INTRODUCTORY COMMENT

 
Throughout this Quarterly 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. Our significant subsidiaries are “Petronav Carriers LLC.,”, “Petrogress Int’l LLC.” and “Petrogres Africa Co. Limited”.

 

CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION

 

This quarterly report of Petrogress Corporation contains forward-looking statements relating to Petrogress operations that are based on management’s current expectations, estimates and projections about the petroleum, chemicals, transactions, vessels and other energy-related industries. All statements in this Report that are not representations of historical fact are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and subject to the safe-harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Words or phrases such as “anticipates,” “expects,” “intends,” “plans,” “targets,” “forecasts,” “projects,” “believes,” “seeks,” “schedules,” “estimates,” “positions,” “pursues,” “may,” “could,” “should,” “budgets,” “outlook,” “trends,” “guidance,” “focus,” “on schedule,” “on track,” “is slated,” “goals,” “objectives,” “strategies,” “opportunities” and similar expressions are intended to identify such forward-looking statements.

 

Among the important factors that could cause actual results to differ materially from those in the forward-looking statements are: changing crude oil prices; changing refining, marketing and chemicals margins; our ability to realize anticipated cost savings and expenditure reductions; actions of competitors or regulators; timing of exploration expenses; timing of crude oil liftings; the competitiveness of alternate-energy sources or product substitutes; technological developments; the results of operations and financial condition of the our suppliers, vendors, partners and equity affiliates, particularly during extended periods of low prices for crude oil; the inability or failure of our joint-venture partners to fund their share of operations and development activities; the potential failure to achieve expected net production from existing and future crude oil development projects; potential delays in the development, construction or start-up of planned projects; the potential disruption or interruption of our operations due to war, accidents, piracy, political events, civil unrest, severe weather, cyber threats and terrorist acts, crude oil production quotas or other actions that might be imposed by the Organization of Petroleum Exporting Countries, or other natural or human causes beyond the company's control; changing economic, regulatory and political environments in the countries in which we operate; general domestic and international economic and political conditions; the potential liability for remedial actions or assessments under existing or future environmental regulations and litigation; significant operational, investment or product changes required by existing or future environmental statutes and regulations, including international agreements and national or regional legislation and regulatory measures to limit or reduce greenhouse gas emissions; the potential liability resulting from other pending or future litigation; our future acquisition or disposition of assets or shares or the delay or failure of such transactions to close based on required closing conditions; the potential for gains and losses from asset dispositions or impairments; government-mandated sales, divestitures, recapitalizations, industry-specific taxes, changes in fiscal terms or restrictions on scope of company operations; foreign currency movements compared with the U.S. dollar; material reductions in corporate liquidity and access to debt markets; and our ability to identify and mitigate the risks and hazards inherent in operating in the global energy industry;

 

In addition to these assumptions and matters discussed elsewhere herein, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include:

 

	●	general market conditions, including conditions in the shipping or the marine industries;
	●	our future operating or financial results;
	●	the availability of financing and refinancing;
	●	material disruptions in the availability or supply of crude oil or refined petroleum products;
	●	our future, pending or recent acquisitions, business strategy, areas of possible expansion, and expected capital spending or operating and maintenance expenses;
	●	our ability to successfully identify, consummate, integrate, and realize the expected benefits from acquisitions;
	●	our ability to maintain our business in light of our proposed business and location expansion;
	●	planned capital expenditures and availability of capital resources to fund capital expenditures;
	●	the outcome of legal, tax or regulatory proceedings to which we may become a party;
	●	our ability to attract and retain our key suppliers and key customers;
	●	our contracts and licenses with governmental entities remaining in full force and effect;
	●	increased levels of competition within our industry;
	●	our ability to collect accounts receivable;
	●	corruption, piracy, militant activities, political instability, terrorism, and ethnic unrest in locations where we may operate;
	●	the failure of counterparties to fully perform their contracts with us;
	●	our levels of operating and maintenance costs;
	●	other important factors described from time to time in our filings with the U.S. Securities and Exchange Commission (the “SEC”).

 

These factors and the other risks described in this report are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, there can be no assurance that actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. These forward-looking statements do not guaranty our future performance, and actual results and developments may vary materially from those projected in the forward-looking statements. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation, and specifically decline any obligation, except as required by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 

PART I

 

Item 1 – Business

 

General Development of Business

 

Summary Description of Petrogress

 

Petrogress Inc. (Delaware*), is an integrate energy company, engaged in the upstream, downstream and midstream segments. The Upstream segment consist of exploration, and production of crude oil in West Africa, associated with processing and storage. The downstream segment comprises refining of crude oil into petroleum products, marketing of crude oil and the refined products; marine and land transportation, marketing, and retailing of Gas Oil, Naphtha, Fuels and lubricants. The company operates Internationally through its wholly owned subsidiaries "Petrogress Int'l LLC.", “Petrogress Africa Co. Ltd.” and "Petronav Carriers LLC.". Petrogress is involved in diversified oil and gas activities throughout West Africa, and has also branches and representations in Cyprus, Ghana and Nigeria. Also provides sea-transportation services -as an independent established Maritime Company- by its tankers fleet and ships either its own oil products or third parties. Since last year, the company entered into the retailing market by operating a number of Gas-filling stations in Ghana and Greece.

 

The company maintain its principal marketing and operating offices at 1, Akti Xaveriou, 18538 Piraeus, Greece. Our telephone number at that address is +30 (210) 459-9741 and our corporate address and registered agent in Delaware is 1013 Centre Road, Suite 403-A, Wilmington, DE 19805 - USA

 

●	Additional information and history of the company and its major subsidiaries, their operations and locations presented below on pages 8 to 10.

 

Our strategy is to deliver competitive and improving corporate level returns by focusing our capital investment in the lower cost, with higher margin resources. See Item 8, Management's Discussion and Analysis of Financial Condition and Results of Operations, for a more detailed discussion of our operating results, cash flows and liquidity.

 

Overview of Petroleum Industry

 

Petroleum industry operations and profitability are influenced by many factors. Prices for crude oil, petroleum products and petrochemicals are generally determined by supply and demand. Production levels from the members of the Organization of Petroleum Exporting Countries (OPEC), Russia and the United States are the major factors in determining worldwide supply. Demand for crude oil and its products is largely driven by the conditions national and global economies, although weather patterns and taxation relative to other energy sources also play a significant part. Laws and governmental policies, particularly in the areas of taxation, energy and the environment, affect where and how companies invest, conduct their operations and formulate their products and, in some cases, limit their profits directly. Strong competition exists in all sectors of the petroleum and petrochemical industries in supplying the energy, fuel and chemical needs of industry and individual consumers.  

 

Operating Environment

 

Petrogress operates as a holding company and conduct business primarily through its wholly-owned subsidiaries: Petronav Carriers LLC., which manages day-to-day operations of our affiliated tanker fleet; Petrogress Int’l LLC., which engages in crude-oil purchase and sales and is the holding company of the subsidiaries that currently conducting business in U.S., Greece, Cyprus and Ghana, and Petrogress Africa Co. Ltd.

 

Our business operates in the downstream and midstream sectors of the energy industry, where we acquire and supply crude oil, and engage in the refining and marketing of refined products and lubricants. As a supplier, we procure crude oil from our direct sources and deliver by our tankers fleet to buyers’ destinations. With service centers in East Mediterranean and West Africa, we believe that we are one of a limited number of independent physical suppliers that owns and operates a fleet of supplying vessels and conducts physical supply operations in multiple jurisdictions.

 

We provide our customers with services that require sophisticated logistical operations designed to meet their strict oil quality and delivery scheduling needs. We believe that our extensive experience and management systems allow us to meet our customers' specific requirements when they purchase and take delivery of crude oil, refined products and lubricants around the areas in which we operate. This, together with the capital-intensive nature of our industry and the limited available shuttle vessels in the areas of our operation, represent a significant barrier to entry for competitors. We have devoted our efforts to building a global brand and believe that our customers recognize our brand as representing high quality service and products at each of our locations. We also perform our technical ship operations in-house, which helps us maintain high levels of customer service. 

 

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* 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.

 

 

Throughout our history, we have expanded our business capabilities through strategic alliances, select business and vessel acquisitions, and the establishment of new service centers. In February 2019, we commenced negotiations with government of Ghana to lease a free zone land in Takoradi port to build a tanks-farm with storage capacity of 100,000 cubic meters. Furthermore, we have applied our LOI to Ghana National Petroleum Co., by expressing our interest to lease two off shore blocks at Salt Pond basin, where we intend to explore the production of oil. In addition, a proposal for the renovation and repairs of the idle oil platform “AGK 1” submitted to Ghana Energy Ministry and GNPC, to operate the platform and commence the oil production in the existence oil field of Salt pond under a petroleum agreement that will be executed among Petrogress Africa and the Ghanaian authorities.

 

Other Businesses

 

On March 6, 2019, we entered into an Exclusive Distribution Agreement with Dana Lubricants Factory LLC. (“Dana Lubes”), a United Arab Emirates based lubricant oil manufacturer, pursuant to which, Petrogress Int’l LLC. is designated as the exclusive agent for distribution of products manufactured and branded by Dana Lubes throughout western Africa.

 

Effected as on November 2019, the company concluded the negotiations to lease three Gas refilling stations in the Mainland of South Greece. The procedures for the obtaining the operating licenses from the local authorities are in progress, simultaneously with the preparation of gas stations designs and drawings in order to commence the modernization and renovation under our brand names. We estimate to complete and have them ready for operations within three months’ time. The gas Stations shall be operated by our Hellenic branch in Greece and we expect to be ready by June 2020.

 

On November 2019, the company added one more tanker ship on its -Petronav- fleet, with an intention to engage her in the shipping and trade of bulk lubricants and clean petroleum products in the area of Greece and use her for the supply of its own Gas Stations.

 

Delivery Commitments

 

The company sells crude oil and gas oil from its producing operations under a variety of contractual obligations. Most contracts generally commit the company to sell quantities based on production from its Ghana refinery partnership and its supplier’s production.

 

Major Customers

 

We are exposed to credit risk in the event of nonpayment by counterparties, a significant portion of which is concentrated in our Partnership with Platon Oil Refinery. In 2019, sales to Platon refinery accounted for approximately 88% of our total revenues. In 2018, sales to Platon accounted for approximately 87% of our total revenues

 

Market Condition

 

Crude oil and Petrochemicals benchmarks decreased in 2019 as compared to the same period of 2018. As a result, we experienced decreased price realization associated with those benchmarks. We continue to expect crude oil prices to remain volatile based on local supply and demand, which will result a decrease in our price realization during 2020.

 

Sales and Marketing

 

Most of our marketing, sales, ship-management and other related functions are performed at our main office in Piraeus, Greece. We also market products and services through our offices in Ghana, Cyprus and our representations or partnerships. Our sales force interacts with our established customers and markets our oil sales and services to local distributors. We believe our level of customer service, years of experience in the industry, and reputation for reliability are significant factors in retaining our customers and attracting new customers. Our sales and marketing approach are designed to create awareness of the benefits and advantages of our sales and services. We are active in industry trade shows and other available public forums.

 

The table below shows our trading products volumes and services provided during 2019:

 

Products and services	Volumes
●     Crude Oil	1,035,000	Barrels
●     Gas Oil	6,200,000	Liters
●     Naphtha	4,600,000	Liters
●     IFO	3,200,000	Liters
●     Lubricants	260,000	Liters
●     Ships voyages	78	Laden voyages

 

 

Commodities trade activity

 

Our commodities trade activity depends mostly on the crude oil supply though our suppliers and the competitive purchase prices. Our commodities activities were higher than 2018 and for the year ended December 31, 2019 we achieved total commodities sales of $15,506,924 an increase of $6,516,962 or +72% compared to 2018. Such increase reflects our management continues efforts to improve the company’s sales.

 

Shipping trade activity

 

Our shipping activities are driven primarily by the number of vessels in our fleet and the number of operating days during which our vessels generate revenues. In addition, our shipping activities are affecting also with a number of factors, including the amount of time that our ships remain positioning, the amount of time our vessels spend in undergoing repairs and maintenance due to their age. Our vessels employment relies, (i) on time-charter they are operating and servicing our affiliate oil trading company Petrogress Int’l, by moving its own petroleum products, and (ii) in the spot market by chartering them to third party charterers. Our vessels operating revenues for the year ended December 31, 2019 was $989,313.            

 

Commodities operating expenses

 

Our commodities operating expenses is related to the location, the terms and conditions we are receiving our crude oil, the logistics cost, the final cost of the process into refined products, and a number of miscellaneous factors beyond of our control. Operating expenses includes, shipping and logistics, fuels supplies, cargo surveys, loading and unloading expenses, agencies and representations, any miscellaneous related to commodities trade. For the year ended December 31, 2019 our operating expenses increased by $554,965 compared to 2018.

 

Vessels operating expenses

 

Our vessels fleet operating expenses include crew wages and related costs, insurances, condition surveys, expenses for repairs and maintenance, classification surveys and certificates, the cost of spare parts and consumable stores, lubricants, bunkers, tonnage taxes and other miscellaneous expenses. Factors beyond our control, some of which may affect the shipping industry in general, including acts of God, terrorism or piracies attacks, may also increase significantly these expenses. For the year ended December 31, 2019, we recorded a loss of $1,698,688 compared to an income of $329,368 for 2018.

 

We have recognized an loss of $894,306 which relates and resulted due to, (i) the hijacking of one of our vessels, and (ii) the long period that two of our vessels remained idle for repairs and maintenance. Losses recorded for the year ended December 31, 2019 were $2,592,994 compared to an income of $478,513 for 2018.

 

Depreciation

 

We depreciate our tankers fleet on the historical purchase cost over their estimated remaining useful economic lives. We have estimated the useful lives of our tankers for 10years from the purchased year. Depreciation is based on the purchased cost, less the estimated scrap value. Depreciation expense at the year ended December 31, 2019 decreased by 1% or $914,748 from $927,596 in the year ended December 31, 2018.

 

Drydocking and Special Survey costs of vessel

 

We follow the deferral method of accounting for drydocking and special survey costs. Actual costs incurred are deferred and are amortized on a straight-line basis over the period until the scheduled survey, which is two and a half years. If special survey of drydocking is performed prior to the scheduled date, the remaining unamortized balances are immediately written-off. A vessel at drydock performs certain assessments, inspections, refurbishments, replacement required by the classification society. In addition, specialized equipment is required to be renewed and replaced on a vessel which likely are not available at the ports where our ships trade.

 

Competition

 

Competition exists in all sectors of the oil and gas industry and we compete with major integrated and independent oil companies, and to a lesser extent, companies that supply alternative sources of energy. We compete, in particular, in the supply of crude oil, acquisition of oil and other petrochemicals, the marketing and delivery of our production into local’s commodity markets and for the equipment required for the shipping, refining and development of those products. Principal methods of competing include low cost of supply, engineering and technology for the refining, experience and expertise, economic analysis in connection with portfolio management, and safely operating and producing properties. See Item 1A. Risk Factors for discussion of specific areas in which we compete and related risks.

 

 

Factors related to our Fleet Operations

 

Management of our Fleet

 

Through our wholly owned subsidiary, Petronav Carriers LLC., we are operating as an international maritime company servicing by our tankers fleet the sea-transportation of liquid products. Petronav, manages and operates the fleet through a number of subsidiaries incorporated in the Republic of Marshall Islands as stated above. Our fleet is mostly employed in long-term by the affiliated company, Petrogress Int’l and ship its own products from the loading places to destinations. Additionally, we employ our vessels to a number of independent charterers in the spot market. As managers, we maintain our qualify certifications for the management of our fleet and provide by our expertise technical support and commercial service. Our Manager is regarded as an innovator in operational and technological aspects of the International Shipping community with more than 25years professional experience. In addition to shore staff, 65 people served on board the vessels of our fleet.

 

Risk of Loss and Liability Insurance

 

The operation of any vessel includes risks such as mechanical failure, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. The U.S. Oil Pollution Act of 1990, or OPA, which imposes virtually unlimited liability upon owners, operators and demise charterers of vessels trading in the United States exclusive economic zone for certain oil pollution accidents in the United States, has made liability insurance more expensive for shipowners and operators trading in the United States market.

 

Environmental and Other Regulations

 

Government regulation significantly affects the ownership and operation of our vessels. They are subject to international conventions, national, state and local laws, regulations and standards in force in international waters and the countries in which our vessels may operate or are registered, including those governing the management and disposal of hazardous substances and wastes, the cleanup of oil spills and other contamination, air emissions, wastewater discharges and BWM.

These laws and regulations include OPA, the U.S. Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), the U.S. Clean Water Act, MARPOL, regulations adopted by the IMO and the EU, various volatile organic compound air emission requirements and various SOLAS amendments, as well as other regulations described below.

 

Environmental Regulation—International Maritime Organization; Our vessels are subject to standards imposed by the IMO (the United Nations agency for maritime safety and the prevention of pollution by ships). The IMO has adopted regulations that are designed to reduce pollution in international waters, both from accidents and from routine operations. These regulations address oil discharges, ballasting and unloading operations, sewage, garbage, and air emissions. For example, Annex III of MARPOL, regulates the transportation of marine pollutants, and imposes standards on packing, marking, labeling, documentation, stowage, quantity limitations and pollution prevention. These requirements have been expanded by the International Maritime Dangerous Goods Code, which impose additional standards for all aspects of the transportation of dangerous goods and marine pollutants by sea. The operations of our vessels are also affected by the requirements set forth in the ISM Code, which was adopted in July 1998. The ISM Code requires shipowners to develop and maintain an extensive SMS that includes the adoption of a safety and environment protection policy setting forth instructions for safe operations and procedures for dealing with emergencies.

 

Environmental Regulation—The U.S. Oil Pollution Act of 1990; OPA established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. It applies to discharges of any oil from a vessel, including discharges of fuel oil and lubricants. OPA affects all owners and operators whose vessels trade in the United States, its territories and possessions or whose vessels operate in U.S. waters, which include the United States' territorial sea and its two hundred nautical mile exclusive economic zone. Under OPA, vessel owners, operators and bareboat charterers are "responsible parties" and are jointly, severally and strictly liable (unless the discharge of oil results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels.

 

Environmental Regulation—CERCLA; CERCLA governs spills or releases of hazardous substances other than petroleum or petroleum products. The owner or operator of a ship, vehicle or facility from which there has been a release is liable without regard to fault for the release, and along with other specified parties may be jointly and severally liable for remedial costs. Costs recoverable under CERCLA include cleanup and removal costs, natural resource damages and governmental oversight costs. Liability under CERCLA is generally limited to the greater of $300 per gross ton or $0.5 million per vessel carrying non-hazardous substances ($5.0 million for vessels carrying hazardous substances), unless the incident is caused by gross negligence, willful misconduct or a violation of certain regulations, in which case liability is unlimited. The USCG's financial responsibility regulations under OPA also require vessels to provide evidence of financial responsibility for CERCLA liability in the amount of $300 per gross ton.

 

 

Environmental Regulation—The Clean Water Act; The U.S. Clean Water Act (the "CWA"), prohibits the discharge of oil or hazardous substances in navigable waters and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA, discussed above. Under U.S. Environmental Protection Agency ("EPA") regulations, we are required to obtain a CWA permit regulating and authorizing any discharges of ballast water or other wastewaters incidental to our normal vessel operations if we operate within the three-mile territorial waters or inland waters of the United States. The permit, which the EPA has designated as the Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels ("VGP"), incorporates U.S. Coast Guard requirements for BWM, as well as supplemental ballast water requirements and limits for 26 other specific discharges. Regulated vessels cannot operate in U.S. waters unless they are covered by the VGP. To do so, owners of commercial vessels greater than 79 feet in length must submit a Notice of Intent ("NOI"), at least 30 days before the vessel operates in U.S. waters. To comply with the VGP, vessel owners and operators may have to install equipment on their vessels to treat ballast water before it is discharged or implement port facility disposal arrangements or procedures at potentially substantial cost. The VGP also requires states to certify the permit, and certain states have imposed more stringent discharge standards as a condition of their certification. Many of the VGP requirements have already been addressed in our vessels' current ISM Code SMS Plan.

 

Environmental Regulation—The Clean Air Act; The Federal Clean Air Act ("CAA") requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to CAA vapor control and recovery standards for cleaning fuel tanks and conducting other operations in regulated port areas and emissions standards for so-called "Category 3" marine diesel engines operating in U.S. waters. Several states regulate emissions from vessel vapor control and recovery operations under federally approved State Implementation Plans. The California Air Resources Board has adopted clean fuel regulations applicable to all vessels sailing within 24 miles of the California coast whose itineraries call for them to enter any California ports, terminal facilities or internal or estuarine waters. Only marine gas oil or marine diesel oil fuels with 0.1% sulfur content or less will be allowed. If new or more stringent requirements relating to marine fuels or emissions from marine diesel engines or port operations by vessels are adopted by the EPA or any states, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations.

 

Environmental Regulation—Other Environmental Initiatives; The EU has also adopted legislation that requires member states to impose criminal sanctions for certain pollution events, such as the unauthorized discharge of tank washings. The Paris Memorandum of Understanding on Port State Control ("Paris MoU"), to which 27 nations are parties, adopted the "New Inspection Regime" ("NIR"), effective January 1, 2011. The NIR is a significant departure from the previous system, as it is a risk-based targeting mechanism that will reward quality vessels with a smaller inspection burden and subject high-risk ships to more in-depth and frequent inspections.

 

Vessel Security Regulations; Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002, the U.S. Maritime Transportation Security Act of 2002 ("MTSA") came into effect. To implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. Similarly, in December 2002, amendments to SOLAS created a chapter of the convention dealing specifically with maritime security. The chapter went into effect in July 2004 and imposes various detailed security obligations on vessels and port authorities, most of which are contained in the International Ship and Port Facilities Security ("ISPS") Code.

 

IMO Cyber security; The Maritime Safety Committee, at its 98th session in June 2017, also adopted Resolution MSC.428(98)—Maritime Cyber Risk Management in Safety Management Systems. The resolution encourages administrations to ensure that cyber risks are appropriately addressed in existing SMS no later than the first annual verification of the company's Document of Compliance after January 1, 2021. Owners risk having ships detained if they have not included cyber security in the ISM Code SMS on their ships by January 1, 2021.

 

Vessel Recycling Regulations; The EU has also recently adopted a regulation that seeks to facilitate the ratification of the IMO Recycling Convention and sets forth rules relating to vessel recycling and management of hazardous materials on vessels. In addition to new requirements for the recycling of vessels, the regulation contains rules for the control and proper management of hazardous materials on vessels and prohibits or restricts the installation or use of certain hazardous materials on vessels. The new regulation applies to vessels flying the flag of an EU member state and certain of its provisions apply to vessels flying the flag of a third country calling at a port or anchorage of a member state. For example, when calling at a port or anchorage of a member state, a vessel flying the flag of a third country will be required, among other things, to have on board an inventory of hazardous materials that complies with the requirements of the new regulation and the vessel must be able to submit to the relevant authorities of that member state a copy of a statement of compliance issued by the relevant authorities of the country of the vessel's flag verifying the inventory. The new regulation will take effect on non-EU-flagged vessels calling on EU ports of call beginning on December 31, 2020.

 

 

Permits and Authorizations

 

We are required by various governmental and other agencies to obtain certain permits, licenses and certificates with respect to our vessels. The kinds of permits, licenses and certificates required by governmental and other agencies depend upon several factors, including the commodity being transported, the waters in which the vessel operates, the nationality of the vessel's crew and the age of a vessel. Additional laws and regulations, environmental or otherwise, may be adopted which could limit our ability to do business or increase the cost of performing our business.

 

Inspections by Classification Societies

 

Every seagoing vessel must be "classed" by a classification society. The classification society certifies that the vessel is "in class," signifying that the vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the vessel's country of registry and the international conventions of which that country is a member. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned. The classification society also undertakes on request other surveys and checks that are required by regulations and requirements of the flag state. These surveys are subject to agreements made in each individual case and/or to the regulations of the country concerned. For maintenance of the class, regular and extraordinary surveys of hull and machinery, including the electrical plant, and any special equipment classed are required to be performed as follows:

 

Annual Surveys; For seagoing ships, annual surveys are conducted for the hull and the machinery, including the electrical plant, and where applicable, on special equipment classed at intervals of 12 months from the date of commencement of the class period indicated in the certificate.

 

Intermediate Surveys; Extended annual surveys are referred to as intermediate surveys and typically are conducted two and one-half years after commissioning and each class renewal. Intermediate surveys may be carried out on the occasion of the second or third annual survey.

 

Class Renewal Surveys; Class renewal surveys, also known as special surveys, are carried out on the ship's hull and machinery, including the electrical plant, and on any special equipment classed at the intervals indicated by the character of classification for the hull. During the special survey, the vessel is thoroughly examined, including audio-gauging to determine the thickness of the steel structures. Should the thickness be found to be less than class requirements, the classification society would prescribe steel renewals. The classification society may grant a one-year grace period for completion of the special survey. Substantial amounts of funds may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear. In lieu of the special survey every four or five years, depending on whether a grace period is granted, a shipowner has the option of arranging with the classification society for the vessel's hull or machinery to be on a continuous survey cycle, in which every part of the vessel would be surveyed within a five-year cycle. At an owner's application, the surveys required for class renewal may be split according to an agreed schedule to extend over the entire period of class. This process is referred to as continuous class renewal.

 

Information on the Company and Subsidiaries

 

History and development

 

Petrogress, Inc. was incorporated on February 10, 2010 under the laws of the State of Florida as 800 Commerce, Inc. ("800 Commerce"). 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 and founder, Christos Traios. 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.

 

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 of the company. 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.

 

On July 9, 2018, the Company filed an amendment (the "Amendment") to the Company's Certificate of Incorporation with the Delaware Secretary of State to (a) effect a reverse stock split of the Company's Common Stock at a ratio of one-for-100, (b) reduce the number of authorized shares of Common Stock from 490,000,000 to 19,000,000 and (c) reduce the number of authorized shares of Preferred Stock from 10,000,000 to 1,000,000. The Amendment took effect on July 18, 2018. There was no change in the par value of the Company's Common Stock or Preferred Stock as a result of the Amendment.

 

 

Description of our Subsidiaries 

 

Petrogres Co. Limited. (PGL), 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.

 

On April 1, 2019, Petrogres Co. Limited and Petrogress Int’l LLC., entered into a merger agreement pursuant to which Petrogres Co. Limited, a wholly owned subsidiary of Petrogress Inc., merged with PIL, the surviving company.

 

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 ("PGOR"), which owns an oil refinery and serves as an importer of various petroleum products based in Ghana. The Platon Partnership Agreement is 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 PGOR. Under the Platon Partnership Agreement, all expenses of the partnership operations are shared by both Petrogres Co. Limited and PGOR. After deducting the operating expenses, the net profits from the sale of the petroleum products are split evenly between Petrogres Co. Limited and PGOR.

 

Petrogress Int’l LLC. (PGI), 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 organization.

 

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 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 the PG Cypyard & Offshore Service Terminal Ltd., to obtain a long-term lease from Cyprus Port Authorities (CPA) of Vassiliko energy port. The project is ongoing, and we are under negotiations with CPA.

 

On April 1, 2019, Petrogress Int’l LLC., entered into a merger agreement pursuant to which Petrogres Co. Limited, a wholly owned subsidiary of Petrogress, merged with and into PGI, the surviving company. The merger became effective as of April 1, 2019 and all operations, activities and contracts of Petrogres Co. Limited transferred to Petrogress Int’l LLC., as the surviving company.

 

Apart of the above, on March 2019, PIL entered into an exclusive agreement with Dana Lubricants Company (a company based in Dubai of UAE), and commenced the marketing and distribution of lubricants under which we market through our subsidiary Petrogres Africa Co. Ltd. We consider this business as complementary to our downstream operations. We plan to expand the distribution of lubricants throughout our service center in Ghana and other countries in West and Central Africa

 

PGI’s division comprise a number of potential projects around the world with a mission to acquire, appraise and develop commercial oil and gas assets in established basins and emerging frontiers in West Africa by creating strategic affiliates and partnerships which includes oil exploration and production, storing and facilities to provide service to offshore platforms. Our core of business creates shareholder value by oil and gas reserves and production growth, and they also contribute to economic development where they operate. Through our partnerships with strong partners, employees, local communities, contractors and other stakeholders PGI’s affiliates help create and develop sustainable interventions.

 

Petrogress Africa Co. Ltd. (PGAF), 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. In addition to the said activities, we consider our presence in Ghana vital for our future operations plans in West Africa where has become a worldwide attraction in infrastructure projects, including energy which is critical for Africa development and growth.

 

 

Petronav Carriers LLC. (“PCL”), was formed in Delaware in March 2016 for the purpose of managing the day-to-day operations of our vessels, which are used to transport petroleum products to various countries in West Africa. PCL manages our fleet from its business office at Piraeus. Our management team includes several executives with extensive experience in shipping operations and have demonstrated substantial ability in managing the commercial, technical and financial aspects of our business. Currently PCL owns five vessels through separate wholly owned subsidiaries as described below:

 

Vessel-Owned Subsidiary		Incorporation			Vessel’s name & Capacity
Shiba ship-management Ltd.		Marshall Islands	2010 est		APECUS	5,750 CBM
Danae Marine Ltd.		Marshall Islands	2011 est		OPTIMUS	4,720 CBM
Invictus Marine S.A.		Marshall Islands	2012 est		INVICTUS	3,480 CBM
Entus Marine Ltd.		Marshall Islands	2015 est		ENTUS	2,800 CBM
Libertus Marine Ltd.		Marshall Islands	2018 est		LIBERTUS	1,200 CBM

 

During November 2019, the company added one more tanker ship on its -Petronav- fleet, with an intention to engage her in the shipping and trade of bulk lubricants and clean petroleum products in the area of Greece and use her for the supply of its own Gas Stations.

 

The company values its team, which consist of skilled and experienced management, port captains, technicians, ship officers, as well as specialists in the areas of safety, commercial and personnel management, ships finance and insurance.

 

PGL & PGOR Ghana Refinery Partnership, on February 2018, Petrogress entered into a Partnership agreement (PSA) with Platon Ghana Oil Refinery (PGOR) -an unrelated third party- with the purposes of buying crude oil and refining into petrochemical products. Pursuant to the PSA terms, Petrogress will feed and supply the crude oil for storage, refinement, marketing and distribution in Ghana jointly with PGOR. The storage capacity under the Partnership Agreement is 24,000 tons and the monthly processing capacity of the refinery is 10,000 tons. Petrogress and Platon both plans to invest additional funds to upgrade the processing monthly capacity into refined products of Gas Oil, Naphtha, and fuel in view of the high local demand. Under the Platon Partnership Agreement, all expenses of the partnership operations are shared by both Petrogress and Platon. After deducting the operating/processing expenses, the net profits from the sale of the products are split evenly between Petrogres and Platon. As of the date the Platon Partnership Agreement was executed, Petrogress ceased other sales of crude to third customers in West Africa. The Company accounts for this agreement under ASC 808-10, Collaborative Agreements, and has recognized the portion of revenues and expenses attributed to the Company.

 

Petrogress Hellas (PGH), is registered and domesticated in the Hellenic Republic on April 2015. Today is served as a Branch of Petrogress Int’l LLC. and handle all the local oil sales and trading operations, including the representation and the management of our tankers fleet. As of November 2019, the company entered into the gas stations operations and leased three gas stations in the southern Greece area.

 

PG Cypyard & Offshore Terminal Ltd. (PGC), is a Cyprus Limited liability entity formed in November 2017 and is wholly owned subsidiary of Petrogress Int’l LLC. The company formed for the purpose of participating in the tender of lease and build the LNG Terminal in Vassiliko Port. The negotiations with Cyprus Authorities are ongoing and we expect the tender to open within 2020 -2021.

 

Environmental, Health and Safety Matters

 

The Health, Environmental, Safety Responsibility of our Directors is responsible for overseeing our position on public issues, including environmental, health, and safety matters. Our directors have the responsibility to ensure that our operating organizations maintain environmental compliance systems that support and foster our compliance with applicable laws and regulations. Our team oversees and responds to any emergency incident involving us or any of our properties.

 

Our business is subject to numerous laws and regulations relating to the protection of the environment, health and safety, including the ships navigation and trading. In some cases, these laws and regulations can impose strict liability for the entire cost of clean-up on any responsible party without regard to negligence or fault and impose liability on us, as owners or operators of our assets.

 

Employees

 

As of December 31, 2019, Petrogress Inc. and its consolidated subsidiaries employed 12 employees located in Greece through Petrogres Hellas Co., a branch of Petrogress Int’l LLC. Petrogres Africa Company Limited has 10 employees located in Ghana, the subsidiary of Petrogress Int’l LLC., and approximately 65 full-time laborers and crew members which are employed by Petronav Carriers LLC. In addition, the Company has one contract employee in Cyprus and one commission and bonus compensation representative in Nigeria.

 

 

Management

 

Our operations are managed under the supervision of our officers (Managers) and our board of directors. We believe that our Managers has built a strong reputation in the oil and shipping community by providing customized, high-quality operational services in efficient manner for both energy and sea-transportation. The CEO is also our largest shareholder.

 

Information about our Executive Officers 

 

The executive officers of Petrogress and their ages as of May 5, 2020, are as follows:

 

Officers Names	Age	Positions
Christos P. Traios	60	President / Chief Executive Officer
Evangelos Makris	37	Chief Financial Officer
Dimitrios Pierides	72	Executive Vice President

 

Information relating to the company’s executive officers included on page 20.

 

Trademarks, Patents and Licenses

 

We are not holding currently any patents and trademarks, a part of the gas-stations licenses and brand name in Greece.

 

Available 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 www.petrogressinc.com our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K and other reports and filings with the SEC as soon as reasonably practicable after the reports are filed or furnished. 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. Our SEC filings are also available in hard copy, by contacting us at +30 (210) 4599741 or mailing to our operating address, 1 Akti Xaveriou, Piraeus 18538 – Greece.

 

Item 1A - Risk Factors

 

We are subject to various risks and uncertainties in the course of our business. The following summarizes significant risks and uncertainties that may adversely affect our business, financial condition or results of operations. When considering an investment in our securities, you should carefully consider the risk factors included below as well as those matters referenced in the foregoing pages under “Disclosures Regarding Forward-Looking Statements” and other information included and incorporated by reference into this Annual Report on Form 10-K.

 

In addition to the forward-looking statements outlined in the preceding topic in this Annual Report and other comments regarding risks and uncertainties included in the description of our business and elsewhere in this Annual Report, the following risk factors should be carefully considered when evaluating our business. Our business, financial condition and financial results could be materially and adversely affected by any of these risks. The following risk factors do not include factors or risks which may arise or result from general economic conditions that apply to all businesses in general or risks that could apply to any issuer or any offering.

 

We have incurred losses from operations since inception and continued losses threaten our ability to remain in business and pursue our business plan. Since the reverse merger in 2016, we have incurred cumulative losses of approximately $1,434,645 from operations. We anticipate incurring additional losses from operating activities in the near future. Even if we are able to obtain additional debt or equity funding, you have no assurance we will be able achieve profitability in our operations. Until we achieve break even between revenues and expenses, we will remain dependent on obtaining additional debt and equity funding. Without sufficient revenues, we may be unable to create value in our common stock, to pay dividends and to become a going concern. And, our lack of or expectation of profitability in the near future, if at all, can be expected to hamper our efforts to raise additional debt or equity funding. In the event we do not become profitable within a reasonable period of time, we may cease operations, in which event you will lose your entire investment.

 

 

Our limited operating history makes it difficult for you to evaluate the merits of purchasing our common stock. We have been in business for just over three years and are an early revenue-stage enterprise. Our limited revenues and sales do not provide a sufficient basis for you to assess our business and prospects. You have no assurance we will be able to generate sufficient revenues from our business to reach a break-even level or to become profitable in future periods. We are subject to the risks inherent in any new business in a highly competitive marketplace. Products and services that we have recently introduced or plan to introduce in the near future increase our new-business risks and your difficulty in assessing our prospects. You must consider the likelihood of our success in light of the problems, uncertainties, unexpected costs, difficulties, complications and delays frequently encountered in developing and expanding a new business and the competitive environment in which we operate. If we fail to successfully address these risks, our business, financial condition and results of operations would be materially harmed. Your purchase of our common stock should be considered a high-risk investment because of our unseasoned, early stage business which may likely encounter unforeseen costs, expenses, competition and other problems to which such businesses are often subject.

 

We will incur increased costs as a result of being a public company. These costs will adversely impact our results of operations. As a public company, we will incur significant legal, accounting and other expenses that a private company does not incur. We estimate these costs to be approximately $200,000 annually and include the costs associated with having our financial statements prepared, audited and filed with the Securities and Exchange Commission (SEC) via EDGAR (the Electronic “Data” Gathering, Analysis, and Retrieval system) and XBRL (extensible Business Reporting Language) costs. In addition, we have costs associated with our transfer agent. The Sarbanes-Oxley Act of 2002 (SOX) and related rules resulted in an increase in costs of maintaining compliance with the public reporting requirements, as well as making it more difficult and more expensive for us to obtain directors' and officers' liability insurance. These added costs will delay the time in which we may expect to achieve profitability, if at all.

 

If you invest in our stock, your investment may be disadvantaged by future funding, if we are able to obtain it. To the extent we obtain equity funding by issuance of convertible securities or common stock, or common stock purchase warrants in connection with either type of funding, you may suffer significant dilution in percentage of ownership and, if such issuances are below the then value of stockholder equity, in stockholder equity per share. Future increases in the number of our shares outstanding will have a negative impact on earnings per share; increasing the earnings we must achieve to sustain higher prices for our common stock. In addition, any debt financing we may secure could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital with which to pursue our business plan, and to pay dividends. You have no assurance we will be able to obtain any additional financing on terms favorable to us, if at all.

 

Loss of key personnel could have a material adverse effect on our operations. The Company has not obtained key man life insurance on the life of its’ CEO Christos Traios. The loss of his services could have a material adverse impact on the operations of the Company.

 

Our operating results may fluctuate seasonally. We operate our vessels in markets that have historically exhibited seasonal variations in tanker demand and, as a result, in charter rates. Tanker markets are typically stronger in the fall and winter months (the fourth and first quarters of the calendar year) in anticipation of increased oil consumption in the Northern Hemisphere during the winter months. Unpredictable weather patterns and variations in oil reserves disrupt vessel scheduling and could adversely impact charter rates.

 

Because we generate all of our revenues in U.S. Dollars but incur a significant portion of our expenses in other currencies, exchange rate fluctuations could have an adverse impact on our results of operations. We generate all of our revenues in U.S. Dollars, but we may incur a portion of expenses, such as maintenance and dry-docking costs, in currencies other than the U.S. Dollar. This difference could lead to fluctuations in net income due to changes in the value of the U.S.Dollar relative to the other currencies, in particular the Euro. Furthermore, due to the recent sovereign debt crisis in certain European member countries, the U.S. Dollar-Euro exchange rate has experienced volatility. An adverse movement in these currencies could increase our expenses.

 

An increase in costs could materially and adversely affect our financial performance. Our vessels operating expenses are comprised of a variety of costs including crew costs, provisions, deck and engine stores, lubricating oil and insurance, many of which are beyond our control. Additionally, repairs and maintenance costs are difficult to predict with certainty and may be substantial. Many of these expenses are not covered by our insurance. Also, costs such as insurance and security could increase. If costs continue to rise, that could materially and adversely affect our cash flows and profitability. Changes in the price of fuel may adversely affect our profitability. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Furthermore, fuel may become much more expensive in the future, which may reduce the profitability and competitiveness of our business compared to other forms of transportation, such as pipelines. On the other hand, a prolonged downturn in oil prices may cause oil companies to cut down production which could negatively impact market demand for global transportation of petroleum products.

 

 

Shipping is an inherently risky business and our insurance may not be adequate. Our vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters, bad weather, business interruptions caused by mechanical failures, human error, grounding, fire, explosions, war, terrorism, piracy and other circumstances or events. Changing economic, regulatory and political conditions in some countries, including political and military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes and boycotts. These hazards may result in death or injury to persons, loss of revenues or property, environmental damage, higher insurance rates, damage to our customer relationships, market disruptions, delay or rerouting. In addition, the operation of tankers has unique operational risks associated with the transportation of oil. An oil spill may cause significant environmental damage, and the associated costs could exceed the insurance coverage available to us. Compared to other types of vessels, tankers are exposed to a higher risk of damage and loss by fire, whether ignited by a terrorist attack, collision, or other cause, due to the high inflammability and high volume of the oil transported in tankers. Additional risks may arise against which we are not adequately protected. For example, a catastrophic spill could exceed our coverage and have a material adverse effect on our financial condition. In addition, we may not be able to procure adequate insurance coverage at commercially reasonable rates in the future and we cannot guarantee that any particular claim will be paid. In the past, new and stricter environmental regulations have led to higher costs for insurance covering environmental damage or pollution, and new regulations could lead to similar increases or even make this type of insurance unavailable. Furthermore, even if insurance coverage is adequate to cover our losses, we may not be able to timely obtain a replacement ship in the event of a loss. We may also be subject to calls, or premiums, in amounts based not only on our own claim records but also the claim records of all other members of the protection and indemnity associations through which we receive indemnity insurance coverage for tort liability. In addition, our protection and indemnity associations may not have enough resources to cover our insurance claims. Our payment of these calls could result in significant expenses to us which could reduce our cash flows and place strains on our liquidity and capital resources.

 

We are subject to international safety regulations and requirements imposed by classification societies and the failure to comply with these regulations may subject us to increased liability, may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports. The operation of our vessels is affected by the requirements set forth in the United Nations’ International Maritime Organization’s International Management Code for the Safe Operation of Ships and Pollution Prevention, or “ISM Code.” The ISM Code requires “Safety Management System” ship owners, ship managers and bareboat charterers to develop and maintain an extensive that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. We expect that any vessels that we acquire in the future will be ISM Code-certified when delivered to us. The failure of a shipowner or bareboat charterer to comply with the ISM Code may subject it to increased liability, may invalidate existing insurance or decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports, including United States and European Union ports. Furthermore, the hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the Safety of Life at Sea Convention. If a vessel does not maintain its class and/or fails any annual survey, intermediate survey or special survey, the vessel will be unable to trade between ports and will be unemployable, which will negatively impact our revenues and results from operations.

 

The risks associated with older vessels could adversely affect our operations. In general, the costs to maintain a vessel in good operating condition increasing as the vessel ages. Our operating fleet we own were built prior to 1995. Due to improvements in engine technology, older vessels typically are less fuel-efficient than more recently constructed vessels. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations, safety or other equipment standards related to the age of tankers may require expenditures for alterations or the addition of new equipment to our vessels and may restrict the type of activities in which our vessels may engage. There is no assurance that, as our vessels age, market conditions will justify any required expenditures or enable us to operate our vessels profitably during the remainder of their useful lives. If we do not set aside funds and we are unable to borrow or raise funds for vessel replacement, we will be unable to replace the vessels in our fleet upon the expiration of their remaining useful lives, which we estimate to be 10 years from their purchased dates. Our cash flows and income are dependent on the revenues earned by our commodities sales vessels hires. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, our revenue will decline and our business, results of operations, financial condition, and cash flow would be adversely affected.

 

Our results of operations could be affected by natural events in the locations in which our customers operate. Many of our customers have operations in locations that are subject to natural disasters, such as severe weather and geological events, which could disrupt the operations of those customers and suppliers as well as our operations. Such geological events can cause significant damage and can adversely affect the infrastructure and economy of regions subject to such events and could cause our customers located in such regions to experience shutdowns or otherwise negatively impact their operations. Upon such an event, some or all of those customers may reduce their orders for crude oil, which could adversely affect our revenue and results of operations. In addition to any negative direct economic effects of such natural disasters on the economy of the affected areas and on our customers and suppliers located in such regions, economic conditions in such regions could also adversely affect broader regional and global economic conditions. The degree to which natural disasters will adversely affect regional and global economies is uncertain at this time. However, if these events cause a decrease in demand for crude oil, our financial condition and operations could be adversely affected.

 

 

Consolidation and governmental regulation of suppliers may increase the cost of obtaining supplies or restrict our ability to obtain needed supplies, which may have a material adverse effect on our results of operations and financial condition. We rely on third parties to provide supplies and services necessary for our operations, including brokers, equipment suppliers, caterers and machinery suppliers. Various mergers have reduced the number of available suppliers, resulting in fewer alternatives for sourcing key supplies. With respect to certain items, we are generally dependent upon the original equipment manufacturer for repair and replacement of the item or its spare parts. Such consolidation may result in a shortage of supplies and services thereby increasing the cost of supplies and/or potentially inhibiting the ability of suppliers to deliver on time. These cost increases or delays could have a material adverse effect on our results of operations and result in downtime, and delays in the repair and maintenance of our vessels.

 

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act, U.K. Bribery Act, and other applicable worldwide anti-corruption laws. The U.S. Foreign Corrupt Practices Act, or “FCPA,” and other applicable worldwide anti-corruption laws generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. These laws include the U.K. Bribery Act which is broader in scope than the FCPA, as it contains no facilitating payments exception. We operate into some jurisdictions that international corruption monitoring groups have identified as having high levels of corruption. Our activities create the risk of unauthorized payments or offers of payments by one of our employees or agents that could be in violation of the FCPA or other applicable anti-corruption laws. Although we have policies, procedures and internal controls in place to monitor compliance, we cannot assure that our policies and procedures will protect us from governmental investigations or inquiries surrounding actions of our employees or agents. If we are found to be liable for violations of the FCPA or other applicable anti-corruption laws (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others), we could suffer from civil and criminal penalties or other sanctions.

 

We could be negatively impacted by future changes in applicable tax laws, or our inability to take advantage of favorable tax regimes. We may be subject to income or non-income taxes in various jurisdictions, including those in which we transact business, own property or reside. We may be required to file tax returns in some or all of those jurisdictions. We may be required to pay non-U.S. taxes on dispositions of non-U.S. property, or operations involving non-U.S. property may give rise to non-U.S. income or other tax liabilities in amounts that could be substantial. Our tax position could be adversely impacted by changes in tax laws, tax treaties or tax regulations or the interpretation or enforcement thereof by any tax authority. The various tax regimes to which we are currently subject result in a relatively low effective tax rate on our worldwide income. These tax regimes, however, are subject to change, possibly with retroactive effect. Moreover, we may become subject to new tax regimes and may be unable to take advantage of favorable tax provisions afforded by current or future law. For example, there have been legislative proposals that, if enacted, could change the circumstances under which we would be treated as a U.S. person for U.S. federal income tax purposes, which could materially and adversely affect our effective tax rate and cash tax position and require us to take action, at potentially significant expense, to seek to preserve our effective tax rate and cash tax position. We cannot predict the outcome of any specific legislative proposals.

 

We may be subject to litigation that, if not resolved in our favor and not sufficiently insured against, could have a material adverse effect on us. We may be, from time to time, involved in various litigation matters. These matters may include, among other things, contract disputes, personal injury claims, environmental claims or proceedings, asbestos and other toxic tort claims, employment matters, governmental claims for taxes or duties, securities litigation, and other litigation that arises in the ordinary course of our business. Although we intend to defend these matters vigorously, we cannot predict with certainty the outcome or effect of any claim or other litigation matter, and the ultimate outcome of any litigation or the potential costs to resolve them may have a material adverse effect on us. Insurance may not be applicable or sufficient in all cases and/or insurers may not remain solvent, which may have a material adverse effect on our financial condition.

 

Risks Relating to Ownership of Our Common Stock Although there is presently a market for our common stock, the price of our common stock may be extremely volatile and investors may not be able to sell their shares at or above their purchase price, or at all. We anticipate that the market may be potentially highly volatile and may fluctuate substantially because of:

 

• Actual or anticipated fluctuations in our future business and operating results;

 

• Changes in or failure to meet market expectations;

 

• Fluctuations in stock market price and volume

 

As a public company, we will incur substantial expenses. The U.S. securities laws require, among other things, review, audit, and public reporting of our financial results, business activities, and other matters. Recent SEC regulation, including regulation enacted as a result of the Sarbanes-Oxley Act of 2002, has also substantially increased the accounting, legal, and other costs related to becoming and remaining an SEC reporting company. If we do not have current information about our Company available to market makers, they will not be able to trade our stock. The public company costs of preparing and filing annual and quarterly reports, and other information with the SEC and furnishing audited reports to stockholders, will cause our expenses to be higher than they would be if we were privately held. These increased costs may be material and may include the hiring of additional employees and/or the retention of additional advisors and professionals. Our failure to comply with the federal securities laws could result in private or governmental legal action against us and/or our officers and directors, which could have a detrimental effect on our business and finances, the value of our stock, and the ability of stockholders to resell their stock.

 

 

FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock. The Financial Industry Regulatory Authority (“FINRA”) has adopted rules related to the SEC’s penny stock rules The Financial Industry Regulatory Authority (“FINRA” in trading our securities and require that a broker/dealer have reasonable grounds for believing that the investment is suitable for that customer, prior to recommending the investment. Prior to recommending speculative, low priced securities to their non-institutional customers, broker/dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative, low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker/dealers to recommend that their customers buy our common stock, which may have the effect of reducing the level of trading activity and liquidity of our common stock. Further, many brokers charge higher transactional fees for penny stock transactions. As a result, fewer broker/dealers may be willing to make a market in our common stock, reducing a shareholder’s ability to resell shares of our common stock.

 

The Company’s common stock is currently deemed to be “penny stock”, which makes it more difficult for investors to sell their shares. The Company’s common stock is currently subject to the “penny stock” rules adopted under section 15(g) of the Exchange Act. The penny stock rules apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share or that has tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If the Company remains subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for the Company’s securities. If the Company’s securities are subject to the penny stock rules, investors will find it more difficult to dispose of the Company’s securities.

 

We have raised capital through the use of convertible debt instruments that causes substantial dilution to our stockholders. Because of the size of our Company and its status as a “penny stock” as well as the current economy and difficulties in companies our size finding adequate sources of funding, we have been forced to raise capital through the issuance of convertible notes and other debt instruments. These debt instruments carry favorable conversion terms to their holders of up to 25% discounts to the market price of our common stock on conversion and in some cases provide for the immediate sale of our securities into the open market. Accordingly, this has caused and will continue to cause dilution to our stockholders in 2019 and may for the foreseeable future. As of December 31, 2019, we had approximately $310,000 in convertible debt and potential convertible debt outstanding. This convertible debt balance as well as additional convertible debt we incur in the future will cause substantial dilution to our stockholders.

 

Because we are quoted on the OTC Marketplace instead of an exchange or national quotation system, our investors may have a tougher time selling their stock or experience negative volatility on the market price of our common stock. Our common stock is quoted on the OTC Market. The OTC Market is often highly illiquid, in part because it does not have a national quotation system by which potential investors can follow the market price of shares except through information received and generated by a limited number of broker-dealers that make markets in particular stocks. There is a greater chance of volatility for securities that are quoted on the OTC Market compared to a national exchange or quotation system. This volatility may be caused by a variety of factors, including the lack of readily available price quotations, the absence of consistent administrative supervision of bid and ask quotations, lower trading volume, and market conditions. Investors in our common stock may experience high fluctuations in the market price and volume of the trading market for our securities. These fluctuations, when they occur, have a negative effect on the market price for our securities. Accordingly, our stockholders may not be able to realize a fair price from their shares when they determine to sell them or may have to hold them for a substantial period of time until the market for our common stock improves.

 

We do not intend to pay dividends. We do not anticipate paying cash dividends on our common stock in the foreseeable future. We may not have sufficient funds to legally pay dividends. Even if funds are legally available to pay dividends, we may nevertheless decide in our sole discretion not to pay dividends. 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 our board of directors may consider relevant. There is no assurance that we will pay any dividends in the future, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.

 

 

The market price for our common shares is particularly volatile given our status as a relatively unknown company with a small and thinly traded public float. The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First, our common shares are sporadically and thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb investment due to those sales without adverse impact on its share price. Secondly, we are a speculative or “risky” limited operating history and lack of profits to date, and uncertainty of future market acceptance for our potential products. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common shares will be at any time, including as to whether our common shares will sustain their current market prices, or as to what effect that the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price. Shareholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the volatility of our share price.

 

Should one or more of the foregoing risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

 

Item 1B - Unresolved Staff Comments

 

None

 

Item 2 - Properties

 

The Company’s subsidiaries PGH and PGAF leases offices space in Piraeus for monthly rent of $2,863 and in Tema for monthly rent of $600 respectively. Both leases are renewed every two years.

 

Item 3 – Legal Proceedings

 

We are the Plaintiffs in a number of legal proceedings arising in the ordinary course of business, including, but not limited to, claims for unpaid charter-hires and freights, non-performed contracts and disputes among some of our contractors.

 

Item 4 – Mine Safety Disclosures

 

Not applicable

 

 

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, 2019		$	0.55			$	0.34
September 30, 2019		$	1.10			$	1.10
June 30, 2019		$	1.94			$	1.94
March 31, 2019		$	2.05			$	1.90

 

On December 31, 2019, the last closing bid price for our Common Stock reported by the OTC Pink was $0.55

 

Holders

 

Records of Securities Transfer Corporation (STC), our transfer agent, indicates as of December 31, 2019, we had 52 shareholders on record and 4,446,645 shares of common stock issued and outstanding, the large majority of which were located in the United States and held an aggregate of 904,061 shares of our common stock, representing approximately 20% of our outstanding shares of common stock. However, one of the U.S. shareholders of record is Cede & Co., a nominee of the Depository Trust Company, which held 608,723 shares of our common stock, as of December 31, 2019. Accordingly, we believe that the shares held by Cede & Co. include shares of common stock beneficially owned by both holders in the United States and non-U.S. beneficial owners. We are not aware of any arrangements the operation of which may at a subsequent date result in our change of control. As of December 31, 2019, we have 4,446,645 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, 2019. Our Board of Directors 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 Board 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 two years have been previously reported as required in Quarterly Reports on Form 10-Q and current Form 10-K on Note 15 page 49.

 

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 index to Management’s Discussion and Analysis of Financial Condition and Results of Operations, Consolidated Financial Statements and Supplementary Data is presented on pages 24 to 33.

 

Item 7A - Quantitative and Qualitative Disclosures About Market Risk

 

We are exposed to market risks related to the volatility of crude oil prices as the volatility of these prices continues to impact our industry. We expect commodity prices to remain volatile and unpredictable in the future. We are also exposed to market risks related to changes in interest rates. We are at risk for changes in the fair value of all of our derivative instruments; however, such risk should be mitigated by price or rate changes related to the underlying commodity or financial transaction. While the use of derivative instruments could materially affect our results of operations in particular quarterly or annual periods, we believe that the use of these instruments will not have a material adverse effect on our financial position or liquidity. Our strategy is to obtain competitive prices for our products and allow operating results to reflect market price movements dictated by supply and demand. However, management will periodically protect prices on forecasted sales to support cash flow and liquidity, as deemed appropriate.

 

Item 8 –  Financial Statements and Supplementary Data

 

The index of all financial statements and supplementary Data required by this Item is presented on Page 24.

 

Item 9-  Changes in and Disagreement with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A- Controls and Procedures

 

(a)     Evaluation of Disclosure Controls and Procedures; The company’s management with the participation of Chief Executive Officer and 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, 2019, 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, 2019 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.

 

(b)     Management's Report on Internal Control Over Financial Reporting; The company’s management 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, our Chief Executive Officer and our Chief Financial Officer, have assessed the effectiveness of internal control over financial reporting as of December 31, 2019, 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 9, management has determined that as of December 31, 2019, 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.

 

(c)     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.

 

(d)     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, 2019 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

 

(e)     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 two directors and one executive officer dealing with general administrative and financial matters. This constitutes a material weakness in the internal controls. Management has decided that considering the officers and directors 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 10- Other Information

 

None

 

 

PART III

 

Item 11-  Directors, Executive Officers and Corporate Governance

 

Information about our Directors and Executive Officers at December 31, 2019

 

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.

 

Name	Age	Appointment Date	Primary areas & Responsibilities
Christos P. Traios	60	March 15, 2016	President Chief Executive Officer
Evangelos Makris	37	March 19, 2019	Chief Financial Officer
Dimitrios Z. Pierides	72	October 15, 2019	Executive Vice President Human Resources

 

Christos Traios, was appointed to serve as a director, President and Chief Executive Officer on March 15, 2016. Mr. Traios has been in the maritime industry for more than 30 years and has been in the oil business for fifteen years. Since acquiring control of the Company, Christos Traios has served as its director, President and Chief Executive Officer. Mr. Traios attended Master Mariner & Law Maritime School for two years and served as second captain in the shipping industry for three years. Mr. Traios is a citizen of Greece. Christos Traios 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 37, 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.

 

Dr. Dimitrios Pierides, was appointed as director member on October 14, 2019. Dr. Pierides studied Economics and Law at the University of Lausanne, Switzerland. Dr. Pierides served as the President of the Federation of Hellenic Students Association of Swiss Universities. Subsequently, Dr. Pierides returned to his native Cyprus, where he worked for various companies involved in the businesses of shipping, banking, insurance, hotels, airlines, tourism, real estate and motor car imports. He appointed in Cyprus Hon. Consul General for Sweden since 1968. Dr. Pierides served as a Director of the Bank of Cyprus in Cyprus, Greece, United Kingdom and Australia from 1992 to 2006. Dr. Pierides is also the founder and President of the benevolent Pierides Foundation, which was established in 1974.

 

Involvement in Certain Legal Proceedings

 

Neither our directors 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.

 

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 12- Executives 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	Year		Salary ($)			Other compensations		Totals
Christos P. Traios	2018		$	80,000				$	80,000
Chief Executive Officer	2019		$	110,000				$	110,000
Evangelos Makris	2018			-					-
Chief Financial Officer	2019		$	20,000				$	20,000
Dimitrios Z. Pierides	2018			-					-
Executive Vice President	2019			-					-

 

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 lower 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, 2019, the Company accrued $110,000 for services Mr. Traios provided to parent entity Petrogress, Inc. in line with the terms of the foregoing Employment Agreement and $304,340 for services to the Subsidiaries.

 

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 Petrogress, Inc.

 

On October 15, 2019, Dr. Dimitrios Pierides appointed as Vice President and Board Director of Petrogress, Inc. The company has agreed to issue 250 shares of the Company’s common stock per month for services to be rendered.

 

During the year ended December 31, 2019 and 2018, the Company had recorded officers’ compensation of $130,000 and $80,000, respectively. For the year ended December 31, 2019, the remaining amount of $190,000 was accrued and included in “Accounts Payable and accrued expenses” of the Consolidated Balance Sheets as of December 31, 2019.

 

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.

 

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.

 

Outstanding Equity Awards

 

The Company has no equity compensation plans.

 

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.

 

 

Item 13- 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 4,446,645 shares of Common Stock and 100 shares of Series A Preferred Stock outstanding as of December 31, 2019. Unless otherwise specified, the address of each of the persons set forth below is in care of the Company.

 

Name and address of Beneficial Owner		Common Stock Number of shares Beneficially Owned				Series A Number of shares Beneficially Owned				Common Stock Percentages of shares Beneficially Owned(1)				Series A Percentages of shares Beneficially Owned(1)
As a Group (3 persons) Officers & Directors			3,342,517				100				75.17	%			100	%
Christos P. Traios (2) As individual			3,341,817				100				75.15	%			100	%
Evangelos Makris (2) As individual			0				0				0.00	%			0.	%
Dimitrios Z. Pierides (2) As individual			700				0				0.02	%			0	%

 

(1)

Based on a total of an aggregate 4,446,645 shares of common stock outstanding as at December 31, 2019

 

(2)

The address for these shareholders is 10, Spirou Trikoupi street, Piraeus 18538

 

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

 

Item 14- Certain Relationships and Related party transactions, and Directors Independence

 

The information required under this item is contained under the heading “Related Person Transaction” and “Loan Facility from Related Party” in Management Discussion and Analysis of financial condition and Results of Operations and Notes 17 and 18 to the financial statements included in this Annual Report on Form 10k.

 

Director Independence

 

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

 

Item 15- Principal Accountant Fees and Services

 

The Company does not currently maintain a separate audit committee. When necessary, our Chief Executive Officer and 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.  Our Chief Executive Officer pre-approved all of the fees described below. Our Chief Executive Officer 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.

 

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

 

Audit Fees

 

The aggregate fees billed by Turner Stone for professional services rendered for the audit of our annual financial statements for 2018 and 2019 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 $34,430 and $22,430, respectively.

 

Tax Fees

 

The aggregate fees billed by Turner Stone for professional services rendered in 2018 for tax compliance $6,150.

 

 

Petrogress, Inc.

 

Financial Table of Contents

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations			Notes to the Consolidated Financial Statements
Key Financial Results	24		Note 1	Summary of Significant Accounting Policies	39
Executive Overview	24		Note 2	New Accounting Standards	41
Business Environment and Outlook	24		Note 3	Lease Commitments	41
Our key business segments	24		Note 4	Summarized Financial Data – Petrogress, Inc.	42
Operation results	25		Note 5	Fair Value Measurements	42
Subsidiaries Results			Note 6	Financial and Derivative Instruments	43
Petrogress Int’l LLC.	26		Note 7	Accounting for Equity-based Payments	43
Petronav Carriers LLC.	27		Note 8	Earnings (Loss) Per Share	43
Petrogres Africa Co. Ltd.	28		Note 9	Operating Segments and Geographic presence	44
Petrogress, Inc.	28		Note 10	Prepaid Expenses and Other Current Assets	45
Revenue Concentrations	29		Note 11	Litigation	45
Available Liquidity & Capital Resources	29		Note 12	Income Taxes	46
Off-Balance Sheet Arrangements	30		Note 13	Properties, Vessels and Equipment	47
Financial and Derivative Instrument Market Risk	30		Note 14	Short-Term Debt	47
Related party transactions	30		Note 15	Shareholders Equity, Stock options and other compensations	48
Loan Facility from Related Party	30		Note 16	Unregistered Sales of Equity Securities and Use of Proceeds	49
Accounting Pronouncements not yet adopted	31		Note 17	Loan Facility from Related Party	50
Critical Accounting Policies	31		Note 18	Related Party Capital Transactions	51
Comprehensive Income	31		Note 19	Wages due to Related Party from Subsidiaries	51
Revenue Recognition	31		Note 20	Commitments and Contingencies	51
Organization costs	32		Note 21	Revenues	51
Accounting for Equity-based Payments	32		Note 22	Claims Receivable	52
Accounts Receivable, net	32		Note 23	Other Information	52
Counterparty Risk	32		Note 24	Going Concern – Substantial Doubt	52
Quarterly Results	33		Note 25	Subsequent Events	53
Report of Independent Registered Public Accounting Firm	34
			Three-Year Financial Summary		54
Consolidated Financial Statements
Consolidated Statement of Income	35
Consolidated Balance Sheet	36
Consolidated Statement of Cash Flows	37
Consolidated Statement of Equity	38

 

 

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

 

Key Financial Results		2019				2018				2017
Sales and other Operating Incomes		$	15,961,220			$	9,026,962			$	9,163,356
Goods and operating costs		$	(13,431,020	)		$	(5,068,717	)		$	(5,619,978	)
Administrative and other expenses		$	(5,514,881	)		$	(3,636,034	)		$	(3,273,355	)
Net Income (Loss) Attributable to Petrogress, Inc.		$	(2,984,681	)		$	322,211			$	270,023

 

Refer to the “Results of Operations” section beginning on page 25 for a discussion of financial results by major operating area for the years ended December 31, 2019 and 2018 respectively.

 

Executive Overview

 

“The following discussion includes forwarding-looking statement that involve certain risks and uncertainties. See “Cautionary Statement” prior to PART I”.

 

We are an oil energy company based in Delaware. Petrogress, Inc., operates as a holding company and conducts its business through its wholly-owned subsidiaries: Petronav Carriers LLC., which manages day-to-day operations of its beneficially-owned affiliated tanker fleet; and Petrogress Int’l LLC., which is a holding company for subsidiaries currently conducting business in Greece, Cyprus and Ghana, and provides management of crude oil purchases and sales;

 

Business Environment and Outlook

 

Petrogress, Inc. is an oil energy and sea transportation company with business activities in the following countries: Greece, Cyprus and Ghana. Our earnings currently depend primarily on the profitability of our crude oil sales. The biggest factor affecting the results of operations is the price of crude oil. The price of crude oil has fallen significantly since mid-year 2019. The downturn in the price of crude oil has impacted the company's results of operations, cash flows, leverage, capital and exploratory investment program and production outlook. A sustained lower price environment could result in the impairment or write-off of specific assets in future periods. We have reacted to the downturn by effecting reductions in operating expenses, pacing and re-focusing of capital and exploratory expenditures. We anticipate that crude oil prices will increase in the future, as continued growth in demand and a reduction in supply growth should bring global markets into balance. However, the timing or sustainability of any such increase in prices is unknown. In the Company's downstream business, crude oil is the largest cost component of refined products. Nevertheless, it is our objective to deliver competitive results and shareholder value in any business environment.

 

Our midstream segment relies and depends on our crude oil sales contracts to keep our vessels employed. We rely primarily on the revenues generated from our business of physical supply of crude oil and marketing of refined products to our end customers.

 

The company closely monitors developments in the financial and credit markets, the level of worldwide economic activity, and the implications for the Company of movements in prices for crude oil and refined products. Management takes these developments into account in the conduct of daily operations and for business planning.

 

The company continually evaluates opportunities to dispose of assets that are not expected to provide sufficient long-term value or to acquire assets or operations complementary to its asset base to help augment the company’s financial performance and value growth. Asset dispositions and restructurings may result in significant gains or losses in future periods.

 

Refer to the “Cautionary Statements Relevant to Forward-Looking Information” on Page 1 and to “Risk Factors” in Part I, Item 1A, on pages 11 through 16 for a discussion of some of the inherent risks that could materially impact the company’s results of operations or financial condition. 

 

Our key business segments

 

The following are descriptions of our recent initiatives undertaken in each of our key business segments:

 

Upstream: The Company through its affiliate in Ghana is under negotiations to conclude a Petroleum Agreement with Ghana National Petroleum Company (GNPC) for a long-term lease of the Salt-Pond oil fields and to take over management of the oil rig-platform known as “Mr. Louie” and to conduct necessary repairs and maintenance to facilitate oil production in the area. We estimate to complete all the paper works and commence the operations within the next six months.

  

 

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

 

Downstream: As on February 2018, our Partnership agreement with Platon Ghana Oil Refinery (PGOR) -an unrelated third party- is still ongoing and renewed on an annual basis and pursuant its terms Petrogress will feed and supply the crude oil for storage, refinement, marketing and distribution in Ghana jointly with PGOR. The storage capacity under the Partnership Agreement is 24,000 tons and the monthly processing capacity of the refinery is 10,000 tons. Petrogress and Platon both plans to invest additional funds to upgrade the processing monthly capacity into refined products of Gas Oil, Naphtha, and fuel in view of the high local demand. Under the Platon Partnership Agreement, all expenses of the partnership operations are shared by both Petrogress and Platon. After deducting the operating/processing expenses, the net profits from the sale of the products are split evenly between Petrogres and Platon. As of the date the Platon Partnership Agreement was executed, Petrogress ceased other sales of crude to third customers in West Africa. During the year the company expanded its operations to other sectors, engaging into gas-stations operator and lubricants distributor.

 

Midstream: We seek to expand our midstream operations in other international ocean routes by adding to our fleet larger and younger tanker vessels. We are monitoring the vessel market for opportunities while we are also working to secure the necessary funding for expansion. Our business strategy is based in part upon the expansion of our business to new, or within existing, markets. In order to fund future vessel acquisitions, expansion into new and existing markets and products, increased working capital levels, or capital expenditures, we will be required to use cash from operations, incur borrowings or raise capital through the sale of debt or equity securities in the public or private markets.

 

Operation Results

 

Our operating revenues are driven primarily of the commodities trading sales and our tankers fleet employment days during which our vessels are generating revenues, while our financial results are subject to a number of sectors and reflects to the following factors:

 

Cost of commodities; is the cost we purchase the oil products -mainly the crude oil- and such cost is based either on Brent Index prices or Fixed price, the quality and quantity of the product.

 

Commodities Operating Expenses; relates to products surveys before and after the shipment, bunkers supplied to the employment vessel, cargoes surveys, loading/unloading expenses, agency and representative services.

 

Shipping & Logistic Expenses; includes the sea freight and mobilization cost, the performed loading and discharging of the product, and any expenses occurred during the shipping time from the loading point up to unloading facilities.

 

Vessels Operating Expenses; includes crew wages and bonuses, their medical support and travelling, maintenance and repairs to the vessels hull and their machineries, expenses for supplies of spare-parts and consumable stores, paints, lubricants, fresh water, bunkers, agency services, etc.

 

General and Administrative Expenses; relates to our directors, officers and managers salaries and compensations, shore staff wages, employee’s federal insurance, offices lease and utilities, telecommunications, travelling and representations of our officers, our agency fees we pay to our branch’s offices in Greece, Cyprus, Ghana and Nigeria.

 

Corporate Expenses; are all company’s expenses and includes, our executive’s compensations, attorney’s fee, Auditors and accountant fees, Consultant’s and P/R fees, Transfer agents of our stock, miscellaneous.

 

Other factors may affect our Results of Operations; In addition to the said expenses there are factors beyond of our control which may affect seriously our operations results. Inasmuch as we trade also West Africa, which is considered as high risky area, we are expose in a serious amount of risks, such as piracies and hijacks, civil wars, stolen of properties, economy distress, and credit risks.     

 

EBITDA and Adjustment; EBITDA represents net income before expenses, taxes and depreciation. Adjusted EBITDA represents net income before expense, taxes, taxes, depreciation and amortization of drydocking.

  

 

Results: 2019 compared to 2018		2019				2018
Earnings		$	(2,984,681	)		$	322,211

 

●	For the year ended December 31, 2019, the Company experienced consolidated net loss of $2,984,681 compared to net income of $322,211 on December 31, 2018.

 

●	General and administrative expenses for the year ended December 31, 2019 and 2018 were $2,899,482 and $2,095,839 respectively.

 

 

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

 

●	Sales: volumes of Crude Oil sales increased by 185% while the Gas Oil net sales remains same. The following table presents a summary of our sales volumes for each products comparison of Years Ended December 2019 and 2018.

 

Total operating sales for the years ended December 31, 2019 and 2018, were $15,961,220 and $9,026,962, respectively, an increase of $6,934,258 or approximately +77%. Sales were comprised of the following:

 

		Year ended December 31,
		2019				2018
Net sales volumes per product
Crude Oil Sales		$	13,983,090			$	7,558,463
Gas Oil Sales			1,416,000				1,424,000
Lubricants Sales			-				-
Hires & Freights Sales			541,500				37,000
Other Revenues/Discounts			20,630				7,500
Totals		$	15,961,220			$	9,026,962

 

●	Costs of goods sold: for the years ended December 31, 2019 and 2018, cost of goods sold were $13,431,020 and $5,068,717, respectively, an increase of $8,362,303 or approximately 165%, and were comprised of the following:

 

		Year ended December 31,
		2019				2018
Cost of goods sold
Crude Oil purchased costs		$	(12,381,020	)		$	(4,764,217	)
Gas Oil purchased costs			(1,050,000	)			(304,500	)
Lubricants purchased costs			-				-
Totals		$	(13,431,020	)		$	(5,068,717	)

 

●	Corporate expenses: Corporate expenses mainly include the expenses incurred by Petrogress, Inc. Our Corporate expenses for the year ended December 31, 2019 and 2018 were $362,993 and $254,289, respectively, an increase of $108,704 or approximately 43%.

 

●	General and administrative expenses: For the year ended December 31, 2019, General and administrative expenses increased to $1,169,500 compared to $796,815 for the year ended December 31, 2018, an increase of $372,685 or approximately 47%.

 

●	Net income/(loss) attributable PG: For the year ended December 31, 2019, the Company had a net loss of $2,984,681 while for the year ended December 31, 2018, the Company had a net income of $322,211, a decrease of $3,106,892 or approximately 864%.

 

Consolidated results of Operation -after eliminations- for 2019 and 2018		Year ended December 31,
		2019				2018
Total Operating Sales		$	15,961,220			$	9,026,962
Total Operating Expenses		$	4,183,842			$	3,628,877

 

*

Operating expenses includes, corporate expenses, shipping & logistic, commodities trading, fleet expenses, General and Administrative, and Depreciations;

 

●	EBITDA: For the year ended December 31, 2019 amounted to $(2,984,681) compared to $322,211 for the year ended December 31, 2018.

 

Performance and financial results of our significant subsidiaries for the year ended December 31, 2019

 

Petrogress Int’l LLC.

Petrogress Int’l LLC. (PGI), performs most of the trading of the oil products. PGI contributed with $15,344,924 or 88% of the Company’s revenues for the year ended December 31, 2019, before eliminations. For the year ended December 31, 2019, PGI had a gross profit of $1,832,700 equal to 12% of its revenues and a Net income equal to $1,449,568.

 

High profitability of Petrogress Int’l LLC. allows us to finance the necessary expenses for the maintenance and proper operations of the Company. PGI 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 with SEC.

 

 

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

 

The following table presents the results of operations of PGI for the years ended December 31, 2019 and 2018, before the intercompany eliminations performed. The table is included herein only for the purpose of management’s discussion over our results:

 

		Year ended December 31,
		2019				2018
Revenues		$	15,344,924			$	8,650,463
Costs of goods sold			(13,512,224	)			(7,212,317	)
Gross profit			1,832,700				1,438,146
Operating expenses:
Operating expenses of commodities trade			(26,007	)			(315,140	)
Shipping & Logistics expenses			(125,833	)			-
Selling, general and administrative expenses			(526,510	)			(438,496	)
Provision for losses on accounts receivable			-				(313,466	)
Depreciation expense			(15,419	)			(14,136	)
Total operating expenses			(693,769	)			(1,081,238	)
Gross profit before other expenses			1,138,931				356,908
Other expense, net			-				(105,293	)
Other income, net			310,637				200,700
Total other income, net			310,637				95,407
Net income		$	1,449,568			$	452,315

 

*

The sales increased within 2019 in compare to 2018, due to a spot sale and purchase contract of a large volume of crude oil that the company dealt during September 2019.

 

Petronav Carriers LLC.

Petronav Carriers, LLC. (PCL) operates, manages and hires the Company’s beneficially owned vessels to Petrogress Int’l LLC. and third parties. A significant portion of PCL’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, 2019, PCL had net loss of $2,592,994. For the year ended December 31, 2019, PCL revenues consisted of $989,313 from the hires of the vessels. The following table presents the results of operations of Petronav Carriers, for the years ended December 31, 2019 & December 31, 2018 before the intercompany eliminations performed. The table is included herein only for the purpose of management’s discussion over our results:

 

		Year ended December 31,
		2019				2018
Revenues		$	989,313			$	2,257,600
Costs of goods sold			-				480,000
Gross profit			989,313				2,737,600
Operating expenses:
Fleet operating expenses*			(1,602,326	)			(1,345,390	)
General and administrative expenses			(192,597	)			(34,495	)
Write offs of accounts receivable			-				-
Amortization of Dry Docking			(6,619	)			(6,687	)
Depreciation expenses			(886,459	)			(909,590	)
Total operating expenses			(2,688,001	)			(2,296,162	)
Gross profit before other expenses			(1,698,688	)			441,438
Other income, net			-				37,075
Other expense, net**			(894,306	)			-
Total other income / (expense), net			(894,306	)			37,075
Net income		$	(2,592,994	)		$	478,513

 

*

Fleet operating expenses includes all operating and non-operating expenses, including partial hijacking expenses.

 

**

Other expenses include the expenses of ransom amount paid and additional expenses for the release of kidnapped crew. The company intends to claim the repayment of such expenses.

 

 

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

 

Petrogres Africa Co. Ltd

Petrogres Africa Co. Ltd. (PGAF), provides the agency and the attendance of our fleet in all Ghanaian ports, including the support of any repairs and supplies to our vessels. The manning of our ships and surveyors is also performed through PGAF. In addition, PGAF is the distributor of our gas oil and lubricants sales. Through PGAF we secured the Salt pond oil fields and Ada shipyard projects. PGAF is our vital position for the entrance into sub-Saharan countries. The following table presents the results of operations of PGAF for the years ended December 31, 2019 & December 31, 2018 before the intercompany eliminations performed. The table is included herein only for the purpose of management’s discussion over our results:

 

		Year ended December 31,
		2019				2018
Revenues		$	936,000			$	459,500
Costs of goods sold			(720,000	)			(171,500	)
Gross profit			216,000				288,000
Operating expenses:
Operating expenses of commodities trade*			(254,096	)			-
Shipping & Logistics expenses			(198,000	)			-
Selling, general and administrative expenses			(40,641	)			(128,593	)
Depreciation expense			(12,870	)			(2,798	)
Total operating expenses			(505,607	)			(131,391	)
Gross profit before other expenses			(289,607	)			156,609
Other income, net			-				10,757
Other expense, net			(52,056	)			-
Total other income / (expense), net			(52,056	)			10,757
Net income		$	(341,663	)		$	167,366

 

*

Operating expenses include bunkers supplied during November and December 2019 to a chartered vessel for an employment of chartered vessel and a substantial payment made to a gas-oil supplier during December 2019 and such quantity recorded in the balance sheet as inventory. Additionally, the company paid STS (Ship-To-Ship) expenses for the specific shipment and such amounts recorded as expenses on December 2019.

 

Petrogress, Inc.

Petrogress, Inc. (PG) 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 $740,954, primarily contribute to the net loss incurred by the holding company of $1,436,004 for the year ended December 31, 2019. The net loss reflects the expenses necessary for the regulatory compliance of Petrogress, and its overall operation as a publicly reporting company. The following table presents the results of Petrogress, Inc. for the years ended December 31, 2019 and December 31, 2018. The table is included herein only for the purpose of management’s discussion over the results of the Company:

 

		Year ended December 31,
		2019				2018
Revenues		$	-			$	-
Costs of goods sold			-				-
Gross profit			-				-
Operating expenses:
General and administrative expenses			(377,961	)			(330,075	)
Corporate expenses			(362,993	)			(254,289	)
Depreciation expense			-				-
Total operating expenses			(740,954	)			(584,364	)
Gross loss before other expenses			(740,954	)			(584,364	)
Other income / (expense), net			(17,670	)			(134,117	)
Interest and finance expenses			(217,100	)			(16,551	)
Amortization of note discount			(166,197	)			-
Change in FMV of derivative liabilities			(294,083	)			-
Total other (expense), net			(495,050	)			(150,668	)
Net loss		$	(1,436,004	)		$	(735,033	)

 

 

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

 

Revenue Concentrations

The following table is a summary of customers who accounted for more than ten percent (10%) of the Company’s revenues for the periods ended December 31, 2019 and 2018:

 

Customer		December 31, 2019				December 31, 2018
A			88	%			87	%
B			*				*

 

Summary of customers who accounted for more than ten percent (10%) of the Company’s accounts receivable for the periods ended December 31, 2019 and December 31, 2018 is showing on the below table:

 

Customer		December 30, 2019				December 31, 2018
A			55	%			63	%
B			23	%			*
C			*				16	%

 

	●	None of the balances listed in the table above have become overdue as of December 31, 2019.
	●	Amounts indicated with an * denote amounts less than 10%.

 

Available Liquidity & Capital Resources

 

Our main sources of liquidity are cash and cash equivalents, accounts receivable and internally generated cash flow from operations. At December 31, 2019, we had a working capital of $3,537,865 consisting of $391,360 in cash and cash equivalents, $2,011,430 in accounts receivable, $478,500 in claims receivable, $1,206,612 in inventories and $3,143,221 in prepaid expenses and other current assets.

 

For the year ended December 31, 2019, net cash used in operating activities was $362,164 compared to $517,449 of net cash used in operating activities for the year ended December 31, 2018.

 

Assets included in the calculation of the Company’s working capital have decreased by $939,330 mainly from the decrease of accounts receivable which have decreased by $2,768,002. This decrease has been financed mainly by our net income and the increase of our liabilities included in working capital, namely the increase in Convertible promissory notes and Derivative liabilities which have increased by $237,197 and $609,877 respectively, during the year ended December 31, 2019.

 

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 to comply with the regulatory requirements of the SEC.

 

Cash and Cash Equivalents; The following table presents sources and use of cash and cash equivalents for 2019 and 2018:

 

		Year Ended December 31,
		2019				2018
Sources of cash and cash equivalents
Operating activities		$	-			$	-
Borrowing			481,000				126,500
Others			341,450				-
Total sources of cash and cash equivalents		$	822,450			$	126,500

 

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.

 

Credit and Borrowing; At August 2019, the Company executed a Convertible Note with an unrelated party, in the principal amount of $310,000. The Note bears interest at a rate of 8% per annum.

 

Capital Requirements; The Company’s needs in working capital within the next six months for our operations states below:

 

Projects & operations		Capital
Gas Stations renovation, start-up, fuels supplies and first 3 months expenses		$	1,500,000
Crude oil trade finance			2,500,000
Vessels regular maintenance & new vessel modification			1,500,000
Total required capital		$	5,500,000

 

 

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

 

Off-Balance Sheet Arrangements

 

As of December 31, 2019, we did not have any material off-balance sheet arrangements.

 

Financial and Derivative Instrument Market Risk

 

Derivative; The Company to financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company has a sequencing policy regarding share settlement wherein instruments with the earliest issuance date would be settled first. The sequencing policy also considers contingently issuable additional shares, such as those issuable upon a stock split, to have an issuance date to coincide with the event giving rise to the additional shares.

 

On August 27, 2019, the company entered into a note payable with an unrelated party at a percentage discount (variable) exercise price which causes the number to be converted into a number of common shares that “approach infinity”, as the underlying stock price could approach zero. Accordingly, all convertible instruments, including standalone warrants, issued after August 27, 2019 are considered derivatives according to the Company’s sequencing policy.

 

The Company values these convertible notes payable using the multinomial lattice method that values the derivative liability within the notes based on a probability weighted discounted cash flow model. The resulting liability is valued at each reporting date and the change in the liability is reflected as change in derivative liability in the statement of operations.

 

Related party transactions

 

As of April 24, 2019, Petrogress, Inc., Petrogress Int’l LLC. and Christos Traios agreed on an amendment to the Securities Purchase Agreement dated effective as of September 30, 2017, pursuant to which the Company purchased its interest in Petrogres Africa Co. Ltd. The amendment adjusts the aggregate purchase price to $900,000, which is to be paid to Mr. Traios on or before October 23, 2019. In the event that the purchase price is not paid in full by the payment date, any outstanding and unpaid amount of the purchase price is convertible at the option of Mr. Traios, in whole or in part, into shares of Common Stock at a conversion price equal to 65% of the lowest trading price during the last 10 trading days. Notwithstanding the foregoing, the conversion rights are capped at 3,500,000 shares of Common Stock (as such number may be equitably adjusted for stock splits, stock dividends, rights offerings, combinations, recapitalization, reclassifications, extraordinary distributions and similar events by Petrogress).

 

During the year ended December 31, 2019, Christos Traios contributed with additional cash of $311,300, for the purchase of the vessel MV LIBERTUS by the wholly owned subsidiary Petronav Carriers LLC. and additional cash of $30,150 for expenses paid in relation to the condition surveys and port dues of the said vessel prior the closing purchase transaction.

 

Loan Facility from Related Party (LOC)

 

On July 13, 2017, the Company entered into a Revolving Line of Credit Agreement (the “Agreement”) with Christos Traios, our President, Chief Executive Officer and Director. In accordance with the Agreement the Company also issued a $1,000,000 Line of Credit Convertible Promissory Note (the “LOC Note”) to Christos Traios. Mr. Traios has agreed to provide the Company with additional working capital as required from time-to-time to support its operations, and the LOC Note formalizes that commitment and confirms amounts previously advanced under an informal agreement between Mr. Traios and the Company, however due to significant issues Mr. Traios had the privilege to cease and terminate the financial support of the Company. The Note were due and payable on July 13, 2018 however, an extension agreed for one more year.

 

On October 31, 2018, Christos P. Traios, notified the Company that he was terminating the Revolving Line of 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 and accrued interest will become due upon the current Maturity Date, July 13, 2019, however, an extension agreed the Maturity date to postpone as final on July 13, 2020. The LOC Note bears interest payable on the outstanding principal at eight percent (8%) per annum.

 

Accrued interest for the years ended December 31, 2019 and 2018, amounted to $11,912 and $8,744, respectively.

 

The below table presents the balance amounts due to related party from finance transactions as of December 31, 2019:  

 

Transactions		Balances
●  Line of Credit (Principal and Interest)		$	169,556
●  Securities Purchase Agreement (PGAF)			930,000
●  Contribution for vessel acquisition			341,450
Total amount due to related party December 31, 2019		$	1,441,006

 

 

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

 

Accounting Pronouncements not yet adopted

 

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.

 

However, due the short-term nature of our leases that were in effect during 2019, the impact of adopting this standard on our financial statements was immaterial and a right of use asset and related liability was not recorded.  Because of the gas station lease agreements entered into in February 2020, we will implement the guidance and record such asset and liability beginning with our first interim reporting period in 2020.

 

Critical Accounting Policies

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

 

Our significant accounting policies are summarized in the notes accompanying our consolidated financial statements included with this report. While all of these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our results of operations, financial position or liquidity for the periods presented in this report.

 

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 Accounting Standards Update (“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.

 

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) is passed to its customers and (b) the vessels charter (voyages and long term) service is rendered to its independent charterers or Petrogress Int’l LLC.

 

 

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

 

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.

 

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, including ASU 2018/17 amendments. 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.

 

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.

 

As of December 31, 2019, and 2018, allowances for doubtful accounts were $130,550 and $344,466, respectively.

  

Counterparty Risk

 

We are also exposed to financial risk in the event of nonperformance by counterparties. If commodity prices fall below current levels, some of our counterparties may experience liquidity problems and may not be able to meet their financial obligations to us. We review the creditworthiness of counterparties and use master netting agreements when appropriate.

 

 

 

 

 

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

 

 

Petrogress, Inc.

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Quarterly Results

Unaudited

 

Amounts before intercompany eliminations		2019
In USD		4th Q				3rd Q				2nd Q				1st Q
Revenues and Other Income
Sales and other operating revenues			7,564,127				6,695,097				786,642				2,333,871
Income from equity affiliates			-				-				-				-
Other incomes			-				-				-				-
Total Revenues and Other Incomes			7,564,127				6,695,097				786,642				2,333,871
Costs and other Deductions
Purchased crude oil			(6,449,799	)			(4,765,469	)			-				(1,165,752	)
Purchased Gas Oil			(240,000	)			(1,050,000	)			(480,000	)			-
Purchased Lubricants			-				(40,002	)			(41,202	)			-
Corporate expenses			(132,530	)			(146,852	)			(78,548	)			(5,063	)
Commodities operating expenses			(338,505	)			(86,500	)			(85,805	)			(93,126	)
Vessels (non) operating expenses			(689,946	)			(302,429	)			(179,399	)			(430,552	)
General and administrative expenses			(580,341	)			(287,676	)			(212,129	)			(230,387	)
Depreciation and amortization			(243,439	)			(243,193	)			(230,768	)			(203,967	)
Taxes, dues other than on income
Interest and debt expenses			25,575				(227,182	)			(3,130	)			(12,363	)
Other components and costs			(567,264	)			191,627				(490,900	)			(47,402	)
Total Cost and Other Deductions			(9,695,769	)			(6,957,676	)			(1,801,881	)			(2,188,612	)
Income (Loss) Before Income Tax Expense			(2,131,642	)			(262,579	)			(1,015,239	)			145,259
Income Tax Expenses (Benefit)			-				-				-				-
Net Income (Loss)			(2,131,642	)			(262,579	)			(1,015,239	)			145,259
Less: Net income attributable to non-Controlling interests			(30,572	)			5,288				(3,649	)			(5,233	)
Net Income (Loss) Attributable to Petrogress			(2,101 ,070	)			(267,867	)			(1,011,590	)			150,492
Per Share of Common Stock
-Basic			3,953,461				3,894,456				3,857,162				3,828,412
-Diluted			3,953,461				3,894,456				3,857,162				3,828,412
Dividends

 

 

Report of Independent Registered Public Accounting Firm

 

 

To the Shareholders and Directors 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, 2019 and 2018, and the related consolidated statements of comprehensive income (loss), 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, 2019 and 2018, 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.

 

Explanatory Paragraph – Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 24 to the financial statements, the Company will need significant working capital to continue its operations and maintain its tanker fleet and its business and operations have been impacted by the coronavirus pandemic, both of which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 24. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

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.

 

 

Dallas, Texas

May 12, 2020

 

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

 

  

Petrogress, Inc.

CONSOLIDATED FINANCIAL STATEMENTS

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Consolidated Statements of Comprehensive Income / (Loss)

 

 

Petrogress, Inc.

CONSOLIDATED FINANCIAL STATEMENTS

____

 

Consolidated Balance Sheets

 

 

Petrogress, Inc.

CONSOLIDATED FINANCIAL STATEMENTS

____

 

Consolidated Statements of Cash Flow

 

 

Petrogress, Inc.

CONSOLIDATED FINANCIAL STATEMENTS

____

 

Consolidated Statements of Shareholders’ Equity