0001079974-18-000469.txt : 20180820 0001079974-18-000469.hdr.sgml : 20180820 20180820143722 ACCESSION NUMBER: 0001079974-18-000469 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 68 CONFORMED PERIOD OF REPORT: 20180630 FILED AS OF DATE: 20180820 DATE AS OF CHANGE: 20180820 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PURA NATURALS, INC. CENTRAL INDEX KEY: 0001501257 STANDARD INDUSTRIAL CLASSIFICATION: SPECIALTY CLEANING, POLISHING AND SANITATION PREPARATIONS [2842] IRS NUMBER: 208496798 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-54888 FILM NUMBER: 181028001 BUSINESS ADDRESS: STREET 1: 23101 LAKE CENTER DRIVE, SUITE 100 CITY: LAKE FOREST STATE: CA ZIP: 92630 BUSINESS PHONE: (855) 326-8537 MAIL ADDRESS: STREET 1: 23101 LAKE CENTER DRIVE, SUITE 100 CITY: LAKE FOREST STATE: CA ZIP: 92630 FORMER COMPANY: FORMER CONFORMED NAME: Yummy Flies, Inc. DATE OF NAME CHANGE: 20100914 10-Q 1 pura10q_6302018.htm

 
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, 2018
 
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 August 14, 2018 was 112,117,115 shares.
 
 


 
 
 
 
TABLE OF CONTENTS
 
PART I
FINANCIAL INFORMATION
 
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
Page No.
 
 
 
Item 1.
Financial Statements
3
 
 
 
 
Condensed Consolidated Balance Sheets as of June 30, 2018 (Unaudited) and December 31, 2017
3
 
 
 
 
Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2018 and 2017
4
 
 
 
 
Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2018 and 2017
5
 
 
 
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
6
 
 
 
Item 2. 
Management's Discussion and Analysis of Financial Condition and Results of  Operations 
 23
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
23
 
 
 
Item 4.
Controls and Procedures.
23
 
 
 
 
PART II
 
 
OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
30
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
31
 
 
 
Item 3.
Defaults Upon Senior Securities
33
 
 
 
Item 4.
Mine Safety Disclosures
33
 
 
 
Item 5.
Other Information
33
 
 
 
Item 6.
Exhibits
33
 
 
 
 
Signatures
34
 
 
 
 
 
 
 
- 2 -






PURA NATURALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
June 30,
   
December 31,
 
   
20 18
   
2017
 
     
(Unaudited)
       
ASSETS
           
CURRENT ASSETS
           
 Cash
 
$
9,971
   
$
67,422
 
Accounts receivable
   
60,994
     
66,427
 
Due from related parties
   
29,390
     
11,890
 
Inventory
   
148,939
     
105,087
 
Prepaid expenses and other current assets
   
22,519
     
109,430
 
Total Current Assets
   
271,813
     
360,256
 
OTHER ASSETS
               
Intangible assets, net
   
707,422
     
755,682
 
Total Other Assets
   
707,422
     
755,682
 
TOTAL ASSETS
 
$
979,235
   
$
1,115,938
 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
CURRENT LIABILITIES
               
Accounts payable
 
$
440,397
   
$
321,250
 
Accrued expenses
   
684,557
     
226,273
 
Due to related parties
   
483,991
     
392,037
 
Deferred revenues
   
72,808
     
72,808
 
Note payable
   
25,484
     
-
 
Convertible note payable, net of discount of $308,833 and $506,237 as of June 30, 2018
   
936,767
     
781,901
 
and December 31, 2017, respectively
               
Derivative liabilities
   
1,097,379
     
897,968
 
Total Current Liabilities
   
3,741,383
     
2,692,237
 
TOTAL LIABILITIES
   
3,741,383
     
2,692,237
 
                 
COMMITMENTS AND CONTIGENCIES
               
                 
STOCKHOLDERS' DEFICIT
               
Common stock: par value $0.001, 500,000,000 shares authorized;
               
70,947,390 and 39,114,709 shares issued and outstanding, respectively, as of June 30, 2018 and December 31, 2017.
   
70,947
     
39,115
 
Additional paid-in capital
   
6,931,245
     
5,710,270
 
Accumulated deficit
   
(9,764,340
)
   
(7,325,684
)
TOTAL STOCKHOLDERS' DEFICIT
   
(2,762,149
)
   
(1,576,299
)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
 
$
979,235
   
$
1,115,938
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
 



- 3 -

 
 
PURA NATURALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30,
   
June 30,
 
   
2018
   
2017
   
2018
   
2017
 
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
                         
Sales
 
$
76,308
   
$
99,381
   
$
145,372
   
$
166,450
 
Cost of goods sold
   
48,789
     
59,752
     
92,682
     
106,557
 
GROSS PROFIT
   
27,519
     
39,629
     
52,690
     
59,893
 
                                 
OPERATING EXPENSES
                               
Selling expense
   
50,155
     
91
     
90,900
     
11,464
 
General and administrative
   
504,761
     
457,510
     
1,284,304
     
972,298
 
Total Operating Expenses
   
554,916
     
457,601
     
1,375,204
     
983,762
 
LOSS FROM OPERATIONS
   
(527,397
)
   
(417,972
)
   
(1,322,514
)
   
(923,869
)
OTHER INCOME (EXPENSE)
                               
Interest expense
   
(342,043
)
   
(92,523
)
   
(654,853
)
   
(191,434
)
Gain on debt extinguishment
   
-
     
43,120
     
-
     
43,120
 
Change in fair value of derivative liabilities
   
862,086
     
85,292
     
(461,289
)
   
71,130
 
Total Other Income (Expense)
   
520,043
     
35,889
     
(1,116,142
)
   
(77,184
)
LOSS BEFORE INCOME TAX PROVISION
   
(7,354
)
   
(382,083
)
   
(2,438,656
)
   
(1,001,053
)
Income tax provision
   
-
     
-
     
-
     
-
 
NET LOSS
 
$
(7,354
)
 
$
(382,083
)
   
(2,438,656
)
   
(1,001,053
)
                                 
NET LOSS PER COMMON SHARE
                               
Net loss per share
                               
BASIC AND DILUTED
 
$
(0.00
)
 
$
(0.01
)
 
$
(0.05
)
 
$
(0.03
)
                                 
Weighted average common
                               
  shares outstanding
                               
BASIC AND DILUTED
   
55,961,833
     
33,855,244
     
48,773,984
     
33,808,784
 
                                 

 
 

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


- 4 -





PURA NATURALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
      
For the Six Months Ended
 
   
June 30,
 
   
2018
     2017  
      
(Unaudited)
   
(Unaudited)
 
OPERATING ACTIVITIES:
           
Net loss
 
$
(2,438,656
)
 
$
(1,001,053
)
Adjustments to reconcile net loss to net cash used
               
  in operating activities:
               
Imputed interest
   
-
     
4,572
 
Amortization of intangible assets
   
49,835
     
49,818
 
Amortization of debt discount and original issue discount
   
529,407
     
98,854
 
Penalty interest resulted in principal increase
     49,250        -  
Change in fair value of derivative instruments
   
461,289
     
(71,130
)
Fair value of options vested
   
160,628
     
-
 
Common stock issued for services
   
32,400
     
324,702
 
Common shares issued for convertible note due date extension
   
25,500
     
-
 
Gain on debt extinguishment
   
-
     
43,120
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
5,433
     
(34,065
)
Inventory
   
(43,852
)
   
(145,724
)
Due from related parties
   
(17,500
)
   
20,018
 
Due to related parties
   
91,954
     
70,672
 
Prepaid expenses and other current assets
   
86,911
     
6,876
 
Accounts payable
   
142,487
     
41,146
 
Accrued expenses
   
458,284
     
2,061
 
Cash Used in Operating Activities
   
(406,360
)
   
(590,133
)
                 
INVESTING ACTIVITIES:
               
Payments for intangible assets
   
(1,575
)
   
(5,705
)
Cash Used in Investing Activities
   
(1,575
)
   
(5,705
)
                 
FINANCING ACTIVITIES:
               
Advance from related party
   
-
     
10,000
 
Proceeds from note payable-related party
   
-
     
50,000
 
Payment on note payable
   
(3,016
)
   
(14,773
)
Proceeds from the issuance of convertible debt
   
320,000
     
278,000
 
Proceeds from sale of common stock for cash
   
5,000
     
224,500
 
Proceeds from note payable
   
28,500
     
-
 
Debt financing costs
   
-
     
34,436
 
    Net Cash Provided by Financing Activities
   
350,484
     
582,163
 
NET CHANGE IN CASH
   
(57,451
)
   
(13,675
)
CASH AT BEGINNING OF PERIOD
   
67,422
     
14,386
 
CASH AT END OF PERIOD
 
$
9,971
   
$
711
 
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
               
Interest paid
 
$
1,561
   
$
168,788
 
Income tax paid
 
$
-
   
$
-
 
                 
Non-Cash Investing and Financing Activities:
               
Expense & debt paid by third party on behalf of Company
 
$
-
   
$
8,000
 
Original Issue Discount
 
$
-
   
$
25,000
 
Common stock to be issued in settlement of related party note
 
$
-
   
$
871,000
 
Common stock issued for convertible note payable
 
$
424,061
   
$
-
 
Debt discount for new issuances due to derivative feature of convertible note
 
$
320,000
   
$
279,914
 
Derivative liability extinguished on conversion
 
$
581,878
   
$
-
 
                 

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





PURA NATURALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017


NOTE 1 — MANAGEMENT'S REPRESENTATION
 
The accompanying condensed consolidated financial statements of Pura Naturals, Inc. (the "Company," "Pura," "we," or "our"), were prepared in accordance with accounting principles generally accepted in the United States, or "US GAAP". In the opinion of the Company's management, the unaudited condensed consolidated financial statements were prepared on the same basis as the audited consolidated financial statements ("CFS") in the Annual Report on Form 10-K/A ("Form 10-K/A") for the year ended December 31, 2017, and include all normal recurring adjustments necessary for the fair presentation of the Company's statement of financial position as of June 30, 2018, and its results of operations for the three and six months ended June 30, 2018 and 2017 and cash flows for the six months ended June 30, 2018 and 2017. The condensed consolidated balance sheet as of December 31, 2017 was derived from the December 31, 2017 audited financial statements. The interim financial information for the six months ended June 30, 2018 is not necessarily indicative of the results to be expected for any other interim period or for the entire year ending December 31, 2018.

We suggest these condensed CFS be read in conjunction with the audited CFS and notes thereto for the year ended December 31, 2017 included in the Company's Form 10-K/A. The report of the Company's independent registered public accounting firm on the CFS included in Form 10-K/A contains a qualification regarding the substantial doubt about the Company's ability to continue as a going concern.
 
NOTE 2 - ORGANIZATION AND SUMMARY SIGNIFICANT ACCOUNTING POLICIES

Organization and Line of Business
 
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 effected in a forward split of our issued and outstanding common stock, par value $0.001 (the "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 effected 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., a Delaware corporation ("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 the Company held an aggregate of 7,625,700 shares of Common Stock.  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 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 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 Advanced Recovery Technologies, Inc ("AIRTech") and sold to PURA, and is incapable of being reverse engineered.

 

- 6 -




PURA NATURALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017

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), and is latex-free.  PURA 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 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.
 
Basis of Presentation

The Company's significant accounting policies are summarized in Note 2 of the Form 10-K/A. These accounting policies conform to U.S.GAAP and have been consistently applied in the preparation of the interim unaudited condensed consolidated financial statements. There were no significant changes to these accounting policies during the six months ended June 30, 2018, and the Company does not expect the adoption, as applicable, of other recent accounting pronouncements will have a material impact on its financial statements.

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

Revenue Recognition

ASU No. 2014-09Revenue from Contracts with Customers ("Topic 606"), became effective for us on January 1, 2018. Our disclosure within the below sections to this footnote reflects our updated accounting policies that are affected by this new standard. 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 CFS 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.

Required Elements of Our Revenue Recognition: Revenue from our product sales is recognized under Topic 606 in a manner that reasonably reflects the delivery of our goods to customers in return for expected consideration and includes the following elements:

·
we ensure we have an executed contract(s) with our customers that we believe is legally enforceable;
·
we identify the "performance obligation in the respective contract;
·
we determine the "transaction price" for each performance obligation in the respective contract;
·
we allocate the transaction price to each performance obligation; and
·
we recognize revenue only when we satisfy each performance obligation.

 

 
- 7 -




PURA NATURALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017

    These five elements, as applied to each of our revenue category, is summarized below:

·
Product sales - we sell our products to retail stores and wholesalers/distributors (i.e., our customers). Our wholesalers/distributors in turn sell our products directly to retail stores and outlets. Revenue from our product sales is recognized as physical delivery of product occurs (when our customer obtains control of the product), in return for agreed-upon consideration.

·
Product Returns Allowances - Our customers are contractually permitted to return if found defective. Returns outside of this aforementioned criteria are not customarily allowed. We estimate expected product returns for our allowance based on our historical return rates. Returned product is typically destroyed, since substantially all returns are due to defects and cannot be resold.

Basic and Diluted Earnings (Loss) Per Share

Earnings per share is calculated in accordance with Accounting Standards Codification ("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. 

In periods of losses from operations, basic and diluted income per share from operations are also the same, as ASC 260-10 requires the use of the denominator used in the calculation of loss per share from operations in all other calculations of earnings per share presented, despite the dilutive effect of potential common shares.

Based on the conversion prices in effect, the potentially dilutive effects of 8,193,750 and 1,156,250 options were not considered in the calculation of EPS as the effect would be anti-dilutive on June 30, 2018 and June 30, 2017, respectively.

Based on the conversion prices in effect, the potentially dilutive effects of 154,137,853 and 616,920 due to convertible debt were not considered in the calculation of EPS as the effect would be anti-dilutive on June 30, 2018 and June 30, 2017, respectively.
 
Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
 
Management has considered all recent accounting pronouncements issued since and their potential effect on our financial statements.

The Company's management believes that these recent pronouncements will not have a material effect on the Company's CFS.
 
 

- 8 -




PURA NATURALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017


NOTE 3 - GOING CONCERN AND MANAGEMENT PLANS
 
The accompanying condensed CFS were prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

The Company incurred losses from operations of $1,322,514 for the six months ended June 30, 2018 and $4,269,673 for the year ended December 31, 2017, and had an accumulated deficit of $9,764,340 at June 30, 2018. In addition, the Company used cash in operating activities of $406,360 for the six months ended June 30, 2018. The Company will continue to incur costs that are necessary for it to remain an active public company. As of June 30, 2018, the Company has approximately $10,000 in cash. 

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.  Furthermore, if our current indebtedness is not restructured 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 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.

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.

An event of default exists under our April Note, July Note and July Note #2.

The Company was unable to repay amounts due for the April Note, July Note and July Note #2 (See Note 9).  The inability to repay represents an event of default. The holders of the notes have not declared a default. If they were to do so, however, they would be entitled to immediate payment of amounts far in excess of our ability to pay. Under the worst scenario, a declaration of default by the holders of the April Note, July Note and/or July Note #2 could result in a liquidation of the Company and elimination of any value in our common stock.

The condensed CFS 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. 
 


- 9 -




PURA NATURALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017



NOTE 4 – Intangible Assets

The following are the details of intangible assets at June 30, 2018 and December 31, 2017:
 
 
June 30,
   
December 31,
 
   
2018
   
2017
 
License
 
$
996,346
   
$
996,346
 
Trademarks
   
12,105
     
10,530
 
     
1,008,451
     
1,006,876
 
Less accumulated amortization
   
(301,029
)
   
(251,194
)
   
$
707,422
   
$
755,682
 
                 
 
Amortization expense for the six months ended June 30, 2018 and 2017 was $49,835 and $49,818, respectively.
 
The following summarizes estimated future amortization expense as of June 30, 2018 related to intangible assets:
 
 
 
Years ending December 31,
     
 2018
 
$
50,423
 
 2019
   
100,845
 
 2020
   
100,845
 
 2021
   
100,845
 
 2022
   
100,845
 
Thereafter
   
253,619
 
      
$
707,422
 
           
 

NOTE 5 – Due from Related Parties/Due to Related Parties

The Company has balances outstanding due from and payable to affiliated companies and related parties.  These amounts are payable upon demand and are non-interest bearing.  At June 30, 2018 and December 31, 2017, the amounts due from related parties were $29,390 and $11,890, respectively.  At June 30, 2018 and December 31, 2017, the amounts due to related parties were $483,991 and $392,037, respectively.


NOTE 6 - Note Payable

The Company entered into a merchant agreement on May 21, 2018.  The loan amount is $28,500 and the Company is required to make 245.27 daily payments of $165 each starting from May 24, 2018 through May 4, 2019. Total payments for the note payable is $40,470, which included $28,500 principal payment and $11,970 interest payment. Each daily repayment is allocated between principal and interest. The outstanding balance was $25,484 and $0 at June 30, 2018 and December 31, 2017, respectively
 

NOTE 7 - Fair Value Measurement

Financial Accounting Standards Board ("FASB") ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value ("FV") of financial instruments held by the Company. FASB ASC Topic 825, Financial Instruments, defines FV, and establishes a three-level valuation hierarchy for disclosures of FV measurement that enhances disclosure requirements for FV 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 FVs 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:
 
 
 

- 10 -





PURA NATURALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017
 

· 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 FV measurement.

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

The Company uses Level 3 inputs for its valuation methodology for its derivative liability as its FV was determined by using the Black-Scholes-Merton pricing model based on various assumptions. The Company's derivative liability is adjusted to reflect FV at each period end, with any increase or decrease in the FV being recorded in results of operations as adjustments to FV of derivatives.
 
The Company held certain financial instruments that are measured at fair value on a recurring basis. These consisted of convertible debt totaling $1,245,597 and $1,288,138 at June 30, 2018 and December 31, 2017 respectively, with a derivative liability totaling $1,097,379 and $897,968 at June 30, 2018 and December 31, 2017, respectively, which are categorized as Level 3.

Liabilities measured at fair value on a recurring basis are summarized as follows:
 
                   
 
June 30, 2018
 
December 31, 2017
 
Level 1
Level 2
Level 3
Total
 
Level 1
Level 2
Level 3
Total
                   
Conversion feature embedded within Convertible Note
-
-
  1,097,379
  1,097,379
 
-
-
     897,968
     897,968
 
- -    1,097,379   1,097,379  
-
      897,968      897,968
 
The related gain on change in fair value of derivatives totaled $862,086 for the three months ended June 30, 2018 and a related gain on the change in fair value of derivatives of $85,292 for the three months ended June 30, 2017.
 
The related loss on change in fair value of derivatives totaled $461,289 for the six months ended June 30, 2018 and a related gain on the change in fair value of derivatives of $71,130 for the six months ended June 30, 2017.

 
NOTE 8 - Derivative liabilities

During the six months ended June 30, 2018, the Company identified conversion features embedded within its convertible debt.

The Company determined the conversion feature of the convertible note represents an embedded derivative since the convertible debt is convertible into a variable number of shares upon conversion. Accordingly, the convertible debt is 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.
 
Therefore, the FV 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 FV 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 FV 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.


- 11 -





PURA NATURALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017


The FV of the derivative liabilities was calculated using a Black-Scholes valuation model.
 
The FV of the Company's derivative liabilities at and during the six months ended June 30, 2018 is as follows:
 
Derivative liability balance, December 31, 2017
 
$
897,968
 
Debt Discount
   
320,000
 
Derivative liability related to debt converted into common shares
   
(581,878
)
Change in derivative liability
   
461,289
 
Derivative liability balance, June 30, 2018
 
$
1,097,379
 
         
 
The FV'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 for the six months ended June 30, 2018:

       
Risk free rate
   
2.11% - 2.33%
 
Volatility
   
175% - 202%
 
Conversion/Exercise Price
 
 
$0.0031 - $.0149
 
Dividend rate
   
0%
 
Term (Years)
   
0.22 - 0.70
 

The carrying amounts of the Company's cash, accounts payable and accrued expenses approximate their estimated FVs due to the short term maturities of those financial instruments. The Company believes the carrying amount of its promissory note, net of discount approximates its FV based on rates and other terms currently available to the Company for similar debt instruments.


NOTE 9 - Convertible Note Payable

Convertible Promissory Note

On April 7, 2017, the Company issued to an accredited investor an unsecured Convertible Promissory Note (the "April Note") of $570,000 that matured on January 7, 2018.  The failure to pay principal and interest as scheduled represents an event of default under the terms of the Note.  However, the holder of the Note has not declared a default.

Due to the potential adjustment in the conversion price associated with this April note payable based on the Company's stock price, the Company determined the conversion feature is considered a derivative liability.  The embedded conversion feature was initially calculated to be $273,266 which is recorded as a derivative liability as of the date of issuance.  The derivative liability was recorded as a debt discount to the April Note payable up to the face amount of the April Note. The debt discount of $273,266 is being amortized over the term of the April Note.  The Company recognized interest expense of $8,549 and $48,398 during the six months ended June 30 2018 and June 30, 2017, respectively for the amortization of the debt discount.  The unamortized balance of the debt discount was $0 and $8,549 at June 30, 2018 and December 31, 2017, respectively.
 
 
 

- 12 -



PURA NATURALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017
 
During the quarters ended June 30, 2018 and 2017 the Company recognized interest expense in the amount of $1,539 and $8,553 relating to the amortization of the original issue discount and debt issuance costs. The unamortized balance of original issue discount and debt issuance costs totaled $0 and $1,539 at June 30, 2018 and December 31, 2017, respectively. 

The holder of the April Note payable converted the following amounts during the six months ended June 30, 2018:


Conversion Date
Number of Shares of Common Stock
 
Principal and Amount Converted
 
Price per Share
January 17, 2018
                     500,000
 
                       31,875
 
            0.0638
January 31, 2018
                     500,000
 
                       31,875
 
            0.0638
March 16, 2018
                     500,000
 
                       20,325
 
            0.0407
April 19, 2018
                     500,000
 
                       11,250
 
            0.0225
May 7, 2018
                     936,640
 
                       17,562
 
            0.0188
May 22, 2018
                  1,000,000
 
                       12,225
 
            0.0122
June 5, 2018
                  1,000,000
 
                       11,700
 
            0.0117
June 18, 2018
                  1,000,000
 
                       11,800
 
            0.0118
Total
                  5,936,640
 
                     148,612
   

The outstanding principal balance of the April note was $134,026 and $282,638 at June 30, 2018 and December 31, 2017, respectively.

8% Promissory Note

On July 5, 2017, the Company issued an 8% unsecured Promissory Note ("July Note") in the amount of $220,000, with an Original Issue Discount of $20,000 and Debt Issuance Costs of $20,000 to an accredited investor. This promissory note was originally due and payable on January 6, 2018, plus the one-time interest charge of on the principal of 8%. The holder has the right to convert all or any part of the outstanding amount due under this Note into fully paid and non-assessable shares of Common Stock upon an event of default.

In connection with the July Note, the Company granted 85,000 shares of Common Stock to the investor as inducement shares. These shares were issued on February 5, 2018.  These Common Stock were valued at the market share price of $0.739 per share and recorded interest expense of $62,815.

Due to the potential adjustment in the conversion price associated with this promissory note payable based on the Company's stock price, the Company determined the conversion feature is considered a derivative liability.  The embedded conversion feature was initially calculated to be $230,656 which is 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 $50,656 being recorded as a financing cost.  The debt discount of $180,000 is being amortized over the term of the convertible note.  The Company recognized interest expense of $5,837 and $0 during the six months ended June 30 2018 and June 30, 2017 for the amortization of the debt discount. The unamortized balance of the debt discount was $0 and $5,837 at June 30, 2018 and December 31, 2017, respectively.

 
 
 

- 13 -




PURA NATURALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017


On January 17, 2018, the Company entered into an agreement with the holder to amend terms of the July Note.  The due date of the July Note was amended to February 6, 2018 from the original due date of January 6, 2018,  In exchange for the amendment the Company delivered 300,000 shares of Common Stock. These Common Stock were valued at the market share price of $0.085 per share and recorded interest expense of $25,500. If, on the date that is the six-month anniversary of the date of the second amendment ("True-Up Date"), the volume weighted average price of the Common Stock on the day immediately preceding the True-Up Date as reported on the Company's Principal Market is less than the closing price of the Common Stock on the date of the second amendment, the Company shall, within three trading days of the holder's provision of written notice, issue and deliver an additional number of duly and validly issued, fully paid and non-assessable shares of Common Stock equal to the quotient of $25,000 divided by the subsequent share price multiplied by 1.5, less the extension shares.  If the true-up date was June 30, 2018, the estimated number of shares to be issued is approximately 2,585,000 with a fair value of $33,600 using the stock price on June 30, 2018.

On January 31, 2018, the Company entered into an agreement with the holder to further amend terms of the July Note.   The due date of the July Note was extended to March 6, 2018 from the original due date of January 6, 2018.  In exchange for the amendment the holder converted $50,000 of the outstanding balance of the July Note.

The holder of the July Note converted the following during the six months ended June 30, 2018:

Conversion Date
 
Number of Shares of Common Stock
   
Principal and Amount Converted
   
Price per Share
 
January 31, 2018
   
1,388,889
   
$
50,000
     
0.0360
 
March 8, 2018
   
1,428,571
     
50,000
     
0.0350
 
April 18, 2018
   
2,000,000
     
21,000
     
0.0105
 
June 12, 2018
   
2,750,000
     
21,725
     
0.0079
 
Total
   
7,567,460
   
$
142,725
         

 
The Company has not paid the balance due of the Note by the amended due date.   In accordance with the provision of the Note, On March 7, 2018, the balance of the note was increased by $37,520 due to an occurrence of an event of default. The $37,520 increase in principal was recorded as interest expense.

The outstanding principal balance of the July note was $114,795 and $220,000 at June 30, 2018 and December 31, 2017, respectively.

During the quarters ended June 30, 2018 and June 30, 2017 the Company recognized interest expense in the amount of $1,298 and $0 relating to the amortization of the original issue discount and debt issuance costs. The unamortized balance of original issue discount and debt issuance costs totaled $0 and $1,298 at June 30, 2018 and December 31, 2017, respectively.

The Company recorded interest expense in connection with the July Note in the amount of $63,591 (including the $37,520 penalty interest for occurrence of event of default and $25,500 for Amendment) and $0, for the quarters ended June 30, 2018 and June 30, 2017, respectively. Accrued interest due under the promissory note totaled $17,600 and $17,029 as of June 30, 2018 and December 31, 2017, respectively. 

Convertible Promissory Note-Commitment Fee

On July 14, 2017, the Company issued an unsecured convertible promissory note ("July Note #2") of $330,000, with an original issue discount of $30,000 to an accredited investor for commitment fee related to the July Note #2. This July Note #2 is due and payable on April 17, 2018.  The holder has the right to convert all or any part of the outstanding amount due under this July Note #2 into fully paid and non-assessable shares of Common Stock, at a conversion price per share of 65% of the low trade price of the Common Stock during thirty days preceding the date of the applicable conversion notice.
 

- 14 -





PURA NATURALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017


Pursuant to the terms of the July Note #2, the Company is not required to make any payments on the Note until maturity, and no interest shall accrue except in default.

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 the conversion feature is considered a derivative liability.  The embedded conversion feature was initially calculated to be $369,485 which is 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 July Note #2 with the excess of $69,485 being recorded as a financing cost.  The debt discount of $300,000 is being amortized over the term of the July Note #2. 

The Company recognized interest expense of $113,868 and $0 during the six months ended June 30, 2018 and June 30, 2017, respectively for the amortization of the debt discount. The unamortized balance of the debt discount was $0 and $113,868 at June 30, 2018 and December 31, 2017, respectively.

During the six months ended June 30, 2018 and June 30, 2017 the Company recognized interest expense in the amount of $11,387 and $0 relating to the amortization of the original issue discount. The unamortized balance of original issue discount totaled $0 and $11,387 at June 30, 2018 and December 31, 2017, respectively.

As of the August 15, 2018, the Company has not paid the balance of the Note.  The failure to pay principal as scheduled represents an event of default under the terms of the Note.  However, the holder of the Note has not declared a default.

The outstanding principal balance of the July Note #2 was $330,000 at June 30, 2018 and December 31, 2017.

12 % Convertible Promissory Note

On September 12, 2017, the Company issued a 12% unsecured Convertible Promissory Note of $160,500 ("September Note #1"), with debt issuance costs of $10,500 to an accredited investor. This September Note #1 is due and payable on September 12, 2018. The holder is entitled to convert all of the outstanding and unpaid principal and accrued interest of this September Note #1 into fully paid and non-assessable shares of Common Stock in accordance with the stated conversion price commencing on the date that is 180 days from the issuance date.

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 the conversion feature is considered a derivative liability.  The embedded conversion feature was initially calculated to be $251,454 which is 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 $101,454 being recorded as a financing cost.  The debt discount of $150,000 is being amortized over the term of the convertible note. 

The holder of the September Note #1 converted the following during the six months ended June 30, 2018:
 
Conversion Date
 
Number of Shares of Common Stock
   
Principal and Amount Converted
   
Price per Share
 
March 23, 2018
   
1,000,000
   
$
25,750
     
0.0258
 
April 19, 2018
   
2,141,249
     
22,804
     
0.0106
 
Total
   
3,141,249
   
$
48,554
         
 
The Company recognized interest expense of $81,523 and $0 during the six months ended June 30, 2018 and June 30, 2017, respectively for the amortization of the debt discount and release of debt discount due to conversions.  The unamortized balance of the debt discount was $23,271 and $104,794 at June 30, 2018 and December 31, 2017, respectively.
 


- 15 -





PURA NATURALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017
 

 
During the six months ended June 30, 2018 and June 30, 2017 the Company recognized interest expense of $5,207 and $0 relating to the amortization of the original issue discount and debt issuance costs of the September Note #1. The unamortized balance of debt issuance costs totaled $2,129 and $7,336 at June 30, 2018 and December 31, 2017, respectively.
 
The Company recorded interest expense in connection with the September Note #1 of $9,551 and $0, for the six months ended June 30, 2018 and June 30, 2017, respectively. Accrued interest due under the September Note #1 totaled $15,356 and $5,805 as of June 30, 2018 and December 31, 2017, respectively.

The outstanding principal balance of the September Note #1 was $111,946 and $160,500 at June 30, 2018 and December 31, 2017, respectively.

12 % Convertible Note

On September 20, 2017, the Company issued an unsecured 12% Convertible Note of $75,000 ("September Note #2"), with an original issue discount of $4,500 and Debt Issuance Costs of $3,000 to an accredited investor. This September Note #2 is due and payable on September 20, 2018. The holder has the right to convert all or any part of the outstanding amount due under this September Note #2 into fully paid and non-assessable shares of Common Stock.

Due to the potential adjustment in the conversion price associated with this September Note #2 payable based on the Company's stock
price, the Company determined the conversion feature is considered a derivative liability.  The embedded conversion feature was initially calculated to be $100,798 which is recorded as a derivative liability as of the date of issuance.  The derivative liability was recorded as a debt discount to the September Note #2 payable up to the face amount of the September Note #2 with the excess of $33,298 being recorded as a financing cost.  The debt discount of $67,500 is being amortized over the term of the September Note #2. 

The Company recognized interest expense of $39,371 and $0 during the six months ended June 30, 2018 and June 30, 2017, respectively for the amortization of the debt discount and release of debt discount due to conversions for the September Note #2.  The unamortized balance of the debt discount was $9,266 and $48,637 at June 30, 2018 and December 31, 2017, respectively.

During the six months ended June 30, 2018 and June 30, 2017 the Company recognized interest expense in the amount of $3,719 and $0 relating to the amortization of the original issue discount and debt issuance costs. The unamortized balance of original issue discount and debt issuance costs totaled $1,685 and $5,404 at June 30, 2018 and December 31, 2017, respectively.

The Company recorded interest expense in connection with the September Note #2 in the amount of $19,763 (including the $12,000 penalty interest as discussed below and $3,300 in conversion fees) and $0, for the six months ended June 30, 2018 and June 30, 2017, respectively. Accrued interest due under the September Note #2 totaled $6,978 and $2,515 as of June 30, 2018 and December 31, 2017, respectively.

The holder of the September Note #2 converted the following during the six months ended June 30, 2018:
 
Conversion Date
 
Number of Shares of Common Stock
   
Principal and Amount Converted
   
Fees
   
Price per Share
 
April 17, 2018
   
1,000,000
   
$
3,510
     
750
     
0.0043
 
May 2, 2018
   
2,300,000
     
8,973
     
825
     
0.0043
 
May 23, 2018
   
2,700,000
     
7,977
     
825
     
0.0033
 
June 18, 2018
   
3,100,000
     
8,710
     
900
     
0.0031
 
Total
   
9,100,000
   
$
29,170
     
3,300
         
 
 
 
 
- 16 -





PURA NATURALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017

The fees represent the costs of obtaining a Rule 144 opinion and transfer agent fees.

The principal balance of the note was increased by $12,000 which represent a penalty of $1,000 per day for not delivering common stock within three business days after the receipt of the conversion notice.  The $12,000 increased the principal amount of the Note and was accounted for as interest expense.

The outstanding principal balance of the September Note #2 was $57,830 and 75,000 at June 30, 2018 and December 31, 2017, respectively.

8 % Convertible Secured Redeemable Note

On October 23, 2017, the Company issued an 8% Convertible Secured Redeemable Note of $95,000 ("October Note"), with original issuance discount of $2,250 to an accredited investor. This October Note is due and payable on October 23, 2018. The holder is entitled at any time to convert all of the unpaid principal of this October Note into shares of Common Stock.

Due to the potential adjustment in the conversion price associated with this October Note payable based on the Company's stock price, the Company determined the conversion feature is considered a derivative liability.  The embedded conversion feature was initially calculated to be $129,589 which is recorded as a derivative liability as of the date of issuance.  The derivative liability was recorded as a debt discount to the October Note payable up to the face amount of the October note with the excess of $50,839 being recorded as a financing cost.  The debt discount of $78,750 is being amortized over the term of the October Note. 

 
The Company recognized interest expense of $53,416 and $0 during the six months ended June 30, 2018 and June 30, 2017, respectively for the amortization of the debt discount and release of debt discount due to conversions.  The unamortized balance of the debt discount was $10,447 and $63,863 at June 30, 2018 and December 31, 2017, respectively.

During the six months ended June 30, 2018 and June 30, 2017 the Company recognized interest expense of $8,058 and $0 relating to the amortization of the original issue discount and debt issuance costs. The unamortized balance of debt issuance costs totaled $5,120 and $13,178 at June 30, 2018 and December 31, 2017, respectively.

The Company recorded interest expense in connection with the October Note of $3,769 and $0, for the six months ended June 30, 2018 and June 30, 2017, respectively. Accrued interest due under the October Note totaled $5,206 and $1,437 as of June 30, 2018 and December 31, 2017, respectively.

The holder of the October Note converted the following during the six months ended June 30, 2018:
 
Conversion Date
 
Number of
Shares of
Common Stock
   
Principal and Amount
Converted
   
Price per
 Share
 
May 10, 2018
   
1,380,379
     
20,000
     
0.0145
 
June 7, 2018
   
2,065,291
     
18,000
     
0.0087
 
June 22, 2018
   
2,058,329
     
17,000
     
0.0083
 
Total
   
5,503,999
     
55,000
         

The outstanding principal balance of the October Note was $40,000 at June 30, 2018 and $95,000 at December 31, 2017.
 
 
 

- 17 -




PURA NATURALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017


4.25 % Convertible Promissory Note

On December 18, 2017, the Company issued a 4.25% Convertible Secured Redeemable Note of $125,000 ("December Note"), with debt issuance costs of $16,250 and original issue discount of $750 to an accredited investor. This December Note is due and payable on October 23, 2018.

Due to the potential adjustment in the conversion price associated with this December Note payable based on the Company's stock price, the Company determined the conversion feature is considered a derivative liability. The embedded conversion feature was initially calculated to be $143,675 which is recorded as a derivative liability as of the date of issuance.  The derivative liability was recorded as a debt discount to the December Note payable up to the face amount of the December Note with the excess of $35,675 being recorded as a financing cost. The debt discount of 108,000 is being amortized over the term of the December Note.

The Company recognized interest expense of $53,556 and $0 during the six months ended June 30, 2018 and June 30, 2017, respectively for the amortization of the debt discount.  The unamortized balance of the debt discount was $50,597 and $104,153 at June 30, 2018 and December 31, 2017, respectively.

During the three months ended June 30, 2018 and June 30, 2017 the Company recognized interest expense of $8,430 and $0 relating to the amortization of the original issue discount and debt issuance costs. The unamortized balance of debt issuance costs and original issue discount totaled $7,964 and $16,395 at June 30, 2018 and December 31, 2017, respectively.

The Company recorded interest expense in connection with the December Note of $2,634 and $0, for the six months ended June 30, 2018 and June 30, 2017, respectively.  Accrued interest due under the December Note totaled $2,823 and $189 as of June 30, 2018 and December 31, 2017, respectively.

The outstanding principal balance of the December Note was $125,000 at June 30, 2018 and December 31, 2017.

12 % Convertible Promissory Note #1

On February 8, 2018, the Company issued a 12% unsecured Convertible Promissory Note #1 of $103,000 ("2018 Note #1"), with debt issuance costs of $3,000 to an accredited investor.  Net of debt issuance costs, the Company received $100,000. This 2018 Note #1 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 2018 Note #1 into fully paid and non-assessable shares of common stock.

Due to the potential adjustment in the conversion price associated with this 2018 Note #1convertible note payable based on the Company's stock price, the Company determined the conversion feature is considered a derivative liability. The embedded conversion feature was initially calculated to be $227,338 which is recorded as a derivative liability as of the date of issuance.  The derivative liability was recorded as a debt discount to the 2018 Note #1 payable up to the face amount of the 2018 Note #1 Note convertible note with the excess of $127,338 being recorded as a change in fair value of derivative liability. The debt discount of $100,000 is being amortized over the term of the convertible note.

The Company recognized interest expense of $49,825 and $0 during the six months ended June 30, 2018 and June 30, 2017, respectively for the amortization of the debt discount.  The unamortized balance of the debt discount was $50,175 and $0 at June 30, 2018 and December 31, 2017, respectively.

During the six months ended June 30, 2018 and June 30, 2017 the Company recognized interest expense of $1,495 and $0 relating to the amortization of the debt issuance costs. The unamortized balance of debt issuance costs and original issue discount totaled $1,505 and $0 at June 30, 2018 and December 31, 2017, respectively.

The Company recorded interest expense in connection with the 2018 Note #1 of $4,132 and $0, for the six months ended June 30, 2018 and June 30, 2017, respectively. Accrued interest due under the 2018 Note #1 totaled $4,132 and $0 as of June 30, 2018 and December 31, 2017, respectively.
 
 
 

- 18 -




PURA NATURALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017

The outstanding principal balance of the 2018 Note #1 was $103,000 and $0 at June 30, 2018 and December 31, 2017, respectively.

12 % Convertible Promissory Note #2

On March 5, 2018, the Company issued a 12% unsecured Convertible Promissory Note #2 of $103,000 ("2018 Note #2), with debt issuance costs of $3,000 to an accredited investor. Net of the debt issuance costs, the Company received $100,000.  This 2018 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 2018 Note #2 to convert all or any amount of the outstanding and unpaid principal amount of the 2018 Note #2 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.

Due to the potential adjustment in the conversion price associated with this 2018 Note #2 payable based on the Company's stock price, the Company determined the conversion feature is considered a derivative liability. The embedded conversion feature was initially calculated to be $114,305 which is recorded as a derivative liability as of the date of issuance.  The derivative liability was recorded as a debt discount to the 2018 Note #2 payable up to the face amount of the 2018 Note #2 with the excess of $14,305 being recorded as a change in fair value of derivative liabilities. The debt discount of $100,000 is being amortized over the term of the convertible note.

The Company recognized interest expense of $41,053 and $0 during the six months ended June 30, 2018 and June 30, 2017, respectively for the amortization of the debt discount.  The unamortized balance of the debt discount was $58,947 and $0 at June 30, 2018 and December 31, 2017, respectively.

During the six months ended June 30, 2018 and June 30, 2017 the Company recognized interest expense of $1,232 and $0 relating to the amortization of the debt issuance costs. The unamortized balance of debt issuance costs totaled $1,768 and $0 at June 30, 2018 and December 31, 2017, respectively.

The Company recorded interest expense in connection with the 2018 Note #2 of $3,962 and $0, for the six months ended June 30, 2018 and June 30, 2017, respectively.  Accrued interest due under the 2018 Note #2 totaled $3,962 and $0 as of June 30, 2018 and December 31, 2017, respectively.

The outstanding principal balance of the 2018 Note #2 was $103,000 and $0 at June 30, 2018 and December 31, 2017, respectively.

8 % Convertible Redeemable Note

On March 6, 2018, the Company issued a 8% unsecured Convertible Redeemable Note of $126,000 ("2018 Note #3"), with debt issuance costs of $6,000 to an accredited investor. Net of debt issuance costs, the Company received $120,000.  This 2018 Note #3 is due and payable on March 6, 2019. The holder is entitled, at its option, at any time, 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.

Due to the potential adjustment in the conversion price associated with this 2018 Note #3 payable based on the Company's stock price, the Company determined the conversion feature is considered a derivative liability. The embedded conversion feature was initially calculated to be $149,491 which is recorded as a derivative liability as of the date of issuance.  The derivative liability was recorded as a debt discount to the 2018 Note #3 payable up to the face amount of the 2018 Note #3 with the excess of $29,491 being recorded as a change in fair value of derivative liabilities. The debt discount of 120,000 is being amortized over the term of the 2018 Note #3.

The Company recognized interest expense of $38,137 and $0 during the six months ended June 30, 2018 and June 30, 2017, respectively for the amortization of the debt discount.  The unamortized balance of the debt discount was $81,863 and $0 at June 30, 2018 and December 31, 2017, respectively.
 
 

 
- 19 -




PURA NATURALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017


During the six months ended June 30, 2018 and June 30, 2017 the Company recognized interest expense of $1,907 and $0 relating to the amortization of the debt issuance costs. The unamortized balance of debt issuance costs totaled $4,093 and $0 at June 30, 2018 and December 31, 2017, respectively.

The Company recorded interest expense in connection with the 2018 Note #3 of $3,203 and $0, for the six months ended June 30, 2018 and June 30, 2017, respectively.  Accrued interest due under the Convertible Note totaled $3,203 and $0 as of March 31, 2018 and December 31, 2017, respectively.
The outstanding principal balance of the 2018 Note #3 was $126,000 and $0 at June 30, 2018 and December 31, 2017, respectively.


 NOTE 10 – Stockholders' Deficit

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

·
300,000 shares valued at $25,500 for extension of due date for the July Note (See Note 9)
·
31,249,348 shares in payment of convertible note (See Note 9)
·
Sale of 83,333 shares for $5,000 cash
·
200,000 shares valued at $32,400 for employment agreement
 
Stock options

The following is a summary of stock option activity:
 
   
Options Outstanding
   
Weighted Average Exercise Price
   
Weighted Average Remaining Contractural Life
   
Aggregate Intrinsic Value
 
Outstanding. December 31, 2017
   
7,193,750
   
$
0.001
     
4.58
   
$
-
 
Granted
   
1,000,000
     
0.001
     
4.59
     
-
 
Forfeited
   
-
     
-
     
-
     
-
 
Exercised
   
-
     
-
     
-
     
-
 
Outstanding. June 30, 2018
   
8,193,750
   
$
0.001
     
4.20
   
$
-
 
                                 
Exercisable and vested at June 30, 2018
   
2,198,750
   
$
0.001
     
4.12
   
$
26,385
 


As part of the employment agreement with Daniel Kryger,  the Compensation Committee of the Board of Directors has granted Mr. Kryger on February 1, 2018 ("Effective Date"), 1,000,000 stock options at a purchase price of $.001 per share with a vesting schedule as follows: (1) 25% of the options shall vest immediately upon the effective date, (2) 25% of the options shall vest upon the Company reaching $1,000,000 in aggregate total sales revenue earned after the effective date, (3) 25% of the options shall vest upon the Company reaching $2,000,000 in aggregate total sales revenue earned after the effective date, and the remaining unvested shares shall vest upon the Company reaching $3,000,000 in sales revenue earned after the effective date.  Management believes that the Company will reach the $1,000,000 aggregate total sales revenue in the year 2020, reach the $2,000,000 aggregate sales revenue in the year 2021 and the $3,000,000 aggregate sales revenue in 2022.
 


- 20 -




PURA NATURALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017


The FV of the options was calculated using a Black-Scholes valuation model.

The FV's at the effective date was based upon the following estimates and assumptions made by management:
 
Risk free rate
   
2.26
%
Volatility
   
182
%
Conversion/Exercise Price
 
$
0.001
 
Dividend rate
   
0
%
Term (Years)
   
5
 

The total value of the options was $161,701, of which $40,425 was expensed as payroll costs for the six months ended June 30, 2018.

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 $160,628 and $120,202, during the six months ended June 30, 2018 and June 30, 2017, respectively. At June 30, 2018, the unamortized stock option expense was $240,405 which will be amortized to expense through June 30, 2019.


NOTE 11 – COMMITMENTS AND CONTINGENCIES

From time to time, the Company may become involved in routine litigation that arises in the ordinary course of business. There are no pending significant legal proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on the Company's financial position.
 
The Company maintains a head office at 23101 Lake Center Drive, Suite 100, Lake Forest, CA 92630. This property is leased until March 31, 2017 at $ 2,636 per month. . Effective February 21, 2018, the lease was extended to March 31, 2019. The basic rent is abated for April 2018 with rent of $3,494.25 from May 1, 2018 to March 31, 2019.

The following summarizes estimated future lease expense as of June 30, 2018 related to the office:
 
Years Ending December 31,
Amount
2018
20,966
2019
10,483
2020
-
2021
-
2022
-
Thereafter
-
 
31,449
 

NOTE 12 - Concentrations

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

As of June 30, 2018 one customers accounted for 22%, one customer accounted for 19%, one customer accounted for 15% and one customer for accounted 12% of accounts receivable.   As of December 31, 2017 one customer accounted for 30%, one customer accounted for 14% and one customer accounted for 15% of accounts receivable. 

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

As of June 30, 2018, one vendor accounted for 12% of accounts payable. As of December 31, 2017, one vendor accounted for 10% or more of the Company's accounts payable.
 

- 21 -




PURA NATURALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017


NOTE 13 – SUBSEQUENT EVENTS

On July 3, 2018, the holder of the July Note converted $21,313 of the outstanding balance of the July Note.  The Company issued 2,750,000 shares of its common stock upon the conversion of the July Note.

On July 6, 2018, the holder of the April Note converted $9,500 of the outstanding balance of the April Note.  The Company issued 1,000,000 shares of its common stock upon the conversion of the September Note.
 
On July 6, 2018, the holder of the September Note #1 converted $17,095 of the outstanding balance of the September Note #1.  The Company issued 2,205,759 shares of its common stock upon the conversion of the September Note #1

On July 11, 2018, the holder of the April Note converted $10,260 of the outstanding balance of the April Note.  The Company issued 1,900,000 shares of its common stock upon the conversion of the April.

On July 16, 2018, the holder of the September Note #2 converted $4,495 of the outstanding balance of the September Note #2.  The Company issued 3,800,000 shares of its common stock upon the conversion of the September Note #2.

On July 16, 2018, the holder of the October Note converted $10,000 of the outstanding balance and $352 of accrued interest of the October Note.  The Company issued 2,650,973 shares of its common stock upon the conversion of the October Note.

On July 20, 2018, the holder of the July Note converted $12,250 of the outstanding balance of the July Note.  The Company issued 3,500,000 shares of its common stock upon the conversion of the July Note.

On July 20, 2018, the holder of the September Note #1 converted $14,241 of the outstanding balance of the July Note.  The Company issued 4,068,841 shares of its common stock upon the conversion of the September Note #1.

On July 23, 2018, the holder of the October Note converted $13,000 of the outstanding balance and $479 of accrued interest of the October Note.  The Company issued 3,501,049 shares of its common stock upon the conversion of the October Note.

On August 1, 2018, the holder of the July Note converted $10,500 of the outstanding balance of the July Note.  The Company issued 3,500,000 shares of its common stock upon the conversion of the July Note.

On August 9, 2018, the holder of the 2018 Note #1 converted $7,990 of the outstanding balance of the 2018 Note #1.  The Company issued 2,755,172 shares of its common stock upon the conversion of the 2018 Note #1.  On the same date, the holder of the 2018 Note #1 converted $9,170 of the outstanding balance of the 2018 Note #1.  The Company issued 3,162,069 shares of its common stock upon the conversion of the 2018 Note #1.

On August 10, 2018, the holder of the 2018 Note #1 converted $8,960 of the outstanding balance of the 2018 Note #1.  The Company issued 3,089,655 shares of its common stock upon the conversion of the 2018 Note #1.

On August 13, 2018, the holder of the 2018 Note #1converted $9,530 of the outstanding balance of the 2018 Note #1.  The Company issued 3,286,207 shares of its common stock upon the conversion of the 2018 Note #1.
 
 
 

- 22 -

 

 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 effected in a forward split of our issued and outstanding common stock whereby nine shares of our common stock were issued in exchange for every one share of common stock then issued and outstanding.  In addition, in November 2016, we effected another forward split of our issued and outstanding common stock whereby 3.7 shares of our common stock were issued in exchange for every one share of common stock 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 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, Robert Lee, the holder of 30,536,100 shares of common stock, cancelled such shares.  Other than Robert Lee, shareholders of Company's common stock held 7,625,700 shares of common stock.  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 there under, PURA – DE became 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.

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), and 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.
 
 
- 23 -


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 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 Pura through an acquisition transaction with AIRTech in May 2017, and we believe this technology is incapable of being reverse engineered. Previously, those formulations and been exclusively licensed to from AIRTech to PURA – DE. 

The Company has evolved it's marketing strategy in 2017 to integrate a robust direct to consumer model which will incorporate digital marketing and media to effectively promote our products directly towards our targeted demographics. This strategy is an ongoing process which could take several years to complete.

We 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. We hope 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.

Our Strategy

Today, the global economy continues to encourage manufacturers toward adopting an environmentally conscious effort in the development of industrial and consumer products. Countries like China and the U.S. have taken the lead in this global effort by proposing criteria for businesses to become more "green."  As "going green" is continuing to be a major focal point among the business environment, the demand for earth conscious products and businesses continue to grow and be more desirable.

In the past, we expanded our earth conscious strategy throughout all aspects of our business practices. This provided us with a competitive advantage by allowing ourselves to establish a presence among the environmentally conscious market space. In order to increase our market share regarding the environmentally conscious market space, we will have to increase our product awareness within the space we have already captured as a means to gain market expansion.

Our Products

We offer a diverse line of cleaning products with applications across several sectors, and are increasing our market presence in the eco-conscious cleaning product market. We operate in four business segments: Health & Beauty, Household and Kitchen, Marine, and Oil Spill Prevention.

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 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, glutenfree, contains botanicals and essential oils; SLS-, Sulfate, Paraben-, and BPA- Free.

Due to the formulation of the foam, it's durability, oil absorbing and antibacterial properties, we believe our cleaning sponge technologies surpass the industry's standard for foam products. Thus, we plan to introduce new products using our foam technologies that will target industries in which we have never before held a market share. In this regard, we plan to introduce our infused sponge products to the automobile, equine, and furniture industries to reach new customers and to increase our overall market share of the cleaning products market during 2018.

In March, 2018, a new line of health and beauty products with Cannabidiol ("CBD") and hemp seed oils was launched in the expanding industry surrounding the benefits of CBD oils in topical applications.
   
Six Months Ended,
 
Sales by Product Line:
 
June 30, 2018
   
June 30, 2017
 
  Household and Kitchen
 
$
85,778
   
$
93,478
 
  Health and Beauty
   
49,447
     
63,597
 
  Marine Products
   
10,147
     
9,375
 
   
$
145,372
   
$
166,450
 
 
 

- 24 -



Recent Events

Launch of the Grease Beast Product Line

When the Company launched the Grease Beast product line with its grease attracting/cleaning capability and sought to expand the potential application of the BeBetterFoam at the National Hardware show in May 2018.  Since the show, the Company was approved as a supplier to six hardware chains and one grocery store chain.  In addition, a major hardware chain agreed to place the entire Grease Beast product family on their website with store evaluation and potential placement being negotiated.  The first shipment to the grocery store chain has been shipped and will be on the shelves mid-August.

The Company is attending the Ace 2018 Fall Convention as a qualified supplier and the True Value Fall Reunion to further show case the Grease Beast product line.

Amazon

Pura Naturals strongly believes in on line sales and developed a detailed strategy to increase it's on line presence by expanding the products offered on Amazon from six to eight products and create incentive to purchase multiple products.  The Company has seen steady sales growth on Amazon, with sales increasing in the month of July compared to June 2018 and we anticipate this trend to continue.  The Grease Beast product line will be offered on Amazon by the end of the third quarter.

Pura Marine

The Marine division is building a loyal customer base and the Fisherman Cleansing bar is gaining sales momentum with placement in over 15 fishing products related stores.  Products are also carried at three major fuel docks in Long Beach and Orange County, California. The products under Pura Marine are going through a rebranding and relabeling phase which will, when complete, better convey the attributes of the product line.  The strategic relationship with Anglers Chronicles is growing and support continues with promotions airings on Anglers Chronicles weekly cable television shows and their radio AM830 Anglers Chronicles radio show.  A meeting is set for September with a major marine distribution company to review our entire product line for store placement.

CBD Product Line

A new product line of hemp derived CBD products was developed and launched.  Products include sponge infused face products and bars of soap. Additionally, a partnership was formed with Noreen Taylor of The Organic Face make-up line and Pura Naturals.  Under a new brand, Pura is launching a new make-up line infused with hemp derived CBD. Discussions are underway with a major distribution network to private label the CBD cleansing line and create a bar soap line.

Private Label Sales and Manufacturing

The Company's private label venture with Permatex remains steady, with regular reorders.  The Company's bio-degreaser private label partnership with Laguna 3P continues with anticipated sales to police departments across the USA.  The Company has been contacted by a major barbeque related product supplier to private label the Grease Beast degreaser.  Three additional products are under development for a complete suite of products for private labeling.

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.
 
 

- 25 -

 
Results of Operations

Comparison of Results of Operations for the Three Months Ended June 30, 2018 and June 30, 2017
 
 
Three Months ended June 30, 
 
2018
2017
Dollar
Change
Percentage
Change
Sales
        76,308
             99,381
             (23,073)
(23.22)%
Cost of Goods Sold
        48,789
             59,752
             (10,963)
(18.35)%
Gross Profit
        27,519
             39,629
             (12,110)
(30.56)%
OPERATING EXPENSES
       
  Selling expenses
        50,155
                    91
               50,064
55,015.00%
  General and administrative
      504,761
           457,510
               47,251
10.33%
Total Operating Expenses
      554,916
           457,601
               97,314
21.27%
LOSS FROM OPERATIONS
     (527,397)
         (417,972)
           (109,424)
26.18%
OTHER INCOME (EXPENSES)
       
  Interest (expense)
     (342,043)
           (92,523)
           (249,520)
269.68%
  Gain on debt extinguishment
                  -
             43,120
             (43,120)
(100.00)%
  Change in fair value of derivative liabilities
      862,086
             85,292
             776,794
910.75%
Total Other Income (Expense)
         (7,354)
         (382,083)
             417,850
(109.36)%
 
During the three months ended June 30, 2018, we incurred a net loss of $7,354 compared to a net loss of $382,083 for the three months ended June 30, 2017.

Sales decreased to $76,308 during the three months ended June 30, 2018 as compared to $99,381 during the three months ended June 30, 2017.

The decrease in sales was due to a loss of certain customers and lack of brand awareness of the Company's products.  The changes being implemented involve tactics and strategies to engage consumers and build brand awareness. We continue to reevaluate our distribution model to focus on a more effective and efficient strategic model to grow sales and increase shareholder value.  We anticipate this strategy, implemented during the quarter ended June 30, 2018, will improve sales and free up limited resources to be repurposed towards the integration of more effective sales channels.  

To advance this strategy, the Company also has retained sales personnel with specific skills to further promote the Company's products.

The Company has developed a specific growth strategy for Amazon's business to business segment.  The Company began to offer larger ordering quantities for the business to business segment. The Company will also begin to offer more products in the Amazon Market place.  The Company anticipates that due to the strategy implemented, the Company anticipates continued growth on the Amazon marketplace.

Cost of goods sold for the three months June 30, 2018 was $48,789 a decrease of $10,963 or 18.35% from $59,752 for the three months ended June 30, 2017 period.  The decrease in cost of goods sold was due to the decrease in sales.  Cost of goods sold as a percentage of sales was 63.94% for the three months ended June 30, 2018 compared to 60.12% for the three months ended June 30, 2017. This increase was due to increased costs from suppliers and due to inefficiencies of manufacturing in small batches. The Company has begun manufacturing the soap used in the product manufacturing process, which has the potential of reducing the cost of soap by as much as 25%.
 
 
 
- 26 -



Selling expense increased to $50,155 during the three months ended June 30, 2018, an increase of $50,064 from $91 for the three months ended June 30, 2017.  This increase was primarily due to the expensing of the value of stock given to three consultants to provide consultation services in connection with the Company's effort to strengthen product promotion, develop cost efficient strategies to claim product efficacy and/or product safety, improve current product formulations, develop new formulations and strategies to highlight research data and advocacy position statements during marketing, regulatory agency, legal, fundraising, investor and celebrity spokesperson presentation in a manner that can be valuable in strategies designed to widen name recognition, broaden corporate and product credibility, enhance consumer image, attract celebrity sponsors, justify expanding funding needs.

There have been fluctuations in certain expenses in the three months ended June 30, 2018, as compared to the three months ended June 30, 2017. In the three months ended June 30, 2018, general and administrative expenses increased $47,251 for the three months ended June 30, 2018 as compared to the comparable prior period mainly due to the following changes:

   
Three months ended June 30,
 
   
2018
   
2017
   
Change
 
Payroll and payroll related expense
 
$
347,653
   
$
172,695
   
$
174,958
 
Overhead allocation
   
30,000
     
30,000
     
-
 
Amortization expense
   
25,210
     
24,909
     
301
 
Insurance
   
23,579
     
12,215
     
11,364
 
Printing and Reproduction
   
1,261
     
11,653
     
(10,392
)
Professional fees:
   
-
     
-
     
-
 
  Accountants
   
6,613
     
72,000
     
(65,387
)
  Edgar preparation
   
-
     
1,025
     
(1,025
)
  Media/Website
   
10,119
     
54,765
     
(44,646
)
  Legal
   
-
     
9,441
     
(9,441
)
  Investor and public relations
   
12,968
     
42,038
     
(29,070
)
  OTC Marketplace
   
-
     
-
     
-
 
  Transfer Agent
   
3,295
     
-
     
3,295
 
Business consultants
   
3,000
     
-
     
3,000
 
Samples
   
-
     
1,660
     
(1,660
)
Other General and administrative expense
   
41,063
     
25,109
     
15,954
 
   
$
504,761
   
$
457,510
   
$
47,251
 
                         
Payroll increased by $174,958 from $172,695 for the three months ended June 30, 2017 to $347,653 for the three months ended June 30, 2018 due to the following:

·
Salary accrual, expensing of stock options and stock awards granted in accordance with the employment agreements to certain management individuals and a member of the Board of Directors;
·
Expensing stock granted for services;
·
Increased number of employees;

These expenses were offset by a decrease in the payroll allocation from a related party.

Insurance expense increased by $11,364 from $12,215 for the three months ended June 30, 2017 to $23,579 for the three months ended June 30, 2018 due to changes in insurance rates.

The above increases were offset by:

·
A decrease in printing and reproduction of $10,392 was due to a reduced need for labels and promotional material;
·
Accounting and auditing expense decreased by $65,387due to the retention of additional accounting staff and less time required by the independent auditors in previous period due to the transition of audit firms.
·
Media/website expense decrease by $44,646 due to completion of the engagement surrounding the Company's website and digital market place work on the Company's website was completed.
·
Investor and public relations decreased by $29,070 due to non-renewal of contracts.


- 26 -



Interest expense increased by $248,520 for the three months ended June 30, 2018 to $342,043 for the three months ended June 30, 2018 from $92,523 for the three months ended June 30, 2017 due to interest accrual and amortization of debt discount for the convertible debt.
 
Gain on debt extinguishment decreased by $43,120 from $43,120 during the three months ended June 30, 2017 to $0 for the three months ended June 30, 2018. This was due to the settlement of the related party note payable.

Gain on the change in fair value of derivative liabilities was significant, increasing to $862,086 for the three months ended June 30, 2018 as compared to $85,292 for the comparable prior period due to a significant decrease in the price per share of our common stock and the fair value adjustments in connection with the convertible notes in the current three month period.

Comparison of Results of Operations for the Six Months Ended June 30, 2018 and June 30, 2017
 
   
Six Months ended June 30, 
 
   
2018
   
2017
   
Dollar Change
   
Percentage Change
 
Sales
 
$
145,372
   
$
166,450
   
$
(21,078
)
 
$
(12.66
%)
Cost of Goods Sold
   
92,682
     
106,557
     
(13,875
)
   
(13.02
%)
Gross Profit
   
52,690
     
59,893
     
(7,203
)
   
(12.03
)%
OPERATING EXPENSES
                               
  Selling expenses
   
90,900
     
11,464
     
79,436
     
692.91
%
  General and administrative
   
1,284,304
     
972,298
     
312,006
     
32.09
%
Total Operating Expenses
   
1,375,204
     
983,762
     
391,442
     
39.79
%
LOSS FROM OPERATIONS
   
(1,322,514
)
   
(923,869
)
   
(398,645
)
   
43.15
%
OTHER EXPENSES
                               
  Interest (expense)
   
(654,853
)
   
(191,434
)
   
(463,419
)
   
242.08
%
  Gain on debt extinguishment
   
-
     
43,120
     
(43,120
)
   
(100.00
)%
  Change in fair value of derivative liabilities
   
(461,289
)
   
71,130
     
(532,419
)
   
(48.52
)
Net Loss
   
(2,438,656
)
   
(1,001,053
)
   
(1,437,603
)
   
143.61
%
                                 
During the six months ended June 30, 2018, we incurred a net loss of $2,438,656 compared to a net loss of $1,001,053 for the six months ended June 30, 2017.

Sales decreased to $145,372 during the six months ended June 30, 2018 as compared to $166,450 during the six months ended June 30, 2017.  The decrease in sales was due to a lack of brand awareness of the Company's products.  The changes being implemented involve tactics and strategies to engage consumers and build brand awareness. We continue to reevaluate our distribution model to focus on a more effective and efficient strategic model to grow sales.  We anticipate this strategy will improve sales and free up limited resources to be repurposed towards the integration of more effective sales channels. 

To advance this strategy, the Company has also has retained sales personnel with specific skills to further promote the Company's products.
 
The Company has developed a specific growth strategy for Amazon's business to business segment.  The Company began to offer larger ordering quantities for the business to business segment.  As a result, we have seen an increase in sales from Amazon's Business to Business segment from June to July 2018.  The Company will also begin to offer more products in the Amazon Market place.  The Company anticipates that due to the strategy implemented, the Company anticipates continued growth on the Amazon marketplace.

The Company continues to review its sales and marketing strategies.  The sales and gross profit over the last few quarters, resulted from the reliance on an ineffective sales distribution model defined by inelastic price points and slow brand recognition and engagement.  The Company continues to integrate a direct to consumer model which will incorporate digital marketing and media to effectively promote our products directly towards our targeted demographics.   The Company continues to separate and define our products by product line for better market segmentation. In addition, several products in our Home and Health & Beauty lines are being rebranded and relabeled to deliver more consumer appeal and benefit. We believe 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.
 
 
- 27 -



 
Cost of goods sold for the six months June 30, 2018 was $92,682 a decrease of $13,875 or 13.02% from $106,557 for the six months ended June 30, 2017 period.  The decrease in cost of goods was due to the decrease in sales.  Cost of goods sold as a percentage of sales was 63.76% for the six months ended June 30, 2018 compared to 64.02% for the six months ended June 30, 2017. 

Selling expenses for the six months ended June 30, 2018 was $90,900 an increase of $79,436 from $11,464 for the six months ended June 30, 2017.  The increase was due to the expensing of the value of stock given to three consultants to strengthen product claims and/or related product literature.

General and administrative expenses for the six months ended June 30, 2018 were $1,284,304 an increase of $312,006 from $972,298 for the six months ended June 30, 2017.  General and administrative expenses increased $312,006 for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017 due to the following changes:
   
Six months ended June 30,
 
   
2018
   
2017
   
Change
 
Payroll and payroll related expense
 
$
764,938
   
$
538,248
   
$
226,690
 
Overhead allocation
   
50,000
     
60,000
     
(10,000
)
Amortization expense
   
49,836
     
49,818
     
18
 
Insurance
   
28,446
     
23,932
     
4,514
 
Printing and Reproduction
   
10,624
     
12,880
     
(2,256
)
Professional fees:
                       
  Accountants
   
26,613
     
101,750
     
(75,137
)
  Edgar preparation
   
3,000
     
1,025
     
1,975
 
  Media/Website
   
11,520
     
62,484
     
(50,964
)
  Legal
   
153,867
     
16,431
     
137,436
 
  Investor and public relations
   
47,063
     
43,830
     
3,233
 
  OTC Marketplace
   
6,500
     
-
     
6,500
 
  Transfer Agent
   
5,660
     
5,038
     
622
 
Business consultants
   
3,000
     
8,431
     
(5,431
)
Samples
   
20,546
     
3,196
     
17,350
 
Other General and administrative expense
   
102,691
     
45,235
     
57,456
 
   
$
1,284,304
   
$
972,298
   
$
312,006
 
 
Payroll increased by $226,690 from $538,248 for the six months ended June 30, 2017 to $764,938 for the three months ended June 30, 2018 due to the following:

·
Salary accrual, expensing of stock options and stock awards granted in accordance with the employment agreements to certain management individuals and a member of the Board of Directors;
·
Expensing stock granted for services;
·
Increased number of employees;

These expenses were offset by a decrease in the payroll allocation from a related party.

The overhead allocation from AirTech decreased $10,000 from $60,000 for the six month period Ending June 30, 2017 to $50,000 for the six months ended June 30, 2018 as the Company is assuming additional responsibilities in-house.

Insurance expense decreased $4,514to $28,446 for the six months ended June 30, 2018 from $23,932 due to a decrease in premiums.

Printing and reproduction expense decreased by $2,256 during the six months ended June 30, 2018 as compared to the six months ended June 30, 2017 due to the less printing services required for the Company's new and existing products.

Accounting expenses decreased $75,137 from $101,750 for the six months ended June 30, 2017 to $26,613 for the six months ended June 30, 2018 due to the retention of additional accounting staff and less time required by the independent auditors in previous period due to the transition of audit firms to not requiring additional audit services.
Media/website expense decrease $50,964 from $62,484 for the period ended June 30, 2017 to $11,520 for the period ended June 30, 2018 due to completion of the engagement surrounding the Company's website and digital market place work on the Company's website was completed.

Legal expenses increased $137,436 from $16,431 for the six months ended June 30, 2017 to $153,867 for the six months ended June 30, 2018 due to the defense of the Company's trademarks and continued activity in the lawsuit with the former CEO.

Business consultant expenses decreased by $5,431 during the six months ended June 30, 2018 as compared to the six months ended June 30, 2017 due to the services being performed in-house.
 

- 28 -



Samples expenses increased by $17,350 during the six months ended June 30, 2018 as compared to the six months ended June 30, 2017 due to the Company's effort to increase brand awareness by offering samples of products at trade events and the introduction of the Grease Beast product line.

Interest expense increased to $654,853 for the six months ended June 30, 2018 as compared to $191,434 for the six months ended June 30, 2017 due to interest accrual and amortization of debt discount for the convertible debt.
 
Gain on debt extinguishment decreased by $43,120 from $43,120 during the six months ended June 30, 2017 to $0 for the three months ended June 30, 2018. This was due to the settlement of the related party note payable.

Derivatives loss increased $532,419 to $461,289 for the six months ended June 30, 2018 as compared to derivative income of $71,130 for the six months ended June 30, 2017 due to the fair value adjustments in connection with the convertible notes in the current three month period.

Liquidity and Capital Resources
 
As of June 30, 2018, we had $9,971 in cash as compared to $67,422 at December 31, 2017.
 
At June 30, 2018, we had current assets of $271,813 and current liabilities of $3,741,383 resulting in a working capital deficit of $3,469,570 as compared to current assets of $360,256 and current liabilities of $2,692,237, resulting in a working capital deficit of $2,331,981 at December 31, 2017. 
  
The net cash used on our operations was $406,360 during the six months ended June 30, 2018, compared to $590,133 during the six months ended June 30, 2017 period.

At June 30, 2018, we had stockholders' deficit of approximately $2,762,000 as compared to a deficit of approximately $1,576,000 at December 31, 2017.

Cash flows used in investing activities were $1,575 during the six months ended June 30, 2018 compared to $5,705 for the six months ended June 30, 2017.  The change is principally due to a decrease in payment for intangible assets.
 
Cash flows provided by financing activities were $350,484 and $582,163 during the six months ended June 30, 2018 and the six months ended June 30, 2017, respectively.  The increase in cash provided by financing activities is due to the sale of common stock, the issuance of a note payable, and the issuance of convertible notes payable.

Convertible Note Payable

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.
 
- 29 -




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.  The loan amount is $28,500 and the Company is required to make 245.27 daily payments of $165 each starting from May 24, 2018 through May 4, 2019.

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 in the third quarter of 2018.  As such, our anticipated cash needs to fund operations and pay our notes for the next 12 months is approximately $500,000.
 
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.

 
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, 2018, 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, 2018, 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.

In the litigation involving James Kordenbrock, the status has not changed since the Form 10-K/A for the year ended December 31, 2017.

On May 25, 2018, a Petition to Cancel Trademarks (Registration Numbers 5228749, 5156967, and 5228748) was filed by Nxt Generation Pet, Inc. against the Company in the United States Patent and Trademark Office, Trademark Trial and Appeal Board (Petition 92068609).  On or about July 4, 2018, the Company filed an Answer to the Petition denying the allegations made in the Petition and asserted several affirmative defenses therein.  The matter is in a very early stage of litigation.   The Company is unable to fully assess the likelihood of success of the Petition at this time, though the Company intends to vigorously defend the trademarks that were duly awarded by the United States Patent and Trademark office to the Company.
 

 
- 30 -

 
 
 
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

The following table sets forth the sales of unregistered securities since the Company's last-filed report on Form 8-K covering sales of unregistered securities or on Form 10-Q filed under this item. 
 
Date
 
Title and Amount (1)
 
Purchaser
 
Principal Underwriter
 
Total Offering Price/Underwriting Discount
                     
January 2, 2018
 
83,334 shares of Common stock
 
Private Investor
 
N/A
 
$5,000/NA
January 17, 2018
 
Convertible Promissory Note, in the principal amount of $350,000 issued to Mammoth Corporation. due January 7, 2018.
 
Private Investor
 
N/A
 
$31,875/NA
January 31, 2018
 
Convertible Promissory Note, in the principal amount of $350,000 issued to Mammoth Corporation. due January 7, 2018.
 
Private Investor
 
N/A
 
$31,875/NA
January 31, 2018
 
Convertible Promissory Note, in the principal amount of $220,000 issued to Vista Capital Investments, LLC due March 6, 2018.
 
Private Investor
 
N/A
 
$50,000/NA
February 8, 2017
 
Common shares for extension of due date of Convertible Promissory Note, in the principal amount of $220,000 issued to Vista Capital Investments, LLC Corporation. due March 6, 2018.
 
Private Investor
 
N/A
 
$25,500/NA
March 8, 2018
 
Convertible Promissory Note, in the principal amount of $220,000 issued to Vista Capital Investments, LLC Corporation. due March 6, 2018.
 
Private Investor
 
N/A
 
$50,000/NA
March 8, 2018
 
Inducement shares in connection with Convertible Promissory Note, in the principal amount of $220,000 issued to Vista Capital Investments, LLC Corporation. due March 6, 2018.
 
Private Investor
 
N/A
 
$62,815/NA
March 16, 2018
 
Convertible Promissory Note, in the principal amount of $350,000 issued to Mammoth Corporation. due January 7, 2018.
 
Private Investor
 
N/A
 
$20,325/NA
March 23, 2018
 
Convertible Promissory Note, in the principal amount of $160,500 issued to JSJ Investments Inc.. due September 12, 2018.
 
Private Investor
 
N/A
 
$27,750/NA
April 17, 2018
 
Convertible Promissory Note, in the principal amount of $75,000 issued to EMA Financial, LLC Corporation. due September 20, 2018.
 
Private Investor
 
N/A
 
$4,260/NA
April 18, 2018
 
Convertible Promissory Note, in the principal amount of $220,000 issued to Vista Capital Investments, LLC due March 6, 2018.
 
Private Investor
 
N/A
 
$21,000/NA
April 19, 2018
 
Convertible Promissory Note, in the principal amount of $350,000 issued to Mammoth Corporation. due January 7, 2018.
 
Private Investor
 
N/A
 
$11,250/NA
April 19, 2018
 
Convertible Promissory Note, in the principal amount of $160,500 issued to JSJ Investments Inc.. due September 12, 2018.
 
Private Investor
 
N/A
 
$22,804/NA
May 2, 2018
 
Convertible Promissory Note, in the principal amount of $75,000 issued to EMA Financial, LLC Corporation. due September 20, 2018.
 
Private Investor
 
N/A
 
$9,798/NA
May 7, 2018
 
Convertible Promissory Note, in the principal amount of $350,000 issued to Mammoth Corporation. due January 7, 2018.
 
Private Investor
 
N/A
 
$17,562/NA
May 10, 2018
 
Convertible Promissory Note, in the principal amount of $95,000 issued to GS Capital Partners, LLC. due October 23, 2018.
 
Private Investor
 
N/A
 
$20,499/NA
May 22, 2018
 
Convertible Promissory Note, in the principal amount of $350,000 issued to Mammoth Corporation. due January 7, 2018.
 
Private Investor
 
N/A
 
$12,225/NA
May 23, 2018
 
Convertible Promissory Note, in the principal amount of $75,000 issued to EMA Financial, LLC Corporation. due September 20, 2018.
 
Private Investor
 
N/A
 
$8,802/NA
 
 
 
 
- 31 -

 
 
June 5, 2018
 
Convertible Promissory Note, in the principal amount of $350,000 issued to Mammoth Corporation. due January 7, 2018.
 
Private Investor
 
N/A
 
$11,700/NA
June 7, 2018
 
Convertible Promissory Note, in the principal amount of $95,000 issued to GS Capital Partners, LLC. due October 23, 2018.
 
Private Investor
 
N/A
 
$18,515/NA
June 12, 2018
 
Convertible Promissory Note, in the principal amount of $220,000 issued to Vista Capital Investments, LLC due March 6, 2018.
 
Private Investor
 
N/A
 
$21,725/NA
June 18, 2018
 
Convertible Promissory Note, in the principal amount of $350,000 issued to Mammoth Corporation. due January 7, 2018.
 
Private Investor
 
N/A
 
$11,800/NA
June 18, 2018
 
Convertible Promissory Note, in the principal amount of $75,000 issued to EMA Financial, LLC Corporation. due September 20, 2018.
 
Private Investor
 
N/A
 
$9,610/NA
June 22, 2018
 
Convertible Promissory Note, in the principal amount of $95,000 issued to GS Capital Partners, LLC. due October 23, 2018.
 
Private Investor
 
N/A
 
$17,547/NA
July 3, 2018
 
Convertible Promissory Note, in the principal amount of $220,000 issued to Vista Capital Investments, LLC due March 6, 2018.
 
Private Investor
 
N/A
 
$21,313/NA
July 6, 2018
 
Convertible Promissory Note, in the principal amount of $350,000 issued to Mammoth Corporation. due January 7, 2018.
 
Private Investor
 
N/A
 
$9,500/NA
July 6, 2018
 
Convertible Promissory Note, in the principal amount of $160,500 issued to JSJ Investments Inc.. due September 12, 2018.
 
Private Investor
 
N/A
 
$17,095/NA
July 11. 2018
 
Convertible Promissory Note, in the principal amount of $350,000 issued to Mammoth Corporation. due January 7, 2018.
 
Private Investor
 
N/A
 
$10,260/NA
July 16, 2018
 
Convertible Promissory Note, in the principal amount of $75,000 issued to EMA Financial, LLC Corporation. due September 20, 2018.
 
Private Investor
 
N/A
 
$4,495/NA
July 16, 2018
 
Convertible Promissory Note, in the principal amount of $95,000 issued to GS Capital Partners, LLC. due October 23, 2018.
 
Private Investor
 
N/A
 
$10,352/NA
July 20, 2018
 
Convertible Promissory Note, in the principal amount of $220,000 issued to Vista Capital Investments, LLC Corporation. due March 6, 2018.
 
Private Investor
 
N/A
 
$12,250/NA
July 20, 2018
 
Convertible Promissory Note, in the principal amount of $160,500 issued to JSJ Investments Inc.. due September 12, 2018.
 
Private Investor
 
N/A
 
$14,241/NA
July 23, 2018
 
Convertible Promissory Note, in the principal and interest amount of $95,000 issued to GS Capital Partners, LLC. due October 23, 2018.
 
Private Investor
 
N/A
 
$13,479/NA
August 1, 2018
 
Convertible Promissory Note, in the principal amount of $220,000 issued to Vista Capital Investments, LLC Corporation. due March 6, 2018.
 
Private Investor
 
N/A
 
$10,500/NA
August 9, 2018
 
Convertible Promissory Note, in the principal amount of $103,000 issued to Geneva Roth Remark Holdings, Inc. due November 20, 2018.
 
Private Investor
 
N/A
 
$7,990/NA
August 10, 2018
 
Convertible Promissory Note, in the principal amount of $103,000 issued to Geneva Roth Remark Holdings, Inc. due November 20, 2018.
 
Private Investor
 
N/A
 
$8,960/NA
August 13, 2018
 
Convertible Promissory Note, in the principal amount of $103,000 issued to Geneva Roth Remark Holdings, Inc. due November 20, 2018.
 
Private Investor
 
N/A
 
$9,530/NA
 
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.
 
 
- 32 -

 
 
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
 
None.
 
 
ITEM 4.  MINE SAFETY DISCLOSURES
 
Not applicable.
 
 
ITEM 5.  OTHER INFORMATION

None.
 
 
ITEM 6.  EXHIBITS
 
EXHIBIT NUMBER
DESCRIPTION
   
*
Filed herewith
**
Furnished herewith
   
 
Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.
 
SEC Ref. No
Title of Document
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 Labels Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
   

 
 
- 33 -





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 August 20, 2018.
 
 
 
 
PURA NATURALS, INC.
 
 
 
 
 
 
 
 By:  
/s/ Robert Doherty  
 
 
Robert Doherty , Principal Executive Officer
 
 
 
 
 
 By: 
/s/ Akio Ariura  
 
 
 Akio Ariura , Chief Financial Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 34 -
EX-10.21 2 ex10_21.htm

 
Exhibit 10.21
 
 
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is effective as of February 1, 2018 ("the Effective Date"), by and between PURA NATURALS, INC. (the "Company"), and Daniel kryger ("Executive ").
WHEREAS, the Company is engaged in the business of manufacturing, distributing, marketing and selling oil absorbing and related consumer cleaning products (the "Company Business");
WHEREAS, the Company desires to employ Executive and Executive desires to be employed by the Company;
WHEREAS, Executive is currently the Director of Business Development of the Company; and
WHEREAS, the Company and Executive desire to enter into this Agreement to set forth the rights, duties, benefits and obligations with respect to the employment of Executive by the Company under the terms and conditions herein provided.
NOW, THEREFORE, in consideration of Executive's employment with the Company, and the mutual and respective covenants and agreements of the parties herein contained, and other good and valuable consideration present but not specifically set forth, the parties hereto agree as follows:
1. Employment. The Company hereby agrees to employ Executive as Director of Business Development, and Executive hereby agrees to be employed by the Company, on the terms and conditions set forth herein. This Agreement and Executive's employment hereunder shall commence on February 1, 2018 (the "Start Date"), and shall continue for a period of five (5) years, unless sooner terminated in accordance with the provisions of Section 6 hereof (the "Term "). The Term will thereafter automatically extend for successive one-year periods, but Executive's employment may at any time be terminated in accordance with the provisions of Section 6 hereof.
2. Duties and Responsibilities. Executive shall serve as President for the Company, serve as a member of its Board of Directors (the "Board "), and shall report to the Board and its designees. Executive shall have the duties and responsibilities that are commensurate with that position, as well as such other duties as may be assigned to Executive by the Board from time to time. Executive shall devote all of his working time and best efforts to the business and affairs of the Company except for such time as shall reasonably be required to serve in connection with civic or charitable activities, or manage Executive's financial matters, provided that such activities, in the aggregate, do not interfere with Executive's ability to perform the duties and responsibilities of his employment hereunder. Executive shall follow the direction of the Board and their designees, and shall perform all duties and responsibilities of the position that he holds, as those duties and responsibilities may change from time to time. Executive shall comply with the Company's standards, policies and procedures in effect on the date of this Agreement and as they may change from time to time.

2




3. Compensation and Related Matters.
(a) Base Salary. Executive shall receive an initial annual base salary of One Hundred Twenty Thousand US Dollars ($120,000) less required and authorized withholding and deductions. Executive's salary shall increase by ten percent (10%) per annum, and be paid in accordance with the Company's regular payroll schedule as it applies to salaried employees ("Base Salary"). Notwithstanding the preceding sentence, in no event shall Executive's Base Salary be reduced by the Company without Executive's consent. Executive may at his option defer payment of the Base Salary until a later date to be determined by Executive. Any deferred Base Salary shall accrue interest at ten percent (10%) per annum, and shall, upon Executive's written request to the Board, be convertible into options for shares of common stock of the Company on a quarterly basis, where the conversion shall be equal to a twenty-five percent (25%) discount to the market price of the Company's shares at the time of the conversion, and where each option's strike price shall be at $.001 per share.
(b) Stock. Executive shall be eligible to participate in the Company's common stock incentive plan as in effect from time to time. Pursuant to this stock provision of this Agreement and an option agreement between the Company and Executive dated on or about February 1, 2018 and attached hereto as Exhibit A, the Compensation Committee of the Board of Directors has granted Executive, effective as of the Effective Date, Two Hundred Thousand (200,000) shares of stock in the Company at par value of $.001 which shall be issued upon execution of this Agreement, and One Million (1,000,000) stock options at a purchase price of $.001 per share with a vesting schedule as follows: Twenty-Five Percent (25%) of the options shall vest immediately upon The Effective Date, Twenty-Five Percent (25%) of the options shall vest upon the Company reaching One Million U.S. Dollars ($1,000,000) in aggregate total sales revenue earned after the effective date, Twenty-Five Percent (25%) of the options shall vest upon the Company reaching Two Million U.S. Dollars ($2,000,000) in aggregate total sales revenue earned after the effective date, and the remaining unvested shares shall vest upon the Company reaching Three Million U.S. Dollars ($3,000,000) in sales revenue earned after the Effective Date. The Company may grant Executive additional stock options, restricted stock units or other awards under the Company's common stock incentive plan based on individual and Company performance criteria to be established by the Board.
(c) Benefits. Executive shall be entitled to all rights and benefits for which he is eligible under the terms and conditions of the Company's standard benefits and compensation practices that may be in effect from time to time and provided by the Company to its employees generally. In addition to, and not in limitation of, the foregoing, during the Term, Executive shall be eligible to accrue up to four weeks (20 business days) of paid time off (PTO) per anniversary year exclusive of any business day with respect to which the Company is closed for business due to any federal, state or local holiday or any day off generally granted by the Company to its employees, subject to the Company's then-current paid time off policy (which shall not have the effect of reducing said four weeks (20 business days) of paid vacation). In addition to, and not in limitation of the foregoing, during the Term, Executive shall receive any additional benefits generally provided by the Company to executive employees of the Company,
3




including group health insurance for Executive and dependents, life insurance, and long term disability insurance, and participation in the Company's 401(k) plan, all in accordance with applicable plan documents. During the Term, the Company may maintain, at its sole expense, a Two Million US Dollar ($2,000,000) term life insurance policy for the benefit of Executive, provided that Executive shall be responsible for paying all taxes due on the imputed income related thereto.
(d) Expense Reimbursement. The Company will reimburse Executive for reasonable business expenses in accordance with the Company's standard expense account and reimbursement policies.
4. Representations and Warranties of Executive. In order to induce the Company to employ Executive, Executive hereby represents and warrants to the Company as follows:
(a) Binding Agreement. This Agreement has been duly executed and delivered by Executive and constitutes a legal, valid and binding obligation of Executive and is enforceable against Executive in accordance with its terms.
(b) No Violations of Law. The execution and delivery of this Agreement and the other agreements contemplated hereby by Executive do not, and the performance by Executive of his obligations under this Agreement and the other agreements contemplated hereby will not, violate any term or provision of any law, or any writ, judgment, decree, injunction, or similar order applicable to Executive.
(c) Litigation. Executive is not involved in any proceeding, claim, lawsuit, or investigation alleging wrongdoing by Executive before any court or public or private arbitration board or panel or governmental department, commission, board, bureau, agency or instrumentality.
(d) No Conflicting Obligations. Executive is not under, or bound to be under in the future, any obligation to any person or entity that is or would be inconsistent or in conflict with this Agreement or would prevent, limit, or impair in any way the performance by him of his obligations hereunder, including but not limited to any duties owed to any former employers not to compete or use or disclose confidential information. Executive represents and agrees that he will not disclose to the Company or use on behalf of the Company any confidential information or trade secrets belonging to a third party, including any former employer. Executive further represents and agrees that he has returned, or will return before his last day of employment with his current employer, all property belonging to Executive's current and previous employers, including but not limited to any and all confidential information.
5. Restrictive Covenants.
(a) Confidentiality Critical. The parties agree that the business in which the Company is engaged is highly sales-oriented and the goodwill established between Executive and the Company's customers and potential customers is a valuable and legitimate business
4



interest worthy of protection under this Agreement. Executive acknowledges and agrees that developing and maintaining business relationships is an important and essential business interest of the Company. Executive further recognizes that, by virtue of his employment by the Company, he will be granted otherwise prohibited access to confidential and proprietary data of the Company which is not known to its competitors and which has independent economic value to the Company and that he will gain an intimate knowledge of the Company's business and its policies, customers, employees and trade secrets, and of other confidential, proprietary, privileged, or secret information of the Company and its customers (" Customers ") (collectively, all such nonpublic information is referred to as " Confidential Information ").
This Confidential Information includes, but is not limited to data relating to the Company's marketing and servicing programs, procedures and techniques; business, management and personnel strategies; the criteria and formulae used by the Company in pricing its products, loss control and information management services; the Company's products and services; the Company's computer system and software; lists of prospects; customer lists; the identity, authority and responsibilities of key contacts at accounts of Customers; and the composition and organization of Customers' business. Executive recognizes and admits that this Confidential Information constitutes valuable property of the Company, developed over a long period of time and at substantial expense, and worthy of protection. Executive acknowledges and agrees that only through his employment with the Company could he have the opportunity to learn this Confidential Information.
(b) Confidential Information. Executive shall not at any time (for any reason), directly or indirectly, for himself or on behalf of any other person or entity, (A) disclose to any person or entity (except to employees or other representatives of the Company who need to know such Confidential Information to the extent reasonably necessary for Executive to perform his duties under this Agreement or such employees or representatives to perform their duties on behalf of the Company, and except as required by law) any Confidential Information, including, without limitation, business or trade secrets of, or products or methods or techniques used by, the Company, or any Confidential Information whatsoever concerning the Customers, (B) use, directly or indirectly, for his own benefit or for the benefit of another (other than a Customer) any of such Confidential Information, or (C) assist any other person or entity in connection with any action described in either of the foregoing clauses (A) and (B).
(c) Noninterference with Employees. Executive further agrees that the Company has expended considerable time, energy and resources into training its other employees ("Co-Workers"). As a result, during his employment with the Company and for a period of eighteen (18) months thereafter, Executive shall not, for any reason, directly or indirectly, for himself or on behalf of any other person or entity, (A) induce or attempt to induce any Co-Worker to terminate employment with the Company, (B) interfere with or disrupt the Company's relationship with any of the Co-Workers, (C) solicit, entice, hire, cause to hire, or take away any person employed by the Company at that time or during the eighteen (18) month period preceding Executive's last day of employment with the Company, or (D) assist any other person or entity in connection with any action described in any of the foregoing clauses (A) through (C).
5



(d) Non-competition. Executive further agrees with the Company to the following provisions, all of which Executive acknowledges and agrees are necessary to protect the Company's legitimate business interests. Executive covenants and agrees with the Company that:
(i) Unless otherwise agreed between the parties, Executive shall not, during his employment with the Company and for a period of twelve (12) months thereafter, either directly or indirectly, engage in, render service or other assistance to, or sell products or services, or provide resources of any kind, whether as an owner, partner, shareholder, officer, director, employee, consultant or in any other capacity, whether or not for consideration, to any person, corporation, or any entity, whatsoever, that owns, operates or conducts a business that competes, in any way, with the Company Business (as defined at the start of this Agreement), other than the ownership of 5% or less of the shares of a public company where Executive is not active in the day-to-day management of such company. With respect to the post employment application of this Section 5(d)(i), the restrictions shall extend only to those specific countries or provinces where the Company conducts business on the day that Executive's employment with the Company terminates.
(ii) Executive shall not, during his employment with the Company and for a period of twelve (12) months thereafter, either directly or indirectly, (A) solicit, call on or contact any Customer of the Company with whom Executive has had material contact during his employment with the Company for the purpose or with the effect of offering any products or services of any kind offered by the Company at that time or during his employment with the Company, (B) request or advise any present or future vendors or suppliers to the Company to cancel any contracts, or curtail their dealings, with the Company, or (C) assist any other person or entity in connection with any action described in any of the foregoing clauses (A) through (B).
(iii) During his employment with the Company, Executive shall not own, or permit ownership by Executive's spouse or any minor children under the parental control of Executive, directly or indirectly, an amount in excess of five percent (5%) of the outstanding shares of stock of a corporation, or five percent (5%) of any business venture of any kind, which operates or conducts a business that competes, in any way, with the Company.
(e) Non-disparagement. At any time during or after Executive's employment with the Company, Executive shall not disparage the Company or any shareholders, directors, officers, employees, or agents of the Company. During and after Executive's employment with the Company, neither the Company nor its directors or officers shall disparage Executive to third parties.
(f) Understandings.
(i) The provisions of this Section 5 shall be construed as an agreement independent of any other claim. The existence of any claim or cause of action of Executive against the Company, whether predicated on Executive's employment or otherwise, shall
6



not constitute a defense to the enforcement by the Company of the terms of Section 5 of this Agreement. Executive waives any right to a jury trial in any litigation relating to or arising from this Section 5.
(ii) Executive acknowledges and agrees that the covenants and agreements contained herein are necessary for the protection of the Company's legitimate business interests and are reasonable in scope and content. Executive agrees that the restrictions contained in this Section 5 are reasonable and will not unduly restrict him in securing other employment or income in the event his employment with the Company ends. Executive acknowledges and agrees that he executed this Agreement on or before his first day of employment with the Company.
(g) Injunctive Relief. Executive acknowledges and agrees that any breach by him of any of the covenants or agreements contained in this Section 5 would give rise to irreparable injury and would not be adequately compensable in damages. Accordingly, Executive agrees that the Company may seek and obtain injunctive relief against the breach or threatened breach of any of the provisions of this Agreement in addition to any other legal or equitable remedies available.
(h) Reformation and Survival. The Company and Executive agree and stipulate that the agreements and covenants contained in this Agreement and specifically of this Section 5 are fair and reasonable in light of all of the facts and circumstances of the relationship between them. The Company and Executive agree and stipulate that Executive has hereby agreed to be bound to the obligations, restrictions and covenants of this Section 5 as a condition to his employment and in consideration of his compensation, stock option grant, restricted stock unit grant, severance terms, and all other terms and provisions of this Agreement. The Company and Executive acknowledge their awareness, however, that in certain circumstances courts have refused to enforce certain agreements not to compete. The Company and Executive agree that, if any term, clause, subpart, or provision of this Agreement is for any reason adjudged by a Court of competent jurisdiction to be invalid, unreasonable, unenforceable or void, the same will be treated as severable, and shall be modified to the extent necessary to be legally enforceable to the fullest extent permitted by applicable law, and that such modification will not impair or invalidate any of the other provisions of this Agreement, all of which will be performed in accordance with their respective terms. Thus, in furtherance of, and not in derogation of, the provisions of this Section 5, the Company and Executive agree that in such event, this Section 5 shall be deemed to be modified or reformed to restrict Executive's conduct to the maximum extent (in terms of time, geography, and business scope) that the court shall determine to be enforceable. The provisions of this Section 5 shall survive the termination of this Agreement and Executive's resignation or termination of employment, regardless of the reason and whether voluntary or involuntary.
7



6. Termination.
(a) Termination By The Company With Cause. The Company has the right, in its reasonable determination at any time during the Term, to terminate Executive's employment with the Company for Cause (as defined below) by giving written notice to Executive as described in this Section 6(a). Prior to the effectiveness of termination for Cause under clause (i), (ii), (iii) or (iv) in the next-following paragraph, Executive shall be given thirty (30) calendar days' prior written notice from the Company, specifically identifying the reasons which are alleged to constitute Cause for any termination pursuant to the aforementioned clauses, and an opportunity to cure in the event Executive disputes such allegations; provided, however, that the Company shall have no obligation to continue to employ Executive following such thirty (30) calendar day notice period unless Executive has cured the condition giving rise to the Cause. The Company's termination of Executive's employment for Cause under clause (v) or (vi) of the next-following paragraph shall be effective immediately upon the Company's written notice to Executive. If the Company terminates Executive's employment for Cause, the Company's obligation to Executive shall be limited solely to the payment of unpaid Base Salary accrued up to the effective date of termination plus any accrued but unpaid benefits to the effective date of termination, and any unpaid bonus earned in accordance with the then applicable bonus plan or program to the effective date of termination.
As used in this Agreement, the term "Cause" shall mean and include (i) Executive's abuse of alcohol that materially affects Executive's performance of Executive's duties under this Agreement, or use of any controlled substance; (ii) a willful act of fraud, dishonesty or breach of fiduciary duty on the part of Executive with respect to the business or affairs of the Company; (iii) material failure by Executive to comply with applicable laws and regulations or professional standards relating to the business of the Company; (iv) material failure by Executive to satisfactorily perform his duties hereunder, a material breach by Executive of this Agreement, or Executive engaging in conduct that materially conflicts with the best interests of the Company or that may materially harm the Company's reputation; (v) Executive being subject to an inquiry or investigation by a governmental authority or self-regulatory organization such that the existence of such inquiry or investigation is reasonably likely to result in damage to the Company's business interests, licenses, reputation or prospects; or (vi) Executive's being convicted of a felony or a misdemeanor involving moral turpitude.
(b) Termination By The Company Without Cause. The Company shall have the right, at any time during the Term, to terminate Executive's employment with the Company without Cause by giving written notice to Executive, which termination shall be effective thirty (30) calendar days from the date of such written notice. The Company may provide thirty (30) days pay in lieu of notice. If the Company terminates Executive's employment without Cause, the Company's obligation to Executive shall be limited solely to (i) unpaid Base Salary plus any accrued but unpaid benefits to the effective date of termination, any unpaid bonus earned in accordance with the then applicable bonus plan or program to the effective date of termination; (ii) if there is no unpaid bonus earned for the year of termination, an amount equal to the product of 100% of Executive's Base Salary multiplied by a fraction, the numerator of which is the number of days he is employed by the Company during the year in which the termination occurs and the denominator of which is 365 and, if the date of termination
8



occurs prior to the date on which the annual bonus, if any, for the immediately preceding year would otherwise be paid, an amount equal to the annual bonus that would have been paid to Executive for such immediately preceding year, based on the actual achievement of applicable performance goals and without regard to whether Executive is employed on the date the bonus otherwise would have been paid; (iii) severance in an amount equal to Executive's then-current Base Salary for a period of eighteen (18) months; and (iv) if Executive is eligible for and timely elects COBRA coverage for health insurance coverage, payment of Executive's COBRA premiums for the health insurance coverage for himself and his eligible dependents for a period of up to eighteen (18) months, payments to be made on a monthly basis when the premiums are due, and in the event of the death of Executive before the expiration of such eighteen (18)-month period, the Company shall, for the remainder of such period, continue to pay the COBRA premiums for the Executive's dependents (including his spouse, if any) who were receiving COBRA coverage at the time of his death. Executive's rights with regard to equity incentive awards, including stock options and restricted stock units, shall be governed by separate applicable agreements entered into between Executive and the Company; provided, however, any stock options awarded to Executive under this Agreement shall immediately vest upon termination of Executive by the Company without Cause. As a condition to his receipt of the post-employment payments and benefits under clauses (ii), (iii) and (iv) of the third sentence of this Section 6(b), Executive must be in compliance with Section 5 of this Agreement, and must execute, return, not rescind and comply with a general release of claims agreement in favor of the Company and related entities and individuals, within the timeframe and in a form to be prescribed by the Company. The amount described in clause (ii) of the third sentence of this paragraph shall be paid on the ninetieth (90th) calendar day after the date of Executive's termination of employment, and the severance described in clause (iii) of the third sentence of this paragraph shall be paid in equal installments according to the normal payroll schedule, the first payment to Executive to be made on the next scheduled payroll date that occurs on or after the ninetieth (90th) day after the date of Executive's termination of employment, provided that, in the case of amounts described in clauses (ii) and (iii) of the third sentence of this Section 6(b), the Company has received the signed general release of claims agreement and Executive has not rescinded such agreement within the rescission period set forth in such agreement. Executive shall have no duty to mitigate damages under this Section 6(b) during the applicable severance period and, in the event Executive shall subsequently receive income from providing Executive's services to any person or entity, including self employment income, or otherwise, then no such income shall in any manner offset or otherwise reduce the payment obligations of the Company hereunder.
Notwithstanding anything herein to the contrary, this Section 6(b) shall not apply if Executive's employment is terminated by the Company or a succeeding entity without Cause upon or within one year of a Change of Control at any time during the Term as described in Section 7 hereof. In such case, Section 7 of this Agreement shall control.
(c) Termination By Executive for Good Reason. Executive has the right, in his reasonable determination at any time during the Term, to terminate his employment with the Company for Good Reason (as defined in this Section 6(c) below) by giving written notice to the Company as described in this Section 6(c) below. Prior to the effectiveness of termination for Good Reason, within thirty (30) calendar days following the existence of a condition
9



constituting Good Reason, Executive shall provide written notice to the Company specifically identifying the reason or reasons which are alleged to constitute Good Reason, and an opportunity to cure within a period of not less than thirty (30) days; provided, however, that Executive shall have no obligation to continue his employment with the Company following such thirty (30) calendar day notice period unless the Company cures the event(s) giving rise to Executive's Good Reason notice. As used in this Section 6(c), the term " Good Reason " shall mean (i) a material diminution in Executive's compensation, authority, duties or responsibilities or assignment to another executive or employee of such compensation, authority, duties or responsibilities that is or are materially inconsistent with such position or responsibilities; (ii) requiring Executive to move his place of employment more than 75 miles from his place of employment prior to such move; or (iii) a material breach by the Company of this Agreement; provided that in any such case Executive has not consented thereto. In addition to the foregoing requirements, in no event shall an Executive's termination of his employment be considered for Good Reason unless such termination occurs within two (2) years following the initial existence of one of the conditions specified in clauses (i), (ii) and (iii) of the preceding sentence.
If Executive terminates his employment for Good Reason, the Company's obligation to Executive shall be limited solely to (i) unpaid Base Salary plus any accrued but unpaid benefits to the effective date of termination, any unpaid bonus earned in accordance with the then applicable bonus plan or program to the effective date of termination; (ii) if there is no unpaid bonus earned for the year of termination, an amount equal to the product of 100% of Executive's Base Salary multiplied by a fraction, the numerator of which is the number of days he is employed by the Company during the year in which the termination occurs and the denominator of which is 365 and, if the date of termination occurs prior to the date on which the annual bonus, if any, for the immediately preceding year would otherwise be paid, an amount equal to the annual bonus that would have been paid to Executive for such immediately preceding year, based on the actual achievement of applicable performance goals and without regard to whether Executive is employed on the date the bonus otherwise would have been paid; (iii) severance in an amount equal to Executive's then-current Base Salary for a period of eighteen (18) months; and (iv) if Executive is eligible for and timely elects COBRA coverage for health insurance coverage, payment of Executive's COBRA premiums for the health insurance coverage for himself and his eligible dependents for a period of up to eighteen (18) months, payments to be made on a monthly basis when the premiums are due, and in the event of the death of Executive before the expiration of such eighteen (18)-month period, the Company shall, for the remainder of such period, continue to pay the COBRA premiums for the Executive's dependents (including his spouse, if any) who were receiving COBRA coverage at the time of his death. Executive's rights with regard to equity incentive awards, including stock options and restricted stock units, shall be governed by separate applicable agreements entered into between Executive and the Company. As a condition to his receipt of the post-employment payments and benefits under clauses (ii), (iii) and (iv) of the first sentence of this Section 6(c), Executive must be in compliance with Section 5 of this Agreement, and must execute, return, not rescind and comply with a general release of claims agreement in favor of the Company and related entities and individuals, within the timeframe and in a form to be prescribed by the Company. The amount described in clause (ii) of the first sentence of this paragraph shall be paid on the ninetieth (90th) calendar day after the date of Executive's termination of employment, and the severance described in clause (iii) of the first sentence of this paragraph shall be paid in equal installments
10



according to the normal payroll schedule, the first payment to Executive to be made on the next scheduled payroll date that occurs on or after the ninetieth (90th) day after the date of Executive's termination of employment, provided that, in the case of amounts described in clauses (ii) and (iii) of the first sentence of this Section 6(c), the Company has received the signed general release of claims agreement and Executive has not rescinded such agreement within the rescission period set forth in such agreement. Executive shall have no duty to mitigate damages under this Section 6(c) during the applicable severance period and, in the event Executive shall subsequently receive income from providing Executive's services to any person or entity, including self employment income, or otherwise, then no such income shall in any manner offset or otherwise reduce the payment obligations of the Company hereunder.
Notwithstanding anything herein to the contrary, this Section 6(c) shall not apply if Executive terminates his employment with the Company or a succeeding entity for Good Reason upon or within one year of a Change of Control at any time during the Term as described in Section 7 hereof. In such case, Section 7 of this Agreement shall control.
Executive has the right, at any time during the Term, to terminate his employment with the Company without Good Reason (as defined above) by giving written notice to the Company, which termination shall be effective sixty (60) calendar days from the date of such written notice. If Executive terminates his employment without Good Reason, the Company's obligation to Executive shall be limited solely to the payment of unpaid Base Salary accrued up to the effective date of termination plus any accrued but unpaid bonus and benefits.
(d) Termination Upon Disability. The Company shall have the right, at any time during the Term, to terminate Executive's employment if, during the term hereof, Executive becomes physically or mentally disabled, whether totally or partially, as evidenced by the written statement of a competent physician licensed to practice medicine in the United States who is mutually acceptable to the Company and Executive, so that Executive is unable to perform the essential functions of his job duties hereunder, with or without reasonable accommodation, for (i) a period of three (3) consecutive months; or (ii) for shorter periods aggregating ninety (90) calendar days during any twelve-month period. If the Company terminates Executive's employment under this Section 6(d), the Company's obligation to Executive shall be limited solely to the payment of unpaid Base Salary to the effective date of termination, plus any accrued but unpaid benefits to the effective date of termination, any unpaid bonus earned in accordance with the then applicable bonus plan or program to the effective date of termination and, if there is no unpaid, earned bonus for the year in which the termination occurs, an amount equal to the product of 100% of Executive's Base Salary multiplied by a fraction, the numerator of which is the number of days he is employed by the Company during the year in which the termination occurs and the denominator of which is 365.
(e) Termination upon Death. If Executive dies during the Term, this Agreement shall terminate, except that Executive's surviving spouse (or if there is no surviving spouse, his estate) shall be entitled to receive the Base Salary and other accrued benefits earned up to the date of Executive's death.
11





7. Change of Control.
(a) Anything in this Agreement to the contrary notwithstanding, if, upon or within one year of a Change of Control (as defined below) occurring at any time during the Term, the Company or a succeeding entity terminates Executive without Cause (as defined above) or Executive terminates his employment for Good Reason (as defined in Section 6(c) above), the Company or the succeeding entity's obligation to Executive shall be (i) unpaid Base Salary, bonus and benefits accrued up to the effective date of termination, (ii) if there is no unpaid bonus earned for the year of termination, an amount equal to the product of 100% of Executive's Base Salary multiplied by a fraction, the numerator of which is the number of days he is employed by the Company during the year in which the termination occurs and the denominator of which is 365 and, if the date of termination occurs prior to the date on which the annual bonus, if any, for the immediately preceding year would otherwise be paid, an amount equal to the annual bonus that would have been paid to Executive for such immediately preceding year, based on the actual achievement of applicable performance goals and without regard to whether Executive is employed on the date the bonus otherwise would have been paid, (iii) a lump sum payment equal to Executive's then-current Base Salary for a period of thirty-six (36) months, and (iv) if Executive is eligible for and timely elects COBRA coverage for health insurance coverage, payment of Executive's COBRA premiums for health insurance coverage for himself and his eligible dependents for a period of up to eighteen (18) months, payments to be made on a monthly basis when the premiums are due, and in the event of the death of Executive before the expiration of such eighteen (18)-month period, the Company shall, for the remainder of such period, continue to pay the COBRA premiums for the Executive's dependents (including his spouse, if any) who were receiving COBRA coverage at the time of his death. In the event of a without Cause Change of Control termination or a without Good Reason Change of Control termination, each as described herein, the payments in this Section 7(a) shall be in lieu of, and not in addition to, any severance pay or benefits set forth in Sections 6(b) or 6(c), whichever may apply. Notwithstanding anything to the contrary contained herein or in any award agreement between Executive and the Company, in the event of a Change of Control (as defined below), (i) all unvested stock awards held by Executive, including stock options described in Section 3(b) and any other subsequent awards, shall become fully vested upon the Change of Control and, if applicable, immediately exercisable; (ii) each such award, and each already vested award described in Section 3(b), which is a stock option shall continue to be exercisable for the remainder of its term; and (iii) with respect to any award that is subject to the attainment of performance objectives or specified performance criteria, such performance objectives and criteria shall be deemed satisfied at the target level and any performance period shall be deemed to end as of the date of the Change of Control. As a condition to his receipt of the post-employment payments and benefits under this Section 7(a), other than the vesting of awards described in the preceding sentence, Executive must be in compliance with Section 5 of this Agreement, and must execute, return, not rescind and comply with a release of claims agreement in favor of the Company, related entities and individuals and the succeeding entity, within the timeframe and in a form to be prescribed by the Company or a succeeding entity. The severance amount described in clauses (ii) and (iii) of the first sentence of this paragraph shall be paid in a lump sum on the ninetieth (90th) day after the date of Executive's termination of employment (but in any event not later than March 15 of the year following the year in which Executive's employment terminates), provided that the Company has received the signed general
12



release of claims agreement and Executive has not rescinded such agreement within the rescission period set forth in such agreement.
(b) Change of Control Defined. For purposes of this Agreement, a "Change of Control" shall mean the occurrence of a "change in the ownership," a "change in the effective control" or a "change in the ownership of a substantial portion of the assets" of the Company during the Term, as determined in accordance with this Section 7(b). In determining whether an event shall be considered a "change in the ownership," a "change in the effective control" or a "change in the ownership of a substantial portion of the assets" of the Company, the following provisions shall apply:
(i) A "change in the ownership" of the Company shall occur on the date on which any one person, or more than one person acting as a group, acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company, as determined in accordance with Treasury Regulation § 1.409A-3(i)(5)(v). If a person or group is considered either to own more than 50% of the total fair market value or total voting power of the stock of the Company, or to have effective control of the Company within the meaning of clause (ii) of this Section 7(b), and such person or group acquires additional stock of the Company, the acquisition of additional stock by such person or group shall not be considered to cause a "change in the ownership" of the Company.
(ii) A "change in the effective control" of the Company shall occur on either of the following dates:
(A) The date on which any one person, or more than one person acting as a group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 40% or more of the total voting power of the stock of the Company, as determined in accordance with Treasury Regulation § 1.409A-3(i)(5)(vi). If a person or group is considered to possess 40% or more of the total voting power of the stock of the Company, and such person or group acquires additional stock of the Company, the acquisition of additional stock by such person or group shall not be considered to cause a "change in the effective control" of the Company; or
(B) The date on which a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of the appointment or election, as determined in accordance with Treasury Regulation § 1.409A-3(i)(5)(vi).
(iii) A "change in the ownership of a substantial portion of the assets" of the Company shall occur on the date on which any one person, or more than one person acting as a group acquires (or has acquired during the 12-month period ending on the date
13



of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions, as determined in accordance with Treasury Regulation § 1.409A-3(i)(5)(vii). A transfer of assets shall not be treated as a "change in the ownership of a substantial portion of the assets" when such transfer is made to an entity that is controlled by the shareholders of the Company, as determined in accordance with Treasury Regulation § 1.409A-3(i)(5)(vii)(B).
In all cases, the determination of whether a Change of Control has occurred shall be made in accordance with Section 409A of the Internal Revenue Code of 1986, as amended (the " Code "), and the regulations, notices and other guidance of general applicability issued thereunder.
8. Code Section 409A. Notwithstanding anything herein to the contrary, if any payments to be made, or benefits to be provided, to Executive hereunder are subject to the requirements of Code Section 409A and the Company determines that Executive is a "specified employee" as defined in Code Section 409A as of the date of the termination, then, to the extent such payments or benefits do not satisfy the separation pay exemption described in Treasury Regulation § 1.409A-1(b)(9)(iii) or any other exemption available under Section 409A of the Code (the "Non-Exempt Payments"), the amount of such Non-Exempt Payments shall not be paid or commence earlier than the date that is six months after the termination. Any Non-Exempt Payment not made during the six-month period shall be paid in a lump sum payment on the first day of the seventh month following termination. For purposes of Code Section 409A, any reference to Executive's termination of employment in this Agreement shall be deemed to be a reference to Executive's "separation from service" (within the meaning of Treasury Regulation
§ 1.409-1(h), applying the default terms thereof), and any installment payments provided to Executive pursuant to this Agreement shall be treated as a series of separate payments.
9. Successors; Assignment, Etc.; Third Party Beneficiaries.
(a) Executive consents to and the Company shall have the right to assign this Agreement to its successors or assigns. All covenants or agreements hereunder shall inure to the benefit of and be enforceable by or against its successors or assigns. The terms "successors" and "assigns" shall include, but not be limited to, any succeeding entity upon a Change of Control.
(b) Neither this Agreement nor any of the rights or obligations of Executive under this Agreement may be assigned or delegated except as provided in the last sentence of this Section 9(b). This Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by, and shall be binding upon, Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If Executive should die while any amounts would still be payable to him hereunder had he continued to live, then all such amounts (unless otherwise provided herein) shall be paid in accordance with the terms of this Agreement to his surviving spouse, or if there is no surviving spouse, to Executive's estate.
14



10. Notice. For purposes of this Agreement, all notices and other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person or when mailed by United States registered or certified mail, return receipt requested, first-class postage prepaid, addressed as follows:
If to Executive :
If to the Company :
Mr. Daniel Kryger
 Attn: Corporate Secretary
18 Three Pond Road
23101 Lake Center Drive, #100
Smithtown, NY 11787
 Lake Forest, CA 92630
or to such other address as any party may have furnished to the other in writing in accordance with this Section 10, except that notices of any change of address shall be effective only upon actual receipt.
11. Miscellaneous. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing signed by Executive and such officers as may be specifically designated by the Board. No waiver by either party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of any similar or dissimilar condition or provision at the same or any other time. No agreements or representations (whether oral or otherwise, express or implied) with respect to the subject matter of this Agreement have been made by either party which are not set forth expressly in this Agreement or which are not specifically referred to in this Agreement. If any term, clause, subpart, or provision of this Agreement is for any reason adjudged to be invalid, unreasonable, unenforceable or void, the same will be treated as severable, shall be modified to the extent necessary to be legally
enforceable to the fullest extent permitted by applicable law, and will not impair or invalidate any of the other provisions of this Agreement, all of which will be performed in accordance with their respective terms. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Indiana.
12. Validity. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under any present or future law or court decision, and if the rights or obligations of the Company and Executive will not be materially and adversely affected thereby, (a) such provision shall be fully severable from this Agreement, (b) this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom, and (d) in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this Agreement a legal, valid, and enforceable provision as similar to the terms and intent of such illegal, invalid, or unenforceable provision as may be possible.
13. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.
15



14. Litigation. The parties agree that the exclusive venue for any litigation commenced by the Company or Executive relating to this Agreement shall be the state courts located in Orange County, California or the United States District Court, Southern District of California. The parties waive any rights to object to venue as set forth herein, including any
argument of inconvenience for any reason.
15. Entire Agreement. This Agreement constitutes (i) the binding agreement between the parties and (ii) represents the entire agreement between the parties and supersedes all prior agreements relating to the subject matter contained herein. All prior negotiations concerning Executive's employment with the Company have been merged into this Agreement and are reflected in the terms herein.
IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of The Effective Date.
COMPANY:
Pura Naturals, Inc.
/s/ Robert Doherty
By: Robert Doherty
Title: Chief Executive Officer

EXECUTIVE:
/s/ Daniel Kryger
Daniel Kryger
 
16
EX-10.28 3 ex10_28.htm

Exhibit 10.28
 
 

 

Contract#: 1158251
Sales Partner: House Account
LOAN AGREEMENT (ACH Repayment) (California)
Agreement dated      May 21 2018      between Strategic Funding Source, Inc. ("SFSI") and the borrower listed below ("Borrower").
                (Month)(Day)(Year)


BORROWER INFORMATION
 
Borrower's Legal Name: PURA NATURALS, INC.
           
D/B/A: Pura Naturals
     
State of Incorporation / Organization: CA 
Type of entity: Corporation
           
Physical Address: 23101 Lake Center Dr Ste
 
 City: Lake Forest
 
 State: CA
 
 Zip: 92630-2898
100
           
Mailing Address:
 
City:
 
State:
 
Zip:
Date business started (mm/yy): 12/2005
 
Federal ID# 47-4164403
       
Monthly Total Sales _____________
 
Monthly Card Sales ________
 
Monthly Cash Sales _________
   

LOAN TERMS

For value received, Borrower hereby promises to pay to SFSI, as the lead creditor, for itself and other co-investors (collectively the Funders), the principal amount specified below ("Loan Amount"), plus interest, in lawful money of the United States. Borrower shall deliver the principal and interest amount specified below (the "Repayment Amount") to SFSI from the payment of monies from Borrower's customers' and/or other third party (the "Receipts" defined as all payments made by cash, check, electronic transfer or other form of monetary payment in the ordinary course of the Borrower's business), for the payment of Borrower's sale of goods or services.

The Repayment Amount shall be paid to SFSI by Borrower's irrevocably authorizing only one depositing account acceptable to SFSI (the "account") to remit the percentage specified below (the "Specified Percentage") of the Borrower's settlement amounts due from each transaction, until such time as SFSI receives payment in full of the Repayment Amount. Borrower hereby authorizes SFSI to ACH Debit the specified remittances from the Borrower's bank account on a daily basis and will provide SFSI with all required access codes. Borrower understands that it is responsible for ensuring that the specified percentage to be debited by SFS remains in the account and will be held responsible for any fees incurred by SFSI resulting from a rejected ACH attempt or an event of default. (See Appendix A) SFSI is not responsible for any overdrafts or rejected transactions that may result from SFSI' ACH debiting the specified amounts under the terms of this agreement. SFSI will debit the specific daily amount every business day and upon receipt of the Borrower's monthly bank statements to reconcile the Borrower's account by either crediting or debiting the difference from or back to the Borrower's bank account so that the amount debited per month equals the specified percentage. It is solely the Borrower's responsibility to send all their bank statements and a missed month forfeits all future reconciliations. SFSI may, upon Borrower's request, extend the time for any payment due under this Agreement for such time as SFSI, in its sole discretion, deems appropriate. Notwithstanding anything to the contrary in this Agreement or any other agreement between SFSI and its Funders and Borrower, upon the occurrence of an Event of Default under Section 4 of the LOAN AGREEMENT TERMS AND CONDITIONS, the Specified Percentage shall equal 100%.
 
*** Obtaining another Cash Advance or similar financing, secured or unsecured during the performance of this agreement shall constitute an
Event of Default.***

Loan Amount: $28,500.00
Repayment Amount: $40,470.00
Specific Daily Repayment Amount: $165.00

THE TERMS, DEFINITIONS, CONDITIONS AND INFORMATION SET FORTH IN THE "LOAN AGREEMENT TERMS AND CONDITIONS", THE "SECURITY AGREEMENT AND GUARANTY", AND "ADMINISTRATIVE FORM" ARE HEREBY INCORPORATED IN AND MADE A PART OF THIS AGREEMENT.
 
MERCHANT #1
   
     
By Robert Switzer O1_SIG
   /s/ Robert Switzer
(Print Name and Title)
 
(Signature)
     
MERCHANT #2
   
By O2_SIG
   
(Print Name and Title)
 
(Signature)
     
OWNER/GUARANTOR #1
   
By Robert Switzer O1_SIG
    /s/ Robert Switzer
(Print Name and Title)
 
(Signature)
     
OWNER/GUARANTOR #2
   
By O2_SIG
   
(Print Name and Title)
 
(Signature)
     
STRATEGIC FUNDING SOURCE, INC.
   
By
   
(Company Officer)
 
(Signature)

Each of above-signed Borrower and Owner/Guarantor represents that he or she is authorized to sign this Agreement for Borrower and that the information provided herein and in all of SFSI's forms is true, accurate and complete in all respects. SFSI may produce a monthly statement reflecting the delivery of the Specified Percentage of Receivables from Borrower via Bank.

ANY MISREPRESENTATION MADE BY BORROWER OR ANY OWNER/GUARANTOR IN CONNECTION WITH THIS AGREEMENT MAY CONSTITUTE A SEPARATE CAUSE OF ACTION FOR FRAUDULENT INDUCEMENT TO PROVIDE FINANCING.

SFS-California ACH Loan 1-25-2016 Page 1 of 8

Page 1 of 8



LOAN AGREEMENT TERMS AND CONDITIONS
         
I. TERMS OF ENROLLMENT IN PROGRAM
 
1.8 No Liability. In no event will Bank or SFSI, nor
 
("Advisor"), provided such Advisor uses such
1.1 Borrower Deposit Agreement. Borrower shall
 
any of the Funders be liable for any claims asserted by
 
information solely for the purpose of advising
execute an agreement (the "Borrower Deposit
 
Borrower under any legal theory for lost profits, lost
 
Borrower and first agrees in writing to be bound by
Agreement") acceptable to SFS, with a Bank
 
revenues, lost business opportunities, exemplary,
 
the terms of this Section 1.13.
acceptable to SFS, to obtain electronic fund transfer
 
punitive, special, incidental, indirect or consequential
 
1.14 Publicity. Borrower and each Owner/Guarantor
services. Borrower shall provide SFS and/or its
 
damages, each of which is waived by Borrower and
 
authorizes SFSI to use its, his or her name in a listing
authorized agent with all of the information,
 
Owner/Guarantor.
 
of clients and in advertising and marketing materials.
authorizations and passwords necessary for verifying
 
1.9 Reliance on Terms. Section 1.1, 1.7, 1.8, 2.5, and
 
1.15 D/B/A's. Borrower hereby acknowledges and
Borrower's receivables, receipts and deposits into the
 
4.6 of this Agreement are agreed to for the benefit
 
agrees that SFSI may be using "doing business as" or
account. Borrower shall authorize SFS and/or it's
 
of Borrower, SFSI and its Funders and Bank, and
 
"d/b/a" names in connection with various matters
agent to deduct the amounts owed to SFS for the
 
notwithstanding the fact that Bank is not a party
 
relating to the transaction between SFSI and
Receipts as specified herein from settlement amounts
 
of this Agreement, Bank may rely upon their terms
 
Borrower, including the filing of UCC-1 financing
which would otherwise be due to Borrower from
 
and raise them as a defense in any action.
 
statements and other notices or filings.
electronic check transactions and to pay such amounts
 
1.10 Savings Clause. In no event shall the aggregate
 
II. REPRESENTATIONS, WARRANTIES AND
to SFS by permitting SFS to withdraw the specified
 
amount of interest charged or collected hereunder
 
COVENANTS Borrower and each Owner/Guarantor
percentages by ACH debiting of the account. The
 
exceed the highest rate permissible at law. In the
 
represents, warrants and covenants that as of this date
authorization shall be irrevocable without the written
 
event that a court determines that SFSI has charged or
 
and during the term of this Agreement:
consent of SFS.
 
received interest hereunder in excess of the highest
 
2.1 Financial Condition and Financial Information.
1.2 Term of Agreement. This Agreement shall have a
 
applicable rate, the rate in effect hereunder shall
 
Its financial statements, copies of which have been
term of one year. Upon the expiration of the term, this
 
automatically be reduced to the maximum rate
 
furnished to SFSI, and future statements which will be
Agreement shall automatically renew for successive
 
permitted by applicable law and SFSI shall promptly
 
furnished hereafter at the request of SFSI, fairly
one-year terms, provided, however, that during the
 
refund to Borrower any interest received by SFSI in
 
represent the financial condition of Owner/Guarantor
renewal term(s) Borrower may terminate this
 
excess of the maximum lawful rate, it being intended
 
and Borrower at such dates, and since those dates
Agreement upon ninety days' prior written notice
 
that Borrower not pay or contract to pay, and that
 
there has been no material adverse change, financial
(effective upon receipt) to SFSI. The termination of
 
SFSI not receive or contract to receive, directly or
 
or otherwise, in such condition, operation or
this Agreement shall not affect Borrower's
 
indirectly in any manner whatsoever, interest in excess
 
ownership of Borrower. Borrower has a continuing,
responsibility to satisfy all outstanding obligations
 
of that which may be paid by Borrower under
 
affirmative obligation to advise SFSI of any material
(including the Loan Amount and accrued interest) to
 
applicable law.
 
adverse change in its financial condition, operation or
SFSI at the time of termination.
 
1.11 Power of Attorney. Borrower irrevocably appoints
 
ownership. Borrower's failure to do so is a material
1.3 Additional Loans. SFSI reserves the right to
 
SFSI as its agent and attorney-in-fact with full
 
breach of this Agreement.
rescind the offer to make additional loans hereunder,
 
authority to take any action or execute any instrument
 
2.2 Governmental Approvals. Borrower is in
in its sole discretion.
 
or document to settle all obligations due to SFSI from
 
compliance and shall comply with all laws and has
1.4 Bridge Account. Borrower may be required to open
 
Bank, or upon the occurrence of an Event of Default
 
valid permits, authorizations and licenses to own,
a new bank account into which the Specified
 
under Section 4 hereof, to settle all obligations due to
 
operate and lease its properties and to conduct the
Percentage of the settlement amounts will be
 
SFSI from Borrower, under this Agreement, including
 
business in which it is presently engaged.
deposited (the "Bridge Account"). Borrower
 
without limitation (i) to obtain and adjust insurance;
 
2.3 Authorization. Borrower, and the person(s) signing
appoints SFSI as "Acting Agent" over the Bridge
 
(ii) to collect monies due or to become due under or in
 
this Agreement on behalf of Borrower, have full
Account, and shall instruct the Bank to designate
 
respect of any of the Collateral (as defined in the
 
power and authority to execute this Agreement and to
the Bridge Account as the depository account for
 
Security Agreement and Guaranty); (iii) to receive,
 
incur and perform the obligations under this
all transactions. Borrower assumes all
 
endorse and collect any checks, notes, drafts,
 
Agreement, all of which have been duly authorized.
responsibility for all fees, costs, charge-backs or
 
instruments, documents or chattel paper in connection
 
2.4 Insurance. Borrower will maintain businessinterruption
suspicious items processed through the Bridge
 
with clause (i) or clause (ii) above; (iv) to sign
 
insurance naming SFSI as loss payee and
Account (see "Miscellaneous Service Fees"
 
Borrower's name on any invoice, bill of lading, or
 
additional insured in amounts and against risks as are
paragraph 3.7) Borrower agrees to maintain a
 
assignment directing customers or account debtors to
 
satisfactory to SFSI and shall provide SFSI proof of
minimum balance in the Bridge Account (the
 
make payment directly to SFSI; and (v) to file any
 
such insurance upon request.
"Minimum Balance") equal to the per-month
 
claims or take any action or institute any proceeding
 
2.5 Borrower Processing Agreement and
average of all fees charged to Borrower by Bank,
 
which SFSI may deem necessary for the collection of
 
Arrangements. Without SFSI's prior written consent,
averaged over a six-month period.
 
any of the unpaid Repayment Amount from the
 
Borrower will not (i) change the card Bank through
1.5 Financial Condition. Owner/Guarantor and
 
Collateral, or otherwise to enforce its rights with
 
which the major cards are settled from Bank to
Borrower authorize SFSI, its agents and
 
respect to payment of the Repayment Amount.
 
another card Bank; (ii) permit any event to occur that
representatives and any credit reporting agency
 
1.12 Protection of Information. Borrower and each
 
could cause diversion of any of Borrower's card
engaged by SFSI, to investigate their creditworthiness,
 
person signing this Agreement on behalf of Borrower
 
transactions from Bank to another Bank; (iii) change
financial responsibility and history, and they agree to
 
and/or as Owner/Guarantor, in respect of himself or
 
its arrangements with Bank or amend the Borrower
provide SFSI any financial statements, tax returns,
 
herself personally, authorizes SFSI to disclose to any
 
Processing Agreement in any way that is adverse to
references, or other financial information, as SFSI
 
third party information concerning Borrower's and
 
SFSI; (iv) add card processing terminals; (v) use
deems necessary prior to or after execution of this
 
each Owner's/Guarantor's credit standing (including
 
multiple card processing terminals; (vi) change its
Agreement. A photocopy of this authorization will be
 
credit bureau reports that SFSI obtains) and business
 
financial institution or bank account(s) (including the
deemed as acceptable for release of credit and
 
conduct. Borrower and each Owner/Guarantor hereby
 
Bridge Account); (vii) take any other action that could
financial information. Borrower and Owner/Guarantor
 
waives to the maximum extent permitted by law any
 
have any adverse effect upon Borrower's obligations
authorize SFSI to update their credit and financial
 
claim for damages against SFSI or any of its affiliates
 
under this Agreement; or (viii) take any action, fail to
profile from time to time in the future, as SFSI deems
 
and Funders relating to any (i) investigation
 
take any action, or offer any incentive—economic or
appropriate. An investigative or consumer report may
 
undertaken by or on behalf of SFSI as permitted by
 
otherwise—the result of which will be to discourage
be made in connection with this Agreement.
 
this Agreement or (ii) disclosure of information as
 
the use of cards that are settled through Bank, or to
1.6 Transactional History. Borrower authorizes their
 
permitted by this Agreement.
 
induce any customers to pay for Borrower's services
Bank to provide SFSI with Borrower's banking
 
1.13 Confidentiality. Borrower understands and agrees
 
with any means other than cards that are settled
history.
 
that the terms and conditions of the products and
 
through Bank, or permit any event to occur that could
1.7 Indemnification. Borrower and each
 
services offered by SFSI, including this Agreement,
 
have an adverse effect on the use, acceptance, or
Owner/Guarantor jointly and severally indemnify and
 
the Security Agreement and Guaranty and any other
 
authorization of cards for the purchase of Borrower's
hold harmless Bank, its officers, directors and
 
SFSI documents (collectively, "Confidential
 
services and products. Any such change, action or
shareholders against all losses, damages, claims,
 
Information") are proprietary and confidential
 
inaction shall be a material breach of this Agreement.
liabilities and expenses (including reasonable
 
information of SFSI. Accordingly unless disclosure is
 
2.6 Change of Name, Location or Jurisdiction of
attorney's fees) incurred by Bank resulting from (a)
 
required by law or court order, Borrower shall not
 
Organization. Borrower will not conduct Borrower's
claims asserted by SFSI for monies owed to SFSI
 
disclose Confidential Information to any person other
 
businesses under any name other than as disclosed to
from Borrower and (b) actions taken by Bank in
 
than an attorney, accountant, financial advisor or
 
the Bank and SFSI, change any of its places of
reliance upon information or instructions provided by
 
employee of Borrower who needs to know such
 
business, or change its jurisdiction of organization.
SFSI.
 
information for the purpose of advising Borrower
   
 
 
Page 2 of 8

 


2.7 Daily Batch Out. Borrower will batch out receipts
2.18 Use of Proceeds. Borrower will conduct its
Court and execute thereon; and (v) SFSI may exercise
with the Bank on a daily basis.
business and use the Loan Amount in the ordinary
its rights under the Assignment of Lease. All rights,
2.8 Estoppel Certificate. Borrower will at any time,
course of its business, consistent with past practice.
powers and remedies of SFSI in connection with this
and from time to time, upon at least one (1) day's
2.19 Accuracy of Information. All information
Agreement and the Security Agreement and Guaranty
prior notice from SFSI to Borrower, execute,
provided by Borrower and each Owner/Guarantor to
may be exercised at any time by SFSI after the
acknowledge and deliver to SFSI and/or to any other
SFSI herein, in the Security Agreement and Guaranty,
occurrence of an Event of Default, are cumulative and
person, firm or corporation specified by SFSI, a
and in all other SFSI forms is true, accurate and
not exclusive, and shall be in addition to any other
statement certifying that this Agreement is unmodified
complete in all respects.
rights, powers or remedies provided by law or equity.
and in full force and effect (or, if there have been
III. EVENTS OF DEFAULT AND REMEDIES
3.3 Costs. Borrower and Owner/Guarantor shall pay to
modifications, that the same is in full force and effect
3.1 Events of Default. The occurrence of any of the
SFSI all reasonable costs associated with (a) a breach
as modified and stating the modifications) and stating
following events shall constitute an "Event of
by Borrower or Owner/Guarantor of the
the dates which the Repayment Amount or any portion
Default" hereunder: (a) Borrower or Owner/Guarantor
representations, warranties and covenants in this
thereof has been repaid.
violates any term, covenant or condition in this
Agreement and the Security Agreement and Guaranty
2.9 No Bankruptcy or Insolvency. As of the date of
Agreement or the Security Agreement and Guaranty;
and the enforcement thereof, and (b) the enforcement
this Agreement, Borrower. and Guarantors represent
(b) any representation or warranty by Borrower or
of SFSI's remedies set forth in Section 3.2 above,
that they are not Insolvent and have not filed any
Owner/Guarantor in this Agreement or the Security
including but not limited to court costs and attorneys'
petition for bankruptcy protection under Title 11 of
Agreement and Guaranty shall prove to have been
fees.
the United States Code and there has been no
incorrect, incomplete, false or misleading in any
3.4 Required Notifications. Borrower and
involuntary petition brought or pending against
material respect when made; (c) Borrower or
Owner/Guarantor are required to give SFSI
Borrower. Borrower further warrants that it does not
Owner/Guarantor admits its inability to pay its debts,
written notice within 24 hours of any filing by
anticipate filing any such bankruptcy petition and it
or makes a general assignment for the benefit of
Borrower or Owner/Guarantor under Title 11 of
does not anticipate that an involuntary petition will be
creditors; or any proceeding shall be instituted by or
the United States Code. Borrower is required to
filed against it.
against Borrower or Owner/Guarantor seeking to
give SFSI seven days' written notice prior to the
2.10 Other Financing . Borrower shall not enter into
adjudicate it bankrupt or insolvent, or seeking
closing of any sale of all or substantially all of the
any arrangement, agreement or commitment that
reorganization, arrangement, adjustment, or
Borrower's assets or stock. Borrower is required
relates to or involves Receipts, whether in the form of
composition of it or its debts; (d) Owner/Guarantor
to give SFSI fourteen days' written notice prior to
a purchase (such as a merchant cash advance) or a
sends a notice of termination of the Security
the suspension, dissolution or terminations its
loan against, or the sale or purchase of credits against,
Agreement and Guaranty; (e) Borrower suspends,
business.
any Receipts, cash deposits or future card or mobile
dissolves or terminates its business; (f) Borrower sells
3.5 Default Fee. Upon the Occurrence of any Event of
payment sales with any party other than SFSI without
all or substantially all of its assets; (g) Borrower
Default, and written notice to Borrower thereof,
its written permission.
makes or sends notice of any intended bulk sale or
Borrower shall pay to SFSI a default fee ("Default
2.11 Unencumbered Receipts. Borrower has good and
transfer by Borrower; (h) Borrower performs any act
Fee") of $2,500. This Default Fee shall be payable on
marketable title to all Receipts, free and clear of any
that encumbers the cash flow of the business placing
demand and stand in addition to any other fees or
and all liabilities, liens, claims, changes, restrictions,
undue stress on the viability of the operations and
penalties outlined within this Agreement, the Security
conditions, options, rights, mortgages, security
reduces the value of the Collateral or the security
Agreement or Guaranty.
interests, equities, pledges and encumbrances of any
interest granted in the Collateral under the Security
3.6 Bank Change Fee. Borrower shall pay to SFSI
kind or nature whatsoever or any other rights or
Agreement and Guaranty;; (i) Owner/Guarantor
$5,000.00 in the event that Borrower (i) uses multiple
interests that may be inconsistent with the transactions
performs any act that reduces the value of the
Bank accounts for deposits without the prior written
contemplated with, or adverse to the interests of,
Additional Collateral (as defined in the Security
consent of SFSI, or (ii) changes its Bank without the
SFSI.
Agreement and Guaranty) or the security interest
prior written consent of SFSI. Such Bank Change Fee
2.12 Business Purpose. Borrower is a valid business in
granted in the Additional Collateral under the Security
(i) shall be due and payable to SFSI on demand, (ii) is
good standing under the laws of the jurisdictions in
Agreement and Guaranty; (j) Borrower or
not exclusive of, and is cumulative with, any other fee
which it is organized and/or operates, and Borrower is
Owner/Guarantor performs any act that reduces the
or amount paid or payable to SFSI by Borrower
entering into this Agreement for business purposes
value of the Cross-Collateral (as defined in the
pursuant to this Agreement or the Security Agreement
and not as a consumer for personal, family or
Security Agreement and Guaranty); (k) Borrower or
and Guaranty; and (iii) shall not be construed as a
household purposes.
any Owner/Guarantor files any petition for bankruptcy
waiver of any Event of Default hereunder or under the
2.13 Default Under Other Contracts. Borrower's
under the United States code or an involuntary
Security Agreement and Guaranty or as otherwise
execution of or performance under this Agreement
petition for bankruptcy has been brought or is pending
operating to reduce or limit SFSI's rights or remedies
will not cause or create an event of default by
against Borrower or any Owner/Guarantor; or (l)
provided for hereunder, under the Security Agreement
Borrower under any contract with another person or
Borrower or Owner/Guarantor defaults under any of
and Guaranty or at law or in equity.
entity.
the terms, covenants and conditions of any other
3.7 Miscellaneous Service Fees. Borrower shall pay
2.14 Delivery of Confession of Judgment. Upon
agreement with SFSI including those with affiliated /
certain fees for services related to the origination and
execution of this Agreement, Borrower shall deliver to
associated businesses.
maintenance of accounts which may include but not
SFSI an executed Confession of Judgment, in the
3.2 Remedies. Upon the occurrence of an Event of
be limited to: Borrowers funding is done
form provided by SFSI, in favor of SFSI and its
Default that is not waived pursuant to Section 4.4
electronically to their designated bank account and
Funders in the amount of the Loan Amount.
hereof, SFSI may proceed to protect and enforce its
charged a fee of $35.00 for a Fed Wire or $15.00 for
2.15 Delivery of Assignment of Lease. Borrower and
rights or remedies by suit in equity or by action at law,
an ACH. The fee for underwriting and origination is
Owner/Guarantor authorize SFSI to receive pertinent
or both, whether for the specific performance of any
paid from the funded amount in accordance with the
information regarding the commercial lease for the
covenant, agreement or other provision contained
schedule below. If Borrower is utilizing a Bridge /
physical location of Borrower's business (the
herein, or to enforce the discharge of Borrower's and
Control Account, there is an upfront fee of $395.00
"Premises") from any applicable leasing company and
Owner's/Guarantor's obligations hereunder, under the
for the bank fees and administrative costs of
or agent. Upon execution of this Agreement,
Security Agreement and Guaranty, or pursuant to any
maintaining such account for each financing
Borrower shall deliver to SFSI an executed
other legal or equitable right or remedy. Upon SFSI's
agreement with Borrower. Fund transfers from
Assignment of Lease covering the Premises in favor
notice to Borrower of any Event of Default, the entire
Bridge / Control Accounts to Borrower's operating
of SFSI.
Repayment amount and unpaid fees not already paid
bank account will be charged $10.95 per month via
2.16 Sale of Business. Borrower shall not sell, dispose,
to SFSI shall become immediately due and payable to
ACH. This fee will continue if the bridge account
transfer or otherwise convey its business or assets
SFSI. In addition, upon an Event of Default (i) SFSI
remains open after the RTR is paid. Borrower will be
without (i) the express prior written consent of SFSI,
may enforce the provisions of the Security Agreement
charged $50.00 for each change of its operating bank
and (ii) the written agreement of any purchaser or
and Guaranty against the Borrower and
account once active with SFSI. Any administrative
transferee assuming all of Borrower's obligations
Owner/Guarantor; (ii) SFSI may enforce its security
adjustments associated with changes to the Specified
under this Agreement pursuant to documentation
interest in the Collateral, the Additional Collateral and
Percentage will incur a fee of $75.00 per occurrence.
satisfactory to SFSI.
the Cross-Collateral; (iii) SFSI may debit Borrower's
(All fees are subject to change)
2.17 Bridge Account. Borrower will not take any
depository accounts wherever situated by means of
 
action to cause the Specified Percentage of the
ACH debit or facsimile signature on a computergenerated
 
settlement amounts to be settled or delivered to any
check drawn on Borrower's bank account or
INITIALS:  RS
account other than the Bridge Account. Borrower will
otherwise; (iv) SFSI may enter the Confession of
 
maintain a Minimum Balance in the Bridge Account.
Judgment as a judgment with the appropriate Clerk of
IV. MISCELLANEOUS


Page 3 of 8


4.1 Modifications; Agreements. No modification,
 
Agreement and Guaranty with or without prior written
 
AND SHALL BE INTERPRETED IN THE
amendment, waiver or consent of any provision of this
 
notice to Borrower and Owner/Guarantor. SFSI's
 
BROADEST WAY THE LAW WILL ALLOW.
Agreement or the Security Agreement and Guaranty
 
Funders shall be third party beneficiaries of all such
 
Covered claims
shall be effective unless the same shall be in writing
 
agreements. This Agreement and the Security
 
· You or we may arbitrate any claim, dispute or
and signed by SFSI.
 
Agreement and Guaranty shall be governed by and
 
controversy between you and us arising out of or
4.2 Assignment. Borrower acknowledges and
 
construed in accordance with the laws of the State of
 
related to your account, a previous related account
understands that SFSI is acting on its own behalf and
 
California, without regards to any applicable
 
or our relationship (called "Claims").
as the administrator and lead investor for a group of
 
principals of conflicts of law. Any suit, action or
 
· If arbitration is chosen by any party, neither
independent co- investors a list of which can be
 
proceeding arising hereunder or under the Security
 
you nor we will have the right to litigate that
provided to Borrower after funding and upon written
 
Agreement and Guaranty, or the interpretation,
 
Claim in court or have a jury trial on that
notice to SFSI. SFSI may assign, transfer or sell its
 
performance or breach hereof or thereof, shall, if SFSI
 
Claim.
rights to receive the Loan Amount and any accrued but
 
so elects, be instituted in any court sitting in Los
 
· Except as stated below, all Claims are subject to
unpaid interest or delegate its duties hereunder, either
 
Angeles County, State of California (the "Acceptable
 
arbitration, no matter what legal theory they're
in whole or in part.
 
Forums"). Borrower and Owner/Guarantor agree that
 
based on or what remedy (damages, or injunctive
4.3 Notices. All notices, requests, consent, demands and
 
the Acceptable Forums are convenient to them, and
 
or declaratory relief) they seek, including Claims
other communications hereunder and under the
 
submits to the jurisdiction of the Acceptable Forums
 
based on contract, tort (including intentional tort),
Borrower Security Agreement and Guaranty shall be
 
and waives any and all objections to jurisdiction or
 
fraud, agency, your or our negligence, statutory or
delivered by ordinary mail, effective upon mailing, to
 
venue. Should such proceeding be initiated in any
 
regulatory provisions, or any other sources of law;
the respective parties to this Agreement and the
 
other forum, Borrower and Owner/Guarantor waive
 
Claims made as counterclaims, cross-claims, thirdparty
Security Agreement and Guaranty at the addresses set
 
any right to oppose any motion or application made
 
claims, interpleaders or otherwise; Claims
forth in this Agreement and shall become effective
 
by SFSI to transfer such proceeding to an Acceptable
 
made regarding past, present, or future conduct;
only upon receipt. The Parties hereto may also send
 
Forum.
 
and Claims made independently or with other
such notices, requests, consent, demands and other
 
4.8 Survival of Representation, etc. All
 
claims. This also includes Claims made by or
communications via facsimile ("FAX") or electronic
 
representations, warranties and covenants herein and
 
against anyone connected with us or you or
mail ("Email") at such FAX numbers and email
 
in the Security Agreement and Guaranty shall survive
 
claiming through us or you, or by someone making
addresses communicated by the parties hereto in
 
the execution and delivery of this Agreement and the
 
a claim through us or you, such as a co-applicant,
writing.
 
Security Agreement and Guaranty and shall continue
 
authorized user, employee, agent, representative or
4.4 Waiver Remedies. No failure on the part of SFSI to
 
in full force until all obligations under this Agreement
 
an affiliated/parent/subsidiary company.
exercise, and no delay in exercising, any right under
 
and the Security Agreement and Guaranty shall have
 
Arbitration limits
this Agreement or the Security Agreement and
 
been satisfied in full and this Agreement and the
 
· Individual Claims filed in a small claims court are
Guaranty shall operate as a waiver thereof, nor shall
 
Security Agreement and Guaranty shall have
 
not subject to arbitration, as long as the matter
any single or partial exercise of any right under this
 
terminated.
 
stays in small claims court.
Agreement or the Security Agreement and Guaranty
 
4.9 Severability. In case any of the provisions in this
 
· We won't initiate arbitration to collect a debt from
preclude any other or further exercise thereof or the
 
Agreement or the Security Agreement and Guaranty is
 
you unless you choose to arbitrate or assert a
exercise of any other right. The remedies provided
 
found to be invalid, illegal or unenforceable in any
 
Claim against us. If you assert a Claim against us,
hereunder and under the Security Agreement and
 
respect, the validity, legality and enforceability of any
 
we can choose to arbitrate, including actions to
Guaranty are cumulative and not exclusive of any
 
other provision contained herein or therein shall not in