UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q10-Q

 

(Mark one)

 

[ X ]☑

Quarterly Report under SectionQUARTERLY REPORT UNDER SECTION 13 or 15(d) of the Securities Exchange Act ofOR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended JuneQuarterly Period 30ended, 201:9June 30, 2020

or

[    ]☐

Transition Report Pursuant to SectionTRANSITION REPORT PURSUANT TO SECTION 13 orOR 15 (d) of the Securities Exchange Act of(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________________________________________________________ to _____________________________________________________________________

 

Commission File Number: 000-55854

 

PETROGRESS, INC.

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 Xaveriou Avenue 5th Xaveriou-5thFloor-

Piraeus 18538 - Greece

18538

(Address of principal executive offices)

(Zip Code)

offices & zip code)

+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)Symbol(s)

Name of each exchange on which registered

NoneCommon 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 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

[X]

☑

Emerging growth company

[X]

☑

 

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]☑

 

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, 23,776,393 shares of the registrant’s Common Stock, par value $0.001 per share,Company’s common stock outstanding as ofon August 13, 2019 was 3,874,808.28th 2020.

 

Page | 1
 

 

Table of Contents

Page

INTRODUCTORY COMMENT

1

 

 

Caution Regarding Forward-Looking Information

1PAGE

Cautionary Statements Relevant to Forward-Looking Information

3

PartPART I - Financial Information

FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements

Consolidated Statement of Comprehensive Income for the six months ended June 30, 2020 and 2019   

4

Consolidated Balance Sheet at June 30, 2020 and December 31, 2019

5

Consolidated Statement of Cash Flows for the six months Ended June 30, 2020 and 2019

6

Consolidated Statement of Equity for the six months Ended June 30, 2020 and 2019

7

Notes to Consolidated Financial Statements

8-11

Item 1 - Financial Statements2.

2

Item 2 - Management'sManagement’s Discussion and Analysis of the Financial Condition and Results of Operations

14

12-18

Item 3 - 3.

Quantitative and Qualitative Disclosures About Market RiskRisks

18

Item 4.

Controls and Procedures

18

  

Item 4 - Controls and Procedures

18

PART II

Part II - Other InformationOTHER INFORMATION

Item 1 - 1.

Legal Proceedings

19

Item 1A.

Item 1A - Risk Factors

19

Item 2.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

19

20

Item 3 - 3.

Defaults Upon Senior Securities

19

20

Item 4 - 4.

Mine Safety DisclosuresDisclosure

19

20

Item 5 - 5.

Other Information

19

20

Item 6 – 6.

Exhibits

1921

Signatures

2022

 

Page | 2
 

 

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

 

CAUTIONARYCAUTIONARY 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. Words or phrases such as “anticipates,” “expects,” “intends,” “plans,” “targets,” “forecasts,” “projects,” “believes,” “seeks,” “schedules,” “estimates,” “positions,” “pursues,” “may,” “could,” “should,” “budgets,” “outlook,” “trends,” “guidance,” “focus,” “on schedule,” “on track,” “is slated,” “goals,” “objectives,” “strategies,” “opportunities” and similar expressions are intended to identify such forward-looking statements.

 

The reader should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Unless legally required, Petrogress undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 

Among the important factors that could cause actual results to differ materially from those in the forward-looking statements are: changing crude oil prices; changing refining, marketing and chemicals margins; our ability to realize anticipated cost savings and expenditure reductions; actions of competitors or regulators; 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;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;

In addition the company’s ability to these assumptionsidentify and matters discussed elsewhere herein, important factors that,mitigate the risks and hazards inherent in our view, could cause actual results to differ materially from those discussedoperating in the forward-looking statements include:

●

general market conditions, including conditions in the shipping or the marine industries;

●

our future operating or financial results;

●

the availability of financing and refinancing;

●

material disruptions in the availability or supply of crude oil or refined petroleum products;

●

our future, pending or recent acquisitions, business strategy, areas of possible expansion, and expected capital spending or operating and maintenance expenses;

●

our ability to successfully identify, consummate, integrate, and realize the expected benefits from acquisitions;

●

our ability to maintain our business in light of our proposed business and location expansion;

●

planned capital expenditures and availability of capital resources to fund capital expenditures;

●

the outcome of legal, tax or regulatory proceedings to which we may become a party;

●

our ability to attract and retain our key suppliers and key customers;

●

our contracts and licenses with governmental entities remaining in full force and effect;

●

increased levels of competition within ourglobal energy industry;

●

our ability to collect accounts receivable;

●

corruption, piracy, militant activities, political instability, terrorism, and ethnic unrest in locations where we may operate;

●

the failure of counterparties to fully perform their contracts with us;

●

our levels of operating and maintenance costs;

●

other important factors described from time to time in our filings with the U.S. Securities and Exchange Commission (the “SEC”).

These factors and the other risks describedfactors 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 20 and 21 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 are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of ouralso 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 statements, whether as a result of new information, future events or otherwise.

 


Page | 3
 

PART I – FINANCIAL INFORMATION

Item 1 –Financial Statements

PETROGRESS, INC. and SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

  

Six Months Ended June 30,

  

Three months Ended June 30,

 
  

2020

  

2019

  

2020

  

2019

 

Revenues:

                

Revenues from crude oil sales

 $749,200   1,917,178   133,200   - 

Revenues from gas oil sales

  622,000   300,000   -   300,000 

Revenues for lubricants sales

  143,501   -   -   - 

Revenues from freights & hires

  218,000   298,500   (34,080)  104,000 

Other Revenues

  34,080   11,000   34,080   - 

Total Revenues

 $1,766,781   2,526,678   133,200   404,000 

Costs and other Deductions:

                

Costs of goods sold (crude oil)

  (1,250,000)  (1,165,752)  (678,000)  - 

Costs of goods sold (gas oil)

  (520,000)  (240,000)  -   (240,000)

Costs of goods sold (lubricants)

  (129,000)  (41,202)  -   (41,202)

Total Cost and Other Deductions

 $(1,899,000)  (1,446,954)  (678,000)  (281,202)

Gross profit

 $(132,219)  1,079,724   (544,800)  122,798 

Operating expenses:

                

Corporate expenses

  (293,168)  (83,611)  (217,420)  (78,548)

General and administrative expenses

  (1,187,591)  (877,563)  (88,875)  (334,691)

Amortization expense

  (8,790)  (6,687)  (259)  - 

Depreciation expense

  (306,895)  (428,048)  (152,199)  (230,768)

Total operating expenses

  (1,796,444)  (1,395,909)  (458,753)  (644,007)

Operating income / (loss) before other expenses and income tax

 $(1,928,663)  (316,185)  (1,003,553)  (521,209)

Other Income / (expense), net:

                

Interest and finance expenses

  (19,638)  (15,493)  (12,248)  (3,130)

Amortization of note discount

  (174,292)  -   (74,590)  - 

Change in fair market value of derivative liabilities

  (886,487)  -   (629,679)  - 

Other income / (expense), net

  (68,152)  (538,302)  (52,327)  (490,900)

Total other income / (expense), net

 $(1,148,569)  (553,795)  (768,844)  (494,030)

Income / (loss) before income taxes

 $(3,077,232)  (869,980)  (1,772,397)  (1,015,239)

Income tax expense

  -   -         

Net income / (loss)

 $(3,077,232)  (869,980)  (1,772,397)  (1,015,239)

Net income / (loss) attributable to:

                

Shareholders of the Company

  (3,077,232)  (861,098)  (1,772,397)  (1,011,590)

Non-controlling interests

  -   (8,882)  -   (3,649)

Other comprehensive loss, net of tax

                

Foreign currency translation adjustment

  -   -   -   - 

Comprehensive income / (loss)

 $(3,077,232)  (869,980)  (1,772,397)  (1,015,239)

Comprehensive income / (loss) attributable to:

                

Shareholders of the Company

  (3,077,232)  (861,098)  (1,772,397)  (1,011,590)

Non-controlling interests

  -   (8,882)  -   (3,649)

Weighted average number of common shares outstanding

                

Basic

  5,136,808   3,842,916   5,136,808   3,857,162 

Diluted

  -   3,842,916   -   3,857,162 

Basic earnings per share

  (0.60)  (0.22)  (0.35)  (0.26)

Diluted earnings per share

  -   (0.22)  -   (0.26)

 

Part I

Financial Information

Item 1 - Financial Statements

PETROGRESS,INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

  

Six Months Ended June 30,

  

Three Months Ended June 30,

 
  

2019

  

2018

  

2019

  

2018

 
                 

Revenues

 $2,526,678  $4,827,154  $404,000  $2,261,890 

Costs of goods sold

  (1,446,954)  (2,689,061)  (281,202)  (1,282,524)

Gross profit

  1,079,724   2,138,093   122,798   979,366 
                 

Operating expenses:

                

Corporate expenses

 $(83,611) $(398,782) $(78,548) $(98,644)

Operating expenses of commodities trade

  (178,931)  (179,510)  (85,805)  (35,408)

Fleet operating expenses

  (380,118)  (187,343)  (122,399)  (67,946)

General and administrative expenses

  (318,514)  (426,891)  (126,487)  (149,077)

Amortization expense

  (6,687)  -   -   - 

Depreciation expense

  (428,048)  (458,680)  (230,768)  (231,061)

Total operating expenses

  (1,395,909)  (1,651,206)  (644,007)  (582,136)

Operating income/ (loss) before other expenses and income taxes

  (316,185)  486,887   (521,209)  397,230 

Other income/ (expense), net:

                

Interest and finance expenses

  (15,493)  (1,427)  (3,130)  - 

Loss on settlement of loan facility from related party

  -   -   -   (160,192)

Other income / (expense), net

  (538,302)  (134,354)  (490,900)  224 

Other income / claims to third parties

  -   -   -   - 

Change in fair market value of derivative liabilities

  -   -   -   - 

Total other income/ (expense), net

  (553,795)  (135,781)  (494,030)  (159,968)

Income before income taxes

  (869,980)  351,106   (1,015,239)  237,262 

Income tax expense

  -   -   -   - 

Net income/ (loss)

 $(869,980) $351,106  $(1,015,239) $237,262 

Net income/ (loss) attributable to:

                

Shareholders of the company

  (861,098)  348,989   (1,011,590)  228,510 

Non-controlling interests

  (8,882)  2,117   (3,649)  8,752 
  $(869,980) $351,106  $(1,015,239) $237,262 
                 

Other comprehensive income/ (loss)

                

Foreign currency translation adjustment

  -   -   -   - 

Comprehensive income/ (loss)

 $(869,980) $351,106  $(1,015,239) $237,262 

Comprehensive income/ (loss) attributable to:

                

Shareholders of the company

  (861,098)  348,989   (1,011,590)  228,510 

Non-controlling interests

  (8,882)  2,117   (3,649)  8,752 
  $(869,980) $351,106  $(1,015,239) $237,262 

Weighted average number of shares of Common Stock:

                

Basic

  3,842,916   3,373,163   3,857,162   3,446,279 

Diluted

  3,842,916   4,352,479   3,857,162   4,425,595 

Basic earnings per share

  (0.22)  0.10   (0.26)  0.07 

Diluted earnings per share

  (0.22)  0.08   (0.26)  0.05 

TheSee accompanying notes are an integral part of theseto consolidated financial statements.

 


Page | 4
 

 

PETROGRESS,, INC. AND INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETSConsolidated Statement of Balance Sheet (Unaudited)

(Unaudited)

 

At June 30,

  

At December 31,

 
 

As of June 30,

2019

  

As of December 31,

2018

  

2020

  

2019

 

ASSETS

                

Current Assets

                

Cash and cash equivalents

 $659,387  $661,010  $154,404  $391,360 

Accounts receivable, net

  4,178,058   4,779,432   1,787,917   2,011,430 

Claims receivable, net

  551,600   547,600   375,145   478,500 

Inventories

  981,063   417,135   377,948   1,206,612 

Prepaid expenses and other current assets

  1,519,480   1,765,276   2,401,798   3,143,221 

Total current assets

 $7,889,588  $8,170,453  $5,097,212   7,231,123 

Non-Current Assets

                

Goodwill

  900,000   900,000   -   900,000 

Contract-related licensing agreements

  258,747   - 

Right of use assets

  617,139   - 

Vessels and other fixed assets, net

  4,036,298   4,450,906   3,983,529   4,249,763 

Deferred charges, net

  20,062   26,750   7,172   15,629 

Security deposit

  10,584   10,638   11,762   10,584 

Total non-current assets

 $4,966,944  $5,388,294   4,878,349   5,175,976 

Total Assets

 $12,856,532  $13,558,747   9,975,561   12,407,099 

LIABILITIES AND SHAREHOLDERS' EQUITY

        

LIABILITIES AND SHAREHOLDERS’ EQUITY

        

Current Liabilities

                

Accounts payable and accrued expenses

 $1,205,499  $1,265,452   1,640,625   1,402,198 

Due to related party

  1,245,839   1,176,863   620,036   1,271,450 

Loan facility from related party

  148,900   148,900   169,407   148,900 

Accrued Interest

  11,724   8,744 

Accrued interest

  3,129   23,636 

Lease liabilities

  21,930   - 

Convertible promissory notes

  313,204   237,197 

Derivative liabilities

  1,696,364   809,877 

Total current liabilities

 $2,611,962  $2,599,959   4,464,695   3,893,258 

Non-Current Liabilities

        

Lease liabilities

  604,471   - 

Total liabilities

 $2,611,962  $2,599,959   5,069,166   3,893,258 
        

Commitments and Contingencies

          -   - 
        

Shareholders' equity:

        

Series A Preferred shares, $100 par value, 100 shares authorized, 100 and 100 shares issued and outstanding as of June 30, 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 June 30, 2019 and December 31, 2018, respectively

  -   - 

Shares of Common stock, $0.001 par value, 19,000,000 shares authorized, 3,874,808 and 3,828,412 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively

  3,875   3,829 

Shareholders’ equity:

        

Series A Preferred shares, $100 par value, 100 shares authorized, 100 and 0 shares issued and outstanding as of June 30, 2020 and December 31, 2019.

  10,000   10,000 

Shares of Common stock, $0.001 par value, 50,000,000 shares authorized, 7,833,562 and 4,446,645 shares issued and outstanding as of June 30, 2020 and December 31, 2019.

  7,834   4,447 

Additional paid-in capital

  9,682,877   9,535,161   9,377,530   10,073,810 

Accumulated comprehensive loss

  (10,231)  (10,231)  (9,763)  (9,763)

Retained earnings

  454,772   1,315,870   (4,479,206)  (1,634,645)

Equity attributable to Shareholders of the Company

  10,141,293   10,854,629   4,906,395   8,443,849 

Non-controlling interests

  103,277   104,159   -   69,992 

Total liabilities and shareholders' equity

 $12,856,532  $13,558,747 

Total liabilities and shareholders’ equity

  9,975,561   12,407,099 

 

TheSee accompanying notes are an integral part of theseto consolidated financial statements.

 


Page | 5
 

 

PETROGRESS,, INC. AND INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Consolidated Statement of Cash Flows (Unaudited)

 

  Six Months Ended June 30, 
  2019  2018 

CASH FLOWS FROM OPERATING ACTIVITIES:

        

Net income/ (loss)

 $(861,980) $351,106 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

        

Depreciation

  428,048   458,680 

Change in Fair value of share-based payments issued for services

  -   153,178 

Share-based compensation expense

  -   1,496 

Gain/ (loss) on settlement of convertible promissory notes

  46   (12,835)

Loss on settlement of loan facility from related party

  -   160,192 

Changes in working capital:

        

- (Increase)/ decrease in Accounts receivable, net

  601,374   (780,048)

- (Increase) in Claims receivable, net

  (4,000)  - 

- (Increase) in Inventories

  (563,928)  (10,608)

- (Increase)/ decrease in Prepaid expenses and other current assets

  245,796   (646,833)

- (Increase)/ decrease in Security deposit

  54   - 

- Decrease in Deferred charges, net

  6,688   - 

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

  87,763   (356,563)

- Increase/ (decrease) in Amounts due to related party

  68,976   98,969 

- Increase/ (decrease) in Accrued Interest

  2,980   3,196 

Net cash provided by/ (used in) operating activities

  11,817   (580,070)
         

CASH FLOWS FROM INVESTING ACTIVITIES:

        

Purchase of property plant and equipment

  (13,440)  (88,154)

Net cash (used in) investing activities

  (13,440)  (88,154)
         

CASH FLOWS FROM FINANCING ACTIVITIES:

        

Proceeds from loan facility from related party

  -   74,000 

Net cash provided by financing activities

  -   74,000 
         

Effect of exchange rate changes on cash

  -   - 
         

Net (decrease) in cash and cash equivalents

  (1,623)  (594,224)
         

Cash and cash equivalents, Beginning of Period

  661,010   1,150,999 
         

Cash and cash equivalents, End of Period

 $659,387  $556,775 
         

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

 $21  $297,500 

Common stock issued for settlement of services

 $25  $210,000 
  

Six Months Ended June 30,

 
  

2020

  

2019

 

CASH FLOW FROM OPERATING ACTIVITIES

        

Net income / (loss)

 $(3,077,232) $(861,980)

Adjustments to reconcile net income/ (loss) to net cash provided by operating activities:

        

Depreciation expense

  306,895   428,048 

Provision for losses on accounts receivable

  -   - 

Change in fair value of derivative liabilities

  629,679   - 

Share-based compensation expense

  424,940   - 

Loss on disposition of fixed assets

  -   - 

Amortization of discount on convertible note

  174,292   - 

Amount of derivative in excess of face value of PCN

  74,590   - 

Loss on settlement of loan facility from related party

  -   - 

Gain / (loss) on settlement of convertible promissory notes

  83,933   46 

Elimination of PGAS Africa APIC

  (755,702)  - 

Changes in working capital

        

(Increase) / Decrease in accounts receivable, net

  223,513   601,374 

(Increase) / Decrease in claims receivable, net

  103,355   (4,000)

(Increase) / Decrease in inventories

  828,664   (563,928)

(Increase) / Decrease in amounts due from related party

  720,000   - 

(Increase) / Decrease in prepaid expenses

  741,423   245,796 

Increase / (Decrease) in accounts payable and accrued expenses

  238,427   87,763 

Increase / (Decrease) in amounts due to related party

  (651,414)  68,976 

Increase / (Decrease) in accrued interest

  -   2,980 

Increase / (Decrease) in lease liabilities

  626,401   - 

(Increase) / Decrease in security deposit

  (1,178)  54 

(Increase) / Decrease in deferred charges, net

  8,457   6,688 

CASH PROVIDED BY OPERATING ACTIVITIES

 $699,043  $11,817 

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

  (875,886)  - 

CASH USED IN INVESTING ACTIVITIES

  (935,999)  (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

  (236,956)  (1,623)

CASH AT BEGINNING OF YEAR

  391,360   661,010 

CASH AT PERIOD END

 $154,404  $659,387 

 

TheSee accompanying notes are an integral part of theseto consolidated financial statements.

 


Page | 6
 

PETROGRESS, INC. and SUBSIDIARIES

Consolidated Statement of Equity (Unaudited)

  

Total Equity of Petrogress, Inc. Shareholders

 
  

Preferred

Shares

  

Common

Shares

  

Additional

Paid-in

Capital

  

Retained

Earnings

  

Accumulated Comprehensive

(Loss)

  

Total

Equity

  Non-Controlling Interest  

Total

Shareholders

Equity

 
Six Months Ended June 30, 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 

Shares issued based on convertible notes

  -   -   -   -   -   -   -   - 

Shares issued based on compensations

  -   21   41,836   -   -   41,836   -   41,857 

Shares issued for liabilities settlement

  -   25   47,475   -   -   47,475   -   47,500 

Elimination of PGAF apic / due from shareholders

  -   -   58,405   -   -   58,405   8,000   66,405 

Net loss

  -   -   -   (861,098)  -   (861,098)  (8,882)  (869,980)

Other Comprehensive income / (loss)

  -   -   -   -   -   -       - 

June 30, 2019 Balance

 $10,000  $3,875  $9,682,877  $454,772  $(10,231) $10,141,293  $103,277  $10,244,570 

Six Months Ended June 30, 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

  -   3,386   351,274   -   -   354,60   -   354,660 

Shares issued based on compensations

  -   1   287   -   -   288   -   288 

Shares issued for liabilities settlement

  -   -   -   -   -   -   -   - 

Elimination of PGAF apic / due from shareholders

  -   -   (1,047,841)  232,671   -   (815,170)  (69,992)  (885,162)

Net loss

  -   -   -   (3,077,232)  -   (3,077,232)  -   (3,077,232)

Other Comprehensive income / (loss)

  -   -   -   -   -   -   -   - 

June 30, 2020 Balance

 $10,000  $7,834  $9,377,530  $(4,479,206) $(9 ,763) $4,906,395  $-  $4,906,395 

 

Petrogress,INC. and Subsidiaries

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

    

Number of

Preferred

  Preferred  

Common Stock

  

Additional

Paid-in

  

Accumulated

Comprehensive

  

Accumulated

Profit/

      

Non-

controlling

  

Total

Shareholders

 

 

 Note Shares  Shares  

Shares

  

Amount

  Capital  Loss  (Deficit)  Total  interest  Equity/(Deficit) 

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 

Net income

    -   -   -   -   -   -   348,989   348,989   2,117   351,106 

Balances at June 30, 2018

    100  $10,000   3,446,877  $3,447  $9,622,910  $(7,744) $1,357,812  $10,986,425  $100,875  $11,087,300 
                                           

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 

Common stock issued to settle liabilities

    -   -   21,396   21   41,836   -   -   41,857   -   41,857 

Common stock issued for services

    -   -   25,000   25   47,475   -   -   47,500   -   47,500 

Elimination of Petrogress Africa Ltd apic/due from shareholders

    -   -   -   -   58,405   -   -   58,405   8,000   66,405 

Net income

    -   -   -   -   -   -   (861,098)  (843,094)  (8,882)  (869,980)

Balances at June 30, 2019

    100  $10,000   3,874,808  $3,875  $9,682,877  $(10,231) $454,772  $10,141,293  $103,277  $10,244,570 

TheSee accompanying notes are an integral part of theseto consolidated financial statements.

 


Page | 7

Petrogress,INC. and Subsidiaries

NOTES TO Consolidated Financial Statements

(unaudited)

 

 

Note 1 – The Company and our SubsidiariesPETROGRESS, INC.

 

History and Development of the CompanyNotes to Consolidated Financial Statements (Unaudited)

Note 1.   General

 

Petrogress, Inc. was incorporated on February 10, 2010 under the laws of the State of Florida as 800 Commerce, Inc. ("800 Commerce"). On February 29, 2016, 800 Commerce entered intoInc (PGI), is an Agreement concerning the Exchange of Securities ("SEA") with Petrogres Co. Limited, a Marshall Islands corporation, and its sole shareholder and founder, Christos Traios. Under the terms of the SEA, 800 Commerce issued 136,000,000 shares of restricted Common Stock, representing approximately 85% of the post-transaction issued and outstanding shares, to Mr. Traios in exchange for 100% of the shares of Petrogres Co. Limited. 800 Commerce's acquisition of Petrogres Co. Limited effected a change in control and was accounted for as a "reverse acquisition" whereby Petrogres Co. Limited was the acquirer for financial statement purposes.

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

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

Wecompany maintain ourits 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;Business OverviewThe 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 second 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.

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 six-month period ended June 30, 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 Hellas (PGH)

Greece

100%

(owned to PGI)

PG-Cypyard & Offshore Terminal Ltd. (PGC)

Cyprus

100%

(owned to PGI)

Note 2.     New Accounting Standards

Financial Instruments - Credit LossesEffective January 1, 2020, Petrogress adopted Accounting Standards Update (ASU) 2016-13 and its related amendments.

Page | 8

Note 3.     Information Relating to the Consolidated Statement of Cash Flows

   

Six Months Ended

 
   

June 30,

 
   

2020

  

2019

 

Decrease in Accounts receivable, net

  $223,513  $601,374 

(Increase) / decrease in Claims receivable, net

   103,355   (4,000)

(Increase) / decrease in Inventories

   828,664   (563,928)

(Increase) / decrease due from related party

   720,000   - 

Decrease in Prepaid expenses and other assets

   741,423   245,796 

Increase in Accounts payable and accrued expenses

   238,427   87,763 

Increase / (decrease) in Amounts due to related party

   (651,414)  68,976 

Increase / (decrease) in Accrued interest

   -   2,980 

Increase in lease liabilities

   626,401   - 

(Increase) / decrease in Security deposit

   (1,178)  54 

Decrease in Deferred charges, net

   8,457   6,688 

Net increase in operating capital

  $2,837,648  $445,704 

Note4. Operating Segments & Geographic presence

 

Although each subsidiary of Petrogress operatesis responsible for its own affairs, Petrogress manages the operations in these subsidiaries and affiliates. The operations are grouped into three business segments, Upstream, Midstream and Downstream, representing the company’s “operating segments” as a holding company and we conduct business primarily through our wholly-owned subsidiaries: Petronav Carriers LLC., which manages day-to-day operations of our affiliated tanker fleet; Petrogress Int’l LLC., which engagesdescribed in crude-oil purchase and sales andItem 1, Executive Overview.

The company’s primary country is the holding companyUnited States of America, its country of Domicile; while Greece is the head operating location. Other components of the subsidiaries that currently conducting business in Greece, Cyprus and Ghana.

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

We provide our customers with services that require sophisticated logistical operations designed to meet their strict oil qualityGhana, Nigeria 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 aroundCyprus are reported as “International” (outside the areas in which we operate. This, together with the capital-intensive nature of our industry and the limited available shuttle vessels in the areas of our operation, represent a significant barrier to entry for competitors. We have devoted our efforts to building a global brand and believe that our customers recognize our brand as representing high quality service and products at each of our locations. We also perform our technical ship operations in-house, which helps us maintain high levels of customer service.

Throughout our history, we have expanded our business capabilities through strategic alliances, select business and vessel acquisitions, and the establishment of new service centers. In February 2019, we commenced negotiations with government of Ghana to lease a free zone land in Takoradi port to build a tanks farm with storage capacity of 100,000 cubic meters. We are also negotiating the lease of Ada shipyard where we expect to provide shelter and repairs facilities to our fleet and customers, and provide additional service and support to offshore oil rigs and platforms around the area of West Africa. Furthermore, we are in the market seeking to add more tankers ships to our fleet.

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


Sales and Marketing

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 and Cyprus and through our representations in Nigeria. Our sales force interacts with our established customers and markets our oil sales and services to local distributors. We believe our level of customer service, years of experience in the industry, and reputation for reliability are significant factors in retaining our customers and attracting new customers. Our sales and marketing approach are designed to create awareness of the benefits and advantages of our sales and services. We are active in industry trade shows and other available public forums.

 

DescriptionThe company evaluate the performance of Significant Subsidiaries

Petronav Carriers LLC. (“PCL”), was formed in Delaware in March 2016 for the purpose of managing the day-to-day operations of four vessels, which are used to transport petroleum products to various countries in West Africa. PCL manages our fleet from its business office at Piraeus, Greece.

Currently PCL owns our vessels through separate wholly-ownedoperating earnings based on its major’s subsidiaries described below:and goods sales.

 

Vessel-Owned Subsidiary(a)

Incorporation

Vessel’s name

Shiba ship-management Ltd.

Marshall Islands

APECUS

Danae Marine Ltd.

Marshall Islands

OPTIMUS

Invictus Marine S.A.

Marshall Islands

INVICTUS

Entus Marine Ltd.

Marshall Islands

ENTUSEarnings by major operating subsidiaries and their trading areas are presented in the following table:

 

   

Six months Ended June 30,

 

Operating Subsidiaries (1)

 

2020

  

2019

 

●   Petrogress Int’l LLC.

(Internationally)

 $1,514,701   1,928,178 

●   Petronav Carriers LLC.

(Internationally)

  252,080   298,500 

●   Petrogres Africa Co Ltd.

(Nationally Ghana)

  -   300,000 

●   Petrogress (Hellas) Co.

(Internationally)

  -   - 

Totals

 $1,766,781  $2,526,678 

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

 

(b)

Earnings by products and other services are presented in the following table:

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

  

Six months Ended June 30,

 

Sales volumes per product & service (2)

 

2020

  

2019

 

●   Crude oil

 $749,200   1,917,178 

●   Gas oil

  622,000   300,000 

●   Lubricants

  143,501   - 

●   Vessel’s hires & freights

  218,000   298,500 

●   Others

  34,080   11,000 

Totals

 $1,766,781  $2,526,678 

 

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

Note Segment Information;2 – Summary of Significant Accounting Policies

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.

Page | 9

Basis of PresentationSegment

The Company follows the accrual basis of accounting in accordance with generally accepted accounting principles (“GAAP”)Sales and has elected a year-end of December 31.

All significant intercompany transactionsOther Operating Revenues; Segment sales 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 resultsother operating revenues, including internal transfers, for the six-month 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 as filed with the SEC on April 12, 2019. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year or any future interim period.


Principles of consolidation

The consolidated financial statements include the consolidated accounts of the Company2020 and our wholly-owned and majority-owned subsidiaries: Petrogress Int’l LLC., Petronav Carriers LLC., Petrogres Africa Co. Ltd. and PG Cypyard & Offshore Services Terminal Ltd.

Percentages Participation in subsidiaries

Company

Participation

Petrogress Int’l LLC. (Delaware)

100% (owned by the corporation)

Petronav Carriers LLC. (Marshall Islands)

100% (owned by the corporation)

Petrogres Africa Co. Ltd. (Ghanaian)

90% (owned by Petrogress Int’l LLC.)

PG CYPYARD & Offshore Services Terminal Ltd.

100% (owned by Petrogress Int’l LLC.)

Non-controlling interests

Ownership interests in the Company’s subsidiaries held by parties other than the Company are presented separately from the Company’s equity on the Consolidated Balance Sheet. The amount of consolidated net income attributable to the Company and the non-controlling interests are both presented on the face of the Consolidated Statement of Income.

Emerging Growth Company

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or “JOBS Act.” Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. As an emerging growth company, we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.

Note 3 – Information relating to the Consolidated Statement of cash flows

  

Six Months Ended

 
  

June 30

 
  

2019

  

2018

 

(Increase)/ decrease in Accounts receivable, net

 $601,374  $(780,048)

(Increase) in Claims receivable, net

  (4,000)  - 

(Increase) in Inventories

  (563,928)  (10,608)

(Increase)/ decrease in Prepaid expenses and other assets

  245,796   (646,833)

Increase/ (decrease) in Accounts payable and accrued expenses

  87,763   (356,563)

Increase in Amounts due to related party

  68,976   98,969 

Increase in Accrued interest

  2,980   3,196 

Decrease in Security deposit

  54   - 

Decrease in Deferred charges, net

  6,688   - 

Net increase in operating capital

 $445,703  $(1,691,887)

Net repayment (borrowing) of loans by equity affiliates consisted of the following gross amounts:

  

Six Months Ended

 
  

June 30

 
  

2019

  

2018

 

Borrowing of loans by equity affiliates

 $-  $- 

Repayment of loans by equity affiliates

  -   63,000 

Net repayment of loans by equity affiliates

 $-  $63,000 


Note 4 – Summarized Financial Data – Petrogress, Inc.

Petrogress, Inc.

The management and operation of our business is performed directly and independently by each subsidiary. Assets, inventories, partnership interests, joint venture interests and contracts are held by the subsidiaries. Petrogress, Inc., the parent company, does not have revenues while it suffers all the necessary operating and general and administrative expenses in order to comply with the regulatory requirements of the SEC.

The summarized financial information for the Company and its consolidated subsidiaries as of June 30, 2019, and 2018 are presented in the below tables:

  

Six Months Ended

 
  

June 30

 
  

2019

  

2018

 

Sales and other operating revenues

 $-  $- 

Cost and other expenses

  (254,038)  (550,793)

Net (loss) to PGI

 $(254,038) $(550,793)

  

Six Months Ended

 
  

June 30

 
  

2019

  

2018

 

Current assets

 $176,993  $29,935 

Other assets

  7,775   45,075 

Current liabilities

  (1,219,369)  (697,772)

Total Petrogress, Inc. net equity

 $(1,034,601) $(622,762)

Petronav Carriers LLC

Petrogress, Inc. owns 100%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 the equity interest in Petronav Carriers LLC, the company that serves as the manager and operator of our tanker fleet of four vessels wholly-owned by its four subsidiaries. Summarized financial information is presented in the following table:

  

Six Months Ended

 
  

June 30

 
  

2019

  

2018

 

Sales and other operating revenues

 $528,333  $1,796,227 

Cost and other expenses*

  (1,674,142)  (1,053,180)

Net income/ (loss) to Petronav Carriers LLC**

 $(1,145,809) $743,047 

______________

* Cost and other expenses include the ransom paidcrude oil, as well as all expenses related to the hijackingsale of onethird-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 vessels.

** 100% Net income attributable to Petrogress Inc.

Petrogress Int’l LLC

Petrogress, Inc. owns 100% of the equity interest in Petrogress Int’l LLC, the company which serves as a holding company for conducting business across the world through its affiliatesgas stations. “All Other” activities include revenues from shipping agency service and subsidiaries. Summarized financial information is presented in the following table:other operations.

 

  

Six Months Ended

 
  

June 30

 
  

2019

  

2018

 

Sales and other operating revenues

 $2,139,178  $- 

Cost and other expenses

  (2,179,311)  (4,150)

Net income/ (loss) to Petrogress Int’l LLC *

 $40,133  $(4,150)

______________

* 100% Net income attributable to Petrogress, Inc.


   

Six months Ended June 30,

 

Sales and Other Operating Revenues

  

2020

  

2019

 

Upstream

International

 $749,200  $1,917,178 

Downstream

International

  765,501   300,000 

Midstream

International

  218,000   298,500 

All others

International

  34,080   11,000 

Total Sales and Other Operating Revenues

 $1,766,781  $2,526,678 

 

Petrogress Africa Co. Ltd.

Petrogress Int’l LLC owns 90% of the equity interest in Petrogres Africa Co. Ltd, the company that holds a Ghanaian permit and is authorized to conduct local sales of oil trade and servicing as a ship agent within Ghana ports. Summarized financial information is presented in the following table:

  

Six Months Ended

 
  

June 30

 
  

2019

  

2018

 

Sales and other operating revenues

 $330,000  $442,795 

Cost and other expenses

  (418,820)  (421,627)

Net income/ (loss) to Petrogres Africa Co. Ltd *

 $(88,820) $21,168 

______________

* 90% Net income attributable to Petrogress Int’l LLC

 

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 June 30, 2020 and December 31, 2019, respectively:

Goods Inventories

 

June 30,

2019

  

December 31,

2018

 

Commodities and Petroproducts Inventories

  

June 30, 2020

  

December 31, 2019

 

Crude Oil

 $-  $279,196   $-  $- 

Gas Oil

  810,000   -    293,018   1,039,020 

Lubricants

  86,004   -    -   59,479 

Total Inventories

 $896,004  $279,196 

Vessels Inventories & Others

         

Bunkers R.O.B.*

   27,839   108,113 

Lubricants

   57,091   - 

Provisions & Stores

   -   - 

Total

  $377,948  $1,206,612 

 

 *Vessels ROB of Gas Oil, lubricants and new spare parts are calculated in the balance sheets separately from goods.

 

Note 6 –. Properties, Vessels inventories & equipment

  

June 30,

2019

  

December 31,

2018

 

Vessel’s value, at historical cost

 $3,940,745  $4,354,147 

Bunkers R.O.B.

  85,059   137,939 

Equipment, Machineries, Fenders, Vehicles & Trucks

  95,554   96,759 

Total

 $4,121,358  $4,588,845 

Note 7 – Vessels and other fixed assets, netEquipment

 

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

Tanker Vessels (in years)

10

Supply boats (in years)

10

Fenders (in years)

10

Oil hoses (in years)

10

Vehicles & trucks (in years)

10

Office equipment and furniture (in years)

10

Computer hardware (in years)

5


 

Vessels and other fixed assets, net consisted of the following as of June 30, 20192020 and December 31, 2018:2019:

 

 

June 30,

2019

  

December 31,

2018

  

Estimated useful

Life (in years)

   

June 30,

2020

  

December 31,

2019

  

Estimated useful

Life left (in years)

 

Marine vessels

 $10,171,930  $10,171,930   10     

Vessels purchased costs

  $10,916,684  $10,888,423   2-4 

Furniture and equipment

  203,290   189,848   10        182,764   182,764   4-6 

Accumulated depreciation

  (6,338,922)  (5,910,872)       (7,115,919)  (6,821,424)     

Vessels and other fixed assets, net

 $4,036,298  $4,450,906       $3,983,529  $4,249,763      

 

Depreciation for the six months ended June 30, 2019 and June 30, 2018, was $428,048 and $458,680, respectively.

*

Depreciation for the six months ended June 30, 2020 and 2019, was $306,895 and $428,048, respectively.

 

Note 8 - Income Taxes

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

We account for income taxes in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 740-10, Income Taxes. We recognize deferred tax assets and liabilities to reflect the estimated future tax effects, calculated at the tax rate expected to be in effect at the time of realization. We record a valuation allowance related to a deferred tax asset when it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.

ASC 740-10 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. We classify interest and penalties as a component of interest and other expenses. To date, we have not incurred any liability for unrecognized tax benefits, including assessments of penalties and/or interest.

We measure and record uncertain tax positions by establishing a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized. Our tax years subsequent to 2011 remain subject to examination by federal and state tax jurisdictions.

Note 9 – Fair Value Measurements

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

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

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

Financial risk is the risk that our earnings are subject to fluctuations in interest rates or foreign exchange rates. We do not use derivative instruments to moderate exposure to financial risk, if any.

Fair value measurements are determined under a three-level hierarchy for fair value measurements that prioritizes the inputs to valuation techniques used to measure fair value, distinguishing between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”). Fair value is the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, we primarily use prices and other relevant information generated by market transactions involving identical or comparable assets (“market approach”). We also consider the impact of a significant decrease in volume and level of activity for an asset or liability when compared with normal activity to identify transactions that are not orderly.

The highest priority is given to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Securities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.


The three hierarchy levels are defined as follows:

Level 1 - Quoted prices in active markets that is unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 - Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly;

Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

Credit risk adjustments are applied to reflect the Company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the Company’s own credit risk as observed in the credit default swap market.

 

Note10 – Revenue Recognition7.   Litigation

 

In May 2014,There are currently no material pending legal or governmental proceedings, other than ordinary routine litigation incidental to the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). This ASUbusiness, to which the Company or any of its subsidiaries is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transferparty or of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. Companies may use either a full retrospective or a modified retrospective approach to adopt these ASUs. On January 1, 2018, the Company adopted ASU 2014-09, using the full retrospective method, which requires reporting entities to apply the standard asany of the earliest period presented in their financial statements. The Company completed its review of its material revenue streams and determined that the adoption of Topic 606 did not have a material impact on the Company’s consolidated statements of operations and consolidated balance sheets.property is subject.

 

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

Page | 10

 

 

Note 11 - 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 industry8.Other Contingencies and operating environment. As of June 30, 2019 and December 31, 2018, management is of the opinion that the Company had no significant concentrations of credit risk.

Note 12 – Officers compensations

During the six months ended June 30, 2019 and June 30, 2018, the Company had recorded officers’ compensation of $90,000 and $110,000, respectively. For the period ended June 30, 2019, $13,738 was paid and the remaining amount was accrued and included in “Amounts Due to Related Party” on the Consolidated Balance Sheets as of June 30, 2019.

Note 13 - Commitments and Contingencies

 

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 14 – Shareholders9. Financial and Derivative Instruments

 

As of June 30, 2019, we had 48 shareholders of recordFinancial 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 3,874,808 shares of common stock issued and outstanding, the large majority of which were locatedare recognized as derivative liabilities in the United StatesCompany’s balance sheet. The Company measures these instruments at their estimated fair value and held an aggregaterecognizes changes in their estimated fair value in results of 475,574 sharesoperations during the period of our common stock, representing approximately 12%change. The Company has estimated the fair value of our outstanding shares of common stock. However, one of the U.S. shareholders of record is Cede & Co.,these embedded derivatives for convertible debentures using a nominee of The Depository Trust Company, which held 336,911 shares of our common stock,Black Scholes model as of June 30, 2020 and 2019. Accordingly, we believe that the shares held by Cede & Co. include shares of common stock beneficially owned by both holdersFor amounts over proceeds in the United States and non-U.S. beneficial owners. We are not aware of any arrangements the operation of which may at a subsequent date result in our change of control.


Note 15 - Related party transactions

As of April 24, 2019, Petrogress, Inc., Petrogress Int’l LLC and Christos P. Traios agreed on an amendment to the Securities Purchase Agreement dated effective as of September 30, 2017, pursuant to whichinitial derivative measurement, the Company purchased its interest in Petrogres Africa Co. Ltd. The amendment adjusts the aggregate purchase price to $900,000, which is to be paid to Mr. Traios on or before October 23, 2019. In the event that the purchase price is not paid in full by the payment date, any outstandingrecorded a derivative expense of $74,590 and unpaid amount of the purchase price is convertible at the option of Mr. Traios, in whole or in part, into shares of Common Stock at a conversion price equal to 65% of the lowest trading price during the last 10 trading days. Notwithstanding the foregoing, the conversion rights are capped at 3,500,000 shares of Common Stock (as such number may be equitably adjusted for stock splits, stock dividends, rights offerings, combinations, recapitalization, reclassifications, extraordinary distributions and similar events by Petrogress).

Note 16 - Loan facility from related party

On October 31, 2018, Christos P. Traios, notified the Company that he was terminating the Revolving Line of Credit Agreement dated July 13, 2017 (the “Credit Agreement”) pursuant to which Mr. Traios provided a revolving line of credit in the principal amount of up to $1,000,000 to the Company. As such, no further advances have been made under the Credit Agreement and existing advances in principal amount of $148,900 under the Line of Credit Note have become due upon the maturity date, July 13, 2019; however, the maturity date has been extended to July 13, 2020.

The table below presents the amounts due to Christos Traios$0 during the six months ended June 30, 2019:2020 and 2019, respectively. The fair values of the derivative instruments are measured each quarter, which resulted in a loss of $629,679 and $0 during the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, and 2019, the fair market value of the derivatives aggregated $1,911,049 and $0, respectively.

The fair value for the Company's derivative liability as at June 30, 2020 is based upon the following management assumptions:

 

Amounts due to related party December 31, 2018

 $1,176,863 

Wages accrued to Christos Traios

  90,000 

Wages paid to Christos Traios, in cash

  (13,738)

Amount due from Christos Traios

  (7,286)

Amounts due to related party June 30, 2019

 $1,245,839 
   

Minimum

  

Maximum

 

Volatility

   302.93%   303.08% 

Risk Free rate

   0.13%   1.77% 

Life

   0.16   1.00 

 

 

Note 17 – 10. Revenue Concentrations

 

The Company sells to commercial“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 foreign markets. The following is a summary of customers who accounted for more than ten percent (10%)“Accounts and notes receivable, net” on the Consolidated Balance Sheet, net of the Company’s revenues for the periods endedcurrent expected credit losses. The net balance of these receivables was $1,787,917 and $2,011,430 at June 30, 2019 and 2018:

Customer

 

June 30, 2019

  

June 30, 2018

 

A

  79%  87%

B

  12%  * 

The following is a summary of customers who accounted for more than ten percent (10%) of the Company’s accounts receivable for the periods ended June 30, 20192020, and December 31, 2018:

Customer June 30, 2019  December 31, 2018 
A  50%  63%
B  20%  16%

None2019, respectively. Other items included in “Accounts and notes receivable, net” represent amounts due from partners for their share of the balances listed in the table above has become overdue as of August 8, 2019. Amounts indicated with an * denote amounts less than 10%.joint venture operating and project costs.

 

 

Note 181. Earnings / (Losses) per Share and Shareholders’ Equity

The table below presents the calculation of basic and diluted net income / (loss) attributable to common shareholders per share as of June 30, 2020:

  

June 30,

 

Basic EPS Calculation

 

2020

  

2019

 

Net income attributable to common shareholders

 $(3,077,232) $(869,980)

Denominator for basic net income per share – weighted average shares

  5,136,808   3,842,916 

Conversion of accrued interest on debt held by related party

  -   - 

Denominator for diluted net income per share

  -   3,842,916 

Basic net earnings per share

  (0.60)  (0.22)

Diluted net earnings per share

  -   (0.22)

As of June 30, 2020, and 2019, the basic weighted average number of shares of Common Stock of the Company was 5,136,808 and 3,842,916, respectively. 

Note 12. – Additional InformationOther information

 

On April 19, 2019 oneMay 27, 2020, Petrogress Int’l LLC. (the “Company”) entered into an Amendment No. 2 to Securities Purchase Agreement with Christos Traios, amending the terms of our vessels (MT APECUS) was attacked by hijackers while she was at Bonny (Nigeria) anchorage, and 6acquisition of our crew members kidnapped, taken ashore and held hostage for over 50 days. DuringPetrogress Africa Limited. As a result, the time the crew members were held hostage, the Nigerian local authorities did not provide adequate assistance to secure their release and we were forced to negotiate with the pirates. After lengthy negotiations, we were able to reduce the ransom from $3 million to $350,000 which was paid to secure the releaseCompany returned 864,000 shares of PGAF (the “Option Shares” representing 72% of the kidnapped crew members on June 26, 2019. Nevertheless, a memberPGAF) 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 team we hired to negotiate the release of our crew members was also taken and remains a hostage of the pirates. We areSecurity Purchase Agreement. Future financial statements will be shown as 18 percent equity ownership interest in the process of attempting to secure the remaining team member’s release, and expect that additional expense and/or ransom obligations will need to be paid to do so. In addition, during the sea-piracy incident we ordered one of our sister fleet vessels to proceed to and remain in the area to provide support to the attacked vessel and her remaining crew. Both our ships were left idle in the area for the entire period until the release of the abducted seafarers. The ransom paid is reflected as an expense in the accompanied consolidated statement of operations within the line item “Other income / (expense), net”. However,PGAF, provided the company reserveswill comply to its obligations as per amended agreement. The company accounted for this investment using the right to claim for a reimbursement through insurance and also to proceed with legal steps against the Governmentequity method of Nigeria for damages occurred due to what we believe to be significant unlawful actions taken by the Nigerian Navy.accounting.

 


Page | 11

 

Item 2 - Management's –Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Key Financial Results

Second Quarter of 2020 compared tothe Second Quarter of 2019

Earnings by product sales

  

Six months ended June 30,

 

Net sales volumes per product

  

2020

  

2019

 

Crude Oil Sales

  $749,200  $1,917,178 

Gas Oil Sales

   622,000   300,000 

Lubricants Sales

   143,501   - 

Hires & Freights Sales

   218,000   298,500 

Other Revenues / Discounts

   34,080   11,000 

Totals

  $1,766,781  $2,526,678 

Net loss attributable to Petrogress for the second quarter of 2020 was $(3,077,232) ($(0.60) per share), compared to a net loss of $(1,011,590) ($(0.26) per share) for the second quarter of 2019.

Refer to the “Results of Operations” section beginning on page 14 for a discussion of our financial results.

Executive Overview

 

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

 

Business Environment and Outlook

 

Petrogress, Inc. is an oil energy and sea transportation company with business activities in the following countries: Greece, Cyprus and Ghana. Our earnings currently depend primarily on the profitability of our crude oil sales. The biggest factor affecting the results of operations is the price and supply of crude oil. The price of crude oil has fallen significantly since mid-year 2018.2019. The downturn in the price of crude oil has impacted the company's results of operations, cash flows, leverage, capital and exploratory investment program and production outlook. A sustained lower price environment could result in the impairment or write-off of specific assets in future periods. We have reacted to the downturn by effecting reductions in operating expenses, pacing and re-focusing of capital and exploratory expenditures. We anticipate that crude oil prices will increase in the future, as continued growth in demand and a reduction in supply growth should bring global markets into balance. However, the timing or sustainability of any such increase in prices is unknown. In the Company's downstream business, crude oil is the largest cost component of refined products. Nevertheless, it is our objective to deliver competitive results and shareholder value in any business environment.

 

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

 

The effective tax rate for our business is volatile. This is duecompany 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 level of earningscompany’s financial performance and value growth. Asset dispositions and restructurings may result in significant gains or losses during a particular periodin 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 whether they arisevalue growth. Asset dispositions and restructurings may result in highersignificant gains or lower tax rate jurisdictions. As a result, a decline or increase in the effective tax rate in one period may not be indicative of expected resultslosses in future periods.

 

* On November 16, 2016, Petrogress, Inc., filed Articles of Merger and Plan of Merger in Florida and Delaware to change the Company’s domicile by merging with and into a Delaware corporation formed solely for the purpose of effecting the reincorporation. On July 6, 2020, the Company filed an amendment (the "Amendment") to the Company's Certificate of Incorporation with the Delaware Secretary of State to increase the number of authorized shares of Common Stock from 19,000,000 to 50,000,000. The Amendment took effect on July 6, 2020. There was no change in the par value of the Company's Common Stock or Preferred Stock as a result of the Amendment.

Page | 12

Response to Market Conditions and COVID-19

During the second 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 principal focusnumber of our strategy isvessels crew dismissed to grow by expandingmitigate the daily non-operating expenses of our business. Our future growth depends, in part, onfleet. Together, these actions are consistent with our abilityfinancial priorities: to obtain financing forprotect our existingongoing projects, to prioritize capital spend that drives long-term value and new operations and business lines. In recent years, global financial markets have experienced volatility following contraction, deleveraging and reduced liquidityto maintain our position in the global credit markets. In addition,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 3 and to “Risk Factors” in Part II, Item 1A, on page 19 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 major financial institutionsindependent 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 experienced serious financial difficultiesdevoted our efforts to building a global brand and in some cases,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 entered into bankruptcy proceedings or are subject to regulatory enforcement actions. These difficulties have been compounded by a general decline inexpanded our business capabilities through strategic alliances, select business and vessel acquisitions, and the willingness by banks and other financial institutions to extend credit and may adversely affect the financial institutions that may provide us with credit to support our working capital requirements. These economic factors may have a material adverse effect on our ability to expand our business.establishment of new service centers.

 

The company closely monitors developmentsmaintain 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 financial and credit markets, the levelMainland of worldwide economic activity, and the implicationsSouth Greece. The procedures for the companyobtaining the operating licenses from the local authorities are in progress, simultaneously with the preparation of movementsgas stations designs and drawings in pricesorder to commence the modernization and renovation under our brand names. We estimate to complete and have them ready for crude oiloperations within six months’ time. The gas Stations shall be operated by our Hellenic branch in Greece and refined products. Management takes these developments into account in the conduct of daily operations and forwe expect to be ready by June 2020.

Our key business planning.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 throughcompany is actively managing its affiliateschedule 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 Ghana is under negotiationsresponse to conclude a Petroleum Agreement with Ghana National Petroleum Company (GNPC) for a long-term leasethe economic impact of the Salt-PondCOVID-19 pandemic, including the drastic reductions in demand for petroleum products, including gasoline and fuel, among others, and in crude oil fieldprices, which have resulted in significant reductions in economic activity and to take over management of the oil rig-platform known as “Mr. Louie” and to conduct necessary repairs and maintenance to facilitate oil productionassociated spending in the area.energy sector. Commodity prices have fallen below break-even levels in many regions.

Page | 13

Downstream:OnAs on February 28, 2018, our wholly owned subsidiary, Petrogres Co. Limited entered into thePartnership agreement with Platon Partnership Agreement creating an equal partnership between Petrogres Co. Limited and Platon GasGhana Oil Ghana Limited (“PGO”), anRefinery (PGOR) -an unrelated third party which owns an oil refineryparty- is still ongoing and serves as a refiner of crude oil and various petroleum products based in Ghana. The Platon Partnership Agreement is intended to be renewed by both Petrogres Co. Limited and PGO on an annual basis and pursuant its terms. Petrogres Co. Limitedterms Petrogress will feed and supply the crude oil for storage, refinement, marketing and distribution in Ghana jointly with PGO.PGOR. The storage capacity under the Platon Partnership Agreement is 24,000 tons and the monthly processing capacity of the refinery is 10,000 tons. Petrogres Co. LimitedPetrogress and PGOPlaton 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 Petrogres Co. LimitedPetrogress and PGO.Platon. After deducting the operatingoperating/processing expenses, the net profits from the sale of the petroleum products are split evenly between Petrogres Co. Limited and PGO.Platon. As of the date the Platon Partnership Agreement was executed, PGLPetrogress 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: We; 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 of movements in prices for crude oil and refined products. Management takes these developments into account in the conduct of daily operations and for business planning.

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

Results of Operations

The following section presents the results of operations and variances on a before-tax basis for the company’s business operations, as well as for “All Other.”

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

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

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

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


Page | 14

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

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

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

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

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

  

Six months ended

June 30,

 
  

2020

  

2019

 

Operating Earnings / (losses)

 $(1,928,663) $(316,185)

Operating losses of during the second quarter of 2020 amount to $(1,928,663), compared to operating losses of $(316,185) for the same period in 2019. The decrease was primarily due to lower crude oil sales prices and the cease of operations as of June 30, 2020.

Consolidated Statement of Income

Sales of products provided in the below table:

   

Six months Ended

June 30,

 

Net sales volumes per product

  

2020

  

2019

 

Crude Oil Sales

  $749,200  $1,917,178 

Gas Oil Sales

   622,000   300,000 

Lubricants Sales

   143,501   - 

Hires & Freights Sales

   218,000   298,500 

Other Revenues/Discounts

   34,080   11,000 

Totals

  $1,766,781  $2,526,678 

Cost of Goods Sold provided in the below table:

   

Six months Ended

June 30,

 

Cost of goods sold

  

2020

  

2019

 

Crude Oil purchased costs

  $(1,250,000) $(1,165,752)

Gas Oil purchased costs

   (520,000)  (240,000)

Lubricants purchased costs

   (129,000)  (41,202)

Totals

  $(1,899,000) $(1,446,954)

●

Sales: Total operating sales for the six months ended June 30, 2020 and 2019, were $1,766,781 and $2,526,678, respectively, a decrease of $759,897 or approximately 30%.

●

Cost of goods sold: For the six months ended June 30, 2020 and 2019, cost of goods sold was $1,219,049 and $1,446,954, respectively, an increase of $452,046 or approximately 31%.

●

Corporate expenses: Corporate expenses mainly include the expenses incurred by Petrogress, Inc. Our Corporate expenses for the six months ended June 30, 2020 and 2019 were $293,168 and $83,611, respectively, an increase of $209,557 or approximately 251%.

Page | 15

●

General and administrative expenses: For the six months ended June 30, 2020, General and administrative expenses increased to $1,187,591 compared to $877,563 for the six months ended June 30, 2019, an increase of $310,028 or approximately 35%.

●

Net income/ (loss) attributable PGI:For the six months ended June 30, 2020, the Company had a net loss of $3,077,232 while for the six months ended June 30, 2019, the Company had a net loss of $861,098, an increase of $2,216,134 or approximately 257%.

●

EBITDA:For the six months ended June 30, 2020, EBITDA amounted to $(1,928,663) compared to $(316,185) for the six months ended June 30, 2019.

Consolidated results of Operation (after eliminations)

 

Six months Ended

June 30,

 
  

2020

  

2019

 

Total Operating Revenues

 $1,766,781  $2,526,678 

Total Operating Expenses & Cost of Goods Sold*

 $(3,695,444) $(2,842,863)

* 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 for conducting business across the world through its affiliates and subsidiaries.

Summarized financial information is presented in the following table:

  

Six months Ended

 
  

June 30

 
  

2020

  

2019

 

Sales and other operating revenues

 $1,514,701  $2,214,180 

Cost and other expenses

  (2,097,517)  (1,574,755)

Net income / (loss) attributable to Petrogress, Inc.*

 $(582,816) $639,425 

________

* 100% Net income / (loss) attributable to Petrogress, Inc.

Petronav Carriers LLC. (PCL)

Petronav Carriers LLC., (PCL) is the company that serves as the manager and operator of our tanker fleet of four 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:

  

Six months Ended

 
  

June 30

 
  

2020

  

2019

 

Sales and other operating revenues

 $447,080  $528,333 

Cost and other expenses

  (1,451,300)  (1,674,142)

Net income / (loss) attributable to Petrogress, Inc. *

 $(1,004,220) $(1,145,809)

________

* 100% Net income / (loss) attributable to Petrogress, Inc.

Page | 16

 

Other BusinessPetrogress Hellas Branch (PGH)

 

On March 6, 2019, we entered into an Exclusive Distribution Agreement with Dana Lubricants Factory LLC. (“Dana Lubes”), a United Arab Emirates based lubricant oil manufacturer, pursuantPetrogress 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:

  

Six months Ended

 
  

June 30

 
  

2020

  

2019

 

Sales and other operating revenues

 $76,133  $48,000 

Cost and other expenses

  (78,388)  (68,738)

Net income / (loss) attributable to Petrogress Int’l LLC.*

 $(2,255) $(20,738)

_______

100% Net income / (loss) attributable to which, Petrogress Int’l LLC. is designated as the exclusive agent for distribution of products manufactured and branded by Dana Lubes throughout western Africa.

Throughout our history, we have expanded our business capabilities through strategic alliances, select business and vessel acquisitions, and the establishment of new service centers. In February 2019, we commenced negotiations with the government of Ghana to lease a free zone land in Takoradi port to build a tanks farm with storage capacity of 100,000 cubic meters. We are also negotiating the lease of Ada shipyard where we can provide shelter and repair facilities for our fleet and third-party customers, and provide additional service and support to offshore oil rigs and platforms around the area of West Africa.

In addition to our operations described above, we commenced the marketing and distribution of lubricants under the exclusivity Agreement with Dana Lubricants Company (a company based in Dubai – UAE), which we market through our subsidiary in Ghana Petrogres Africa Co. Ltd. We view this business as complementary to our downstream operations. We plan to expand the distribution of lubricants throughout our service centers and other countries in West and Central Africa.

Results of Operations

 

Comparison of Three Months Ended June 30, 2019 and 2018Petrogress, Inc. (PGI)

 

TotalPetrogress, Inc. (PGI) is the parent holding company of the group and doesn’t make any revenues forfrom operations while it suffers all the three months ended June 30, 2019, decreased by $1,857,890 or approximately 82%. The decreasenecessary operating and general and administrative expenses in sales revenue fororder to comply with the three months ended June 30, 2019 resulted primarily becauseregulatory requirements of reduced production of crude oil by our suppliers due to low prices and in addition, due to the fact that two of our vessels remained inoperative for a substantial period since the hijacking incident as described in Note 18 in our Notes to Consolidated Financial Statements included in this Report. However, inventories as at June 30, 2019 and 2018 were $981,063 and $182,108, respectively, an increase of $798,955 or approximately 438%.SEC. The following table summarizes revenues derived duringpresents the three months ended June 30, 2019 and 2018 from our business activities. results of equity interest PGI has into the subsidiaries:

 

Key Financial Results

 

Three Months Ended June 30,

 
  

2019

  

2018

 

Revenues from crude oil sales

 $-  $1,698,900 

Revenues from gas oil sales

  300,000   406,500 

Revenues from freights and hires

  104,000   - 

Other Revenues

  -   156,490 

Total Revenues

 $404,000  $2,261,890 
  

Six months Ended

 
  

June 30

 
  

2020

  

2019

 

Sales and other operating revenues

 $-  $- 

Corporate, Administrative and other expenses

  (1,487,941)  (254,038)

Net income / (loss) attributable to Petrogress, Inc.*

 $(1,487,941) $(254,038)

_______

Directly related to our sales activity and volumes, we experiencedNet income / (loss) attributable from ownership interest of the following cost of sales amounts for the three months ended June 30, 2019 and 2018: subsidiaries.

  

Three Months Ended June 30,

 
  

2019

  

2018

 

Crude oil purchase cost

 $-  $896,994 

Gas oil purchase cost

  240,000   294,000 

Lubricants purchase cost

  41,202   - 

Shipping expenses

  -   91,530 

Total cost of goods sold

 $281,202  $1,282,524 

General and administrative expenses for the three months ended June 30, 2019 and 2018 were $126,487 and $149,077, respectively.

For the three months ended June 30, 2019, the Company experienced net loss of $1,015,239 compared to net income of $237,262 for the three months ended June 30, 2018.


 

Comparison of Six Months Ended June 30, 2019 and 2018Revenue Concentrations

 

TotalThe following table is a summary of customers who accounted for more than ten percent (10%) of the Company’s revenues for the six months ended June 30, 2019, decreased by $2,300,476 or approximately 48%.2020 and 2019:

 

Key Financial Results

 

Six Months Ended June 30,

 
  

2019

  

2018

 

Revenues from crude oil sales

 $1,917,178  $3,872,164 

Revenues from gas oil sales

  300,000   738,500 

Revenues from freights and hires

  298,500   - 

Other Revenues

  11,000   216,490 

Total Revenues

 $2,526,678  $4,827,154 

Customer

  

June 30, 2020

  

June 30, 2019

 

A

   42%   74% 

B

   22%   * 

C

   13%   * 

 

 

Directly related to our sales activity and volumes, we experiencedSummary of customers who accounted for more than ten percent (10%) of the following cost of sales amountsCompany’s accounts receivable for the six monthsperiods ended June 30, 2020 and December 31, 2019 and 2018: is showing on the below table:

 

  

Six Months Ended June 30,

 
  

2019

  

2018

 

Crude oil purchase cost

 $1,165,752  $2,263,215 

Gas oil purchase cost

  240,000   294,000 

Lubricants purchase cost

  41,202   - 

Shipping expenses

  -   131,846 

Total cost of goods sold

 $1,446,954  $2,689,061 

Customer

  

June 30, 2020

  

December 31, 2019

 

A

   31%   55% 

B

   30%   * 

C

   11%   23% 
D   13%   * 

●

None of the balances listed in the table above have become overdue as of June 30, 2020.

●

Amounts indicated with an * denote amounts less than 10%.

 

GeneralLiquidity & Capital Resources

Our main sources of liquidity are cash and administrative expenses for the six months endedcash equivalents, accounts receivable and internally generated cash flow from operations. At June 30, 20192020, we had a working capital of $632,517 consisting of $154,404 in cash and 2018 were $318,514cash equivalents, $1,787,917 in accounts receivable, $375,145 in claims receivable, $377,948 in inventories, and $426,891, respectively.$2,401,798 in prepaid expenses and other current assets.

Page | 17

 

For the six months ended June 30, 2019, the Company experienced2020, net loss of $869,980cash provided by operating activities was $699,043 compared to $11,817 for the same period in 2019.

Assets included in the calculation of the Company’s working capital have decreased by $2,133,911 mainly from the decrease in inventories which have decreased by $828,664. This decrease has been financed mainly by our net income and the increase of $351,106 forour liabilities included in working capital, namely the increase in Convertible promissory notes and Derivative liabilities which have increased by $76,007 and $886,487 respectively, during the six months ended June 30, 2018.2020.

 

Accounts Receivable, net

The amount shown as accounts receivables, net at each balance sheet date includes estimated recoveriescompany’s future debt level is dependent primarily on results of operations, cash that may be generated from customersasset dispositions, the capital program, lending commitments to affiliates, 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 June 30, 2019 and December 31, 2018, allowances for doubtful accounts were $344,466 and $344,466, respectively.

Organization costs

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

Earnings Per 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.

As of June 30, 2019 and June 30, 2018, the basic weighted average number of shares of Common Stock of the Company was 3,842,916 and 3,373,163, respectively. Since the Company has a net loss for both periods there is no dilutive effect for those specific periods.

As of June 30, 2019, and June 30, 2018, the Company has 85,944 and 85,944 shares of Common Stock, respectively, which could be deemed to be dilutive and are excluded from the calculation since their effect would be antidilutive.


Accounting for Equity-based Payments

We account for stock awards issued to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees, including ASU 2018/17 amendments. The measurement date is the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty's performance is complete. Stock awards granted to non-employees are valued at their respective measurement dates based on the trading price of our common stock and recognized as expense during the period in which services are provided.

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.

Effects of Recent Accounting Pronouncementsnot yet adopted

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

Off Balance Sheet Arrangements

As of June 30, 2019, we did not have any material off-balance sheet arrangements.

Liquidity and Capital Resources

At June 30, 2019 and December 31, 2018, the Company had cash and cash equivalents of $659,387 and $661,010, with corresponding working capital of $5,277,626 and $5,570,494, respectively.

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. depends on its subsidiaries incomes, inasmuch as, the Company's principalparent company, does not have revenues while it suffers all the necessary operating and general and administrative expenses to comply with the regulatory requirements of the SEC.

Cash and Cash Equivalents;The following table presents sources and use of cash are net cash provided from operating subsidiaries activities, which includes the sale and shipment of petroleum products, and cash contributed to the Company by Christos Traios, our President, Chief Executive Officer and controlling stockholder.equivalents:

 


   

Six months Ended June 30,

 

Sources of cash and cash equivalents

  

2020

  

2019

 

Operating activities

  $699,043  $605,215 

Borrowing

   -   - 

Others

   -   - 

Total sources of cash and cash equivalents

  $699,043  $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. However, the Management 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 a debtreasonable finance on acceptable terms to fund our plansin order to expand its operations, increase the Company's operations.oil sales and support its projects-operations.

 

Critical Accounting Policies

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

Our significant accounting policies are summarized in the notes accompanying our consolidated financial statements included with this report. While all of these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates.

Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our results of operations, financial position or liquidity for the periods presented in this report.

Item 3 - –Quantitative and Qualitative Disclosures About Market Risk

 

We are a smaller reporting company as defined by Rule 12b-2Information about market risks for the six months ended June 30, 2020, does not differ materially from that discussed under Item 7A of the Exchange Act and are not required to provide the information under this item.Petrogress’s 2019 Annual Report on Form 10-K.

 

Item 4 - –Controls and Procedures

 

(a) Evaluation of Disclosure Controlsdisclosure controls and Proceduresprocedures

 

Christos Traios, ourThe company’s management has evaluated, with the participation of the Chief Executive Officer and Evangelos Makris, our Chief Financial Officer, conducted an evaluation of 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 Securities Exchange Act)Act of 1934, as amended) as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company’s disclosure controls and procedures were effective as of June 30, 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 June 30, 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 June 30, 2020, there is a lack of segregation of duties due to the fact that the Company only has one director and two executive officers dealing with general administrative and financial matters. This constitutes a significant deficiency in the internal controls. Management has decided that considering the officer(s) 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 June 30, 2019 that have materially affected, or are reasonably likely to materially affect, ourthe company’s internal controlscontrol over financial reporting.

 


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Part II - Other InformationPART II – OTHER INFORMATION

 

Item 1 - – Legal Proceedings

 

None.Information about legal proceedings for the six months ended June 30, 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 Rule 12b-2Information about risk factors for the six months ended June 30, 2020, does not differ materially from that set forth under the heading “Risk Factors” on pages 11 through 16 of the Exchange Act,company’s 2019 Annual Report on Form 10-K, other than as reflected in the risk factor below.

Impacts of the 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.

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Item 2 -– Unregistered Sales of Equity Securities and Use of Proceeds

 

NoneThe table below presents the issued shares during the quarter ended June 30, 2020:

 

Period

Total Number of Shares

Class

April 1 – April 30, 2020

440,000

Common shares

May 1 – May 31, 2020

463,000

Common shares

June 1 – June 30, 2020

2,131,861

Common shares

Total

3,035,361

Item 3 -– Defaults Upon Senior Securities

 

None.None

 

Item 4 -– Mine Safety Disclosure

 

None.None

 

Item 5 - – Other Information

 

None.On May 27, 2020, Petrogress Int’l LLC. (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 accounted for this investment using the equity method of accounting.

 

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 

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Exhibits Index

 

Exhibit

Number

Exhibits

Description

10.1

Agreement and Plan of Merger dated April 1, 2019 between Petrogress Int’l LLC and Petrogres Co. Limited (Incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q as filed with the Commission on May 15, 2019)Page(s)

10.2

Securities Purchase Agreement dated effective as of September 30, 2017 between Christos P. Traios and Petrogress Int’l LLC (Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K as filed with the Commission on November 2, 2017)

10.3

Amendment to Securities Purchase Agreement dated effective as of April 24, 2019 among Christos P. Traios, Petrogress, Inc., and Petrogress Int’l LLC (Incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q as filed with the Commission on May 15, 2019)

10.4Revolving Line of Credit Agreement dated July 13, 2017 made by Petrogress, Inc. and Christos P. Traios (Incorporated herein by reference to Exhibit 99.01 to the Company’s Current Report on Form 8-K as filed with the Commission on July 21, 2017)10.5Revolving Line of Credit Note dated July 13, 2017 between Petrogress, Inc. in favor of Christos P. Traios (Incorporated herein by reference to Exhibit 99.02 to the Company’s Current Report on Form 8-K as filed with the Commission on July 21, 2017)10.6Letter Agreement dated July 12, 2019 between Petrogress, Inc. and Christos P. Traios regarding Extension of Maturity Date of Revolving Line of Credit Agreement*

31.1

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

Page 23

31.2

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

Page 24

32.1

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

Page 25

32.2

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

Page 26

101.1

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

*

Filed herewith.

**

*      Filed herewith

**    Furnished herewith

 


Page | 21

 

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: August 13, 201928, 2020

Petrogress, Inc.PETROGRESS, INC.

 

By:

/s/ Christos P.Traios

Christos Traios

Christos P. Traios

President and Chief Executive Officer (Principal

Executive Officer)

 

By:

/s/ Evangelos Makris

Evangelos Makris

Chief Financial Officer (Principal

Financial and Accounting Officer)

 


 

Exhibit Index

Exhibit

Description

10.1

Agreement and Plan of Merger dated April 1, 2019 between Petrogress Int’l LLC and Petrogres Co. Limited (Incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q as filed with the Commission on May 15, 2019)

10.2

Securities Purchase Agreement dated effective as of September 30, 2017 between Christos P. Traios and Petrogress Int’l LLC (Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K as filed with the Commission on November 2, 2017)

10.3

Amendment to Securities Purchase Agreement dated effective as of April 24, 2019 among Christos P. Traios, Petrogress, Inc., and Petrogress Int’l LLC (Incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q as filed with the Commission on May 15, 2019)

10.4Revolving Line of Credit Agreement dated July 13, 2017 made by Petrogress, Inc. and Christos P. Traios (Incorporated herein by reference to Exhibit 99.01 to the Company’s Current Report on Form 8-K as filed with the Commission on July 21, 2017)
10.5Revolving Line of Credit Note dated July 13, 2017 between Petrogress, Inc. in favor of Christos P. Traios (Incorporated herein by reference to Exhibit 99.02 to the Company’s Current Report on Form 8-K as filed with the Commission on July 21, 2017)
10.6Letter Agreement dated July 12, 2019 between Petrogress, Inc. and Christos P. Traios regarding Extension of Maturity Date of Revolving Line of Credit Agreement*

31.1

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

31.2

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

32.1

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

32.2

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

101.1

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

*

Filed herewith.

**

Furnished herewith

21

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