ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
GENERAL
We
are a development stage company that identified, evaluated and acquired oil and gas exploration and development opportunities
primarily in the United States. As a result of the decline in the oil and gas markets, we are now seeking other strategic alternatives.
We
were incorporated under the laws of the State of Nevada on July 25, 2008 as “Loran Connection Corp.” We were formed
to provide a variety of services in the area of individual and group tourism and business support in Ukraine. We subsequently
filed a resale registration statement with the Securities and Exchange Commission on May 28, 2009, which was declared effective
on October 28, 2009. On January 25, 2012, we filed an amendment to our articles of incorporation to, among other things, change
our name to “PetroTerra Corp.” and effect a thirty-two-for-one reverse split. We changed our name to reflect a proposed
change in our business operations. On October 2, 2013, in connection with a change of control in the management of the Company,
the Company began its current business operations in the oil and gas sector. On April 12, 2014, we completed our acquisition of certain property leases (the “Leases”) held by Ardmore Investments
Inc. (“Ardmore”) for property owned by Pioneer Oil and Gas (“Pioneer”) covering 5,905.54 acres of land
located in the Central Utah Thrust Belt in Beaver County and Sevier County, Utah (the “Utah Properties”). Since January
2016, as a result of the decline in the oil and gas markets, we ceased investing in the Utah Properties and began seeking a strategic
alternative both inside and outside of the oil and gas market.
Stock Split
On
November 22, 2016, 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 30 (the “Reverse Stock Split”).
Upon the effectiveness of the Reverse Stock Split, the Company’s issued and outstanding shares of common stock was decreased
from approximately 28,323,588 to 944,120 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 last three Reverse
Stock Splits.
Our
principal executive offices are located at 422 East Vermijo Avenue, Suite 313, Colorado Springs, CO 80903. The telephone number
at our principal executive offices is (719) 219-6404. Our web site is www.petroterracorp.com.
Our
Business Plan
The
Company was 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 believed may contain extractable oil and/or gas.
On
November 18, 2013, we entered into an assignment of lease agreement whereby Ardmore assigned to us its rights under a certain
Purchase Agreement, dated August 8, 2013, between Ardmore and Pioneer involving the sale of 5,905.54 acres of three separate BLM
Management oil and gas Leases located in the Central Utah Thrust Belt in Beaver County and Sevier County, Utah and currently owned
by Pioneer. Per the terms of the Agreement, we issued to Ardmore 3,333 shares of our common stock on November 18, 2013, and, in
order to complete the assignment contemplated by the Agreement, we issued to Ardmore an additional 3,333 shares of our common
stock upon the transfer to us of ownership in the Leases, which occurred on April 12, 2014. Furthermore, the Company made three
installment payments of $100,000 each to Pioneer pursuant to the terms of the Purchase Agreement. The Leases were conveyed to
the Company on April 10, 2014.
In
January 2014 we hired a third party independent contractor to provide insight and to assist in the development of a plan regarding
the exploration of any properties that we acquire. In March 2014, we engaged a third party independent contractor to provide geologic
consulting services to the Company. In March 2014 we also obtained an MHA Technical Report on the Utah Properties. In September
2014, we engaged a third party independent contractor to review and process both the public domain gravity and aeromagnetic datasets
that existed on our leased Utah Properties. In November 2014, we engaged a third party independent contractor to perform a comprehensive
gravity survey on our Utah Properties which was completed in December 2014 and the results of such survey were interpreted in
February 2015.
On
September 28, 2014, the Company engaged Thompson Solutions, LLC (“Thompson”) to review and process both the public
domain gravity and aeromagnetic datasets that existed on our leased Utah Properties. The purpose of this review was to identify
major structures and geologic trends of interest on the Utah Properties. Based on the results of this analysis, on November 21,
2014, the Company engaged Magee Geophysical Services LLC (“Magee”) to perform a comprehensive gravity survey on our
Utah Properties. The gravity survey was conducted from November 22, 2014 through December 9, 2014 and cost the Company approximately
$55,000. Pursuant to the survey, a total of 737 new gravity stations were identified on a nominal quarter mile grid and the data
acquired was merged with re-processed public domain data including about 630 stations located in and around the main grid. Upon
completion of Magee’s gravity survey, on December 8, 2014, the Company engaged Thompson to further process the data obtained
by Magee and to provide custom processing and mapping of such data. On February 6, 2015, Thompson completed their interpretation
of the gravity survey. The Company will pay to Thompson $15,500 for its services.
On
February 2, 2015 the Company engaged PRISEM Geoscience Consulting LLC (“PRISEM”) to provide recommendations on a work
plan for creating a geologic model of the Utah Properties. Due to the volatility of the oil and gas market, the geologic model
was never completed.
Our
Properties
As
described above, the Company holds oil and gas leases for property in Sevier and Beaver Counties, Utah. On April 10th 2014, we
acquired the Leases pursuant to the Agreement. These three Leases cover 5,950.54 gross acres in Sevier and Beaver counties in
southwest Utah. The two Sevier leases, UTU-89243 and UTU-89244, each have a term through 02/01/2023 (hereinafter, the “Sevier
Prospect”). Our Beaver county lease, UTU-86466, has an expiration date of 02/01/2021 (hereinafter, the “Beaver Prospect”
and together with the Sevier Prospect, the “Sevier and Beaver Oil Project”). Pursuant to the Purchase Agreement which
governs the terms under which we can use the Utah Properties, we have a 100% Working Interest (WI) and an 80% Net Revenue Interest
(NRI) in the Leases.
Oil
and Gas Industry-Specific Disclosures
As
described above, the Company had only recently begun its oil and gas business operations before operations were halted in order
to identify other strategic alternatives, not necessarily limited to the oil and gas industry. Accordingly, the disclosure required
by Subpart 1200 of Regulation S-K (Section 229.1200 of this chapter) is not applicable to our Company as of the date hereof. The
Company has obtained Leases in the Central Utah Thrust Belt in Beaver County and Sevier County, Utah consisting of 5,950.54 gross
acres of undeveloped acreage.
On
November 3, 2016, Pioneer Oil and Gas agreed to purchase all of the right, title and interest of our property leases.
Current
Business Plan
Given
the current climate in the oil and gas industry, on or about January 2016, management determined to cease development of our oil
and gas leases and instead seek a strategic alternative, whether in the oil and gas industry or otherwise.
RESULTS
OF OPERATIONS
Our
financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments
relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be
unable to continue our operation.
We
expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital
through, among other things, the sale of equity or debt securities.
Three
Month Period Ended December 31, 2016 Compared to the Three Month Period Ended December 31, 2015.
Our
net loss for the three-month period ended December 31, 2016 was $49,629 compared to a net loss of $164,024 during the three-month
period ended December 31, 2015. We did not generate any revenue during the three month periods ended December 31, 2016 and 2015.
This
change in net loss was primarily the result of the following:
Lease
property and exploration costs
During
the three months ended December 31, 2016, we incurred lease property and exploration costs of $0 compared to the prior year period
amount of $24,000 as the Company ceased incurring consulting costs in the current year,
General
and administrative costs
During
the three month period ended December 31, 2016, we incurred general and administrative expenses of $32,659 compared to $60,136
incurred during the three-month period ended December 31, 2015. The general and administrative expense incurred during the three
months ended December 31, 2016 and 2015 was primarily related to compensation to our Chief Executive Officer of $30,000, with
a difference between corporate overhead and travel costs between periods.
Professional
Fees
During
the three months ended December 31, 2016, we incurred professional fees of $26,970 relating to our equity financings, operations
and public company compliance. The legal and accounting fees associated with these activities amounted to $20,809 and $4,235,
respectively, and the corporate and investor relations fees associated with these activities amounted to $1,926. During the three
months ended December 31, 2015, we incurred professional fees of $31,888 relating to the legal and accounting fees of $17,525
and $5,814, respectively, and the corporate and investor relations fees associated with these activities amounted to $8,549.
Non-Employee
Stock Based Compensation
During
the three months ended December 31, 2016 and 2015, we incurred expense of $0 and $48,000 for stock issuances for compensation
to our Chief Operating Officer and for professional and advisory services, respectively.
Other
Income (Expense)
On
November 3, 2016, Pioneer Oil and Gas agreed to purchase all of the right, title and interest of our property leases for the amount
of $10,000. These leases related to property owned by Pioneer Oil and Gas covering 5,905.54 acres of land located in the Central
Utah Thrust Belt in Beaver County and Sevier County, Utah. In addition, all geological, geophysical and any and all other data
were transferred to Pioneer.
On
June 3, 2016, the Company issued 34,071 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 nine months ending December 31, 2016.
Weighted
average number of shares
The
weighted average number of shares outstanding was 944,120 and 898,920 for the three-month periods ended December 31, 2016 and
2015, respectively. The weighted average number of shares is an average calculation incorporating changes to the shares outstanding
within the period reported and has been restated to retroactively show the effect of the Reverse Stock Split.
Nine
month Period Ended December 31, 2016 Compared to the Nine month Period Ended December 31, 2015.
Our
net loss for the nine month period ended December 31, 2016 was $182,305 compared to a net loss of $400,971 during the nine month
period ended December 31, 2015 for the reasons described below. During the nine month periods ended December 31, 2016 and 2015,
we did not generate any revenue.
Lease
property and exploration costs
During
the nine months ended December 31, 2016, we incurred lease property and exploration costs of $0 compared to the prior year period
amount of $70,686 as the Company ceased incurring consulting costs in the current year.
General
and administrative costs
During
the nine month period ended December 31, 2016, we incurred general and administrative expenses of $102,500 compared to $140,974
incurred during the nine month period ended December 31, 2015. The general and administrative expense incurred during the nine
months ended December 31, 2016 and 2015 were primarily related to compensation to our Chief Executive Officer of $90,000, corporate
overhead and travel costs.
Professional
Fees
During
the nine months ended December 31, 2016, we incurred professional fees of $75,183 relating to our equity financings, operations
and public company compliance. The legal and accounting fees associated with these activities amounted to $39,164 and $24,031,
respectively, and the corporate and investor relations fees associated with these activities amounted to $11,988. During the nine
months ended December 31, 2015, we incurred professional fees of $123,711 relating to our equity financings, operations and public
company compliance. The legal and accounting fees associated with these activities amounted to $52,899 and $23,860, respectively,
and the corporate and investor relations fees associated with these activities amounted to $46,952.
Non-Employee
Stock Based Compensation
During
the nine months ended December 31, 2016 and 2015, we incurred expense of $4,000 and $65,600 for stock issuances for compensation
to our Chief Operating Officer and for professional and advisory services, respectively.
Other
Income
On
November 3, 2016, Pioneer Oil and Gas agreed to purchase all of the right, title and interest of our property leases for the amount
of $10,000. These leases related to property owned by Pioneer Oil and Gas covering 5,905.54 acres of land located in the Central
Utah Thrust Belt in Beaver County and Sevier County, Utah. In addition, all geological, geophysical and any and all other data
were transferred to Pioneer.
The
weighted average number of shares outstanding was 931,949 and 888,022 for the nine month periods ended December 31, 2016 and 2015,
respectively.
LIQUIDITY
AND CAPITAL RESOURCES
We
had no cash and cash equivalents as of December 31, 2016 and March 31, 2016.
We
have experienced losses of $182,305 and $400,971 for the nine months ended December 31, 2016 and 2015, respectively, and
had an accumulated deficit of $2,812,823 at December 31, 2016. In addition, we have not completed our efforts to establish a stable
recurring source of revenues sufficient to cover our operating costs and expect to continue to generate losses for the foreseeable
future. There are no assurances that we will be able to obtain an adequate level of financing needed for our near term requirements
or the long-term development and exploration of our Leases or any other strategic alternative that we may pursuit. These conditions
raise substantial doubt about our ability to continue as a “going concern”.
Since
inception, we have financed our operations primarily through private placements of our common stock, receiving aggregate net proceeds
totaling $1,359,500 from the period beginning October 1, 2013 through December 31, 2016.
Nine
months Ended December 31, 2016 Compared with nine months Ended December 31, 2015
Cash
Flows from Operating Activities
We
have generated negative cash flows from operating activities. For the nine months ended December 31, 2016, net cash flows used
in operating activities was $15,187 consisting of a net loss of $182,305, adjusted by non-cash stock compensation of $4,000, non-cash
conversion of debt of $40,622, depreciation and amortization of $9,060, an increase of $57,691 in accounts payables and accrued
liabilities, an increase in accrued officer payroll of $54,000, and a decrease in prepaid expenses of $1,875. Furthermore, as
of December 31, 2016 we had net cash overdraft repayments of $130.
For
the nine months ended December 31, 2015, net cash flows used in operating activities was $352,000 consisting of a net loss of
$400,971, adjusted by non-cash stock compensation of $65,600, depreciation and amortization of $7,853, a decrease of $23,733 in
accounts payables and accrued liabilities, an increase of $1,250 for accrued officer compensation, and an increase in prepaid
expenses of $1,875. Furthermore, as of March 31, 2015 we had a cash overdraft repayment of $84.
Cash
Flows from Financing Activities
We
have financed our operations primarily from either cash advances or the issuance of equity instruments. We generated cash from
financing activities of $15,187 from shareholder loans and $352,000 from the issuance of common stock in the nine months ended
December 31, 2016 and 2015, respectively.
PLAN
OF OPERATION AND FUNDING
We
expect that our working capital requirements will continue to be funded through a combination of our existing funds and further
issuances of securities. Our working capital requirements are expected to increase in line with the growth of our business.
Our
existing working capital, further advances and debt instruments, and anticipated cash flow are not adequate to fund our operations
over the next twelve months and the Company is dependent upon additional equity raises. We have no lines of credit or other bank
financing arrangements. Generally, we have financed operations to date through the proceeds of our private placement of equity.
In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures
relating to our pursuit of a strategic alternative from the development of our oil and gas leases. We believe that we will need
$250,000 in additional capital to operate for the next twelve months. Additional issuances of equity or convertible debt securities
will result in dilution to our current stockholders. Further, such securities might have rights, preferences or privileges senior
to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available
or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities
that could significantly and materially restrict our business operations. We will have to raise additional funds in the next twelve
months in order to sustain and expand our operations. We currently do not have a specific plan of how we will obtain such funding;
however, we anticipate that additional funding will be in the form of equity financing from the sale of our common stock. We have
and will continue to seek to obtain short-term loans from our director, although no future arrangement for additional loans has
been made. We do not have any agreements with our director concerning these loans. We do not have any arrangements in place for
any future equity financing.
OFF-BALANCE
SHEET ARRANGEMENTS
As
of the date of this Quarterly Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to investors.
GOING
CONCERN
The
independent auditors’ report accompanying our March 31, 2016 financial statements contained an explanatory paragraph expressing
substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result
from this uncertainty.