Notes
To The Consolidated Financial Statements
December
31, 2017 and 2016
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 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 year ended December 31, 2017 was $744,805 and $152,185, respectively. The company
had a working capital deficit, accumulated deficit and stockholders’ deficit of $775,137, $744,779, and $775,137 as of December
31, 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
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.
PETROTERRA
CORP.
Notes
To The Consolidated Financial Statements
December
31, 2017 and 2016
Principles
of Consolidation
The
consolidated financial statements of the Company include the 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 consolidated financial statements, in accordance with US-GAAP, 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 consolidated financial statements and footnotes include the valuation of accounts receivable, valuation of intangible
assets, the valuation of derivative instruments and valuation of deferred tax assets.
Cash
and Cash Equivalents
The
Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents.
As of December 31, 2017 and 2016, the Company did not have any cash equivalents. The Company’s cash balance does
not exceed federal insured limits.
Accounts
Receivable
Accounts
receivable are uncollateralized customer obligations due under normal trade terms. The Company records allowances for doubtful
accounts based on customer-specific analysis and general matters such as current assessment of past due balances and economic
conditions. The Company writes off accounts receivable when they become uncollectible. Management identifies a delinquent customer
based upon the delinquent payment status of an outstanding invoice, generally greater than 30 days past due date. The delinquent
account designation does not trigger an accounting transaction until such time the account is deemed uncollectible. The allowance
for doubtful accounts is determined by examining the reserve history and any outstanding invoices that are over 30 days past due
as of the end of the reporting period. Accounts are deemed uncollectible on a case-by-case basis, at management’s discretion
based upon an examination of the communication with the delinquent customer and payment history. Typically, accounts are only
escalated to “uncollectible” status after multiple attempts at collection have proven unsuccessful.
Revenue
Recognition and Cost of Revenue
The
Company recognizes operating revenues and the related direct costs of such revenue which includes carrier fees and dispatch costs
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.
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents,
and accounts receivable. Concentrations of credit risk with respect to accounts receivable are minimal due to the collection history
and due to the nature of the Company’s client base. The Company limits its credit risk with respect to cash by maintaining
cash balances with high-quality financial institutions. At times, the Company’s cash may exceed U.S. Federally insured limits,
and as of December 31, 2017 and 2016, the Company did not have cash and cash equivalents on deposit that exceeded the federally
insured limit.
Advertising
The
Company follows the policy of charging the costs of advertising to expenses as incurred. The Company incurred $109,667 and $0
in advertising costs during the year ended December 31, 2017 and for the period from July 12, 2016 (inception) to December 31,
2016, respectively.
PETROTERRA
CORP.
Notes
To The Consolidated Financial Statements
December
31, 2017 and 2016
Intangible
Assets
The
Company’s intangible assets are recorded at cost and amortized over the expected useful life.
In
November 2017 the Company acquired a Motor Carrier number (MC) and a Department of Transportation number (DOT) from a third party
for $36,500. The Company reviews its intangible assets for impairment annually and determined that the carrying value was not
recoverable in accordance with ASC 350, Intangibles - Goodwill and Other. An impairment was recorded for the entire amount as
of December 31, 2017.
Long-Lived
Assets
Our
company reviews its property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The test for impairment is required to be performed by management
at least annually. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset
to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of
the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
Income
Taxes
The
Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to operating loss and tax credit carryforwards, as well as differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. The effect on deferred tax assets
and liabilities of changes in tax rates is recognized in income in the period that includes the enactment date.
The
Company does not recognize a tax benefit for uncertain tax positions unless it concludes that it is more likely than not that
the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position.
If the recognition threshold is met, the Company recognizes a tax benefit measured at the largest amount of the tax benefit that,
in the management’s judgment, is greater than 50% likely to be realized. The Company records interest and penalties related
to unrecognized tax positions in “Income tax expense” in the income statement.
Derivative
Financial Instruments
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 receivable, 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 December 31, 2017 include convertible notes
which were convertible into approximately 84,835,079 common shares as of December 31, 2017 and Series A convertible preferred
stock which were convertible into 51,380,552 common shares as of December 31, 2017.
PETROTERRA
CORP.
Notes
To The Consolidated Financial Statements
December
31, 2017 and 2016
Recent
Accounting Pronouncements
In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, as a new Topic, Accounting Standards Codification
(“ASC”) Topic 606, which supersedes existing accounting standards for revenue recognition and creates a single framework.
Additional updates to Topic 606 issued by the FASB in 2015 and 2016 include the following:
●
ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective
date of the new guidance such that the new provisions will now be required for fiscal years, and interim periods within those
years, beginning after December 15, 2017.
●
ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the
implementation guidance on principal versus agent considerations (reporting revenue gross versus net).
●
ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies
the implementation guidance on identifying performance obligations and classifying licensing arrangements.
●
ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which
clarifies the implementation guidance in a number of other areas.
The
underlying principle is to use a five-step analysis of transactions to recognize revenue when promised goods or services are transferred
to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard
permits the use of either a retrospective or modified retrospective application. ASU 2014-09 and ASU 2016-12 are effective for
annual reporting periods beginning after December 15, 2017. The Company will adopt ASC 606 using the modified retrospective method
for annual and interim reporting periods beginning January 1, 2018. The Company has aggregated and reviewed its contracts that
are within the scope of ASC 606. Based on its evaluation, the Company does not anticipate the adoption of ASC 606 will have a
material impact on its balance sheet or related consolidated statements of earnings, equity or cash flows. Accordingly, the Company
will continue to recognize revenue at the time services are delivered.
In
July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives
and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement
of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception. For public business entities, the amendments in Part I of this Update
are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other
entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim
periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption
in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of
the beginning of the fiscal year that includes that interim period. The amendments in Part II of this Update do not require any
transition guidance because those amendments do not have an accounting effect. The Company is currently in the process of evaluating
the impact of the adoption on its consolidated financial statements.
There
are currently no other accounting standards that have been issued but not yet adopted that we believe will have a significant
impact on our consolidated financial position, results of operations or cash flows upon adoption.
PETROTERRA
CORP.
Notes To The Consolidated Financial Statements
December 31, 2017 and 2016
Note
4 – Accounts Receivable
The
following table presents the accounts receivable:
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Accounts receivable
|
|
$
|
254,150
|
|
|
$
|
-
|
|
Allowance for
doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
Accounts
Receivable
|
|
$
|
254,150
|
|
|
$
|
-
|
|
Bad
debt expense in 2017 was $1,300 related to a direct write-off of accounts receivable.
Note
5 - Deferred Expenses
The
following table presents the composition of deferred expenses:
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Carrier
Fees
|
|
$
|
—
|
|
|
$
|
1,950
|
|
Deferred
expenses
|
|
$
|
—
|
|
|
$
|
1,950
|
|
Note
6 - Accounts Payable and Accrued Liabilities
The
following table presents the composition of accounts payable and accrued liabilities:
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Accounts payable
|
|
$
|
154,278
|
|
|
$
|
1,318
|
|
Accrued interest
|
|
|
33,168
|
|
|
|
—
|
|
Other accrued
expenses
|
|
|
36,748
|
|
|
|
—
|
|
Accounts
payable and accrued expense
|
|
$
|
224,194
|
|
|
$
|
1,318
|
|
PETROTERRA
CORP.
Notes To The Consolidated Financial Statements
December 31, 2017 and 2016
Note
7 – Convertible Promissory Notes Payable
Convertible
promissory notes at December 31, 2017 are as follows:
|
|
2017
|
|
Red Diamond Partners, LLC,
net of derivative debt discount of $118,370
|
|
$
|
151,630
|
|
RDW Capital,
LLC., net of original issuance discount of $104,137 and derivative debt discount of $14,877
|
|
|
120,986
|
|
Convertible
promissory notes payable, net
|
|
$
|
272,616
|
|
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
December 31, 2017 and 2016
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 Notes bear interest
at a rate of 12% per annum and are 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 December 31, 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 December 31, 2017 amounted to $151,630 comprised of principal balance of $270,000, net of debt
discount relating to the bifurcated derivative of $118,370.
PETROTERRA
CORP.
Notes To The Consolidated Financial Statements
December 31, 2017 and 2016
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 December 31, 2017 amounted to $120,986, comprised of principal balance of $240,000, and net of Original Issue Discount
(OID) of $104,137 and debt discount relating to the bifurcated derivative of $14,877.
On
December 31, 2017 the Company failed to make its required maturity date payment of principal and interest. In accordance
with the note, the Company entered into default on January 3, 2018 which increased the interest rate to 2% per month. As
of the date of this report the lender has not exercised any of its remedies provided for in the note. One of the remedies
the lender may request is an immediate repayment of the loan at 125% of the principal balance, which would result in the recording
of $60,000 penalty expense and the related liability.
Note
8 – 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 sublease was extended on August 1, 2017 and terminated on December 14, 2017, at which
point the Company signed a new one-year term lease with the third-party landlord directly for the entire space previously occupied
by the affiliate. The monthly rent under the renewed lease is $1,600 plus maintenance charges and taxes.
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 December 31, 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
December
31, 2017 and 2016
Note
9– 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 $280,000 as of December 31, 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
December
31, 2017 and 2016
NOTE
10 – 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 December 31, 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 December 31, 2017:
|
|
Total
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
and warrant liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
601,615
|
|
Total liabilities
measured at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
601,615
|
|
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
|
|
|
904,318
|
|
(Gain) Loss on extinguishment of debt
|
|
|
(10,169
|
)
|
(Gain) Loss on
change in derivative liability
|
|
|
(299,797
|
)
|
Ending balance as of December 31,
2017
|
|
$
|
601,615
|
|
PETROTERRA
CORP.
Notes
To The Consolidated Financial Statements
December
31, 2017 and 2016
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:
|
|
|
December
31, 2017
|
|
|
|
|
Embedded
Conversion Feature
|
|
Risk free interest rate
|
|
|
0.66%
to 1.76
|
%
|
Expected volatility
|
|
|
258.56%
to 526.52
|
%
|
Expected life (in years)
|
|
|
0.38
to 1.00
|
|
Expected dividend yield
|
|
|
-
|
|
Note
11– 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 sublease was extended on August 1, 2017 and terminated on December 14, 2017, at which
point the Company signed a new one-year term lease with the third party landlord directly for the entire space previously occupied
by the affiliate. Rent expense to the affiliate was $3,300 in the year ended December 31, 2017 and $1,500 from July 12, 2016 (inception)
through December 31, 2016.
The
Company utilized the affiliate as one of the carriers, providing auto transportation, in the normal course of business. The carrier
fees incurred to the affiliate were $13,350 for the year ended December 31, 2017.
During
2017 certain revenue and related costs initially recorded by the Company were deemed as affiliate revenue and related costs and
were therefore reversed. This was caused by either customers who had not yet approved the Company as a vendor or remittances which
were made to the affiliate directly. Such remittances were then remitted from the affiliate back to the Company. The outcome resulted
in a net due to affiliate of $23,551 as of December 31, 2017.
The
Company utilized various ancillary services of the affiliate including software and certain technology without any charge by the
affiliate.
The
Company also utilized certain employees of the affiliate in 2017 without any charge by the affiliate. As a result the Company
did not incur any labor charges for the period January 1, 2017 through December 15, 2017, except the salary of the Chief Executive
Officer.
Note
12 –Concentrations
As
of December 31, 2017, two customers represented 23% and 12% respectively of the Company’s total net revenues. No
single customer accounted for more than 5% of the Company’s total net revenues in 2016.
As
of December 31, 2017, two customers represented 12% and 10% respectively of the Company’s net accounts receivable.
As
of December 31, 2017 and 2016, we had no carriers that were in excess of 10% in either carrier fees or as part of accounts payable.
All
revenues are derived from customers in the United States.
Note
13 – Income Taxes
Net
(loss) before income taxes for the years ended December 31, 2017 and for the period from July 12, 2016 (inception) through December
31, 2016 were approximately $(744,805) and $26, respectively.
The
components for the provision of income taxes include:
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
30,600
|
|
|
$
|
-
|
|
Less: valuation
allowance
|
|
|
(30,600
|
)
|
|
|
-
|
|
Net deferred tax
asset
|
|
$
|
-
|
|
|
$
|
-
|
|
A
reconciliation of the statutory US Federal income tax rate to the company’s effective income tax rate is as follows:
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Federal tax
|
|
|
34.00
|
%
|
|
|
-
|
|
State tax
|
|
|
3.65
|
%
|
|
|
|
|
Permanent items
|
|
|
(31.55
|
)%
|
|
|
|
|
Change in valuation allowance
|
|
|
(4.11
|
)%
|
|
|
|
|
Rate
change from TCJA
|
|
|
(1.99
|
)%
|
|
|
|
|
Effective income
tax rate
|
|
|
0.00
|
%
|
|
|
-
|
|
On
December 22, 2017 the Tax Cuts and Jobs Act (“TCJA”) was signed into law. Pursuant to Staff Accounting Bulletin No
118, a reasonable estimate of the specific income tax effects for the TCJA can be determined and the Company is reporting these
provisional amounts. Accordingly, the company may revise these estimates in the upcoming year.
The
TCJA reduces the corporate income tax rate from 34% to 21% effective January 1, 2018. All deferred income tax assets and liabilities,
including NOL’s have been measured using the new rate under the TCJA and are reflected in the valuation of these assets
as of December 31, 2017.
Deferred
income taxes reflect the net tax effect of temporary differences between amounts recorded for financial reporting purposes and
amounts used for tax purposes. The major components of deferred tax assets are net operating loss (“NOL”) carryforwards
of $30,600.
At
December 31, 2017 a net operating loss (“NOL”) carryforward for federal income tax purposes is $120,600. The
Federal NOL’s will begin to expire in 2037.
The
tax years ended December 31, 2014 through 2017 are considered to be open under statute and therefore may be subject to examination
by the IRS.