NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 AND 2015
NOTE
1 –
ORGANIZATION AND BASIS OF PRESENTATION
Organization
Petrone
Worldwide, Inc. (the “Company”) was incorporated as Sheridan Industries, Inc. on December 14, 1998 in the State of
Nevada. On December 31, 1998, the Company changed its name to Diabetex International Corp. and effective February 18, 2014, the
Company changed its name to Petrone Worldwide, Inc. The Company is in the hospitality industry and is a supplier of tabletop kitchenware
and hotel room products thru an exclusive licensing agreement with a leading supplier. Additionally, in August 2016, the Company
began providing logistic services to one customer.
On
January 29, 2014 and effective March 3, 2014, the Company entered into a purchase agreement (the “Purchase Agreement”)
with Petrone Food Works, Inc. (“PFW”) and the shareholder of PFW. Pursuant to the Purchase Agreement, the Company
acquired 100% of PFW’s issued and outstanding common stock from the PFW shareholder in exchange for the issuance of 11,760,542
shares of the Company’s common stock, representing 98.4% of the outstanding common stock, (the “Exchange”),
after giving effect to a 1-for-500 reverse stock split (the “Reverse Stock Split”) which resulted in 195,607 common
shares outstanding prior to the Exchange for liabilities of $30,000. Accordingly, the PFW shareholder became a shareholder of
the Company and PFW became a subsidiary of the Company. The Exchange has been accounted for as a reverse-merger and recapitalization
since the stockholder of PFW obtained voting and management control of the Company. PFW is the acquirer for financial reporting
purposes and the Company is the acquired company. Consequently, the assets and liabilities and the operations reflected in the
historical financial statements prior to the Exchange are those of PFW and was recorded at the historical cost basis of PFW, and
the consolidated financial statements after completion of the Exchange included the assets and liabilities of both the Company
and PFW and the Company’s consolidated operations from the closing date of the Exchange. All share and per share data in
the accompanying consolidated financial statements have been retroactively restated to reflect the effect of the Reverse Stock
Split and recapitalization. PFW was formed under the laws of the State of Nevada in October 2013.
On
December 1, 2016, the Company amended its Articles of Incorporation to increase its authorized shares from 110,000,000 shares
to 910,000,000 shares. The capital stock of the Corporation is divided into two classes: (1) Common Stock in the amount of 900,000,000
shares, having par value of $0.001 each, and (2) Preferred Stock in the amount of 10,000,000 shares, having par value of $0.001
each.
Basis
of Presentation and Principles of Consolidation
The
Company’s consolidated financial statements include the financial statements of its wholly-owned subsidiary, Petrone Food
Works, Inc. (inactive). All significant intercompany accounts and transactions have been eliminated in consolidation.
Going
concern
These
consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated
financial statements, the Company had a net loss of $6,603,239 and $1,397,095 for the years ended December 31, 2016 and 2015,
respectively. The net cash used in operations were $591,156 and $95,146 for the years ended December 31, 2016 and 2015, respectively.
Additionally, the Company had an accumulated deficit, stockholders’ deficit and working deficit of $9,283,345, $5,088,851
and $5,088,851, respectively, at December 31, 2016. These factors raise substantial doubt about the Company’s ability to
continue as a going concern for twelve months from the issuance date of this report. Management cannot provide assurance that
the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity
capital. During 2016, management has taken measures to reduce operating expenses. The Company is seeking to raise capital through
additional debt and/or equity financings to fund its operations in the future. Although the Company has historically raised capital
from sales of equity and from the issuance of promissory notes, there is no assurance that it will be able to continue to do so.
If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that
the Company will need to curtail its operations. These consolidated financial statements do not include any adjustments related
to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
PETRONE
WORLDWIDE, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 AND 2015
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates for the years
ended December 31, 2016 and 2015 include estimates of current and deferred income taxes and deferred tax valuation allowances,
the fair value of derivative liabilities, and the fair value of non-cash equity transactions.
Fair
value of financial instruments and fair value measurements
FASB
ASC 820 —
Fair Value Measurements and Disclosures,
defines fair value as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC
820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement
purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company
on December 31, 2016 and 2015. Accordingly, the estimates presented in these consolidated financial statements are not necessarily
indicative of the amounts that could be realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy
of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs
reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and
the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level
1- Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level
2- Inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets
and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or
corroborated by observable market data.
Level
3- Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants
would use in pricing the asset or liability based on the best available information.
The
carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, loans, accounts
payable, accrued expenses, and other payables approximate their fair market value based on the short-term maturity of these instruments.
The
Company analyzes all financial and non-financial instruments with features of both liabilities and equity under the FASB’s
accounting standard for such instruments. Under this standard, financial and non-financial assets and liabilities are classified
in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company accounts for
one instrument at fair value using level 3 valuation.
|
|
At
December 31, 2016
|
|
At
December 31, 2015
|
Description
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
Derivative
liabilities
|
|
-
|
|
-
|
|
$
5,070,848
|
|
-
|
|
-
|
|
$73,236
|
PETRONE
WORLDWIDE, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 AND 2015
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
A
roll forward of the level 3 valuation financial instruments is as follows:
|
|
Derivative Liabilities
|
Balance at December 31, 2014
|
|
$
|
—
|
|
Initial valuation
of derivative liability
|
|
|
73,236
|
|
Change
in fair value included in net loss
|
|
|
—
|
|
Balance at December 31, 2015
|
|
|
73,236
|
|
Initial valuation of
derivative liabilities
|
|
|
1,448,678
|
|
Reclassify
derivative liabilities to paid-in capital upon conversion
or
repayment
|
|
|
(364,452
|
)
|
Change
in fair value included in net loss
|
|
|
3,913,386
|
|
Balance at December
31, 2016
|
|
$
|
5,070,848
|
|
ASC
825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities
at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable,
unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that
instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value
option to any outstanding instruments.
Cash
and cash equivalents
For
purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of
three months or less at the purchase date and money market accounts to be cash equivalents.
Accounts
receivable
The
Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries.
The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs,
as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. The expense associated
with the allowance for doubtful accounts is recognized as general and administrative expense
.
At December 31, 2016 and 2015, the Company has established, based on a review of its outstanding balances, an allowance for doubtful
accounts in the amounts of $3,375 and $0, respectively.
Advances
to supplier
Advances
to supplier represent the advance payments for the purchase of product from supplier.
Impairment
of long-lived assets
In
accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an
impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount
of impairment is measured as the difference between the asset’s estimated fair value and its book value.
Derivative
liabilities
The
Company has certain financial instruments that are embedded derivatives associated with capital raises. The Company evaluates
all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify
as derivatives to be separately accounted for in accordance with FASB ASC 815-10-05-4 and 815-40. This accounting treatment
requires that the carrying amount of any embedded derivatives be recorded at fair value at issuance and marked-to-market at each
balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the
change in the fair value during the period is recorded as either income or expense. Upon conversion or exercise, the derivative
liability is marked to fair value at the conversion date and then the related fair value is reclassified to equity.
PETRONE
WORLDWIDE, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 AND 2015
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
recognition
Pursuant
to the guidance of ASC Topic 605, the Company recognizes sales when persuasive evidence of an arrangement exists, delivery has
occurred or services have been provided, the purchase price is fixed or determinable and collectability is reasonably assured.
The Company’s standard terms are “ex works”, with title transferring to its customer at the Company suppliers’
loading docks or upon embarkation with risk of loss being assumed by the customer at the shipping point. The Company has a small
percentage of sales with other terms, and revenue is recognized in accordance with the terms of the related customer purchase
order. Shipping and handling costs billed to customers are recognized in revenue.
Advances
from customers at December 31, 2016 and 2015 amounted to $79,780 and $0, respectively, and consist of prepayments from customers
for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue when customers take delivery
of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy.
For
logistics services performed, the Company recognizes revenue upon performance and completion of services rendered.
Cost
of sales
Cost
of sales includes inventory costs, materials and supplies costs, and shipping and handling costs incurred.
Shipping
and handling costs
For
the years ended December 31, 2016 and 2015, shipping and handling costs incurred for product shipped to customers are included
in cost of sales and amounted to $109,595 and $137,863, respectively. Shipping and handling costs charged to customers are included
in sales.
Advertising
costs
All
costs related to advertising of the Company’s products are expensed in the period incurred. For the years ended December
31, 2016 and 2015, advertising costs charged to operations were $0 and $2,153, respectively, and are included in general and administrative
expenses on the accompanying consolidated statements of operations.
Income
taxes
The
Company accounts for income tax using the liability method prescribed by ASC 740, “
Income Taxes
”. Under this
method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases
of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to
reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence,
it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred
taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
The
Company follows the accounting guidance for uncertainty in income taxes using the provisions of Accounting Standards Codification
(ASC) 740
“Income Taxes
”. Using that guidance, tax positions initially need to be recognized in the financial
statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of December
31, 2016 and 2015, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial
statements. The Company recognizes interest and penalties related to uncertain income tax positions in other expense. However,
no such interest and penalties were recorded for the years ended December 31, 2016 and 2015.
PETRONE
WORLDWIDE, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 AND 2015
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-based
compensation
Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition
in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments
over the vesting period or immediately if the equity award is non-forfeitable and non-cancellable. The ASC also requires measurement
of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Pursuant
to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the
“measurement date.” The expense is recognized over the service period of the award. Common stock awards issued to
consultants represent common stock granted to non-employees in exchange for services at fair value. The measurement dates for
such awards are set at the dates that the contracts are entered into as the awards are non-forfeitable and vest immediately. The
measurement date fair value is then recognized over the service period as if the Company has paid cash for such service.
Loss
per share of common stock
ASC
260 “Earnings Per Share”, requires dual presentation of basic and diluted earnings per share (“EPS”) with
a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted
EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Basic net loss per common share is computed by dividing net loss available to common
shareholders by the weighted average number of shares of common shares outstanding during the period. Diluted net loss per common
share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and
potentially dilutive securities outstanding during each period. Additionally, potentially dilutive common shares consist of common
stock issuable upon conversion of convertible debt. These common stock equivalents may be dilutive in the future
.
Potentially
dilutive common shares were excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact
on the Company’s net losses and consisted of the following:
|
|
December 31, 2016
|
|
December 31, 2015
|
Convertible
notes
|
|
|
57,402,538
|
|
|
|
463,200
|
|
Recent
accounting pronouncements
In
May 2014, the FASB issued an update ("ASU 2014-09")
Revenue from Contracts with Customers.
ASU 2014-09
establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and
supersedes most of the existing revenue recognition guidance. ASU 2014-09 requires an entity to recognize revenue when it
transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to
be entitled in exchange for those goods or services and also requires certain additional disclosures. ASU 2014-09 is effective
for interim and annual reporting periods in fiscal years that begin after December 15, 2016. The Company is currently evaluating
the impact of the adoption of ASU 2014-09 on its consolidated financial statements.
In
August 2014, the FASB issued ASU 2014-15,
Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going
Concern,
that will require management to assess an entity’s ability to continue as a going concern, and to provide related
footnote disclosures in certain circumstances. In connection with each annual and interim period, management will assess if there
is substantial doubt about an entity’s ability to continue as a going concern within one year after the issuance date. Substantial
doubt exists if it is probable that the entity will be unable to meet its obligations within one year after the issuance date.
The new standard defines substantial doubt and provides example indicators. Disclosures will be required if conditions give rise
to substantial doubt. However, management will need to assess if its plans will alleviate substantial doubt to determine the specific
disclosures. This standard is effective for public entities for annual periods ending after December 15, 2016. Earlier application
of this standard is permitted. This standard is not expected to have a material effect on the Company’s financial position,
results of operations and cash flows.
PETRONE
WORLDWIDE, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 AND 2015
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In
November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
(“ASU 2015-17”),
which requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet.
The ASU simplifies the current guidance in ASC Topic 740,
Income Taxes
, which requires entities to separately present deferred
tax assets and liabilities as current and noncurrent in a classified balance sheet. ASU 2015-17 is effective for fiscal years
beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for all entities
as of the beginning of an interim or annual reporting period. The Company does not expect the impact of ASU 2015-17 to be material
to the Company’s consolidated financial statements.
In
March 2016, the FASB issued its new stock compensation guidance in ASU No. 2016-09 (Topic 718). First, under the new guidance,
companies will be required to recognize the income tax effects of share-based awards in the income statement when the awards vest
or are settled (i.e., additional paid-in capital (“APIC”) or APIC pools will be eliminated). In addition, the new
guidance allows a withholding amount of awarded shares with a fair value up to the amount of tax owed using the maximum, instead
of the minimum, statutory tax rate without triggering liability classification for the award. Lastly, the new guidance allows
companies to elect whether to account for forfeitures of share-based payments by (1) recognizing forfeitures of awards as they
occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change,
as is currently required. The new standard is effective for annual periods beginning after December 15, 2016, including interim
periods within those fiscal years. Early adoption is permitted. The result of adopting this guidance is not expected to have a
material impact on the Company’s consolidated financial statements.
There
are no other recently issued accounting standards that apply to us or that are expected to have a material impact on our results
of operations, financial condition, or cash flows.
NOTE
3 –
CONVERTIBLE NOTES
Firstfire
Convertible Note
On
December 28, 2015, the Company entered into a secured convertible promissory note (the “Firstfire Convertible Note”)
with Firstfire Global Opportunities Fund LLC (the “Lender”), with a principal amount of $230,000, which amount is
the $200,000 purchase price plus a 15% original issue discount equal to $30,000. Additionally, the lender deducted legal fees
of $10,000 and the Company received net proceeds of $190,000. The unpaid principal and interest is secured by the Company’s
common stock, bears interest computed at a rate of interest that is equal to 7.0% per annum, and is payable in monthly installments
of $50,555 commencing April 28, 2016 through August 28, 2016. Any amount of principal or interest on this Convertible Note, which
is not paid by the due dates, shall bear interest at the rate of 15% per annum from the due date until paid. During the year ended
December 31, 2016, the Company repaid all of the Firstfire Convertible Note principal amount due of $230,000.
In
connection with the issuance of the Firstfire Convertible Note, the Company determined that the terms of the Firstfire Convertible
Note included a down-round provision under which the conversion price and exercise price could be affected by future equity offerings
undertaken by the Company or contain terms that are not fixed monetary amounts at inception. Accordingly, under the provisions
of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”, the embedded
conversion option contained in the convertible instruments were accounted for as derivative liabilities at the date of issuance
and shall be adjusted to fair value through earnings at each reporting date.
The
fair value of the embedded conversion option derivatives was determined using the Black- Scholes Option Pricing Model. On the
initial measurement date, the fair values of the embedded conversion option derivative of $73,236 was recorded as a derivative
liability and was allocated as a debt discount to the Convertible Note of $73,236. At December 28, 2015, the Company valued the
embedded conversion option derivative liabilities resulting in no gain or loss from change in fair value of derivative liabilities.
During the year ended December 31, 2016, at the end of each period, the Company revalued the embedded conversion option derivative
liabilities. In connection with these revaluations, the Company recorded derivative income of $57,415. Additionally, in connection
with the Firstfire Convertible Note, in December 2015, the Company paid Lender debt issuance costs of $10,000 and issued 50,000
shares of its common stock. These common shares were valued at $0.225 per share based on recent sales of the Company’s stock
and the Company recorded a debt discount of $10,725 which is the relative fair value of such shares.
PETRONE
WORLDWIDE, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 AND 2015
NOTE
3 –
CONVERTIBLE NOTES (continued)
Upon
repayment of the debt, the Company reclassified any remaining derivative liabilities to additional paid in capital of $15,821.
During
the year ended December 31, 2016, the Company entered into agreements for the addendum of the Firstfire Convertible Note which
waived all rights to enforce any event of default, which may have been triggered by the Company’s failure to file it reports
with the SEC. In connection with these agreements, during 2016, the Company issued an aggregate of 200,000 shares of common stock
that were valued on the date of grant at $0.40 per share or $80,000 based on recent sales of the Company’s common stock
and paid cash penalties of $10,000. The value of these shares and the cash penalties paid have been included in interest expense
on the accompanying consolidated statement of operations.
Securities
Purchase Agreements and Debentures
Peak
securities purchase agreement and debenture
On
October 24, 2016 (the “Issuance Date”), the Company entered into a securities purchase agreement (the “SPA”)
with Peak One Opportunity Fund, L.P., an accredited investor (“Peak”), whereby Peak agreed to invest up to $346,500
(the “Purchase Price”) in the Company in exchange for the convertible debentures, upon the terms and subject to the
conditions thereof. Pursuant to the SPA, the Company issued a convertible debenture to Peak on October 26, 2016, in the original
principal amount of $85,000, which bears interest at 0% per annum (the “First Debenture”). On October 26, 2016, the
Company received net cash proceeds of $70,000 under this convertible note which was net of debt issuance costs and legal fees
of $15,000 which were treated as a debt discount and will be amortized into interest expense over the term of the respective note.
Each convertible debenture issued pursuant to the SPA and any accrued and unpaid interest relating to each convertible debenture,
is due and payable three years from the issuance date of the respective convertible debenture. Any amount of principal or interest
that is due under each convertible debenture, which is not paid by the respective maturity date, will bear interest at the rate
of 18% per annum until it is satisfied in full. In connection with the issuance of the SPA, the Company issued 650,000 shares
of the Company’s common stock to Peak (See Note 6).
Peak
is entitled to, at any time or from time to time, convert each convertible debenture issued under the SPA into shares of the Company’s
common stock, at a conversion price per share (the “Conversion Price”) equal to either: (i) if no event of default
has occurred under the respective convertible debenture and the date of conversion is prior to the date that is one hundred eighty
days after the issuance date of the respective convertible debenture, $0.25, or (ii) if an event of default has occurred under
the respective convertible debenture or the date of conversion is on or after the date that is one hundred eighty days after the
issuance date of the respective convertible debenture, the lesser of (a) $0.25 or (b) 65% of the lowest closing bid price of the
common stock for the twenty trading days immediately preceding the date of the date of conversion (provided, further, that if
either the Company is not DWAC operational at the time of conversion or the common stock is traded on the OTC Pink at the time
of conversion, then 65% shall automatically adjust to 60%), subject in each case to equitable adjustments resulting from any stock
splits, stock dividends, recapitalizations or similar events.
The
Company may redeem each convertible debenture issued under the SPA, upon not more than two days written notice, for an amount
(the “Redemption Price”) equal to: (i) if the Redemption Date is ninety days or less from the date of issuance of
the respective convertible debenture, 105% of the sum of the Principal Amount so redeemed plus accrued interest, if any; (ii)
if the Redemption Date is greater than or equal to ninety one days from the date of issuance of the respective convertible debenture
and less than or equal to one hundred twenty days from the date of issuance of the respective convertible debenture, 110% of the
sum of the Principal Amount so redeemed plus accrued interest, if any; (iii) if the Redemption Date is greater than or equal to
one hundred twenty one days from the date of issuance of the respective convertible debenture and less than or equal to one hundred
fifty days from the date of issuance of the respective convertible debenture, 120% of the sum of the Principal Amount so redeemed
plus accrued interest, if any; (iv) if the Redemption Date is greater than or equal to one hundred fifty one days from the date
of issuance of the respective convertible debenture and less than or equal to one hundred eighty days from the date of issuance
of the respective convertible debenture, 130% of the sum of the Principal Amount so redeemed plus accrued interest, if any; and
(v) if either (1) the respective convertible debenture is in default but the Buyer consents to the redemption notwithstanding
such default or (2) the Redemption Date is greater than or equal to one hundred eighty one days from the date of issuance of the
respective convertible debenture, 140% of the sum of the Principal Amount so redeemed plus accrued interest, if any.
PETRONE
WORLDWIDE, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 AND 2015
NOTE
3 –
CONVERTIBLE NOTES (continued)
Crown
Bridge securities purchase agreement and debenture
On
November 18, 2016 (the “Closing Date”), the Company consummated a transaction with an accredited investor (“Crown”),
whereby, upon the terms and subject to the conditions of that certain securities purchase agreement (the “SPA”), Crown
agreed to invest up to $340,000 (the “Purchase Price”) in our Company in exchange for a convertible promissory note
in the principal amount of $400,000 (the “Crown Bridge Note”). The Crown Bridge Note carries a prorated original issue
discount of $60,000 and bears interest at the rate of 6% per year. Through December 31, 2016, Crown funded the two tranches under
the Crown Bridge Note in principal amounts aggregating $80,000 and the Company received net proceeds of $62,000 in cash after
debt issuance costs of $18,000 which were treated as a debt discount and will be amortized into interest expense over the term
of the respective note. Each tranche funded under the Crown Bridge Note (each a “Tranche”), coupled with the accrued
and unpaid interest relating to that respective Tranche, is due and payable twelve months from the funding date of the respective
Tranche. Any amount of principal or interest that is due under each Tranche, which is not paid by the respective maturity date,
will bear interest at the rate of 22% per annum until it is satisfied in full. Crown is entitled to, at any time or from time
to time, convert each Tranche under the Crown Bridge Note into shares of the Company’s common stock, at a conversion price
per share equal to fifty five percent (55%) of the lowest traded price of the common stock for the twenty trading days immediately
preceding the date of the date of conversion, upon the terms and subject to the conditions of the Note. In connection with the
issuance of the First Tranch of the Crowne Bridge Note and SPA, the Company issued 450,000 shares of the Company’s common
stock to Crown and in connection with the issuance of the second Tranche of the Crowne Bridge Note, the Company issued 50,000
shares of the Company’s common stock to Crown (See Note 6). The Crown Bridge Note contains representations, warranties,
events of default, beneficial ownership limitations, prepayment options, and other provisions that are customary of similar instruments.
Other
In
2013 and on July 1, 2014, the Company entered into two convertible promissory two note agreements with individuals in the amount
of $20,000 and $10,000, respectively. The notes were non-interest bearing, unsecured and were due on demand. The notes are convertible
into shares of stock of the Company at the market price on the date of conversion. Pursuant to ASC Topic 470-20 (Debt with conversion
and other options), since these convertible notes had fixed conversion price at market, the Company determined it had a fixed
monetary amounts that can be settled for the debt. Accordingly, no derivative liability was calculated. On December 22, 2015,
the Company entered into a debt purchase and assignment agreement with one of the debt holders whereby a convertible note in the
principal amount of $10,000 became convertible at $.0025 per common share and the note was converted into 4,000,000 shares of
the Company’s common stock (see Note 6). Additionally, on December 2, 2016, the Company entered into a debt purchase and
assignment agreement with one of the debt holders whereby a convertible note in the principal amount of $20,000 was assigned to
a third party and the Company entered into a new convertible note agreement (the “Rosen Note”) for $20,000 which became
immediately convertible at $.003 per common share. On December 2, 2016, $5,700 of the principal amount was converted into 1,900,000
shares of the Company’s common stock (see Note 6). At December 31, 2016 and 2015, one note remained due in the principal
amount of $14,300 and $20,000, respectively.
In
connection with the issuance of the and Peak and Crown Bridge debentures, the Company determined that the terms of these debentures
contain terms that included a down-round provision under which the conversion price and exercise price could be affected by future
equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception. Accordingly, under
the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”,
the embedded conversion options contained in the convertible instruments are accounted for as derivative liabilities at the date
of issuance and are adjusted to fair value through earnings at each reporting date. Additionally, since there is an undeterminable
amount of shares issuable under the Peak Note, the Company accounted for the Rosen Note under the provisions of FASB ASC Topic
No. 815-40. The fair value of the embedded conversion option derivatives were determined using the Binomial valuation model. During
2016, on the initial measurement dates, the fair values of the embedded conversion option derivatives of $1,448,678 was recorded
as derivative liabilities and $1,448,678 was charged to current period operations as initial derivative expense. At the end of
each period, the Company revalued the embedded conversion option derivative liabilities. In connection with these revaluations,
the Company recorded derivative expense of $3,970,801 for the year ended December 31, 2016. Aggregate derivative expense from
changes in fair value of derivative liabilities and the initial derivative expense on the Peak, Crown and Rosen debentures amounted
to $5,419,479, which is recorded as a component of other income/(expense) on the accompanying consolidated statements of operations.
PETRONE
WORLDWIDE, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 AND 2015
NOTE
3 –
CONVERTIBLE NOTES (continued)
During
the years ended December 31, 2016 and 2015, the fair value of the derivative liabilities were estimated using the Binomial option
pricing method with the following assumptions:
|
|
Year
ended
December 31, 2016
|
|
Year
ended
December 31, 2015
|
Conversion
price per share
|
|
$0.0017
to $0.028
|
|
$0.50
|
Dividend
rate
|
|
0
|
|
0
|
Term
(in years)
|
|
0.92
to 3 years
|
|
0.67
years
|
Volatility
|
|
200.0%
|
|
100.0%
|
Risk-free
interest rate
|
|
0.85%
to 1.47%
|
|
0.66%
|
For
the years ended December 31, 2016 and 2015, amortization of debt discounts related to these convertible notes amounted to $132,202
and $3,148, respectively, which has been included in interest expenses on the accompanying consolidated statements of operations.
At
December 31, 2016 and 2015, convertible promissory notes consisted of the following:
|
|
December
31, 2016
|
|
December
31, 2015
|
Principal
amount
|
$
|
179,300
|
$
|
250,000
|
Less:
unamortized debt discount
|
|
(153,611)
|
|
(120,813)
|
Convertible
note payable, net
|
$
|
25,689
|
$
|
129,187
|
NOTE
4 –
LOANS PAYABLE
On
September 23, 2016, the Company entered into a business loan and security agreement with EBF Partners, LLC (the “EBF Loan”).
Pursuant to the EBF Loan, the Company borrowed $20,000. The Company is required to repay the EBF Loan by making daily payments
of $204 on each business day until the purchased amount of $28,200 is paid in full. Each payment is deducted directly from the
Company’s bank accounts. The EBF Loan has an effective interest rate of approximately 116%, is secured by the Company’s
assets and is personally guaranteed by the Company’s chief executive officer. During 2016, the Company repaid principal
amounts of $5,471 and at December 31, 2016, amounts due under the EBF Loan amounted to $14,529. On January 25, 2017, the Company
refinanced this loan (See Note 10).
On
September 26, 2016, the Company entered into a business loan and security agreement with On Deck Capital, Inc. (the “On
Deck Loan”). Pursuant to the On Deck Loan, the Company borrowed $35,000 and received net proceeds of $34,125 after paying
a loan origination fee of $875. The Company is required to repay the On Deck Loan by making 252 daily payments of $190 on each
business day until the purchased amount of $47,951 is paid in full. Each payment is deducted directly from the Company’s
bank accounts. The On Deck Loan has an effective interest rate of approximately 66%, is secured by the Company’s assets
and is personally guaranteed by the Company’s chief executive officer. During 2016, the Company repaid principal amounts
of $7,236 and at December 31, 2016, amounts due under the On Deck Loan amounted to $27,764.
NOTE
5 –
RELATED PARTY TRANSACTIONS
From
time to time, the Company receives advances from the Company’s chief executive officer for working capital purposes.
The advances are non-interest bearing and are payable on demand. For the year ended December 31, 2016 and 2015, due to related
party activity consisted of the following:
|
|
For the
Year ended
December 31,
2016
|
|
For the
Year ended
December 31, 2015
|
Balance due to related party
at beginning of year
|
|
$
|
38,434
|
|
|
$
|
8,051
|
|
Working capital advances received
|
|
|
51,570
|
|
|
|
31,366
|
|
Repayments made and
conversions
|
|
|
(89,780
|
)
|
|
|
(983
|
)
|
Balance due to related
party at end of year
|
|
$
|
224
|
|
|
$
|
38,434
|
|
PETRONE
WORLDWIDE, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 AND 2015
NOTE
6 -
STOCKHOLDERS’ EQUITY
Preferred
stock
The
Company’s board of directors authorized the issuance of 10,000,000 the shares of preferred stock in such series and to fix
from time to time before issuance thereof the number of shares to be included in any such series and the designation, powers,
preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof,
of such series.
On
February 19, 2016, the Board of Directors of the Company authorized and approved to create a new class of voting preferred stock
called “Series A Preferred Stock”, consisting of 1,000,000 shares authorized, $.001 par value. The preferred stock
is not convertible into any other class or series of stock and has no liquidation preference value. The Series A Preferred Stock
was issued to ensure perpetual control of at least 51% is provided to the holder of the Series A Preferred Stock. On all matters
to come before the shareholders of the Company, the holders of Series A Preferred shall have that number of votes per share (rounded
to the nearest whole share) equal to the product of (x) the number of shares of Series A Preferred held on the record date for
the determination of the holders of the shares entitled to vote (the “Record Date”), or, if no record date is established,
at the date such vote is taken or any written consent of shareholders is first solicited, and (y) fifty.
In
the event that the votes by the holders of the Series A Preferred Stock do not total at least 51% of the votes of all classes
of the Company’s authorized capital stock entitled to vote, then regardless of the provisions of this paragraph, in any
such case, the votes cast by a majority of the holders of the Series A Preferred Stock shall be deemed to equal 51% of all votes
cast at any meeting of stockholders, or any issue put to the stockholders for voting and the Company may state that any such action
approved by at least a majority of the holders of the Series A Preferred Stock was had by majority vote of the holders of all
classes of the Company’s capital stock.
On
February 19, 2016, the Company issued 1,000,000 shares of Series A Preferred Stock to its chief executive officer. In connection
with the issuance of Series A preferred shares, the Company recorded a nominal amount of stock-based compensation of $1,000 since
the shares had no economic value, on the date of the issuance of such shares, the Company’s chief executive officer was
the majority owner of the Company’s common shares, and the value of such voting rights were not readily and objectively
measurable.
Common
stock issued for services
During
the year ended December 31, 2015, pursuant to consulting agreements, the Company issued 2,158,927 shares of common stock to consultants
for business development and other services rendered and to be rendered. These shares were valued on the date of grant at per
share prices ranging from $0.13 to $0.225 based on recent sales of the Company’s common stock or based on the fair value
of services rendered for an aggregate value of $416,700. For the year ended December 31, 2015, in connection with the issuance
of these shares, the Company recorded stock-based consulting expense of $288,192 and a prepaid expense of $128,508 which was amortized
into consulting expense during the year ended December 31, 2016.
On
March 16, 2016, pursuant to a consulting agreement, the Company issued 16,667 shares of common stock to a consultant for investor
relations services rendered. These shares were valued on the date of grant at $0.90 per share or $15,000 based on the fair value
of services performed. In March 2016, in connection with the issuance of these shares, the Company recorded stock-based consulting
expense of $15,000.
On
September 13, 2016, pursuant to a one-year consulting agreement, the Company issued 60,000 shares of common stock to a consultant
for business development services rendered and to be rendered. These shares were valued on the date of grant at $0.40 per share
or $24,000 based on recent sales of the Company’s common stock. In connection with this agreement, the Company recorded
stock-based consulting fees, of $7,043 and a prepaid expense of $16,957 that will be amortized over the remaining one-year service
period.,
On
December 16, 2016, pursuant to a consulting agreement, the Company issued 100,000 shares of common stock to a consultant for investor
relations services rendered. These shares were valued on the date of grant at $0.08 per share or $8,000 based on the quoted trading
price on date of grant. In connection with this agreement, the Company recorded stock-based consulting fees, of $668 and a prepaid
expense of $7,332 that will be amortized over the remaining six month service period.
PETRONE
WORLDWIDE, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 AND 2015
NOTE
6 -
STOCKHOLDERS’ EQUITY (continued)
On
December 16, 2016, the Company issued 2,500,000 shares of common stock to the Company’s chief executive officer for services
rendered. These shares were valued on the date of grant at $0.08 per share or $200,000 based on the quoted trading price of the
Company’s common stock on the date of grant. In December 2016, in connection with the issuance of these shares, the Company
recorded stock-based compensation expense of $200,000.
Additionally,
for the year ended December 31, 2015, amortization of other prepaid stock-based consulting fees amounted to $26,513.
Common
stock issued for cash
During
2014, the Company issued 262,218 shares of common stock for cash of $105,000 and a subscription receivable of $5,000 at per share
prices ranging from $0.4545 per share to $0.225 per share. In January 2015, the subscription receivable amount due of $5,000 was
received.
On
February 3, 2016, the Company sold 1,200,000 shares of its common stock at $0.40 per common share for cash of $200,000 and a subscription
receivable of $280,000. The subscription receivable of $280,000 was collected in April 2016.
Common
shares issued in connection with debt addendum
On
April 20, 2016, June 6, 2016 and August 26, 2016, the Company entered into agreements for the addendum of the Convertible Note
(see Note 3) which waived all rights to enforce any event of default, which may have been triggered by the Company’s failure
to file it reports with the SEC. In connection with these agreements, the Company issued of 30,000, 40,000 and 130,000 shares
of common stock, respectively, for an aggregate of 200,000 shares of common stock. These shares were valued on the date of grant
at $0.40 per share or $80,000 based on recent sales of the Company’s common stock.
Common
stock issued in connections with convertible debts
On
December 22, 2015, the Company entered into a debt purchase and assignment agreement with one of its debt holders whereby a convertible
note in the principal amount of $10,000 became convertible at $.0025 per common share and the note was converted into 4,000,000
shares of the Company’s common stock. Pursuant to ASC 470-20-40, since the convertible note was immediately converted into
common shares of the Company pursuant to the debt purchase and assignment agreements, the Company recognized a debt conversion
inducement expense of $890,000 equal to the fair value of the common stock transferred in the transaction in excess of the fair
value of securities issuable pursuant to the original conversion terms (see Note 3).
On
December 28, 2015, in connection with a Convertible Note, the Company issued 50,000 shares of its common stock. These common shares
were valued at $0.225 per share based on recent sales of the Company’s stock and the Company recorded a debt discount of
$10,725 which is the relative fair value of such shares (see Note 3).
On
October 26, 2016, in connection with a Convertible Note, the Company issued 650,000 shares of its common stock as a debt issuance
cost. These common shares were valued at $0.26 per share based on the quoted trading price of the Company’s common stock
on the note date, In connection with the issuance of these shares, the Company recorded debt issuance costs of $99,000, which
is included in interest expense, and a debt discount of $70,000 which will be amortized into interest expense over the term on
the note (see Note 3).
On
November 7, 2016, In connection with the issuance of the First Tranch of the Crowne Bridge Note and SPA (see Note 3), the Company
issued 450,000 shares of its common stock as a debt issuance cost. These common shares were valued at $0.22 per share based on
the quoted trading price of the Company’s common stock on the note date, In connection with the issuance of these shares,
the Company recorded debt issuance costs of $37,000, which is included in interest expense, and a debt discount of $62,000 which
will be amortized into interest expense over the term on the note (see Note 3).
PETRONE
WORLDWIDE, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 AND 2015
NOTE
6 -
STOCKHOLDERS’ EQUITY (continued)
On
December 2, 2016, the Company entered into a debt purchase and assignment agreement with one of its debt holders whereby a convertible
note in the principal amount of $20,000 became convertible at $.003 per common share and $5,700 in principal balance was converted
into 1,900,000 shares of the Company’s common stock (see Note 3).
On
December 20, 2016, in connection with the issuance of the second Tranche of the Crowne Bridge Note (see Note 3), the Company issued
50,000 shares of the Company’s common stock to Crown. These shares were valued on the date of grant at $0.086 per share
or $4,300 based on the quoted trading price of the Company’s common stock on the second Tranche of the Crown Bridge Note.
In March 2016, in connection with the issuance of these shares, the Company recorded debt issuance costs of $4,300.
NOTE
7 –
INCOME TAXES
The
Company maintains deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The net deferred
tax asset has been fully offset by a valuation allowance because of the uncertainty of the attainment of future taxable income.
The items accounting for the difference between income taxes at the effective statutory rate and the provision for income taxes
for the years ended December 31, 2016 and 2015 were as follows:
|
|
Years Ended December
31,
|
|
|
2016
|
|
2015
|
Income tax benefit at U.S. statutory
rate of 34%
|
|
$
|
(2,245,101
|
)
|
|
$
|
(475,012
|
)
|
State income taxes
|
|
|
(330,162
|
)
|
|
|
(69,854
|
)
|
Non-deductible expenses
|
|
|
2,366,046
|
|
|
|
469,834
|
|
Change in valuation allowance
|
|
|
209,217
|
|
|
|
75,032
|
|
Total provision for
income tax
|
|
$
|
—
|
|
|
$
|
—
|
|
The
Company’s approximate net deferred tax assets as of December 31, 2016 and 2015 were as follows:
|
|
December 31, 2016
|
|
December 31, 2015
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
$
|
382,922
|
|
|
$
|
173,705
|
|
Total deferred tax assets before valuation
allowance
|
|
|
382,922
|
|
|
|
173,705
|
|
Valuation allowance
|
|
|
(382,922
|
|
|
|
(173,705
|
)
|
Net deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
The
estimated net operating loss carryforward was approximately $982,000 at December 31, 2016 which may be limited on the usage of
such net operating loss carryforwards due to a change in ownership in accordance with Section 382 of the Internal Revenue Code.
The Company provided a valuation allowance equal to the net deferred income tax asset for the years ended December 31, 2016 and
2015 because it was not known whether future taxable income will be sufficient to utilize the loss carryforward. The increase
in the valuation allowance was $209,217 from the year ended December 31, 2014. The potential tax benefit arising from tax loss
carryforwards will expire in 2036.
The
Company does not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company’s 2013,
2014, 2015 and 2016 Corporate Income Tax Returns are subject to Internal Revenue Service examination.
PETRONE
WORLDWIDE, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 AND 2015
NOTE
8 –
COMMITMENTS
International
distribution agreement
On
February 28, 2014, the Company entered into an International Distribution Agreement (the “International Distribution Agreement”)
with its major supplier. The Company did not meet its 2016 minimum purchase amount of $1,000,000. Future minimum purchase amounts
under the International Distribution Agreement at December 31, 2016 are as follows:
Years
ending December 31,
|
|
Amount
|
2017
|
$
|
1,500,000
|
2018
|
|
2,500,000
|
Total
minimum purchase amounts
|
$
|
4,000,000
|
Leases
The
Company leases its facilities under non-cancelable operating leases. Rent expense for operating leases was $48,931 and $77,435
for the years ended December 31, 2016 and 2015, respectively. Future minimum lease payments under non-cancelable operating lease
at December 31, 2016 are as follows:
Years
ending December 31,
|
|
Amount
|
2017
|
$
|
1,150
|
Total
minimum non-cancelable operating lease payments
|
$
|
1,150
|
NOTE
9 –
CONCENTRATIONS
Concentrations
of credit risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist primarily of and cash deposits. The
Company places its cash in banks at levels that, at times, may exceed federally insured limits. There were no balances in excess
of FDIC insured levels as of December 31, 2016 and 2015. The Company has not experienced any losses in such accounts through December
31, 2016.
Geographic
concentrations of sales
For
the year ended December 31, 2016 total sales to customers located in Europe and the United States represent approximately 63%
and 28% of total consolidated revenues, respectively. No other geographical area accounted for more than 10% of total sales during
the years ended December 31, 2016. For the year ended December 31, 2015, total sales in Europe, the Middle East, Latin American
and the United States represent approximately 27%, 29%, 22% and 22% of total consolidated revenues, respectively.
Customer
concentrations
For
the year ended December 31, 2016, two customers accounted for approximately 43.0% of total sales (28.0% and 15.0%, respectively).
For the year ended December 31, 2015, five customers accounted for approximately 85.3% of total sales (21.9%, 13.7%, 22.1%, 13.3%
and 14.3%, respectively). A reduction in sales from or loss of such customers would have a material adverse effect on the Company’s
consolidated results of operations and financial condition.
Vendor
concentrations
For
the years ended December 31, 2016 and 2015, the Company purchased all of its product from one supplier. The loss of this supplier
may have a material adverse effect on the Company’s consolidated results of operations and financial condition.
PETRONE
WORLDWIDE, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 AND 2015
NOTE
10 –
SEGMENT REPORTING
The
Company’s principal operating segments coincide with the types of products or services to be sold. The Company’s two
reportable segments for the year ended December 31, 2016 were (i) the Product Segment and (ii) the Logistics Services Segment.
For the year ended December 31, 2016, the Company only operated in the Product Segment. The Company’s chief operating decision-maker
has been identified as the Chairman and CEO, who reviews operating results to make decisions about allocating resources and assessing
performance for the entire Company. Segment information is presented based upon the Company’s management organization structure
as of December 31, 2016 and the distinctive nature of each segment. Future changes to this internal financial structure may result
in changes to the reportable segments disclosed. There are no inter-segment revenue transactions and, therefore, revenues are
only to external customers.
Segment
operating profits or loss is determined based upon internal performance measures used by the chief operating decision-maker. The
Company derives the segment results from its internal management reporting system. The accounting policies the Company uses to
derive reportable segment results are the same as those used for external reporting purposes. Management measures the performance
of each reportable segment based upon several metrics, including net revenues, gross profit and operating income (loss). Management
uses these results to evaluate the performance of, and to assign resources to, each of the reportable segments. The Company manages
certain operating expenses separately at the corporate level and does not allocate such expenses to the segments. Segment income
(loss) from operations excludes interest income/expense and other income or expenses and income taxes according to how a particular
reportable segment’s management is measured. Management does not consider impairment charges, and unallocated costs in measuring
the performance of the reportable segments.
Segment
information available with respect to these reportable business segments for the years ended December 31, 2016 and 2015 was as
follows:
|
|
Years Ended December
31,
|
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
|
Product segment
|
|
$
|
235,386
|
|
|
$
|
1,410,080
|
|
Logistics services segment
|
|
|
91,505
|
|
|
|
—
|
|
Total segment and consolidated revenues
|
|
|
326,891
|
|
|
|
1,410,080
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss):
|
|
|
|
|
|
|
|
|
Product segment
|
|
|
49,262
|
|
|
|
101,951
|
|
Logistics services segment
|
|
|
(3,859
|
)
|
|
|
—
|
|
Total segment and consolidated
gross profit
|
|
|
45,403
|
|
|
|
101,951
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
|
|
|
|
|
|
Product segment
|
|
$
|
(648,640
|
)
|
|
$
|
(450,469
|
)
|
Logistics services segment
|
|
|
(3,859
|
)
|
|
|
—
|
|
Total segment income (loss)
|
|
|
(652,499
|
)
|
|
|
(450,469
|
)
|
Unallocated costs
|
|
|
(184,562
|
)
|
|
|
(52,943
|
)
|
Total consolidated loss from operations
|
|
$
|
(837,061
|
)
|
|
$
|
(503,412
|
)
|
|
|
December
31, 2016
|
|
December
31, 2015
|
Total assets:
|
|
|
|
|
|
|
|
|
Product segment
|
|
$
|
183,861
|
|
|
$
|
350,372
|
|
Logistics services segment
|
|
|
53,310
|
|
|
|
—
|
|
Total segment and consolidated
assets
|
|
$
|
237,171
|
|
|
$
|
350,372
|
|
PETRONE
WORLDWIDE, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 AND 2015
NOTE
11 -
SUBSEQUENT EVENTS
Loan
payable
On
January 25, 2017, the Company entered into a business loan and security agreement with EBF Partners, LLC (the “Second EBF
Loan”). Pursuant to the Second EBF Loan, the Company borrowed $25,000. The Company is required to repay the EBF Loan by
making daily payments of $235 on each business day until the purchased amount of $35,250 is paid in full. Each payment is deducted
directly from the Company’s bank accounts. The Second EBF Loan has an effective interest rate of approximately 116%, is
secured by the Company’s assets and is personally guaranteed by the Company’s chief executive officer. In connection
with the Second EBF Loan, the Company repaid its first EBF loan.
Convertible
debt
On
February 13, 2017, the Company consummated a transaction with Labrys Fund, L.P. (“Buyer”), whereby, upon the terms
and subject to the conditions of that certain securities purchase agreement (the “First SPA”), the Company issued
a convertible promissory note in the principal amount of $110,000 (the “First Note”) to Buyer. The Company received
proceeds of $100,000 in cash from the Buyer. The First Note bears interest at the rate of 12% per year. The First Note is due
and payable six months from the issue date of the First Note. The Company may prepay the First Note at any time during the initial
180 days after the issue date of the First Note, without any prepayment penalty, by paying the face amount of the First Note plus
accrued interest through such prepayment date. Any amount of principal or interest that is due under the First Note, which is
not paid by the maturity date, will bear interest at the rate of 24% per annum until the First Note is satisfied in full. The
Buyer is entitled to, at any time or from time to time, convert the First Note into shares of the Company’s common stock,
at a conversion price per share equal to fifty five percent (55%) of the lowest traded price or closing bid price of the Company’s
common stock for the twenty (20) trading days immediately preceding the date of the date of conversion, upon the terms and subject
to the conditions of the First Note. In connection with the issuance of the First Note, the Company agreed to issue 1,341,463
shares of its common stock (the “First Shares”) to Buyer, provided, however, that the First Shares must be returned
to the Company’s treasury if the Company prepay the First Note as provided above. On February 20, 2017, the Company entered
into an amendment to the First Note, whereby the Holder agreed to return the First Shares to treasury.
On
February 21, 2017, the Company consummated a transaction with Buyer, whereby, upon the terms and subject to the conditions of
that certain securities purchase agreement (the “Second SPA”), the Company issued a convertible promissory note in
the principal amount of $65,000 (the “Second Note”) to Buyer. The Company received proceeds of $58,000 in cash from
the Buyer. The Second Note bears interest at the rate of 12% per year. The Second Note is due and payable six months from the
issue date of the Second Note. The Company may prepay the Second Note at any time during the initial 180 days after the issue
date of the Second Note, without any prepayment penalty, by paying the face amount of the Second Note plus accrued interest through
such prepayment date. Any amount of principal or interest that is due under the Second Note, which is not paid by the maturity
date, will bear interest at the rate of 24% per annum until the Second Note is satisfied in full. The Buyer is entitled to, at
any time or from time to time, convert the Second Note into shares of the Company’s common stock, at a conversion price
per share equal to fifty five percent (55%) of the lowest traded price or closing bid price of the Company’s common stock
for the twenty (20) trading days immediately preceding the date of the date of conversion, upon the terms and subject to the conditions
of the Second Note. In connection with the issuance of the Second Note, the Company issued 1,497,000 shares of its common stock
(the “Second Shares”) to Buyer. The Second Note contains representations, warranties, events of default, beneficial
ownership limitations, and other provisions that are customary of similar instruments.
These
note contains representations, warranties, events of default, beneficial ownership limitations, and other provisions that are
customary of similar instruments.
The
Company determined that the terms of these debentures contain terms that included a down-round provision under which the conversion
price and exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not
fixed monetary amounts at inception. Accordingly, under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging
– Contracts in an Entity’s Own Stock”, the embedded conversion options contained in the convertible instruments
are accounted for as derivative liabilities at the date of issuance and are adjusted to fair value through earnings at each reporting
date.
PETRONE
WORLDWIDE, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 AND 2015
NOTE
11 -
SUBSEQUENT EVENTS (continued)
Forbearance
agreement
On
April 12, 2017, in connection with certain with the Crown Bridge Notes (See Note 3), the Company entered into a forbearance agreement
(the “Forbearance Agreement”) with Crown whereby Crown waived any event of default, as defined in the Crown Bridge
Notes, that were triggered by the Company’s execution of the December 2, 2016 debt purchase and assignment agreement (See
Note 3) as well as any rights provided in the Crown Bridge Notes that would permit Crown to incorporate and terms of the Rosen
Note (including but not limited to the use of $0.003 as a conversion price per share). In connection with this Forbearance Agreement,
the Company increased the principal amounts due under the Crown Bridge Notes by $20,000.
Other
In
January 2017, in connection with the Crowne Bridge Note (see Note 3), the Company issued 50,000 shares of the Company’s
common stock to Crown. These shares were valued on the date of grant at $0.0685 per share or $3,425 based on the quoted trading
price of the Company’s common stock on date of grant. In January 2017, in connection with the issuance of these shares,
the Company recorded debt issuance costs of $3,425.