NOTES TO FINANCIAL
STATEMENTS
Note 1 -
Organization
Petrogress, Inc. (the “Company”
or “Petrogress”) was originally formed in the State of Florida under the name 800 Commerce, Inc. (“800 Commerce”)
on February 10, 2010. On March 9, 2016, the Company’s Board approved an amendment to the Company’s Articles of Incorporation
to change the name of the Corporation to Petrogress, Inc. The Company was founded for the purpose of marketing credit card processing
services on behalf of merchant payment processing service providers. The Company commenced revenue producing activities based on
the marketing of credit processing services in March 2010. The Company generates revenue from the marketing of credit processing
services by way of fees received from merchant payment processing service providers on whose behalf the Company brokers their processing
services. On August 1, 2012, the Company began to receive additional revenue pursuant to a processing service provider’s
assignment to the Company of a portion of its fee income under one or more of its service contracts in exchange for the issuance
of 500,000 shares of our common stock. On June 29, 2015, the Company received notice that Payventures, LLC (“PV”) would
like to review the Assignment Agreement (“PAA”) with the Company and until such review, they have suspended making
payments to the Company under the PAA. The last month that the Company has recorded and received payments under the PAA was April
2015. Accordingly, there would not be amounts due PV for license or transaction fees since April 30, 2015.
On February 29, 2016, 800 Commerce entered
into a Securities Exchange Agreement (the “Agreement”) with an unrelated third party, Petrogres Co. Limited (“Petrogres”),
a Marshall Islands corporation, and its sole shareholder. The Company acquired 100% of Petrogres and its affiliated companies,
all as more particularly described in the Agreement. As consideration for the acquisition of Petrogres, the Company issued 136,000,000
shares of its common stock, in restricted form, representing 85% of the issued and outstanding shares of the Company’s common
stock at closing of the transaction.
Petrogres and its’ subsidiaries is an
oil trading and shipping company acting internationally and has been in business for seven (7) years.
As part of the transaction, the sole shareholder
and CEO of Petrogres, Christos Traios, was appointed to the Board of Directors and B. Michael Friedman resigned as an officer and
director. In addition, the Company’s Board of Directors (the “Board”) approved an amendment to the Company’s
Articles of Incorporation, increasing the authorized capital to 490,000,000 shares of common stock, par value $0.001 and 10,000,000
shares of preferred stock, par value $0.001.
Note 2 -
Summary of Significant Accounting Policies
Basis of Presentation
The financial statements are prepared in accordance
with generally accepted accounting principles in the United States of America ("US GAAP").
Emerging Growth Company
We qualify as an “emerging
growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Section 107 of the JOBS
Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B)
of the Securities Act of 1933 as amended (the “Securities Act”) for complying with new or revised accounting standards.
As an emerging growth company, we can delay the adoption of certain accounting standards until those standards would otherwise
apply to private companies. We have elected to take advantage of the benefits of this extended transition period.
Cash and Cash Equivalents
The Company considers all highly liquid investments
with an original term of three months or less to be cash equivalents.
Notes Receivable
The Company records notes receivable from amounts
due from a third party upon loans made. The allowance for losses is established through a provision for losses charged to expenses.
Receivables are charged against the allowance for losses when management believes collectability is unlikely. The allowance is
an amount that management believes will be adequate to absorb estimated losses on existing receivables, based on evaluation of
the collectability of the accounts and prior loss experience. While management uses the best information available to make its
evaluations, this estimate is susceptible to significant change in the near term. As of December 31, 2015, based on the above criteria,
the Company has an allowance for note receivables of $70,820.
Accounts Receivable
The Company records accounts receivable from
amounts due from its processors. The Company charges certain merchants for processing services at a bundled rate based on a percentage
of the dollar amount of each transaction and, in some instances, additional fees are charged for each transaction. The Company
charges other merchant customers a flat fee per transaction, and may also charge miscellaneous fees to customers, including fees
for returns, monthly minimums, and other miscellaneous services. All the charges and collections thereon flow through processors
who then remit the fee due the Company within the month following the actual charges.
The costs related to the issuance of debt are
capitalized and amortized to interest expense using the straight-line method through the maturities of the related debt.
Marketable Securities
The Company classifies its marketable securities
as available-for-sale securities, which are carried at their fair value based on the quoted market prices of the securities with
unrealized gains and losses, net of deferred income taxes, reported as accumulated other comprehensive income (loss), a separate
component of stockholders’ equity. Realized gains and losses on available-for-sale securities are included in net earnings
in the period earned or incurred.
Property and Equipment
Property and equipment are stated
at cost, and depreciation is provided by use of straight-line methods over the estimated useful lives of the assets. The estimated
useful lives of property and equipment are as follows:
Office equipment and furniture
|
5 years
|
Computer hardware and software
|
3 years
|
The Company's property and equipment consisted of the following
at December 31, 2015 and 2014:
|
|
2015
|
|
2014
|
Furniture and Equipment
|
|
$
|
1,929
|
|
|
$
|
1,929
|
|
Computer Hardware
|
|
|
1,188
|
|
|
|
1,188
|
|
Accumulated depreciation
|
|
|
(2,249
|
)
|
|
|
(1,676
|
)
|
Balance
|
|
$
|
868
|
|
|
$
|
1,441
|
|
Depreciation expense of $573 and $1,071 was recorded for the years
ended December 31, 2015 and 2014, respectively.
Patents
The Company capitalizes patent pending acquisition
costs, legal fees and filing costs associated with the development and filing of its patents. Patents are generally
amortized over an estimated useful life of 15 years using the straight-line method beginning on the issue date. No
amortization expense was recorded during the years ended December 31, 2015 and 2014. Based on events and changes in circumstances
during the fourth quarter of 2015, the Company reviewed the carrying amount of patents initially recorded from the issuance of
common stock in 2012, and determined that the carrying amount may not be recoverable and accordingly recognized research and development
costs of $33,950 for the year ended December 31, 2015.
Advertising
The Company records advertising costs as incurred.
For the years ended December 31, 2015 and 2014, advertising expense was $3,500 and $-0-, respectively.
Revenue Recognition
The Company recognizes revenue in accordance
with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue
Recognition. ASC 605 requires that the following four basic criteria are met (1) persuasive evidence of an arrangement exists,
(2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured.
The Company recognizes revenue during the month in which commissions are earned.
Fair Value of Financial Instruments
Fair value measurements are determined under
a three-level hierarchy for fair value measurements that prioritizes the inputs to valuation techniques used to measure fair value,
distinguishing between market participant assumptions developed based on market data obtained from sources independent of the reporting
entity (“observable inputs”) and the reporting entity’s own assumptions about market participant assumptions
developed based on the best information available in the circumstances (“unobservable inputs”). Fair value is the price
that would be received to sell an asset or would be paid to transfer a liability (i.e., the “exit price”) in an orderly
transaction between market participants at the measurement date. In determining fair value, the Company primarily uses prices and
other relevant information generated by market transactions involving identical or comparable assets (“market approach”).
The Company also considers the impact of a significant decrease in volume and level of activity for an asset or liability when
compared with normal activity to identify transactions that are not orderly.
The highest priority is given to unadjusted
quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level
3 measurements). Securities are classified in their entirety based on the lowest level of input that is significant to the fair
value measurement.
The three hierarchy levels are defined
as follows:
Level 1 – Quoted prices
in active markets that is unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted prices
for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active
markets or financial instruments for which significant inputs are observable, either directly or indirectly;
Level 3 – Prices or valuations
that require inputs that are both significant to the fair value measurement and unobservable.
Credit risk adjustments are applied to reflect
the Company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that
applied in developing counterparty credit risk adjustments, but incorporates the Company’s own credit risk as observed in
the credit default swap market.
The Company's financial instruments consist
primarily of cash, accounts receivable, marketable securities, accounts payable and accrued expenses, due to stockholders and convertible
debt. The carrying amount of the Company’s accounts payable, accrued expenses and due to stockholders approximate fair value
to their short term. Marketable securities are adjusted to fair value each balance sheet date, based on quoted prices; which are
considered level 1 inputs (see Note 6). As of December 31, 2015 and 2014, the Company’s marketable securities were $780 and
$30,000, respectively. The Company’s derivative liability is valued using the level 3 inputs (see Note 7). The estimated
fair value is not necessarily indicative of the amounts the Company would realize in a current market exchange or from future earnings
or cash flows.
The following table represents the Company’s
financial instruments that are measured at fair value on a recurring basis as of December 31, 2014 and December 31, 2013 for each
fair value hierarchy level:
December 31, 2015
|
|
Derivative
Liability
|
|
Marketable
Securities
|
|
Total
|
Level I
|
|
$
|
—
|
|
|
$
|
780
|
|
|
$
|
780
|
|
Level II
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Level III
|
|
$
|
141,436
|
|
|
$
|
—
|
|
|
$
|
141,436
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Level I
|
|
$
|
—
|
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
Level II
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Level III
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The carrying amount of the Company’s
accounts payable and accrued expenses and due to stockholders approximate fair value to their short term.
Earnings (Loss) Per Share
The Company reports earnings (loss) per share
in accordance with ASC 260, "Earnings per Share." Basic earnings (loss) per share is computed by dividing net income
(loss), after deducting preferred stock dividends accumulated during the period, by the weighted-average number of shares of common
stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number
of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period. Potentially
dilutive securities for the year ended December 31, 2015 includes the Company’s outstanding convertible debt that is convertible
into approximately 26,052,320 shares of common stock. These amounts are not included in the computation of dilutive loss per share
because their impact is antidilutive.
Accounting for Stock-based Compensation
The Company accounts for stock awards issued
to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees. The measurement date is the earlier of
(1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date
at which the counterparty's performance is complete. Stock awards granted to non-employees are valued at their respective measurement
dates based on the trading price of the Company’s common stock and recognized as expense during the period in which services
are provided.
Use of Estimates
The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues
and expenses during the reported period. Actual results could differ from those estimates.
Income Taxes
The Company accounts for income taxes in accordance
with ASC 740-10, Income Taxes. The Company recognizes deferred tax assets and liabilities to reflect the estimated future tax effects,
calculated at the tax rate expected to be in effect at the time of realization. The Company records a valuation allowance related
to a deferred tax asset when it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.
ASC 740-10 prescribes a recognition threshold
that a tax position is required to meet before being recognized in the financial statements and provides guidance on recognition,
measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. The Company
classifies interest and penalties as a component of interest and other expenses. To date, the Company has not been assessed, nor
has the Company paid, any interest or penalties.
The Company measures and records uncertain
tax positions by establishing a threshold for the financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may
be recognized or continue to be recognized. The Company’s tax years subsequent to 2010 remain subject to examination by federal
and state tax jurisdictions.
Comprehensive Income
The Company has adopted ASC Topic 220, "Comprehensive
Income." This statement establishes standards for reporting comprehensive income and its components in a financial statement.
Comprehensive income as defined includes all changes in equity (net assets) during a period from non-owner sources. Items included
in the Company’s comprehensive loss consist of unrealized losses on available-for-sale securities.
Note 3 –
Recent Accounting Pronouncements
Accounting standards that have been issued
or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to
have a material impact on the financial statements upon adoption.
Note 4 –
Sales Concentration and Concentration of Credit
Risk
C
ash
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash. The Company maintains cash balances at one financial institution,
which is insured by the Federal Deposit Insurance Corporation (“FDIC”). The FDIC insured institution insures
up to $250,000 on account balances. The amounts that are not insured by FDIC limitations are held in short-term securities.
The Company has not experienced any losses in such accounts.
S
ales
and Accounts Receivable
Following is a summary of customers who accounted
for more than ten percent (10%) of the Company’s revenues for the years ended December 31, 2015 and 2014 and the accounts
receivable balance as of December 31, 2015:
Customer
|
|
Sales % Year
Ended 2015
|
|
Sales % Year
Ended 2014
|
|
Accounts
Receivable
Balance as of
December 31,
2015
|
|
A
|
|
|
|
95.7
|
%
|
|
|
99.1
|
%
|
|
$
|
—
|
|
The Company relies on a few processors to provide,
on a non-exclusive basis, transaction processing and transmittal, transaction authorization and data capture, and access to various
reporting tools.
On June 29, 2015, the Company received notice
from a merchant provider that they would like to review the Assignment Agreement with the Company and until such review, they have
suspended making payments to the Company. The last month that the Company has recorded and received payments under the Assignment
Agreement was April 2015. Accordingly, there would be no amounts due for license or transaction fees since April 30, 2015.
Note 5 –
Note Receivable
During the year ended December 31, 2014, the
Company advanced $75,770 to a third party in exchange for a $75,770 promissory note with a 10% per annum interest rate. The note
was to be payable in three installments after the closing of a transaction between the Company and the third party or on demand
by the Company. As of December 31, 2014 the outstanding principal amount on the promissory note was $70,820. Based on events and
changes in circumstances occurring during the year ended December 31, 2015, the Company recorded a reserve against the note and
recorded bad debt expense of $70,820.
Note 6 –
Marketable Securities
The Company’s
marketable securities consist solely of 600,000, as of December 31, 2015 and 2014 of shares of Agritek Holdings, Inc.’s (“Agritek”)
common stock, issued to the Company in connection with the Company’s formation in 2010. The Company classifies its marketable
securities as available-for-sale securities, which are carried at their fair value based on the quoted market prices of the securities
with unrealized gains and losses, net of deferred income taxes, reported as accumulated other comprehensive income (loss), a separate
component of stockholders’ equity. Realized gains and losses on available-for-sale securities are included in net earnings
in the period earned or incurred. The fair value of the Company’s holdings in Agritek’s common stock totaled $780 and
$30,000 as of December 31, 2015 and 2014, respectively.
The following summarizes
the carrying value of marketable securities as of December 31, 2015 and 2014:
|
|
2015
|
|
2014
|
Historical cost
|
|
$
|
114,000
|
|
|
$
|
114,000
|
|
Unrealized loss included in
accumulated other comprehensive gain (loss)
|
|
|
(113,220
|
)
|
|
|
(84,000
|
)
|
Net carrying value
|
|
$
|
780
|
|
|
$
|
30,000
|
|
Note 7 –
Convertible Notes Payable
On May 4, 2015, the Company issued
a Convertible Promissory Note for $21,500 to LG Capital Funding, LLC (the “LG Note”). The Company received
net proceeds of $20,000 after debt issuance costs of $1,500 paid for lender legal fees. The LG Note carries a per annum
interest rate of 8%, matures May 1, 2016 and converts at a 46% discount to the market price defined in the LG Note as the
lowest closing price (as defined in the note agreement) per share of the Company’s common stock for the twenty trading
days immediately preceding the date of conversion. Upon the occurrence of an event of default, as defined in the LG Note,
the Company is required to pay interest at 22% per annum and the holder could at their option declare the LG Note, together
with accrued and unpaid interest, to be immediately due and payable. In addition, the LG Note provides for adjustments
for dividends payable other than in shares of common stock, for reclassification, exchange or substitution of the common
stock for another security or securities of the Company or pursuant to a reorganization, merger, consolidation, or sale of
assets, where there is a change in control of the Company. The Company must at all times reserve 11,000,000 shares of common
stock for potential conversions. On November 24, 2015, LG converted $2,612 of principal and interest into 948,358 shares of
common stock at a conversion price of $0.002754 per share. On December 10, 2015, the Company accepted and agreed to an
Exchange Agreement (the “EA”), pursuant to Mammoth Corporation (“Mammoth”) having acquired the 2015
LG convertible promissory note from LG. The Company issued a Restated Convertible Note to Mammoth for $31,339 (the
“First Replacement Note”). The First Replacement Note is due September 9, 2016 with a 10% interest rate and is
convertible into shares of the Company’s common stock at any time at the discretion of Mammoth at a variable conversion
price (“VCP”). The VCP is calculated as the lowest closing price during the twenty (20) trading days immediately
prior to the conversion date multiplied by fifty four percent (54%), representing a forty six percent (46%) discount. Mammoth
paid LG $28,490 on December 17, 2015 to acquire all rights under their note. As of December 31, 2015, the principal balance
of the First Replacement Note is $31,339.
On May 26, 2015, the Company issued a
Convertible Promissory Note for $24,000 to Crown Bridge Partners, LLC (the “CB Note”). The Company received net
proceeds of $20,000 on June 1, 2015, after debt issuance costs of $1,000 paid for lender legal fees and an Original Issuance
Discount (“OID”) of $3,000. The CB Note carries a per annum interest rate of 8%, matures May 26, 2016 and
converts at a 47% discount to the market price defined in the CB Note as the average of the two lowest trading prices (as
defined in the note agreement) per share of the Company’s common stock for the fifteen trading days immediately
preceding the date of conversion. Upon the occurrence of an event of default, as defined in the LG Note, the Company is
required to pay interest at 22% per annum and the holder could at their option declare the CB Note, together with accrued and
unpaid interest, to be immediately due and payable. In addition, the CB Note provides for adjustments for dividends payable
other than in shares of common stock, for reclassification, exchange or substitution of the common stock for another security
or securities of the Company or pursuant to a reorganization, merger, consolidation, or sale of assets, where there is a
change in control of the Company. The Company must at all times reserve 10,400,000 shares of common stock for potential
conversions. On December 10, 2015, the Company accepted and agreed to an Exchange Agreement (the “EA”), pursuant
to Mammoth Corporation (“Mammoth”) having acquired the 2015 CB convertible promissory note from CB. The Company
issued a Restated Convertible Note to Mammoth for $38,280 (the “Second Replacement Note”). The Second Replacement
Note is due September 9, 2016 with a 10% interest rate and is convertible into shares of the Company’s common stock at
any time at the discretion of Mammoth at a VCP. The VCP is calculated as the average of the two lowest trading price during
the fifteen (15) trading days immediately prior to the conversion date multiplied by fifty three percent (53%), representing
a forty seven percent (47%) discount. Mammoth paid Crown Bridge $34,800 on December 17, 2015 to acquire all rights under
their note. As of December 31, 2015, the principal balance of the Second Replacement Note is $38,280.
The LG Note, the CB Note, the First Replacement
Note and the Second Replacement Note together are referred to as the 2015 Convertible Notes.
OID costs of $4,500 included in the LG and CB Notes, will be amortized
over the earlier of the terms of the Note or any redemptions. Since the LG and CB Notes were acquired by a third party in December
2015, $4,500 has been expensed in interest expense for the year ended December 31, 2015.
The Company determined that the conversion
feature of the 2015 Convertible Notes represent an embedded derivative since the Notes are convertible into a variable number
of shares upon conversion. Accordingly, the 2015 Convertible Notes were not considered to be conventional debt under EITF 00-19
and the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability. Accordingly,
the fair value of these derivative instruments being recorded as a liability on the consolidated balance sheet with the corresponding
amount recorded as a discount to each Note. Such discount is being amortized from the date of issuance to the maturity dates of
the Notes. The change in the fair value of the liability for derivative contracts are recorded in other income or expenses in
the consolidated statements of operations at the end of each quarter, with the offset to the derivative liability on the balance
sheet. The embedded feature included in the 2015 Convertible Notes resulted in an initial debt discount of $41,000, an initial
derivative liability expense of $83,492 and an initial derivative liability of $124,491. On the date the notes were purchased
by the third party, the Company revalued the embedded conversion feature of the LG and CB Notes. The fair value of the 2015 Convertible
Notes was calculated based on the Black Scholes method consistent with the terms of the related debt.
A summary of the derivative liability balance for the LG and CB
Notes as of December 9, 2015 (the purchase date) is as follows:
|
|
2015
|
Beginning Balance
|
|
$
|
—
|
|
Initial Derivative Liability
|
|
|
124,491
|
|
Fair Value Change
|
|
|
25,349
|
|
Reduction for conversions
|
|
|
(8,699
|
)
|
Reduction for notes purchased
|
|
|
(141,141
|
)
|
Ending Balance
|
|
$
|
-0-
|
|
In conjunction of
Mammoth’s purchase of the LG and CB Notes the Company recognized a gain on debt extinguishment of $113,676, as a
result of the elimination of the remaining derivative liability, net of the reduction of the corresponding note discount.
The Company determined that the conversion
feature of the 2015 Replacement Notes represent an embedded derivative since the Notes are convertible into a variable number
of shares upon conversion. Accordingly, the 2015 Replacement Notes were not considered to be conventional debt under EITF 00-19
and the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability. Accordingly,
the fair value of these derivative instruments being recorded as a liability on the consolidated balance sheet with the corresponding
amount recorded as a discount to each Note. Such discount is being amortized from the date of issuance to the maturity dates of
the Notes. The change in the fair value of the liability for derivative contracts are recorded in other income or expenses in
the consolidated statements of operations at the end of each quarter, with the offset to the derivative liability on the balance
sheet. The embedded feature included in the 2015 Replacement Notes resulted in an initial debt discount of $69,619, an initial
derivative liability expense of $102,816 and an initial derivative liability of $166,106. As of December 31, 2015 the Company revalued
the embedded conversion feature of the 2015 Replacement Notes. The fair value of the 2015 Replacement Notes was calculated based
on the Black Scholes method consistent with the terms of the related debt.
A summary of the derivative liability balance of the Replacement
Notes as of December 31, 2015 is as follows:
|
|
2015
|
Beginning Balance
|
|
$
|
—
|
|
Initial Derivative Liability
|
|
|
166,106
|
|
Fair Value Change
|
|
|
(24,670
|
)
|
Ending Balance
|
|
$
|
141,436
|
|
The fair value at the commitment and re-measurement
dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2015:
|
|
Commitment date
|
|
Remeasurement date
|
Expected dividends
|
|
|
-0-
|
|
|
|
-0-
|
|
Expected volatility
|
|
|
380%-396%
|
|
|
|
349%-396%
|
|
Expected term
|
|
|
4.5-12 months
|
|
|
|
5-9 months
|
|
Risk free interest
|
|
|
.25%-.47%
|
|
|
|
.24%-.32%
|
|
A summary of the convertible notes payable
balance as of December 31, 2015 is as follows:
|
|
2015
|
Beginning Balance
|
|
$
|
-0-
|
|
New notes issued in 2015
|
|
|
115,119
|
|
Conversion
|
|
|
(2,500
|
)
|
Notes sold
|
|
|
(43,000
|
)
|
Amortization of debt discount
|
|
|
23,707
|
|
Discount
|
|
|
(115,119
|
)
|
Removed due to debt extinguishment
|
|
|
27,466
|
|
Ending Balance
|
|
$
|
5,673
|
|
Note 8 –
Related Party Transactions
Management Fees
During the years ended December 31, 2014 the
Company expensed management fees of $54,000 to or on behalf of the Company’s President, B. Michael Friedman, and $36,000
to the Company’s Chief Financial Officer, Barry Hollander. Effective January 1, 2015, the Company has agreed to annual compensation
of $78,000 for its President and $60,000 for the Chief Financial Officer (“CFO”).
For the years ended December 31, 2015 and 2014,
the Company recorded expenses to its’ officers the following amounts, included in Salaries and Management Fees in the statements
of operations, included herein:
|
|
Year ended December 31,
|
|
|
2015
|
|
2014
|
|
President
|
|
|
$
|
78,000
|
|
|
$
|
54,000
|
|
|
CFO
|
|
|
|
60,500
|
|
|
|
36,000
|
|
|
Total
|
|
|
$
|
138,500
|
|
|
$
|
90,000
|
|
As of December 31, 2015, the Company owed its’
officer and former Chairman the following amounts, included in amounts due stockholders on the Company’s condensed balance
sheet:
|
|
December 31,
|
|
|
2015
|
President
|
|
$
|
141,785
|
|
CFO
|
|
|
27,544
|
|
Former Chairman
|
|
|
66,666
|
|
Total
|
|
$
|
235,955
|
|
Amounts due Agritek Holdings, Inc.
As of December 31, 2012, Agritek owned 6,000,000
shares of the Company’s common stock, representing approximately 32% of the Company’s outstanding common stock. Effective
September 4, 2013, Agritek distributed the 6,000,000 shares of the Company’s common stock to their stockholders of record
as of September 3, 2013. The Company and Agritek are commonly controlled due to common management and board members. The Company
owes Agritek $283,547 as of December 31, 2015, as a result of advances received from Agritek. These advances are non-interest bearing
and are due on demand and are included in amounts due stockholders on the December 31, 2015, balance sheet herein. The Company
and Agritek on February 29, 2016, entered into a Debt Settlement Agreement (the “DSA”). Pursuant to the DSA the Company
issued 1,101,642 shares of the Company’s common stock in full settlement of the amount owed.
Note 9 –
Stockholders’ Deficit
Common Stock
On September 8, 2015, the Company sold 1,000,000
shares of common stock at $0.01 per share and received proceeds of $10,000.
On November 24, 2015, LG converted $2,612
of principal and interest into 948,358 shares of common stock at a conversion price of $0.002754 per share.
As of December 31, 2015 and December 31, 2014,
there were 21,848,358 and 19,950,000, respectively, par value $0.001, shares of common stock outstanding.
Stock Options
Effective August 1, 2012 the Company adopted
the 2012 Equity Incentive Plan (the “2012 Plan”) whereby the Company has reserved five million shares of common stock
to be available for grants pursuant to the 2012 Plan.
Effective August 1, 2012, the Company entered
into two Advisory Board Agreements (“ABA”) pursuant to which, the Company granted to each of Dr. James Canton and Mr.
Scott Climes a non-qualified stock option to purchase 800,000 shares of common stock of the Company at an exercise price of $0.30
per share. The options were granted under the 2012 Plan and have a three year term and expired August 1, 2015. Mr. Climes was a
member of the board of directors of the Company (resigned August 5. 2014) and Dr. Canton was the Chairman of the Board of Directors
of the Company at the time (resigned January 15, 2014).
A summary of the activity of options for the
year ended December 31, 2015 is as follows:
|
|
Options
|
|
Weighted-
Average
exercise
price
|
|
Weighted-
Average
grant date
fair value
|
Balance January 1, 2015
|
|
|
1,600,000
|
|
|
$
|
0.30
|
|
|
$
|
0.21
|
|
Options expired
|
|
|
(1,600,000
|
)
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2015
|
|
|
—
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015, 5,000,000 options
are available for future grants under the 2012 Plan.
Note 10 –
Income Taxes
Deferred income taxes reflect the net tax effects
of operating loss and tax credit carry forwards and temporary differences between carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in
which temporary differences representing net future deductible amounts become deductible. Due to the uncertainty of the Company’s
ability to realize the benefit of the deferred tax assets, the deferred tax assets are fully offset by a valuation allowance at
December 31, 2015 and 2014.
Income tax expense for 2015 and 2014 is as
follows:
|
|
2015
|
|
2014
|
Current:
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(162,661
|
)
|
|
|
(47,429
|
)
|
State
|
|
|
(17,367
|
)
|
|
|
(5,064
|
)
|
Change in Valuation allowance
|
|
|
180,028
|
|
|
|
52,493
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The following is a summary of the Company’s
deferred tax assets at December 31, 2015 and 2014:
|
|
2015
|
|
2014
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
457,090
|
|
|
$
|
277,062
|
|
Stock compensation
|
|
|
115,449
|
|
|
|
115,449
|
|
Net deferred tax assets
|
|
|
572,539
|
|
|
|
392,511
|
|
Valuation allowance
|
|
|
(572,539
|
)
|
|
|
(392,511
|
)
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
A reconciliation between the expected tax expense
(benefit) and the effective tax rate for the years ended December 31, 2014 and 2013 are as follows:
|
|
2015
|
|
2014
|
Statutory federal income tax rate
|
|
|
34
|
%
|
|
|
34
|
%
|
State taxes, net of federal income tax
|
|
|
3.63
|
%
|
|
|
3.63
|
%
|
Effect of change in valuation allowance
|
|
|
(23.60
|
%)
|
|
|
(23.60
|
%)
|
Non-deductible expenses
|
|
|
(14.03
|
%)
|
|
|
(14.03
|
%)
|
|
|
|
0
|
%
|
|
|
0
|
%
|
As of December 31, 2015, the Company had a
tax net operating loss carry forward of approximately $385,000. Any unused portion of this carry forward expires in 2030. Utilization
of this loss may be limited in the event of an ownership change pursuant to IRS Section 382.
Note 11 –
Commitments and Contingencies
The Company is not a party to any litigation
and, to its knowledge, no action, suit or proceeding has been threatened against the Company.
Effective April 1, 2014, the Company entered
into a rent sharing agreement for the use of 1,300 square feet with a company controlled by the Company’s CFO. The Company
has agreed to pay $750 per month for the space. As of October 1, 2015, the Company terminated the rent sharing agreement.
Rent expense for the years ended December 31,
2015 and 2014, was $8,200 and $6,750, respectively.
Other Agreements
Our business agreements consist primarily of
banking ISO agreements and technology licensing agreements. Banking agreements are typically agreements with merchant banks which
provide all direct relationships with the credit card issuing banks, PCI compliant gateways for our merchant processing clients
and administrative functions. These agreements typically involve a split of the fees received between the banks and the Company
based on interchange rate, agent commissions, or a fixed fee per transaction. Licensing agreements are infrastructure in nature
and establish the connection to the end user that enables the Company to deliver and collect payment for the transacted media content
or service application. Licensing agreements typically involve a split of the fees received between the technology provider, carriers
and the Company.
On August 1, 2012 the Company entered into
a series of agreements with Payventures, LLC (“PV”) and Payventures Tech, LLC (“PVTECH”). PV operates a
business of promoting merchant services offered by certain banks, including credit and debit card transaction processing and network
services (“Merchant Services”) to merchants. Pursuant to an Assignment Agreement (“PAA”) between PV and
the Company PV assigned fifty percent (50%) of PV’s rights to receive residual payments from certain Assigned Customer(s),
in exchange for five hundred thousand (500,000) shares of the Company’s restricted common stock. The
term
of
the Assignment Agreement
commences
on
the
Effective
Date
and shall
continue
for
a
period
of one
(1)
year
after which
it shall renew
for successive one year terms automatically, unless terminated in accordance with the
terms
thereof.
Either party
has the right to terminate
this Agreement at the end of
the then current Term, upon thirty (30) days prior written
notice to the other party. PV may terminate this Agreement
at
any
time on thirty (30) days written notice to the Company provided however,
that if
such termination is
without default
or other material cause
by the Company, then PV shall continue to pay the referral
fees contemplated therein despite such termination, subject to the other provisions thereof that survive termination. In
addition, PV
may terminate the assignment of the Assigned Customer, and
any obligation to
pay the share of the Assigned Customer residual to the Company
,
upon thirty (30) days
prior notice to the Company. PV may terminate the assignment
of the Assigned Customer and substitute one or more comparable Assigned Customers upon thirty (30)
days prior notice to the Company. PV shall not be
required
to replace an Assigned Customer if such Assigned Customer terminates its merchant account
with
PV.
Effective October 1, 2012, PV and the Company
entered into the First Amendment to Assignment Agreement (the “Amendment”). The Amendment replaces the assignment to
the Company of 50% of PV’s residuals from the initial Assigned Customer to the assignment of 30% of PV’s residual payments
received from a newly Assigned Customer, and such account shall henceforth be the Assigned Customer under the Assignment Agreement.
Subsequently, on May 1, 2013 and May 1, 2014, the parties entered into amendments to change the assigned customer.
PV and the Company also entered into a Consulting
Agreement, whereby PV will provide services to the Company, including; coordination of mobile messaging services, customer contact,
customer assistance services and merchant acquisition and processing services. PV will be compensated at their standard hourly
rate for such services. The
term
of
the Consulting Agreement
commences
on
the
Effective
Date
and
shall continue
for
a
period
of
one
(1)
year,
after
which it shall
renew for successive
one year
terms automatically, unless terminated in
accordance with the
terms thereof. Either
Party hereto has the right
to terminate
the
Consulting Agreement at any
time on thirty (30) days written notice.
Also on August 1, 2012, PV and the Company
executed an Agent Referral Agreement, whereby PV will compensate the Company for any customer referred to PV by the Company that
subsequently utilizes PV’s Merchant Services. The term of the Agent Referral Agreement is for two years and automatically
renews for each year thereafter (the “Term”) unless 60 days prior written notice is given by either party.
PVTECH and the Company entered into a Hosted
Platform License & Services Agreement (“HPLSA”) whereby PVTECH will provide the Company access to their hosted
ecommerce and processing platform products, as well as related services and support. Pursuant to the terms of the agreement, the
Company will pay PVTECH a monthly licensing fee of $2,500 and a transaction fee of $0.07 per transaction, that beginning in April
2013, has a minimum transaction fee of $2,500 per month. The
term
of
the HPSLA shall
be
for
one
(1)
year, with automatic
renewals for successive one (1)
year
terms
thereafter
(each
a
"Renewal
Term")
until
either
party
gives
written
notice
to
terminate
the HPLSA
no less than
three (3)
calendar
months prior
to
the commencement
of a Renewal
Term. Either party
may terminate the HPLSA: (a) upon a material
breach by the
other party if such breach is not cured
within thirty (30) days following written notice to the breaching party; or (b) where the
other
party is subject to a
filed
bankruptcy petition
or
formal insolvency
proceeding that is not dismissed
within thirty (30) days. On June 29, 2015,
the Company received notice that PV would like to review the above agreements with the Company and until such review, they have
suspended making payments to the Company under the PAA. The last month that the Company has recorded and received payments under
the PAA was April 2015. Accordingly the Company has recorded, as part of cost of sales, the following amounts for the years ended
December 31, 2015 and 2014:
|
|
Years ended December 31,
|
|
|
2015
|
|
2014
|
Hosted licensing fee
|
|
$
|
10,000
|
|
|
$
|
30,000
|
|
Transaction fees
|
|
|
10,000
|
|
|
|
30,000
|
|
Total
|
|
$
|
20,000
|
|
|
$
|
60,000
|
|
During
the year ended December 31, 2014, the Company contracted to use Trumpia’s business to consumer mobile marketing platform
that integrates SMS and application technologies (apps). Trumpia’s platform integrates marketing automation, SMS marketing,
mobile apps, mobile coupons and other customer engagement tools. Trumpia software hones messaging by filtering contacts based on
criteria like personal interests, location and purchasing and click-through choices. The Company pays $2,100 annually for the platform.
Note 12 –
Going Concern
The accompanying financial statements have
been prepared assuming the Company will continue as a going concern. As of December 31, 2015, the Company had an accumulated deficit
of approximately $2,065,372 and a working capital deficit of $712,947. These conditions raise substantial doubt about the Company's
ability to continue as a going concern.
The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Management’s Plans
On February 29, 2016, 800 Commerce entered
into a Securities Exchange Agreement (the “Agreement”) with an unrelated third party, Petrogres Co. Limited (“Petrogres”),
a Marshall Islands corporation, and its sole shareholder. The Company acquired 100% of Petrogres and its affiliated companies,
all as more particularly described in the Agreement. Petrogres and its’ subsidiaries is an oil trading and shipping company
acting internationally and has been in business for seven (7) years.
Since the acquisition of Petrogres on February
29, 2016, the Company’s principal sources of cash are net cash provided by operating activities, which includes the sale
and shipment of petroleum products. Our need for capital resources is driven by our expansion plans, ongoing maintenance of our
vessels and support of our operational expenses and corporate overhead and infrastructure. Based on our current plan, we believe
our expected cash flows from operations, will be sufficient to finance our present activities and capital expenditures for at
least the next ten months. Our intention to expand our operations or increase the oil sales or to go into new projects-operations
will be subject to extra financing support through individual sources.
Note 13 –
Subsequent Events
On February 29, 2016, 800 Commerce entered
into a Securities Exchange Agreement (the “Agreement”) with an unrelated third party, Petrogres Co. Limited (“Petrogres”),
a Marshall Islands corporation, and its sole shareholder. The Company acquired 100% of Petrogres and its affiliated companies,
all as more particularly described in the Agreement. As consideration for the acquisition of Petrogres, the Company issued 136,000,000
shares of its common stock, in restricted form, representing 85% of the issued and outstanding shares of the Company’s common
stock at closing of the transaction.
Petrogres and its’ subsidiaries is an
oil trading and shipping company acting internationally and has been in business for seven (7) years.
As part of the transaction, the sole shareholder
and CEO of Petrogres, Christos Traios, was appointed to the Board of Directors and B. Michael Friedman resigned as an officer and
director. In addition, the Company’s Board of Directors (the “Board”) approved an amendment to the Company’s
Articles of Incorporation, increasing the authorized capital to 490,000,000 shares of common stock, par value $0.001 and 10,000,000
shares of preferred stock, par value $0.001.
On March 9, 2016, the Company’s Board
approved an amendment to the Company’s Articles of Incorporation to change the name of the Corporation to Petrogress, Inc.
The Company filed the Amendment with the State of Florida on March 10, 2016, and requested an effective date of March 25, 2016,
which was granted. On March 10, 2016, the Company submitted an Issuer Company Related Action Notification to the Financial Industry
Regulatory Authority (“FINRA”), requested a FINRA to notify the OTC Marketplace of the Company’s name change
and also requested a new symbol. FINRA approved the name change effective April 1, 2016.
F-21