PURA NATURALS, INC. 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 theSecurities 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 onDecember 26, 2005 , in theState of Colorado under the name "Yummieflies.com Inc. " InMarch 2010 , we filed an amendment to our Articles of Incorporation changing our name to "Yummy Flies, Inc. " InNovember 2016 , we filed an amendment to our Articles of Incorporation changing our name to "Pura Naturals, Inc. " InSeptember 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, inNovember 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. EffectiveJuly 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 thanRobert 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. 18Pura Marine , theMarine 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 EndedSeptember 30, 2019 and 2018 Three Months Ended September 30, Dollar Percentage 2019 2018 Change Change Sales $ 133,349 $ 156,486 $ (23,137 ) -14.8 % Cost of goods sold 47,935 72,277 (24,342 ) -33.7 % Gross profit 85,414 84,209 1,205 1.4 % Selling expenses 70,489 154,472 (83,983 ) -54.4 % General and administrative expenses 570,634 450,362 120,272 26.7 % Interest expense 120,933 303,106 (182,173 ) -60.1 % Change in value of derivative liability (505,679 ) 2,567,099 (3,072,778 ) -119.7 % Net loss $ (170,963 )$ (3,390,830 ) 3,219,867 -95.0 % Sales for the three months endedSeptember 30, 2019 were$133,349 , a decrease of$23,137 or 14.8% compared to the same period in 2018. The decrease was due
to periodic sales cycles. Cost of goods sold for the three months endedSeptember 30, 2019 were$47,935 a decrease of$24,342 or 33.7% compared to the same period in 2018. The decrease in cost of goods was due to a decrease in sales. Cost of goods sold as a percentage of sales was 35.9% for the three months endedSeptember 30, 2019 compared to 46.2% for the same period in 2018. Cost of goods sold as a percentage of sales decreased due to increases in manufacturing efficiencies. Selling expenses for the three months endedSeptember 30, 2019 were$70,489 a decrease of$83,983 or 54.4% 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 endedSeptember 30, 2019 were$570,634 an increase of$120,272 or 26.7% compared to the same period in 2018. The change is due to an increase in compensation expense and professional fees. Interest expense for the three months endedSeptember 30, 2019 was$120,933 a decrease of$182,173 or 60.1% compared to the same period in 2018. The decrease was mainly due to the decrease in amortization of debt discounts on the convertible notes for the three months endedSeptember 30, 2019 compared to
the same period in 2018. 19 Comparison of Results of Operations for the Nine Months EndedSeptember 30, 2019 and 2018 Nine Months Ended September 30, Dollar Percentage 2019 2018 Change Change Sales$ 294,045 $ 301,858 $ (7,813 ) (2.6 %) Cost of goods sold 175,646 164,959 10,687 6.5 % Gross profit 118,399 136,899 (18,500 ) (13.5 %) Selling expenses 207,262 245,372 (38,110 ) (15.5 %) General and administrative expenses 2,073,460 1,734,666 338,794 19.5 % Interest expense 501,394 957,959 (456,565 ) (47.7 %) Change in value of derivative liability (615,893 ) 3,028,388 (3,644,281 ) (120.3 %) Net loss$ (2,047,824 ) $ (5,829,486 ) $ 3,781,662 (64.9 %) Sales for the nine months endedSeptember 30, 2019 were$294,045 , a decrease of$7,813 or 2.6% compared to the same period in 2018. The decrease was due to periodic sales cycles. Cost of goods sold for the nine months endedSeptember 30, 2019 were$175,646 an increase of$10,687 or 6.5% compared to the same period in 2018. The increase in cost of goods was due to higher manufacturing costs offset by a decrease in sales. Cost of goods sold as a percentage of sales was 59.7% for the nine months endedSeptember 30, 2019 compared to 54.6% 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 nine months endedSeptember 30, 2019 were$207,262 a decrease of$38,110 or 15.5% 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 nine months endedSeptember 30, 2019 were$2,073,460 an increase of$338,794 or 19.5% 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 nine months endedSeptember 30, 2019 was$501,394 a decrease of$456,565 or 47.7% 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 nine months endedSeptember 30, 2019 compared to
the same period in 2018.
Liquidity and Capital Resources
As of
AtSeptember 30, 2019 , we had current assets of$187,245 and current liabilities of$3,489,115 resulting in a working capital deficit of$3,301,870 . 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$94,801 during the nine months endedSeptember 30, 2019 , compared to$500,646 in net cash used during the nine months endedSeptember 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 nine months endedSeptember 30, 2019 compared to the same period in 2018.
Cash flows used by investing activities was
Cash flows provided by financing activities were$65,024 during the nine months endedSeptember 30, 2019 compared to$443,184 for the nine months endedSeptember 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. 20 Convertible Note Financings OnFebruary 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 onNovember 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. OnMarch 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 onDecember 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. OnMarch 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 onMarch 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. OnOctober 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 onApril 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 . OnNovember 15, 2018 , the Company issued a 0% Promissory Note of$150,000 , with original issue discount of$20,000 to an accredited investor. Beginning onFebruary 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 onAugust 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.
OnOctober 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 onApril 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. OnJanuary 22, 2019 , the Company issued a 12% convertible note payable for$63,000 . This convertible note is due and payable onNovember 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. OnMarch 4, 2019 , the Company issued a 12% convertible note payable for$53,000 . This convertible note is due and payable onDecember 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. 21 Sale of Common Stock OnJanuary 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 onMay 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 onMay 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
OnJuly 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 onAugust 10, 2018 . The Company made a payment of$5,000 onNovember 19, 2018 andDecember 3, 2018 . The Company did not make the progress payments due on October, November andDecember 10, 2018 . As such, this Promissory Note is in default. However, the Holder of the Promissory Note has not declared a default. OnMarch 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 nine months endedSeptember 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 inthe 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. 22 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.
23 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$2,162,323 for the nine months endedSeptember 30, 2019 and$3,394,068 for the year endedDecember 31, 2018 , and had an accumulated deficit of$15,959,955 atSeptember 30, 2019 . In addition, we used cash from operating activities of$94,801 for the nine months endedSeptember 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. 24
Recent Accounting Pronouncements
InJune 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 onJanuary 1, 2019 . Early adoption is permitted. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements. InFebruary 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 afterDecember 15, 2018 and interim periods in fiscal years beginning afterDecember 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
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