Attached files
| file | filename |
|---|---|
| EX-32.1 - Transportation & Logistics Systems, Inc. | ex32-1.htm |
| EX-31.2 - Transportation & Logistics Systems, Inc. | ex31-2.htm |
| EX-31.1 - Transportation & Logistics Systems, Inc. | ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2016
Commission File No. 333-159517
PetroTerra Corp.
(Exact Name of Issuer as specified in its charter)
| Nevada | 26-3106763 | |
| (State or other jurisdiction | (IRS Employer | |
| of incorporation) | File Number) |
| 422 East Vermijo Avenue, Suite 313 | ||
| Colorado Springs, CO | 80903 | |
| (Address of principal executive offices) | (zip code) |
719-219-6404
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report.)
Securities to be Registered Pursuant to Section 12(b) of the Act: None
Securities to be Registered Pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X].
Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [ ] No [X].
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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: [ ] No: [X]
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 Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] | |
| Non-accelerated filer [ ] | Smaller reporting company [X] | |
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes [ ] No [X]
The aggregate market value of the shares of common stock outstanding, other than shares held by persons who may be deemed affiliates of the registrant, computed by reference to the closing sales price for the registrant’s common stock on September 30, 2015 was $4,479,833.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
As of July 28, 2016, registrant had outstanding 28,323,588 shares of common stock.
FORM 10-K
PETROTERRA CORP.
INDEX
| i |
For purposes of this report, unless otherwise indicated or the context otherwise requires, all references herein to “PetroTerra,” “the Company”, “we,” “us,” and “our,” refer to PetroTerra Corp., a Nevada corporation. For purposes of this report, all share numbers and share prices have been changed to reflect the Company’s one-for-two and one half reverse stock split effected in July 2015.
Forward-Looking Statements
Statements made in this Annual Report on Form 10-K (the “Annual Report”) 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.
| ii |
ITEM 1. DESCRIPTION OF BUSINESS.
History of the Business
We are a development stage company that identified, evaluated and acquired oil and gas exploration and development opportunities primarily in the United States. As a result of the decline in the oil and gas markets, we are now seeking other strategic alternatives.
We were incorporated under the laws of the State of Nevada on July 25, 2008 as “Loran Connection Corp.” We were formed to provide a variety of services in the area of individual and group tourism and business support in Ukraine. We subsequently filed a resale registration statement with the Securities and Exchange Commission on May 28, 2009, which was declared effective on October 28, 2009. On January 25, 2012, we filed an amendment to our articles of incorporation to, among other things, change our name to “PetroTerra Corp.” and effect a thirty-two-for-one reverse split. We changed our name to reflect a proposed change in our business operations. On October 2, 2013, in connection with a change of control in the management of the Company, the Company began its current business operations in the oil and gas sector. On December 18, 2013, we filed a certificate of change to effect a one-for-two reverse stock split of our authorized and our outstanding shares of common stock and preferred stock. On April 12, 2014, we completed our acquisition of certain property leases (the “Leases”) held by Ardmore Investments Inc. (“Ardmore”) for property owned by Pioneer Oil and Gas (“Pioneer”) covering 5,905.54 acres of land located in the Central Utah Thrust Belt in Beaver County and Sevier County, Utah (the “Utah Properties”). Since January 2016, as a result of the decline in the oil and gas markets, we ceased investing in the Utah Properties and began seeking a strategic alternative both inside and outside of the oil and gas market.
Our principal executive offices are located at 422 East Vermijo Avenue, Suite 313, Colorado Springs, CO 80903. The telephone number at our principal executive offices is (719) 219-6404. Our web site is www.petroterracorp.com.
Our Business Plan
The Company was an independent exploration and development company focused on the acquisition of property (or property leases enabling us to explore and exploit such property) that we believed may contain extractable oil and/or gas.
On November 18, 2013, we entered into an assignment of lease agreement (the “Agreement”) whereby Ardmore assigned to us its rights under a certain purchase agreement (the “Purchase Agreement”), dated August 8, 2013, between Ardmore and Pioneer involving the sale of 5,905.54 acres of three separate BLM Management oil and gas Leases located in the Central Utah Thrust Belt in Beaver County and Sevier County, Utah and currently owned by Pioneer. Per the terms of the Agreement, we issued to Ardmore 250,000 shares of our common stock on November 18, 2013, and, in order to complete the assignment contemplated by the Agreement, we issued to Ardmore an additional 250,000 shares of our common stock upon the transfer to us of ownership in the Leases, which occurred on April 12, 2014. Furthermore, the Company made three installment payments of $100,000 each to Pioneer pursuant to the terms of the Purchase Agreement. The Leases were conveyed to the Company on April 10, 2014.
In January 2014 we hired a third party independent contractor to provide insight and to assist in the development of a plan regarding the exploration of any properties that we acquire. In March 2014, we engaged a third party independent contractor to provide geologic consulting services to the Company. In March 2014 we also obtained an MHA Technical Report on the Utah Properties. In September 2014, we engaged a third party independent contractor to review and process both the public domain gravity and aeromagnetic datasets that existed on our leased Utah Properties. In November 2014, we engaged a third party independent contractor to perform a comprehensive gravity survey on our Utah Properties which was completed in December 2014 and the results of such survey were interpreted in February 2015.
| 1 |
On September 28, 2014, the Company engaged Thompson Solutions, LLC (“Thompson”) to review and process both the public domain gravity and aeromagnetic datasets that existed on our leased Utah Properties. The purpose of this review was to identify major structures and geologic trends of interest on the Utah Properties. Based on the results of this analysis, on November 21, 2014, the Company engaged Magee Geophysical Services LLC (“Magee”) to perform a comprehensive gravity survey on our Utah Properties. The gravity survey was conducted from November 22, 2014 through December 9, 2014 and cost the Company approximately $55,000. Pursuant to the survey, a total of 737 new gravity stations were identified on a nominal quarter mile grid and the data acquired was merged with re-processed public domain data including about 630 stations located in and around the main grid. Upon completion of Magee’s gravity survey, on December 8, 2014, the Company engaged Thompson to further process the data obtained by Magee and to provide custom processing and mapping of such data. On February 6, 2015, Thompson completed their interpretation of the gravity survey. The Company will pay to Thompson $15,500 for its services.
On February 2, 2015 the Company engaged PRISEM Geoscience Consulting LLC (“PRISEM”) to provide recommendations on a work plan for creating a geologic model of the Utah Properties. Due to the volatility of the oil and gas market, the geologic model was never completed.
| 2 |
Our Properties
As described above, the Company holds oil and gas leases for property in Sevier and Beaver Counties, Utah. On April 10th 2014, we acquired the Leases pursuant to the Agreement. These three Leases cover 5,950.54 gross acres in Sevier and Beaver counties in southwest Utah. The two Sevier leases, UTU-89243 and UTU-89244, each have a term through 02/01/2023 (hereinafter, the “Sevier Prospect”). Our Beaver county lease, UTU-86466, has an expiration date of 02/01/2021 (hereinafter, the “Beaver Prospect” and together with the Sevier Prospect, the “Sevier and Beaver Oil Project”). Pursuant to the Purchase Agreement which governs the terms under which we can use the Utah Properties, we have a 100% Working Interest (WI) and an 80% Net Revenue Interest (NRI) in the Leases.
Oil and Gas Industry-Specific Disclosures
As described above, the Company had only recently begun its oil and gas business operations before operations were halted in order to identify other strategic alternatives, not necessarily limited to the oil and gas industry. Accordingly, the disclosure required by Subpart 1200 of Regulation S-K (Section 229.1200 of this chapter) is not applicable to our Company as of the date hereof. The Company has obtained Leases in the Central Utah Thrust Belt in Beaver County and Sevier County, Utah consisting of 5,950.54 gross acres of undeveloped acreage.
Current Business Plan
Given the current climate in the oil and gas industry, on or about January 2016, management determined to cease development of our oil and gas leases and instead seek a strategic alternative, whether in the oil and gas industry or otherwise.
| 3 |
Employees
As of March 31, 2016, we had one full time (1) employee.
How to Obtain our SEC Filings
We file annual, quarterly, and special reports, proxy statements, and other information with the Securities Exchange Commission (SEC). Reports, proxy statements and other information filed with the SEC can be inspected and copied at the public reference facilities of the SEC at 100 F Street N.E., Washington, DC 20549. Such material may also be accessed electronically by means of the SEC’s website at www.sec.gov.
Risks Related to our Business
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
The report of our independent auditors dated July 20, 2016 on our financial statements for the year ended March 31, 2016 included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. Our auditors’ doubts are based on the fact that the Company has no revenues, has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated deficit. Our ability to continue as a going concern will be determined by our ability to obtain additional funding in the short term to enable us to realize the commercialization of our planned business operations. From the period beginning October 2, 2013 and ending March 31, 2016, we have raised $1,744,500 from investors. However, we cannot provide any assurance or guarantee that we will be able to conduct other additional rounds of financing at all or on terms acceptable to us. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We have no operating history on which to evaluate our potential and determine if we will be able to execute our business plan.
The current management of the Company only took over operations in October 2013 and has recently shifted its focus from the development of our oil and gas leases to explore strategic alternatives. Accordingly, it will be difficult for potential investors to evaluate our potential and determine if we will be able to execute our business plan. Investment in our securities should be considered in light of the risks and difficulties we will encounter as we search for strategic alternatives to our original business plan.
| 4 |
In order to successfully implement a new business plan, we will need a substantial amount of cash. There is no guarantee that we will be able to raise the amount of cash necessary to begin and continue our operations nor is there any guarantee that we will be able to obtain such cash on terms that are commercially favorable to the Company.
While we have not yet determined a strategic alternative to pursue following our determination to cease development of our oil and gas leases, we expect that any strategic alternative that we do pursue will require a substantial amount of cash. Such capital may not be available on reasonable terms or at all. We may need to raise additional funds through borrowings or public or private debt or equity financings and any future issuance of our equity or equity-backed securities may dilute then-current stockholders’ ownership percentages. If we are unable to obtain required additional capital, we may have to curtail our business plan, cut back on our plans, or even cease operations.
Additionally, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes, restricted stock, stock options and warrants, which may adversely impact our financial condition.
We are dependent upon our sole officer and director and the loss of his services could adversely affect our ability to operate.
Our pursuit of strategic alternatives to the development of our oil and gas leases is dependent upon our sole current officer and director, John Barton. We believe that our ability to effect our business plans depends on the continued service of Mr. Barton. We do not presently have key-man insurance on the life of Mr. Barton and the unexpected loss of the services of Mr. Barton could have a detrimental effect on us.
The Company’s management has little experience running a public company.
The Company’s management has little experience managing a public company. Such lack of experience may result in the Company experiencing difficulty in adequately operating and growing its business within the framework of a public company. This may increase the risk of our inadvertent violation of federal or state securities laws, which increases the risk of litigation or regulatory action, any of which can be expected to divert management time and company resources away from accomplishing our business objectives. Any such violation or diversion could have a material adverse effect on our financial condition, results of operations and future growth prospects.
| 5 |
Our working capital needs are difficult to forecast and may vary significantly which could require us to seek additional financing that we may not be able to obtain on satisfactory terms, or at all. The failure or any significant delay in raising capital as needed may be expected to materially reduce or eliminate our opportunity for success.
At present, our working capital needs are extremely difficult to predict and may continue to be extremely difficult to predict even after we have settled on a strategic alternative for the Company. We may therefore be subject to significant and rapid increases in our working capital needs that could require us to seek additional financing sources and there can be no assurance in our ability to secure additional financing at acceptable terms, if at all. Restrictions in any debt agreements that we may enter into may impair our ability to obtain other sources of financing.
Risks Related to our Common Stock
A sustained, active trading market for our common stock may not develop or be maintained.
As we are in our early stages, an investment in our Company will likely require a long-term commitment, with no certainty of return. Although our common stock is listed for quotation on the OTCQB market under the symbol of “PTRA”, we cannot predict whether an active market for our common stock will ever develop or, if an active market is developed, be sustained in the future. In the absence of an active trading market:
| ● | investors may have difficulty buying and selling or obtaining market quotations; | |
| ● | we may be unable to raise additional capital; | |
| ● | market visibility for shares of our common stock may be limited; and | |
| ● | a lack of visibility for shares of our common stock may have a depressive effect on the market price for shares of our common stock. |
In this event an active trading market is not established or, if established, not sustained, you may be unable to dispose of your common stock at desirable prices or at all. Moreover, there is a risk that our common stock could be delisted from the OTCQB, in which case it might be listed on the so called “Pink Sheets”, which is even more illiquid than the OTCQB.
| 6 |
Our Principal Executive Officer, Principal Financial Officer and sole director, John Barton, controls a significant percentage of our outstanding common stock and his interests may conflict with those of our stockholders.
Our Principal Executive Officer, Principal Financial Officer and sole director, John Barton, owns 49.26% of our outstanding common stock. As such, he may be able to exert substantial influence over most matters requiring approval by stockholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying or preventing a change in control, which in turn could have a material adverse effect on the market price of our common stock or prevent stockholders from realizing a premium over the market price for their shares.
Your percentage ownership of our common stock will be diluted by future share issuances.
Our Articles of Incorporation authorize the issuance of 40,000,000 shares of common stock, par value $0.001 and 4,000,000 shares of Preferred Stock, par value $0.001. At March 31, 2016, we had 27,251,466 shares of common stock issued and -0- shares of Preferred Stock issued. We may issue additional shares of common stock in connection with any future acquisitions of operating businesses or assets or to raise additional funding for our operations. To the extent that additional shares of common stock are issued, our shareholders would experience dilution of their respective ownership interests in the Company. The issuance of additional shares of common stock may adversely affect the market price of our common stock and could impair our ability to raise capital through the sale of our equity securities.
To the extent we issue new shares to fund acquisitions, to raise capital and/or to compensate employees and other persons, your percentage ownership of our shares will be further diluted.
We do not intend to pay cash dividends in the future.
We currently do not anticipate paying cash dividends on our common stock at any time in the near future. We may never pay cash dividends or distributions on our common stock. Whether we pay cash dividends in the future will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements and any other factors that the board of directors decides is relevant.
Our common stock is illiquid and should a market for our securities develop the price of our securities may be volatile.
Our common stock is currently quoted on the OTCQB and the trading market for our securities may likely remain illiquid. This means that as an investor you will likely have a difficult time selling our common stock at market. Furthermore, because of the small amount of shares that will represent the public float, the market price of our common stock may experience significant volatility. Other factors that may contribute to volatility should a market for our common stock develop are, our quarterly results, litigation, changes in general conditions in the economy and general market conditions could cause the market price of the common stock to fluctuate substantially. In addition, the stock market has experienced significant price and volume fluctuations that have particularly affected the trading prices of equity securities of many companies. Frequently, these price and volume fluctuations have been unrelated to the operating performance of the affected companies.
Broker-Dealers may be discouraged from effecting transactions in our Common Stock because our Common Stock is considered a “Penny Stock” and are subject to the applicable Penny Stock rules.
Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) impose sales practice and disclosure requirements on certain brokers-dealers who engage in certain transactions involving a “penny stock.” The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our common stock is covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules may discourage investor interest in and limit the marketability of our common stock.
| 7 |
In addition to the “penny stock” rules, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.
Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
As a public company, we have significant additional requirements for enhanced financial reporting and internal controls. We will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.
We cannot assure you that we will not, in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.
The lack of experience of our officer of a publicly-traded company may hinder our ability to comply with Sarbanes-Oxley Act.
It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance staff or consultants in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the Sarbanes-Oxley Act’s internal controls requirements, we may not be able to obtain the independent auditor certifications that Sarbanes-Oxley Act requires publicly-traded companies to obtain.
ITEM 1B. UNRESOLVED STAFF COMMENTS
As of the filing of this annual report on Form 10-K, there were no unresolved comments from the staff of the SEC.
ITEM 2. DESCRIPTION OF PROPERTIES
We currently utilize office space located at 422 East Vermijo Avenue, Suite 313, Colorado Springs, CO 80903.
For information regarding the Company’s oil & gas properties, see “Item 1. Description of Business” above.
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
| 8 |
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
The Company’s common stock is currently quoted on the OTCQB under the symbol “PTRA.” The following table sets forth the high and low sales prices per share of our common stock for the periods indicated as reported by the OTCQB. During our fiscal year ended March 31, 2016, there has been sporadic market activity in the Company’s common stock, but our common stock remains highly illiquid and only a limited number of shares may have been sold and purchased at the prices identified below. Please refer to the section entitled “Risk Factors” for more information regarding the risks associated with an investment in our common stock.
| Price Range | ||||||||
| Period | High | Low | ||||||
| First Quarter ended June 30, 2016 | $ | 0.09 | $ | 0.045 | ||||
| Year Ended March 31, 2016: | ||||||||
| First Quarter | $ | 3.00 | $ | 0.40 | ||||
| Second Quarter | $ | 0.605 | $ | 0.15 | ||||
| Third Quarter | $ | 1.63 | $ | 0.084 | ||||
| Fourth Quarter | $ | 0.12 | $ | 0.021 | ||||
| Year Ended March 31, 2015: | ||||||||
| First Quarter | $ | 1.25 | $ | 1.00 | ||||
| Second Quarter | $ | 1.125 | $ | 1.025 | ||||
| Third Quarter | $ | 2.125 | $ | 1.00 | ||||
| Fourth Quarter | $ | 4.725 | $ | 0.375 | ||||
As of July 28, 2016, the last reported price of our common stock quoted on the OTCQB was $0.05 per share. The OTCQB prices set forth above represent inter-dealer quotations, without adjustment for retail mark-up, mark-down or commission, and may not represent the prices of actual transactions.
Holders
As of July 19, 2016, there were 46 record holders of our common stock, and there were 28,323,588 shares of our common stock outstanding.
Dividends
We have not previously declared or paid any dividends on our common stock and do not anticipate declaring any dividends in the foreseeable future. The payment of dividends on our common stock is within the discretion of our board of directors. We intend to retain any earnings for use in our operations and the expansion of our business. Payment of dividends in the future will depend on our future earnings, future capital needs and our operating and financial condition, among other factors that our board of directors may deem relevant. We are not under any contractual restriction as to our present or future ability to pay dividends.
Securities Authorized for Issuance Under Equity Compensation Plans
The Company does not currently have any equity compensation plans.
| 9 |
Recent Sales of Unregistered Securities
The Company entered into several securities purchase agreements with a single investor pursuant to Regulation S promulgated under the Securities Act whereby the Company sold shares of its common stock to the investor. A list of the securities purchase agreements is below:
On April 27, 2015, the Company sold a total of 21,918 shares of common stock to an investor for gross proceeds of $40,000.
On June 1, 2015, the Company sold a total of 58,823 shares of common stock to an investor for gross proceeds of $50,000.
On June 12, 2015, the Company sold a total of 52,174 shares of common stock to an investor for gross proceeds of $30,000.
On August 5, 2015, the Company sold a total of 75,862 shares of common stock to an investor for gross proceeds of $22,000.
On August 12, 2015, the Company sold a total of 75,000 shares of common stock to an investor for gross proceeds of $30,000.
On September 11, 2015, the Company sold a total of 142,857 shares of common stock to an investor for gross proceeds of $50,000.
On September 14, 2015, the Company sold a total of 105,263 shares of common stock to an investor for gross proceeds of $40,000.
On October 13, 2015, the Company sold a total of 54,790 shares of common stock to an investor for gross proceeds of $40,000.
On October 22, 2015, the Company entered into a private placement for 108,700 shares of common stock for gross proceeds of $100,000. On November 10, 2015, the Company received $50,000 of the proceeds. On January 29, 2016, the private placement was amended and the parties agreed that the investor would reduce its investment by $10,000 to an aggregate of $90,000 and would be issued an aggregate of 97,826 shares of common stock. The remaining $40,000 was received on January 29, 2016, wherein, the Company issued the shares.
On April 28, 2016, the Company issued 50,000 shares of common stock to the Chief Operating Officer as consideration for consulting services. Such issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act.
On June 3, 2016, the Company issued 1,022,122 shares in exchange for payment of outstanding compensation due to John Barton in the amount of $71,250 and outstanding loans payable of $10,118.
ITEM 6. SELECTED FINANCIAL DATA
A smaller reporting company is not required to provide the information in this Item.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve future events, our future performance and our expected future operations and actions. In some cases, you can identify forward-looking statements by the use of words such as “may”, “will”, “should”, “anticipate”, “believe”, “expect”, “plan”, “future”, “intend”, “could”, “estimate”, “predict”, “hope”, “potential”, “continue”, or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including, but not limited to, the matters discussed in this report under the caption “Risk Factors”. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. We undertake no obligation to publicly update any forward looking-statements, whether as a result of new information, future events or otherwise.
| 10 |
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included in this Annual Report. As described above, all references to share amounts and share prices reflect our one for two and one half reverse stock split effected in July 2015.
The following table provides selected financial data about us for the fiscal years ended March 31, 2016 and March 31, 2015. For detailed financial information, see the audited Financial Statements included in this report.
| Fiscal year ended March 31, | ||||||||
| 2016 | 2015 | |||||||
| Balance Sheet Data: | ||||||||
| Cash | $ | - | $ | - | ||||
| Total assets | $ | 11,628 | $ | 759,986 | ||||
| Total liabilities | $ | 204,960 | $ | 157,261 | ||||
| Shareholders’ equity (deficiency) | $ | (193,332 | ) | $ | 602,725 | |||
| Operating Data: | ||||||||
| Operating Expenses | $ | 1,263,257 | $ | 1,003,628 | ||||
| Net Income (Loss) | $ | (1,263,257 | ) | $ | (1,003,628 | ) | ||
Results of Operations
GENERAL
We are a development stage company. Until recently, we planned to identify, evaluate and acquire oil and gas exploration and development opportunities primarily in the United States. We are currently seeking a strategic alternative to the development of our Leases either insider our outside of the oil and gas industry.
RESULTS OF OPERATIONS
Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue our operation.
We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.
Year Ended March 31, 2016 Compared to the Year Ended March 31, 2015.
Our net loss for the year ended March 31, 2016 was $1,263,257 compared to a net loss of $1,003,625, during the year ended March 31, 2015. During the years ended March 31, 2016 and 2015, we did not generate any revenue. This change in net loss was primarily the result of the following:
Lease property and exploration costs
During the year ended March 31, 2016, we incurred lease property and exploration costs of $98,393 an decrease of $87,807 compared to the prior year amount of $186,200, consisting of consulting costs of $88,187 and $177,272 and annual rental costs of $10,206 and $8,928 for the years ended March 31, 2016 and 2015, respectively.
Impairment
The Company determined that there was a material impairment of the land lease agreements and recorded an impairment of the asset of $737,500 in the year ended March 31, 2016.
| 11 |
General and administrative costs
During the year ended March 31, 2016, we incurred general and administrative expenses of $176,986 compared to $175,726, incurred during the year ended March 31, 2015. The change in general and administrative expense incurred during the year ended March 31, 2016 and 2015 was primarily related to compensation to our Chief Executive Officer of $120,000, corporate overhead, and travel costs.
Professional Fees
During the year ended March 31, 2016, we incurred professional fees of $180,178 relating to our equity financings, operations and public company compliance. The legal and accounting & audit fees associated with these activities amounted to $81,597 and $31,759, respectively, and the marketing and investor relations fees associated with these activities amounted to $66,822. During the year ended March 31, 2015, we incurred professional fees of $187,699 relating to our equity financings, the acquisition of the Leases from Ardmore and public company compliance. The legal and accounting fees associated with these activities amounted to $70,437 and $29,256, respectively, and the marketing and investor relations fees associated with these activities amounted to $88,006.
Non-Employee Stock Based Compensation
During the year ended March 31, 2016, we incurred expense of $75,200 for stock issuances for professional and advisory services. During the year ended March 31, 2015, we incurred $454,000 in non-employee stock based compensation charges.
Weighted average number of shares
The weighted average number of shares outstanding was 26,767,283 and 26,304,439 for the years ended March 31, 2016 and 2015, respectively. The weighted average number of shares is an average calculation incorporating changes to the shares outstanding within the period reported.
LIQUIDITY AND CAPITAL RESOURCES
Year Ended March 31, 2016 Compared with Year Ended March 31, 2015
As of March 31, 2016 and 2015, we had no cash and cash equivalents.
We have experienced losses of $1,263,257 and $1,003,625 for the fiscal years ended March 31, 2016 and 2015, respectively, and have an accumulated deficit of $2,630,517 at March 31, 2016. In addition, we have not completed our efforts to establish a stable recurring source of revenues sufficient to cover our operating costs and expect to continue to generate losses for the foreseeable future. There is no assurances that we will be able to obtain an adequate level of financing needed for our near term requirements or the long-term development and exploration of our leases. These conditions raise substantial doubt about our ability to continue as a “going concern”.
Since inception, we have financed our operations primarily through private placements of our common stock, receiving aggregate net proceeds totaling $1,359,500 from the period beginning October 1, 2013 through March 31, 2016, including the current fiscal year securities purchase agreements described in more details below.
Securities Purchase Agreements
The Company entered into several securities purchase agreements with investors pursuant to Regulation S promulgated under the Securities Act whereby the Company sold shares of its common stock to the investor. A list of the securities purchase agreements is below:
On April 27, 2015, the Company sold a total of 21,918 shares of common stock to an investor for gross proceeds of $40,000.
On June 1, 2015, the Company sold a total of 58,823 shares of common stock to an investor for gross proceeds of $50,000.
On June 12, 2015, the Company sold a total of 52,174 shares of common stock to an investor for gross proceeds of $30,000.
On August 5, 2015, the Company sold a total of 75,862 shares of common stock to an investor for gross proceeds of $22,000.
On August 12, 2015, the Company sold a total of 75,000 shares of common stock to an investor for gross proceeds of $30,000.
On September 11, 2015, the Company sold a total of 142,857 shares of common stock to an investor for gross proceeds of $50,000.
On September 14, 2015, the Company sold a total of 105,263 shares of common stock to an investor for gross proceeds of $40,000.
On October 13, 2015, the Company sold a total of 54,790 shares of common stock to an investor for gross proceeds of $40,000.
On October 22, 2015, the Company entered into a private placement for 108,700 shares of common stock for gross proceeds of $100,000. On November 10, 2015, the Company received $50,000 of the proceeds. On January 29, 2016, the private placement was amended and the parties agreed that the investor would reduce its investment by $10,000 to an aggregate of $90,000 and would be issued an aggregate of 97,826 shares of common stock. The remaining $40,000 was received on January 29, 2016, wherein, the Company issued the shares.
| 12 |
Cash Flows from Operating Activities
We have generated negative cash flows from operating activities. For the year ended March 31, 2016, net cash flows used in operating activities was $392,000 consisting of a net loss of $1,263,257, offset by the impairment of the land lease of $737,500, non-cash stock compensation of $75,200 and depreciation and amortization of $10,858, an increase of $31,677 in accounts payables and accrued liabilities, an increase of $16,250 for accrued officer compensation, and a decrease in cash overdraft of $228. For the year ended March 31, 2015, net cash flows used in operating activities was $446,265 consisting of a net loss of $1,003,625 offset by non-cash stock compensation of $454,000 and depreciation and amortization of $9,762, an increase in accounts payable and accrued liabilities of $84,147, an increase of $10,000 for accrued officer compensation, and a decrease in prepaid expenses of $1,875. Furthermore, as of March 31, 2015 we had a cash overdraft of $435.
Cash Flows from Investing Activities
We used cash from investing activities in the year ended March 31, 2015 for the lease installment of $100,000 and the cost of certain computer equipment amounting to $2,772.
Cash Flows from Financing Activities
We have financed our operations primarily from either cash advances or the issuance of equity instruments. We generated cash from financing activities of $392,000 and $540,000 in the year ended March 31, 2016 and 2015, respectively, from the issuance of common stock.
PLAN OF OPERATION AND FUNDING
We expect that our working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities. Our working capital requirements are expected to increase in line with the growth of our business.
Our existing working capital, further advances and debt instruments, and anticipated cash flow are not adequate to fund our operations over the next twelve months and the Company is dependent upon additional equity raises. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds of our private placement of equity. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to our pursuit of a strategic alternative from the development of our oil and gas leases. We believe that we will need $250,000 in additional capital to operate for the next twelve months. Additional issuances of equity or convertible debt securities will result in dilution to our current stockholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities that could significantly and materially restrict our business operations. We will have to raise additional funds in the next twelve months in order to sustain and expand our operations. We currently do not have a specific plan of how we will obtain such funding; however, we anticipate that additional funding will be in the form of equity financing from the sale of our common stock. We have and will continue to seek to obtain short-term loans from our director, although no future arrangement for additional loans has been made. We do not have any agreements with our director concerning these loans. We do not have any arrangements in place for any future equity financing.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Annual Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
| 13 |
GOING CONCERN
The independent auditors’ report accompanying our March 31, 2016 financial statements contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.
Inflation
We do not believe that inflation has had a material effect on our Company’s results of operations.
Recently Issued Accounting Pronouncements.
We do not expect the adoption of any recently issued accounting pronouncements to have a significant impact on our net results of operations, financial position, or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
A smaller reporting company is not required to provide the information in this Item.
| 14 |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
TABLE OF CONTENTS
| 15 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
PetroTerra Corp.
We have audited the accompanying balance sheets of PetroTerra Corp. as of March 31, 2015 and 2016 and the related statements of income, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended March 31, 2016. PetroTerra Corp.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PetroTerra Corp. as of March 31, 2015 and 2016, and the related statements of income, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended March 31, 2016 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has no revenues, has negative working capital at March 31, 2016, has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| /s/ Seale and Beers, CPAs | |
| Seale and Beers, CPAs | |
| Las Vegas, Nevada | |
July 20, 2016
|
| 16 |
PetroTerra Corp.
March 31, 2016 AND 2015
| March 31, 2016 | March 31, 2015 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | - | $ | - | ||||
| Prepaid expenses | 1,875 | 1,875 | ||||||
| Total current assets | 1,875 | 1,875 | ||||||
| Oil & Gas Exploration | - | 737,500 | ||||||
| Fixed Assets, net of accumulated depreciation of $1,386 and $462 as of March 31, 2016 and 2015, respectively | 1,386 | 2,310 | ||||||
| Website, net of accumulated amortization of $21,436 and $11,502, respectively | 8,367 | 18,301 | ||||||
| Total Assets | $ | 11,628 | $ | 759,986 | ||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIENCY | ||||||||
| Current Liabilities | ||||||||
| Bank overdraft | $ | 208 | $ | 435 | ||||
| Accounts payable and accrued liabilities | 153,384 | 121,708 | ||||||
| Accrued liabilities, director | 41,250 | 25,000 | ||||||
| Notes payable, related-party | 10,118 | 10,118 | ||||||
| Total current liabilities | 204,960 | 157,261 | ||||||
| Total liabilities | 204,960 | 157,261 | ||||||
| Shareholders’ Deficiency | ||||||||
| Preferred Stock: $0.001 par value, 4,000,000 shares authorized; no shares issues and outstanding as of March 31, 2016 and 2015. | - | - | ||||||
| Common stock; $0.001 par value, 4,000,000 shares authorized; 27,251,466 and 26,316,922 shares issued and outstanding as of March 31, 2016 and March 31, 2015, respectively | 27,252 | 26,317 | ||||||
| Additional paid-in capital | 2,409,933 | 1,943,668 | ||||||
| Common stock payable | - | - | ||||||
| Accumulated Deficit | (2,630,517 | ) | (1,367,260 | ) | ||||
| Total shareholders’ equity | (193,332 | ) | 602,725 | |||||
| Total liabilities and shareholders’ equity | $ | 11,628 | $ | 759,986 | ||||
The accompanying notes are an integral part of these financial statements.
| 17 |
PETROTERRA CORP.
FOR THE YEARS ENDED MARCH 31, 2016 AND 2015
| Years Ended March 31, | ||||||||
| 2016 | 2015 | |||||||
| EXPENSES | ||||||||
| Lease property and exploration costs | $ | 98,393 | $ | 186,200 | ||||
| Oil & Gas Exploration write-off | 737,500 | - | ||||||
| General and administrative expenses | 176,986 | 175,726 | ||||||
| Professional fees | 180,178 | 187,699 | ||||||
| Stock compensation expense | 75,200 | 454,000 | ||||||
| Net loss from Operation | (1,268,257 | ) | (1,003,625 | ) | ||||
| OTHER INCOME | ||||||||
| Other income | 5,000 | - | ||||||
| Net loss from Operation | ||||||||
| PROVISION FOR INCOME TAXES | - | - | ||||||
| NET LOSS | $ | (1,263,257 | ) | $ | (1,003,625 | ) | ||
| (LOSS) PER COMMON SHARE -BASIC AND DILUTED | $ | (0.05 | ) | $ | (0.04 | ) | ||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | 26,767,283 | 26,304,439 | ||||||
The accompanying notes are an integral part of these financial statements.
| 18 |
PETROTERRA CORP.
STATEMENT OF SHAREHOLDERS’ EQUITY (DEFICIENCY)
FOR THE YEARS ENDED MARCH 31, 2016 AND 2015
| Accumulated | ||||||||||||||||||||||||
| Additional | Common | Deficit | ||||||||||||||||||||||
| Common Stock | Paid-in | Stock | During | |||||||||||||||||||||
| Shares | Amount | Capital | Payable | Exploration | Total | |||||||||||||||||||
| Balance March 31, 2014 | 25,511,857 | $ | 25,512 | $ | 672,973 | $ | 90,000 | $ | (363,635 | ) | $ | 424,850 | ||||||||||||
| Common shares issued in exchange for the Ardmore Investment land lease | 100,000 | 100 | 187,400 | 187,500 | ||||||||||||||||||||
| Common shares issued for cash at $0.75 on April 24, 2014 | 40,000 | 40 | 74,960 | (52,500 | ) | 22,500 | ||||||||||||||||||
| Common shares issued for cash at $0.75 on May 7, 2014 | 80,000 | 80 | 149,920 | 150,000 | ||||||||||||||||||||
| Common shares issued for services on June 30, 2014 | 20,000 | 20 | 37,480 | (37,500 | ) | - | ||||||||||||||||||
| Common shares issued for cash at $0.31 on August 22, 2014 | 161,290 | 161 | 149,839 | 150,000 | ||||||||||||||||||||
| Common shares issued for services on September 2, 2014 | 20,000 | 20 | 20,480 | 20,500 | ||||||||||||||||||||
| Common shares issued for services on September 24, 2014 | 20,000 | 20 | 20,480 | 20,500 | ||||||||||||||||||||
| Common shares issued for cash at $1.00 on October 24, 2014 | 58,824 | 59 | 49,941 | 50,000 | ||||||||||||||||||||
| Common shares issued for cash at $0.62 on January 8, 2015 | 32,258 | 32 | 49,968 | 50,000 | ||||||||||||||||||||
| Common shares issued for cash at $0.57 on January 29, 2015 | 26,316 | 26 | 37,474 | 37,500 | ||||||||||||||||||||
| Common shares issued for services on February 2, 2015 | 20,000 | 20 | 41,980 | 42,000 | ||||||||||||||||||||
| Common shares issued for cash at $0.69 on February 10, 2015 | 46,377 | 47 | 79,953 | 80,000 | ||||||||||||||||||||
| Common shares issued for services on February 13, 2015 | 160,000 | 160 | 335,840 | 336,000 | ||||||||||||||||||||
| Common shares issued for services on March 13, 2015 | 20,000 | 20 | 34,980 | 35,000 | ||||||||||||||||||||
| Net loss | - | - | - | - | (1,003,625 | ) | (1,003,625 | ) | ||||||||||||||||
| Balance March 31, 2015 | 26,316,922 | $ | 26,317 | $ | 1,943,668 | $ | - | $ | (1,367,260 | ) | $ | 602,725 | ||||||||||||
| Common shares issued for cash at $1.82 on April 27, 2015 | 21,918 | 22 | 39,978 | 40,000 | ||||||||||||||||||||
| Common shares issued for cash at $0.85 on June 1, 2015 | 58,823 | 59 | 49,941 | 50,000 | ||||||||||||||||||||
| Common shares issued for cash at $0.5 on June 12, 2015 | 52,174 | 52 | 29,948 | 30,000 | ||||||||||||||||||||
| Common shares issued for cash at $0.29 on August 5, 2015 | 75,862 | 76 | 21,924 | 22,000 | ||||||||||||||||||||
| Common shares issued for cash at $0.40 on August 12, 2015 | 75,000 | 75 | 29,925 | 30,000 | ||||||||||||||||||||
| Common shares issued for cash at $0.35 on September 11, 2015 | 142,857 | 143 | 49,857 | 50,000 | ||||||||||||||||||||
| Common shares issued for cash at $0.38 on September 14, 2015 | 105,263 | 105 | 39,895 | 40,000 | ||||||||||||||||||||
| Common shares issued for services on September 16, 2015 | 40,000 | 40 | 17,560 | 17,600 | ||||||||||||||||||||
| Common shares issued for cash at $0.38 on October 13, 2015 | 54,790 | 55 | 39,945 | 40,000 | ||||||||||||||||||||
| Common shares issued for services on October 26, 2015 | 50,000 | 50 | 47,950 | 48,000 | ||||||||||||||||||||
| Common shares issued for cash at $0.92 on January 29, 2016 | 97,826 | 97 | 89,903 | 90,000 | ||||||||||||||||||||
| Common shares issued for services on February 9, 2016 | 160,000 | 160 | 9,440 | 9,600 | ||||||||||||||||||||
| Net loss | - | - | - | - | (1,263,257 | ) | (1,263,257 | ) | ||||||||||||||||
| Balance March 31, 2016 | 27,251,466 | $ | 27,251 | $ | 2,409,934 | $ | - | $ | (2,630,517 | ) | $ | 193,332 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
| 19 |
PETROTERRA CORP.
FOR THE YEARS ENDED MARCH 31, 2016 AND 2015
| Years Ended March 31, | ||||||||
| 2016 | 2015 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | (1,263,257 | ) | $ | (1,003,625 | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Oil & Gas Exploration write-off | 737,500 | - | ||||||
| Services payable in common stock | 75,200 | 454,000 | ||||||
| Depreciation and amortization | 10,858 | 9,762 | ||||||
| Loss of asset write-off | 891 | |||||||
| Increase (decrease) in: | ||||||||
| Bank overdraft | (228 | ) | 435 | |||||
| Prepaid expenses | (1,875 | ) | ||||||
| Accounts payable | 73,397 | 57,115 | ||||||
| Accrued expenses | (41,720 | ) | 27,032 | |||||
| Related Party Loans – paid directly to vendors on behalf of the Company | ||||||||
| Accrued payroll, officer | 16,250 | 10,000 | ||||||
| Net cash used in operating activities | (392,000 | ) | (446,265 | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Investment in Oil & Gas Exploration | - | (100,000 | ) | |||||
| Investment in fixed assets and website | - | (2,772 | ) | |||||
| Net cash used in investing activities | - | (102,772 | ) | |||||
| FINANCING ACTIVITIES | ||||||||
| Sales of Common stock | 392,000 | 540,000 | ||||||
| Net cash provided by financing activities | 392,000 | 540,000 | ||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | - | (9,037 | ) | |||||
| CASH AND CASH EQUIVALENTS -BEGINNING OF PERIOD | - | 9,037 | ||||||
| CASH AND CASH EQUIVALENTS -END OF PERIOD | $ | - | $ | - | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | – | $ | – | ||||
| Cash paid for taxes | $ | – | $ | – | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Common stock issued for services | $ | 75,200 | $ | 454,000 | ||||
| Common stock issued for the acquisition of lease | $ | $ | 187,500 | |||||
The accompanying notes are an integral part of these financial statements.
| 20 |
PETROTERRA CORP.
For the years ended March 31, 2016 and 2015
1. ORGANIZATION AND BUSINESS OPERATIONS
PetroTerra Corp. (the “Company”) was incorporated under the laws of the State of Nevada, on July 25, 2008. The Company is in the development stage as defined under Accounting Codification Standard or ACS, Development Stage Entities (“ASC-915”). The Company has not generated any revenue to date and consequently its operations are subject to all risks inherent in the establishment of a new business enterprise. For the period from inception on July 25, 2008 through March 31, 2016, the Company has accumulated losses of $2,630,517.
2. GOING CONCERN
The financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses since inception resulting in an accumulated deficit of $2,630,517 as of March 31, 2016 and further losses are anticipated in the development of its business raising substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities, which have arisen from normal business operations as they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand loans from our director and/or private placements of common stock.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars.
These statements reflect all adjustments, including of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein.
Development Stage Activities
The Company is a development stage enterprise. All losses accumulated since the inception of the Company have been considered as part of the Company’s development stage activities.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In management’s opinion, all adjustments necessary for a fair statement of the results for the interim periods have been made and all adjustments are of a normal recurring nature.
Foreign Currency Translation
The Company’s functional currency and its reporting currency is the United States dollar.
| 21 |
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock Split
On July 1, 2015, the Company filed a Certificate of Change with the Secretary of State of the State of Nevada to effect a reverse stock split of its outstanding and authorized shares of common stock at a ratio of 1 for 2.5 (the “Reverse Stock Split”).
As a result of the Reverse Stock Split, the Company’s authorized shares of common stock were decreased from 100,000,000 to 40,000,000 shares and its authorized shares of preferred stock were decreased from 10,000,000 to 4,000,000 shares. Upon the effectiveness of the Reverse Stock Split, which occurred on July 1, 2015, the Company’s issued and outstanding shares of common stock was decreased from approximately 66,125,000 to 26,450,000 shares, all with a par value of $0.001. The Company has no outstanding shares of preferred stock. Accordingly, all share and per share information has been restated to retroactively show the effect of the Reverse Stock Split.
Stock-based Compensation
In September 2009, the FASB issued ASC-718, “Stock Compensation”. ASC-718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on the grant date fair value of the award. Under ASC-718, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption.
Income Taxes
Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
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 available to common stockholders 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. The Company has no potential dilutive instruments and accordingly basic loss and diluted loss per share are equal.
Fiscal Periods
The Company’s fiscal year end is March 31.
| 22 |
Recent accounting pronouncements
In January 2016, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update (“ASU”) 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends the guidance in U.S. generally accepted accounting principles on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and are to be adopted by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this standard.
In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This ASU is effective for financial statements issued for annual periods beginning after December 16, 2016, and interim periods within those annual periods. The adoption of this standard will not have any impact on the Company’s financial position, results of operations and disclosures.
In August 2014, the FASB issued a new U.S. GAAP accounting standard that provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new accounting standard requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The new accounting standard is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.
Revenue Recognition
The Company will recognize revenue in accordance with ACS - 605, “Revenue recognition”, ASC-605 requires that four basic criteria be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.
Oil and Gas
The Company complies with ASC 932, “Extractive Activities - Oil and Gas”. The Company has capitalized exploratory well costs, and has determined that there are no suspended well costs that should be impaired. The Company reviews its long-lived assets for impairments when events or changes in circumstances indicate that impairment may have occurred.
Website
The Company capitalizes the costs associated with the development of the Company’s website pursuant to ASC - 350, “Goodwill and Other”. Other costs related to the maintenance of the website are expensed as incurred. Amortization is provided over the estimated useful lives of three years using the straight-line method for financial statement purposes. The Company commenced amortization upon completion of the Company’s fully operational website. Amortization expense for the year ended March 31, 2016 and 2015 totaled $9,934 and $8,768 respectively.
| 23 |
Property and Equipment
Property and equipment are carried at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation and amortization of property and equipment is provided using the straight-line method for financial reporting purposes at rates based on the following estimated useful lives:
| Classification | Useful Life | |
| Computer equipment | 3 Years | |
| Website design | 3 Years | |
| Patents and trademarks | 15 Years |
Depreciation expense for the year ended March 31, 2016 and 2015 totaled $924 and $994, respectively.
Equipment
Equipment is recorded at cost. Depreciation is computed for financial reporting purposes utilizing the straight-line method over the estimated useful lives of the related asset.
Advertising
The Company follows the policy of charging the costs of advertising to expenses incurred. The Company incurred $0 in advertising costs during the years ended March 31, 2016 and 2015, respectively.
4. ACQUISITION OF OIL AND GAS PROPERTIES
On November 18, 2013, the Company entered into an assignment of lease (the “Agreement”) whereby Ardmore Investments Inc. (“Ardmore”) assigned to the Company its rights under a certain purchase agreement (the “Purchase Agreement”), dated August 8, 2013, between Ardmore and Pioneer Oil and Gas (“Pioneer”) involving the sale of 5,905.54 acres of oil and gas leases located in the Central Utah Thrust Belt in Beaver County and Sevier County, Utah and currently owned by Pioneer (the “Leases”). Per the terms of the Agreement, we issued to Ardmore 250,000 shares of our common stock on November 18, 2013, and, in order to complete the assignment contemplated by the Agreement, we will issue to Ardmore an additional 250,000 shares of our common stock upon the transfer to us of ownership in the Leases which must occur on or before April 12, 2014. Furthermore, on December 12, 2013 and February 12, 2014, the Company made two installment payments of $100,000 each to Pioneer with an additional $100,000 installment payment required on April 12, 2014. Upon completion of the final installment the leases were conveyed to the Company.
Due to the lack of an active market of the Company’s common stock, the fair value of the common stock transferred was determined based on the price at which the Company’s shares were being sold in a private placement active during the time period.
Impairment
The Company determined that there was a material impairment of the land lease agreements and recorded an impairment of the asset of $737,500 in the year ended March 31, 2016.
5. COMMON STOCK
The Company’s authorized capital consists of 40,000,000 shares of common stock and 4,000,000 shares of preferred stock, both with a par value of $0.001 per share.
On July 1, 2015, the Company effectuated a reverse stock split of its outstanding and authorized shares of common stock at a ratio of 1 for 2.5. As a result of the Reverse Stock Split, the Company’s authorized shares of common stock were decreased from 100,000,000 to 40,000,000 shares and its authorized shares of preferred stock were decreased from 10,000,000 to 4,000,000 shares. Upon the effectiveness of the Reverse Stock Split, which occurred on July 1, 2015, the Company’s issued and outstanding shares of common stock was decreased from 66,124,593 to 26,449,868 shares, all with a par value of $0.001. The Company has no outstanding shares of preferred stock. Accordingly, all share and per share information has been restated in this Report to retroactively show the effect of the Reverse Stock Split.
| 24 |
On April 12, 2014, in connection with the Agreement, the Company issued to Ardmore 100,000 shares of our common stock.
On May 7, 2014, the Company sold a total of 80,000 shares of common stock for gross proceeds of $150,000.
On June 30, 2014 the Company authorized the issuance of 20,000 shares of common stock to the Chief Operating Officer for consulting services. The fair value of the shares of common stock was $37,500.
On August 22, 2014 the Company sold a total of 193,548 shares of common stock for gross proceeds of $150,000.
On September 2, 2014, the Company authorized the issuance of 20,000 shares of common stock to a third party entity for consulting services. The fair value of the shares of common stock was $20,500.
On September 16, 2014, the Company authorized the issuance of 20,000 shares of common stock to the Company’s newly appointed Chief Operating Officer for consulting services. The fair value of the shares of common stock was $20,500.
On October 24, 2014 the Company sold 58,824 shares of common stock for gross proceeds of $50,000.
On November 17, 2014, the Company entered into a private placement for 32,258 shares of common stock for gross proceeds of $50,000. On December 8, 2014, the Company received $37,500 of the proceeds, however, the remaining $12,500 was received on January 8, 2015, wherein, the Company issued the shares.
On January 29, 2015, the Company entered into a private placement for 26,316 shares of common stock for gross proceeds of $37,500.
On February 2, 2015, the Company authorized the issuance of 20,000 shares of common stock for consulting services. The fair value of the shares of common stock was $42,000.
On February 10, 2015, the Company entered into a private placement for 46,377 shares of common stock for gross proceeds of $80,000.
On February 13, 2015, the Company issued 160,000 shares of common stock as per the Employment Agreement between the Company and John Barton. The fair value of the shares of common stock was $336,000.
| 25 |
On March 13, 2015, the Company authorized the issuance of 20,000 shares of common stock to the Chief Operating Officer for consulting services. The fair value of the shares of common stock was $35,000.
On April 27, 2015, the Company sold a total of 21,918 shares of common stock to an investor for gross proceeds of $40,000.
On June 1, 2015, the Company sold a total of 58,823 shares of common stock to an investor for gross proceeds of $50,000.
On June 12, 2015, the Company sold a total of 52,174 shares of common stock to an investor for gross proceeds of $30,000.
On August 5, 2015, the Company sold a total of 75,862 shares of common stock to an investor for gross proceeds of $22,000.
On August 12, 2015, the Company sold a total of 75,000 shares of common stock to an investor for gross proceeds of $30,000.
On September 11, 2015, the Company sold a total of 142,857 shares of common stock to an investor for gross proceeds of $50,000.
On September 14, 2015, the Company sold a total of 105,263 shares of common stock to an investor for gross proceeds of $40,000.
On September 16, 2015, the Company authorized the issuance of 40,000 shares of common stock to the Company’s Chief Operating Officer for consulting services. The fair value of the shares of common stock was $17,600.
On October 13, 2015, the Company sold a total of 54,790 shares of common stock to an investor for gross proceeds of $40,000.
On October 22, 2015, the Company entered into a private placement for 108,700 shares of common stock for gross proceeds of $100,000. On November 10, 2015, the Company received $50,000 of the proceeds. On January 29, 2016, the private placement was amended and the parties agreed that the investor would reduce its investment by $10,000 to an aggregate of $90,000 and would be issued an aggregate of 97,826 shares of common stock. The remaining $40,000 was received on January 29, 2016, wherein, the Company issued the shares.
On October 26, 2015, the Company authorized the issuance of 50,000 shares of common stock to the Company’s Chief Operating Officer for consulting services. The fair value of the shares of common stock was $48,000.
On February 9, 2016, the Company issued a restricted stock grant of 160,000 shares of common stock to John Barton, the Company’s Chief Executive Officer, in accordance with his employment agreement dated February 4, 2014, The restricted stock grant will vest 10 months following the issuance.
As of March 31, 2016, the Company had 27,251,466 shares of common stock issued and outstanding.
| 26 |
6. INCOME TAXES
As of March 31, 2016, the Company had net operating loss carry forwards of approximately $2,630,517 that may be available to reduce future years’ taxable income through 2034. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur. Accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards.
Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse
A reconciliation of tax expense computed at the statutory federal tax rate income (loss) from operations before income taxes to the actual income tax expense is as follows:
| 2016 | 2015 | |||||||
| Tax provision (benefits) computed at the statutory rate | $ | (468,100 | ) | $ | (371,900 | ) | ||
| Nondeductible expense | (800 | ) | (1,100 | ) | ||||
| (467,300 | ) | (370,800 | ) | |||||
| Increase in valuation allowance for deferred tax assets | 467,300 | 370,800 | ||||||
| Income tax expense benefit | $ | — | $ | — | ||||
Deferred income taxes include the net tax effects of net operating loss (NOL) carry forwards and the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:
| 2016 | 2015 | |||||||
| Stock based compensation | $ | - | $ | - | ||||
| Net operating loss carryover | 958,000 | 491,000 | ||||||
| Total deferred tax assets | 958,000 | 491,000 | ||||||
| Valuation allowance | (958,000 | ) | (491,000 | ) | ||||
| Net deferred tax assets | $ | — | $ | — | ||||
The Company has provided a valuation reserve against the full amount of the net deferred tax assets; because in the opinion of management, it is more likely than not that these tax assets will not be realized.
The Company’s NOL and tax credit carryovers may be significantly limited under the Internal Revenue Code (IRC). NOL and tax credit carryovers are limited under Section 382 when there is a significant “ownership change” as defined in the IRC. During the fiscal year ended March 31, 2016 and in prior years, the Company may have experienced such ownership changes, which could impose such limitations.
The limitation imposed by the IRC would place an annual limitation on the amount of NOL and tax credit carryovers that can be utilized. When the Company completes the necessary studies, the amount of NOL carryovers available may be reduced significantly. However, since the valuation allowance fully reserves for all available carryovers, the effect of the reduction would be offset by a reduction in the valuation allowance.
The company files income tax returns in the U.S. federal jurisdiction, and the State of Colorado.
7. RELATED PARTY TRANSACTIONS
Chief Executive Officer
The Company has received advances from certain of its officers and other related parties to meet short term working capital needs. These advances may not have formal repayment terms or arrangements. As of March 31, 2016 and March 31, 2015, the total amount loaned to the Company by a director was $10,118. The loan is non-interest bearing, due upon demand and unsecured.
The Company has an employment agreement with the Company’s Chief Executive Officer whereby the Company provides for compensation of $10,000 per month. A total salary of $120,000 expensed during each of the years ended March 31, 2016 and 2015. The total balance due to the Chief Executive Officer for accrued salaries at March 31, 2016 and March 31, 2015, was $41,250 and $25,000, respectively.
Chief Operating Officer
On October 26, 2015, the Company renewed its independent contractor agreement with Arrow Peak Minerals and Royalty LLC (“Arrow”) so that Kurt Reinecke would continue to act in the role of the Company’s Chief Operating Officer. The agreement is for a term of one year and will pay Arrow an aggregate of $90,000 over the term. Arrow is also entitled to receive an aggregate of 150,000 shares of common stock to be earned as follows: (i) 50,000 shares were issued upon execution of the agreement; (ii) 50,000 shares will be issued upon the six month anniversary of the commencement of the agreement; and (iii) 50,000 shares will be issued upon the one year anniversary of the commencement of the agreement.
| 27 |
8. COMMITMENTS AND CONTINGENCIES
Land Lease Agreements
As detailed in the “Acquisition of Oil and Gas Properties” - Note 4, the Company is obligated to issue Ardmore Investments an additional 250,000 shares of common stock upon the transfer of ownership of the Leases on or before April 12, 2014. Furthermore, an installment payment is due to Pioneer in the amount of $100,000 on April 12, 2014. Upon completion of the final installment the leases will be conveyed to the Company.
9. SUBSEQUENT EVENT
The Company has evaluated subsequent events from March 31, 2016 through the filing of these financial statements. There are no significant subsequent events, except as disclosed below;
Officer Restricted stock grant
On April 28, 2016, the Company issued a restricted stock grant of 50,000 shares of common stock to our Chief Operating Officer, in accordance with his employment agreement dated October 26, 2015,
Officer Conversion of stock
On June 3, 2016, the Company issued 1,022,122 shares in exchange for payment of outstanding compensation due to John Barton in the amount of $71,250 and outstanding loans payable of $10,118.
| 28 |
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
We did not have any disagreements on accounting and financial disclosures with our present accounting firm during the reporting period.
ITEM 9A. 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)) for the year ended March 31, 2016. 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 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, 2016 because of the items set forth below:
| 1) | Lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; | |
| 2) | The Company lacks segregation of duties as our sole director is also our sole officer. | |
| 3) | Our Chief Executive Officer does not have significant financial experience resulting in the Company’s use of an outside consultant to assist in financial expertise. |
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 year ended March 31, 2016. 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.
Management Plan to Remediate Material Weaknesses
Management is pursuing the implementation of corrective measures to address the material weaknesses described above. In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. We plan to appoint one or more outside directors to our Board of Directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.
We believe the remediation measures described above will remediate the material weaknesses we have identified and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control processes and will continue to diligently and vigorously review our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances not to complete, certain of the remediation measures described above.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our sole officer, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (b) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of the our management and directors; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was not effective as of March 31, 2016.
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 year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only the management’s report in this Quarterly Report.
Not applicable.
| 29 |
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The following table sets forth certain information concerning our executive officers and directors as of the date of the Annual Report:
| Name | Age | Positions and Offices Held | ||
| John Barton | 43 | Chief Executive Officer, Chief Financial Officer and Director | ||
| Kurt Reinecke | 56 | Chief Operating Officer |
John Barton, Chief Executive Officer, Chief Financial Officer and Director. Mr. Barton was appointed Chief Executive Officer, Chief Financial Officer and Director of the Company on October 2, 2013. Mr. Barton began his professional career in 1994 as a cash equity trader for Smith New Court/Merrill Lynch where he focused on the oil and gas sector. Mr. Barton achieved a promotion to director and worked at Smith New Court/Merrill Lynch until July 2001. From July 2001 until March 2003, Mr. Barton worked as the co-head of the Pan European TMT Trading Desk at Deutsche Bank where he was primarily responsible for client facilitation and risk management of Deutsche Bank’s own capital. In March 2003, Mr. Barton left Deutsche Bank to pursue other interests including a two-year partnership with Sir Richard Branson and his Virgin Unite charity. From December 2010 until October 2013, Mr. Barton worked for Barclay’s Capital as a cash equity trader and head of the industrial sector, including aerospace and defense stocks.
Kurt Reinecke, Chief Operating Officer. Mr. Reinecke was appointed Chief Operating Officer on September 16, 2014. Mr. Reinecke has been President of Arrow, an independent contractor providing geologic and exploration services to various clients associated with the domestic onshore oil and gas industry, since 2013. Mr. Reinecke began his career in geologic and exploration services in 1985. From 1985 to 2001 Mr. Reinecke was a staff geologist at Barrett Resources Corporation. Beginning in 2002, Mr. Reinecke was a founding member of Bill Barrett Corporation, an independent oil and gas exploration and operating company focusing on the Rocky Mountain basins. During his tenure at that company he rose from Vice President of Exploration – Southern Division to the position of Executive Vice President of Exploration for the Company, directing a staff of 26 professionals, and also serving on the Chairman’s Committee.
The above listed officers and director are not involved, and has not been involved in the past five years, in any legal proceedings that are material to an evaluation of their ability or integrity.
Family Relationships
There are no family relationships among our directors and executive officers. No director or executive officer has been a director or executive officer of any business, which has filed a bankruptcy petition, or had a bankruptcy petition filed against it. No director or executive officer has been convicted of a criminal offense within the past five years or is the subject of a pending criminal proceeding. No director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities. No director or officer has been found by a court to have violated a federal or state securities or commodities law.
Director Independence
The Company does not currently have any independent directors.
Committees of the Board of Directors
There are no committees of the Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers and directors and persons owning more than ten percent of the common stock, to file initial reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”). Additionally, Item 405 of Regulation S-K under the 34 Act requires us to identify in its Form 10-K and proxy statement those individuals for whom one of the above referenced reports was not filed on a timely basis during the most recent year or prior years. We have nothing to report in this regard.
Code of Ethics
The Company expects to adopt a code of ethics during fiscal year 2016.
Options/SAR Grants and Fiscal Year End Option Exercises and Values
We have not had a stock option plan or other similar incentive compensation plan for officers, directors and employees, and no stock options, other than as is discussed in this Annual Report.
| 30 |
Item 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning compensation for services rendered for the past two years to the Company’s Chief Executive Officer and to the Company’s most highly compensated officers other than the CEO, whose annual salary and bonus exceeded $100,000:
| Name
and Other Annual Principal Position |
Year | Salary | Bonus | Other
Annual Compensation |
Stock Awards |
Options/ SAR’s (#) |
LTIP Payouts |
Other Compensation |
||||||||||||||||||||||
| John Barton, | 2016 | $ | 120,000 | -0- | -0- | 9,600 | -0- | -0- | -0- | |||||||||||||||||||||
| Chief Executive Officer, | 2015 | $ | 120,000 | -0- | -0- | 336,000 | -0- | -0- | -0- | |||||||||||||||||||||
| Chief Financial Officer, Director (1)(2) | ||||||||||||||||||||||||||||||
| Kurt Reinecke, | 2016 | $ | 82,500 | -0- | -0- | 65,600 | -0- | -0- | -0- | |||||||||||||||||||||
| Chief Operating Officer (3)(4) | 2015 | 41,250 | -0- | -0- | 100,000 | -0- | -0- | -0- | ||||||||||||||||||||||
| (1) | On February 9, 2016, John Barton was granted 160,000 shares of common stock in accordance with his employment agreement dated February 4, 2014. | |
| (2) | On February 13, 2015, John Barton was granted 160,000 shares of common stock in accordance with his employment agreement dated February 4, 2014. | |
| (3) | On October 26, 2015, the Company renewed its independent contractor agreement with Arrow Peak Minerals and Royalty LLC (“Arrow”) so that Kurt Reinecke would continue to act in the role of the Company’s Chief Operating Officer. Arrow is also entitled to receive an aggregate of 150,000 shares of common stock to be earned as follows: (i) 50,000 shares were issued upon execution of the agreement; (ii) 50,000 shares will be issued upon the six month anniversary of the commencement of the agreement; and (iii) 50,000 shares will be issued upon the one year anniversary of the commencement of the agreement. | |
| (4) | On September 16, 2014 and March 16, 2015, Kurt Reinecke was granted an aggregate 50,000 shares of common stock in accordance with his employment agreement dated September 16, 2014. |
Employment Agreements
On February 4, 2014, we entered into an employment agreement with John Barton. The material terms of the employment agreement include: (1) base salary at the rate of $120,000 per annum, (ii) eligibility for an annual bonus, (iii) three year term; (iv) medical and health benefits eligibility; (v) termination without cause results in compensation paid for one year, (vi) on each anniversary a stock grant of 400,000 shares of common stock.
On September 16, 2014, the Company entered into the Reinecke Agreement with Arrow. The Reinecke Agreement is for a term of one year and will pay Arrow an aggregate of $90,000 over the term. Arrow is also entitled to receive an aggregate of 200,000 shares of the Company’s common stock to be earned as follows: (i) 50,000 shares upon execution of the Reinecke Agreement; (ii) 50,000 shares upon the six month anniversary of the commencement of the Reinecke Agreement; and (iii) 100,000 shares upon the one year anniversary of the commencement of the Reinecke Agreement.
On October 26, 2015, the Company renewed its independent contractor agreement with Arrow Peak Minerals and Royalty LLC (“Arrow”) so that Kurt Reinecke would continue to act in the role of the Company’s Chief Operating Officer. The agreement is for a term of one year and will pay Arrow an aggregate of $90,000 over the term. Arrow is also entitled to receive an aggregate of 150,000 shares of common stock to be earned as follows: (i) 50,000 shares were issued upon execution of the agreement; (ii) 50,000 shares will be issued upon the six month anniversary of the commencement of the agreement; and (iii) 50,000 shares will be issued upon the one year anniversary of the commencement of the agreement.
In the future, the Company may approve payment of salaries for officers and directors. The Company also does not currently offer or have any benefits, such as health or life insurance, available to its employees.
No retirement, pension, profit sharing, stock option or insurance programs or other similar programs have been adopted by us for the benefit of our employees.
Outstanding Equity Awards at Fiscal Year End
The Company’s sole officer did not receive any equity awards during the period covered by this Annual Report nor has any other former officer received equity awards during the period covered by this Annual Report.
Director Compensation
The Company’s Principal Executive Officer and Principal Financial Officer, who is the sole director did not receive any compensation in his role as such during the period covered by this Annual Report nor has any other former director of the Company received compensation during the period covered by this Report.
| 31 |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth the number of shares of our common stock beneficially owned by (i) each of our executive officers; (ii) each of our directors; (iii) each person who, as of March 31, 2016, was known by us to own beneficially more than five percent (5%) of our common stock; and (iv) our executive officers and directors as a group. A total of 27,251,466 common shares were issued and outstanding as of March 31, 2016.
| Shareholder | Common Stock (1) | Percentage | ||||||
| John Barton (2) | 13,433,600 | 49,26 | % | |||||
| Kurt Reinecke | 190,000 | 0.70 | % | |||||
| All officers and directors as a group | 13,623,600 | 49.99 | % | |||||
| TOTAL | 13,623,600 | 49.99 | % | |||||
(1) All ownership is beneficial and of record, unless indicated otherwise.
(2) The beneficial owner has sole voting and investment power with respect to the shares shown.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There are not currently any conflicts of interest by or among its current officers, directors, key employees or advisors. The Company has not yet formulated a policy for handling conflicts of interest; however, it intends to do so prior to hiring any additional employees.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our independent auditor, Seale and Beers, CPAs, LLC, fees were an aggregate of $11,250 and $15,000 for the year ended March 31, 2016 and 2015, respectively, and for professional services rendered for the audit of the Company’s annual financial statements.
We do not have an audit committee and as a result our board of directors performs the duties of an audit committee. Our board of directors evaluates the scope and cost of the engagement of an auditor before the auditor renders audit and non-audit services.
| 32 |
ITEM 15. EXHIBITS FINANCIAL STATEMENT SCHEDULES.
The following financial information is filed as part of this report:
(a)
| (1) | FINANCIAL STATEMENTS | |
| (2) | SCHEDULES | |
| (3) | EXHIBITS. The following exhibits required by Item 601 to be filed herewith are incorporated by reference to previously filed documents: |
| Exhibit Number |
Description | |
| 3.1* | Articles of Incorporation, as amended | |
| 3.2 | Certificate of Change filed with the Nevada Secretary of State, dated December 18, 2013 (incorporated by reference to Exhibit 3.1 to our Form 8-K dated December 24, 2013). | |
| 3.3 | Bylaws (incorporated by reference to Exhibit 3.2 to our Form 8-K dated December 20, 2011). | |
| 10.1 | Securities Purchase Agreement, dated November 1, 2013 (incorporated by reference to Exhibit 10.1 to our Form 8-K dated November 6, 2013). | |
| 10.2 | Assignment of Lease between Ardmore Investments Inc. and Petroterra Corp., effective November 18, 2013 (incorporated by reference to Exhibit 10.1 to our Form 8-K dated November 20, 2013). | |
| 10.3 | Employment Agreement, dated February 4, 2014, by and between the Company and John Barton (incorporated by reference to Exhibit 10.1 to our Form 8-K dated February 10, 2014). | |
| 10.4 | Independent Contractor Agreement, dated September 16, 2014, by and between the Company and Arrow Peak Minerals and Royalty LLC (incorporated by reference to Exhibit 10.1 to our Form 8-K dated September 22, 2014). | |
| 31.1* | Certification of Principal Executive Officer pursuant to Section 302 | |
| 31.2* | Certification of Principal Financial Officer pursuant to Section 302 | |
| 32.1* | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 | |
| 101.INS* | XBRL Instances Document | |
| 101.SCH* | XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
* Filed Herewith.
| 33 |
In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on July 29, 2016.
| PETROTERRA CORP. | ||
| By: | /s/ John Barton | |
| John Barton, Principal Executive Officer, Principal Financial Officer and Sole Director | ||
| 34 |