Notes
To The Consolidated Financial Statements
September
30, 2017
(Unaudited)
Note
1 – Organization and Business Operations
PetroTerra
Corp. was incorporated under the laws of the State of Nevada, on July 25, 2008 and prior to the reverse
merger discussed below, was inactive.
Save
On Transport Inc. (“Save On”) was incorporated in the state of Florida and started business on July 12, 2016 (“Inception
Date”). Save On is a provider of integrated transportation management solutions consisting of brokerage and logistic services
such as transportation scheduling, routing and other value added services related to the transportation of automobiles and other
freight. As an early stage company Petroterra’s current operations are subject to all risks inherent in the establishment
of a new business enterprise.
On
March 30, 2017 (the “Closing Date”), Petroterra Corp. and Save On entered into a Share Exchange Agreement, dated as
of the same date (the “Share Exchange Agreement”). Pursuant to the terms of the Share Exchange Agreement, Save On
became a wholly-owned subsidiary of Petroterra Corp. on the Closing Date (the “Reverse Merger”). The Combined companies
are hereafter referred to as the “Company”.
The
transaction is being accounted for as a reverse merger between a private company and an inactive public company in which Save
On, the private company, is considered to be the acquirer of Petroterra Corp. since the sole shareholder of Save On obtained approximately
80% voting control and management and board control. Accordingly, the reverse merger is accounted for as a recapitalization of
Save On in which the assets and liabilities of both companies, on the transaction date, are recorded at their historical book
values, the equity of Save On is retroactively restated to give effect to the exchange of the Save On shares for Petroterra Corp.
shares, the historical activity of the combined entity is that of Save On and the activity of Petroterra Corp. is recorded only
from the date of the transaction.
Note
2 – Going Concern
The
accompanying unaudited consolidated financial statements are prepared assuming the Company will continue as a going concern, which
contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company is in an
early stage and the net loss and cash used in operations for the nine months ended September 30, 2017 was $746,253 and $154,443,
respectively. The company had a working capital deficit, accumulated deficit and stockholders’ deficit of $776,585, $746,227,
and $776,585 as of September 30, 2017, respectively, and further losses are anticipated in the development of its business. It
is management’s opinion that these matters raise substantial doubt about the Company’s ability to continue as a going
concern for twelve months from the issuance date of this report. The ability of the Company to continue as a going concern is
dependent upon increasing revenues both organically, with increased marketing efforts, and potential acquisition targets, which
would be accretive to the Company. Additional capital may be required for the Company to meet its revenue growth plans. The consolidated
financial statements do not include any adjustments relating to recovery of recorded assets or classification of liabilities should
the Company be unable to continue as a going concern.
Note
3 – Summary of Significant Accounting Policies
Basis
of Presentation
The
unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting
principles in the United States of America and the rules and regulations of the United States Securities and Exchange Commission
for interim financial information. Accordingly, they do not include all the information and disclosures necessary for comprehensive
presentation of financial position, results of operations or cash flow.
PETROTERRA
CORP.
Notes
To The Consolidated Financial Statements
September
30, 2017
(Unaudited)
However,
these unaudited consolidated financial statements reflect all adjustments, consisting 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 consolidated financial statements be read in conjunction with the financial statements of Save On Transport,
Inc. for the year ended December 31, 2016, and notes thereto included in the Company’s current report on Form 8-K, filed
on April 5, 2017. The Company follows the same accounting policies in the preparation of its annual and interim reports. The results
of operations in interim periods are not necessarily an indication of operating results to be expected for the full year.
Principles
of Consolidation
The
unaudited consolidated financial statements of the Company include the consolidated accounts of Petroterra Corp. and its wholly
owned subsidiary, Save On. All intercompany accounts and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of the unaudited consolidated financial statements, in accordance with United States Generally Accepted Accounting
Principles, requires management to make estimates and assumptions about future events that affect the amounts reported in the
Company’s consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates and periodically
adjusts its estimates and assumptions, based on historical experience, the impact of the current economic environment, and other
key factors. Volatile energy markets, as well as changes in consumer spending, have increased the inherent uncertainty in such
estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ
significantly from these estimates. Significant estimates included in the accompanying unaudited consolidated financial statements
and footnotes include the valuation of accounts receivable and the valuation of derivative instruments.
Revenue
Recognition and Cost of Revenue
The
Company recognizes operating revenues and the related direct costs of such revenue as of the date the freight is delivered by
the carrier. Customer payments received prior to delivery are recorded as a deferred revenue liability and related carrier fees
if paid prior to delivery are recorded as a deferred expense asset. In accordance with ASC Topic 605-45, Principal Agent Considerations,
the Company recognizes revenue on a gross basis.
PETROTERRA
CORP.
Notes
To The Consolidated Financial Statements
September
30, 2017
(Unaudited)
Note
3 – Summary of Significant Accounting Policies (Continued)
Derivative
Financial Instruments
The
Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates
all of its financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or
contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities,
the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in
the fair value reported as charges or credits to income.
For
option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative
instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such
instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Upon conversion
of a note where the embedded conversion option has been bifurcated and accounted for as a derivative liability, the Company records
the shares at fair value, relieves all related notes, derivatives and debt discounts and recognizes a net gain or loss on debt
extinguishment.
Fair
Value of Financial Instruments
The
carrying amounts reported in the balance sheets for cash, accounts payable and accrued expenses approximate their fair values
based on the short-term maturity of these instruments. The carrying amount of the Company’s promissory note obligations
approximate fair value, as the terms of these notes are consistent with terms available in the market for instruments with similar
risk.
We
account for our derivative financial instruments, consisting of certain conversion options embedded in our convertible instruments,
at fair value using level 3 inputs. We determine the fair value of these derivative liabilities using the Black-Scholes option
pricing model when appropriate, and in certain circumstances using binomial lattice models or other accepted valuation practices.
When
determining the fair value of our financial assets and liabilities using the Black-Scholes option pricing model, we are required
to use various estimates and unobservable inputs, including, among other things, expected terms of the instruments, expected volatility
of our stock price, expected dividends, and the risk-free interest rate. Changes in any of the assumptions related to the unobservable
inputs identified above may change the fair value of the instrument. Increases in expected term, anticipated volatility and expected
dividends generally result in increases in fair value, while decreases in the unobservable inputs generally result in decreases
in fair value.
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 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. Dilutive securities as of September 30, 2017 include convertible notes
which were convertible into approximately 49,433,749 common shares as of September 30, 2017 and Series A convertible preferred
stock which were convertible into 50,542,518 common shares as of September 30, 2017.
PETROTERRA
CORP.
Notes
To The Consolidated Financial Statements
September
30, 2017
(Unaudited)
Recent
Accounting Pronouncements
In
August 2015, FASB issued ASU 2015-14, Deferral of the Effective Date, which amends ASC Topic 606, Revenue from Contracts with
Customers. ASC Topic 606 was established by previously-issued ASU 2014-09, discussed below. For public business entities, the
amendments in ASU 2015-14 defer the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017.
Early adoption of ASU 2014-09 is permitted. In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers, which
established ASC Topic 606. The new revenue recognition standard eliminates all industry-specific guidance and provides a five-step
analysis of transactions to determine when and how revenue is recognized. The premise of the guidance is that a company should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the company expects to be entitled in exchange for those goods or services. The amendments in this ASU may be applied
retrospectively to each period presented, or as a cumulative effect adjustment as of the date of adoption. Management is currently
evaluating the accounting, transition and disclosure requirements of the standard and expects to know the financial statement
impact upon adoption in 2018.
PETROTERRA
CORP.
Notes To The Consolidated Financial Statements
September 30, 2017
(Unaudited)
Note
4 - Deferred Expenses
The
following table presents the composition of deferred expenses:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
Carrier
Fees
|
|
$
|
—
|
|
|
$
|
1,950
|
|
Deferred
expenses
|
|
$
|
—
|
|
|
$
|
1,950
|
|
Note
5 - Accounts Payable and Accrued Liabilities
The
following table presents the composition of accounts payable and accrued liabilities:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
Accounts payable
|
|
$
|
113,386
|
|
|
$
|
1,318
|
|
Accrued interest
|
|
|
17,528
|
|
|
|
—
|
|
Other accrued
expenses
|
|
|
41,860
|
|
|
|
—
|
|
Accounts
payable and accrued expense
|
|
$
|
172,774
|
|
|
$
|
1,318
|
|
PETROTERRA
CORP.
Notes To The Consolidated Financial Statements
September 30, 2017
(Unaudited)
Note
6 – Convertible Promissory Notes Payable
Convertible
promissory notes at September 30, 2017 are as follows:
|
|
2017
|
|
Red Diamond Partners, LLC,
April 25, 2017, net of derivative debt discount of $186,425
|
|
$
|
83,575
|
|
RDW Capital,
LLC., September 30, 2017, net of original issuance discount of $157,069 and derivative debt discount of $22,438
|
|
|
60,493
|
|
Convertible
promissory notes payable, net
|
|
$
|
144,068
|
|
We
evaluated the convertible promissory notes transactions in accordance with ASC Topic 815, Derivatives and Hedging, and determined
that the conversion feature of the convertible promissory notes were not afforded the exemption for conventional convertible instruments
due to their respective variable conversion rate and price protection provision. The Company recorded a derivative liability which
is adjusted at each reporting period to its fair value (See Note 9).
RDW
Capital, LLC.
On
March 30, 2017, we assumed a convertible note payable to RDW Capital, LLC which was dated February 16, 2017. The $4,000 note payable
bears interest at 12% per annum. The note matures on August 16, 2017 and is secured by the share reservation of 300% of the number
of shares of common stock issuable upon a conversion. The note is convertible into shares of common stock at a price equal to
a variable conversion price of fifty percent (50%) of the volume-weighted averages for the ten (10) days preceding the date of
conversion and contains price protection on the conversion rate. On August 10, 2017, the principal of $4,000, accrued interest
of $225 and prepayment fees of $634 were paid.
On
March 30, 2017, we assumed a convertible note payable to RDW Capital, LLC which was dated March 15, 2017. The $2,464 note payable
bears interest at 12% per annum. The note matures on September 15, 2017 and is secured by the share reservation of 300% of the
number of shares of common stock issuable upon a conversion. The note is convertible into shares of common stock at a price equal
to a variable conversion price of fifty percent (50%) of the volume-weighted averages for the ten (10) days preceding the date
of conversion and contains price protection on the conversion rate. On August 10, 2017, the principal of $2,464, accrued interest
of $116 and prepayment fees of $387 were paid.
The
payoffs of the above two convertible notes resulted in a gain on debt extinguishment of $10,169 related to the two bifurcated
derivatives. The prepayment fees of $1,021 were included as interest expense.
PETROTERRA
CORP.
Notes To The Consolidated Financial Statements
September 30, 2017
(Unaudited)
Note
6 – Convertible Promissory Notes Payable (continued)
Red
Diamond Partners LLC
On
April 25, 2017, the Company entered into a Securities Purchase Agreement with RedDiamond Partners
LLC (“RedDiamond”) pursuant to which the Company would issue to RedDiamond Convertible Promissory Notes in
an aggregate principal amount of up to $355,000, which includes a purchase price of $350,000 and transaction costs of $5,000.
On April 25, 2017, the Company received the initial Tranche of $95,000, which is a loan amount of $100,000, net of the
$5,000 fee, recorded as convertible note payable. The initial Tranche matures on April 25, 2018 and each tranche will mature
1 year after the date of such funding. The second Tranche was received on June 2, 2017 for $85,000 and the third Tranche for
$85,000 was received on August 8, 2017 upon filing of the Registration Statement. The fourth Tranche will be for $85,000 and
was to occur ninety (90) days after the First Closing, however, as of the date of this filing, the fourth tranche has not yet been received. The Purchaser shall not be required to fund any Tranche subsequent
to the first Tranche if there is an event of default as described in the promissory notes. The RedDiamond Note bears interest
at a rate of 12% per annum and is convertible into shares of the Company’s common stock at RedDiamond’s option at
65% of the lowest VWAP for the previous ten trading days preceding the conversion.
In
connection with the issuance of the Convertible Promissory Note above, the Company determined that the terms of the Convertible
Promissory Note included a down-round provision under which the conversion price could be affected by future equity offerings
undertaken by the Company.
Accordingly,
under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”,
the embedded conversion option contained in the convertible instruments were accounted for as derivative liabilities at the date
of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion
option derivatives were determined using the Black-Scholes valuation model. On the initial measurement dates of tranches received
prior to September 30, 2017, the fair value of the embedded conversion option derivatives of $376,841 was recorded as derivative
liabilities and was allocated as a debt discount up to the net proceeds of the Convertible Promissory Notes of $265,000 with the
remainder of $111,841 charged as initial derivative expense.
On
the three initial measurement dates, the fair value of the derivative liabilities was estimated using the Black-Scholes valuation
model with the following assumptions: dividend rate 0%, expected term 1.0 year, expected volatility ranging from 319% to 526%,
risk-free interest rate ranging from 1.09% to 1.24%.
The
balance of the note payable as of September 30, 2017 amounted to $83,575 comprised of principal balance of $270,000, net debt
discount relating to the bifurcated derivative of $186,425.
PETROTERRA
CORP.
Notes To The Consolidated Financial Statements
September 30, 2017
(Unaudited)
Note
6 – Convertible Promissory Notes Payable (continued)
RDW
Capital, LLC.
On
June 30, 2017, the Company issued RDW Capital, LLC a senior convertible note in the aggregate principal amount of $240,000, for
an aggregate purchase price of $30,000 of which $15,000 had been recorded as advance from lender as of March 31, 2017 and the
remaining $15,000 received on June 30, 2017. The principal due under the Note accrues interest at a rate of 12% per annum. All
principal and accrued interest under the Note is due six months following the issue date of the Note, and is convertible into
shares of the Company’s common stock, at a conversion price equal to fifty (50%) of the lowest volume-weighted average price
for the previous ten trading days immediately preceding the conversion. The Note includes anti-dilution protection, including
a down-round provision under which the conversion price could be affected by future equity offerings undertaken by the Company,
as well as customary events of default, including non-payment of the principal or accrued interest due on the Note. Upon an event
of default, all obligations under the Note will become immediately due and payable and the Company will be required to make certain
payments to the Lender.
Accordingly,
under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”,
the embedded conversion option contained in the convertible instruments were accounted for as derivative liabilities at the date
of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion
option derivatives were determined using the Black-Scholes valuation model. On the initial measurement date, the fair value of
the embedded conversion option derivatives of $527,477 was recorded as derivative liabilities and was allocated as a debt discount
up to the net proceeds of the Convertible Promissory Notes of $30,000 with the remainder of $497,477 charged as initial derivative
expense.
On
June 30, 2017, initial measurement date, the fair value of the derivative liabilities was estimated using the Black-Scholes valuation
model with the following assumptions: dividend rate 0%, expected term 1.0 year, expected volatility of 404%, risk-free interest
rate of 1.24%.
The
balance as of September 30, 2017 amounted to $60,493, comprised of principal balance of $240,000, and net of Original Issue Discount
(OID) of $157,069 and debt discount relating to the bifurcated derivative of $22,438.
Note
7 – Commitments and Contingencies
Related
Party – Lease
The
Company executed a sublease agreement with an affiliate for office space for a one year term. The sublease commenced on August
1, 2016 at a rate of $300 per month. The lease was extended an additional year on August 1, 2017.
Common
stock ownership
As
a result of the Company’s non-effectiveness of the 1 for 30 reverse stock-split, which was previously represented to have
been effective prior to the March 30, 2017 reverse merger, the Company’s Chief Executive Officer’s post reverse merger
common stock ownership percentage has been reduced from approximately 99% to approximately 80%. The Company and the Chief Executive
Officer are exploring remedies, which may include capital stock or other consideration, to correct this situation.
Other
From
time to time, we may be involved in litigation relating to claims arising out of our operation in the normal course of business.
As of September 30, 2017, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect
on results of our operations.
PETROTERRA
CORP.
Notes
To The Consolidated Financial Statements
September
30, 2017
(Unaudited)
Note
8– Stockholders’ Equity
Preferred
The
preferred stock is designated Series A Convertible Preferred Stock. Each share of preferred stock has a par value of $.001 and
a stated value of $1.00. Dividends are payable at the rate per share of 7% per annum cumulative based on the stated value. The
Series A preferred shares have no voting rights, except as required by law. Each share of preferred stock is convertible based
on the stated value at a conversion price of $.0833 at the option of the holder; provided, however, if a triggering event occurs,
as defined in the document, the conversion price shall thereafter be reduced, and only reduced, to equal forty percent of the
lowest VWAP during the thirty consecutive trading day period prior to the conversion date. The beneficial ownership limitation
attached to conversion is 4.99%, which can be decreased or increased, upon not less than 61 days notice to the Company,
but in no event exceeding 19.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance
of common stock upon conversion of the preferred stock. After 36 months the Company has the right to redeem all, but not less
than all, of the outstanding preferred shares in cash at a price equal to 130% of the stated value plus any accrued but unpaid
dividends thereon. Undeclared cumulative preferred stock dividends
were approximately $210,000 as of September 30, 2017.
Recapitalization
On
March 30, 2017, the Company closed the Share Exchange Agreement between Save on and Petroterra Corp. and is deemed to have issued
4,000,000 Series A convertible preferred shares and 28,323,588 common shares to the original shareholders of Petroterra Corp.
The Company acquired assets of $10,000 and assumed liabilities of $48,458.
PETROTERRA
CORP.
Notes
To The Consolidated Financial Statements
September
30, 2017
(Unaudited)
NOTE
9 – Fair Value of Financial Instruments
Disclosures
about fair value of financial instruments, requires disclosure of the fair value information, whether or not recognized in the
balance sheet, where it is practicable to estimate that value. As of September 30, 2017, the amounts reported for cash, accrued
interest and other expenses, notes payables, and derivative liability approximate the fair value because of their short maturities.
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes
the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).
These tiers include:
●
|
Level
1, defined as observable inputs such as quoted prices for identical instruments in active markets;
|
|
|
●
|
Level
2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as
quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that
are not active; and
|
|
|
●
|
Level
3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own
assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value
drivers are unobservable.
|
We
measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring
basis are as follows at September 30, 2017:
|
|
Total
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
and warrant liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
771,473
|
|
Total liabilities
measured at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
771,473
|
|
The
following is a reconciliation of the derivative liability for which Level 3 inputs were used in determining the approximate fair
value:
Beginning balance as of December 31, 2016
|
|
$
|
-
|
|
Fair value of derivative
liabilities assumed in merger
|
|
|
7,263
|
|
Initial fair value of derivative instruments
issued in 2017
|
|
|
904,319
|
|
(Gain) Loss on extinguishment of debt
|
|
|
(10,169
|
)
|
(Gain) Loss on
change in derivative liability
|
|
|
(129,940
|
)
|
Ending balance as of September
30, 2017
|
|
$
|
771,473
|
|
PETROTERRA
CORP.
Notes
To The Consolidated Financial Statements
September
30, 2017
(Unaudited)
NOTE
9 – Fair Value of Financial Instruments (continued)
Convertible
Debentures
The
derivative liabilities related to the embedded conversion feature were valued using the Black-Scholes option valuation model and
the following assumptions on the following dates:
|
|
September
30, 2017
|
|
|
|
Embedded
Conversion Feature
|
|
Risk
free interest rate
|
|
|
0.89%
to 1.31
|
%
|
Expected
volatility
|
|
|
316.90%
to 404.54
|
%
|
Expected
life (in years)
|
|
|
0.38
to 1.00
|
|
Expected
dividend yield
|
|
|
-
|
|
Note
10– Related Party Transactions
The
Company executed a sublease agreement with an affiliate for office space for a one year term. The sublease commenced on August
1, 2016 at a rate of $300 per month. The lease was extended an additional year on August 1, 2017. Rent expense to the affiliate
was $2,700 in the nine months ended September 30, 2017.
Note
11 – Subsequent Events
In
accordance with ASC 855-10, the Company has analyzed its operations subsequent to September 30, 2017 to the date these financial
statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial
statements.
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.