ITEM 1. DESCRIPTION OF BUSINESS.
General Business Development
Overview
Petrogress,
Inc. (the “Company” or “Petrogress”) operates a fully integrated oil commodity business, including upstream,
midstream and downstream operations, primarily serving West African and Mediterranean countries. The Company operates primarily
as a holding company and provides its services through three wholly-owned subsidiaries: Petrogres Co. Limited, which provides
management of crude oil purchases and sales; Petronav Carriers LLC, which manages day-to-day operations of the tanker fleet currently
consisting of four vessels; and Petrogress Oil & Gas Energy Inc., which is primarily focused on purchasing interests in oil
fields in Texas and exporting liquefied natural gas.
The Company’s main
operations are managed by an experienced team located in Piraeus, Greece.
Corporate History
We were originally incorporated
in the State of Florida on February 10, 2010 under the name 800 Commerce, Inc. for the purpose of marketing credit card processing
services on behalf of merchant payment processing service providers. Effective March 25, 2016, we changed our name from 800 Commerce,
Inc. to Petrogress, Inc. and effective November 30, 2016, we changed our state of domicile from the State of Florida to the State
of Delaware.
Securities Exchange Agreement
On February 29, 2016, we
entered into a Securities Exchange Agreement (the “SEA”) with Petrogres Co. Limited, a Marshall Islands corporation
(“Petrogres”), and its sole shareholder. Pursuant to the terms of the SEA, the Company acquired 100% of Petrogres and
its affiliated companies. In exchange, the Company issued to the sole shareholder of Petrogres 136,000,000 shares of restricted
common stock, representing 85% of the issued and outstanding shares of the Company’s common stock at the closing of the transaction.
As part of the transaction, the sole shareholder and chief executive officer (“CEO”) of Petrogres, Christos Traios,
was appointed as CEO and as a director of the Company 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 per share, and 10,000,000 shares of preferred
stock, par value $0.001 per share.
The SEA has been accounted
for as a reverse acquisition and recapitalization of the Company whereby Petrogres effectively became a public company, which has
allowed us to increase our operational efficiency and continue to expand our operations. As a result of this transaction, we acquired
both the assets and operations of Petrogres and its wholly-owned subsidiaries.
Description of Business
We operate primarily as
a holding company for our three wholly-owned subsidiaries: Petrogres, Co. Limited; Petronav Carriers LLC; and Petrogress Oil &
Gas Energy, Inc.
Petrogres Co. Limited
,
a Marshall Islands corporation (“Petrogres”), was incorporated in 2009 with the purpose of supplying crude oil and
other oil products in West Africa.
Since its inception, Petrogres
has evolved its business from focusing solely on fleet and tanker ship operations to expand into the oil and gas industry as a
trader and merchant of oil. Over the last five years, Petrogres has strengthened its position in the oil and gas industry by combining
its regional market knowledge with over 25 years of experience to successfully establish both its midstream and downstream operations
to serve markets primarily located in West Africa and the Mediterranean.
In 2014, Petrogres entered
into a Joint Venture Agreement (the “JV Agreement”) with Platon Gas Oil Ghana Limited, an oil refinery and importer
of various petroleum products based in Ghana (“Platon”). Pursuant to the terms of the JV Agreement, Platon processes
crude oil and other products while Petrogres sells those products and other raw materials directly to local refineries in Ghana.
Since consummation of the
SEA, Petrogres has successfully negotiated several new operational affiliations and partnerships to strengthen its existing oil
operating platform. In November 2016, Petrogres entered into an alliance agreement with Prometheus Maritime Ltd., a Nigerian corporation
(“PML”), a crude oil and gas trading company (the “Alliance Agreement”). Pursuant to the terms of the Alliance
Agreement, Petrogres and PML agreed to cooperate towards a petroleum project in Nigeria , including the supply and transportation
of oil commodities to various end-buyers throughout West Africa (the “Nigeria Petroleum Project”), with Petrogres acting
as the lead party.
Today, Petrogres operates
as an international merchant of petroleum products specializing in crude oil and refined products trade within West African and
Mediterranean countries, with a focus on the supply and trade of light petroleum fuel oil (“LPFO”), refined oil products
and other petrochemical commodities to local refineries in Ghana. Such products are shipped and delivered to these refineries by
its four beneficially-owned affiliated vessels.
Petronav Carriers
LLC
, a Delaware corporation (“Petronav”), was incorporated in March 2016 with the purpose of managing the day-to-day
operations of its four vessels, which are used to transport the Company’s petroleum products within various countries in
West Africa. Petronav is currently exploring opportunities to expand its operations by identifying and acquiring additional vessels
to expand its tanker fleet under management.
In December 2016, Petronav
executed a non-binding memorandum of understanding (the “MOU”) with West Africa Fenders Ltd., a Nigerian company that
provides ship-to-ship services to the oil and shipping industries (“WA Fenders”). The MOU contemplates that Petronav
may purchase a 25% interest in the capital of WA Fenders, subject to execution of definitive agreements and customary closing
conditions. As of the date of this annual report, we are conducting due diligence.
Petrogress Oil &
Gas Energy In
c
., a Texas corporation
(“Petrogress Energy”), was incorporated in December 2015
and is focused on identifying and acquiring suitable interests in oil fields in Texas to allow for the Company’s expansion
of its operations to include oil refinery production based within the United States and to export liquefied natural gas (“LNG”)
to Mediterranean markets.
Our business structure
affords us with full control of the logistics involved in oil sourcing and the transportation of our products by our affiliated
vessels, which we believe to be a competitive advantage in West African markets. By directly controlling all aspects of our operations,
as opposed to engaging the services of third-parties at potentially higher costs, we are able to keep costs low and thus generate
revenue from a number of different sources.
Competition
International seaborne
transportation of LPFO and the supply of petroleum products is mainly conducted by two types of operators: independent fleet-owning
companies and fleets operated by both private and state owned oil companies. Many oil companies and other oil trading companies
also operate their own vessels and transport oil for themselves and third-party charterers in direct competition with independent
owners and operators. Competition for charters is intense and is based upon price, vessel location, the size, age, condition and
acceptability of the vessel, and the quality and reputation of the vessel’s operator.
The Company will compete
in the transportation of petroleum products with much larger companies that have significantly longer operating histories and are
much better capitalized. Most of these other operators are larger in size and with more vessels either under management or
owned. They may also operate in a larger geographical area than the Company does at present and have significantly more capital
and other resources from which to conduct their operations and as a result, face less risk in their operations.
Employees
As of April 6, 2017, we currently have 8 employees
located in Greece, 3 located in Ghana and 1 located in Cyprus, all of which are employed on a full-time basis. Additionally, we
have approximately 75 full-time laborers and crew members that operate our vessels.
ITEM 1A. RISK FACTORS
An investment in our common stock involves
a high degree of risk. You should carefully consider the following information about these risks, together with the other information
contained in this Annual Report on Form 10-K, before investing in our common stock. Our results of operations and financial condition
could be adversely affected by any of these risks, which could result in a decline in the market price of our common stock, causing
you to lose all or part of your investment.
Risks Related to our Business
We are a holding
company, and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations.
We
are a holding company, and our subsidiaries, which are all wholly-owned by us, may conduct all of our operations and may own operating
assets we may acquire in the future. We have no significant assets other than the equity interests in our wholly-owned subsidiaries.
As a result, our ability to satisfy our financial obligations depends on the ability of our subsidiaries to distribute funds to
us.
Our operating results may fluctuate seasonally.
The market in which we
operate our vessels may be affected by seasonal factors. As a result, historically we have exhibited a fluctuation in the demand
for our products. The containership market is typically stronger in the autumn and winter in anticipation of increased consumption
of consumer products, including various oil commodities, during the holiday peak seasons. In addition, unpredictable weather patterns
during these periods tend to disrupt vessel scheduling and supplies of certain commodities. Thus to the extent that seasonal variations
have the effect of reducing prevailing charter rates, our operating results may be adversely affected.
We generate
all of our revenues in U.S. dollars but may also incur a portion of our expenses in other currencies, and therefore exchange rate
fluctuations could have an adverse impact on our results of operations.
We
generate all of our revenues in U.S. dollars and but may also incur a portion of our expenses in currencies other than the U.S.
dollar. This difference could lead to fluctuations in our net income due to changes in the value of the dollar relative to the
other currencies, in particular the Euro. Expenses incurred in foreign currencies against which the U.S. dollar falls in value
could increase, further decreasing our net income or increasing our net loss and decreasing our cash flows from operations. Any
declines in the value of the U.S. dollar could also lead to higher expenses payable by us.
An increase in operating costs could
adversely affect our cash flows and financial condition.
Vessel operating expenses
include the costs of crew, provisions, deck and engine stores, lubricating oil, insurance, security and maintenance and repairs,
which depend on a variety of factors, many of which are beyond our control. Some of these costs, primarily relating to insurance
and enhanced security measures implemented after September 11, 2001 and as a result of acts of piracy, have been increasing. In
addition, in the event any of our vessels suffer damage, we our insurance may not cover the costs of repair. Such repair and maintenance
costs are difficult to predict with certainty and may be substantial. Increases in any of these costs could have a material adverse
effect on our business, results of operations, cash flows and financial condition.
Change to the
price of fuel, or bunkers, may adversely affect profits.
An
increase in the price of fuel beyond our expectations may adversely affect our future profitability. The price and supply of fuel
is unpredictable and fluctuates based on events outside our control, including geo-political developments, supply of and demand
for oil, actions by members of the Organization of the Petroleum Exporting Countries (OPEC) and other oil and gas producers, war
and unrest in oil producing countries and regions, regional production patterns and environmental concerns and regulations. Further,
despite the recent low fuel prices, fuel may become much more expensive in the future, which may reduce the potential profitability
and competitiveness of our business compared to other forms of transportation, such as pipelines. Alternatively, a prolonged downturn
in oil prices may cause oil companies to cut down production which could negatively impact market demand for global transportation
of petroleum products. Changes in the price of fuel may adversely affect our profitability.
The shipping industry is inherently risky
and we may not have adequate insurance to compensate us or to compensate third parties if we damage or lose our vessels.
There
are a number of risks associated with the operation of ocean-going vessels, including mechanical failure, collision, human error,
war, terrorism, piracy, property loss, cargo loss or damage and business interruption due to political circumstances in foreign
countries, hostilities and labor strikes. Any of these events may result in loss of revenues, increased costs and decreased cash
flows. In addition, the operation of any vessel is subject to the inherent possibility of marine disaster, including oil spills
and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade.
Changing economic, regulatory
and political conditions in some countries, including political and military conflicts, have from time to time resulted in attacks
on vessels, mining of waterways, piracy, terrorism, labor strikes and boycotts. These hazards may result in death or injury to
persons, loss of revenues or property, environmental damage, higher insurance rates, damage to our customer relationships, market
disruptions, delay or rerouting. In addition,
more stringent environmental regulations have
led in the past to increased costs for, and in the future may result in the lack of availability of, protection and indemnity insurance
against risks of environmental damage or pollution. Any uninsured or underinsured loss could harm our business, results of operations,
cash flows and financial condition. In addition, any insurance we may acquire may be voidable by the insurers as a result of certain
of our actions, such as ships we may acquire failing to maintain certification with applicable maritime self-regulatory organizations.
Further, we cannot assure you that insurance policies we may have will cover all losses that we may incur, or that disputes over
insurance claims will not arise with our future insurance carriers. Any claims covered by insurance would likely be subject to
deductibles, and since it is possible that a large number of claims may be brought, the aggregate amount of these deductibles could
be material. In addition, insurance policies that we may have may be subject to limitations and exclusions, which may increase
our costs or lower our revenues in the future, thereby possibly having a material adverse effect on our business, results of operations,
cash flows and financial condition.
In particular, the operation
of tankers has unique operational risks associated with the transportation of oil. An oil spill may cause significant environmental
damage, and the associated costs could exceed the insurance coverage available to us. Compared to other types of vessels, tankers
are exposed to a higher risk of damage and loss by fire, whether ignited by a terrorist attack, collision, or other cause, due
to the high inflammability and high volume of the oil transported in tankers.
We carry insurance to protect
against most of the accident-related risks involved in the conduct of our business. We currently maintain $25,000,000 in coverage
for each of our vessels for liability for spillage or leakage of oil or pollution, and also carry insurance covering lost revenue
resulting from vessel off-hire for all of our operating vessels. Nonetheless, risks may arise against which we are not adequately
insured. For example, a catastrophic spill could exceed our insurance coverage and have a material adverse effect on our financial
condition. In addition, we may not be able to procure adequate insurance coverage at commercially reasonable rates in the future
and we cannot guarantee that any particular claim will be paid. In the past, new and stricter environmental regulations have led
to higher costs for insurance covering environmental damage or pollution, and new regulations could lead to similar increases or
even make this type of insurance unavailable. Furthermore, even if insurance coverage is adequate to cover our losses, we may not
be able to timely obtain a replacement ship in the event of a loss. We may also be subject to calls, or premiums, in amounts based
not only on our own claim records but also the claim records of all other members of the protection and indemnity associations
through which we receive indemnity insurance coverage for tort liability. In addition, our protection and indemnity associations
may not have enough resources to cover our insurance claims. Our payment of these calls could result in significant expenses to
us which could reduce our cash flows and place strains on our liquidity and capital resources.
Our results of operations could be affected
by natural events in the locations in which our customers operate.
Many of our customers have
operations in locations that are subject to natural disasters, such as severe weather and geological events, which could disrupt
the operations of those customers and suppliers as well as our operations. Such geological events can cause significant damage
and can adversely affect the infrastructure and economy of regions subject to such events, and could cause our customers located
in such regions to experience shutdowns or otherwise negatively impact their operations. Upon such an event, some or all of those
customers may reduce their orders for crude oil, which could adversely affect our revenue and results of operations. In addition
to any negative direct economic effects of such natural disasters on the economy of the affected areas and on our customers and
suppliers located in such regions, economic conditions in such regions could also adversely affect broader regional and global
economic conditions. The degree to which natural disasters will adversely affect regional and global economies is uncertain at
this time. However, if these events cause a decrease in demand for crude oil, our financial condition and operations could be adversely
affected.
We are subject to international safety
regulations and requirements imposed by classification societies and the failure to comply with these regulations may subject us
to increased liability, may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain
ports.
The operation of our vessels
is affected by the requirements set forth in the United Nations’ International Maritime Organization’s International
Management Code for the Safe Operation of Ships and Pollution Prevention, or “ISM Code.” The ISM Code requires ship
owners, ship managers and bareboat charterers to develop and maintain an extensive “Safety Management System” that
includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation
and describing procedures for dealing with emergencies. We expect that any vessels that we acquire in the future will be ISM Code-certified
when delivered to us. The failure of a shipowner or bareboat charterer to comply with the ISM Code may subject it to increased
liability, may invalidate existing insurance or decrease available insurance coverage for the affected vessels and may result in
a denial of access to, or detention in, certain ports, including United States and European Union ports.
In addition, the hull and
machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification
society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of
registry of the vessel and the Safety of Life at Sea Convention. If a vessel does not maintain its class and/or fails any annual
survey, intermediate survey or special survey, the vessel will be unable to trade between ports and will be unemployable, which
will negatively impact our revenues and results from operations.
The risks associated with older vessels
could adversely affect our operations.
In general, the costs to
maintain a vessel in good operating condition increase as the vessel ages. As of March 15, 2016, 4 of the 4 operating vessels
we own were built prior to 1995. Due to improvements in engine technology, older vessels typically are less fuel-efficient than
more recently constructed vessels. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable
to charterers.
Governmental regulations,
safety or other equipment standards related to the age of tankers may require expenditures for alterations or the addition of new
equipment to our vessels, and may restrict the type of activities in which our vessels may engage. There is no assurance that,
as our vessels age, market conditions will justify any required expenditures or enable us to operate our vessels profitably during
the remainder of their useful lives.
If we do not set aside
funds and are unable to borrow or raise funds for vessel replacement, we will be unable to replace the vessels in our fleet upon
the expiration of their remaining useful lives, which we estimate to be 10 years from their build dates. Our cash flows and
income are dependent on the revenues earned by our vessels. If we are unable to replace the vessels in our fleet upon the expiration
of their useful lives, our revenue will decline and our business, results of operations, financial condition, and cash flow would
be adversely affected.
Consolidation and governmental regulation
of suppliers may increase the cost of obtaining supplies or restrict our ability to obtain needed supplies, which may have a material
adverse effect on our results of operations and financial condition.
We rely on third-parties
to provide supplies and services necessary for our operations, including brokers, equipment suppliers, caterers and machinery suppliers.
Various mergers have reduced the number of available suppliers, resulting in fewer alternatives for sourcing key supplies. With
respect to certain items, we are generally dependent upon the original equipment manufacturer for repair and replacement of the
item or its spare parts. Such consolidation may result in a shortage of supplies and services thereby increasing the cost of supplies
and/or potentially inhibiting the ability of suppliers to deliver on time. These cost increases or delays could have a material
adverse effect on our results of operations and result in downtime, and delays in the repair and maintenance of our vessels.
We could be adversely affected by violations
of the U.S. Foreign Corrupt Practices Act, U.K. Bribery Act, and other applicable worldwide anti-corruption laws.
The U.S. Foreign Corrupt
Practices Act, or “FCPA,” and other applicable worldwide anti-corruption laws generally prohibit companies and their
intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. These
laws include the U.K. Bribery Act which is broader in scope than the FCPA, as it contains no facilitating payments exception. We
charter our vessels into some jurisdictions that international corruption monitoring groups have identified as having high levels
of corruption. Our activities create the risk of unauthorized payments or offers of payments by one of our employees or agents
that could be in violation of the FCPA or other applicable anti-corruption laws. Although we have policies, procedures and internal
controls in place to monitor compliance, we cannot assure that our policies and procedures will protect us from governmental investigations
or inquiries surrounding actions of our employees or agents. If we are found to be liable for violations of the FCPA or other applicable
anti-corruption laws (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others), we could suffer
from civil and criminal penalties or other sanctions.
We could be negatively impacted by future
changes in applicable tax laws, or our inability to take advantage of favorable tax regimes.
We may be subject to income
or non-income taxes in various jurisdictions, including those in which we transact business, own property or reside. We may be
required to file tax returns in some or all of those jurisdictions. We may be required to pay non U.S. taxes on dispositions of
non U.S. property, or operations involving non U.S. property may give rise to non U.S. income or other tax liabilities in amounts
that could be substantial.
Our tax position could
be adversely impacted by changes in tax laws, tax treaties or tax regulations or the interpretation or enforcement thereof by any
tax authority. The various tax regimes to which we are currently subject result in a relatively low effective tax rate on our worldwide
income. These tax regimes, however, are subject to change, possibly with retroactive effect. Moreover, we may become subject to
new tax regimes and may be unable to take advantage of favorable tax provisions afforded by current or future law. For example,
there have been legislative proposals that, if enacted, could change the circumstances under which we would be treated as a U.S.
person for U.S. federal income tax purposes, which could materially and adversely affect our effective tax rate and cash tax position
and require us to take action, at potentially significant expense, to seek to preserve our effective tax rate and cash tax position.
We cannot predict the outcome of any specific legislative proposals.
We may be subject to litigation that,
if not resolved in our favor and not sufficiently insured against, could have a material adverse effect on us.
We may be, from time to
time, involved in various litigation matters. These matters may include, among other things, contract disputes, personal injury
claims, environmental claims or proceedings, asbestos and other toxic tort claims, employment matters, governmental claims for
taxes or duties, securities litigation, and other litigation that arises in the ordinary course of our business. Although we intend
to defend these matters vigorously, we cannot predict with certainty the outcome or effect of any claim or other litigation matter,
and the ultimate outcome of any litigation or the potential costs to resolve them may have a material adverse effect on us. Insurance
may not be applicable or sufficient in all cases and/or insurers may not remain solvent, which may have a material adverse effect
on our financial condition.
Risks Relating to Ownership of Our Common
Stock
We are an “emerging growth company,”
and the reduced disclosure requirements applicable to “emerging growth companies” may make our common stock less attractive
to investors.
We
qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS
Act. As an emerging growth company, we intend to take advantage of specified reduced disclosure and other requirements that are
otherwise applicable generally to public companies. These provisions include:
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allowance to provide only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly Operations” disclosure;reduced “Management’s Discussion and Analysis of Financial Condition and Results of
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reduced disclosure about our executive compensation arrangements;
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no non-binding advisory votes on executive compensation or golden parachute arrangements; and
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exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.
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We
may take advantage
of these provisions for up to five years or such earlier time
that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest
of (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; (ii) the last day of
our fiscal year following the fifth anniversary of the date of the completion of our initial public offering (our “IPO”);
(iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the
date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission. We have
taken advantage of reduced reporting requirements in this report. Accordingly, the information contained herein may be different
than the information you receive from other public companies in which you have beneficial ownership. In addition, we have elected
to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b)
of the Exchange Act. As a result, our financial statements may not be comparable to those of companies that comply with public
company effective dates.
We cannot predict whether
investors will find investing in our common stock to be less attractive to the extent we rely on the exemptions available to emerging
growth companies. If some investors find our common stock less attractive as a result, there may be a less active trading market
for our common stock and our stock price may be more volatile.
Notwithstanding the above,
we are also currently a “smaller reporting company,” meaning that we are not an investment company, an asset-backed
issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less
than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. In the event that
we are still considered a “smaller reporting company,” at such time as we cease being an “emerging growth company,”
the disclosure we will be required to provide in our SEC filings will increase, but will still be less than it would be if we were
not considered either an “emerging growth company,” or a “smaller reporting company.” Specifically, similar
to “emerging growth companies,” “smaller reporting companies” are able to provide simplified executive
compensation disclosures in their filings, are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring
that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over
financial reporting, , and have certain other decreased disclosure obligations in their SEC filings, including, among other things,
only being required to provide two years of audited financial statements in annual reports. Decreased disclosures in our SEC filings
due to our status as an “emerging growth company” or “smaller reporting company” may make it harder for
investors to analyze the Company’s results of operations and financial prospects.
Because we have elected
to defer compliance with new or revised accounting standards, our financial statement disclosure may not be comparable to similar
companies.
We have elected to use
the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.
This allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and
private companies until those standards apply to private companies. As a result of our election, our financial statements may not
be comparable to companies that comply with public company effective dates.
The rights of the holders of common stock may be impaired
by the potential issuance of preferred stock.
Our board of directors has the right, without stockholder approval,
to issue preferred stock with voting, dividend, conversion, liquidation or other rights which could adversely affect the voting
power and equity interest of the holders of common stock, which could be issued with the right to more than one vote per share,
and could be utilized as a method of discouraging, delaying or preventing a change of control. The possible negative impact on
takeover attempts could adversely affect the price of our common stock. Although we have no present intention to issue any shares
of preferred stock or to create any series of preferred stock, we may issue such shares in the future.
We will incur increased costs as a result
of being a public company. These costs will adversely impact our results of operations.
As a public company, we
incur significant legal, accounting and other expenses that a private company does not incur. We estimate these costs to be approximately
$200,000 annually and include the costs associated with having our financial statements prepared, audited and filed with the Securities
and Exchange Commission (“SEC”) via EDGAR (the Electronic Data Gathering, Analysis, and Retrieval system) and XBRL
(eXtensible Business Reporting Language) costs. In addition, we have costs associated with corporate counsel and our transfer agent.
The Sarbanes-Oxley Act of 2002 (SOX) and related rules resulted in an increase in costs of maintaining compliance with the public
reporting requirements, as well as making it more difficult and more expensive for us to obtain directors' and officers' liability
insurance. These added costs will delay the time in which we may expect to achieve profitability, if at all.
If you invest in our stock, your investment
may be disadvantaged by future funding, if we are able to obtain it.
To the extent we obtain
equity funding by issuance of convertible securities or common stock, or common stock purchase warrants in connection with either
type of funding, you may suffer significant dilution in percentage of ownership and, if such issuances are below the then value
of stockholder equity, in stockholder equity per share. Future increases in the number of our shares outstanding will have a negative
impact on earnings per share; increasing the earnings we must achieve to sustain higher prices for our common stock. In addition,
any debt financing we may secure could involve restrictive covenants relating to our capital raising activities and other financial
and operational matters, which may make it more difficult for us to obtain additional capital with which to pursue our business
plan, and to pay dividends. You have no assurance we will be able to obtain any additional financing on terms favorable to us,
if at all.
The majority of our common stock is beneficially
owned by management, which means other stockholders will have little influence over our management.
Currently, our CEO and
sole Director holds approximately 81.5% of our common stock. Each issued and outstanding share of common stock is entitled to one
vote on each nominee for a directorship and on other matters presented to stockholders for approval. Our Certificate of Incorporation
does not authorize cumulative voting for the election of directors. Any person or group who controls or can obtain more than fifty
percent of the votes cast for the election of each director will control the election of all directors and other stockholders will
not be able to elect any directors or exert any influence over management decisions. Removal of a director for any reason requires
a majority vote of our issued and outstanding shares of common stock.
U.S. investors may experience difficulties
in attempting to effect service of process and to enforce judgments based upon U.S. federal securities laws against the company
and its non-U.S. resident officer and sole director.
Our CEO and sole Director,
Christos Traios, is not resident of the United States. Consequently, it may be difficult for investors to effect service of process
on Mr. Traios in the United States and to enforce in the United States judgments obtained in United States courts against Mr. Traios
based on the civil liability provisions of the United States securities laws. Since substantially all of our tangible assets are
located in Europe and Africa, it may be difficult or impossible for U.S. investors to collect a judgment against us. Further, any
judgment obtained in the United States against us may not be enforceable in those foreign jurisdictions.
We have assessed the effectiveness of
our disclosure controls and procedures and our internal control over financial reporting and management concluded they are not
effective. If there is a material weakness in either, there are no assurances that our financial statements will not contain errors
which could require us to restate our financial statements.
The Sarbanes-Oxley Act
of 2002 (SOX) requires public companies to establish disclosure controls and procedures and controls over financial reporting and
to periodically assess the effectiveness of the controls and procedures. We are required to maintain “disclosure controls
and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 and to report on a quarterly
basis, in our quarterly and annual reports which we file with the SEC, our management’s conclusion regarding the effectiveness
of our disclosure controls and procedures. As of December 31, 2016, we conducted an evaluation, under the supervision and with
the participation of our Chief Executive Officer and Chief Financial Officer of our disclosure controls and procedures (as defined
in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation our Chief Executive Officer and Chief Financial
Officer concluded that, at December 31, 2016, our disclosure controls and procedures are not effective.
There is a more than remote
likelihood that misstatements which could be material to the annual or interim financial statements could occur that would not
be prevented or detected.
We are not subject
to certain corporate governance requirements applicable to listed companies.
Because
our securities are not listed on a national securities exchange, we are not subject to corporate governance requirements that are
applicable to listed companies. For instance, we are not required to have a majority of independent directors, a separate audit
committee comprised entirely of independent directors or a separate compensation committee comprised entirely of independent directors.
In addition, we are not required to have our board nominees selected, or recommended for the board’s selection, either by
a nominating committee comprised entirely of independent directors or by a majority of our independent directors. Accordingly,
our stockholders may not have the same protections afforded to stockholders of companies that are subject to the corporate governance
requirements applicable to listed companies.
The price of our common stock may be
volatile as a result of factors that are beyond our control and if the price of our common stock fluctuates, you could lose a significant
part of your investment.
The
trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors,
some of which are beyond our control. The stock market in general has experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of companies with securities traded in those markets. Broad
market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual
operating performance. All of these factors could adversely affect your ability to sell your shares of common stock or, if you
are able to sell your shares, to sell your shares at a price that you determine to be fair or favorable.
Our Common Stock
is categorized as “penny stock,” which may make it more difficult for investors to sell their shares of Common Stock
due to suitability requirements.
Our
common stock is categorized as “penny stock”. The SEC has adopted Rule 15g-9 which generally defines “penny stock”
to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00
per share, subject to certain exceptions. The price of our common stock is significantly less than $5.00 per share, and is therefore
considered “penny stock.” This designation imposes additional sales practice requirements on broker-dealers who sell
to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer buying our
securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine
that the purchaser is reasonably suitable to purchase the securities given the increased risks generally inherent in penny stocks.
These rules may restrict the ability and/or willingness of brokers or dealers to buy or sell our common stock, either directly
or on behalf of their clients, may discourage potential stockholders from purchasing our common stock, or may adversely affect
the ability of stockholders to sell their shares.
Financial Industry
Regulatory Authority, Inc. (“FINRA”) sales practice requirements may also limit a stockholder’s ability to buy
and sell our Common Stock, which could depress the price of our Common Stock.
In
addition to the “penny stock” rules described above, the FINRA has adopted rules that require a broker-dealer to have
reasonable grounds for believing that the investment is suitable for that customer before recommending an investment to a customer.
Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable
efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information.
Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will
not be suitable for at least some customers. Thus, the FINRA requirements make it more difficult for broker-dealers to recommend
that their customers buy our common stock, which may limit your ability to buy and sell our shares of common stock, have an adverse
effect on the market for our shares of common stock, and thereby depress our price per share of common stock.
We have raised capital through the use
of convertible debt instruments that causes substantial dilution to our stockholders.
Prior to the consummation
of the Securities Exchange Agreement on February 29, 2016, it was difficult for us to raise capital or find adequate sources of
financing due to the size of our company, operations, and “penny stock” status. As a result, we were forced to raise
capital through the issuance of convertible notes and other debt instruments. These debt instruments carry favorable conversion
terms to their holders of up to 50% discounts to the market price of our common stock on conversion and in some cases provide for
the immediate sale of our securities into the open market. Accordingly, this has caused and will continue to cause dilution to
our stockholders in 2016 and may for the foreseeable future. As of December 31, 2016, we had approximately $44,887 in convertible
debt and potential convertible debt outstanding. This convertible debt balance as well as additional convertible debt we incur
in the future will cause substantial dilution to our stockholders.
There is a limited trading market for
our common stock and there is no guarantee of a liquid public market for you to resell our common shares.
Our common stock trades
under the symbol “PGAS” on the OTC Pink of the OTC Markets. OTC Pink is often highly illiquid, in part because it does
not have a national quotation system by which potential investors can follow the market price of shares except through information
received and generated by a limited number of broker-dealers that make markets in particular stocks. There is a greater chance
of volatility for securities that are quoted on the OTC Pink compared to a national exchange or quotation system. This volatility
may be caused by a variety of factors, including the lack of readily available price quotations, the absence of consistent administrative
supervision of bid and ask quotations, lower trading volume, and market conditions. Investors in our common stock may experience
high fluctuations in the market price and volume of the trading market for our securities. These fluctuations, when they occur,
have a negative effect on the market price for our securities. Accordingly, our stockholders may not be able to realize a fair
price from their shares when they determine to sell them or may have to hold them for a substantial period of time until the market
for our common stock improves.
Because we do not intend to pay any cash
dividends on our common stock, our stockholders will not be able to receive a return on their shares unless they sell them.
We intend to retain any
future earnings to finance the development and expansion of our business. We do not anticipate paying cash dividends on our common
stock in the foreseeable future. Declaring and paying future dividends, if any, will be determined by our Board, based upon earnings,
financial condition, capital resources, capital requirements, restrictions in our Certificate of Incorporation, contractual restrictions,
and such other factors as our Board in its sole discretion deems relevant. There is no assurance that we will pay any dividends
in the future, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend. Unless we pay
dividends, our stockholders will not be able to receive a return on their shares unless they sell them.
The market price for our common shares
is particularly volatile given our status as a relatively unknown company with a small and thinly traded public float.
The market for our common
shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will
continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is attributable
to a number of factors. First, our common shares are sporadically and thinly traded. As a consequence of this lack of liquidity,
the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of those shares
in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our
common shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those
sales without adverse impact on its share price. Secondly, we are a speculative or “risky” investment due to our limited
operating history and lack of profits to date, and uncertainty of future market acceptance for our potential products. As a consequence
of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of
negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than
would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market
price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the
prevailing market price for our common shares will be at any time, including as to whether our common shares will sustain their
current market prices, or as to what effect that the sale of shares or the availability of common shares for sale at any time will
have on the prevailing market price.
Stockholders should be
aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud
and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related
to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading
press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale
dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with
the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that
have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of
the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations
to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices
could increase the volatility of our share price.