The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO Consolidated Financial Statements
(Unaudited)
Note 1 – The Company and our Subsidiaries
History and Development of the Company
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. 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.
We maintain our 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.
Business Overview
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.
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.
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. We are also negotiating the lease of Ada shipyard where we expect to provide shelter and repairs facilities to our fleet and customers, and provide additional service and support to offshore oil rigs and platforms around the area of West Africa. 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” given 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 and the Ghanaian authorities. Meanwhile, as a maritime company, we are in the market seeking to add more tankers ships to our fleet.
Apart of our operations described above, we commenced the marketing and distribution of lubricants under an exclusive agreement with Dana Lubricants Company (a company based in Dubai of UAE), which we market through our subsidiary Petrogres Africa Co. Ltd. We view 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.
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 and Cyprus and through our representations in Nigeria. 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.
Description of Significant Subsidiaries
Petronav Carriers LLC.(“PCL”),was formed in Delaware in March 2016 for the purpose of managing the day-to-day operations of four vessels, which are used to transport petroleum products to various countries in West Africa. PCL manages our fleet from its business office at Piraeus, Greece.
Currently PCL owns our vessels through separate wholly-owned subsidiaries described below:
Vessel-Owned Subsidiary
|
|
Incorporation
|
|
Vessel’s name
|
Shiba ship-management Ltd.
|
|
Marshall Islands
|
|
APECUS
|
Danae Marine Ltd.
|
|
Marshall Islands
|
|
OPTIMUS
|
Invictus Marine S.A.
|
|
Marshall Islands
|
|
INVICTUS
|
Entus Marine Ltd.
|
|
Marshall Islands
|
|
ENTUS
|
Petrogress Int’l LLC.(“PIL”), is a Delaware limited liability company. PIL serves as a holding company for interests in various entities conducting business across the world, including Cyprus, the Middle East, and West Africa as an oil energy corporation.
In September 2017, PIL acquired 90% of the shares of Petrogres Africa Company Limited (“Petrogres Africa Co. Ltd”) from Christos Traios, our President, Chief Executive Officer. Petrogres Africa Co. Ltd holds a current Ghanaian Oil business permit, and is authorized to conduct local sales of oil products and operations of a shipping business from the Port of Tema in Greater Accra. Port facilities in Tema provide a service and operations hub for our 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.
On April 1, 2019, Petrogress Int’l LLC. and Petrogres Co. Limited entered into a merger agreement pursuant to which Petrogres Co. Limited, a wholly owned subsidiary of Petrogress, merged with and into PIL, the surviving company. The merger became effective as of April 1, 2019.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The Company follows the accrual basis of accounting in accordance with generally accepted accounting principles (“GAAP”) and has elected a year-end of December 31.
All significant intercompany transactions and accounts have been eliminated.
These interim consolidated financial statements are unaudited; however, in the opinion of our management, these statements reflect all adjustments necessary for a fair statement of the results for the periods reported. All such adjustments are of a normal, recurring nature unless otherwise disclosed. These interim consolidated financial statements, including the notes, have been prepared in accordance with the rules of the SEC applicable to interim period financial statements and do not include all of the information and disclosures required by GAAP for complete financial statements.
These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018as filed with the SEC on April12, 2019. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year or any future interim period.
Principles of consolidation
The consolidated financial statements include the consolidated accounts of the Company and its wholly-owned and majority-owned subsidiaries: Petrogress Int’l LLC., Petronav Carriers LLC., Petrogres Africa Co. Ltd., Petrogres (Hellas), and PG Cypyard & Offshore Services Terminal Ltd. All intercompany balances have been eliminated.
Percentages Participation in subsidiaries
Company
|
|
Participation
|
Petrogress Int’l LLC. (Delaware)
|
|
100% (owned by the corporation)
|
Petronav Carriers LLC. (Delaware)
|
|
100% (owned by the corporation)
|
Petrogres Africa Co. Ltd. (Ghanaian)
|
|
90% (owned by Petrogress Int’l LLC.)
|
Petrogres (Hellas) Branch (Hellenic)
|
|
100% (owned by Petrogress Int’l LLC)
|
PG CYPYARD & Offshore Services Terminal Ltd.
|
|
100% (owned by Petrogress Int’l LLC.)
|
Non-controlling interests
Ownership interests in the Company’s subsidiaries held by parties other than the Company are presented separately from the Company’s equity on the Consolidated Balance Sheet. The amount of consolidated net income attributable to the Company and the non-controlling interests are both presented on the face of the Consolidated Statement of Income.
Emerging Growth Company
We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or “JOBS Act.” Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. As an emerging growth company, we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.
Derivative Liabilities
The Company has 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 Black-Scholes 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
Note 3 - Financial Instruments
The Company has 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 estimated the fair value of these embedded derivatives for convertible debentures using a Black-Scholes model as of September 30, 2019 and December 31, 2018. For amounts over proceeds in the initial derivative measurement, the Company recorded a derivative expense of $158,111 and $0during the nine months ended September 30, 2019 and 2018, respectively. The fair values of the derivative instruments are measured each quarter, which resulted in a loss of $23,441 and $0 during the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, and December 31, 2018, the fair market value of the derivatives aggregated $394,553 and $0, respectively, using the following assumptions: estimated 1-0 year term, estimated volatility of 232.41 – 191.90 %, and a discount rate of 1.78 – 1.77%.
Note 4 – Fair Value Measurements
Our financial instruments consist primarily of cash, accounts receivable, accounts payable and accrued expenses, and convertible debt.
The carrying amount of cash, accounts receivable, accounts payable and accrued expenses, and convertible debt, as applicable, approximates fair value due to the short-term nature of these items and/or the current interest rates payable in relation to current market conditions.
Interest rate risk is the risk that our earnings are subject to fluctuations in interest rates on either investments or on debt. We do not use derivative instruments to moderate exposure to interest rate risk, if any.
Financial risk is the risk that our earnings are subject to fluctuations in interest rates or foreign exchange rates. We do not use derivative instruments to moderate exposure to financial risk, if any.
Fair value measurements are determined under a three-level hierarchy for fair value measurements that prioritizes the inputs to valuation techniques used to measure fair value, distinguishing between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”). Fair value is the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, we primarily use prices and other relevant information generated by market transactions involving identical or comparable assets (“market approach”). We also consider the impact of a significant decrease in volume and level of activity for an asset or liability when compared with normal activity to identify transactions that are not orderly.
The highest priority is given to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Securities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The three hierarchy levels are defined as follows:
Level 1 - Quoted prices in active markets that is unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 - Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly;
Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
Credit risk adjustments are applied to reflect the Company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the Company’s own credit risk as observed in the credit default swap market.
Financial instruments measured at fair value on a recurring basis at September 30, 2019, are summarized as follows:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Fair value of derivatives
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
394,553
|
|
|
$
|
394,553
|
|
Liabilities measured at fair value on a recurring basis at December 31, 2018, are summarized as follows:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Fair value of derivatives
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Note 5 – Information relating to the Consolidated Statement of cash flows
|
|
Nine Months Ended
|
|
|
|
September 30
|
|
|
|
2019
|
|
|
2018
|
|
(Increase)/ decrease in Accounts receivable, net
|
|
$
|
1,643,324
|
|
|
$
|
(533,484
|
)
|
(Increase) in Claims receivable, net
|
|
|
69,100
|
|
|
|
(535,100
|
)
|
(Increase)/ decrease in Inventories
|
|
|
(399,098
|
)
|
|
|
27,718
|
|
(Increase)/ decrease in Prepaid expenses and other assets
|
|
|
(2,014,135
|
)
|
|
|
(825,853
|
)
|
Increase/ (decrease) in Accounts payable and accrued expenses
|
|
|
(275,230
|
)
|
|
|
(94,864
|
)
|
Increase in Amounts due to related party
|
|
|
183,729
|
|
|
|
126,325
|
|
Increase in Accrued interest
|
|
|
2,980
|
|
|
|
9,136
|
|
(Increase)/ decrease in Security deposit
|
|
|
54
|
|
|
|
(3,200
|
)
|
(Increase)/ decrease in Deferred charges, net
|
|
|
11,121
|
|
|
|
(85,024
|
)
|
Net increase in operating capital
|
|
$
|
(778,155
|
)
|
|
$
|
(1,914,346
|
)
|
Net repayment (borrowing) of loans by equity affiliates consisted of the following gross amounts:
|
|
Nine Months Ended
|
|
|
|
September 30
|
|
|
|
2019
|
|
|
2018
|
|
Borrowing of loans by equity affiliates
|
|
$
|
-
|
|
|
$
|
-
|
|
Repayment of loans by equity affiliates
|
|
|
-
|
|
|
|
63,000
|
|
Net repayment of loans by equity affiliates
|
|
$
|
-
|
|
|
$
|
63,000
|
|
Note 6 – Summarized Financial Data – Petrogress, Inc.
Petrogress, Inc.
The management and operation of our business is performed directly and independently by each subsidiary. Assets, inventories, partnership interests, joint venture interests and contracts are held by the subsidiaries. Petrogress, Inc., the parent company, does not have revenues while it suffers all the necessary operating and general and administrative expenses in order to comply with the regulatory requirements of the SEC.
The summarized financial information for the Company and its consolidated subsidiaries as of September 30, 2019 and 2018 are presented in the below tables:
|
|
Nine Months Ended
|
|
|
|
September 30
|
|
|
|
2019
|
|
|
2018
|
|
Sales and other operating revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost and other expenses
|
|
|
(670,676
|
)
|
|
|
(637,190
|
)
|
Net (loss) to PGI
|
|
$
|
(670,676
|
)
|
|
$
|
(637,190
|
)
|
|
|
Nine Months Ended
|
|
|
|
September 30
|
|
|
|
2019
|
|
|
2018
|
|
Current assets
|
|
$
|
167,324
|
|
|
$
|
29,935
|
|
Other assets
|
|
|
7,775
|
|
|
|
45,075
|
|
Current liabilities
|
|
|
(1,459,861
|
)
|
|
|
(697,772
|
)
|
Total Petrogress, Inc. net equity
|
|
$
|
(1,284,762
|
)
|
|
$
|
(622,762
|
)
|
Petronav Carriers LLC.
Petrogress, Inc. owns 100% of the equity interest in Petronav Carriers LLC., the company that serves as the manager and operator of our tanker fleet of four vessels wholly-owned by its four subsidiaries. Summarized financial information is presented in the following table:
|
|
Nine Months Ended
|
|
|
|
September 30
|
|
|
|
2019
|
|
|
2018
|
|
Sales and other operating revenues
|
|
$
|
847,333
|
|
|
$
|
2,209,442
|
|
Cost and other expenses*
|
|
|
(2,180,448
|
)
|
|
|
(1,530,810
|
)
|
Net income/ (loss) to Petronav Carriers LLC. **
|
|
$
|
(1,333,115
|
)
|
|
$
|
678,632
|
|
______________
* Cost and other expenses include the ransom paid as well as all expenses related to the hijacking of one of our vessels.
** 100% Net income attributable to Petrogress, Inc.
Petrogress Int’l LLC.
Petrogress, Inc. owns 100% of the equity interest in Petrogress Int’l LLC., the company which serves as a holding company for conducting business across the world through its affiliates and subsidiaries. Summarized financial information is presented in the following table:
|
|
Nine Months Ended
|
|
|
|
September 30
|
|
|
|
2019
|
|
|
2018
|
|
Sales and other operating revenues
|
|
$
|
8,647,152
|
|
|
$
|
6,287,006
|
|
Cost and other expenses
|
|
|
(7,621,775
|
)
|
|
|
(5,731,321
|
)
|
Net income/ (loss) to Petrogress Int’l LLC.*
|
|
$
|
1,025,377
|
|
|
$
|
555,685
|
|
______________
* 100% Net income attributable to Petrogress, Inc.
Petrogres Africa Co. Ltd.
Petrogress Int’l LLC. owns 90% of the equity interest in Petrogres Africa Co. Ltd., the company that holds a Ghanaian permit and is authorized to conduct local sales of oil trade and servicing as a ship agent within Ghana ports. Summarized financial information is presented in the following table:
|
|
Nine Months Ended
|
|
|
|
September 30
|
|
|
|
2019
|
|
|
2018
|
|
Sales and other operating revenues
|
|
$
|
633,000
|
|
|
$
|
470,257
|
|
Cost and other expenses
|
|
|
(668,943
|
)
|
|
|
(302,891
|
)
|
Net income/ (loss) to Petrogres Africa Co. Ltd.*
|
|
$
|
(35,943
|
)
|
|
$
|
167,366
|
|
______________
* 90% Net income attributable to Petrogress Int’l LLC.
Note 7 – Inventories
Crude oil, Gas oil and bunkers onboard our vessels are recorded at weighted average cost and carried at the lower of cost or net realizable value. Supplies and other items consist principally of items, spare-parts, consumable goods and equipment supplied to our vessel which are valued at weighted average cost and reviewed periodically for obsolescence or impairment when market conditions indicate.
Goods Inventories
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Crude Oil
|
|
$
|
-
|
|
|
$
|
279,196
|
|
Gas Oil
|
|
|
533,500
|
|
|
|
-
|
|
Lubricants
|
|
|
101,585
|
|
|
|
-
|
|
Total Inventories
|
|
$
|
635,085
|
|
|
$
|
279,196
|
|
Note 8 – Properties, Vessels, inventories & equipment
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Vessel’s value, at historical cost
|
|
$
|
3,797,661
|
|
|
$
|
4,354,147
|
|
Bunkers R.O.B.
|
|
|
181,148
|
|
|
|
137,939
|
|
Equipment, Machineries, Fenders, Vehicles & Trucks
|
|
|
75,540
|
|
|
|
96,759
|
|
Total
|
|
$
|
4,054,349
|
|
|
$
|
4,588,845
|
|
* Vessels ROB in Gas Oil and lubricants and new stores of spare parts are calculated and included in the balance sheets separately from goods inventories;
Note 9 – Vessels and other fixed assets, net
We depreciate our vessels on a straight-line basis over the estimated useful life which is 10 years from the date of their transfer to the Company or its affiliate. Depreciation is calculated based on a vessel’s cost less the estimated residual value. The estimated useful lives of vessels and equipment are as follows:
Tanker Vessels (in years)
|
|
|
10
|
|
Supply boats (in years)
|
|
|
10
|
|
Fenders (in years)
|
|
|
10
|
|
Oil hoses (in years)
|
|
|
10
|
|
Vehicles & trucks (in years)
|
|
|
10
|
|
Office equipment and furniture (in years)
|
|
|
10
|
|
Computer hardware (in years)
|
|
|
5
|
|
Vessels and other fixed assets, net consisted of the following as of September 30, 2019 and December 31, 2018:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
Estimated useful
Life (in years)
|
|
Marine vessels
|
|
$
|
10,268,423
|
|
|
$
|
10,171,930
|
|
|
|
10
|
|
Furniture and equipment
|
|
|
182,764
|
|
|
|
189,848
|
|
|
|
10
|
|
Accumulated depreciation
|
|
|
(6,577,986
|
)
|
|
|
(5,910,872
|
)
|
|
|
|
|
Vessels and other fixed assets, net
|
|
$
|
3,873,201
|
|
|
$
|
4,450,906
|
|
|
|
|
|
Depreciation for the nine months ended September 30, 2019 and September 30, 2018, was $671,309 and $693,761, respectively.
Note 10 - Income Taxes
We file income tax returns in various jurisdictions, as appropriate and required. The Company was not subject to U.S. federal, state and local, as applicable, income tax examinations by regulatory taxing authorities for any period prior to January 1, 2012.
We account for income taxes in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 740-10, Income Taxes. We recognize deferred tax assets and liabilities to reflect the estimated future tax effects, calculated at the tax rate expected to be in effect at the time of realization. We record a valuation allowance related to a deferred tax asset when it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.
ASC 740-10 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. We classify interest and penalties as a component of interest and other expenses. To date, we have not incurred any liability for unrecognized tax benefits, including assessments of penalties and/or interest.
We measure and record uncertain tax positions by establishing a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized. Our tax years subsequent to 2011 remain subject to examination by federal and state tax jurisdictions.
Note 11 – 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.
Note 12 - Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivables. Concentrations of credit risk with respect to trade receivables are limited due to the short payment terms dictated by the industry and operating environment.
Note 13 – Officers compensations
During the nine months ended September 30, 2019 and 2018, the Company had recorded officers’ compensation of $215,000 and $110,000, respectively. For the period ended September 30, 2019, $25,045 was paid and the remaining amount was accrued and included in “Amounts Due to Related Party” on the Consolidated Balance Sheets as of September 30, 2019.
Note 14 - Commitments and Contingencies
The Company is not a party to any litigation and, to its knowledge, no action, suit or proceeding has been threatened against the Company.
Note 15 – Shareholders
As of September 30, 2019, we had 49 shareholders on record and 3,956,483 shares of common stock issued and outstanding, the large majority of which were located in the United States and held an aggregate of 557,149 shares of our common stock, representing approximately 14% 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 368,586 shares of our common stock, as of September 30, 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.
Note 16 - Related party transactions
As of April 24, 2019, Petrogress, Inc., Petrogress Int’l LLC. and Christos P. 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).
Note 17 - Loan facility from related party
On October 31, 2018, Christos P. Traios, notified the Company that he was terminating the Revolving Line of Credit Agreement dated July 13, 2017 (the “Credit Agreement”) pursuant to which Mr. Traios provided a revolving line of credit in the principal amount of up to $1,000,000 to the Company. As such, no further advances have been made under the Credit Agreement and existing advances in principal amount of $148,900 under the Line of Credit Note have become due upon the maturity date, July13, 2019; however, the maturity date has been extended to July 13, 2020.
The table below presents the amounts due to Christos Traios during the nine months ended September 30, 2019:
Amounts due to related party December 31, 2018
|
|
$
|
1,176,863
|
|
Wages accrued to Christos Traios
|
|
|
215,000
|
|
Wages paid to Christos Traios, in cash
|
|
|
(25,045
|
)
|
Expenses paid to Christos Traios
|
|
|
(6,226
|
)
|
Amounts due to related party September 30, 2019
|
|
$
|
1,360,592
|
|
Note 18 – Revenue Concentrations
The Company sells to commercial customers in foreign markets. The following is a summary of customers who accounted for more than ten percent (10%) of the Company’s revenues for the periods ended September 30, 2019 and 2018:
Customer
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
A
|
|
|
80
|
%
|
|
|
69
|
%
|
The following is a summary of customers who accounted for more than ten percent (10%) of the Company’s accounts receivable for the periods ended September 30, 2019 and December 31, 2018:
Customer
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
A
|
|
|
32
|
%
|
|
|
60
|
%
|
B
|
|
|
27
|
%
|
|
|
16
|
%
|
C
|
|
|
15
|
%
|
|
|
*
|
|
D
|
|
|
10
|
%
|
|
|
*
|
|
None of the balances listed in the table above have become overdue as of October31, 2019. Amounts indicated with an * denote amounts less than 10%.
Note 19 – Convertible Note
On August 27, 2019, the Company executed a Convertible Note in favor of EMA FINANCIAL LLC., a Delaware limited liability company, in the principal amount of $310,000. The Note bears interest at a rate of 8% per annum. The Note carries an original issue discount of $10,000, to cover the Holder’s monitoring costs associated with the purchase and sale of the Note, which is included in the principal balance of this Note. The company has the right to repay the note in full or partially under the prepayment factors: 110% within 1-60 days, 115% within 61-120 days, and 120% within 121-180 days. After the initial 180 days the holder has the right to convert any outstanding balance of the principal and interest into common stocks shares at a discount of 25% of the lowest trading stock price.
The Company determined that the conversion feature of the Convertible Note represents an embedded derivative since the Note is convertible into a variable number of shares upon conversion. Additionally, the note contains a ratchet provision. The Company determined under ASC 815, that the embedded conversion feature (if offering of common stock is at no consideration or at a price that is lower than the effective conversion price on the date shares are offered for sale, then a ratchet down of effective exercise price to price per share offered for common stock would be used to determine additional shares to be issued). The Company has determined that this ratchet provision indicates that these shares, if issued, are not indexed to the Company’s own stock and, therefore, is an embedded derivative financial liability. Accordingly, all convertible instruments issued after August 27, 2019 are considered derivatives according to the Company’s sequencing policy.
The fair value for the Company's derivative liability as at September 30, 2019 is based upon the following management assumptions:
|
|
Minimum
|
|
|
Maximum
|
|
Volatility
|
|
|
191.90
|
%
|
|
|
232.41
|
%
|
Risk Free rate
|
|
|
1.77
|
%
|
|
|
1.78
|
%
|
Life
|
|
|
0.91
|
|
|
|
1.00
|
|
Note 20 – Subsequent Events
On October 14, 2019, the Board of Directors of Petrogress, Inc. increased the number of members constituting the Board of directors to two and appointed Dr. Demetrios Pierides to serve as a director and Executive Vice President.
On October 22, 2019, Petrogress, Inc. entered into a Securities Purchase Agreement with Christos Traios, a director and officer of the Company, to acquire all of the issued and outstanding shares of capital stock of Libertus Marine Ltd., a Marshall Islands limited liability company, which upon closing became a wholly owned subsidiary of the Company. As consideration for the acquisition, the Company issued to Mr. Traios 142,858 shares of Company Common Stock, par value $0.001 per share. LML was primarily organized to negotiate the purchase of a new vessel to be added to the Company’s fleet. LML has negotiated the purchase of a vessel which is expected to be purchased and delivered within November 2019.
On October 1, 2019, the Company concluded the negotiations to lease two Gas refilling stations in the Main land 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 expect to complete the renovation and have them ready for operations within three months’ time. The gas Stations will be operated by our Hellenic branch in Greece.
Effective as on November 8, 2019, the Company through its subsidiary Libertus Marine Ltd., concluded the acquisition of MV RESTA. Arrangements are in progress to shift the vessel from her delivered Gythio port to the Company’s base at Piraeus port to commence the necessary repairs, reflagging and her re-classification.