Transportation & Logistics Systems, Inc. - Quarter Report: 2018 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File No. 001-34970

PetroTerra Corp.

(Exact Name of Issuer as specified in its charter)

2833 EXCHANGE COURT, SUITE A

WEST PALM BEACH, FL 33409

(Address of principal executive offices)

561-801-9188

(Issuer’s telephone number)

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by checkmark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the most practicable date:

FORM 10-Q

PETROTERRA CORP.

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PetroTerra Corp. and Subsidiary

Consolidated Balance Sheets

The accompanying notes are an integral part of these consolidated financial statements

PetroTerra Corp. and Subsidiary

Consolidated Statements of Operations

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements

PetroTerra Corp. and Subsidiary

Consolidated Statements Of Cash Flows

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements

PETROTERRA CORP.

Condensed Notes To The Consolidated Financial Statements

March 31, 2018 and 2017

(Unaudited)

Note 1 – Organization and Business Operations

PetroTerra Corp. was incorporated under the laws of the State of Nevada, on July 25, 2008 and prior to the reverse merger discussed below, was inactive.

Save On Transport Inc. (“Save On”) was incorporated in the state of Florida and started business on July 12, 2016 (“Inception Date”). Save On is a provider of integrated transportation management solutions consisting of brokerage and logistic services such as transportation scheduling, routing and other value added services related to the transportation of automobiles and other freight. As an early stage company, Petroterra’s current operations are subject to all risks inherent in the establishment of a new business enterprise.

On March 30, 2017 (the “Closing Date”), Petroterra Corp. and Save On entered into a Share Exchange Agreement, dated as of the same date (the “Share Exchange Agreement”). Pursuant to the terms of the Share Exchange Agreement, Save On became a wholly-owned subsidiary of Petroterra Corp. on the Closing Date (the “Reverse Merger”). The Combined companies are hereafter referred to as the “Company”.

The transaction is being accounted for as a reverse merger between a private company and an inactive public company in which Save On, the private company, is considered to be the acquirer of Petroterra Corp. since the sole shareholder of Save On obtained approximately 80% voting control and management and board control. Accordingly, the reverse merger is accounted for as a recapitalization of Save On in which the assets and liabilities of both companies, on the transaction date, are recorded at their historical book values, the equity of Save On is retroactively restated to give effect to the exchange of the Save On shares for Petroterra Corp. shares, the historical activity of the combined entity is that of Save On and the activity of Petroterra Corp. is recorded only from the date of the transaction.

Note 2 – Going Concern

The accompanying unaudited consolidated financial statements are prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company is in an early stage and the net income and cash used in operations for the three months ended March 31, 2018 was $60,925 and $13,309, respectively. The company had a working capital deficit, accumulated deficit and stockholders’ deficit of $714,212, $683,854, and $714,212 as of March 31, 2018, respectively, and further losses are anticipated in the development of its business. Furthermore, on December 31, 2017, the Company failed to make a required maturity date payment of principal and interest on a $240,000 note. 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 notified the Company of default and 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. In addition, on April 25, 2018, the Company failed to make its required maturity date payment of principal and interest on a convertible promissory note of $100,000. In accordance with the note, the Company entered into default on April 27, 2018, which increased the interest rate to 1.5% per month. As of the date of this report the lender has not notified the Company of default and 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 $25,000 penalty expense and the related liability.

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. Our future financial results are also uncertain due to a number of factors, some of which are outside our control. These risk factors include, but are not limited to, our ability to raise additional funding and the results of our proposed operations. 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.

PETROTERRA CORP.

Condensed Notes To The Consolidated Financial Statements

March 31, 2018 and 2017

(Unaudited)

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 for interim financial information. Accordingly, they do not include all the information and disclosures necessary for comprehensive presentation of financial position, results of operations or cash flow. However, these unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these unaudited interim consolidated financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2017, and notes thereto included in the Company’s annual report on Form 10-K, filed on April 17, 2018. The Company follows the same accounting policies in the preparation of its annual and interim reports. The results of operations in interim periods are not necessarily an indication of operating results to be expected for the full year.

Principles of Consolidation

The unaudited consolidated financial statements of the Company include the 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 audited 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.

Revenue Recognition and Cost of Revenue

On January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition. This ASC is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASC also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer service orders, including significant judgments. Our payment terms are net 30 days from acceptance of delivery. We do not incur incremental costs obtaining service orders from our customers, however, if we did, because all of our contracts are less than a year in duration, any contract costs incurred would be expensed rather than capitalized. Our adoption of this ASC, resulted in no cumulative effect at January 1, 2018 and no change prospectively to our results of operations or financial condition.

PETROTERRA CORP.

Condensed Notes To The Consolidated Financial Statements

March 31, 2018 and 2017

(Unaudited)

The Company recognizes operating revenues and the related direct costs of such revenue which included carrier fees and dispatch costs as of the date the freight is delivered by the carrier which is when the performance obligation is satisfied. 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 606, the Company recognizes revenue on a gross basis.

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 Income (Loss) Per Share

The Company computes income (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 income (loss) per share is computed by dividing net income (loss) by the weighted average number of outstanding shares of common stock during the period. Diluted income (loss) per share gives effect to all dilutive potential shares of common stock outstanding during the period. Dilutive income (loss) per share excludes all potential shares of common stock if their effect is anti-dilutive.

PETROTERRA CORP.

Condensed Notes To The Consolidated Financial Statements

March 31, 2018 and 2017

(Unaudited)

Recent Accounting Pronouncements

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.

Note 4 – Accounts Receivable

The following table presents the accounts receivable:

Note 5 - Accounts Payable and Accrued Liabilities

The following table presents the composition of accounts payable and accrued liabilities:

PETROTERRA CORP.
Condensed Notes To The Consolidated Financial Statements
March 31, 2018 and 2017

(Unaudited)

Note 6 – Convertible Promissory Notes Payable

Convertible promissory notes at March 31, 2018 and December 31, 2017 are as follows:

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 11).

All convertible promissory notes contain cross default provisions whereby a default in any one note greater than $25,000 will cause a default in all the notes, however, this provision is only effective if there is a formal notice of default by the lender. 

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 matured 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.

On April 25, 2018, the Company failed to make its required maturity date payment of principal and interest on a Convertible Promissory Note of $100,000. In accordance with the note, the Company entered into default on April 27, 2018, which increased the interest rate to 1.5% per month. As of the date of this report the lender has not notified the Company of default and 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 $25,000 penalty expense and the related liability.

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 March 31, 2018, 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%.

PETROTERRA CORP.
Condensed Notes To The Consolidated Financial Statements
March 31, 2018 and 2017

(Unaudited)

The balance of the note payable as of March 31, 2018 and December 31, 2017 amounted to $218,205 and $151,630, comprised of principal balance of $270,000, net of debt discount relating to the bifurcated derivative of $51,795 and $118,370, respectively.

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 March 31, 2018 and December 31, 2017 amounted to $180,165 and $120,986, comprised of principal balance of $240,000, and net of Original Issue Discount (OID) of $52,356 and $104,137 and debt discount relating to the bifurcated derivative of $7,479 and $14,877, respectively.

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 notified the Company of default and 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.

PETROTERRA CORP.
Condensed Notes To The Consolidated Financial Statements
March 31, 2018 and 2017

(Unaudited)

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 matured 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.

Note 7 – Commitments and Contingencies

Related Party – Lease

The Company executed a sublease agreement with an affiliate for office space for a one-year term. The sublease commenced on August 1, 2016 at a rate of $300 per month. The 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 March 31, 2018, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on results of our operations.

PETROTERRA CORP.

Condensed Notes To The Consolidated Financial Statements

March 31, 2018 and 2017

(Unaudited)

Note 8– Stockholders’ Equity

Preferred

The preferred stock is designated Series A Convertible Preferred Stock. Each share of preferred stock has a par value of $.001 and a stated value of $1.00. Dividends are payable at the rate per share of 7% per annum cumulative based on the stated value. The Series A preferred shares have no voting rights, except as required by law. Each share of preferred stock is convertible based on the stated value at a conversion price of $.0833 at the option of the holder; provided, however, if a triggering event occurs, as defined in the document, the conversion price shall thereafter be reduced, and only reduced, to equal forty percent of the lowest VWAP during the thirty consecutive trading day period prior to the conversion date. The beneficial ownership limitation attached to conversion is 4.99%, which can be decreased or increased, upon not less than 61 days notice to the Company, but in no event exceeding 19.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of common stock upon conversion of the preferred stock. After 36 months the Company has the right to redeem all, but not less than all, of the outstanding preferred shares in cash at a price equal to 130% of the stated value plus any accrued but unpaid dividends thereon. Undeclared cumulative preferred stock dividends were approximately $350,000 as of March 31, 2018.

NOTE 9 – Revenue Recognition

The revenue that we recognize arises from service orders we receive from our customers. Our performance obligations under the service orders correspond to each delivery of vehicle that we make to our customer under the service orders; as a result, each service order generally contains only one performance obligation based on the delivery to be completed. Control of the delivery transfers to our customers when the customer is able to direct the use of, and obtain substantially all of the benefits from, our service, which generally occurs at the later of when the customer obtains title to vehicle or when the customer assumes risk of loss of the vehicle. The transfer of control generally occurs at a point of delivery. Once this occurs, we have satisfied our performance obligation and we recognize revenue.

Transaction Price

We agree with our customers on the selling price of each transaction. This transaction price is generally based on the agreed upon delivery fee. In our contracts with customers, we allocate the entire transaction price to the delivery fee to the customer, which is the basis for the determination of the relative standalone selling price allocated to each performance obligation. Any sales tax, value added tax, and other tax we collect concurrently with our revenue-producing activities are excluded from revenue.

If we continued to apply legacy revenue recognition guidance for the first three months of 2018, our revenues, gross margin, and net loss would not have changed. See Note 1—Revenue Recognition for the impact of our adoption of ASC No. 2014-09.

Disaggregation of Revenue:

The following table summarizes the percentage of revenues with our customers for the three months ended March 31, 2018 and 2017:

The Company reports as a single segment and in the disaggregation above, the Company categorizes revenue by type. 

PETROTERRA CORP.

Condensed Notes To The Consolidated Financial Statements

March 31, 2018 and 2017

(Unaudited)

Note 10 – Net Income (loss) per share

The Company computes loss per share using two different methods, basic and diluted, and presents per share data for all periods in which statements of operations are presented. Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing net loss by the weighted average number of common stock and common stock equivalents outstanding during the period so long as the effect of including the common stock equivalents is not anti-dilutive.

The following tables provide a reconciliation of the numerators and denominators used in calculating basic and diluted loss per share for the three months ended March 31, 2018 and 2017:

Dilutive securities as of March 31, 2018 and 2017 include convertible notes which were convertible into approximately 87,384,336 and 446,398 common shares as of March 31, 2018 and 2017 and Series A convertible preferred stock which were convertible into 52,200,168 and 48,875,654 common shares as of March 31, 2018 and 2017, respectively.

PETROTERRA CORP.

Condensed Notes To The Consolidated Financial Statements

March 31, 2018 and 2017

(Unaudited)

NOTE 11 – 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 March 31, 2018, 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:

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 March 31, 2018:

The following is a reconciliation of the derivative liability for which Level 3 inputs were used in determining the approximate fair value:

PETROTERRA CORP.

Condensed Notes To The Consolidated Financial Statements

March 31, 2018 and 2017

(Unaudited)

Convertible Debentures

The derivative liabilities related to the embedded conversion features were valued using the Black-Scholes option valuation model and the following assumptions on the following dates:

Note 12– 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 $0 in the three months ended March 31, 2018 and $900 in the three months ended March 31, 2017.

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 $3,600 for the three months ended March 31, 2018.

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 $32,751 as of March 31, 2018 and $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.

Note 13 –Concentrations

For the three months ended March 31, 2018, one customer represented 12% of the Company’s total net revenues. For the three months ended March 31, 2017, no single customer accounted for more than 10% of the Company’s total net revenues.

For the three months ended March 31, 2018, one customer represented 10% of the Company’s net accounts receivable. As of December 31, 2017, two customers represented 12% and 10% of the Company’s net accounts receivable.

For the three months ended March 31, 2018 and 2017, 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.

PETROTERRA CORP.

Condensed Notes To The Consolidated Financial Statements

March 31, 2018 and 2017

(Unaudited)

Note 14 – Subsequent Events

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to March 31, 2018 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements, except as noted below;

On April 25, 2018, the Company failed to make its required maturity date payment of principal and interest on a RedDiamond Convertible Promissory Note of $100,000. In accordance with the note, the Company entered into default on April 27, 2018, which increased the interest rate to 1.5% per month. As of the date of this report the lender has not notified the Company of default and 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 $25,000 penalty expense and the related liability (See Note 6).

FORWARD LOOKING STATEMENTS

Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We were originally incorporated under the laws of the State of Nevada on July 25, 2008 under the name Loran Connection Corp. We were formed to provide a variety of services in the area of individual and group tourism and business support in Ukraine. We subsequently filed a resale registration statement with the SEC on May 28, 2009, which was declared effective on October 28, 2009. On January 25, 2012, we filed an amendment to our articles of incorporation to, among other things, change our name to “PetroTerra Corp.” and effect a one-for-thirty-two reverse split of our outstanding shares of common stock. We changed our name to reflect a proposed change in our business operations. On October 2, 2013, in connection with a change of control in the management of the Company, the Company began business operations in the oil and gas sector. On December 18, 2013, we filed a certificate of change to effect a one-for-two reverse stock split of our outstanding shares of common stock and preferred stock. On July 1, 2015, we filed a certificate of change to effect a one-for-two and one half reverse stock split of our outstanding shares of common stock. Since January 2016, as a result of the decline in the oil and gas markets, we generated minimal sales revenue and our operations were subject to all the risks inherent in the establishment of a new business enterprise. Since January 2016, we have not engaged in any operations and our business has been dormant. As such, we have been a “shell” company, as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

On November 22, 2016, our Board and shareholders approved a reverse stock split of our outstanding and authorized shares of common stock at a ratio of 1 for 30 (the “Reverse Stock Split”), however, although it was filed with and processed by the Financial Industry Regulatory Authority (“FINRA”), the prior management of the Company did not follow through and obtain ultimate approval of the Reverse Stock Split by FINRA. Accordingly, the Reverse Stock Split never became effective.

Reverse Merger

On March 30, 2017 (the “Closing Date”), our company and Save on Transport 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 Transport became a wholly-owned subsidiary of ours on the Closing Date (the “Reverse Merger”). In the Reverse Merger, we purchased all of the issued and outstanding common stock of Save on Transport from Steven Yariv, and in exchange, we issued 114,202,944 shares of our common stock, par value $0.001 per share (the “Common Stock”), to Steven Yariv.

Save on Transport operates as an automobile shipping company that provides transportation, brokerage, and logistics services relating to vehicle shipping.

At the closing of the Reverse Merger, Lawrence Sands, our former Chief Executive Officer, Chief Financial Officer and sole director, resigned from all of his positions. Steven Yariv was elected as the Chairman of our Board of Directors and appointed Chief Executive Officer.

As a result of the Reverse Merger and the change in business and operations of our company from a public “shell” company to a company engaged in the business of automobile shipping, a discussion of the past financial results of our company is not pertinent, and under generally accepted accounting principles in the United States the historical financial results of Save on Transport, the accounting acquirer, prior to the Reverse Merger are considered the historical financial results of our company. The Reverse Merger was accounted for as a recapitalization effected by a Reverse Merger, wherein Save on Transport is considered the acquirer for accounting and financial reporting purposes.

The following discussion highlights the results of operations of Petroterra and its consolidated subsidiary Save on Transport and the principal factors that have affected its financial condition as well as its liquidity and capital resources for the periods described, and provides information that management believes is relevant for an assessment and understanding of the financial condition and results of operations presented herein. The following discussion and analysis is based on the unaudited financial statements contained in this Quarterly Report, which has been prepared in accordance with generally accepted accounting principles in the United States. You should read the discussion and analysis together with such financial statements and the related notes thereto.

Basis of Presentation

The unaudited consolidated financial statements for the three months ended March 31, 2018 include a summary of our significant accounting policies and should be read in conjunction with the discussion below. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such periods have been included in these unaudited financial statements. All such adjustments are of a normal recurring nature.

RESULTS OF OPERATIONS

Our unaudited consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue our operation.

We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.

For the three months ended March 31, 2018 compared with the three months ended March 31, 2017

The following table sets forth our revenues, expenses and net income (loss) for the three months ended March 31, 2018 and 2017. The financial information below is derived from our unaudited financial statements included in Item 1 of this Quarterly Report.

Results of Operations

Revenues

The Company’s revenues were $1,177,763 for the three months ended March 31, 2018 and $26,272 for the three months ended March 31, 2017. The revenue consists of individual customers contracting to transport a vehicle from location to location and also corporate customers, primarily auto dealers, contracting to transport purchased vehicles from location to location. The increase in revenue compared to the prior year is a shift away from individual customers to increasing the corporate customers, which offers the potential for more frequent business. These corporate customers are primarily monthly paying customers which creates accounts receivable to the Company.

Cost of Revenue

Our cost of revenue was $896,555 for the three months ended March 31, 2018, consisting primarily of $893,058 in carrier fees of which $3,600 was to a related party affiliate. The cost of revenues was $17,900 for the three months ended March 31, 2017, consisting primarily of $17,450 in carrier fees. The increase in cost of revenue compared to the prior period is due to higher revenue which has a direct correlation to the associated carrier fee costs.

Operating Expenses

Total operating expenses were $288,478 for the three months ended March 31, 2018, including legal and professional fees of $45,335 primarily related to public company reporting expenses, rent of $6,048 and general and administrative expenses of $237,095, which includes $220,639 of wages and related costs. Total operating expenses for the three months ended March 31, 2017 were $35,084 for legal and professional fees of $31,650, rent to an affiliate of $900 and general and administrative expenses of $2,534. The increase in operating expenses compared to the prior year period is due to the Company’s growth, including the expansion of office space and additional employee wages and related costs.

Operating Loss

The Company’s operating loss was $7,270 and $26,712 for the three months ended March 31, 2018 and 2017, respectively.

Other Income (expenses)

Total other income for the three months ended March 31, 2018 and 2017 was $68,195 and $54, which includes interest expense of $148,253 and $37 and a gain on change in derivative liability of $216,448 and $91, respectively.

Net Loss

The Company’s net income (loss) was $60,925 and $(26,658) for the three months ended March 31, 2018 and for the three months ended March 31, 2017, respectively.

Weighted average number of shares

The weighted average number of shares outstanding was 142,526,532 and 114,213,434 for the three months ended March 31, 2018 and 2017, respectively. Dilutive securities as of March 31, 2018 include convertible notes which were convertible into approximately 87,384,336 common shares as of March 31, 2018 and Series A convertible preferred stock which were convertible into 52,200,168 common shares as of March 31, 2018.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At March 31, 2018, we had a cash balance of $93,267. Our working capital deficit was $714,212 at March 31, 2018.

We reported a net decrease in cash for the three months ended March 31, 2018 of $13,309.

Operating activities

Net cash flows used in operating activities for the three months ended March 31, 2018 amounted to $13,309. In the three months ended March 31, 2018, the net cash used was primarily attributable to the net income of $60,925, offset by a decrease in gain on derivative liability of $216,448, amortization of debt discount of $125,753, and effectuated primarily by a decrease in cash due to an increase in accounts receivable of $89,475, prepaid expenses of $995 and payroll tax payable of $13,050 and an increase in cash due to an increase in accounts payable and accrued expenses of $88,281, an increase in interest payable of $22,500 and due from a related party of $9,200.

In the three months ended March 31, 2017, the net cash provided by operating activities were attributable to the net loss of $26,658, a decrease in cash due to deferred revenue of $2,800 and payroll taxes payable $2,107, and an increase of cash due to the increase in accounts payable of $23,049 and a decrease in prepaid expense of $1,950.

Investing activities

Net cash flows provided by investing activities for the three months ended March 31, 2017 was comprised of a $10,000 cash escrow acquired on March 30, 2017 in connection with the reverse merger, to be held for a six month period to pay unpaid liabilities in conjunction with the Reverse Merger. At the end of the six months, any remaining balance will be due to the former CEO. This amount was paid in July 2017. There are no cash flows from investing in the three months ended March 31, 2018.

Going Concern Consideration

Our operations and financial results are subject to numerous, various risks and uncertainties that could adversely affect our business, financial condition and results of operations. The Company is in an early stage and the net income and cash used in operations for the three months ended March 31, 2018 was $60,925 and $13,309, respectively. The company had a working capital deficit, accumulated deficit and shareholders’ deficit of $714,212, $683,854 and $714,212 as of March 31, 2018, respectively, and further losses are anticipated in the development of its business. Furthermore, on December 31, 2017, the Company failed to make a 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  notified the Company of default and 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. In addition, on April 25, 2018, the Company failed to make its required maturity date payment of principal and interest on a convertible promissory note of $100,000. In accordance with the note, the Company entered into default on April 27, 2018, which increased the interest rate to 1.5% per month. As of the date of this report the lender has not notified the Company of default and 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 $25,000 penalty expense and the related liability.

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. Our future financial results are also uncertain due to a number of factors, some of which are outside our control. These risk factors include, but are not limited to, our ability to raise additional funding and the results of our proposed operations.

Contractual Obligations

We may have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Critical Accounting Policies and Significant Accounting Estimates

The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Our most significant accounting estimates include the valuation of accounts receivable, valuation of intangible assets, the valuation of derivative instruments and valuation of deferred tax assets.

We have identified the accounting policies below as critical to our business operation:

Derivative Financial Instruments – The Company evaluates all of it 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.

Recently Enacted Accounting Standards

For a description of accounting changes and recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see “Note 3: Recent Accounting Pronouncements” in the financial statements filed with this Quarterly Report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are not required to provide quantitative and qualitative disclosures about market risk because we are a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, consisting of our sole officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Rule 13a-15(e)) as of March 31, 2018. Management recognizes that any disclosure controls and procedures no matter how well designed and operated, can only provide reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management has assessed the effectiveness of our disclosure controls and procedures and based upon that evaluation, our sole officer concluded that our disclosure controls and procedures were not effective as of March 31, 2018.

Our management has reassessed the effectiveness of our disclosure controls and procedures and based upon that evaluation, our sole officer concluded that our disclosure controls and procedures were not effective as of March 31, 2018 because of the items set forth below:

We do not believe the material weaknesses described above caused any meaningful or significant misreporting of our financial condition and results of operations for the quarter ended March 31, 2018. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the ordinary course of business, we may be involved in legal proceedings from time to time. At the date of this Quarterly Report on Form 10-Q, there are no known legal proceedings against the Company. No governmental agency has instituted proceedings, served, or threatened the Company with any litigation.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

No report required.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

* Filed Herewith

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.