Annual Report (10-k)

Date : 04/12/2019 @ 10:19PM
Source : Edgar (US Regulatory)
Stock : Petrogress, Inc. (PGAS)
Quote : 1.89  0.0 (0.00%) @ 9:00PM

Annual Report (10-k)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

(Mark One)

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

 

For the fiscal year ended

   December 31, 201 8

or

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

 

For the transition period from

 

to

 

 

Commission File No.

  0 00 -55 854

 

PETROGRESS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

27 - 2019626

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1 , Akti Xaveriou Avenue 5 th Floor -   Piraeus - Greece

18538

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code

  +30   (210 ) 459-974 1

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

 

Name of each exchange on which registered

 

None

 

 

None

     

 

Securities registered pursuant to Section 12(g) of the Exchange Act:

 

Common Stock,   par value $ 0 .001

(Title of class)

 

Indicate by check mark if the registrant is a well- known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ☐

 

1

 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K

 

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

 

Large accelerated filer  ☐  Accelerated filer                  ☐
Non-accelerated filer    ☐ Smaller reporting company
  Emerging growth company

 

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

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates ( 630,758 shares of common stock) as of June 30, 201 8 wa s $ 662,296 (computed by reference to the price at which the common equity was last sold ($ 1 .0 5 ) as of the last business day of the registrant's most recently completed second fiscal quarter). Unless otherwise noted, all share and per share data included in this Form 10-K retroactively reflect the 1-for-100 reverse stock split effected by the Company on July 9, 2018 . For purposes of the foregoing calculation only, directors, executive officers, and holders of 10% or more of the issuer’s common capital stock have been deemed affiliates.

 

The number of shares outstanding of the Registrant’s Common Stock as of April 1 2 , 201 9 was 3 , 828 , 41 2 .

 

DOCUMENTS INCORPORATED BY REFERENCE: None.

 

2

 

 

 

TABLE OF CONTENTS

 

 

 

Page

INTRODUCTORY COMMENT

4

FORWARD LOOKING STATEMENTS

4

   

PART I

5

Item 1.

Business

5

Item 1A.

Risk Factors

7

Item 1B.

Unresolved Staff Comments

7

Item 2.

Properties

8

Item 3.

Legal Proceedings

8

ITEM 4.

MINE SAFETY DISCLOSURES

8

 

 

 

PART II

9

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

9

Item 6.

Selected Financial Data

10

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

10

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

19

Item 8.

Financial Statements and Supplementary Data

19

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

20

Item 9A.

Controls and Procedures

20

Item 9B.

Other Information

21

 

 

 

PART III

22

Item 10.

Directors, Executive Officers and Corporate Governance

22

Item 11.

Executive Compensation

23

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

25

Item 13.

Certain Relationships and Related Transactions, and Director Independence

25

Item 14.

Principal Accountant Fees and Services

26

     

PART IV

28

Item 15.

Exhibits AND Financial Statement Schedules

28

 

 

 

Signatures

 

30

 

3

 

 

 

INTRODUCTORY COMMENT

 

Throughout this Annual Report on Form 10-K (the ”Report”), the terms “we,” “us,” “our,” “Petrogress,” or the “Company” refers to Petrogress, Inc., a Delaware corporation and its subsidiary companies. The significant subsidiaries are Petrogres Co. Limited, Petronav Carriers LLC, Petrogress Int’l LLC, Petrogres Africa Co. Limited and Petrogress Oil & Gas Energy Inc.

 

FORWARD LOOKING STATEMENTS

 

When used in this Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) regarding events, conditions and financial trends which may affect the Company’s future plans of operations, business strategy, operating results and financial position. Such statements are not guarantees of future performance and are subject to risks and uncertainties described herein and actual results may differ materially from those included within the forward-looking statements. Additional factors are described in the Company’s other public reports and filings with the Securities and Exchange Commission (the “SEC”). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events.

 

This Report contains certain estimates and plans related to us and the industry in which we operate, which assume certain events, trends and activities will occur and the projected information based on those assumptions. We do not know that all of our assumptions are accurate. If our assumptions are wrong about any events, trends and activities, then our estimates for future growth for our business may also be wrong. There can be no assurance that any of our estimates as to our business growth will be achieved.

 

The following discussion and analysis should be read in conjunction with our financial statements and the notes associated with them contained elsewhere in this Report. This discussion should not be construed to imply that the results discussed in this Report will necessarily continue into the future or that any conclusion reached in this Report will necessarily be indicative of actual operating results in the future. The discussion represents only the best assessment of management.

 

4

 

 

PART I

 

ITEM 1.           BUSINESS

 

Our Corporate History and Background

 

Petrogress, Inc. was incorporated on February 10, 2010 under the laws of the State of Florida as 800 Commerce, Inc. ("800 Commerce") for the purpose of marketing credit card processing services on behalf of merchant payment processing service providers. On February 29, 2016, 800 Commerce entered into an Agreement concerning the Exchange of Securities ("SEA") with Petrogres Co. Limited, a Marshall Islands corporation, and its sole shareholder, Christos Traios, a Greek citizen. Under the terms of the SEA, 800 Commerce issued 136,000,000 shares of restricted Common Stock, representing approximately 85% of the post-transaction issued and outstanding shares, to Mr. Traios in exchange for 100% of the shares of Petrogres Co. Limited.

 

800 Commerce's acquisition of Petrogres Co. Limited effected a change in control and was accounted for as a "reverse acquisition" whereby Petrogres Co. Limited was the acquirer for financial statement purposes. Accordingly, the historical financial statements of 800 Commerce are those of Petrogres Co. Limited and its subsidiaries from their respective inception and those of the consolidated entity subsequent to the February 29, 2016 transaction date.

 

On March 9, 2016, our Board of Directors approved an amendment to our Articles of Incorporation to change the Company’s name to Petrogress, Inc. On March 15, 2016, Mr. Traios was appointed Chief Executive Officer. On November 16, 2016, Petrogress, Inc. filed Articles of Merger and Plan of Merger in Florida and Delaware to change the Company’s domicile by merging with and into a Delaware corporation formed solely for the purpose of effecting the reincorporation.

 

The Company operates as a fully integrated international merchant of petroleum products, focused on the supply and trade of light petroleum fuel oil (LPFO), refined oil products and other petrochemical products to local refineries in West Africa and Mediterranean countries. The Company operates as a holding company and provides its services primarily through its four 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 its beneficially-owned affiliated tanker fleet, currently consisting of four vessels; Petrogress Int’l LLC, which is a holding company for subsidiaries currently conducting business in Cyprus and Ghana; 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 management team operates from its principal offices located in Piraeus, Greece.

 

Principles of consolidation

 

The consolidated financial statements of the Company include the consolidated accounts of the Company and it's wholly-owned and majority-owned subsidiaries. Our significant subsidiaries are described below.

 

Overview of Significant Su bsidiaries

 

Petrogres Co. Limited , is a Marshall Islands corporation, incorporated in 2009 for the purpose of supplying crude oil and other oil products in West Africa. Since its inception, Petrogres Co. Limited 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 Co. Limited 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.

 

5

 

 

On February 28, 2018, Petrogres Co. Limited entered into a Partnership Agreement (the "Platon Partnership Agreement") creating an equal partnership with Platon Gas Oil Ghana Limited ("PGO"), which owns an oil refinery and serves as an importer of various petroleum products based in Ghana. The Platon Partnership Agreement is intended to be renewed on an annual basis and pursuant its terms, Petrogres Co. Limited will supply crude oil for storage, refinement, marketing and distribution in Ghana jointly with PGO. Under the Platon Partnership Agreement, all expenses of the partnership operations are shared by both Petrogres Co. Limited and PGO. After deducting the operating expenses, the net profits from the sale of the petroleum products are split evenly between Petrogres Co. Limited and PGO.

 

Petronav Carriers LLC , was formed in Delaware in April 2016 for the purpose of managing the day-to-day operations of four vessels, which are used to transport the Company’s petroleum products to various countries in West Africa. Effective as of July 13, 2018, Petronav Carriers LLC changed its domicile from Delaware to the Republic of the Marshall Islands for tax purposes. Petronav Carriers manages our fleet from its business office at Piraeus, Greece.

 

Petrogress Int’l LLC, is a Delaware limited liability company, acquired by the Company in September 2017. Petrogress Int’l LLC serves as a holding company for conducting business across the world, including Cyprus, Middle East, and West Africa as an oil energy corporation.

 

In September 2017, Petrogress Int’l LLC acquired 90% of the shares of Petrogres Africa Company Limited from Christos Traios, our President, Chief Executive Officer and sole Director. Petrogres Africa Company Limited holds a current Ghanaian business permit, and is authorized to conduct local sales of oil products and operation of a shipping business from the Port of Tema in Greater Accra. Port facilities in Tema provide a service and operations hub for Company tankers currently involved in West Africa and Nigerian oil trading and transport.  The Port of Tema also serves as a secondary hub for repair, supply and transport ship operators servicing Ghana’s Tano Basin offshore oil fields in the Gulf of Guinea. 

 

In October 2017, through Petrogress Int’l LLC, the Company formed PG Cypyard & Offshore Service Terminal Ltd., to obtain a long-term lease from Cyprus Port Authorities (CPA) for Vassiliko energy port. The project is ongoing and we are in close negotiations with CPA.

 

In March 2018, the company appointed Mr. Osy Adah as its representative in Nigeria. Mr. Adah is a Nigerian Citizen who has previously worked as a manager in major Nigerian oil companies. Through our representative, we have commenced the procedures for the registration of Petrogress Int’l LLC with Nigeria National Petroleum Company (NNPC) for an allocation for supplying half million barrels of Bonny light on monthly terms.

 

On November 28, 2018, Petrogress Int’l LLC, entered into a business alliance with a Ghanaian filling stations company Deliman Oil Ltd., which operates 45 gas stations in Ghana. Both companies will cooperate in reconstruction of a number of gas stations as equal partners.

 

Petrogress Oil & Gas Energy In c ., was a Texas corporation, incorporated in December 2015 for the purpose of identifying and acquiring suitable interests in oil fields in Texas. On December 2018 the company was dissolved and terminated.

 

Petrogres Africa Co. Ltd. As noted above, effective September 30, 2017, Petrogress Int'l LLC purchased from Christos Traios, 90% of the issued and outstanding shares of Petrogres Africa Company Limited ("PGAF"), a Ghanaian limited Company. PGAF was incorporated in the summer of 2017 and holds a current Ghanaian business permit. PGAF is authorized to conduct local sales of oil products and shipping business from the Port of Tema in Greater Accra. Port facilities in Tema will provide a service and operations hub for the Company tankers currently involved in West Africa and Nigerian oil trading and transport.  The Port of Tema also serves as a secondary hub for repair, supply and transport ship operators servicing Ghana's Tano Basin offshore oil fields in the Gulf of Guinea.

 

6

 

 

Competition

 

The Company operates in markets that are highly competitive and based primarily on supply and demand. The Company competes for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as on the Company’s reputation. The Company competes primarily with other independent tanker vessel owners and with major oil companies that own and operate their own vessels. The Company’s competitors may have more resources than the Company and may operate vessels that are newer, and therefore more attractive to charterers, than the Company’s vessels. Ownership of tanker vessels is highly fragmented and is divided among publicly listed companies, state-controlled owners and private shipowners.

 

Although the Company believes that at the present time no single company has a dominant position in the markets in which the Company competes, that could change and the Company may face substantial competition for medium- to long-term charters from a number of experienced companies who may have greater resources or experience than the Company does when the Company tries to re-charter its vessels. The Company believes the Company’s ability to comply better with the rigorous standards of major oil companies relative to less qualified or experienced operators allows the Company to effectively compete for new charters.

 

Employees

 

As of April 12, 2019, Petrogress Inc. and its consolidated subsidiaries employed 10 employees located in Greece through Petrogres Hellas Co., a branch of Petrogres Co. Limited. Petrogres Africa Company Limited has 10 employees located in Ghana, through, a subsidiary of Petrogress Int’l LLC and approximately 65 full-time laborers and crew members are employed by Petronav Carriers LLC. In addition, the Company has 1 contract employee in Cyprus and 1 commission and bonus compensation representative in Nigeria.

 

Additional Information

 

We file annual reports on Form 10-K and quarterly reports on Form 10-Q with the Securities and Exchange Commission (the “SEC”) on a regular basis, and disclose certain material events in current reports on Form 8-K. The public may read and copy any materials that we file with the SEC at the Public Reference Room at the SEC located at 100 F Street NE, Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

 

We make available, free of charge on our website (http://www.petrogressinc.com), our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K (and any amendments to such reports) as soon as reasonably practical after such reports are filed. Information contained on or connected to our website is not incorporated by reference into this report and should not be considered part of this report or any other filing that we make with the SEC.

 

ITEM 1A.

RISK FACTORS

 

Our Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.

 

ITEM 1B.

UNRESOLVED STAFF COMMENTS

 

None.

 

7

 

 

ITEM 2.

PROPERTIES

 

The Company leases office space in Piraeus, Greece for monthly rent of €2,500 (approximately $2,863 at December 31, 2018). This lease expires on January 31, 2020. This office space is deemed adequate for Company’s current operations.

 

The Company leased office space in Tema, Ghana for monthly rent of GHS1,350 (approximately $300 at December 31, 2018) through January 31, 2019. The Company began leasing a new office space in Tema, Ghana for a monthly rent of $600 in February 2019. The new lease expires on February 2, 2021.

 

The Company leases a corporate apartment in New York City, to be used by Christos Traios, the Company’s President, Chief Executive Officer and sole Director. Mr. Traios spends approximately 35% of the time he devotes to the conduct of business in New York. The monthly rent is $3,200 and the lease expires on July 31, 2019.

 

The Company leased a New York office space which was utilized for administrative purposes through August 31, 2018, at which point the lease was terminated. The monthly base rent for the New York office was $2,800.

 

ITEM 3.

LEGAL PROCEEDINGS

 

There are currently no material pending legal or governmental proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of their property is the subject.

 

ITEM 4.

MINE SAFETY DISCLOSURES.

 

Not applicable.

 

8

 

 

PART II

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our Common Stock is quoted on the OTC Pink tier of the OTC Markets Group, Inc. (the “OTC Pink”) under the symbol “PGAS.” The following table shows the reported high and low closing bid prices per share for our Common Stock based on information provided by the OTC Pink. The over-the-counter market quotations set forth for our Common Stock reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

   

Common Stock Bid Price

Financial Quarter Ended

 

High ($)

 

Low ($)

         

December 31, 2018

 

                        0.8800

 

                      0.2500

September 30, 2018

 

                      1.2400

 

                     0.3500

June 30, 2018

 

                        2.2900

 

                       0.6000

March 31, 2018

 

                       3.9800

 

                      1.6600

December 31, 2017

 

                        4.7750

 

                       2.6000

September 30, 2017

 

                        6.5000

 

                        2.3900

June 30, 2017

 

                       7.2000

 

                        1.7000

March 31, 2017

 

                       4.9000

 

                       1.6100

 

On April 8, 2019, the last closing bid price per share for our Common Stock reported by the OTC Pink was $1.90.

 

Holders

 

Records of Securities Transfer Corporation, our transfer agent, indicate that as of April 11, 2019, we had 46 record holders of our Common Stock. The number of registered stockholders excludes any estimate by us of the number of beneficial owners of shares of Common Stock held in “street name.” As of April 11, 2019, we had 3,828,412 shares of our Common Stock and 100 shares of Series A Preferred Stock issued and outstanding.

 

Dividends

 

The Company did not declare any cash dividends for the year ended December 31, 2018. Our Board of Directors (which is currently constituted entirely by Christos Traios who serves as the sole member) does not intend to distribute any cash dividends in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the Board of directors and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the Mr. Traios considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The Company has no equity compensation plans.

 

Recent Sales of Unregistered Securities

 

All of the Company’s recent sales of unregistered securities within the past three years have been previously reported as required in Quarterly Reports on Form 10-Q and current reports on Form 8-K.

 

9

 

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None.

 

ITEM 6.

SELECTED FINANCIAL DATA

 

The Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.

 

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of the results of financial condition and results of operations for the fiscal years ended December 31, 2018 and 2017 should be read in conjunction with our consolidated financial statements, and the notes to those consolidated financial statements that are included elsewhere in this Form 10-K.

 

Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

 

Introduction

 

The Company operates as a fully integrated international merchant of petroleum products, focused on the supply and trade of light petroleum fuel oil (LPFO), refined oil products and other petrochemical products to local refineries in West Africa and Mediterranean countries.

 

Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements are prepared on the accrual basis of accounting in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”).

 

Principles of consolidation

 

The consolidated financial statements of the Company include the consolidated accounts of the Company and its’ wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. We list our significant subsidiaries below:

 

Petrogres Co. Limited (Marshall Islands)

Petrogress Oil & Gas Energy, Inc. (Texas)

Petronav Carriers LLC (Marshall Islands)

Petrogress Int'l LLC (Delaware)

Petrogres Africa Co. Limited (Ghanaian) (Ghana; 90%-owned)

 

10

 

 

Emerging Growth Company

 

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or “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 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.

 

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.

 

Cash and Cash Equivalents

 

We consider all highly liquid investments with an original term of three months or less to be cash equivalents.

 

Accounts Receivable , net

 

The amount shown as accounts receivables, net at each balance sheet date includes estimated recoveries from customers and charterers for sales of oil products, hires, freight and demurrage billings, net of allowance for doubtful accounts. Accounts receivable involve risk, including the credit risk of non-payment by the customer. Accounts receivable are considered past due based on contractual and invoice terms. An estimate is made of the allowance for doubtful accounts based on a review of all outstanding amounts at each period, and an allowance is made for any accounts which management believes are not recoverable. The determination of bad debt allowances constitutes a significant estimate.

 

During the years ended December 31, 2018 and 2017, the Company recognized a provision for doubtful accounts of $344,466 and $395,413, respectively, for trade receivables from specific customers that were deemed doubtful as to their recoverability. This provision is presented in its designated line in the Consolidated Statements of Comprehensive Income.

 

For the years ended December 31, 2018 and 2017, the Company wrote off receivable balances of $0 and $326,724, respectively, as management estimated there was a very remote probability that these balances could be recovered. The amount of write-off is presented in the designated line on the Consolidated Statements of Comprehensive Income.

 

During the year ended December 31, 2017, the Company renamed General and administrative expenses to Selling, general and administrative expenses.

 

Inventor ies

 

The Company's inventories consist primarily of purchased crude oil for re-sale and gas oil in transit on a marine vessel at the respective balance sheet date, and both are valued at the purchased cost or market using the mark-to-market method of valuation.

 

Marketable Securities

 

We classify 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 shareholders’ equity. Realized gains and losses on available-for-sale securities are included in net earnings in the period earned or incurred.

 

11

 

 

Vessels and other fixed assets, net

 

We depreciate our vessels on a straight-line basis over the estimated useful life which is 10 years from the date of their transfer to the Company. Depreciation is calculated based on a vessel’s cost less the estimated residual value. The estimated useful lives of vessels and equipment are as follows:

 

Vessels

10 years

Office equipment and furniture

10 years

Computer hardware

5 years

 

Organization costs

 

We have adopted the provisions required by the Start-Up Activities topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) whereby all costs incurred with the incorporation and reorganization of the Company were charged to operations as incurred.

 

Income taxes

 

The Company files income tax returns in various jurisdictions, as appropriate and required. The Company was not subject to U.S. federal, state and local, as applicable, income tax examinations by regulatory taxing authorities for any period prior to January 1, 2012.

 

We account for income taxes in accordance with ASC 740-10, Income Taxes. We recognize 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. We record 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. We classify interest and penalties as a component of interest and other expenses. To date, we have not incurred any liability for unrecognized tax benefits, including assessments of penalties and/or interest.

 

We measure and record 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. Our tax years subsequent to 2011 remain subject to examination by federal and state tax jurisdictions.

 

Earnings / (Loss) 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.

 

As of December 31, 2018, the basic and dilutive weighted average number of shares of Common Stock of the Company was 3,436,387 and 3,522,331, respectively.

 

12

 

 

As of December 31, 2017, the basic and dilutive weighted average number of shares of Common Stock of the Company was 1,729,624 and 1,729,888 , respectively.

 

As of December 31, 2018 and 2017, the Company has 85,944 and 264 shares of Common Stock, respectively, which could be deemed to be dilutive and are included in the calculation of dilutive earnings per share.

 

Accounting for Equity -based Payments

 

We account 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 our common stock and recognized as expense during the period in which services are provided.

 

Comprehensive Income

 

We 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 Comprehensive loss consist of cancellation of available-for-sale securities and foreign currency translation adjustments.

 

Revenue Recognition

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. Companies may use either a full retrospective or a modified retrospective approach to adopt these ASUs. On January 1, 2018, the Company adopted ASU 2014-09, using the full retrospective method, which requires reporting entities to apply the standard as of the earliest period presented in their financial statements. The Company completed its review of its material revenue streams and determined that the adoption of Topic 606 did not have a material impact on the Company’s consolidated statements of operations and consolidated balance sheets.

.

 

In accordance with the new guidance, the Company recognizes revenue for crude oil sales and gas oil sales, its primary sources of revenue, at an amount that reflects the consideration that the Company expects to be entitled to receive in exchange for transferring goods or services to its customers. The Company's policy is to record revenue when, (a) control of the goods (crude oil, gas oil and other petrochemical products) passed to its customers and (b) the vessels charter (voyages and long term) when the service rendered to its independent charterers and the affiliated PGL.

 

Fair Value of Financial Instruments

 

Our financial instruments consist primarily of cash, accounts receivable, accounts payable and accrued expenses, and convertible debt.

 

The carrying amount of cash, accounts receivable, inventory, accounts payable and accrued expenses, and convertible debt, as applicable, approximates fair value due to the short-term nature of these items and/or the current interest rates payable in relation to current market conditions.

 

Interest rate risk is the risk that our earnings are subject to fluctuations in interest rates on either investments or on debt and is fully dependent upon the volatility of these rates. We do not use derivative instruments to moderate its exposure to interest rate risk, if any.

 

13

 

 

Financial risk is the risk that our earnings are subject to fluctuations in interest rates or foreign exchange rates and are fully dependent upon the volatility of these rates. We do not use derivative instruments to moderate its exposure to financial risk, if any.

 

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, we primarily use prices and other relevant information generated by market transactions involving identical or comparable assets (“market approach”). We also consider 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.

 

Effects of Recent Accounting Pronouncements not yet adopted

 

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). This standard affects the accounting for equity instruments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. In February 2018, the FASB issued ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities”. This update was issued to clarify certain narrow aspects of guidance concerning the recognition of financial assets and liabilities established in ASU No. 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”. This includes an amendment to clarify that an entity measuring an equity security using the measurement alternative may change its measurement approach to a fair valuation method in accordance with Topic 820, Fair Value Measurement, through an irrevocable election that would apply to that security and all identical or similar investments of the same issued. The update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years beginning after June 15, 2019. We plan to adopt this guidance effective January 1, 2019, as required. We do not expect this guidance to have a significant impact on how it measures financial instruments. We are evaluating the impact of the adoption of ASU 2016-01 on its consolidated financial statements and related disclosures.

 

14

 

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). In January 2018, the FASB issued ASU 2018-01, which provides additional implementation guidance on the previously issued ASU 2016-02. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. We do not expect this guidance to have a significant impact on consolidated financial statements.

 

In January 2017, the FASB issued ASU 2017-01, “ Business Combinations (Topic 805): Clarifying the Definition of a Business.” These amendments clarify the definition of a business. The amendments affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The amendments should be applied prospectively as of the beginning of the period of adoption. We do not consider early adoption and is also assessing the impact that this standard will have on our consolidated financial statements.

 

Liquidity and Capital Resources

 

For the year ended December 31, 2018, cash and cash equivalents decreased by $489,989 compared to an increase of $788,916 for the year ended December 31, 2017. Ending cash and cash equivalents at December 31, 2018 was $661,010 compared to $1,150,999 at December 31, 2017.

 

For the year ended December 31, 2018, net cash used in operating activities was $517,449 compared to net cash generated by operating activities of $681,368 for the year ended December 31, 2017.

 

Our net income excluding the non-cash items contributed $1,745,614 to cash from operating activities, reflecting the high gross profit margin of the Company through the year ended December 31, 2018. Assets included in the calculation of the Company’s working capital have decreased by $1,408,249 mainly from the increase of accounts receivable and claims receivable which have increased by $615,014 and $547,600 respectively. This increase has been financed mainly by our net income and the increase of our liabilities included in working capital, namely the increase in Prepaid expenses which have increased by $968,420 during the year ended December 31, 2018.

 

During the year ended December 31, 2018, cash used in investing activities was a result of capital improvements of fixed assets of $96,553 compared to $179,313 for the year ended December 31, 2017.

 

During the year ended December 31, 2018, cash provided by financing activities were the result of: $126,500 of funding provided by Christos Traios, our President, Chief Executive Officer and sole Director under the terms of a Revolving Line of Credit Agreement dated July 13, 2017 (the “Credit Agreement”) .

 

Our need for capital resources is driven by our expansion plans, ongoing maintenance and improvement of our vessels, support of our operational expenses, corporate overhead and the expenses we suffer in order to comply with the regulatory requirements of SEC. Specifically, Petrogress, Inc., the parent company, does not have revenues while it suffers all the necessary operating and general and administrative expenses in order to comply with the regulatory requirements of the SEC.

 

Since the reverse acquisition of Petrogres on February 29, 2016, the Company’s principal sources of cash are (a) net cash provided from operating activities, which includes the sale and shipment of petroleum products, and (b) cash loaned or contributed to the Company by Christos Traios, our President, Chief Executive Officer and sole Director.

 

15

 

 

On October 31, 2018, Christos P. Traios, notified the Company that he was terminating the Credit Agreement pursuant to which Mr. Traios provided a revolving line of credit in the principal amount of up to $1,000,000 to the Company. As such, no further advances were made under the Credit Agreement and existing advances in principal amount of $148,900 under the Line of Credit Note will become due upon the current maturity date, July 13, 2019.

 

Management seeks to secure the necessary financing for the expansion of Company’s operations. 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 a period of at least 12 months after the date of this report. Our intention to expand our operations, increase the oil sales or go into new projects-operations will be subject to additional financing, assuming such financing can be obtained on terms acceptable to management.

 

Results of Operations

 

We operate 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 four 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 its beneficially-owned affiliated tanker fleet, currently consisting of four vessels; and Petrogress Int’l LLC, which is a holding company for subsidiaries currently conducting business in Cyprus and Ghana .

 

Our main operations are managed by an experienced team, located in Piraeus, Greece.

 

Comparison of Years Ended December 31, 201 8 and 201 7

 

Revenues

 

Net sales for the years ended December 31, 2018 and 2017, were $9,026,962 and $9,163,356, respectively, a decrease of $136,394 or approximately 1%. Sales were comprised of the following:

 

   

Year ended December 31,

 
   

2018

   

2017

 

Crude oil net sales

    7,558,462       6,539,346  

Gas oil net sales

    1,424,000       1,997,660  

Other

    44,500       626,350  

Totals

    9,026,962       9,163,356  

 

16

 

 

Cost s of goods sold

 

Costs of goods sold for the years ended December 31, 2018 and 2017, were $5,068,717 and $5,619,978, respectively, a decrease of $551,261 or approximately10%, and were comprised of the following:

 

   

Year ended December 31,

 
   

2018

   

2017

 

Oil purchase costs

    4,897,217       3,406,503  

Shipping and handling costs

    -       1,537,920  

Direct vessels' operating expenses

    171,500       675,555  

Other

    -       -  

Totals

    5,068,717       5,619,978  

 

Overall Costs of goods sold has decreased by 10% while revenue from sales of goods has decreased by approximately 1%, reflecting the continuous efforts we make in order to improve our cost efficiency and increase profits for our shareholders.

 

Corporate expenses

 

Corporate expenses mainly include the expenses incurred by Petrogress, Inc.. These include compensation of Christos Traios, our President, Chief Executive Officer and sole Director, consultants and professional services namely legal and audit fees, and travel expenses of Mr. Traios to our New York office. Corporate expenses for the year ended December 31, 2018 and 2017 were $254,289 and $465,274, respectively, a decrease of $210,985 or approximately 45%.

 

Selling, general and administrative expenses

 

For the year ended December 31, 2018, Selling, general and administrative expenses increased to $2,095,839 compared to $1,162,930 for the year ended December 31, 2017, an increase of $932,909 or approximately 80%.

 

Net income

 

Net income for the year ended December 31, 2018 was $324,698 compared to net income of $293,427 for the year ended December 31, 2017, an increase of $31,271 or approximately 11%.

 

The performance of Company’s significant subsidiaries for the year ended December 31, 2018 was as follows:

 

Petrogres Co. Limited

 

Petrogres Co. Limited performs most of the trading of the oil products along with Petrogres Africa Company Limited. Petrogres Co. Limited contributed $8,555,963 or 94.78% of the Company’s revenues for the year ended December 31, 2018, net of intercompany eliminations. For the year ended December 31, 2018, Petrogres Co. Limited had a gross profit of $1,438,146 equal to 16.63% of its revenues. Petrogres Co. Limited had a Net income equal to $456,310 for the year ended December 31, 2018.

 

17

 

 

High profitability of Petrogres Co. Limited allows it to finance the necessary expenses for the maintenance and proper operations of the Company. Petrogres Co. Limited along with the amounts loaned and/or contributed by Mr. Traios are the two sources of capital of parent company Petrogress, Inc. which suffers all the expenses that are necessary for regulatory compliance and overall operation. The following table presents the results of operations of Petrogres Co. Limited for the years ended December 31, 2018 and 2017, before the intercompany eliminations performed. The table is included herein only for the purpose of management’s discussion over our results:

 

   

Year ended D ecember 31,

 
   

2018

   

2017

 

Revenues

  $ 8,650,463     $ 9,421,856  

Costs of goods sold

    (7,212,317 )     (7,407,752 )

Gross profit

    1,438,146       2,014,104  

Operating expenses:

               

Operating expenses of commodities trade

    (315,140 )     -  

Selling, general and administrative expenses

    (434,501 )     (1,094,943 )

Provision for losses on accounts receivable

    (313,466 )     (395,413 )

Depreciation expense

    (14,136 )     (8,500 )

Total operating expenses

    (1,077,243 )     (1,498,856 )

Gross profit before other expenses

    360,903       515,248  

Other income, net

               

Other income, net

    95,407       96,532  

Total other income, net

    95,407       96,532  

Net income

    456,310       611,780  

 

Petronav Carriers, LLC

 

Petronav Carriers, LLC operates, manages and hires the Company’s beneficially owned vessels to Petrogres Co. Limited. A significant portion of Petronav Carriers, LLC’s expenses relate to crew expenses, repairs and maintenance of the vessels, insurance expenses, bunkers, port expenses and respective depreciation for vessels. For the year ended December 31, 2018, Petronav Carriers, LLC had net income of $478,513. For the year ended December 31, 2018, Petronav Carriers LLC revenues consisted of $2,257,600 from the hires of the vessels to Petrogres Co. Limited and $480,000 from the management fees from the affiliated ship-owning companies. The foregoing revenues have been eliminated for the Consolidated Financial Statements. The following table presents the results of operations of Petronav Carriers, LLC for the years ended December 31, 2018 & December 31, 2017 before the intercompany eliminations performed. The table is included herein only for the purpose of management’s discussion over our results:

 

   

Year ended D ecember 31,

 
   

2018

   

2017

 

Revenues

  $ 2,737,600     $ 3,545,200  

Costs of goods sold

    -       (1,928,392 )

Gross profit

    2,737,600       1,616,808  

Operating expenses:

               

Fleet operating expenses

    (1,345,390 )     -  

Selling, general and administrative expenses

    (34,495 )     (135,945 )

Write offs of accounts receivable

    -       (326,724 )

Amortization of Dry Docking

    (6,687 )     -  

Depreciation expense

    (909,590 )     (902,903 )

Total operating expenses

    (2,296,162 )     (1,365,572 )

Gross profit before other expenses

    441,438       251,236  

Other income / ( expense ) , net

               

Other income, net

    37,075       -  

Other expense, net

    -       (59,721 )

Total other income / (expense), net

    37,075       (59,721 )

Net income

    478,513       191,515  

 

18

 

 

Petrogress, Inc.

 

Petrogress, Inc. is the parent holding company of the group. Petrogress, Inc. does not have revenues while it suffers all the necessary operating and general and administrative expenses in order to comply with the regulatory requirements of SEC. These costs, equal to $584,364, primarily contribute to the net loss incurred by the holding company of $735,033 for the year ended December 31, 2018. The net loss reflects the expenses necessary for the regulatory compliance of Petrogress, Inc. and its overall operation as a publicly reporting company. The following table presents the results of Petrogress, Inc. for the years ended December 31, 2018 and December 31, 2017.

 

The table is included herein only for the purpose of management’s discussion over the results of the Company:

 

   

Year ended D ecember 31,

 
   

2018

   

2017

 

Revenues

    -     $ -  

Costs of goods sold

    -       -  

Gross profit

    -       -  

Operating expenses:

               

Selling, general and administrative expenses

    (330,075 )     (9,653 )

Corporate expenses

    (254,289 )     (459,736 )

Depreciation expense

    -       -  

Total operating expenses

    (584,364 )     (469,389 )

Gross loss before other expenses

    (584,364 )     (469,389 )

Other expense, net

               

Interest and finance expenses

    (16,551 )     (14,919 )

Other expense, net

    (134,117 )     (1,129 )

Total other (expense), net

    (150,668 )     (16,048 )

Net loss

    (735,033 )     (485,437 )

 

Net income attributable to t he Company

 

After the intercompany eliminations, the net income of the Company for the year ended December 31, 2018 amounts to $324,698.

 

Off Balance Sheet Arrangements

 

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Our Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

All financial statements required by this Item are presented beginning on Page F-1, and are incorporated herein by this reference.

 

19

 

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A.

CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Christos Traios, our Chief Executive Officer and Evangelos Makris, our Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of December 31, 2018, pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the appropriate management on a basis that permits timely decisions regarding disclosure. Based upon that evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures as of December 31, 2018 were not effective to provide reasonable assurance that information required to be disclosed in the Company’s periodic filings under the Exchange Act is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

 

Management's Annual Report on Internal Control Over Financial Reporting

 

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company's internal control over financial reporting includes those policies and procedures that:

 

 

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

 

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

 

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In connection with the preparation of our annual financial statements, Christos Traios, our Chief Executive Officer and sole Director and Evangelos Makris, our Chief Financial Officer, have assessed the effectiveness of internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO Framework, and SEC guidance on conducting such assessments. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. Based on this evaluation and qualified by the “Limitations on Effectiveness of Controls” set forth in this Item 9A below, management has determined that as of December 31, 2018, our internal controls over financial reporting were not effective and there are material weaknesses in our internal controls over financial reporting.

 

The Company’s management has identified a material weakness in the effectiveness of internal control over financial reporting related to a shortage of resources in the accounting department required to assure appropriate segregation of duties with employees having appropriate accounting qualifications.

 

20

 

 

Attestation Report of the Registered Public Accounting Firm

 

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company’s registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, wherein non-accelerated filers are exempt from Sarbanes-Oxley internal control audit requirements.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal controls over financial reporting during the fourth quarter of the year ended December 31, 2018 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

 

Limitations on the Effectiveness of Controls

 

Our disclosure controls and procedures provide our principal executive officer and principal financial officer with reasonable assurances that our disclosure controls and procedures will achieve their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within our company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.

 

Management is aware that there is a lack of segregation of duties due to the fact that the Company only has one director and one executive officer dealing with general administrative and financial matters. This constitutes a significant deficiency in the internal controls. Management has decided that considering the officers and director involved, the control procedures in place, and the outsourcing of certain financial functions, the risks associated with such lack of segregation were low and the potential benefits of adding additional employees to clearly segregate duties did not justify the expenses associated with such increases. Management periodically reevaluates this situation. In light of the Company’s current cash flow situation, the Company does not intend to increase staffing to mitigate the current lack of segregation of duties within the general administrative and financial functions.

 

ITEM 9B.

OTHER INFORMATION

 

None.

 

21

 

 

PART III

 

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors and Executive Officers

 

The following individuals currently serve as the sole director and executive officers of our Company. All directors of our Company hold office until the next annual meeting of shareholders or until their successors have been elected and qualified. The executive officers of our Company are appointed by our Board of Directors and hold office until their death, resignation or removal from office.

 

Sole Director and

Executive

Officer

Age

Date of

Appointment

Position(s) Held

Christos Traios

59

March 15, 2016

Sole Director, President and Chief Executive Officer

Evangelos Makris

36

March 19, 2019

Chief Financial Officer

 

Christos Traios , age 59, was appointed to serve as a director and our President and Chief Executive Officer on March 15, 2016. Mr. Traios has been in the maritime industry for more than 25 years and has been in the oil business for eight years. Since acquiring control of the Company, Mr. Traios has served as its sole director, President and Chief Executive Officer. Mr. Traios attended Master Mariner & Law Maritime School for three years and served as second captain in the shipping industry for three years. Mr. Traios is a citizen of Greece.

 

Mr. Traios’s experience as our President and in management generally, as well as his extensive experience in the areas of crude oil purchasing and selling, and tanker vessel shipping and management of operations qualify him to serve as a director of our Company.

 

Evangelos Makris , age 36, was appointed on March 19, 2019 to serve as Chief Financial Officer in a consulting capacity on a part time basis.   Mr. Makris has been the Finance Manager of Petrogress, Inc. since March 2019. Prior to holding that position, Mr. Makris served as a Senior Accountant in the ACR and FAAS Department of Ernst & Young S.A. as well as the Blackstone Group in Luxembourg overseeing a large portfolio of international companies specializing in the Real Estate business. His duties/responsibilities, included but were not limited to, preparing the Stand-alone and Consolidated Financial Statements as well as the quarterly and annual reports, managing a team of junior accountants involved in the bookkeeping, communicating with various parties regarding loan facilities, valuation reports and involvement in the process of the acquisition and sale of properties. Mr. Makris holds a Bachelor of Science in Business Administration (Accounting and Finance) from the American College of Greece.

 

Involvement in Certain Legal Proceedings

 

Neither our sole director nor any executive officer has not been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, nor has he been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires each of our officers and directors and each person who owns more than 10% of a registered class of our equity securities to file with the SEC an initial report of ownership and subsequent reports of changes in such ownership. Such persons are further required by SEC regulations to furnish us with copies of all Section 16(a) forms (including Forms 3, 4 and 5) that they file. Based solely on our review of the copies of such forms received by us with respect to fiscal year 2018, or written representations from certain reporting persons, we believe all of our officers and directors and persons who own more than 10% of our Common Stock have met all applicable filing requirements.

 

22

 

 

Code of Ethics for Financial Executives

 

We adopted a Code of Corporate Conduct and Ethics for our employees, officers and directors to promote honest and ethical conduct and to deter wrongdoing. This code applies to our Chief Executive Officer, Chief Financial Officer and other employees performing similar functions. Our Code of Ethics is available on our website (www.petrogressinc.com).

 

ITEM 11.

EXECUTIVE COMPENSATION

 

The following table sets forth all compensation for the last two fiscal years awarded to, earned by or paid our chief executive officer and our only other compensated executive officer serving during the last completed fiscal year (collectively, the "Named Executives"):

 

Summary Compensation Table

 

Name and Principal Position

Year

 

Salary (1) ($)

   

All other

Compensation

(2 ) ($)

   

Total ($)

 

Christos Traios, Director, President and Chief Executive Officer

2018

  $ 200,000     $ --     $ 200,000  
  2017   $ 270,000     $ --     $ 270,000  

Evangelos Makris, Chief Financial Officer

2018

  $ --     $ --     $ --  
  2017   $ --     $ --     $ --  

Giannis Noutsos, Chief Financial Officer

2018

  $ 7,000     $ --     $ 7,000  
  2017   $ --     $ --     $ --  

 

 

(1)

Reflects accrued salary payable by Petrogress, Inc. ($80,000 for the year ended December 31, 2018) and its wholly owned subsidiary Petrogres, Co. Limited ($120,000 for the year ended December 31, 2018).

 

(2)

Other than the remuneration discussed above, we have no retirement, pension, profit sharing, stock option or similar program for the benefit of the officers, directors or employees of the Company.

 

Narrative Disclosure to Summary Compensation Table

 

Effective April 1, 2016, the Company entered into an Employment Agreement with Christos Traios and agreed on a monthly compensation of $10,000 ($120,000 per year) in recognition of his services to parent entity Petrogress, Inc. On January 12, 2018 the Company entered into an Amendment to Employment Agreement dated January 12, 2018 with Christos Traios pursuant to which Christos Traios Employment Agreement dated April 1, 2016 was amended to reflect that (1) Christos Traios’ Base Salary has been and will continue to be accrued by the Company until such time as either (a) Christos Traios is legally entitled to be gainfully employed in the United Stated and elects to receive payment of such accrued and payable Base Salary, or (b) such accrued and payable Base Salary is converted into shares of Common Stock of the Company. The Amendment also provided that Christos Traios accrued and payable Base Salary may be converted at Christos Traios election onto shares of Common Stock of the Company at a conversion price equal to the average closing price quoted on the principal trading market or securities exchange for the Company shares of Common Stock over the 5 trading days preceding delivery of a conversion notice.

 

During the year ended December 31, 2018, the Company accrued $80,000 for services Mr. Traios provided to parent entity Petrogress, Inc. in line with the terms of the foregoing Employment Agreement and $120,000 for Christos Traios’s services to Petrogres, Co. Limited.

 

23

 

 

During the year ended December 31, 2017, the Company accrued $120,000 for services Mr. Traios provided to parent entity Petrogress, Inc. in line with the terms of the foregoing Employment Agreement and $150,000 for Christos Traios’s services to Petrogres, Co. Limited.

 

Giannis Noutsos was appointed to serve as Chief Financial Officer of Petrogress, Inc. on September 14, 2018 and agreed on a monthly compensation of $2,000 ($24,000 per year). Giannis Noutsos stepped down as Chief Financial Officer of Petrogress, Inc. on March 19, 2019.

 

On March 19, 2019, Evangelos Makris was appointed to serve as Chief Financial Officer of Petrogress, Inc. The Company has agreed on a monthly compensation of $2,000 ($24,000 per year) in recognition of his services to parent entity Petrogress, Inc.

 

We do not presently have pension, health, annuity, insurance, profit sharing, or similar benefit plans; however, we may adopt plans in the future. There are presently no personal benefits available to our directors and officers.

 

Outstanding Equity Awards

 

The Company has no equity compensation plans.

 

Compensation of Directors

 

We do not pay fees to our directors for attendance at meetings of the board; however, we may adopt a policy of making such payments in the future. We will, however, reimburse out-of-pocket expenses incurred by directors in attending board and committee meetings.

 

24

 

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information as of the date hereof with respect to the holdings of: (1) each person known to us to be the beneficial owner of more than 5% of our Common Stock; (2) each of our directors, nominees for director and named executive officers; and (3) all directors and executive officers as a group. To the best of our knowledge, each of the persons named in the table below as beneficially owning the shares set forth therein has sole voting power and sole investment power with respect to such shares, unless otherwise indicated. Applicable percentages are based upon 3,828,412 shares of Common Stock and 100 shares of Series A Preferred Stock outstanding as of December 31, 2018. Unless otherwise specified, the address of each of the persons set forth below is in care of the Company, at the address of 1, Akti Xaveriou Avenue 5 th Floor, 18538, Piraeus, Greece.

 

 

 

Title of Class

 

Name and Address of

Beneficial Owner

Amount and

Nature of

Beneficial Owner

 

Percent of

Class

Common Stock

     

         As a Group

Officers and Directors (1 person)

3,398,959(1)

88.78%

       

         As Individuals

Christos Traios

3,398,959(1)

88.78%

       
 

Evangelos Makris

0

0.00%

       
 

Giannis Noutsos

0

0.00%

       

Series A Preferred Stock

     

         As a Group

Officers and Directors (1 person)

100

100.00%

       

         As Individuals

Christos Traios

100

100.00%

       
 

Evangelos Makris

0

0.00%

       
 

Giannis Noutsos

0

0.00%

 

(1) Represents 3,198,959 shares of the Company’s Common Stock and 200,000 shares for which the beneficial owner holds irrevocable proxies to exercise voting rights with respect to such shares of Common Stock held by certain third-party stockholders.

 

There are no arrangements, known to the Company, the operation of which would result in a change in control of the Company.

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Transactions with Related Persons

 

Revolving Line of Credit

 

During the year ended December 31, 2018, Christos Traios, our President, Chief Executive Officer and sole Director, provided finance to the Company of $126,500, under the terms of the Revolving Line of Credit facility Agreement dated July 13, 2017 (the “Credit Agreement”) pursuant to which Mr. Traios provided a revolving line of credit in the principal amount of up to $1,000,000 to the Company. The aggregate advances were equal to $148,900 as of December 31, 2018. On October 31, 2018, Christos P. Traios, notified the Company that he was terminating the Credit Agreement. As such, no further advances were made under the Credit Agreement and existing advances in principal amount of $148,900 under the Line of Credit Note will become due upon the current Maturity Date, July 13, 2019.

 

25

 

 

The table below presents the amounts due to Christos Traios during the year ended December 31, 2018:

 

Amounts due to related party December 31, 2017

  $ 1,243,753  

Wages paid to Christos Traios in shares of Common Stock of Petrogress Inc.

  $ (210,000 )

Wages accrued to Christos Traios

  $ 200,000  

Amount due to Christos Traios from Petrogress Int'l LLC and Petrogress Oil & Gas Inc. converted into Shares of Common Stock of Petrogress Inc.

  $ (22,500 )

Wages paid to Christos Traios in cash

  $ (34,390 )

Amounts due to related party December 31, 2018

  $ 1.176,863  

 

Director Independence

 

Our Board of Directors is currently composed of one member who does not qualify as an independent director in accordance with the published listing requirements of the NASDAQ Global Market.

 

ITEM 14.       PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The Company does not currently maintain a separate audit committee. When necessary, Christos Traios, our President, Chief Executive Officer and sole Director performs the tasks that would be required of an audit committee. Our Board of Director’s policy is to pre-approve all audit, audit related and permissible non-audit fees and services provided by our independent registered public accounting firm.  Mr. Traios pre-approved all of the fees described below. Mr. Traios also reviews any factors that could impact the independence of our independent registered public accounting firm in conducting the audit and receives certain representations from our independent registered public accounting firm towards that end.

During the period between October 31, 2016 through January 18, 2017 the Company engaged RBSM LLP (“RBSM”) as its independent registered public accounting firm.

 

During the period between January 18, 2017 to July 26, 2018 the Company engaged David S. Friedkin CPA (“Friedkin”) as its independent registered public accounting firm. On July 18, 2018, the Company was notified by the U.S. Securities and Exchange Commission that the Public Company Accounting Oversight Board had revoked Friedkin’s registration. As such, the Company’s Board of Directors resolved to dismiss Freidkin as its independent registered public accounting firm on July 19, 2018.

 

The Company has since engaged Turner Stone & Company, LLP (“Turner Stone”) as of July 26, 2018 to serve as its current independent registered public accounting firm.

 

Audit Fees

 

No fees were billed by RBSM for professional services rendered for the audit of our annual financial statements for 2017 and the reviews of the financial statements included in our Forms 10-Q and 8-K, or services normally provided by the accountant in connection with statutory and regulatory filings for such fiscal year.

 

26

 

 

The aggregate fees billed by Friedkin for professional services rendered for the audit of our annual financial statements for 2017 and 2018 and the reviews of the financial statements included in our Forms 10-Q and 8-K, or services normally provided by the accountant in connection with statutory and regulatory filings for each such fiscal year was $47,500 and $25,000, respectively.

 

The aggregate fees billed by Turner Stone for professional services rendered for the audit of our annual financial statements for 2017 and 2018 and the reviews of the financial statements included in our Forms 10-Q or services normally provided by the accountant in connection with statutory and regulatory filings for each such fiscal year was $0 and $13,585, respectively.

 

Audit-Related Fees

 

We incurred neither fees nor expenses for 2017 for assurance and related services rendered by RBSM relating to performance of the audit or review of our financial statements, other than the fees disclosed above under the caption “Audit Fees”.

 

The aggregate fees billed by Friedkin for professional services rendered in the fiscal year 2018 and 2017, other than the fees disclosed above under the caption “Audit Fees” for assurance and related services relating to performance of the audit or review of our financial statements, were $7,500 and $5,000, respectively.

 

The aggregate fees billed by Turner Stone for professional services rendered in the fiscal year 2018 and 2017, other than the fees disclosed above under the caption “Audit Fees” for assurance and related services relating to performance of the audit or review of our financial statements, were $0 and $0, respectively.

 

Tax Fees

 

We incurred neither fees nor expenses for 2017 for professional services rendered by RBSM for tax compliance, tax advice or tax planning.

 

The aggregate fees billed by Friedkin for professional services rendered in 2017 for tax compliance, tax advice or tax planning, were $3,000.

 

The aggregate fees billed by Turner Stone for professional services rendered in 2018 for tax compliance were $4,410.

 

All Other Fees

 

We incurred no other fees or expenses for 2018 for any other products or professional services rendered by RBSM other than as described above.

 

The aggregate fees billed by Friedkin for products or professional services rendered in the fiscal year 2018 and 2017 other than as described above, were $0 and $500, respectively.

 

We incurred no other fees or expenses for 2018 for any other products or professional services rendered by Turner Stone other than as described above.

 

27

 

 

PART IV

 

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

 

(a)

Financial Statements

 

The following documents are filed as part of this Annual Report on Form 10-K beginning on the pages referenced below:

 

 

Page

Report of Independent Registered Public Accounting Firm

F-2

Consolidated Balance Sheets as of December 31, 2018 and 2017

F-3

Consolidated Statements of Comprehensive Income for the years ended December 31, 2018 and 2017

F-4

Consolidated Statements of Changes in Shareholders’ Equity for years ended December 31, 2018 and 2017

F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017

F-6

Notes to Consolidated Financial Statements

F-7 – F-23

 

 

 

(b)

Exhibits

 

The following exhibits are filed with this Annual Report on Form 10-K or are incorporated by reference as described below.

 

Exhibit

Description

2.1

Certificate of Conversion filed with the State of Florida, dated November 18, 2016 (Incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K as filed with the Commission on December 1, 2016).

2.2

Certificate of Conversion filed with the State of Delaware, dated November 18, 2016 (Incorporated herein by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K as filed with the Commission on December 1, 2016).

3.1

Articles of Incorporation (Incorporated herein by reference to Exhibit 3.1 as part of the Company’s Registration Statement on Form S-1 as filed with the Commission on October 17, 2012).

3.2

Articles of Amendment to the Articles of Incorporation filed October 11, 2011 (Incorporated herein by reference to Exhibit 3.2 as part of the Company’s Registration Statement on Form S-1 as filed with the Commission on October 17, 2012).

3.3

Articles of Amendment to the Articles of Incorporation filed March 15, 2016 (Incorporated herein by reference to Exhibit 3.1 as part of the Company’s Current Report on Form 8–K as filed with the Commission on March 3, 2016).

3.4

Articles of Amendment to the Articles of Incorporation filed March 10, 2016 (Incorporated herein by reference to Exhibit 3.3 as part of the Company’s Current Report on Form 8–K as filed with the Commission on April 1, 2016).

3.5

Certificate of Incorporation filed on November 16, 2016 with the State of Delaware (Incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K as filed with the Commission on December 1, 2016).

3.6

Certificate of Designation of Series A Preferred Stock of Petrogress, Inc. dated July 13, 2017 (Incorporated herein by reference to Exhibit 3 to the Company’s Current Report on Form 8-K as filed with the Commission on July21, 2017).

3.7

By-Laws of Petrogress, Inc., effective November 30, 2016 (Incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K as filed with the Commission on December 1, 2016).

10.1

Agreement Concerning the Exchange of Securities, dated February 19, 2016, by and among the Company, Petrogres Co. Ltd., and the sole shareholder of Petrogres Co. Ltd. (Incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on March 3, 2016).

 

28

 

 

10.2

Employment Agreement dated April 1, 2016 by and between Petrogress, Inc. and Christos Traios (Incorporated herein by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K filed with the Commission on April 13, 2017).**

10.3

Amendment to Employment Agreement dated January 12, 2018 by and between Petrogress, Inc. and Christos Traios (Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K as filed with the Commission on January 12, 2018).**

10.4

Stock Purchase Agreement dated February 23, 2018, by and between Christos Traios and Petrogress, Inc. (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the Commission on February 26, 2018).**

14.1

Code of Corporate Conduct and Ethics. (Incorporated herein by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K filed with the Commission on March 29, 2018).

21.1

Significant Subsidiaries*

31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14a/Rule 14d-14(a)*

31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14a/Rule 14d-14(a)*

32.1

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.*

32.2

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.*

101.1

Interactive data files pursuant to Rule 405 of Regulation S-T*

* Filed herewith.

** Signifies a management agreement.

 

29

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

     

Date: April 12, 2019

PETROGRESS, INC.

     

 

By:

/s/ Christos Traios

 

Christos Traios

 

President and Chief Executive Officer (Principal

Executive Officer)

     

 

By:

/s/ Evangelos Makris

 

Evangelos Makris

 

Chief Financial Officer (Principal Financial and

Accounting Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

SIGNATURE

 

TITLE

 

DATE

         

/s/ Christos Traios

 

President, Chief Executive Officer (Principal

 

April 12, 2019

Christos Traios   Executive Officer)    
         

/s/ Evangelos Makris

 

Chief Financial Officer (Principal Financial and

 

April 12, 2019

Evangelos Makris   Accounting Officer)    

 

30

 

 

PETROGRESS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 201 8 and 201 7

 

 

 

Page

Report of Independent Registered Public Accounting Firm

F-2

Consolidated Balance Sheets as of December 31, 2018 and 2017

F-3

Consolidated Statements of Comprehensive Income for the years ended December 31, 2018 and 2017

F-4

Consolidated Statements of Changes in Shareholders’ Equity for years ended December 31, 2018 and 2017

F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017

F-6

Notes to Consolidated Financial Statements

F-7 – F-23

 

F-1

 

 

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and Sole Director of Petrogress, Inc. and subsidiaries

 

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Petrogress, Inc. and subsidiaries (the “Company”), as of December 31, 2018 and 2017, and the related consolidated statements of comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

/s/ Turner, Stone & Company, LLP

 

 

We have served as the Company’s auditor since 2018.

 

Dallas, Texas

April 12, 2019

 

F-2

 

 

 

PETROGRESS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

   

Note

   

As of December 31, 2018

   

As of December 31, 2017

 

ASSETS

                       

Current Assets

                       

Cash and cash equivalents

          $ 661,010     $ 1,150,999  

Accounts receivable, net

    4, 7       4,779,432       4,508,885  

Claims receivable, net

    7       547,600       -  

Inventories

            417,135       171,500  

Prepaid expenses and other current assets

            1,765,276       1,043,624  

Total current assets

            8,170,453       6,875,008  

Non-Current Assets

                       

Goodwill

    6       900,000       900,000  

Vessels and other fixed assets, net

    3       4,450,906       5,281,949  

Deferred charges, net

            26,750       -  

Security deposit

            10,638       7,573  

Total non-current assets

            5,388,294       6,189,522  

Total Assets

          $ 13,558,747     $ 13,064,530  
                         

LIABILITIES AND STOCKHOLDERS' EQUITY

                       

Current Liabilities

                       

Accounts payable and accrued expenses

    9     $ 1,265,452     $ 1,299,965  

Due to related party

    6       1,176,863       1,243,753  

Loan facility from related party

    8       148,900       297,400  

Accrued Interest

            8,744       9,639  

Total current liabilities

            2,599,959       2,850,757  

Total liabilities

            2,599,959       2,850,757  
                         

Commitments and Contingencies

                       
                         

Shareholders' equity:

                       

Series A Preferred shares, $100 par value, 100 shares authorized, 100 and 0 shares issued and outstanding as of December 31, 2018 and December 31, 2017 respectively

    5       10,000       10,000  

Preferred shares, $0.001 par value, 1,000,000 shares authorized, 100 shares and 0 shares issued and outstanding as of December 31, 2018 and December 31, 2017 respectively

    5       -       -  

Shares of Common stock, $0.001 par value, 19,000,000 shares authorized, 3,828,412 and 3,178,452 shares issued and outstanding as of December 31, 2018 and December 31, 2017 respectively

    5       3,829       3,098  

Additional paid-in capital

            9,535,161       9,100,838  

Accumulated comprehensive loss

            (10,231 )     (7,744 )

Retained earnings

            1,315,870       1,008,823  

Equity attributable to Owners of the Company

            10,854,629       10,115,015  

Non-controlling interests

            104,159       98,758  

Total liabilities and shareholders' equity

          $ 13,558,747     $ 13,064,530  

 

The accompanying footnotes are an integral part of these consolidated financial statements.

 

F-3

 

 

 

PETROGRESS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

   

Note

   

Year Ended

December 31, 2018

   

Year Ended

December 31, 2017

 

Revenues

          $ 9,026,962     $ 9,163,356  

Costs of goods sold

            (5,068,717 )     (5,619,978 )
                         

Gross profit

            3,958,245       3,543,378  
                         

Operating expenses:

                       

Corporate expenses

            (254,289 )     (465,274 )

Selling, general and administrative expenses

            (2,095,839 )     (1,162,930 )

Provision for losses on accounts receivable

            (344,466 )     (395,413 )

Write offs of accounts receivable

            -       (326,724 )

Amortization of Dry Docking

            (6,687 )     -  

Depreciation expense

    3       (927,596 )     (918,166 )

Total operating expenses

            (3,628,877 )     (3,268,507 )
                         

Operating income before other expenses

            329,368       274,871  
                         

Other income/ (expense), net:

                       

Interest and finance expenses

            (16,551 )     (14,919 )

Other income, net

            11,881       33,475  

Total other income, net

            (4,670 )     18,556  
                         

Income before income taxes

            324,698       293,427  
                         

Income tax expense

            -       -  
                         

Net income

          $ 324,698     $ 293,427  
                         

Net income attributable to:

                       

Shareholders of the company

            307,047       294,669  

Non-controlling interests

            17,651       (1,242 )
            $ 324,698     $ 293,427  
                         

Other comprehensive loss

                       
                         

Cancellation of marketable securities

            -       (15,660 )

Foreign currency translation adjustment

            (2,487 )     (7,744 )

Comprehensive income

          $ 322,211     $ 270,023  
                         

Comprehensive income attributable to:

                       

Owners of the company

            304,560       271,265  

Non-controlling interests

            17,651       (1,242 )
            $ 322,211     $ 270,023  
                         

Weighted average number of shares of Common Stock:

                 

Basic

    10       3,436,387       1,729,624  

Diluted

    10       3,522,331       1,729,888  
                         

Basic earnings per share

    10     $ 0.0894     $ 0.1696  

Diluted earnings per share

    10     $ 0.0896     $ 0.1696  

 

The accompanying footnotes are an integral part of these consolidated financial statements.

 

F-4

 

 

 

PETROGRESS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

 

           

Number of

                           

Additional

   

Accumulated

                    Non-    

Total

 
           

Preferred

   

Preferred

   

Common Stock

   

Paid-in

   

Comprehensive

   

Accumulated

           

controlling

   

Shareholders’

 
   

Note

   

Shares

   

Shares

   

Shares

   

Amount

   

Capital

   

Loss

   

Profit/(Deficit)

   

Total

   

interest

   

Equity/(Deficit)

 

Balances at December 31, 2016 (pre-split)

            -     $ -       166,795,807     $ 166,796     $ 8,423,641     $ 15,660     $ 799,487     $ 9,405,584     $ -     $ 9,405,584  

Reverse split of common shares 100 to 1

                            (165,128,355 )     (165,209 )     165,209       -       -       -       -       -  

Balances at December 31, 2016 (post-split)

            -     $ -       1,667,452     $ 1,587     $ 8,588,850     $ 15,660     $ 799,487     $ 9,405,584     $ -     $ 9,405,584  

Issuance of Series A Preferred Shares

    5       100       10,000       -       -       -       -       -       10,000       -       10,000  

Reclassification of derivative liability upon conversion of convertible note

            -       -       -       -       65,499       -       -       65,499       -       65,499  

Common stock issued for convertible notes

    5       -       -       1,410,000       1,411       156,589       -       -       158,000       -       158,000  

Common stock issued for consulting services

    5       -       -       100,000       100       299,900       -       -       300,000       -       300,000  

Cancellation of marketable securities

    5       -       -       -       -       -       (15,660 )     -       (15,660 )     -       (15,660 )

Amounts due from related party classified under APIC

    5       -       -       -       -       (10,000 )     -       -       (10,000 )     -       (10,000 )

Foreign currency translation adjustment

            -       -       -       -       -       (7,744 )     -       (7,744 )     -       (7,744 )

Beginning deficit balance of Petrogress (Hellas) Co. consolidated as of January 1, 2017

    1       -       -       -       -       -       -       (85,333 )     (85,333 )     -       (85,333 )

Acquisition of Petrogres Africa Ltd.

    6       -       -       -       -       -       -       -       -       100,000       100,000  

Net income

            -       -       -       -       -       -       294,669       294,669       (1,242 )     293,427  

Balances at December 31, 2017

            100     $ 10,000       3, 177,452     $ 3,098     $ 9,100,838     $ (7,744 )   $ 1,008,823     $ 10,115,015     $ 98,758     $ 10,213,773  

Common stock issued for payment of accrued wages

    5       -       -       76,614       77       209,923       -               210,000       -       210,000  

Common stock issued to settle liabilities

    5       -       -       190,705       191       457,501       -       -       457,692       -       457,692  

Cancellation of common stock issued for services

    5       -       -       -       -       (146,767 )     -       -       (146,767 )     -       (146,767 )

Common stock issued for board advisory services

    5       -       -       800       80       1,416       -       -       1,496       -       1,496  

Common stock issued for accrued interest of LOC

    5       -       -       382,841       383       -       -       -       383       -       383  

Foreign currency translation adjustment

            -       -       -       -       -       (2,487 )     -       (2,487 )     -       (2,487 )

Elimination of Petrogress Africa Ltd apic/due from shareholders

    6       -       -       -       -       (87,750 )     -       -       (87,750 )     (12,250 )     (100,000 )

Net income

            -       -       -       -       -       -       307,047       307,047       17,651       324,698  

Balances at December 31, 2018

            100     $ 10,000       3,828,412     $ 3,829     $ 9,535,161     $ (10,231 )   $ 1, 315,870     $ 10,854,629     $ 104,159     $ 10,958,788  

 

The accompanying footnotes are an integral part of these consolidated financial statements.

 

F-5

 

 

 

PETROGRESS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   

Note

   

Year Ended

December 31, 2018

   

Year Ended

December 31, 2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

                       

Net income

          $ 324,698     $ 293,427  

Adjustments to reconcile net income to net cash

                       

provided by (used in) operating activities:

                       

Depreciation

    3       927,597       918,166  

Provision for losses on accounts receivable

    7       344,466       395,413  

Write offs on accounts receivable

    7       -       326,724  

Write off of marketable securities

            -       5,280  

Share-based compensation expense

            1,496       -  

Gain on convertible promissory notes settlement

            (12,835 )     (1,390 )

Loss on settlement of loan facility from related party

            160,192       -  

Shares of common stock issued for services

    5       -       300,000  

Changes in working capital:

                       

- Increase in Accounts receivable, net

            (615,014 )     (2,803,354 )

- Increase in Claims receivable, net

            (547,600 )     -  

- Increase in Inventories

            (245,635 )     (171,500 )

- Decrease / (increase) in Prepaid expenses and other current assets

            (968,420 )     34,464  

- Decrease in Security deposits

            -       1,202  

Increase / (decrease) in:

                       

- Increase / (decrease) in Accounts payable and accrued expenses

            (34,513 )     1,100,419  

- Increase in Amounts due to related party

            165,611       266,153  

- Increase in Accrued Interest

            12,323       16,364  

- Decrease in security deposit

            (3,065 )     -  

- Decrease in deferred charges, net

            (26,750 )     -  

Net cash provided by operating activities

            (517,449 )     681,368  
                         

CASH FLOWS FROM INVESTING ACTIVITIES:

                       

Purchase of Vessels and other equipment

    3       (96,553 )     (179,313 )

Cash transferred upon acquisition under common control

            -       33,553  

Net cash used in investing activities

            (96,553 )     (145,760 )
                         

CASH FLOWS FROM FINANCING ACTIVITIES:

                       

Proceeds from loan facility from related party

            126,500       275,000  

Repayment of convertible note payable

            -       (26,767 )

Net cash provided by financing activities

            126,500       248,233  
                         

Effect of exchange rate changes on cash

            (2,487 )     5,075  
                         

Net increase / (decrease) in cash and cash equivalents

            (489,989 )     788,916  
                         

Cash and cash equivalents, Beginning of the Year

            1,150,999       362,083  
                         

Cash and cash equivalents, End of the Year

          $ 661,010     $ 1,150,999  

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

Cash paid for income taxes

          $ -     $ 55,900  

Non-cash investing and financing activities:

                       

Reclassification of derivative liability upon repayment of convertible debt

          $ -     $ 65,499  

Series A Preference Shares issued to related party

          $ -     $ 10,000  

Common stock issued for settlement of notes and interest payable

          $ 297,500     $ 158,000  

Common stock issued for settlement of accrued wages

          $ 210,000     $ -  

Common stock issued for payment of accrued interest

          $ 383     $ -  

Cancellation sale marketable securities

          $ -     $ 15,660  

Acquisition under common control

          $ -     $ 900,000  

 

The accompanying footnotes are an integral part of these consolidated financial statements.

 

F-6

 

 

PETROGRESS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 1: DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

Petrogress, Inc. was incorporated on February 10, 2010 under the laws of the State of Florida as 800 Commerce, Inc. ("800 Commerce") and was formed for the purpose of marketing credit card processing services on behalf of merchant payment processing service providers. On February 29, 2016, 800 Commerce entered into an Agreement concerning the Exchange of Securities ("SEA") with Petrogres Co. Limited, a Marshall Islands corporation, and its sole shareholder, Christos Traios, a Greek citizen. Under the terms of the SEA, 800 Commerce issued 136,000,000 shares of restricted Common Stock, representing approximately 85% of the post-transaction issued and outstanding shares, to Mr. Traios in exchange for 100% of the shares of Petrogres Co. Limited.

 

800 Commerce's acquisition of Petrogres Co. Limited effected a change in control and was accounted for as a "reverse acquisition" whereby Petrogres Co. Limited was the acquirer for financial statement purposes. Accordingly, the historical financial statements of 800 Commerce are those of Petrogres Co. Limited and its subsidiaries from their respective inception and those of the consolidated entity subsequent to the February 29, 2016 transaction date.

 

On March 9, 2016, 800 Commerce’s Board of Directors approved an amendment to 800 Commerce’s Articles of Incorporation to change 800 Commerce’s name to Petrogress, Inc. On March 15, 2016, Mr. Traios was appointed Chief Executive Officer. On November 16, 2016, Petrogress, Inc. filed Articles of Merger and Plan of Merger in Florida and Delaware to change Petrogress, Inc.’s domicile by merging with and into a Delaware corporation formed solely for the purpose of effecting the reincorporation.

 

The Company operates as a fully integrated international merchant of petroleum products, focused on the supply and trade of light petroleum fuel oil (LPFO), refined oil products and other petrochemical products to local refineries in West Africa and Mediterranean countries. The Company operates as a holding company and provides its services primarily through its four 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 its beneficially-owned affiliated tanker fleet, currently consisting of four vessels; Petrogress Int’l LLC, which is a holding company for subsidiaries currently conducting business in Cyprus and Ghana; 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 management team operates from its principal offices located in Piraeus, Greece.

 

Overview of subsidiaries

 

Petrogres Co. Limited , is a Marshall Islands corporation, incorporated in 2009 with the purpose of supplying crude oil and other oil products in West Africa. Since its inception, Petrogres Co. Limited 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 Co. Limited 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.

 

On February 28, 2018 Petrogres Co. Limited entered into a Partnership Agreement (the "Platon Partnership Agreement") creating an equal partnership between Petrogres Co. Limited and Platon Gas Oil Ghana Limited ("PGO"), which owns an oil refinery and serves as an importer of various petroleum products based in Ghana. The Platon Partnership Agreement is intended to be renewed on an annual basis and pursuant its terms, PGL will supply crude oil for storage, refinement, marketing and distribution in Ghana jointly with PGO. Under the Platon Partnership Agreement, all expenses of the partnership operations are shared by both Petrogres Co. Limited and PGO. After deducting the operating expenses, the net profits from the sale of the petroleum products are split evenly between Petrogres Co. Limited and PGO.

 

F-7

 

 

Petronav Carriers LLC , was formed in Delaware on April 2016 for the purpose of managing the day-to-day operations of four vessels, which are used to transport the Company’s petroleum products to various countries in West Africa.

 

Effective as of July 13, 2018, Petronav Carriers LLC, changed its domicile from Delaware to the Republic of the Marshall Islands for tax purposes. Petronav Carriers manages our fleet from its business office at Piraeus, Greece.

 

Petrogress Int’l LLC, is a Delaware limited liability company, acquired by the Company in September 2017, serves as a holding company for conducting business across the world, including Cyprus, Middle East, and West Africa as an oil energy corporation.

 

In September 2017, Petrogress Int’l LLC acquired 90% of the shares of Petrogres Africa Company Limited from Christos Traios, our President, Chief Executive Officer and sole Director. Petrogres Africa Company Limited holds a current Ghanaian business permit, and is authorized to conduct local sales of oil products and shipping business from the Port of Tema in Greater Accra. Port facilities in Tema will provide a service and operations hub for the Company tankers currently involved in West Africa and Nigerian oil trading and transport.  The Port of Tema also serves as a secondary hub for repair, supply and transport ship operators servicing Ghana’s Tano Basin offshore oil fields in the Gulf of Guinea. 

 

In October 2017, through Petrogress Int’l LLC, the Company formed PG Cypyard& Offshore Service Terminal Ltd., to obtain a long-term lease from Cyprus Port Authorities (CPA) for Vassiliko energy port. The project is ongoing and we are in close negotiations with CPA.

 

In March 2018, the company appointed Mr. Osy Adah as its representative in Nigeria. Mr. Adah is a Nigerian Citizen who has previously worked as a manager in major Nigerian oil companies. Through our representative, we have commenced the procedures for the registration of Petrogress Int’l LLC with Nigeria National Petroleum Company (NNPC) for an allocation for supplying half million barrels of Bonny light on monthly terms.

 

On November 28, 2018, Petrogress Int’l LLC, executed another Partnership agreement with a Ghanaian filling stations company Deliman Oil Ltd., who operates 45 gas stations in Ghana. Both companies will cooperate in reconstruction of a number of gas stations as equally partners.

 

Petrogress Oil & Gas Energy In c ., was a Texas corporation, incorporated in December 2015 for the purpose of identifying and acquiring suitable interests in oil fields in Texas. On December 2018 the company was dissolved and terminated.

 

Petrogres Africa Co. Ltd, is a Ghanaian entity . As noted above, effective September 30, 2017, Petrogress Int'l LLC purchased from Christos Traios, 90% of the issued and outstanding shares of Petrogres Africa Company Limited ("PGAF"), a Ghanaian limited Company. The acquisition is accounted as an acquisition under common control and the net assets acquired were recorder at the transferor’s historical cost basis. PGAF was incorporated in the summer of 2017 and holds a current Ghanaian business permit. PGAF is authorized to conduct local sales of oil products and shipping business from the Port of Tema in Greater Accra. Port facilities in Tema will provide a service and operations hub for the Company tankers currently involved in West Africa and Nigerian oil trading and transport.  The Port of Tema also serves as a secondary hub for repair, supply and transport ship operators servicing Ghana's Tano Basin offshore oil fields in the Gulf of Guinea.

 

F-8

 

 

Basis of Preparation

 

The accompanying consolidated financial statements are prepared on the accrual basis of accounting in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”). The consolidated financial statements of the Company include the consolidated accounts of the Company and its’ wholly owned subsidiaries listed below. All intercompany accounts and transactions have been eliminated in consolidation.

 

Petrogres Co. Limited (Marshall Islands)

Petrogress Oil & Gas Energy, Inc. (Texas)

Petronav Carriers LLC (Marshall Islands)

Petrogress Int'l LLC (Delaware)

Petrogres Africa Co. Limited (Ghanaian) (Ghana; 90%-owned)

 

For the year ended December 31, 2017, the Company consolidated the Financial Statements of Petrogres (Hellas) Co. Petrogres (Hellas) Co. is the branch of Petrogres Co. Limited, situated in Piraeus Greece. It was established in March 2015 and has had minimal operations in relation to Petrogress Inc. group of companies. It employs 8 full time employees and the only source of income is an agency fee it charges to Petrogres Co. limited. Petrogres (Hellas) Co uses euro as its operational and functional currency and the Company has decided to use the current rate method to translate Petrogres (Hellas) Co financial statements, in line with the provisions of ASC 830. The recording of this consolidation was immaterial to the January 1, 2017 retained earnings balance and there was not any material impact to any prior periods.

 

Reclassification s

 

During the year ended December 31, 2017, we adjusted the classification of Company’s expenses in order to improve the presentation of the Financial Statements and the level of information users obtain. We included in our Cost of Goods Sold the following categories of expenses: Oil purchase costs, Shipping and handling costs and Direct vessels operating expenses.

 

Oil purchase costs include the costs for purchasing the gas and crude oil that the Company then resells through its subsidiary Petrogres Co. limited.

 

Shipping and handling costs include all the costs necessary to ship/transport our commodities to the possession of the final customer. Most significant items in this category of expenses are crew wages, bunkers and port expenses.

 

Direct vessels operating expenses include all the expenses necessary to maintain the Company’s fleet in a proper condition in order to be able to serve the Company and its final customers. These expenses mainly consist of maintenance and repairs expenses, provisions and management expenses.

 

In order to better reflect the operations of the Company and also improve the presentation of specific material transactions, we established the following categories of expenses that are depicted in the Consolidated Statements of Comprehensive Income: Corporate expenses, Provisions for losses on accounts receivable, and Write offs of accounts receivable.

 

Corporate expenses mainly include the expenses incurred by Petrogress, Inc. which is the listed company of our group in order to comply with all the regulatory requirements of a public company. These include compensation of Christos Traios, our President, Chief Executive Officer and sole Director, Consultants and professional services namely legal and audit fees, transfer agent and travel expenses of Mr. Traios to the New York office of the Company.

 

F-9

 

 

The nature of expenses included in Provisions for losses on accounts receivable, and Write offs of accounts receivable is readily determinable.

 

Finally, we renamed General and administrative expenses to Selling, general and administrative expenses to better reflect the items included therein, mainly being consulting & professional fees & personnel related expenses of Petrogres Co. Limited, insurance expenses of the vessels, office expenses and office rents.

 

 

NOTE 2 : SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements are prepared on the accrual basis of accounting in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”).

 

Principles of consolidation

 

The consolidated financial statements of the Company include the consolidated accounts of the Company and its’ wholly owned subsidiaries listed below. All intercompany accounts and transactions have been eliminated in consolidation.

 

Petrogres Co. Limited (Marshall Islands)

Petrogress Oil & Gas Energy, Inc. (Texas)

Petronav Carriers LLC (Marshall Islands)

Petrogress Int'l LLC (Delaware)

Petrogres Africa Co. Limited (Ghanaian) (Ghana; 90%-owned)

 

Emerging Growth Company

 

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, known as 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 for complying with new or revised accounting standards. As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has elected to take advantage of the benefits of this extended transition period.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents. At December 31, 2018, approximately $456,000 of the Company’s cash balances were in excess of deposit coverages provided in each of the countries in which its cash is maintained.

 

Accounts Receivable, net

 

The amount shown as accounts receivables, net at each balance sheet date includes estimated recoveries from customers and charterers for sales of oil products, hires, freight and demurrage billings, net of allowance for doubtful accounts. Accounts receivable involve risk, including the credit risk of non-payment by the customer. Accounts receivable are considered past due based on contractual and invoice terms. An estimate is made of the allowance for doubtful accounts based on a review of all outstanding amounts at each period, and an allowance is made for any accounts which management believes are not recoverable. The determination of bad debt allowances constitutes a significant estimate.

 

F-10

 

 

For the year ended December 31, 2018 and 2017, we recorded an allowance for doubtful accounts of $344,466 and $395,413 respectively. This allowance was charged against trade receivables from specific customers as management estimated there is a probability that these balances would not be recovered by the Company in their entirety. This allowance is presented in the designated line on the Statements of Comprehensive Income.

 

For the year ended December 31, 2018, no other receivable balances were written off, while for the year ended December 31, 2017, we wrote off balances of other receivables equal to $326,724, as management estimated there was a very remote probability these balances could be recovered. The amount of write-off is presented in the designated line on the Statements of Comprehensive Income.

 

Inventories

 

The Company's inventories consist primarily of purchased crude oil for re-sale and gas oil in transit on a marine vessel at the respective balance sheet date, and both are valued at the purchased cost or market using the mark-to-market method of valuation.

 

   

Year ended December 31,

 
   

2018

   

2017

 

Crude oil

    279,196       49,676  

Gas oil

    137,939       121,824  

Totals

    417,135       171,500  

 

Marketable Securities

 

We classify 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 shareholders’ equity. Realized gains and losses on available-for-sale securities are included in net earnings in the period earned or incurred.

 

Vessels and other fixed assets, net

 

The Company depreciates vessels on a straight-line basis over the estimated useful life which is 10 years from the date of their transfer to the Company. Depreciation is calculated based on a vessel’s cost less the estimated residual value. The estimated useful lives of vessels and equipment are as follows:

 

Vessels

    10 years  

Office equipment and furniture

    10 years  

Computer hardware

    5 years  

 

Organization costs

 

The Company has adopted the provisions required by the Start-Up Activities topic of the FASB ASC whereby all costs incurred with the incorporation and reorganization of the Company were charged to operations as incurred.

 

F-11

 

 

Income taxes

 

The Company files income tax returns in various jurisdictions, as appropriate and required. The Company was not subject to U.S. federal, state and local, as applicable, income tax examinations by regulatory taxing authorities for any period prior to January 1, 2012.

 

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. We classify interest and penalties as a component of interest and other expenses. To date, we have not incurred any liability for unrecognized tax benefits, including assessments of penalties and/or interest.

 

The company had U.S. federal and state Net Operating Loss Carryforwards of $1,379,119 and $718,616 for periods ended December 31, 2018 and December 31, 2017 respectively. The company had deferred tax assets primarily related to these Net Operating Losses of $434,639 and $344,936 as of the periods ended December 31, 2018 and December 31, 2017 respectively. Company management does not expect to realize the Deferred Tax Assets and has provided a full valuation allowance of $434,639 and $344,936 for the periods ending December 31, 2018 and December31, 2017, resulting in fully valued deferred tax assets for the periods ended December 31, 2018 and December 31, 2017 respectively. The deferred tax assets and related valuation allowances primarily relate to these net operating loss carryforwards and no other transactions or events contributed significantly to the creation of the Net operating Losses and deferred tax assets that, in the judgment of management, are not more-likely-than-not to be realized. 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 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 tax years subsequent to 2011 remain subject to examination by federal and state tax jurisdictions.

 

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.

 

As of December 31, 2018, the basic and dilutive weighted average number of shares of Common Stock of the Company is 3,436,387 and 3,522,331 respectively.

 

As of December 31, 2017, the basic and dilutive weighted average number of shares of Common Stock of the Company was 1,729,624 and 1,729,888 respectively.

 

As of December 31, 2018 and 2017, the Company has 85,944 and 264 shares of Common Stock respectively, which could be deemed to be dilutive and are included in the calculation of dilutive earnings per share.

 

F-12

 

 

Accounting for Equity-based Payments

 

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 our common stock and recognized as expense during the period in which services are provided.

 

Comprehensive Income

 

The Company 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 Comprehensive loss consist of cancellation of available-for-sale securities and foreign currency translation adjustments.

 

Revenue Recognition

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. Companies may use either a full retrospective or a modified retrospective approach to adopt these ASUs. On January 1, 2018, the Company adopted ASU 2014-09, using the full retrospective method, which requires reporting entities to apply the standard as of the earliest period presented in their financial statements. The Company completed its review of its material revenue streams and determined that the adoption of Topic 606 did not have a material impact on the Company’s consolidated statements of operations and consolidated balance sheets.

 

Net sales for the years ended December 31, 2018 and 2017 were comprised of the following:

 

   

Year ended December 31,

 
   

2018

   

2017

 

Crude oil net sales

    7,558,462       6,539,346  

Gas oil net sales

    1,424,000       1,997,660  

Other

    44,500       626,350  

Totals

    9,026,962       9,163,356  

 

Fair Value of Financial Instruments

 

Our financial instruments consist primarily of cash, accounts receivable, accounts payable and accrued expenses, and convertible debt.

 

The carrying amount of cash, accounts receivable, accounts payable and accrued expenses, and convertible debt, as applicable, approximates fair value due to the short-term nature of these items and/or the current interest rates payable in relation to current market conditions.

 

Marketable securities are adjusted to fair value each balance sheet date, based on quoted prices; which are considered level 1 inputs. Our derivative liability is valued using the level 3 inputs. 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.

 

F-13

 

 

Interest rate risk is the risk that our earnings are subject to fluctuations in interest rates on either investments or on debt and is fully dependent upon the volatility of these rates. We do not use derivative instruments to moderate its exposure to interest rate risk, if any.

 

Financial risk is the risk that our earnings are subject to fluctuations in interest rates or foreign exchange rates and are fully dependent upon the volatility of these rates. We do not use derivative instruments to moderate its exposure to financial risk, if any.

 

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, we primarily use prices and other relevant information generated by market transactions involving identical or comparable assets (“market approach”). We also consider 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.

 

Recent Accounting Pronouncements

 

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). This standard affects the accounting for equity instruments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. In February 2018, the FASB issued ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities”. This update was issued to clarify certain narrow aspects of guidance concerning the recognition of financial assets and liabilities established in ASU No. 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”. This includes an amendment to clarify that an entity measuring an equity security using the measurement alternative may change its measurement approach to a fair valuation method in accordance with Topic 820, Fair Value Measurement, through an irrevocable election that would apply to that security and all identical or similar investments of the same issued. The update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years beginning after June 15, 2019. We plan to adopt this guidance effective January 1, 2019, as required. We do not expect this guidance to have a significant impact on how it measures financial instruments. We are evaluating the impact of the adoption of ASU 2016-01 on its consolidated financial statements and related disclosures.

 

F-14

 

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). In January 2018, the FASB issued ASU 2018-01, which provides additional implementation guidance on the previously issued ASU 2016-02. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. We do not expect this guidance to have a significant impact on consolidated financial statements.

 

In January 2017, the FASB issued ASU 2017-01, “ Business Combinations (Topic 805): Clarifying the Definition of a Business.” These amendments clarify the definition of a business. The amendments affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The amendments should be applied prospectively as of the beginning of the period of adoption. We did not consider early adoption and are currently assessing the impact that this standard will have on our consolidated financial statements.

 

 

NOTE 3 : VESSELS AND OTHER FIXED ASSETS, NET

 

Fixed assets consisted of the following as of December 31, 2018 and 2017:

 

   

Vessels

   

Furniture &

equipment

   

Total

 

Cost

                       

Balance at December 31, 2016

  $ 9,999,380     $ 87,015     $ 10,086,395  

Additions

    172,550       6,763       179,313  

Disposals

    -       (483 )     (483 )

Balance at December 31, 2017

  $ 10,171,930     $ 93,295     $ 10,265,225  

Additions

    -       96,553       96,553  

Disposals

    -       -       -  

Balance at December 31, 2018

  $ 10,171,930     $ 189,848     $ 10,361,778  

Accumulated depreciation

                       

Balance at December 31, 2016

  $ (4,005,290 )   $ (59,820 )   $ (4,065,110 )

Depreciation for the period