Notes
To The Financial Statements
June
30, 2016
(Unaudited)
1.
ORGANIZATION AND BUSINESS OPERATIONS
PetroTerra
Corp. (the “Company”) was incorporated under the laws of the State of Nevada, on July 25, 2008. The Company is an
independent exploration and development company focused on the acquisition of property (or property leases enabling us to explore
and exploit such property) that we believe may contain extractable oil and/or gas. The Company identified, evaluated and acquired
oil and gas exploration and development opportunities primarily within the United States. As a result of the decline in the oil
and gas markets, we are now seeking strategic alternatives. The Company has not generated any revenue to date and consequently
its operations are subject to all risks inherent in the establishment of a new business enterprise.
2.
GOING CONCERN
The
financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets
and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses since
inception resulting in an accumulated deficit of $2,707,319 as of June 30, 2016 and further losses are anticipated in the development
of its business raising substantial doubt about the Company’s ability to continue as a going concern. The ability to continue
as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary
financing to meet its obligations and repay its liabilities, which have arisen from normal business operations as they come due.
Management intends to finance operating costs over the next twelve months with existing cash on hand loans from our director and/or
private placements of common stock.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United
States of America and are presented in US dollars.
These
statements reflect all adjustments, including of normal recurring adjustments, which, in the opinion of management, are necessary
for fair presentation of the information contained therein. It is suggested that these unaudited interim financial statements
be read in conjunction with the financial statements of the Company for the year ended March 31, 2016 and notes thereto included
in the Company’s annual report on Form 10-K. The Company follows the same accounting policies in the preparation of its
annual and interim reports.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments with a maturity date of three months or less at the time of issuance to be cash
equivalents.
Use
of Estimates and Assumptions
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. In management’s opinion, all adjustments necessary for a fair
statement of the results for the interim periods have been made and all adjustments are of a normal recurring nature.
PETROTERRA
CORP.
Notes
To The Financial Statements
June
30, 2016
(Unaudited)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreign
Currency Translation
The
Company’s functional currency and its reporting currency is the United States dollar.
Stock
Split
On
July 1, 2015, the Company
filed a Certificate of Change with the Secretary of State of the State of Nevada to effect a
reverse stock split of its outstanding and authorized shares of common stock at a ratio of 1 for 2.5 (the “Reverse Stock
Split”).
As
a result of the Reverse Stock Split, the Company’s authorized shares of common stock were decreased from 100,000,000 to
40,000,000 shares and its authorized shares of preferred stock were decreased from 10,000,000 to 4,000,000 shares. Upon the effectiveness
of the Reverse Stock Split, which occurred on July 1, 2015, the Company’s issued and outstanding shares of common stock
was decreased from approximately 66,125,000 to 26,450,000 shares, all with a par value of $0.001. The Company has no outstanding
shares of preferred stock. Accordingly, all share and per share information has been restated to retroactively show the effect
of the Reverse Stock Split.
Stock-based
Compensation
In
September 2009, the FASB issued ASC-718, “Stock Compensation”. ASC-718 requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial statements based on the grant date fair value of
the award. Under ASC-718, the Company must determine the appropriate fair value model to be used for valuing share-based payments,
the amortization method for compensation cost and the transition method to be used at date of adoption.
Income
Taxes
Income
taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating losses and tax credit carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
Basic
and Diluted Loss Per Share
The
Company computes loss per share in accordance with ASC-260, “Earnings per Share” which requires presentation of both
basic and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing
net loss available to common stockholders by the weighted average number of outstanding shares of common stock during the period.
Diluted loss per share gives effect to all dilutive potential shares of common stock outstanding during the period. Dilutive loss
per share excludes all potential shares of common stock if their effect is anti-dilutive. The Company has no potential dilutive
instruments and accordingly basic loss and diluted loss per share are equal.
Fiscal
Periods
The
Company’s fiscal year end is March 31.
PETROTERRA
CORP.
Notes
To The Financial Statements
June
30, 2016
(Unaudited)
Revenue
Recognition
The
Company will recognize revenue in accordance with ACS - 605, “Revenue recognition”, ASC-605 requires that four basic
criteria be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred;
(3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and
(4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the
collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other
adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the
product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that
the product has been delivered or no refund will be required.
Oil
and Gas
The
Company complies with ASC 932, “Extractive Activities - Oil and Gas”. The Company has capitalized exploratory well
costs, and has determined that there are no suspended well costs that should be impaired. The Company reviews its long-lived assets
for impairments when events or changes in circumstances indicate that impairment may have occurred.
Website
The
Company capitalizes the costs associated with the development of the Company’s website pursuant to ASC - 350, “Goodwill
and Other”. Other costs related to the maintenance of the website are expensed as incurred. Amortization is provided over
the estimated useful lives of three years using the straight-line method for financial statement purposes. The Company commenced
amortization upon completion of the Company’s fully operational website. Amortization expense for the three months ended
June 30, 2016 and 2015 totaled $3,717 and $2,192, respectively.
Property
and Equipment
Property
and equipment are carried at cost. Expenditures for major renewals and betterments that extend the useful lives of property and
equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation and amortization
of property and equipment is provided using the straight-line method for financial reporting purposes at rates based on the following
estimated useful lives:
Classification
|
|
Useful
Life
|
Computer
equipment
|
|
3
Years
|
Website
design
|
|
3
Years
|
Patents
and trademarks
|
|
15
Years
|
PETROTERRA
CORP.
Notes
To The Financial Statements
June
30, 2016
(Unaudited)
Advertising
The
Company follows the policy of charging the costs of advertising to expenses incurred. The Company incurred $0 in advertising costs
during the three months ended June 30, 2016 and 2015, respectively.
Recent
Accounting Pronouncements
In
May 2014, the FASB amended the ASC and created Topic 606, Revenue from Contracts with Customers, to clarify the principles for
recognizing revenue. This guidance will be effective for the Company beginning January 1, 2017 and must be adopted using either
a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. We have
not yet determined the effects of this new guidance on our financial statements.
In
August 2014, the FASB issued a new U.S. GAAP accounting standard that provides guidance about management’s responsibility
to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related
footnote disclosures. The new accounting standard requires management to assess an entity’s ability to continue as a going
concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The new accounting
standard is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.
Early application is permitted. The Company does not expect the adoption of this standard to have a material impact on the consolidated
financial statements.
4.
ACQUISITION OF OIL AND GAS PROPERTIES
On
November 18, 2013, the Company entered into an assignment of lease (the “Agreement”) whereby Ardmore Investments Inc.
(“Ardmore”) assigned to the Company its rights under a certain purchase agreement (the “Purchase Agreement”),
dated August 8, 2013, between Ardmore and Pioneer Oil and Gas (“Pioneer”) involving the sale of 5,905.54 acres of
oil and gas leases located in the Central Utah Thrust Belt in Beaver County and Sevier County, Utah and currently owned by Pioneer
(the “Leases”). Per the terms of the Agreement, we issued to Ardmore an aggregate of 200,000 shares (100,000 share
installments) of our common stock on November 18, 2013 and April 12, 2014 in order to complete the assignment. Furthermore, on
December 12, 2013, February 12, 2014 and April 12, 2014, the Company made three installment payments of $100,000 each to Pioneer.
Upon completion of the final installment the leases were conveyed to the Company.
Due
to the lack of an active market of the Company’s common stock, the fair value of the common stock issued to Ardmore was
determined based on the price at which the Company’s shares were most recently being sold in a private placement transaction.
Impairment
The
Company determined that there was a material impairment of the land lease agreements and recorded an impairment of the asset of
$737,500 in the year ended March 31, 2016.
PETROTERRA
CORP.
Notes To The Financial Statements
June 30, 2016
(Unaudited)
5.
COMMON STOCK
The
Company’s authorized capital consists of 40,000,000 shares of common stock and 4,000,000 shares of preferred stock, both
with a par value of $0.001 per share.
On
July 1, 2015, the Company effectuated a reverse stock split of its outstanding and authorized shares of common stock at a ratio
of 1 for 2.5. As a result of the Reverse Stock Split, the Company’s authorized shares of common stock were decreased from
100,000,000 to 40,000,000 shares and its authorized shares of preferred stock were decreased from 10,000,000 to 4,000,000 shares.
Upon the effectiveness of the Reverse Stock Split, which occurred on July 1, 2015, the Company’s issued and outstanding
shares of common stock was decreased from 66,124,593 to 26,449,868 shares, all with a par value of $0.001. The Company has no
outstanding shares of preferred stock. Accordingly, all share and per share information has been restated in this Report to retroactively
show the effect of the Reverse Stock Split.
On
April 27, 2016, the Company authorized the issuance of 50,000 shares of common stock to the Company’s Chief Operating Officer
for consulting services. The fair value of the shares of common stock was $4,000.
On
June 3, 2016, the Company issued 1,022,122 shares in exchange for the conversion of $10,119 of shareholder loans and $71,250 of
accrued officer payroll and recorded a loss on conversion of debt expense of $10,622 during the period ending June 30, 2016 (See
Note 5).
As
of June 30, 2016, the Company had 28,323,588 shares of common stock issued and outstanding.
PETROTERRA
CORP.
Notes
To The Financial Statements
June
30, 2016
(Unaudited)
6.
INCOME TAXES
As
of June 30, 2016, the Company had net operating loss carry forwards of approximately $2,707,319 that may be available to reduce
future years’ taxable income through 2034. Future tax benefits which may arise as a result of these losses have not been
recognized in these financial statements, as their realization is determined not likely to occur. Accordingly, the Company has
recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards.
7.
RELATED PARTY TRANSACTIONS
Chief
Executive Officer
The
Company has received advances from certain of its officers and other related parties to meet short term working capital needs.
These advances may not have formal repayment terms or arrangements. As of June 30, 2016 and March 31, 2016, the total amount loaned
to the Company by a director was $1,577 and $10,119, respectively. The loan is non-interest bearing, due upon demand and unsecured.
On June 3, 2016, Mr. Barton converted the loan balance of $10,119 into shares 127,106 shares of common stock.
On
February 4, 2014, the Company entered into a three year employment agreement with the Company’s Chief Executive Officer
whereby the Company provides for compensation of $10,000 per month. A total salary of $90,000 was expensed during the three months
ended June 30, 2016 and 2015. The total balance due to the Chief Executive Officer for accrued salaries at June 30, 2016 and March
31, 2016, was $0 and $41,250, respectively. Additionally, on each anniversary of the Employment Agreement, beginning on the first
anniversary, Mr. Barton has received and will continue to receive for the duration of the employment agreement a restricted stock
grant of 160,000 shares of the Company’s common stock. The restricted stock grants vest 10 months following the issuance.
On June 3, 2016, Mr. Barton converted $71,250 of accrued salary into shares 895,106 shares of common stock.
Chief
Operating Officer
On
October 26, 2015, the Company renewed its independent contractor agreement with Arrow Peak Minerals and Royalty LLC (“Arrow”)
so that Kurt Reinecke would continue to act in the role of the Company’s Chief Operating Officer. The agreement is for a
term of one year and will pay Arrow an aggregate of $90,000 over the term. Arrow is also entitled to receive an aggregate of 150,000
shares of common stock to be earned as follows: (i) 50,000 shares were issued upon execution of the agreement; (ii) 50,000 shares
will be issued upon the six month anniversary of the commencement of the agreement; and (iii) 50,000 shares will be issued upon
the one year anniversary of the commencement of the agreement.
As of April 1, 2016, the
Company and Mr. Reinecke suspended services provided and the only compensation expense was stock based of 50,000 shares issued
with a fair value of $4,000.
8.
SUBSEQUENT EVENT
The
Company has evaluated subsequent events from June 30, 2016 through the filing of these financial statements. There are no significant
subsequent events, except as disclosed below;
In
July 2016, the Company has received $10,000 in advances from certain of its officers and other related parties to meet short term
working capital needs. These advances may not have formal repayment terms or arrangements.
FORWARD
LOOKING STATEMENTS
Statements
made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to
the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section
21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements often can be identified
by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,”
“estimate,” “approximate” or “continue,” or the negative thereof. We intend that such forward-looking
statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s
best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and
important factors beyond our control that could cause actual results and events to differ materially from historical results of
operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or
unanticipated events.