PFWIQ Petrone Worldwide Inc (CE)

PETRONE WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

PETRONE WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

Organization

Petrone Worldwide, Inc. (the “Company”) was incorporated as Sheridan Industries, Inc. on December 14, 1998 in the State of Nevada. On December 31, 1998, the Company changed its name to Diabetex International Corp. and effective February 18, 2014, the Company changed its name to Petrone Worldwide, Inc. The Company is in the hospitality industry and is a supplier of tabletop kitchenware and hotel room products thru an exclusive licensing agreement with a leading supplier. Additionally, in August 2016, the Company began providing logistic services to one customer.

On January 29, 2014 and effective March 3, 2014, the Company entered into a purchase agreement (the “Purchase Agreement”) with Petrone Food Works, Inc. (“PFW”) and the shareholder of PFW. Pursuant to the Purchase Agreement, the Company acquired 100% of PFW’s issued and outstanding common stock from the PFW shareholder in exchange for the issuance of 11,760,542 shares of the Company’s common stock, representing 98.4% of the outstanding common stock, (the “Exchange”), after giving effect to a 1-for-500 reverse stock split (the “Reverse Stock Split”) which resulted in 195,607 common shares outstanding prior to the Exchange for liabilities of $30,000. Accordingly, the PFW shareholder became a shareholder of the Company and PFW became a subsidiary of the Company. The Exchange has been accounted for as a reverse-merger and recapitalization since the stockholder of PFW obtained voting and management control of the Company. PFW is the acquirer for financial reporting purposes and the Company is the acquired company. Consequently, the assets and liabilities and the operations reflected in the historical financial statements prior to the Exchange are those of PFW and was recorded at the historical cost basis of PFW, and the consolidated financial statements after completion of the Exchange included the assets and liabilities of both the Company and PFW and the Company’s consolidated operations from the closing date of the Exchange. All share and per share data in the accompanying consolidated financial statements have been retroactively restated to reflect the effect of the Reverse Stock Split and recapitalization. PFW was formed under the laws of the State of Nevada in October 2013.

On July 12, 2017, the board of directors of the Company and a stockholder holding a majority of the Company’s voting power took action by written consent to approve an amendment to the Company’s articles of incorporation to increase its authorized capital stock from 910,000,000 to 2,510,000,000 shares, of which 2,500,000,000 will be common stock and 10,000,000 will be preferred stock. 

Basis of Presentation and Principles of Consolidation

The Company’s unaudited consolidated financial statements include the financial statements of its wholly-owned subsidiary, Petrone Food Works, Inc. (inactive). All significant intercompany accounts and transactions have been eliminated in consolidation.

The unaudited consolidated financial statements for the three and nine months ended September 30, 2017 and 2016 have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments necessary to present fairly our financial position, results of operations, and cash flows as of September 30, 2017 and 2016, and for the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments. Certain information and note disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles have been or omitted. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2016 and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on May 4, 2017. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year.

Accounting Pronouncements Being Evaluated

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This guidance revises the accounting related to leases by requiring lessees to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions. This ASU is effective for annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.

In December 2016, the FASB issued Accounting Standards Update No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, or ASU 2016-20. In May 2016, the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, or ASU 2016-12. In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, or ASU 2016-10. In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross

PETRONE WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017

Basis of Presentation and Principles of Consolidation (continued)

verses Net), or ASU 2016-08. These updates provide additional clarification and implementation guidance on the previously issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09. The amendments in ASU 2016-20 provide technical corrections to various implementation examples and clarifying guidance on the treatment of capitalized advertising costs, impairment testing of capitalized contract costs, performance obligation disclosures and scope exceptions. The amendments in ASU 2016-12 provide clarifying guidance on assessing collectability; noncash consideration; presentation of sales taxes; and transition. The amendments in ASU 2016-10 provide clarifying guidance on the materiality and evaluation of performance obligations; treatment of shipping and handling costs; and determining whether an entity's promise to grant a license provides a customer with either a right to use or a right to access an entity's intellectual property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. Collectively, these updates will require a company to recognize revenue when it transfers 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 adoption of ASU 2016-20, ASU 2016-12, ASU 2016-10 and ASU 2016-08 is to coincide with an entity's adoption of ASU 2014-09, which we intend to adopt for interim and annual reporting periods beginning after December 15, 2017. The new guidance permits adoption through either a full retrospective approach or a modified retrospective approach with a cumulative effect adjustment to retained earnings. We intend to use the modified retrospective approach upon adoption and are still in the process of evaluating the impact that these updates will have on our results of operations, cash flows, consolidated financial position and related disclosures.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

Going concern

These unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying unaudited consolidated financial statements, the Company had a loss from operations of $638,409 and $520,082 for the nine months ended September 30, 2017 and 2016, respectively. The net cash used in operations were $547,961 and $561,867 for the nine months ended September 30, 2017 and 2016, respectively. Additionally, the Company had an accumulated deficit, stockholders’ deficit and working deficit of $6,355,161, $626,153 and $626,153, respectively, at September 30, 2017. These factors raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital.

The Company is seeking to raise capital through additional debt and/or equity financings to fund its operations in the future. Although the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail its operations. These consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Use of estimates

The preparation of consolidated 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 and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates for the nine months ended September 30, 2017 and 2016 include estimates on allowance for doubtful accounts, estimates of current and deferred income taxes and deferred tax valuation allowances, the fair value of derivative liabilities, and the fair value of non-cash equity transactions.

Fair value of financial instruments and fair value measurements

FASB ASC 820 — Fair Value Measurements and Disclosures, defines fair value 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. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are

PETRONE WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017

Fair value of financial instruments and fair value measurements (continued)

based on pertinent information available to the Company on September 30, 2017. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments.

FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

Level 1- Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2- Inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3- Inputs are unobservable inputs that reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, loans, accounts payable, accrued expenses, and other payables approximate their fair market value based on the short-term maturity of these instruments.

The Company analyzes all financial and non-financial instruments with features of both liabilities and equity under the FASB’s accounting standard for such instruments. Under this standard, financial and non-financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The Company accounts for one instrument at fair value using level 3 valuation. 

Fair value of financial instruments and fair value measurements (continued)

A roll forward of the level 3 valuation financial instruments is as follows:

ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.  

  PETRONE WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017

 Accounts receivable

The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. The expense associated with the allowance for doubtful accounts is recognized as general and administrative expense. At September 30, 2017 and December 31, 2016, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $4,875 and $3,375, respectively 

Inventory

Inventory, consisting of finished goods related to the Company’s products are stated at the lower of cost or market utilizing the weighted average method. A reserve is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates.

Derivative liabilities

The Company has certain financial instruments that are embedded derivatives associated with capital raises. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with FASB ASC 815-10-05-4 and 815-40.  This accounting treatment requires that the carrying amount of any embedded derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date.  In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either income or expense. Upon conversion or exercise, the derivative liability is marked to fair value at the conversion date and then the related fair value is reclassified to equity. 

Revenue recognition

Pursuant to the guidance of ASC Topic 605, the Company recognizes sales when persuasive evidence of an arrangement exists, delivery has occurred or services have been provided, the purchase price is fixed or determinable and collectability is reasonably assured. The Company’s standard terms are “ex works”, with title transferring to its customer at the Company suppliers’ loading docks or upon embarkation with risk of loss being assumed by the customer at the shipping point. The Company has a small percentage of sales with other terms, and revenue is recognized in accordance with the terms of the related customer purchase order. Shipping and handling costs billed to customers are recognized in revenue. Advances from customers at September 30, 2017 and December 31, 2016 amounted to $4,904 and $79,780, respectively, and consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue when customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy.

For logistics services performed, the Company recognizes revenue upon performance and completion of services rendered.

PETRONE WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017

Income (loss) per share of common stock

Basic income (loss) per share is computed by dividing net income (loss) available to common shareholders by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period using the treasury stock method and as-if converted method. Potentially dilutive common shares and participating securities are excluded from the computation of diluted shares outstanding if they would have an anti-dilutive impact on the Company’s net losses. The following table presents a reconciliation of basic and diluted net income per share:

For the three and nine months ended September 30, 2017 and 2016, potentially dilutive common shares were excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact on the Company’s net loss and consisted of the following:

NOTE 2 – CONVERTIBLE NOTES

Securities Purchase Agreements and Debentures

Peak securities purchase agreement and debenture  

On October 24, 2016 (the “Issuance Date”), the Company entered into a securities purchase agreement (the “SPA”) with Peak One Opportunity Fund, L.P., an accredited investor (“Peak”), whereby Peak agreed to invest up to $346,500 (the “Purchase Price”) in the Company in exchange for the convertible debentures, upon the terms and subject to the conditions thereof. Pursuant to the SPA, the Company issued a convertible debenture to Peak on October 26, 2016, in the original principal amount of $85,000, which bears interest at 0% per annum (the “First Debenture”), the note is unsecured. On October 26, 2016, the Company received net cash proceeds of $70,000 under this convertible note which was net of debt issuance costs and legal fees of $15,000 which were treated as a debt discount and will be amortized into interest expense over the term of the respective note. Each convertible debenture issued pursuant to the SPA and any accrued and unpaid interest relating to each convertible debenture, is due and payable three years from the issuance date of the respective convertible debenture. Any amount of principal or interest that is due under each convertible debenture, which is not paid by the respective maturity date, will bear interest at the rate of 18% per annum until it is satisfied in full. In connection with the issuance of the SPA, in 2016, the Company issued 650,000 shares of the Company’s common stock to Peak.

PETRONE WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017

Peak is entitled to, at any time or from time to time, convert each convertible debenture issued under the SPA into shares of the Company’s common stock, at a conversion price per share (the “Conversion Price”) equal to either: (i) if no event of default has occurred under the respective convertible debenture and the date of conversion is prior to the date that is one hundred eighty days after the issuance date of the respective convertible debenture, $0.25, or (ii) if an event of default has occurred under the respective convertible debenture or the date of conversion is on or after the date that is one hundred eighty days after the issuance date of the respective convertible debenture, the lesser of (a) $0.25 or (b) 65% of the lowest closing bid price of the common stock for the twenty trading days immediately preceding the date of the date of conversion (provided, further, that if either the Company is not DWAC operational at the time of conversion or the common stock is traded on the OTC Pink at the time of conversion, then 65% shall automatically adjust to 60%), subject in each case to equitable adjustments resulting from any stock splits, stock dividends, ecapitalizations or similar events.

The Company may redeem each convertible debenture issued under the SPA, upon not more than two days written notice, for an amount (the “Redemption Price”) equal to: (i) if the Redemption Date is ninety days or less from the date of issuance of the respective convertible debenture, 105% of the sum of the Principal Amount so redeemed plus accrued interest, if any; (ii) if the Redemption Date is greater than or equal to ninety one days from the date of issuance of the respective convertible debenture and less than or equal to one hundred twenty days from the date of issuance of the respective convertible debenture, 110% of the sum of the Principal Amount so redeemed plus accrued interest, if any; (iii) if the Redemption Date is greater than or equal to one hundred twenty one days from the date of issuance of the respective convertible debenture and less than or equal to one hundred fifty days from the date of issuance of the respective convertible debenture, 120% of the sum of the Principal Amount so redeemed plus accrued interest, if any; (iv) if the Redemption Date is greater than or equal to one hundred fifty one days from the date of issuance of the respective convertible debenture and less than or equal to one hundred eighty days from the date of issuance of the respective convertible debenture, 130% of the sum of the Principal Amount so redeemed plus accrued interest, if any; and (v) if either (1) the respective convertible debenture is in default but the Buyer consents to the redemption notwithstanding such default or (2) the Redemption Date is greater than or equal to one hundred eighty one days from the date of issuance of the respective convertible debenture, 140% of the sum of the Principal Amount so redeemed plus accrued interest, if any.

On May 8, 2017, in connection with the Peak Debentures, the Company entered into a settlement agreement (the “Settlement Agreement”) with Peak. In connection with the Settlement Agreement, the Company paid cash of $69,700 to Peak and Peak waived all existing events of default (including deferred interest at the default rate) and agreed that if the Company elects to redeem all or any part of the then-outstanding debenture, the Redemption Price shall be the par value of the debenture so redeemed. Additionally, on May 9, 2017, the Company entered into a forbearance agreement with Peak (the “Peak Forbearance Agreement”) whereby Peak waived any event of default, as defined in the Peak debenture, that were triggered by the Company’s execution of the December 2, 2016 debt purchase and assignment agreement, as well as any rights provided in the Peak Debenture that would permit Peak to incorporate and terms of the Rosen Note (including but not limited to the use of $0.003 as a conversion price per share). In connection with the Peak Forbearance Agreement, the Company issued 800,000 shares of its common stock valued at $32,000 (see Note 5). Additionally, from June 2017 to August 2017, the Company issued 48,022,483 shares of its common stock upon conversion of note principal of $85,000 (see Note 5).

At September 30, 2017 and December 31, 2016, the principal amount due was $0 and $85,000, respectively, on this note.

Crown Bridge securities purchase agreement and debenture

On November 18, 2016 (the “Closing Date”), the Company consummated a transaction with an accredited investor (“Crown”), whereby, upon the terms and subject to the conditions of that certain securities purchase agreement (the “SPA”), Crown agreed to invest up to $340,000 (the “Purchase Price”) in our Company in exchange for a convertible promissory note in the principal amount of $400,000 (the “Crown Bridge Note”), the note is unsecured. The Crown Bridge Note carries a prorated original issue discount of $60,000 and bears interest at the rate of 6% per year. Through December 31, 2016, Crown funded the two tranches under the Crown Bridge Note in principal amounts aggregating $80,000 and the Company received net proceeds of $62,000 in cash after debt issuance costs of $18,000 which were treated as a debt discount and will be amortized into interest expense over the term of the respective note.

PETRONE WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017

Each tranche funded under the Crown Bridge Note (each a “Tranche”), coupled with the accrued and unpaid interest relating to that respective Tranche, is due and payable twelve months from the funding date of the respective Tranche. Any amount of principal or interest that is due under each Tranche, which is not paid by the respective maturity date, will bear interest at the rate of 22% per annum until it is satisfied in full. Crown is entitled to, at any time or from time to time, convert each Tranche under the Crown Bridge Note into shares of the Company’s common stock, at a conversion price per share equal to fifty five percent (55%) of the lowest traded price of the common stock for the twenty trading days immediately preceding the date of the date of conversion, upon the terms and subject to the conditions of the Note. In connection with the issuance of the First Tranche of the Crowne Bridge Note and SPA, in 2016, the Company issued 450,000 shares of the Company’s common stock to Crown and in connection with the issuance of the first Tranche of the Crowne Bridge Note, in 2016, the Company issued 50,000 shares of the Company’s common stock to Crown.

From January to September 30, 2017, we issued 81,196,207 shares of our common stock upon the conversion of principal note balance of $99,421, accrued interest of $2,125, fees of $6,500 and debt issuance costs of $3,425, (see Note 5).

The Crown Bridge Note contains representations, warranties, events of default, beneficial ownership limitations, prepayment options, and other provisions that are customary of similar instruments. 

On April 12, 2017, in connection with certain with the Crown Bridge Notes, the Company entered into a forbearance agreement (the “Forbearance Agreement”) with Crown whereby Crown waived any event of default, as defined in the Crown Bridge Notes, that were triggered by the Company’s execution of the December 2, 2016 debt purchase and assignment agreement as well as any rights provided in the Crown Bridge Notes that would permit Crown to incorporate and terms of the Rosen Note (including but not limited to the use of $0.003 as a conversion price per share). In connection with this Forbearance Agreement, the Company increased the principal amounts due under the Crown Bridge Notes by $20,000.

At September 30, 2017 and December 31, 2016, the principal amount due on this note was $579 and $80,000, respectively.

Labrys securities purchase agreement and debenture

On February 13, 2017, the Company consummated a transaction with Labrys Fund, L.P. (“Labrys”), whereby, upon the terms and subject to the conditions of that certain securities purchase agreement (the “First SPA”), the Company issued a convertible promissory note in the principal amount of $110,000 (the “First Note”) to Labrys and the note is unsecured. The Company received proceeds of $100,000 in cash from Labrys. The First Note bears interest at the rate of 12% per year. The First Note is due and payable nine months from the issue date of the First Note. The Company may prepay the First Note at any time during the initial 180 days after the issue date of the First Note, without any prepayment penalty, by paying the face amount of the First Note plus accrued interest through such prepayment date. Any amount of principal or interest that is due under the First Note, which is not paid by the maturity date, will bear interest at the rate of 24% per annum until the First Note is satisfied in full. Labrys is entitled to, at any time or from time to time, convert the First Note into shares of the Company’s common stock, at a conversion price per share equal to fifty five percent (55%) of the lowest traded price or closing bid price of the Company’s common stock for the twenty (20) trading days immediately preceding the date of the date of conversion, upon the terms and subject to the conditions of the First Note. In connection with the issuance of the First Note, the Company agreed to issue 1,341,463 shares of its common stock (the “First Shares”) to Buyer, provided, however, that the First Shares must be returned to the Company’s treasury if the Company prepays the First Note as provided above. On February 20, 2017, the Company entered into an amendment to the First Note, whereby the Holder agreed to return the First Shares to treasury. At September 30, 2017 the principal amount due on this note was $79,388.

On February 21, 2017, the Company consummated a transaction with Labrys, whereby, upon the terms and subject to the conditions of that certain securities purchase agreement (the “Second SPA”), the Company issued a convertible promissory note in the principal amount of $65,000 (the “Second Note”) to Labrys and the note is unsecured. The Company received proceeds of $58,000 in cash from rys. The Second Note bears interest at the rate of 12% per year. The Second Note is due and payable nine months from the issue date of the Second Note. The Company may prepay the Second Note at any time during the initial 180 days after the issue date of the Second Note, without any prepayment penalty, by paying the face amount of the Second Note plus accrued interest through such prepayment date. Any amount of principal or interest that is due under the Second Note, which is not paid by the maturity date, will bear interest at the rate of 24% per annum until the Second Note is satisfied in full. Labrys is entitled to, at any time or from time to time, convert the Second Note into shares of the Company’s common stock, at a conversion price per share equal to fifty five percent (55%) of the lowest traded price or closing bid price of the Company’s common stock for the twenty (20) trading days immediately preceding the date of the date of conversion, upon the terms and subject to the conditions of the Second Note. In connection with the issuance of the Second Note, the Company issued 1,497,000 shares of its common stock (the “Second Shares”) to Buyer (see Note 5). The Second Note contains representations, warranties, events of default, beneficial ownership limitations, and other provisions that are customary of similar instruments. These notes contains representations, warranties, events of default, beneficial ownership limitations, and other provisions that are customary of similar instruments. At September 30, 2017 the principal amount due on this note was $0.

On September 12, 2017, the Company consummated a transaction with Labrys, whereby, upon the terms and subject to the conditions of that certain securities purchase agreement (the “Third SPA”), the Company issued a convertible promissory note in the principal amount of $77,000 (the “Third Note”) to Labrys and the note is unsecured. The Company received proceeds of $70,000 in cash from Labrys. The Third Note bears interest at the rate of 12% per year. The Third Note is due and payable nine months from the issue date of the Third Note. The Company may prepay the Third Note at any time during the initial 180 days after the issue date of the Third Note, without any prepayment penalty, by paying the face amount of the Third Note plus accrued interest through such prepayment date. Any amount of principal or interest that is due under the Third Note, which is not paid by the maturity date, will bear interest at the rate of 24% per annum until the Third Note is satisfied in full. Labrys is entitled to, at any time or from time to time, convert the Third Note into shares of the Company’s common stock, at a conversion price per share equal to fifty five percent (55%) of the lowest traded price or closing bid price of the Company’s common stock for the twenty (20) trading days immediately preceding the date of the date of conversion, upon the terms and subject to the conditions of the Third Note. The Third Note contains representations, warranties, events of default, beneficial ownership limitations, and other provisions that are customary of similar instruments. These notes contains representations, warranties, events of default, beneficial ownership limitations, and other provisions that are customary of similar instruments. At September 30, 2017 the principal amount due on this note was $77,000.

On September 29, 2017, the Company consummated a transaction with Labrys, whereby, upon the terms and subject to the conditions of that certain securities purchase agreement (the “Fourth SPA”), the Company issued a convertible promissory note in the principal amount of $80,000 (the “Fourth Note”) to Labrys and the note is unsecured. The Company received proceeds of $65,000 in cash from Labrys. The Fourth Note bears interest at the rate of 12% per year. The Fourth Note is due and payable nine months from the issue date of the Fourth Note. The Company may prepay the Fourth Note at any time during the initial 180 days after the issue date of the Fourth Note, without any prepayment penalty, by paying the face amount of the Fourth Note plus accrued interest through such prepayment date. Any amount of principal or interest that is due under the Fourth Note, which is not paid by the maturity date, will bear interest at the rate of 24% per annum until the Fourth Note is satisfied in full. Labrys is entitled to, at any time or from time to time, convert the Fourth Note into shares of the Company’s common stock, at a conversion price per share equal to fifty five percent (55%) of the lowest traded price or closing bid price of the Company’s common stock for the twenty (20) trading days immediately preceding the date of the date of conversion, upon the terms and subject to the conditions of the Fourth Note. The Fourth Note contains representations, warranties, events of default, beneficial ownership limitations, and other provisions that are customary of similar instruments. At September 30, the principal amount due on this note was $80,000.

PETRONE WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017

These notes contains representations, warranties, events of default, beneficial ownership limitations, and other provisions that are customary of similar instruments.

During August 2017 to September 2017, the Company issued 100,303,316 shares of our common stock upon the conversion of principal note balances of $95,612, accrued interest of $12,681 and interest expense of $15,000.

Auctus Fund, LLC securities purchase agreement and debenture

On April 19, 2017 and amended on May 4, 2017, the Company consummated a transaction with Auctus Fund, LLC. (“Auctus”), whereby, upon the terms and subject to the conditions of a securities purchase agreement (the “Auctus Securities Purchase Agreement”), the Company issued a convertible promissory note in the principal amount of $235,000 (the “Auctus Note”) to Auctus, and the note is unsecured. The Company received proceeds of $217,250 in cash from Auctus which is net of offering costs of $17,750. The Auctus Note bears interest at the rate of 10% per annum and is due on January 12, 2018. The Company may redeem they Auctus Note upon not more than three days written notice, for an amount (the “Redemption Price”) equal to: (i) if the Redemption Date is 120 days or less from the date of issuance of the Auctus Note, 135% of the sum of the Principal Amount so redeemed plus accrued interest, if any; and (ii) if the Redemption Date is greater than or equal to 121 days from the date of issuance of the respective convertible debenture and less than or equal to 240 days from the date of After the expiration of 240 days, The Company shall have no right of prepayment. Any amount of principal or interest that is due under the Auctus Note, which is not paid by the maturity date, will bear interest at the rate of 24% per annum until the Auctus Note is satisfied in full. Auctus is entitled to, at any time or from time to time, convert the Auctus Note into shares of the Company’s common stock, at a conversion price per share equal to fifty five percent (55%) of the lowest traded price or closing bid price of the Company’s common stock for the twenty five (25) trading days immediately preceding the date of the date of conversion, upon the terms and subject to the conditions of the Auctus Note. In connection with the issuance of the Auctus Note, the Company issued 1,509,829 shares of its common stock to Auctus as a commitment fee. These common shares were valued at $0.04 per share, or $63,564, based on the quoted trading price of the Company’s common stock on the note date. In connection with the issuance of these shares, the Company recorded a debt discount of $63,564 which will be amortized into interest expense over the term on the note. The Auctus Note contains representations, warranties, events of default, beneficial ownership limitations, and other provisions that are customary of similar instruments. At September 30, 2017 the principal amount due on this note was $235,000.

EMA Financial, LLC securities purchase agreement and debenture

On June 22, 2017, the Company consummated a transaction with EMA Financial, LLC. (“EMA”), whereby, upon the terms and subject to the conditions of a securities purchase agreement (the “EMA Securities Purchase Agreement”), the Company issued a convertible promissory note in the principal amount of $100,000 (the “EMA Note”) to EMA and the note is unsecured. The Company received proceeds of $90,000 in cash from EMA, which is net of offering costs of $10,000. The EMA Note bears interest at the rate of 10% per annum and is due on June 22, 2018. The Company may redeem the EMAs Note upon not more than three days written notice, for an amount (the “Redemption Price”) equal to: (i) if the Redemption Date is 120 days or less from the date of issuance of the EMA Note, 135% of the sum of the Principal Amount so redeemed plus accrued interest, if any; and (ii) if the Redemption Date is greater than or equal to 121 days from the date of issuance of the respective convertible debenture and less than or equal to 240 days from the date of After the expiration of 240 days, Any amount of principal or interest that is due under the EMA Note, which is not paid by the maturity date, will bear interest at the rate of 24% per annum until the EMA Note is satisfied in full. EMA is entitled to, at any time or from time to time, convert the EMA Note into shares of the Company’s common stock, at a conversion price per share equal to fifty five percent (55%) of the lowest traded price or closing bid price of the Company’s common stock for the twenty five (25) trading days immediately preceding the date of the date of conversion, upon the terms and subject to the conditions of the EMA Note. The EMA Note contains representations, warranties, events of default, beneficial ownership limitations, and other provisions that are customary of similar instruments. At September 30, 2017 the principal amount due on this note was $100,000.

Rosen convertible note 

In 2013, the Company entered into a convertible promissory note agreement with an individual in the amount of $20,000 and the note is unsecured. The note was non-interest bearing, unsecured and was due on demand. The note was convertible into shares of stock of the Company at the market price on the date of conversion. Pursuant to ASC Topic 470-20 (Debt with conversion and other options), since these convertible notes had fixed conversion price at market, the Company determined it had a fixed monetary amounts that can be settled for the debt. Accordingly, no derivative liability was calculated. On December 2, 2016, the Company entered into a debt purchase and assignment agreement with the debt holder whereby a convertible note in the principal amount of $20,000 was assigned to a third party and the Company entered into a new convertible note agreement (the “Rosen Note”) for $20,000 which became immediately convertible at $.003 per common share. On December 2, 2016, $5,700 of the principal amount was converted into 1,900,000 shares of the Company’s common stock. At September 30, 2017 and December 31, 2016, one note remained due in the principal amount of $14,300.  

Derivative liabilities pursuant to securities purchase agreements and debentures

In connection with the issuance of the Peak, Crown Bridge, Labrys, Auctus and EMA debentures, the Company determined that the terms of these debentures contain terms that included a down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception. Accordingly, under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”, the embedded conversion options contained in the convertible instruments are accounted for as derivative liabilities at the date of issuance and are adjusted to fair value through earnings at each reporting date. Additionally, since there is an undeterminable amount of shares issuable under the debentures, the Company accounted for the Rosen Note under the provisions of FASB ASC Topic No. 815-40. The fair value of the embedded conversion option derivatives were determined using the Binomial valuation model.

In connection with the issuance of debentures during the nine months ended September 30, 2017, on the initial measurement date of the Labrys, Auctus and EMA debentures, the fair values of the embedded conversion option derivatives of $1,370,175 was recorded as derivative liabilities, $991,489 was charged to current period operations as initial derivative expense, and $378,686 was recorded as a debt discount and will be amortized into interest expense over the term of the respective note.

At the end of each period, the Company revalued the embedded conversion option derivative liabilities. In connection with these revaluations, the Company recorded a gain on derivative liabilities of $4,366,056 and $57,415 for the nine months ended September 30, 2017 and 2016, respectively.

For the nine months ended September 30, 2017 and 2016, amortization of debt discounts related to convertible debentures amounted to $492,667 and $120,813, respectively, which has been included in interest expenses on the accompanying unaudited consolidated statements of operations. 

During the nine months ended September 30, 2017, the fair value of the derivative liabilities were estimated using the Binomial option pricing method with the following assumptions:

At September 30, 2017 and December 31, 2016, convertible promissory notes consisted of the following:

PETRONE WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017

NOTE 3 – LOANS PAYABLE

On September 23, 2016, the Company entered into a business loan and security agreement with EBF Partners, LLC (the “EBF Loan”). Pursuant to the EBF Loan, the Company borrowed $20,000. The Company is required to repay the EBF Loan by making daily payments of $204 on each business day until the purchased amount of $28,200 is paid in full. Each payment is deducted directly from the Company’s bank accounts. The EBF Loan has an effective interest rate of approximately 116%, is secured by the Company’s assets and is personally guaranteed by the Company’s chief executive officer. On January 25, 2017, the Company entered into a business loan and security agreement with EBF Partners, LLC (the “Second EBF Loan”). Pursuant to the Second EBF Loan, the Company borrowed $25,000 and repaid the EBF Loan. The Company is required to repay the EBF Loan by making daily payments of $235 on each business day until the purchased amount of $35,250 is paid in full. On June 8, 2017, the Company entered into a business loan and security agreement with EBF Partners, LLC (the “Third EBF Loan”). Pursuant to the Third EBF Loan, the Company borrowed $40,000 and repaid the Second EBF Loan. The Company is required to repay the EBF Loan by making daily payments of $376 on each business day until the purchased amount of $56,400 is paid in full. Each payment is deducted directly from the Company’s bank accounts. The Third EBF Loan has an effective interest rate of approximately 123%, is secured by the Company’s assets and is personally guaranteed by the Company’s chief executive officer. On September 22, 2017, the Company entered into a business loan and security agreement with EBF Partners, LLC (the “Fourth EBF Loan”). Pursuant to the Fourth EBF Loan, the Company borrowed $45,000 and repaid the Third EBF Loan. The Company is required to repay the EBF Loan by making daily payments of $423 on each business day until the purchased amount of $63,450 is paid in full. Each payment is deducted directly from the Company’s bank accounts. The Fourth EBF Loan has an effective interest rate of approximately 122.5%, is secured by the Company’s assets and is personally guaranteed by the Company’s chief executive officer. During the nine months ended September 30, 2017, the Company borrowed $110,000 and repaid principal amounts of $80,591 and at September 30, 2017 and December 31, 2016, amounts due under the EBF Loan amounted to $43,938 and $14,529, respectively.

On September 26, 2016, the Company entered into a business loan and security agreement with On Deck Capital, Inc. (the “On Deck Loan”). Pursuant to the On Deck Loan, the Company borrowed $35,000 and received net proceeds of $34,125 after paying a loan origination fee of $875. The Company is required to repay the On Deck Loan by making 252 daily payments of $190 on each business day until the purchased amount of $47,951 is paid in full. Each payment is deducted directly from the Company’s bank accounts. The On Deck Loan has an effective interest rate of approximately 66%, is secured by the Company’s assets and is personally guaranteed by the Company’s chief executive officer. During 2017, the Company repaid principal amounts of $27,764 and at September 30, 2017 and December 31, 2016, amounts due under the On Deck Loan amounted to $0 and $27,764, respectively.

NOTE 4 – RELATED PARTY TRANSACTIONS

From time to time, the Company receives unsecured advances from the Company’s chief executive officer for working capital purposes.  The advances are non-interest bearing and are payable on demand. For the nine months ended September 30, 2017, due to related party activity consisted of the following: 

NOTE 5 - STOCKHOLDERS’ DEFICIT

Preferred stock

The Company’s board of directors authorized the issuance of 10,000,000 the shares of preferred stock in such series and to fix from time to time before issuance thereof the number of shares to be included in any such series and the designation, powers, preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of such series.

On February 19, 2016, the Board of Directors of the Company authorized and approved to create a new class of voting preferred stock called “Series A Preferred Stock”, consisting of 1,000,000 shares authorized, $0.001 par value. The preferred stock is not convertible into any other class or series of stock and has no liquidation preference value. The Series A Preferred Stock was issued to ensure perpetual control of at least 51% is provided to the holder of the Series A Preferred Stock. On all matters to come before the shareholders of the Company, the holders of Series A Preferred shall have that number of votes per share (rounded to the nearest whole share) equal to the product of (x) the number of shares of Series A Preferred held on the record date for the determination of the holders of the shares entitled to vote (the “Record Date”), or, if no record date is established, at the date such vote is taken or any written consent of shareholders is first solicited, and (y) fifty.

PETRONE WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017

In the event that the votes by the holders of the Series A Preferred Stock do not total at least 51% of the votes of all classes of the Company’s authorized capital stock entitled to vote, then regardless of the provisions of this paragraph, in any such case, the votes cast by a majority of the holders of the Series A Preferred Stock shall be deemed to equal 51% of all votes cast at any meeting of stockholders, or any issue put to the stockholders for voting and the Company may state that any such action approved by at least a majority of the holders of the Series A Preferred Stock was had by majority vote of the holders of all classes of the Company’s capital stock.

On February 19, 2016, the Company issued 1,000,000 shares of Series A Preferred Stock to its chief executive officer. In connection with the issuance of Series A preferred shares, the Company recorded a nominal amount of stock-based compensation of $1,000 since the shares had no economic value, on the date of the issuance of such shares, the Company’s chief executive officer was the majority owner of the Company’s common shares, and the value of such voting rights were not readily and objectively measurable.

Common stock issued for services

On August 15, 2017, in connection with Director Agreements, the Company issued 50,000,000 shares of restricted stock to the Company’s CEO /Director. The 50,000,000 shares of common stock are considered fully vested on the date of grant. The shares were valued on the date of grant at their fair value of $205,000, or $0.0041 per share, using the closing quoted trading price of the Company’s common stock on August 15, 2017. During the nine months ended September 30, 2017, the Company recognized stock based compensation of $205,000 on these fully vested shares as there were no forfeiture provision in accordance with ASC 718.

Additionally, for the nine months ended September 30, 2017 and 2016, amortization of other prepaid stock-based consulting fees amounted to $24,289 and $123,405, respectively.

Common stock issued in connections with convertible debts

In January 2017, in connection with the Crown Bridge Note (see Note 2), the Company issued 50,000 shares of the Company’s common stock to Crown. These shares were valued on the date of grant at $0.0685 per share or $3,425 based on the quoted trading price of the Company’s common stock on date of grant with the conversion of $7,722 of debt. In January 2017, in connection with the issuance of these shares, the Company recorded debt issuance costs of $3,425. From June 2017 to September 30, 2017, we issued 81,146,207 shares of our common stock upon the conversion of principal note balance of $91,699, accrued interest of $2,125 and fees of $6,500 (see Note 7).

On February 21, 2017, in connection with the Labry Fund Note, on June 14, 2017 the Company issued 1,497,000 shares of its common stock as a debt issuance cost. These common shares were valued at $0.1654 per share based on the quoted trading price of the Company’s common stock on the note date, In connection with the issuance of these shares, the Company recorded debt issuance costs of $89,605, which is included in interest expense, and a debt discount of $158,000 which is being amortized into interest expense over the term on the note (see Note 2). During August 2017 to September 2017, the Company issued 100,303,316 shares of our common stock upon the conversion of principal note balances of $95,612, accrued interest of $12,681 and interest expense of $15,000 (See Note 2).

On May 4, 2017, in connection with the Auctus Fund Note, the Company issued 1,509,829 shares of its common stock as a debt issuance cost. These common shares were valued at $0.0421 per share based on the quoted trading price of the Company’s common stock on the note date, In connection with the issuance of these shares, the Company recorded a debt discount of $63,564 which is being amortized into interest expense over the term on the note (see Note 2).

On May 8, 2017, the Company entered into a forbearance agreement with Peak (the “Peak Forbearance Agreement”) whereby Peak waived any event of default, as defined in the Peak debenture, that were triggered by the Company’s execution of the December 2, 2016 debt purchase and assignment agreement (See Note 2) as well as any rights provided in the Peak Debenture that would permit Peak to incorporate and terms of the Rosen Note (including but not limited to the use of $0.003 as a conversion price per share). In connection with the Peak Forbearance Agreement, the Company issued 800,000 shares of its common stock. These common shares were valued at $0.04 per share based on the quoted trading price of the Company’s common stock on the agreement date, In connection with the issuance of these shares, the Company recorded debt settlement expense of $32,000. From June 2017 to August 2017, the Company issued 48,022,483 shares of its common stock upon conversion of note principal of $85,000 (see Note 2).

For the period ended September 30, 2017 in connection with the conversion of debt of $280,033 and the payment of fees of $6,500, accrued interest of $14,806 and interest expense of $15,000, the Company issued 259,438,732 shares of common stock. Upon conversion of the debt, the Company reclassified derivative liabilities of $634,366 to paid-in capital.

PETRONE WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017

Common stock issued in connection with warrants exercise