UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
10-Q
(Mark one)
|
|
For the quarterly period Quarterly Periodended:March 31, 20120920
or
|
|
For the transition period from _________________________________________ to _________________________________________________
Commission File Number: 000-55854
PETROGRESS, INC.
| ||
(Exact name of registrant as specified in its charter) | ||
Delaware | 27-2019626 | |
(State or other jurisdiction of incorporation of organization) | (I.R.S. Employer Identification No.) |
1, Akti Piraeus 18538 - Greece |
| ||
(Address of principal executive |
| ||
+30 (210) 459-9741 | ||
(Registrant’s telephone number, including area code) | ||
| NONE | ||
(Former name or former address, if changed since last report) | ||
Securities registered pursuant to Section 12(b) of the Act: | ||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, par value $0.001 per share | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports requiredreport to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [ X ]☑ No [ ]☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [ X ]☑ No [ ]☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | Smaller reporting company | ☑ | |
|
| |||
|
|
|
| |
Emerging growth company |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ]☐ No [X]☑
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
|
|
|
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: The number ofThere were, 7,123,884 shares of the registrant’s Common Stock, par value $0.001 per share,Company’s common stock outstanding as of May 15, 2019 was 3,874,808.on June 26th 2020.
EXPLANATORY NOTE
Petrogress, Inc. (“Petrogress”) is filing this quarterly report on Form 10-Q after the May 15, 2020 (the “Original Due Date”) deadline applicable to for the filing of a Form 10-Q for the quarter ended March 31, 2020 (the “Quarterly Report”) in reliance on the 45-day extension provided by an order issued by the U.S. Securities and Exchange Commission (the “SEC”) under Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), dated March 4, 2020 (Release No. 34-88318), as modified and superseded by a new SEC order issued on March 25, 2020 (Release No. 34-88465) (collectively, the “order”).
On May 14, 2020, Petrogress filed a Current Report on Form 8-K to indicate its intention to rely on the Order for such extension. Consistent with its statements made in the Form 8-K, Petrogress was unable to file the Quarterly Report by the Original Due Date, and therefore relied on the Order. Due to the circumstances and uncertainty surrounding the effects of the COVID-19 pandemic on the business, employees, consultants and service providers of Petrogres, and considering the lack of time for the compilation, dissemination and review of the information required to be presented and the importance of markets and investors receiving materially accurate information in the Quarterly Report, the Quarterly Report is hereby filed before the extended due date permitted under the Order, i.e. 45 days after the Original Due Date, or June 29, 2020.
Table of Contents
| ||
|
| |
|
| |
|
| |
| ||
| 2 | |
PART I | ||
FINANCIAL INFORMATION | ||
Item 1. | Consolidated Financial Statements | |
Consolidated Statement of Comprehensive Income for the three months ended March 31, 2020 and 2019 | 3 | |
Consolidated Balance Sheet at March 31, 2020 and December 31, 2019 | 4 | |
Consolidated Statement of Cash Flows for the three months Ended March 31, 2020 and 2019 | 5 | |
Consolidated Statement of Equity for the three months Ended March 31, 2020 and 2019 | 6 | |
Notes to Consolidated Financial Statements | 7-12 | |
Item | Management’s Discussion and Analysis of the Financial Condition and Results of Operations |
|
12-19 | ||
Item | Quantitative and Qualitative Disclosures About Market |
|
19 | ||
Item | Controls and Procedures |
|
PART II | ||
OTHER INFORMATION | ||
| ||
Legal Proceedings | 20 | |
Item |
| |
Risk Factors | 20 | |
Item |
| |
|
| |
21 | ||
Item | Defaults Upon Senior Securities |
|
21 | ||
Item | Mine Safety |
|
21 | ||
Item | Other Information |
|
21 | ||
Item | Exhibits |
|
Signatures |
| |
INTRODUCTORY COMMENTPETROGRESS, INC.
Throughout this Quarterly Report on Form 10-Q (the “Report”)
Unless the context otherwise indicates, references to “Petrogress Inc.” “we”, the terms “we,” “us,” “our,” “Petrogress,”“our”, or “us”, or the “Company” refersin this Form 10-Q are references to Petrogress Inc., aInc, -a Delaware corporationcorporation- including its wholly owned and majority-owned subsidiaries, and its subsidiaryownership interests in equity method investees (corporate entities, partnerships, limited liability companies and other ventures over which Petrogress Inc exerts significant influence by virtue of its ownership interest) companies. As of March 31, 2019, ourOur significant subsidiaries were Petrogres Co. Limited, Petronavare “Petronav Carriers LLC, PetrogressLLC.,”, “Petrogress Int’l LLCLLC.” and Petrogres“Petrogres Africa Co. Limited.Limited”.
CAUTION REGARDING CAUTIONARY STATEMENT RELEVANT TOFORWARD-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. The disclosure and analysis set forth in this Report includes assumptions, expectations, projections, intentions and beliefs about future events in a number of places, particularly in relation to our operations, cash flows, financial position, plans, strategies, business prospects, changes and trends in our business and the markets in which we operate. These statements are intended as forward-looking statements. In some cases, predictive, future-tenseWords or forward-looking wordsphrases such as “believe,“anticipates,” “intend,“expects,” “anticipate,“intends,” “estimate,“plans,” “project,“targets,” “forecast,“forecasts,” “plan,“projects,” “potential,“believes,” “seeks,” “schedules,” “estimates,” “positions,” “pursues,” “may,” “should” and “expect”“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.
The reader should not place undue reliance on these forward-looking statements, but are not the exclusive means of identifying such statements.
We caution that the forward-looking statements included in this Report represent our estimates and assumptionswhich speak only as of the date hereof and are not intended to give any assurance as to future results. These forward-looking statements are not statements of historical fact and represent only our management’s belief as of the date hereof, and involve risks and uncertainties that could cause actual results to differ materially and inversely from expectations expressed in or indicated by the forward-looking statements. Assumptions, expectations, projections, intentions and beliefs about future events may, and often do, vary from actual results and these differences can be material. As a result, the forward-looking events discussed in this Report might not occur and our actual results may differ materially from those anticipated in the forward-looking statements. Accordingly, you should not unduly rely on any forward-looking statements.
We undertakereport. Unless legally required, Petrogress undertakes no obligation to update or revisepublicly any forward-looking statements, contained in this, whether as a result of new information, future events a change in our views or expectations or otherwise. New
Among the important factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, maythat could cause actual results to bediffer materially different from those contained 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; public health crises, such as pandemics (including coronavirus (COVID-19)) and epidemics, and any related government policies and actions; 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 during the COVID-19 pandemic; 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; the company’s ability to identify and mitigate the risks and hazards inherent in operating in the global energy industry; and the factors set forth under the heading “Risk Factors” on pages 11 through 16 of the company’s 2019 Annual Report on Form 10-K, on pages 25 and 26 of this report and in subsequent filings with the U.S. Securities and Exchange Commission. Other unpredictable or unknown factors not discussed in this report could also have material adverse effects on 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 statement.statements, whether as a result of new information, future events or otherwise.
Part I - Financial Information
Item 1 - Financial Statements
PETROGRESS, INC. AND SUBSIDIARIESPART I – FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETSItem 1 – Financial Statements
PETROGRESS, INC. and SUBSIDIARIES
Consolidated Statement of Comprehensive Income (Loss) (Unaudited)
As of March 31, 2019 | As of December 31, 2018 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | 1,252,785 | 661,010 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $0 and $344,466 as of March 31, 2019 and December 31, 2018, respectively | 5,123,752 | 4,779,432 | ||||||
Claims receivable, net | 547,600 | 547,600 | ||||||
Inventories | 1,218,524 | 417,135 | ||||||
Prepaid expenses and other current assets | 1,066,448 | 1,765,276 | ||||||
Total current assets | 9,209,109 | 8,170,453 | ||||||
Non-Current Assets | ||||||||
Goodwill | 900,000 | 900,000 | ||||||
Vessels and other fixed assets, net | 4,267,066 | 4,450,906 | ||||||
Deferred charges, net | 20,061 | 26,750 | ||||||
Security deposit | 10,584 | 10,638 | ||||||
Total non-current assets | 5,197,711 | 5,388,294 | ||||||
Total Assets | 14,406,820 | 13,558,747 | ||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | 1,931,982 | 1,265,452 | ||||||
Due to related party | 1,213,297 | 1,176,863 | ||||||
Loan facility from related party | 148,900 | 148,900 | ||||||
Accrued Interest | 8,594 | 8,744 | ||||||
Total current liabilities | 3,302,773 | 2,599,959 | ||||||
Total liabilities | 3,302,773 | 2,599,959 | ||||||
Shareholders' equity: | ||||||||
Series A Preferred shares, $100 par value, 100 shares authorized, 100 and 100 shares issued and outstanding as of March 31, 2019 and December 31, 2018 respectively | 10,000 | 10,000 | ||||||
Preferred shares (undesignated), $0.001 par value, 999,900 shares authorized, 0 shares and 0 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively | - | - | ||||||
Shares of Common stock, $0.001 par value, 19,000,000 shares authorized, 3,828,412 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively | 3,829 | 3,829 | ||||||
Additional paid-in capital | 9,535,161 | 9,535,161 | ||||||
Accumulated comprehensive loss | (10,231 | ) | (10,231 | ) | ||||
Retained earnings | 1,466,362 | 1,315,870 | ||||||
Equity attributable to Shareholders of the Company | 11,005,121 | 10,854,629 | ||||||
Non-controlling interests | 98,926 | 104,159 | ||||||
Total liabilities and shareholders' equity | 14,406,820 | 13,558,747 | ||||||
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Revenues: | ||||||||
Revenues from crude oil sales | $ | 616,000 | $ | 1,917,178 | ||||
Revenues from gas oil sales | 1,166,000 | - | ||||||
Revenues for lubricants sales | 113,802 | - | ||||||
Revenues from freights & hires | 252,080 | 194,500 | ||||||
Other Revenues | - | 11,000 | ||||||
Total Revenues | $ | 2,147,882 | $ | 2,122,678 | ||||
Costs and other Deductions: | ||||||||
Costs of goods sold (crude oil) | (572,000 | ) | (1,165,752 | ) | ||||
Costs of goods sold (gas oil) | (745,513 | ) | - | |||||
Costs of goods sold (lubricants) | (35,697 | ) | - | |||||
Total Cost and Other Deductions | $ | (1,353,210 | ) | $ | (1,165,752 | ) | ||
Gross profit | $ | 794,672 | $ | 956,926 | ||||
Operating expenses: | ||||||||
Corporate expenses | (75,748 | ) | (5,063 | ) | ||||
General and administrative expenses | (1,098,716 | ) | (542,872 | ) | ||||
Provisions for losses on accounts receivable | - | - | ||||||
Amortization expense | (8,531 | ) | (6,687 | ) | ||||
Depreciation expense | (154,696 | ) | (197,280 | ) | ||||
Total operating expenses | (1,337,691 | ) | (751,902 | ) | ||||
Operating income / (loss) before other expenses and income tax | $ | (543,019 | ) | $ | 205,024 | |||
Other Income / (expense), net: | ||||||||
Interest and finance expenses | (7,390 | ) | (12,363 | ) | ||||
Amortization of note discount | (99,702 | ) | - | |||||
Change in fair market value of derivative liabilities | (256,808 | ) | - | |||||
Other income / (expense), net | (15,825 | ) | (47,402 | ) | ||||
Total other income / (expense), net | $ | (379,725 | ) | $ | (59,765 | ) | ||
Income / (loss) before income taxes | $ | (922,744 | ) | $ | 145,259 | |||
Income tax expense | - | - | ||||||
Net income / (loss) | $ | (922,744 | ) | $ | 145,259 | |||
Net income / (loss) attributable to: | ||||||||
Shareholders of the Company | (910,397 | ) | 150,492 | |||||
Non-controlling interests | (12,347 | ) | (5,233 | ) | ||||
Other comprehensive loss, net of tax | ||||||||
Foreign currency translation adjustment | - | - | ||||||
Comprehensive income / (loss) | $ | (922,744 | ) | $ | 145,259 | |||
Comprehensive income / (loss) attributable to: | ||||||||
Shareholders of the Company | (910,397 | ) | 150,492 | |||||
Non-controlling interests | (12,347 | ) | (5,233 | ) | ||||
Weighted average number of common shares outstanding | ||||||||
Basic | 4,600,584 | 3,828,412 | ||||||
Diluted | 3,828,412 | |||||||
Basic earnings per share | (0.20 | ) | 0.04 | |||||
Diluted earnings per share | 0.04 | |||||||
TheSee accompanying notes are an integral part of these condensedto consolidated financial statements.
PETROGRESS, INC. ANDand SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEConsolidated Statement of Balance Sheet (Unaudited)
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
(Unaudited) | (Unaudited) | |||||||
Revenues | $ | 2,122,678 | $ | 2,565,264 | ||||
Costs of goods sold | (1,165,752 | ) | (1,406,537 | ) | ||||
Gross profit | 956,926 | 1,158,727 | ||||||
Operating expenses: | ||||||||
Corporate expenses | (5,063 | ) | (300,138 | ) | ||||
Selling, general and administrative expenses | (549,559 | ) | (541,313 | ) | ||||
Depreciation expense | (197,280 | ) | (227,619 | ) | ||||
Total operating expenses | (751,902 | ) | (1,069,070 | ) | ||||
Operating income before other expenses and income taxes | 205,024 | 89,657 | ||||||
Other income/ (expense), net: | ||||||||
Interest and finance expenses | (12,363 | ) | (1,427 | ) | ||||
Other income / (expense), net | (47,402 | ) | 25,614 | |||||
Total other income/ (expense), net | (59,765 | ) | 24,187 | |||||
Income before income taxes | 145,259 | 113,844 | ||||||
Income tax expense | - | - | ||||||
Net income | $ | 145,259 | $ | 113,844 | ||||
Net income attributable to: | ||||||||
Shareholders of the company | 150,492 | 120,480 | ||||||
Non-controlling interests | (5,233 | ) | (6,636 | ) | ||||
| $ | 145,259 | $ | 113,844 | |||||
Other comprehensive income/ (loss) | ||||||||
Foreign currency translation adjustment | - | 724 | ||||||
Comprehensive income | $ | 145,259 | $ | 114,568 | ||||
Comprehensive income attributable to: | ||||||||
Shareholders of the company | 150,492 | 121,204 | ||||||
Non-controlling interests | (5,233 | ) | (6,636 | ) | ||||
| $ | 145,259 | $ | 114,568 | |||||
Weighted average number of shares of Common Stock: | ||||||||
Basic | 3,828,412 | 3,299,234 | ||||||
Diluted | 3,828,412 | 5,293,239 | ||||||
Basic earnings per share | 0.04 | 0.03 | ||||||
Diluted earnings per share | 0.04 | 0.02 | ||||||
At March 31, | At December 31, | |||||||
2020 | 2019 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 387,622 | $ | 391,360 | ||||
Accounts receivable, net | 2,049,256 | 2,011,430 | ||||||
Claims receivable, net | 378,545 | 478,500 | ||||||
Inventories | 1,235,963 | 1,206,612 | ||||||
Prepaid expenses and other current assets | 2,191,023 | 3,143,221 | ||||||
Total current assets | $ | 6,242,409 | 7,231,123 | |||||
Non-Current Assets | ||||||||
Goodwill | 900,000 | 900,000 | ||||||
Contract-related licensing agreements | 258,747 | - | ||||||
| Right of use assets | 553,531 | - | ||||||
Vessels and other fixed assets, net | 4,155,180 | 4,249,763 | ||||||
Deferred charges, net | 9,991 | 15,629 | ||||||
Security deposit | 11,390 | 10,584 | ||||||
Total non-current assets | 5,888,839 | 5,175,976 | ||||||
Total Assets | 12,131,248 | 12,407,099 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | 1,068,883 | 1,402,198 | ||||||
Due to related party | 1,271,450 | 1,271,450 | ||||||
Loan facility from related party | 169,407 | 148,900 | ||||||
Accrued interest | 3,129 | 23,636 | ||||||
| Lease liabilities | 15,477 | - | ||||||
Convertible promissory notes | 296,947 | 237,197 | ||||||
Derivative liabilities | 1,066,685 | 809,877 | ||||||
Total current liabilities | 3,891,978 | 3,893,258 | ||||||
| Non-Current Liabilities | ||||||||
| Lease liabilities | 538,054 | - | ||||||
Total liabilities | 4,430,032 | 3,893,258 | ||||||
Commitments and Contingencies | - | - | ||||||
Shareholders’ equity: | ||||||||
Series A Preferred shares, $100 par value, 100 shares authorized, 100 and 0 shares issued and outstanding as of March 31, 2020 and December 31, 2019. | 10,000 | 10,000 | ||||||
Shares of Common stock, $0.001 par value, 19,000,000 shares authorized, 4,798,201 and 4,446,645 shares issued and outstanding as of March 31, 2020 and December 31, 2019. | 4,798 | 4,447 | ||||||
Additional paid-in capital | 10,183,578 | 10,073,810 | ||||||
Accumulated comprehensive loss | (9,763 | ) | (9,763 | ) | ||||
Retained earnings | (2,545,042 | ) | (1,634,645 | ) | ||||
Equity attributable to Shareholders of the Company | 7,643,571 | 8,443,849 | ||||||
Non-controlling interests | 57,645 | 69,992 | ||||||
Total liabilities and shareholders’ equity | 12,131,248 | 12,407,099 | ||||||
TheSee accompanying notes are an integral part of these condensedto consolidated financial statements.
Petrogress, INC. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
Additional | Accumulated | Non- | Total | |||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in | Comprehensive | Retained | controlling | Shareholders’ | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Loss | Earnings | Total | interest | Equity | |||||||||||||||||||||||||||||||
Balances at December 31, 2017 | 100 | $ | 10,000 | 3,177,452 | $ | 3,098 | $ | 9,100,838 | $ | (7,744 | ) | $ | 1,008,823 | $ | 10,115,015 | $ | 98,758 | $ | 10,213,773 | |||||||||||||||||||||
Common stock issued for convertible notes | - | - | 76,614 | 77 | 209,923 | - | - | 210,000 | - | 210,000 | ||||||||||||||||||||||||||||||
Common stock issued to settle liabilities | - | - | 190,705 | 191 | 457,501 | - | - | 457,692 | - | 457,692 | ||||||||||||||||||||||||||||||
Cancellation of common stock issued for services | - | - | - | - | (146,767 | ) | - | - | (146,767 | ) | - | (146,767 | ) | |||||||||||||||||||||||||||
Common stock issued for board advisory services | - | - | 800 | 80 | 1,416 | - | - | 1,496 | - | 1,496 | ||||||||||||||||||||||||||||||
Common stock issued for accrued interest of LOC | - | - | 382,841 | 383 | - | - | - | 383 | - | 383 | ||||||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | - | (2,487 | ) | - | (2,487 | ) | - | (2,487 | ) | |||||||||||||||||||||||||||
Elimination of Petrogress Africa Ltd apic/due from shareholders | - | - | - | - | (87,750 | ) | - | - | (87,750 | ) | (12,250 | ) | (100,000 | ) | ||||||||||||||||||||||||||
Net income | - | - | - | - | - | - | 307,047 | 307,047 | 17,651 | 324,698 | ||||||||||||||||||||||||||||||
Balances at December 31, 2018 | 100 | $ | 10,000 | 3,828,412 | $ | 3,829 | $ | 9,535,161 | $ | (10,231 | ) | $ | 1,315,870 | $ | 10,854,629 | $ | 104,159 | $ | 10,958,788 | |||||||||||||||||||||
Net income | - | - | - | - | - | - | 150,492 | 150,492 | (5,233 | ) | 145,259 | |||||||||||||||||||||||||||||
Balances at March 31, 2019 | 100 | $ | 10,000 | 3,828,412 | $ | 3,829 | $ | 9,535,161 | $ | (10,231 | ) | $ | 1,466,362 | 11,005,121 | 98,926 | $ | 11,104,047 | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
PETROGRESS, INC. ANDand SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Consolidated Statement of Cash Flows (Unaudited)
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
(Unaudited) | (Unaudited) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 145,259 | $ | 113,844 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Depreciation | 197,280 | 227,619 | ||||||
Change in Fair value of share-based payments issued for services | - | 153,178 | ||||||
Gain on settlement of convertible promissory notes | - | (12,835 | ) | |||||
Changes in working capital: | ||||||||
- (Increase)/ decrease in Accounts receivable, net | (344,320 | ) | (1,632,138 | ) | ||||
- (Increase)/ decrease in Inventories | (801,389 | ) | (1,876 | ) | ||||
- Amounts due from related party | - | 58,529 | ||||||
- (Increase)/ decrease in Prepaid expenses and other current assets | 705,517 | (102,146 | ) | |||||
- (Increase)/ decrease in Security deposit | 54 | - | ||||||
Increase/(decrease) in: | ||||||||
- Increase/ (decrease) in Accounts payable and accrued expenses | 666,530 | 562,692 | ||||||
- Increase/ (decrease) in Amounts due to related party | 36,434 | - | ||||||
- Increase/ (decrease) in Accrued Interest | (150 | ) | 3,196 | |||||
Net cash provided by/ (used in) operating activities | 605,215 | (629,937 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property plant and equipment | (13,440 | ) | (84,600 | ) | ||||
Acquisition of subsidiary | - | - | ||||||
Net cash used in investing activities | (13,440 | ) | (84,600 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from loan facility from related party | - | 63,000 | ||||||
Net cash provided by/ (used in) financing activities | - | 63,000 | ||||||
Effect of exchange rate changes on cash | - | 724 | ||||||
Net (decrease)/ increase in cash and cash equivalents | 591,775 | (650,813 | ) | |||||
Cash and cash equivalents, Beginning of Period | 661,010 | 1,150,999 | ||||||
Cash and cash equivalents, End of Period | $ | 1,252,785 | $ | 500,186 | ||||
Cash paid for interest expense | $ | - | $ | - | ||||
Cash paid for income taxes | $ | - | $ | - | ||||
Non-cash investing and financing activities: | ||||||||
Common stock issued for settlement of notes and interest payable | $ | - | $ | 297,500 | ||||
Common stock issued for settlement of services | $ | - | $ | 210,000 | ||||
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
CASH FLOW FROM OPERATING ACTIVITIES | ||||||||
Net income/ (loss) | $ | (922,744 | ) | $ | 145,259 | |||
Adjustments to reconcile net income/ (loss) to net cash provided by operating activities: | ||||||||
Depreciation expense | 154,696 | 197,280 | ||||||
Provision for losses on accounts receivable | - | - | ||||||
Change in fair value of derivative liabilities | 256,808 | - | ||||||
Share-based compensation expense | 110,119 | - | ||||||
Loss on disposition of fixed assets | - | - | ||||||
Amortization of discount on convertible note | 59,750 | - | ||||||
Amount of derivative in excess of face value of PCN | - | - | ||||||
Loss on settlement of loan facility from related party | - | - | ||||||
Gain/ (loss) on settlement of convertible promissory notes | - | - | ||||||
Elimination of PGAS Africa APIC | - | - | ||||||
Changes in working capital | ||||||||
(Increase)/Decrease in accounts receivable, net | (37,826 | ) | (344,320 | ) | ||||
(Increase)/Decrease in claims receivable, net | 99,955 | - | ||||||
(Increase)/Decrease in inventories | (29,351 | ) | (801,389 | ) | ||||
(Increase)/Decrease in prepaid expenses | 952,198 | 705,517 | ||||||
Increase/(Decrease) in accounts payable and accrued expenses | (333,315 | ) | 666,530 | |||||
Increase/(Decrease) in amounts due to related party | - | 36,434 | ||||||
Increase/(Decrease) in accrued interest | - | (150 | ) | |||||
| Increase/(Decrease) in other liabilities | 0 | - | ||||||
(Increase)/Decrease in security deposit | (806 | ) | 54 | |||||
(Increase)/Decrease in deferred charges, net | 5,638 | - | ||||||
CASH PROVIDED BY OPERATING ACTIVITIES | $ | 315,122 | $ | 605,215 | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchase of property, plant and equipment | (60,113 | ) | (13,440 | ) | ||||
Purchase of vessels and other equipment – related party facility | - | - | ||||||
Purchase of vessels and other equipment | - | - | ||||||
Acquisition of intangible assets | (258,747 | ) | - | |||||
CASH USED IN INVESTING ACTIVITIES | (318,860 | ) | (13,440 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from convertible promissory notes | - | - | ||||||
Proceeds from advances from related party | - | - | ||||||
CASH PROVIDED BY FINANCING ACTIVITIES | $ | - | $ | - | ||||
Effects of exchange rate changes | - | - | ||||||
NET DECREASE IN CASH | (3,738 | ) | 591,775 | |||||
CASH AT BEGINNING OF YEAR | 391,360 | 661,010 | ||||||
CASH AT PERIOD END | $ | 387,622 | $ | 1,252,785 | ||||
TheSee accompanying notes are an integral part of these condensedto consolidated financial statements.
PETROGRESS, INC. and SUBSIDIARIES
Consolidated Statement of Equity (Unaudited)
Total Equity of Petrogress, Inc. Shareholders | ||||||||||||||||||||||||||||||||
Additional | Accumulated | Non- | Total | |||||||||||||||||||||||||||||
Preferred | Common | Paid-in | Retained | Comprehensive | Total | Controlling | Shareholders | |||||||||||||||||||||||||
Shares | Shares | Capital | Earnings | Income (Loss) | Equity | Interest | Equity | |||||||||||||||||||||||||
Three Months Ended March 31, 2019 | ||||||||||||||||||||||||||||||||
Balance at December 31, 2018 | $ | 10,000 | $ | 3,829 | $ | 9,535,161 | $ | 1,315,870 | $ | (10,231 | ) | $ | 10,854,629 | $ | 104,159 | $ | 10,958,788 | |||||||||||||||
Elimination of PGAF apic / due from shareholders | - | - | - | - | - | - | - | |||||||||||||||||||||||||
Net Income | - | - | - | 150,492 | - | 150,492 | (5,233 | ) | 145,259 | |||||||||||||||||||||||
Other comprehensive income (loss) | - | - | - | - | - | - | ||||||||||||||||||||||||||
March 31, 2019 Balance | $ | 10,000 | $ | 3,829 | $ | 9,535,161 | $ | 1,466,362 | $ | (10,231 | ) | $ | 11,005,121 | $ | 98,926 | $ | 11,104,047 | |||||||||||||||
Three Months Ended March 31, 2020 | ||||||||||||||||||||||||||||||||
Balance at December 31, 2019 | $ | 10,000 | $ | 4,447 | $ | 10,073,810 | $ | (1,634,645 | ) | $ | (9,763 | ) | $ | 8,443,849 | $ | 69,992 | $ | 8,513,841 | ||||||||||||||
Shares issued based on convertible notes | - | 325 | 101,381 | - | - | 101,706 | 101,706 | |||||||||||||||||||||||||
Shares issued based on compensations | - | 1 | 287 | - | - | 288 | 288 | |||||||||||||||||||||||||
Shares issued for liabilities settlement | - | 25 | 8,100 | - | - | 8,125 | 8,125 | |||||||||||||||||||||||||
Net loss | - | - | - | (910,397 | ) | - | (910,397 | ) | (12,347 | ) | (922,744 | ) | ||||||||||||||||||||
Other Comprehensive income (loss) | - | - | - | - | - | - | ||||||||||||||||||||||||||
March 31, 2020 Balance | $ | 10,000 | $ | 4,798 | $ | 10,183,578 | $ | (2,545,042 | ) | $ | (9 ,763 | ) | $ | 7,643,571 | $ | 57,645 | $ | 7,701,216 | ||||||||||||||
See accompanying notes to consolidated financial statements.
Petrogress, Inc. and SubsidiariesPETROGRESS, INC.
Notes to CONDENSED Consolidated Financial Statements
(unaudited)Statements (Unaudited)
Note 1. General
Petrogress, Inc (PGI), is an integrate energy company, engaged in the upstream, downstream and midstream segments. The company operates Internationally through its wholly owned subsidiaries "Petrogress Int'l LLC.", "Petronav Carriers LLC.", “Petrogress Africa Ltd.” and “PG Cypyard Offshore terminal Ltd.”. The company also provides sea-transportation services -as an independent established Maritime Company- by our tankers fleet. The company is registered in Delaware and headquartered from Piraeus-Greece, where 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.
Impact of the novel coronavirus (COVID-19) pandemic;The outbreak of COVID-19 and decreases in commodity prices resulting from oversupply and government-imposed travel restrictions have caused a significant decrease in the demand for our products and has created disruptions and volatility in the global marketplace beginning in the first quarter 2020, which negatively affected significantly our results of operations and cash flows. These conditions have persisted into the second quarter, including a further collapse in commodity prices and sea-transportations, and are expected to negatively affect our results of operations and cash flows as well. There remains a continuing uncertainty regarding the length and impact of the COVID-19 pandemic and associated reductions in demand for our products, on the energy industry and the outlook for our business.
The coronavirus pandemic has imposed the continuing lockdown of the Company’s offices in Greece and Africa and the majority of its operations ceased. While our employees, vessel’s crew and labors are staying at their homes and our fleet still remains idle.
The management of the Company assesses the Company’s ability to continue as a going concern at each period end. The assessments evaluate whether there are conditions that give rise to substantial doubts to continue as a going concern within the year from the present issuance of our financial statements. In addition, under the present circumstances and market condition, we believe that our incomes undoubtedly will be heavily affected during the year, and that raises substantial doubt for the company’s ability to continue its business unless the company succeed to raise extra cash financing. See our Risk Factors on page 20 Item 1A.
Basis of Presentation;The accompanying consolidated financial statements of Petrogress and its subsidiaries (together, Petrogress or the company) have not been audited by an independent registered public accounting firm. In the opinion of the company’s management, the interim data includes all adjustments necessary for a fair statement of the results for the interim periods. These adjustments were of a normal recurring nature. The results for the three-month period ended March 31, 2020, are not necessarily indicative of future financial results. The term “earnings” is defined as net income attributable to Petrogress.
Certain notes and other information have been condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the company’s 2019 Annual Report on Form 10-K.
Subsidiaries and Affiliated Companies;The Consolidated Financial Statements include the accounts of controlled subsidiary companies more than 50 percent owned and any variable-interest entities in which the company is the primary beneficiary.
All significant intercompany transactions and accounts have been eliminated.
Principles of consolidation;The consolidated financial statements include the consolidated accounts of the Company and its wholly owned and majority-owned subsidiaries as listed in the below table. Inter-company transaction balances and unrealized gains/(losses) on transactions between the companies are eliminated.
Subsidiaries & Affiliates | Incorporation | Percentage Participation | ||||||
Petrogress Int’l LLC. (PIL) | Delaware | 100 | % | (owned to PG) | ||||
Petronav Carriers LLC. (PCL) | Delaware | 100 | % | (owned to PG) | ||||
Petrogress Africa Co. Ltd. (PGAF) | Ghana | 90 | % | (owned to PGI) | ||||
Petrogress Hellas (PGH) | Greece | 100 | % | (owned to PGI | ||||
PG-Cypyard & Offshore Terminal Ltd. (PGC) | Cyprus | 100 | % | (owned to PGI) | ||||
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.
Note 2. New Accounting Standards
Financial Instruments - BackgroundCredit LossesEffective January 1, 2020, Petrogress adopted Accounting Standards Update (ASU) 2016-13 and Descriptionits related amendments.
Note 3. Information Relating to the Consolidated Statement of BusinessCash Flows
Three Months Ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
(Increase) in Accounts receivable, net | $ | (37,826 | ) | $ | (344,320 | ) | ||
(Increase) in Claims receivable, net | 99,955 | - | ||||||
(Increase)/ decrease in Inventories | (29,351 | ) | (801,389 | ) | ||||
Decrease in Prepaid expenses and other assets | 952,198 | 705,517 | ||||||
Increase/ (decrease) in Accounts payable and accrued expenses | (333,315 | ) | 666,530 | |||||
Increase in Amounts due to related party | - | 36,434 | ||||||
Increase in Accrued interest | - | (150 | ) | |||||
| Increase in other liabilities | 0 | - | ||||||
(Increase)/ decrease in Security deposit | (806 | ) | 54 | |||||
Decrease in Deferred charges, net | 5,638 | - | ||||||
Net increase in operating capital | $ | 656,493 | $ | 262,676 | ||||
Note 4. Operating Segments & Geographic presence
Although each subsidiary of Petrogress is responsible for its own affairs, Petrogress manages the operations in these subsidiaries and Preparationaffiliates. The operations are grouped into three business segments, Upstream, Midstream and Downstream, representing the company’s “operating segments” as described in Item 1, Executive Overview.
The company’s primary country is the United States of America, its country of Domicile; while Greece is the head operating location. Other components of the Company’s operations in Ghana, Nigeria and Cyprus are reported as “International” (outside the United States). 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 agents.
The company evaluate the performance of its operating earnings based on its major’s subsidiaries and goods sales.
(a) | Earnings by major operating subsidiaries and their trading areas are presented in the following table: |
Three months Ended March 31, | |||||||||
Operating Subsidiaries (1) | 2020 | 2019 | |||||||
● Petrogress Int’l LLC. | (Internationally) | $ | 718,000 | $ | 1,928,178 | ||||
● Petronav Carriers LLC. | (Internationally) | 252,080 | 194,500 | ||||||
● Petrogress Africa Co. Ltd. | (Nationally Ghana) | 1,177,802 | - | ||||||
● Petrogress (Hellas) Co. | (Internationally) | - | - | ||||||
Totals | $ | 2,147,882 | $ | 2,122,678 | |||||
(b) | Earnings by products and other services are presented in the following table: |
Three months Ended March 31, | ||||||||
Sales volumes per product & service (2) | 2020 | 2019 | ||||||
● Crude oil | $ | 616,000 | $ | 1,917,178 | ||||
● Gas oil | 1,166,000 | - | ||||||
● Lubricants | 113,802 | - | ||||||
● Vessel’s hires & freights | 252,080 | 194,500 | ||||||
● Others | - | 11,000 | ||||||
Totals | $ | 2,147,882 | $ | 2,122,678 | ||||
Segment Information;Petrogress’ chief operating decision maker is the chief executive officer (“CEO”) of its general partner. The CEO reviews Petrogress’ discrete financial information, makes operating decisions, assesses financial performance and allocates resources on a type of service basis. Petrogress has two reportable segments: Commodities and Other (C&O) revenues and Hires & Freights (H&F). Each of these segments is organized and managed based upon the nature of the products and services it offers.
Segment Sales and Other Operating Revenues; Segment sales and other operating revenues, including internal transfers, for the three-month periods ended March 31, 2020 and 2019, are presented in the following table. Products are transferred between operating segments at internal product values that approximate market prices. Revenues for the upstream segment are derived primarily from the purchase and sale of crude oil, as well as the sale of third-party. Revenues for the downstream segment are derived from the refining and marketing of petroleum products such as gasoline, gas oils, lubricants, residual fuel oils and other products derived from crude oil. Revenues for the midstream segment generated from the vessels chartering and employment of transportation crude oil or refined products, the storing, the wholesale marketing and the retailing in our gas stations. “All Other” activities include revenues from shipping agency service and other operations.
Three Months Ended March 31, | |||||||||
Sales and Other Operating Revenues | 2020 | 2019 | |||||||
Upstream | International | $ | 616,000 | $ | 1,917,178 | ||||
Downstream | International | 1,279,802 | - | ||||||
Midstream | International | 252,080 | 194,500 | ||||||
All others | International | - | 11,000 | ||||||
Total Sales and Other Operating Revenues | $ | 2,147,882 | $ | 2,122,678 | |||||
Note 5. 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.
The table below presents our inventories as of March 31, 2020 and March 31, 2019, respectively:
Commodities and Petroproducts Inventories | March 31, 2020 | March 31, 2019 | ||||||
Crude Oil | $ | 678,000 | $ | - | ||||
Gas Oil | 293,507 | 1,050,000 | ||||||
Lubricants | 127,177 | 41,202 | ||||||
Vessels Inventories & Others | ||||||||
Bunkers R.O.B* | 88,750 | 127,322 | ||||||
Lubricants, provisions, and spare-parts | 48,529 | - | ||||||
Total | $ | 1,235,963 | $ | 1,218,524 | ||||
*Vessels ROB of Gas Oil, lubricants and new spare parts are calculated in the balance sheets separately from goods.
Note 6. Properties, Vessels and Equipment
We depreciate our vessels on a straight-line basis over the estimated useful life which is 10 years from the date of being placed in service by the Company or its affiliate. Depreciation is calculated based on a vessel’s cost less the estimated residual value.
Vessels and other fixed assets, net consisted of the following as of March 31, 2020 and March 31, 2019:
March 31, 2020 | December 31, 2019 | Estimated useful Life left (in years) | |||||||||||
Vessels purchased costs | $ | 10,916,684 | $ | 10,888,423 | 2 | - | 4 | ||||||
Furniture and equipment | 182,764 | 182,764 | 4 | - | 6 | ||||||||
Accumulated depreciation | (6,944,268 | ) | (6,821,424 | ) | |||||||||
Vessels and other fixed assets, net | $ | 4,155,180 | $ | 4,249,763 | |||||||||
* | Depreciation for the three months ended March 31, 2020 and 2019, was $154,696 and $197,280, respectively. |
Note 7. Litigation
There are currently no material pending legal or governmental proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of their property is subject.
Note 8.Other Contingencies and Commitments
The Company is not a party to any litigation, and, to its best knowledge, no action, suit or proceeding has been threatened against the Company.
Note 9. Financial and Derivative Instruments
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 March 31, 2020 and 2019. For amounts over proceeds in the initial derivative measurement, the Company recorded a derivative expense of $99,702 and $0 during the three months ended March 31, 2020 and 2019, respectively. The fair values of the derivative instruments are measured each quarter, which resulted in a loss of $256,808 and $0 during the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, and 2019, the fair market value of the derivatives aggregated $1,066,685 and $0, respectively.
The fair value for the Company's derivative liability as at March 31, 2020 is based upon the following management assumptions:
Minimum | Maximum | |||||||||
Volatility | 272.25 | % | 428.03 | % | ||||||
Risk Free rate | 0.05 | % | 0.12 | % | ||||||
Life | 0.13 | 0.41 | ||||||||
Note 10. Revenue
“Sales and other operating revenue” on the Consolidated Statement of Income primarily arise from contracts with customers and consistent with ASC Topic 606. Related receivables are included in “Accounts and notes receivable, net” on the Consolidated Balance Sheet, net of the current expected credit losses. The net balance of these receivables was $2,049,256 and $2,011,430 at March 31, 2020, and December 31, 2019, respectively. Other items included in “Accounts and notes receivable, net” represent amounts due from partners for their share of joint venture operating and project costs.
Note 11. Earnings (Loss) per Share and Stockholders’ Equity
The table below presents the calculation of basic and diluted net income (loss) attributable to common shareholder per share as of March 31, 2020:
March 31, | ||||||||
Basic EPS Calculation | 2020 | 2019 | ||||||
Net income attributable to common shareholders | $ | (910,937 | ) | $ | 150,492 | |||
Denominator for basic net income per share – weighted average shares | 4,600,584 | 3,828,412 | ||||||
Conversion of accrued interest on debt held by related party | - | - | ||||||
Denominator for diluted net income per share | - | 3,828,412 | ||||||
Basic net earnings per share | (0.20 | ) | 0.04 | |||||
Diluted net earnings per share | - | 0.04 | ||||||
As of March 31, 2020, and 2019, the basic weighted average number of shares of Common Stock of the Company was 4,600,584 and 3,828,412, respectively. Since the Company has a net loss the three months ended March 31, 2020, there is no dilutive effect for those specific periods.
Note 12.Authorized Shares and Transactions
On July 9, 2018, the Company filed an amendment (the “Amendment”) to its 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 of Preferred Stock as a result of the Amendment.
As of March 31, 2020, our authorized capital stock consists; 19,000,000 shares of Common Stock, par value $0.001 per share and 1,000,000 shares of Preferred Stock, par value $0.001 per share.
During the three months ended March 31, 2020 the Company issued 351,556 shares of its common stocks to several consultants and conversion of debt for principal and accrued interest.
Note 13. Leases
During the three months ended March 31, 2020, the Company, through its subsidiaries Petrogress (Hellas), entered into fifteen-years lease agreements for three gas-fueling stations in Greece, to support its operations as an integrate oil energy company. The gas-fueling stations leases are capitalized under the provisions of ASC Topic 842, Leases, and leases related to the Company’s office and other facilities, which are no longer in term than two years, and not material to the Company’s consolidated financial statements, are classified as “Operating Leases”; Operating lease arrangements mainly involve the offices, gas-stations, trucks transportation, vehicles, bareboat charters, and terminals. The lease term includes the committed lease term identified in the contract, taking into account renewal and termination options that management is reasonably to exercise.
The following is a schedule showing the future minimum lease payments under leases for the next five years and the present value of the minimum lease payments as of March 31, 2020:
Years Ending December 31 | Amount | |||
2020 (Remainder) | $ | 84,900 | ||
2021 | 113,200 | |||
2022 | 75,600 | |||
2023 | 75,600 | |||
2024 | 75,600 | |||
Thereafter | 784,300 | |||
Total minimum lease payments | 1,209,200 | |||
Less: Amount representing interest | 655,669 | |||
Present value of minimum lease payments | $ | 553,531 | ||
For the three months ended March 31, 2020 and 2019, right of use lease expense was $9,225 and $0, respectively.
The related lease balance included in the condensed consolidated balance sheet as of March 31, 2020 were as follows:
Amount | ||||
Assets | ||||
Operating lease right-of-use asset | $ | 553,531 | ||
Liabilities | ||||
Lease liability – current portion | 15,477 | |||
Lease liability – long-term portion | 538,054 | |||
Present value of minimum lease payments | $ | 553,531 | ||
Note 14.Subsequent events
On May 27, 2020, Petrogress Int’l (the “Company”) entered into an Amendment No. 2 to Securities Purchase Agreement with Christos Traios, amending the terms of acquisition of Petrogress Africa Limited. As a result, the Company returned 864,000 shares of PGAF (the “Option Shares” representing 72% of the PGAF) for which the Company has not paid the purchase price to date. However, the Company retained ownership of 216,000 of PGAF shares for which remains obliged to pay the purchase price of $1.20 per share in cash to Christos Traios, under the of the Security Purchase Agreement. Future financial statements will be shown as 18 percent equity ownership interest in PGAF, provided the company will comply to its obligations as per amended agreement. The company will account for this investment in future period using the equity method of accounting.
The below tables present the Pro forma information pursuant to Regulation S-X, 11-01 of SEC:
Pro forma condensed consolidated balance sheets | March 31, 2020 | December 31, 2019 | ||||||
Assets | $ | 9,603,350 | $ | 9,781,726 | ||||
Liabilities | 1,478,586 | 967,810 | ||||||
Shareholders’ equity ` | 8,124,764 | 8,813,916 | ||||||
Three Months Ended March 31, | ||||||||
Pro forma condensed statement of operations | 2020 | 2019 | ||||||
Revenues | $ | 953,630 | $ | 2,107,678 | ||||
Net income/ (loss) | (799,272 | ) | 192,648 | |||||
Income/ (loss) per share | (0.17 | ) | 0.05 | |||||
Weighted average number of shares | 4,600,584 | 3,828,412 | ||||||
Item 2 –Management’s Discussion and Analysis of Financial StatementsCondition and Results of Operations
First Quarter 2020 compared with First Quarter 2019
NatureKey Financial Results
Earnings by product sales | Three months ended March 31, | ||||||||
Net sales volumes per product | 2020 | 2019 | |||||||
Crude Oil Sales | $ | 616,000 | $ | 1,917,178 | |||||
Gas Oil Sales | 1,166,000 | - | |||||||
Lubricants Sales | 113,802 | - | |||||||
Hires & Freights Sales | 252,080 | 194,500 | |||||||
Other Revenues/Discounts | - | 11,000 | |||||||
Totals | $ | 2,147,882 | $ | 2,122,678 | |||||
Net loss attributable to Petrogress for first quarter 2020 was $(910,397) (($0.1897) per share), compared to a net income of $150,492 ($0.0393 per share) for the first quarter of 2019. (Amount of losses $494,593 related to Petrogress Inc and includes G/A expenses and derivative liabilities of the Businessconvertible notes).
Refer to the “Results of Operations” section beginning on page 14 for a discussion of our financial results.
Executive Overview
Petrogress, Inc. was incorporated on February 10, 2010 under the laws, is based in Delaware and operates as a holding company and conducts its business through its wholly-owned subsidiaries: Petronav Carriers LLC., which manages day-to-day operations of the Stateits 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 Florida as 800 Commerce, Inc. ("800 Commerce") for the purpose of marketing credit card processing services on behalf of merchant payment processing service providers. On February 29, 2016, 800 Commerce entered into an Agreement concerning the Exchange of Securities ("SEA") with Petrogres Co. Limited, a Marshall Islands corporation,crude oil purchases and its sole shareholder, Christos Traios, a Greek citizen. Under the terms of the SEA, 800 Commerce issued 136,000,000 shares of restricted Common Stock, representing approximately 85% of the post-transaction issued and outstanding shares, to Mr. Traios in exchange for 100% of the shares of Petrogres Co. Limited.sales;
800 Commerce's acquisitionBusiness Environment and Outlook
Petrogress, 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 Petrogres Co. Limited effected a changeour 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 controlthe price of crude oil has impacted the company's results of operations, cash flows, leverage, capital and was accounted for as a "reverse acquisition" whereby Petrogres Co. Limited wasexploratory investment program and production outlook. A sustained lower price environment could result in the acquirer for financial statement purposes. Accordingly, the historical financial statementsimpairment or write-off of 800 Commerce are those of Petrogres Co. Limited and its subsidiaries from their respective inception and those of the consolidated entity subsequentspecific assets in future periods. We have reacted to the February 29, 2016 transaction date.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.
On March 9, 2016,Our midstream segment relies and depends on our Boardcrude oil sales contracts to keep our vessels employed. We rely primarily on the revenues generated from our business of Directors approved an amendmentphysical supply of crude oil and marketing of refined products 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.end customers.
* On November 16, 2016, Petrogress, Inc., filed Articles of Merger and Plan of Merger in Florida and Delaware to change the Company’s domicile by merging with and into a Delaware corporation formed solely for the purpose of effecting the reincorporation.
The Company operates as a fully integrated international merchant of petroleum products, focused on the supply and trade of light petroleum fuel oil (LPFO), refined oil products and other petrochemical products to local refineries in West Africa and Mediterranean countries. The Company operates as a holding company and provides its services primarily through its wholly-owned and majority-owned subsidiaries: Petrogres Co. Limited, which provides management of crude oil purchases and sales; Petronav Carriers LLC, which manages day-to-day operations of our affiliated tanker fleet, currently consisting of four vessels; Petrogress Int’l LLC, which is a holding company for subsidiaries currently conducting business in Cyprus and Ghana. including a 90% interest in Petrogres Africa Co. Limited, which attends to and services our tanker fleet in Ghana.
The accompanying unaudited condensed interim consolidated financial statements (the "Interim Statements") have been prepared pursuant to the rules and regulations for reporting on Securities and Exchange Commission (the "SEC") Form 10-Q. Accordingly, certain information and disclosures required by generally accepted accounting principles for complete consolidated financial statements are not included herein. The Interim Statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC on April 12, 2019. In the opinion of management, all adjustments, consisting of normal recurring adjustments (unless otherwise indicated), necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been reflected herein. The interim results for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any future interim periods.
The Company's management team operates from its principal offices located in Piraeus, Greece.
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, 2018. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year.
Principles of consolidation
The consolidated financial statements of the Company include the consolidated accounts of the Company and its wholly-owned and majority-owned subsidiaries. Our significant subsidiaries are described below.
Petrogres Co. Limited
Petrogres Co. Limited, is a Marshall Islands corporation, incorporated in 2009.
Petronav Carriers LLC
Petronav Carriers LLC, was formed in Delaware in April 2016.
Petrogress Int'l LLC
Petrogress Int’l LLC, is a Delaware limited liability company, acquired by the Company in September 2017.
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.
Note 2 - Summary of Significant Accounting Policies
Cash and Cash Equivalents
We consider all highly liquid investments with an original term of three months or less to be cash equivalents.
Accounts Receivable, net
The amount shown as accounts receivable, 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 March 31, 2019, and December 31, 2018, 0 and $344,466 of allowances for doubtful accounts were recorded.
Inventories
The Company's inventories consist primarily of purchased crude oil for re-sale and gas oil in transit on a marine vessel at the respective balance sheet date, and both are valued at the purchased cost or market using the mark-to-market method of valuation.
Inventories | At March 31, 2019 | At December 31, 2018 | ||||||
Crude Oil (Commodities) | $ | - | $ | 279,196 | ||||
Gas Oil (Bunkers on board) | 127,322 | 137,939 | ||||||
Gas Oil (Commodities) | 1,050,000 | - | ||||||
Lubricants (Commodities) | 41,202 | - | ||||||
Total Inventories | $ | 1,218,524 | $ | 417,135 | ||||
Vessels and other fixed assets, net
We depreciate our vessels on a straight-line basis over the estimated useful life which is 10 years from the date of their transfer to the Company. Depreciation is calculated based on a vessel’s cost less the estimated residual value. The estimated useful lives of vessels and equipment are as follows:
| ||||
|
Income taxes
The Company files income tax returns in various jurisdictions, as appropriate and required. The Company was not subject to U.S. federal, state and local, as applicable, income tax examinations by regulatory taxing authorities for any period prior to January 1, 2012.
We account for income taxes in accordance with 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.
EarningsPer Share
The Company reports earnings per share in accordance with ASC 260, "Earnings per Share." Basic earnings (loss) per share is computed by dividing net income (loss), after deducting preferred stock dividends accumulated during the period, by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing income by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period.
Accounting forEquity-basedPayments
We account for stock awards issued to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees. The measurement date is the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty's performance is complete. Stock awards granted to non-employees are valued at their respective measurement dates based on the trading price of our common stock and recognized as expense during the period in which services are provided.
Comprehensive Income
We adopted ASC Topic 220, "Comprehensive Income." This statement establishes standards for reporting comprehensive income and its components in a financial statement. Comprehensive income as defined includes all changes in equity (net assets) during a period from non-owner sources. Items included in Comprehensive loss consist of cancellation of available-for-sale securities and foreign currency translation adjustments.
Revenue Recognition
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 Petrogres Co. Limited.
Fair Value of Financial Instruments
Our financial instruments consist primarily of cash, accounts receivable, accounts payable and accrued expenses, and convertible debt.
The carrying amount of cash, accounts receivable, accounts payable and accrued expenses, and convertible debt, as applicable, approximates fair value due to the short-term nature of these items and/or the current interest rates payable in relation to current market conditions.
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.
Effects of Recent Accounting Pronouncementsnot yet adopted
In January 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-01, Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). This standard affects the accounting for equity instruments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. In February 2018, the FASB issued ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities”. This update was issued to clarify certain narrow aspects of guidance concerning the recognition of financial assets and liabilities established in ASU No. 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”. This includes an amendment to clarify that an entity measuring an equity security using the measurement alternative may change its measurement approach to a fair valuation method in accordance with Topic 820, Fair Value Measurement, through an irrevocable election that would apply to that security and all identical or similar investments of the same issued. The update is effective for fiscal years beginning after December 15, 2018. We have evaluated the impact of the adoption of this standard and we do not expect this guidance to have a significant impact on our consolidated financial statements and related disclosures.
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 have evaluated the impact on the consolidated financial statements which is immaterial.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” These amendments clarify the definition of a business. The amendments affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The amendments should be applied prospectively as of the beginning of the period of adoption. We have evaluated the impact of the adoption of this standard and we do not expect this guidance to have a significant impact on our consolidated financial statements and related disclosures.
Note 3 - 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. As of March 31, 2019 and December 31, 2018, management is of the opinion that the Company had no significant concentrations of credit risk, except as disclosed in Note 7.
Note 4 - Vessels and other fixed assets, net
Vessels and other fixed assets, net consisted of the following as of March 31, 2019 and December 31, 2018:
Estimated useful | ||||||||||||
March 31, 2019 | December 31, 2018 | Life (in years) | ||||||||||
Marine vessels | $ | 10,171,930 | $ | 10,171,930 | 10 | |||||||
Furniture and equipment | 203,290 | 189,848 | 10 | |||||||||
Accumulated depreciation | (6,108,154 | ) | (5,910,872 | ) | ||||||||
Vessels and other fixed assets, net | $ | 4,267,066 | $ | 4,450,906 | ||||||||
Depreciation for the three months ended March 31, 2019 and March 31, 2018, was $197,280 and $227,619, respectively.
Note 5 - Preferred stock
On July 14, 2017, Christos Traios, our President, Chief Executive Officer and sole Director approved a resolution authorizing the establishment of Series A Preferred Stock (“Series A”). The Series A Preferred Stock consists of 100 shares in total with a re-designated par value of $100 per share. The holder(s) of the Series A shares have rights as a class to a number of votes equal to two (2) times the sum of: (i) the total number of shares of Common Stock which are issued and outstanding at the time of any election or vote by the shareholders; plus (ii) the number of shares of Preferred Stock issued and outstanding of any other class that has voting rights, if any. These voting rights may be exercised for any matter requiring shareholder approval by vote or consent, and may, if required, permit a number of votes in excess of the total number of shares authorized. The holders of the Series A are not entitled to convert the Series A shares into shares of Common Stock or any other class of the Company’s stock. The Series A shares are not be entitled to dividends, but, in the event of liquidation, dissolution or winding up of the Comany, either voluntary or involuntary, the holders of the Series A shares would be entitled to receive out of the assets of the Company, prior to and in preference to any distribution of the assets or surplus funds of the Company to the holders of any other class of preferred stock or the Common Stock, the amount of One Hundred Dollars ($100) per share, and will not be entitled to receive any portion of the remaining assets of the Company except by reason of ownership of shares of any other class of the Company’s stock. The Series A shares are not subject to redemption by the Company.
On October 6, 2017, the Company issued the above 100 Series A shares of Preferred stock to Christos Traios, our President, Chief Executive Officer and sole Director as provided in his employment agreement.
On July 9, 2018, the Company filed the Amendment to the Company's Certificate of Incorporation with the Delaware Secretary of State to, among other things, 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 Preferred Stock.
Note6 - Related party transactions
Officer's compensation
During the three months ended March 31, 2019 and March 31, 2018, the Company recorded officers’ compensation of $45,000 and $60,000, respectively. For the period ended March 31, 2019, $7,129 was paid and the remaining amount was accrued and included in Amounts Due to Related Party on the Consolidated Balance Sheets as of March 31, 2019.
Revolving Line of Credit
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 issued in connection with the Credit Agreement will become due upon the current maturity date, July 13, 2019.
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.
During the three months ended March 31, 2019, the Company recognized revenues totaling $1,917,178 from sales of crude oil to Platon Gas Oil Ghana Limited (“PGO”). These revenues are not subject to the Company’s collaborative arrangement with PGO and are those solely of the Company. No other costs related to the collaborative arrangement have been incurred directly by the Company and a formal accounting to determine profit or loss has not yet occurred.
The table below presents the movement of the amounts due to Christos Traios during the three months ended March 31, 2019:
Amounts due to related party December 31, 2018 | $ | 1,176,863 | ||
Wages accrued to Christos Traios | 45,000 | |||
Wages paid to Christos Traios, in cash | (7,129 | ) | ||
Amount due from Christos Traios | (1,437 | ) | ||
Amounts due to related party March 31, 2019 | $ | 1,213,297 |
Note 7 - Revenue Concentrations
The Company sells to commercial customers in foreign markets. The following is a summary of customers who accounted for more than five percent (5%) of the Company’s revenues for the periods ended March 31, 2019 and 2018:
Customer | March 31, 2019 | March 31, 2018 | ||||||
A | 94 | % | 85 | % | ||||
B | * | 7 | % | |||||
C | 6 | % | * | |||||
The following is a summary of customers who accounted for more than five percent (5%) of the Company’s accounts receivable for the periods ended March 31, 2019 and December 31, 2018:
Customer | March 31, 2019 | December 31, 2018 | ||||||
A | 61 | % | 63 | % | ||||
B | 15 | % | 16 | % | ||||
C | 6 | % | 6 | % | ||||
D | 5 | % | 5 | % | ||||
E | 5 | % | * | |||||
Note 8 – Subsequent Events
On April 1, 2019, Petrogress Int’l LLC and Petrogres Co. Limited entered into a merger agreement, pursuant to which Petrogres Co. Limited was merged with and into Petrogress Int’l LLC, which survived the merger. The merger became effective April 23, 2019.
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 between Petrogress Int’l LLC and Christos P. Traios, pursuant to which the Company purchased its interest in Petrogres Africa Company Limited.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 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).
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview of Business
Petrogress, Inc. was incorporated on February 10, 2010 under the laws of the State of Florida as 800 Commerce, Inc. for the purpose of marketing credit card processing services on behalf of merchant payment processing service providers. On February 29, 2016, 800 Commerce entered into an Agreement concerning the Exchange of Securities with Petrogres Co. Limited, a Marshall Islands corporation, and its sole shareholder, Christos Traios. 800 Commerce issued 136,000,000 shares of restricted Common Stock, representing approximately 85% of the post-transaction issued and outstanding shares, to Mr. Traios in exchange for 100% of the shares of Petrogres Co. Limited.
800 Commerce's acquisition of Petrogres Co. Limited effected a change in control and was accounted for as a "reverse acquisition" whereby Petrogres Co. Limited was the acquirer for financial statement purposes. Accordingly, the historical financial statements of 800 Commerce are those of Petrogres Co. Limited and its subsidiaries from their respective inception and those of the consolidated entity subsequent to the February 29, 2016 transaction date. In connection with the transaction, Mr. Traios was appointed as a director of the Company, and it amended its constituent documents to increase its authorized capital to 490,000,000 shares of Common Stock, par value $0.001, and 10,000,000 preferred shares, par value $0.001.
On March 9, 2016, the Company's Board of Directors approved an amendment to the Articles of Incorporation to change the name of the Company to Petrogress, Inc. On March 15, 2016, Mr. Traios was appointed Chief Executive Officer. On November 16, 2016, Petrogress 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 change of domicile. The Company's name and capitalization remained the same, and the Certificate of Incorporation and Bylaws of the Delaware corporation are the constituent documents of the surviving corporation.
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.Stock as a result of the Amendment.
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. 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.
Response to Market Conditions and COVID-19
During the first quarter of 2020, travel restrictions and other constraints on economic activity were implemented in many locations around the world to limit the spread of the COVID-19 virus. As a result, demand for our products has fallen steeply and commodity prices, including crude oil and other petroleum products, have followed suit. The drop in commodity prices is expected to negatively impact the company’s future financial and operating results. Due to the rapidly changing environment, there continues to be uncertainty and unpredictability around the impact of the COVID-19 pandemic on our results, which could be material. Petrogress, entered into this crisis with a weak balance sheet and low cash liquidity. Accordingly, to protect its long-term health and value, the company is responding to such market condition by adjusting items it can control. Additionally, the company has suspended its repayments of short-terms debts and reduced also the purchase of the crude oil from its suppliers. A number of our vessels crew dismissed to mitigate the daily non-operating expenses of our fleet. Together, these actions are consistent with our financial priorities: to protect our ongoing projects, to prioritize capital spend that drives long-term value and to maintain our position in the energy and shipping market. The company relies in its receivables in order to continue with a sufficient liquidity on its operations.
Refer to the “Cautionary Statements Relevant to Forward-Looking Information” on Page 2 and to “Risk Factors” in Part II, Item 1A, on pages 22 for a discussion of some of the inherent risks that could materially impact the company’s results of operations or financial condition.
Operating sectors
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. 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.
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.
Other Businesses
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.
Our key business segments
The following are descriptions of our recent initiatives undertaken in each of our key business segments:
Upstream; Earnings for the upstream segment are closely aligned with industry prices for crude oil. Crude oil prices are subject to external factors over which the company has no control, including product demand connected with global economic conditions, industry production and inventory levels, technology advancements, production quotas or other actions imposed by the Organization of Petroleum Exporting Countries (OPEC) or other producers, actions of regulators, weather-related damage and disruptions, competing fuel prices, natural and human causes beyond the company's control such as the COVID-19 pandemic, and regional supply interruptions. The company is actively managing its schedule of work, contracting, procurement, and supply chain activities to effectively manage costs, ensure supply chain resiliency and continuity, and support operational goals. The spot markets for many services and materials are softening in response to the economic impact of the COVID-19 pandemic, including the drastic reductions in demand for petroleum products, including gasoline and fuel, among others, and in crude oil prices, which have resulted in significant reductions in economic activity and associated spending in the energy sector. Commodity prices have fallen below break-even levels in many regions.
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.
Earnings for the downstream segment are closely tied to margins on the refining, manufacturing and marketing of products that include gasoline, diesel, fuel oil and lubricants additives, and petrochemicals. Industry margins are sometimes volatile and can be affected by the global and regional supply-and-demand balance for refined products and petrochemicals, and by changes in the price of crude oil, other refinery and petrochemical feedstocks. Industry margins can also be influenced by inventory levels, geopolitical events, costs of materials and services, refinery or chemical plant capacity utilization, maintenance programs, and disruptions at refineries resulting from unplanned outages due to severe weather, fires or other operational events. Other factors affecting profitability for downstream operations include the reliability and efficiency of the company’s refining, marketing, the effectiveness of its crude oil supply functions, and the volatility of tanker-charter rates for the company’s shipping operations, which are driven by the industry’s demand for crude oil and product tankers. Other factors beyond the company’s control include the general level of inflation and energy costs to operate the company’s refining process and marketing, including the changes in tax laws and regulations.
The company’s most significant marketing areas are the West Coast of Africa and East Mediterranean where Petrogress affiliates have significant ownership interests, representations and partnership agreements, in these areas.
Midstream; The outbreak of COVID-19 pandemic occurred the ceased of our entire fleet operations and employments which resulted the complete elimination of freight and hire incomes, while the fleet expenses remained on the same levels during and March, April and May 2020. Nevertheless, we believe the shipping industry will be rectified and return to the normal levels, therefore we still 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.
The company closely monitors developments in the financial and credit markets, the level of worldwide economic activity, and the implications for the Company currently operatesof 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.
Operating Developments
Noteworthy operating developments in recent months included the following:
● | Greece - complete the new 3 Gas/Fueling Stations and rest areas for which we estimate to be start operating by July 2020; |
● | Greece – conclude the concession agreement with Gythio port authorities and take over the management of the port for the next 35 years; |
● | Egypt – conclude the company’s partnership agreement with a national petroleum refinery for the sludges collection from all vessels calling the Egyptian ports; |
● | Egypt – complete the final arrangements for the bunkering location at Port Said and shift-place one of our tankers in position to commence the bunkering operations in the area; |
● | Ghana – conclude the partnership agreement with SONERGON, a manufacturing power-plants company and build the first Power-Plant in Ghana; |
The said projects were interrupted due to COVID-19 outbreak as of March and during the second quarter of 2020 as a fully integrated international merchantresult of petroleum products, focusedtravel restrictions between the countries.
Results of Operations
The following section presents the results of operations and variances on a before-tax basis for the supplycompany’s business operations, as well as for “All Other.”
Our operating revenues are driven primarily of the commodities trading sales and tradeour tankers fleet employment days during which our vessels are generating revenues, while our financial results are subject to a number of light petroleum fuel oil (LPFO), refinedsectors and reflects to the following factors:
Cost of commodities; is the cost we purchase the oil products -mainly the crude oil- and other petrochemicalsuch 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 local refineriesthe 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 Mediterranean countries.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 dry-docking.
Three months ended March 31, | ||||||||
2020 | 2019 | |||||||
Operating Earnings/ (losses) | $ | (543,019 | ) | $ | 145,259 | |||
Operating losses of $(543,019) during the first quarter of 2020, compared to operating earnings of $205,024 for the same period in 2019. The Company operatesdecrease was primarily due to lower crude oil sales prices and the cease of operations as of March 31, 2020.
Consolidated Statement of Income
Sales of products provided in the below table:
Three Months Ended March 31, | |||||||||
Net sales volumes per product | 2020 | 2019 | |||||||
Crude Oil Sales | $ | 616,000 | $ | 1,917,178 | |||||
Gas Oil Sales | 1,166,000 | - | |||||||
Lubricants Sales | 113,802 | - | |||||||
Hires & Freights Sales | 252,080 | 194,500 | |||||||
Other Revenues/Discounts | - | 11,000 | |||||||
Totals | $ | 2,147,882 | $ | 2,122,678 | |||||
Cost of Goods Sold provided in the below table:
Three Months Ended March 31, | |||||||||
Cost of goods sold | 2020 | 2019 | |||||||
Crude Oil purchased costs | $ | (572,000 | ) | $ | (1,165,752 | ) | |||
Gas Oil purchased costs | (745,513 | ) | - | ||||||
Lubricants purchased costs | (35,697 | ) | - | ||||||
Totals | $ | (1,353,210 | ) | $ | (1,165,752 | ) | |||
● | Sales: Total operating sales for the three months ended March 31, 2020 and 2019, were $2,147,882 and $2,122,678, respectively, a decrease of $52 796 or approximately 2%. |
● | Cost of goods sold: for the three months ended March 31, 2020 and 2019, cost of goods sold were $(1,353,210) and $(1,165,752), respectively, an increase of $187,458 or approximately 16%. |
● | Corporate expenses: Corporate expenses mainly include the expenses incurred by Petrogress, Inc. Our Corporate expenses for the three months ended March 31, 2020 and 2019 were $75,748 and $5,063, respectively, an increase of $70,685 or approximately 1496%. |
● | General and administrative expenses: For the three months ended March 31, 2020, General and administrative expenses increased to $1,098,716 compared to $542,872 for the three months ended March 31, 2019, an increase of $555,844 or approximately 202%. |
● | Net income/(loss) attributable PGI:For the three months ended March 31, 2020, the Company had a net loss of $(910,397) while for the three months ended March 31, 2019, the Company had a net income of $150,492, a decrease of $1,060,889 or approximately 605%. |
● | EBITDA:For the three months ended March 31, 2020 amounted to $(922,744) compared to $145,259 to the three months ended March 31, 2019. |
Consolidated results of Operation (after eliminations) | Three Months Ended March 31, | ||||||||
2020 | 2019 | ||||||||
Total Operating Revenues | $ | 2,147,882 | $ | 2,122,678 | |||||
Total Operating Expenses & Cost of Goods Sold* | $ | (2,612,901 | ) | $ | (1,977,419 | ) | |||
* Operating expenses includes, corporate expenses, shipping & logistic, commodities purchase cost, fleet expenses, General and Administrative expenses, and Depreciation expense;
Summarized Financial Data – Subsidiaries
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.
Petrogress Int’l LLC. (PIL)
Petrogress Int’l LLC. (PIL), performs most of the trading of the oil products. PIL, is the company which serves as a holding company and provides its services primarilyfor conducting business across the world through its wholly-ownedaffiliates and majority-owned subsidiaries: Petrogres Co. Limited, which provides management of crude oil purchases and sales; subsidiaries.
Summarized financial information is presented in the following table:
Three Months Ended | |||||||||
March 31 | |||||||||
2020 | 2019 | ||||||||
Sales and other operating revenues | $ | 1,381,501 | $ | 1,951,538 | |||||
Cost and other expenses | (1,321,908 | ) | (1,384,724 | ) | |||||
Net income attributable to Petrogress Int’l LLC.* | $ | 59,593 | $ | 566,814 | |||||
________
* 100% Net income attributable to Petrogress, Inc.
Petronav Carriers LLC, which manages day-to-day operationsLLC. (PCL)
Petronav Carriers LLC., (PCL) is the company that serves as the manager and operator of our tanker fleet currently consisting of four vessels;vessels wholly owned by its five subsidiaries. PCL operates and charter the tankers fleet to PIL and third-party charterers.
Summarized financial information is presented in the following table:
Three Months Ended | |||||||||
March 31 | |||||||||
2020 | 2019 | ||||||||
Sales and other operating revenues | $ | 447,080 | $ | 367,333 | |||||
Cost and other expenses | (778,817 | ) | (632,751 | ) | |||||
Net income/ (loss) attributable to Petronav Carriers LLC. * | $ | (331,737 | ) | $ | (265,418 | ) | |||
________
* 100% Net income/ (loss) attributable to Petrogress, Int'l LLC, which is a holding company for subsidiaries currently conducting business in Cyprus and Ghana, including a 90% interest in Inc.
Petrogress Africa Co. Ltd. (PGAF)
Petrogres Africa Co. Limited, which attendsLtd., (PGAF) is the company that holds a Ghanaian permit and is authorized to conduct local sales of oil trade and servicesservicing as a ship agent within Ghana ports. PGAF, provides the agency and the attendance of our tanker fleet in Ghana.all Ghanaian ports, including the support of any repairs and supplies to our vessels. In addition, PGAF is the distributor of our lubricants.
Summarized financial information is presented in the following table:
Three Months Ended | |||||||||
March 31 | |||||||||
2020 | 2019 | ||||||||
Sales and other operating revenues | $ | 1,194,252 | $ | 15,000 | |||||
Cost and other expenses | (1,317,724 | ) | (67,331 | ) | |||||
Net income/ (loss) attributable to Petrogres Africa Co. Ltd.* | $ | (132,472 | ) | $ | (52,331 | ) | |||
_______
* 90% Net income/ (loss) attributable to Petrogress Int’l LLC.
Petrogress Hellas Branch (PGH)
Petrogress Hellas (PGH) is the branch of PIL in Greece and operates-monitoring and managed the entire day-to-day activities of the company’s subsidiaries. Through PGH, PIL has commenced the Gas-Fueling Stations in Greece.
Summarized financial information is presented in the following table:
Three Months Ended | |||||||||
March 31 | |||||||||
2020 | 2019 | ||||||||
Sales and other operating revenues | $ | 37,368 | $ | 23,360 | |||||
Cost and other expenses | (69,903 | ) | (40,392 | ) | |||||
Net income/ (loss) attributable to Petrogress Hellas Co.* | $ | (32,535 | ) | $ | (17,032 | ) | |||
_______
100% Net income/ (loss) attributable to Petrogress Int’l LLC.
Petrogress, Inc. (PGI)
Petrogress, Inc. (PGI) is the parent holding company of the group and doesn’t make any revenues from operations while it suffers all the necessary operating and general and administrative expenses in order to comply with the regulatory requirements of SEC. The following table presents the results of equity interest PGI has into the subsidiaries:
Three Months Ended | |||||||||
March 31 | |||||||||
2020 | 2019 | ||||||||
Sales and other operating revenues | $ | - | $ | - | |||||
Corporate, Administrative and other expenses | (494,593 | ) | (101,267 | ) | |||||
Net income/ (loss) attributable to Petrogress, Inc.* | $ | (494,593 | ) | $ | (101,267 | ) | |||
_______
Net income/ (loss) attributable from ownership interest of the subsidiaries.
Revenue Concentrations
The Company's management team operates from its principal offices located in Piraeus, Greece.
Resultsfollowing table is a summary of Operations
Comparisoncustomers who accounted for more than ten percent (10%) of Three Months Ended March 31, 2019 and 2018
The Company has recognizedthe Company’s revenues for the three months ended March 31, 20192020 and 2018, as follows:2019:
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Crude oil net sales | $ | 1,917,178 | $ | 2,173,264 | ||||
Gas oil net sales | - | 332,000 | ||||||
Hire-Freights | 194,500 | - | ||||||
Other | 11,000 | 60,000 | ||||||
Totals | $ | 2,122,678 | $ | 2,565,264 | ||||
Customer | March 31, 2020 | March 31, 2019 | |||||||
A | 29 | % | 94 | % | |||||
B | 25 | % | * | ||||||
C | 18 | % | * | ||||||
D | 11 | % | * | ||||||
Total revenuesSummary of customers who accounted for more than ten percent (10%) of the Company’s accounts receivable for the three monthsperiods ended March 31, 2020 and December 31, 2019 decreased by $442,586 or approximately 17%. The decrease in sales revenue foris showing on the three months endedbelow table:
Customer | March 31, 2020 | December 31, 2019 | |||||||
A | 29 | % | 55 | % | |||||
| B | 25 | % | * | ||||||
C | 13 | % | 23 | % | |||||
| D | 11 | % | * | ||||||
● | None of the balances listed in the table above have become overdue as of March 31, 2020. |
● | Amounts indicated with an * denote amounts less than 10%. |
Liquidity & Capital Resources
Our main sources of liquidity are cash and cash equivalents, accounts receivable and internally generated cash flow from operations. At March 31, 2019 resulted from the lack2020, we had a working capital of sales$2,336,944 consisting of Gas Oil to third parties. Consequently,$387,622 in cash and cash equivalents, $2,049,256 in accounts receivable, $378,545 in claims receivable, $1,235,963 in inventories as at March 31, 2019 and 2018 were $1,218,524$2,191,023 in prepaid expenses and $417,135, respectively, an increase of $801,389 or approximately 192%.
Directly related to our sales activity and volumes, we experienced the following cost of sales amounts for the three months ended March 31, 2019 and 2018:
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Crude oil purchase cost | $ | 1,165,752 | $ | 1,072,221 | ||||
Gas oil purchase cost | - | 294,000 | ||||||
Shipping expenses | - | 40,316 | ||||||
Totals | $ | 1,165,752 | $ | 1,406,537 | ||||
Selling, general and administrative expenses for the three months ended March 31, 2019 and 2018 were $542,872 and $541,313, respectively.other current assets.
For the three months ended March 31, 2019, the Company experienced2020, net income of $145,259cash provided by operating activities was $344,086 compared to $605,215 of net income of $113,844cash used in operating activities for the three months ended March 31, 2018.
Liquidity and Capital Resources2019.
AtAssets included in the calculation of the Company’s working capital have decreased by $988,714 mainly from the decrease in inventories which have decreased by $648,649. 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 $59,750 and $256,808 respectively, during the three months ended March 31, 2019 and December 31, 2018, the Company had cash and cash equivalents of $1,252,785 and $661,010, with corresponding working capital of $5,906,336 and $5,570,494, respectively.2020.
The company’s future debt level is dependent primarily on results of operations, cash that may be generated from asset dispositions, the capital program, lending commitments to affiliates, and shareholder contributions. 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 associatedwe suffer in order to comply with SECthe regulatory compliance.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.
Since the reverse acquisition of Petrogres Co. Limited on February 29, 2016, the Company's principal
Cash and Cash Equivalents;The following table presents sources and use of cash are (a) netand cash provided from operating subsidiaries activities, which includes the sale and shipment of petroleum products, and (b) cash contributed to the Company by Christos Traios, our President, Chief Executive Officer, sole Director and controlling stockholder.equivalents:
Three Months Ended March 31, | ||||||||
Sources of cash and cash equivalents | 2020 | 2019 | ||||||
Operating activities | $ | 344,086 | $ | 605,215 | ||||
Borrowing | - | - | ||||||
Others | - | - | ||||||
Total sources of cash and cash equivalents | $ | 344,086 | $ | 605,215 | ||||
Management continuesseeks to seeksecure the necessary financing for the expansion of Company'sCompany’s operations. Additional funding isBased on our current plan, we believe our expected to be generated through equity financingcash flows from the sale of common stock and/or the issuance of debt. If the Company is successful in completing equity financing, existing stockholders will experience dilution of their interest in our Company. Management does not currently have any outside financing arranged and cannot provide investors with any assurance that the Companyoperations will be ablesufficient to finance our present activities and capital expenditures only for a period of the next 6 months. The company needs to raise sufficient funding from the sale of our common stock or debt on acceptable terms to fund our plansa reasonable finance in order to expand the Company's operations.
Our intention to expand ourits operations, increase the oil sales or seek new projects within the energy and shipping industries, however, expansion of existing operations will be subject to the availability of additional financing necessary to support such initiatives.its projects-operations.
Critical Accounting Policies
Our financial statements and related public financial information are based on the application of 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 Note 2 of our accompanying consolidated financial statements. 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.
Item 3 - –Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company asInformation about market risks for the three months ended March 31, 2020, does not differ materially from that discussed under Item 7A of Petrogress’s 2019 Annual Report on Form 10-K.
Item 4 –Controls and Procedures
(a) Evaluation of disclosure controls and procedures
The company’s management has evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the company’s disclosure controls and procedures (as defined by Reg. 240.12b-2 ofin Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, and are not required to provideas amended) as of the information underend of the period covered by this item.
Item 4 - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Christos Traios, ourreport. Based on this evaluation, the Chief Executive Officer and Evangelos Makris, our Chief Financial Officer conducted an evaluation ofconcluded that the effectiveness of the design and operation of the Company'scompany’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act)were effective as of March 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 concluded that the Company's disclosure controls and procedures as of March 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.2020.
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(b) Changes in 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 thatDuring the quarter ended March 31, 2020, there is a lack of segregation of duties due to the fact that the Company only has one director and one executive officer dealing with general administrative and financial matters. This constitutes a significant deficiency in the internal controls. Management has decided that considering the officer and director involved, the control procedures in place, and the outsourcing of certain financial functions, the risks associated with such lack of segregation were low and the potential benefits of adding additional employees to clearly segregate duties did not justify the expenses associated with such increases. Management periodically reevaluates this situation. In light of the Company's current cash flow situation, the Company does not intend to increase staffing to mitigate the current lack of segregation of duties within the general administrative and financial functions.
Changes in Internal Control Over Financial Reporting
There were no changes in ourthe company’s internal controlscontrol over financial reporting during the three months ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, ourthe company’s internal controlscontrol over financial reporting.
Part II - Other InformationPART II – OTHER INFORMATION
Item 1 - – Legal Proceedings
None.Information about legal proceedings for the three months ended March 31, 2020, does not differ materially from that discussed under Item 7A of Petrogress’s 2019 Annual Report on Form 10-K.
Item 1A - – Risk Factors
We are a smaller reporting company as defined by Reg. 240.12b-2Information about risk factors for the three months ended March 31, 2020, does not differ materially from that set forth under the heading “Risk Factors” on pages 11 through 16 of the Securities Exchange Actcompany’s 2019 Annual Report on Form 10-K, other than as reflected in the risk factor below.
Impacts of 1934the novel coronavirus (COVID-19) pandemic and geopolitical factors have resulted in a significant decrease in demand for Petroleum products and caused a precipitous drop in commodity prices, which has had and is expected to continue to have an adverse, and potentially materialadverse, effect on Petrogress’s future financial and operating results.
As of the date of this Quarterly Report on Form 10-Q, the economic, business, and oil and gas industry impacts from the COVID-19 pandemic and the disruption to capital markets have been far reaching. Crude oil prices, the single largest variable that affects the company’s results of operations, have fallen dramatically to historic lows, even going negative in some cases, due to a combination of a severely reduced demand for crude oil, gasoline, jet fuel, diesel fuel, and other refined products resulting from government-mandated travel restrictions and an economic standstill resulting from the COVID-19 pandemic.
As a result, a market imbalance has existed and may continue to exist, with oil supplies vastly exceeding current and expected near-term demand. Although OPEC and other countries have agreed to cut global oil supply, the commitments and actions to date have not matched the dramatic decrease in global demand, which is driving increasing inventory levels with refineries, pipelines and storage facilities at or close to storage capacity in a growing number of locations.
Extended periods of low prices for crude oil are expected to have a material adverse effect on the company’s results of operations, financial condition and liquidity. Among other things, the company’s earnings, cash flows, and capital and exploratory expenditure programs are expected to be negatively affected. As a result, the value of the company’s assets may also become impaired in future periods.
The company’s operations and workforce are being impacted by the COVID-19 pandemic, causing certain operations to be curtailed to various degrees, which may become suspended completely if adverse conditions persist. As a result of decreased demand for its products, the company has made significant cuts to its operations during March and second quarter of 2020, which are expected to negatively impact our future operations, cash flows and assets.
The company’s suppliers and customers are also being heavily impacted by the COVID-19 pandemic and access to materials, supplies, and contracts has been strained. In certain cases, the company has received notices invoking force majeure provisions in supplier contracts and receivables. This strain on the financial health of the company’s customers could put further pressure on the company’s financial results and may negatively impact supply and sales assurance and performance for the company.
In light of the significant uncertainty around the duration and extent of the impact of the COVID-19 pandemic, management is currently unable to develop with any level of confidence estimates and assumptions that may have a material impact on the company’s consolidated financial statements and financial or operational performance in any given period. In addition, the unprecedented nature of such market conditions could cause current management estimates and assumptions to be challenged in hindsight.
There continues to be uncertainty and unpredictability around the impact of the COVID-19 pandemic on our financial and operating results in future periods. The extent to which the COVID-19 pandemic adversely impacts our future financial and operating results, and for what duration and magnitude, depends on several factors that are continuing to evolve, are difficult to predict and, in many instances, are beyond the company's control. Such factors include the duration and scope of the pandemic, including any resurgences of the pandemic, and the impact on our workforce and operations; the negative impact of the pandemic on the economy and economic activity, including travel restrictions and prolonged low demand for our products; the ability of our affiliates, suppliers and partners to successfully navigate the impacts of the pandemic; the actions taken by governments, businesses and individuals in response to the pandemic; the actions of OPEC and other countries that otherwise impact supply and demand and correspondingly, commodity prices; the extent and duration of recovery of economies and demand for our products after the pandemic subsides; and Petrogress ability to keep its cost model in line with changing demand for petroleum products and shipping.
The impact of the COVID-19 pandemic is rapidly evolving, and the continuation or a resurgence of the pandemic could precipitate or aggravate the other risk factors identified in our 2019 Form 10-K, which in turn could further materially and adversely affect our business, financial condition, liquidity, results of operations and profitability, including in ways not requiredcurrently known or considered by us to provide the information under this item.present significant risks.
Item 2 -– Unregistered Sales of Equity Securities and Use of Proceeds
None.The table below presents the issued shares during the quarter ended March 31, 2020:
Period | Total Number of Shares | Class | |||||
Jan. 1 – Jan. 31, 2020 | 180,556 | Common shares | |||||
Feb. 1 – Feb. 29, 2020 | -- | Common shares | |||||
Mar.1 – Mar. 31, 2020 | 171,000 | Common shares | |||||
Total | 351,556 | ||||||
Item 3 -– Defaults Upon Senior Securities
None.None
Item 4 -– Mine Safety Disclosure
None.None
Item 5 - – Other Information
● | During April 2020, the oil prices crashed to zero, while that period the company’s subsidiary PIL left with a large volume of crude oil which purchased through its supplier on fixed price before the market collapse. Furthermore, the sea-transportation impacted negatively resulting the ceased of our fleet as our ships remained idle for long period. The company is doing its utmost to recover such capital damage when the oil market will improve. |
None.
● | During May 2020, the company’s subsidiary towed to Piraeus Shipyard its new purchased vessel to commence her modification as a liquid lubricant carrier. The modification and all drydocking works estimated to be completed within 3-4 months, all going well, while the budget for such modification works estimated to be $700,000. |
Item 6- Exhibits
The following exhibits are filed withinformation required by this Quarterly Report onItem 6 is set forth in the Exhibit Index accompanying this Form 10-Q or are incorporated by reference as described below.10Q
|
|
|
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| ||
Date: June 29, 2020 | PETROGRESS, INC. | ||
| By: | /s/ Christos | |
Christos | |||
President and Chief Executive Officer (Principal Executive Officer) | |||
| By: | /s/ Evangelos Makris | |
Evangelos Makris | |||
Chief Financial Officer (Principal Financial and Accounting Officer) | |||
ExhibitExhibits Index
_____
Exhibit Number | Exhibits Description | Filing date |
10.1 | |||
03/03/2020 | |||
10.2 | 05/28/2020 | ||
31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14a/Rule 14d-14(a)* | Page 24 | |
31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14a/Rule 14d-14(a)* | Page 25 | |
32.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C. | Page 26 | |
32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section | Page 27 | |
101.1 | Interactive data files pursuant to Rule 405 of Regulation S-T* |
|
|
|
|
* Filed herewith
16** Furnished herewith