectively.

Due to Related Parties – B3 LLC

B3, LLC is an inactive subsidiary of Advanced Innovative Recovery Technologies, Inc. Amount due to B3, LLC as of June 30, 2019 and December 31, 2018 was $5,507 and $5,507 respectively.

Pura Naturals, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Six Months Ended June 30, 2019

Due to Related Parties - Officers

As June 30, 2019 and December 31, 2018, the Company had $255,432 and $479,937 (which had been netted against $56,269 notes receivable and advances to the officers that the Company) of accrued salaries due to four officers which is included in accrued expenses.

Note 6 - Fair Value Measurement

Fair Value of Financial Instruments

For certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, advances to suppliers, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.

FASB ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. FASB ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated 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:

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

The Company uses Level 3 inputs for its valuation methodology for derivative liabilities as their fair values were determined by using the Black-Scholes pricing model based on various assumptions. The Company’s derivative liabilities are 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 June 30, 2019 and December 31, 2018, the Company identified the following liabilities that are required to be presented on the balance sheet at fair value:

Pura Naturals, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Six Months Ended June 30, 2019

The related gain (loss) on change in fair value of derivatives totaled $110,214 and $(461,289) for the six months ended June 30, 2019 and 2018, respectively.

Note 7 -  Derivative Liabilities

The Company identified conversion features embedded within its convertible debt. The Company has determined that the conversion feature of the convertible note represents an embedded derivative since the notes are convertible into a variable number of shares upon conversion. Accordingly, the notes are not considered to be conventional debt and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. Due to the lack of available common shares for all conversions, convertible notes with a fixed conversion price as well as warrants were categorized as a derivative.

Therefore, the fair value of the derivative instruments was recorded as liabilities on the balance sheet with the corresponding amount recorded as discounts to the notes. Such discounts will be accreted from the issuance date to the maturity date of the notes. The change in the fair value of the derivative liabilities will be recorded in other income or expenses in the statement of operations at the end of each period, with the offset to the derivative liabilities on the balance sheet. The fair value of the embedded derivative liabilities on the convertible notes were determined using the Black-Scholes valuation model on the issuance dates with the assumptions in the table below.

The change in the fair value of the Company's derivative liabilities from December 31, 2018 to June 30, 2019 is as follows:

Pura Naturals, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Six Months Ended June 30, 2019

The fair value's at the commitment dates and re-measurement dates for the convertible debt and warrants treated as derivative liabilities are based upon the following estimates and assumptions made by management at June 30, 2019 and December 31, 2018:

Note 8 – Convertible Notes Payable

Convertible notes payable at June 30, 2019 and December 31, 2018 are as follows:

Pura Naturals, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Six Months Ended June 30, 2019

All of the above convertible notes payable are unsecured with the exception of the April 7, 2017 note which is secured by 500,000 shares of the Company’s common stock.

The discounts on convertible notes payable arise from the conversion features of certain convertible notes being treated as derivative liabilities (see Note 7). In addition, the discounts also includes debt issuance costs. The discounts are being amortized over the terms of the convertible notes payable.  Amortization of debt discounts during the six months ended June 30, 2019 and 2018 amounted to $312,436 and $529,407, respectively, and is recorded as interest expense in the accompanying consolidated statements of operations. The unamortized discount balance for these notes was $76,197 as of June 30, 2019, which is expected to be amortized over the next 12 months.

Pura Naturals, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Six Months Ended June 30, 2019

A summary of the activity in the Company's convertible notes payable is provided below:

Note 9 – Notes Payable

Notes payable at June 30, 2019 and December 31, 2018 are as follows:

Note 10 – Stockholders' Equity

Common stock

On January 31, 2019, the Company held an Annual Meeting of Stockholders (the "Annual Meeting"), at which the Company's stockholders approved an amendment to the Company's articles of incorporation ( the "Certificate of Incorporation") and adopted Company's Amended and Restated Articles of Incorporation (the "Certificate of Amendment") to increase the authorized shares of the Company's common stock from 500,000,000 to 1,500,000,000 and to authorize a reverse split of the Company's commons stock in a ratio of between 1 to 5 and 1 to 50 at the Board's discretion.

Pura Naturals, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Six Months Ended June 30, 2019

During six months ended June 30, 2019, the Company issued shares of common stock as follows:

During the six months ended June 30, 2018, the Company issued shares of common stock as follows:

Stock options

The following is a summary of stock option activity:

Pura Naturals, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Six Months Ended June 30, 2019

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 $470,380 and $180,668 during six months ended June 30, 2019 and 2018, respectively. At June 30, 2019, the unamortized stock option expense was $712,234 which will be amortized to expense through October 1, 2021 and when certain milestone are met.

Warrants

In connection with note issued in 2018, 5,000,000 warrants were issued on November 15, 2018. The warrants have a 3 year life and have an exercise price of $0.01. In addition, if the market price of one warrant share is greater than the exercise price, the holder may elect to receive warrant shares, in lieu of a cash exercise, equal to the value of the warrant determined as follows:

X = Y (A-B)/A

where X = the number of warrant shares to be issued to holder;

Y = the number of warrant shares that the holder elects to purchase under this warrant

A = the market price

B = exercise price

The warrants were valued for $23,347 and recorded as derivative and debt discount as the warrants were tainted by other convertible notes with variable conversion price. The intrinsic value of the 5,000,000 warrants as of June 30, 2019 is $0.

Note 11 - Concentrations

The Company had certain customers whose accounts receivable balances individually represented 10% or more of the Company's total accounts receivable, as follows:

At June 30, 2019, four customer accounted for 24%, 20%, 12% and 11% of accounts receivable. At December 31, 2018, two customers accounted for 38% and 14% of accounts receivable. 

The Company had certain vendors whose accounts payable balances individually represented 10% or more of the Company's total accounts payables.

At June 30, 2019, one vendor accounted for 14% of accounts payable. At December 31, 2018, no vendor accounted for 10% of accounts payable. 

Note 12 – 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.

In lieu of cash of $60,345 for outstanding attorney invoices, 6,611,200 common shares are to be issued. A liability of $60,345 was recorded as of June 30, 2019 and December 31, 2018 which will be offset when common shares are issued.

Note 13 - Subsequent Events

Subsequent to June 30, 2019 the Company had the following :

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

We were incorporated on December 26, 2005, in the State of Colorado under the name "Yummieflies.com Inc."  In March 2010, we filed an amendment to our Articles of Incorporation changing our name to "Yummy Flies, Inc."  In November 2016, we filed an amendment to our Articles of Incorporation changing our name to "Pura Naturals, Inc."  In September 2010, we engaged in a forward split of our issued and outstanding Common Stock whereby nine (9) shares of Common Stock were issued in exchange for every one (1) share then issued and outstanding.  In addition, in November 2016, we engaged in a forward split of our issued and outstanding Common Stock whereby 3.7 shares of Common Stock were issued in exchange for every one (1) share then issued and outstanding.  All references to our issued and outstanding Common Stock in this Report are presented on a post-forward split basis unless otherwise indicated.

Effective July 18, 2016, the Company entered into that certain Share Exchange Agreement by and among the Company, Pura Naturals, Inc., PURA and the PURA Shareholders.  Pursuant to the Share Exchange Agreement, the Company exchanged the outstanding common and preferred stock of PURA held by the PURA Shareholders for shares of common stock of the Company.  At closing, Robert Lee, the holder of 30,536,100 shares of common stock, agreed to cancelation of such shares.  Other than Robert Lee, shareholders of Company common stock held 7,625,700 shares.  Also at closing, the Company issued 23,187,876 shares of common stock to the PURA Shareholders.   In addition, shares issuable under outstanding options of PURA – DE will be exercisable into shares of common stock of the Company, pursuant to the terms of such instruments. 

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

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

PURA markets and sells a line of cleaning products based on the BeBetterFoam® platform, a revolutionary and proprietary bio-based foam, for consumer kitchen and bathroom, with additional products for outdoor hobbies (fishing and boating, spas and pools), pet care, infant care and industrial use currently under development. BeBetterFoam® is a unique, proprietary polymer process technology that is protected by a trade secret, completely owned by AIRTech and sold to PURA, and is incapable of being reverse engineered.

The Bath & Body line and household (including kitchen) sponges are Oleophilic which means, among other things, that it absorbs oil, grease and grime, removes impurities from skin (cleansing and applying/removing make- up), is latex-free.  PURA - DE products are also non-toxic, contain Plant-Based/ renewable resources, have a carbon-negative footprint (removes more carbon than is created), contain no petroleum by-products, use no adhesives or glues, and are infused with soap that is 100% Natural, bio-degradable, sustainable, Vegan, gluten-free, contains botanicals and essential oils; SLS-, Sulfate, Paraben-, and BPA- Free.   The BeBetterFoam® is hydrophobic, which means it resists and does not support bacteria.  PURA - DE believes that the BeBetterFoam® also is up to 40 times stronger than the leading kitchen sponge brand.

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

Results of Operations

Comparison of Results of Operations for the Three Months Ended June 30, 2019 and 2018

Sales for the three months ended June 30, 2019 were $66,057, a decrease of $10,251 or 13.4% compared to the same period in 2018.  The decrease was due to increased orders in the first quarter for additional store placement of the Charcoal Face slices. We expect sell through and reorders in the 3^rd quarter.

Cost of goods sold for the three months ended June 30, 2019 were $58,100 an increase of $9,311 or 19.1% compared to the same period in 2018.  The increase in cost of good s was due to higher manufacturing costs offset by a decrease in sales. Cost of goods sold as a percentage of sales was 88.0% for the three months ended June 30, 2019 compared to 63.9% for the same period in 2018.  Cost of goods sold as a percentage of sales increased due to an increase in the cost to manufacture the product.

Selling expenses for the three months ended June 30, 2019 were $6,429 a decrease of $43,726 or 87.2% compared to the same period in 2018.  The decrease was due to a decrease in retaining outside marketing consultants and media promotions.

General and administrative expenses for the three months ended June 30, 2019 were $815,755 an increase of $310,994 or 61.6% compared to the same period in 2018. The change is due to an increase in compensation expense offset by a decrease in professional fees and insurance expense. The decrease in professional fees is due to a decrease in fees paid to a strategic consultant and the decrease in insurance expense is due to a decrease in directors and officers insurance.

Interest expense for the three months ended June 30, 2019 was $127,028 a decrease of $215,015 or 62.9% compared to the same period in 2018.  The decrease was mainly due to the decrease in amortization of debt discounts on the convertible notes for the three months ended June 30, 2019 compared to the same period in 2018.

Comparison of Results of Operations for the Six Months Ended June 30, 2019 and 2018

Sales for the six months ended June 30, 2019 were $160,696, an increase of $15,324 or 10.5% compared to the same period in 2018.  The increase was due to the successful launch and sales of the new Grease Beast product line.

Cost of goods sold for the six months ended June 30, 2019 were $127,711 an increase of $35,029 or 37.8% compared to the same period in 2018.  The increase in cost of goods was due to the increase in sales and higher manufacturing costs. Cost of goods sold as a percentage of sales was 79.4% for the six months ended June 30, 2019 compared to 63.8% for the same period in 2018.  Cost of goods sold increased as a percentage of sales due to an increased cost to manufacture the product.

Selling expenses for the six months ended June 30, 2019 were $136,773 an increase of $45,873 or 50.5% compared to the same period in 2018.  The increase was due to the retention of an outside marketing consultant during the first quarter of 2019.

General and administrative expenses for the six months ended June 30, 2019 were $1,502,826 an increase of $218,522 or 17.0% compared to the same period in 2018. The change is due to an increase in compensation expense offset by a decrease in professional fees. The decrease in professional fees is due to a decrease in fees paid to a strategic consultant.

Interest expense for the six months ended June 30, 2019 was $380,461 a decrease of $274,392 or 41.9% compared to the same period in 2018.  The decrease was mainly due to the decrease in amortization of debt discounts on the convertible notes for the six months ended June 30, 2019 compared to the same period in 2018.

Liquidity and Capital Resources

As of June 30, 2019, we had $0 of cash on hand..

At June 30, 2019, we had current assets of $161,301 and current liabilities of $3,974,594 resulting in a working capital deficit of $3,813,293. We have experienced losses since our inception. This raises substantial doubt about our ability to continue as a going concern.  The accompanying financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Net cash used in operating activities was $99,592 during the six months ended June 30, 2019, compared to $406,360 in net cash used during the six months ended June 30, 2018.  The decrease in cash used in operating activities is due a decrease in net loss and changes to non-cash expense items for the six months ended June 30, 2019 compared to the same period in 2018.

Cash flows used by investing activities was $0 during the six months ended June 30, 2019 compared to cash used in investing activities of $1,575 during the six months ended June 30, 2018.  The decrease in cash used by investing activities is due to trademark acquisition in 2018.

Cash flows provided by financing activities were $69,815 during the six months ended June 30, 2019 compared to $350,484 for the six months ended June 30, 2018.  The decrease in cash provided by financing activities is principally due to the decrease in proceeds from the issuance of convertible debt.  For the future, we expect to raise money through equity financing via the sale of our common stock or equity-linked securities such as convertible debt. If we cannot raise the money that we need in order to continue to operate our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations.

 Convertible Note Financings

On February 8, 2018, the Company issued a 12% Convertible Promissory Note #1 of $103,000, with debt issuance costs of $3,000 to an accredited investor. This convertible note is due and payable on November 20, 2018. The holder has the right from time to time, and at any time during the period beginning on the date which is 180 days following the date of the note and ending on the later of: (i) the maturity date and (ii) the date of payment of the default amount, each in respect of the remaining outstanding principal amount of this note to convert all or any amount of the outstanding and unpaid principal amount of the note into fully paid and non-assessable shares of common stock. The conversion price is 58% of the average of the lowest two trading prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date.

 On March 5, 2018, the Company issued a 12% Convertible Promissory Note #2 of $103,000, with debt issuance costs of $3,000 to an accredited investor. This convertible promissory note #2 is due and payable on December 15, 2018. The holder has the right from time to time, and at any time during the period beginning on the date which is 180 days following the date of the note and ending on the later of: (i) the maturity date and (ii) the date of payment of the default amount, each in respect of the remaining outstanding principal amount of this note to convert all or any amount of the outstanding and unpaid principal amount of the note into fully paid and non-assessable shares of common stock. The conversion price is 61% of the average of the lowest two trading prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date.

On March 6, 2018, the Company issued an 8% Convertible Redeemable Note of $126,000, with debt issuance costs of $6,000 to an accredited investor. This convertible note is due and payable on March 6, 2019. The holder is entitled, at its option, at any time after six months, to convert all or any amount of the principal face amount of this note then outstanding into shares of common stock. The conversion price is 60% of the lowest trading prices for the common stock during the 20 trading day period ending on the latest complete trading day prior to the conversion date.

On October 8, 2018, the Company issued two 8% Promissory Note of $50,000 each, with debt issuance costs of $1,000 each, to two accredited investor. This convertible promissory notes are due and payable on April 8, 2019. The holders has the right at any time on or after the maturity date to convert any portion of the outstanding principal and accrued interest into fully paid and non-assessable shares of common stock. The conversion price shall equal the lesser of (i) 80% of the lowest trading price for the common stock during the five trading period ending on the last completed trading day prior to the conversion date or (ii) $0.0065.

On November 15, 2018, the Company issued a 0% Promissory Note of $150,000, with original issue discount of $20,000 to an accredited investor. Beginning on February 15, 2019 and continuing on the 15th of every consecutive calendar month for seven months, the Company shall make a cash payment in the amount of $21,429. This convertible promissory note is due and payable on August 15, 2019. The holder has the right at any time on or after the issuance date to convert any portion of the outstanding principal and accrued interest into fully paid and non-assessable shares of common stock. The conversion price is the closing price of the closing price of the Company's common stock on the date the note is funded.

On October 8, 2018, the Company issued a 0% Promissory Note of $200,000 for advertising, social media, marketing, consulting, advisory and related services. This convertible promissory note is due and payable on April 8, 2019. The holder has the right at any time on or after the maturity date to convert any portion of the outstanding principal and accrued interest into fully paid and non-assessable shares of common stock. The conversion price shall equal the lesser of (i) 90% of the lowest trading price for the common stock during the five trading period ending on the last completed trading day prior to the conversion date.

On January 22, 2019, the Company issued a 12% convertible note payable for $63,000. This convertible note is due and payable on November 15, 2019. The holder has the right to convert any portion of the outstanding principal and accrued interest into fully paid and non-assessable shares of common stock. The conversion price shall equal to 61% of the average of the two lowest trading prices 10 days prior to conversion.

 On March 4, 2019, the Company issued a 12% convertible note payable for $53,000. This convertible note is due and payable on December 31, 2019. The holder has the right to convert any portion of the outstanding principal and accrued interest into fully paid and non-assessable shares of common stock. The conversion price shall equal to 61% of the average of the two lowest trading prices 10 days prior to conversion.

Sale of Common Stock

On January 18, 2018, the Company sold $5,000 of common stock to an accredited investor. The total amount of common stock sold was 83,333 shares at $0.06 per share.

Note Payable

The Company entered into a merchant agreement on May 21, 2018. Total payments for the note payable is $40,470, which included $28,500 principal payment and $11,970 interest payment. The note payable requires daily payments of $165, is due on May 21, 2019. The loan is secured by the assets of the Company as defined by Article 9 of the Uniformed Commercial Code and a personal guaranty. The interest rate is 42% per annum.

The Company entered into a 90 day Secured Convertible Note with Bridgepoint Capital, LLC on August 10, 2018 in the principal amount of $50,000, with no interest accruing. At any time, the principal amount of the note may be converted into any funding or other agreement contemplated at a near future date between the note holder and the Company. The Convertible Note contained an original issue discount of $2,500. For the twelve months ended, $2,500 was amortized.

On July 10, 2018, the Company entered into a one year Unsecured Promissory Note in the principal amount of $50,000, with an interest rate of 30% per annum. Five monthly progress payments of $5,000 was due beginning on August 10, 2018. The Company made a payment of $5,000 on November 19, 2018 and December 3, 2018. The Company did not make the progress payments due on October, November and December 10, 2018. As such, this Promissory Note is in default. However, the Holder of the Promissory Note has not declared a default.

On March 26, 2019, the Company entered into an unsecured promissory note for net proceeds of $22,515 The note accrues interest at 149% per annum; requires daily repayments of $170 for 248 days and is guaranteed by an officer of the Company.

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.  We anticipate sales will increase during 2019.   As such, our anticipated cash needs to fund operations and pay our notes for the next 12 months is approximately $500,000.

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 six months ended June 30, 2019.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. It is possible that accounting estimates and assumptions may be material to the Company due to the levels of subjectivity and judgment involved.

Accounts Receivable

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

Inventory

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

Long-Lived Assets

The Company applies the provisions of ASC Topic 360, Property, Plant, and Equipment , which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal.

Revenue Recognition

ASU No. 2014-09, Revenue from Contracts with Customers ("Topic 606"), became effective for us on January 1, 2018. We applied the "modified retrospective" transition method for open contracts for the implementation of Topic 606. As sales are and have been primarily through distributors, and we have no significant post-delivery obligations, this did not result in a material recognition of revenue on our accompanying consolidated financial statements for the cumulative impact of applying this new standard. We made no adjustments to our previously-reported total revenues, as those periods continue to be presented in accordance with our historical accounting practices under Topic 605, Revenue Recognition.

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.

Off-Balance Sheet Arrangements

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

Going Concern

The consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates, the realization of assets and satisfaction of liabilities in the normal course of business. We incurred losses from operations of $1,606,614 for the six months ended June 30, 2019 and $3,394,068 for the year ended December 31, 2018, and had an accumulated deficit of $15,788,992 at June 30, 2019. In addition, we used cash from operating activities of $99,592 for the six months ended June 30, 2019.  These factors raise substantial doubt about our ability to continue as a going concern.

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

While the Company is attempting to establish an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern, the Company’s cash position may not be adequate to support the Company’s daily operations. Management intends to raise additional funds by seeking equity and/or debt financing; however there can be no assurances that it will be successful in those efforts. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to obtain financing, further implement its business plan, and generate revenues.

There are significant risks and uncertainties which could negatively affect the Company’s operations. These are principally related to the existence of events of default under the Company’s outstanding debt obligations, which could trigger penalties. Furthermore, if our current indebtedness is not restructured, paid or converted into equity, which is at the debt holder’s discretion, our current operations do not generate sufficient cash to pay interest and principal on these obligations when they become due. Accordingly, there can be no assurance that we will be able to pay these or other obligations which we may incur in the future. In the event we are unable to restructure, pay or convert into equity the balance of our outstanding indebtedness, the holders may obtain judgments against us and seek to enforce such judgments against our assets, in which event we will be required to cease our business activities and the equity of our stockholders will be effectively wiped out.

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

The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Recent Accounting Pronouncements

In June 2018, the FASB issued Accounting Standards Update (“ASU”) ASU 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services and aligns most of the guidance on such payments to nonemployees with the requirements for share-based payments granted to employees. ASU 2018-07 is effective on January 1, 2019. Early adoption is permitted. The adoption of this ASU did not have a material 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 adoption of this ASU did not have a material impact on the Company’s consolidated financial statements as the Company did not have any leases covered by this new ASU.

Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

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

Item 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     –   As of the end of period covered by this report, the Company carried out an evaluation, with the participation of the Company's Chief Executive Officer and Principal Financial Officer, of the effectiveness of the Company's disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company's Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended ("Exchange Act") Rule 13a15(e)) as of June 30, 2019, are not effective, due to lack of segregation of duties and ineffective controls over period end financial disclosures and reporting processes, based on the evaluation of these controls and procedures required by paragraph (b) of Rule 13a15. 

Changes in Internal Control over Financial Reporting   –   There were no changes in our internal control over financial reporting during the quarter ended June 30, 2019, which were identified in conjunction with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

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

There is one matter presently before the United States Patent and Trademark Office (USPTO), a prior Arbitration legal proceeding involving James Kordenbrock (“Kordenbrock”) has settled, and there is an attorneys’ fee dispute case between the Company and a law firm.

The Company was named in a lawsuit in Hawaii entitled Yen, et al. v. Advanced Innovative Marketing, Inc., et al. Although the Company has not been dismissed yet from the lawsuit, the Company believes there is no merit to the case and that the Company never should have been named as a party. The Company is represented by counsel and the Company is currently seeking a full dismissal.

The Company is defending the Pura Naturals Pet, Pura Pet and Pura Tips trademarks in a trademark cancellation proceeding brought my Nxt Generation Pet, Inc. challenging these marks. The parties have conducted discovery and submitted evidence to the USPTO. The matter is set for hearing on the merits in December of 2019. The Company is optimistic that the Company will prevail in the cancellation dispute. However, at this time, no judicial determination has been made by the USPTO and the Company cannot state with certainty the likely outcome one way or another. The Company is confident that the adverse party will not obtain the marks in the cancellation proceeding or through separate application for the marks.

In the Arbitration between the Company and Kordenbrock, a prior officer, for breach of contract and related theories, the parties have fully settled the matter and the legal proceedings have ended. The Company is satisfied with the result obtained. The Company did not agree to pay Kordenbrock money nor did the Company receive money from Kordenbrock. The Arbitration proceedings were confidential. Settlement documents are in the possession of the Company and any requests for further information should be directed to the Company in writing.

The Company and the law firm of Sheppard, Mullin, Richter and Hampton are involved in a legal proceeding in The Superior Court of the State of California concerning unpaid legal fees billed by the law firm to the Company. The Company and the law firm have discussed settlement and the Company believes a satisfactory settlement that involves an amount certain that is owed and a payment arrangement will be reached soon.

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.

During the quarter ended June 30, 2019, the Company issued 41,760,000 shares for the conversion of $42,420 of convertible notes payable; and issued 65,000,000 shares to employees and consultants for services rendered valued at $195,000.

The above issuances in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), as set forth in Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder.

Item 3. Defaults Upon Senior Securities.

None

Item 4.  Mine Safety Disclosures

Not applicable

Item 5.  Other Information

Not applicable

Item 6. Exhibits.

  * Filed herewith

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 September 13, 2019.

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Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing		Date		Other Filings
		10/1/21
		12/31/19		8-K,  NT 10-K
		11/15/19
Filed on:		9/13/19
		8/15/19
		7/24/19		10-K
For Period end:		6/30/19
		5/21/19
		4/8/19
		3/31/19		10-Q
		3/26/19
		3/6/19
		3/4/19
		2/15/19
		1/31/19		DEF 14A
		1/22/19
		1/10/19
		1/1/19
		12/31/18		10-K,  NT 10-K
		12/15/18
		12/10/18
		12/3/18
		11/20/18
		11/19/18		10-Q
		11/15/18
		11/10/18
		10/23/18
		10/8/18
		9/12/18
		8/10/18
		7/10/18
		6/30/18		10-Q,  10-Q/A,  NT 10-Q
		5/21/18		10-Q
		4/17/18
		3/31/18		10-Q,  NT 10-Q
		3/6/18
		3/5/18
		2/8/18
		1/18/18
		1/7/18
		1/6/18
		1/1/18
		12/31/17		10-K,  10-K/A,  NT 10-K
		12/18/17
		9/12/17
		7/14/17		8-K
		7/5/17
		4/7/17
		11/17/16
		7/18/16		3,  8-K,  8-K/A
		6/30/15		10-Q,  NT 10-Q
		4/20/15		10-K/A
		10/21/13
		12/26/05
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