ITEM 1. DESCRIPTION OF BUSINESS.
General Business Development
Corporate History
Petrogress, Inc. (“Petrogress” or the “Company”), formerly 800 Commerce, Inc. (“800 Commerce”), was formed in the State of Florida on February 10, 2010. The Company was founded for the purpose of marketing credit card processing services on behalf of merchant payment processing service providers.
On August 9, 2013, the Securities and Exchange Commission (the “SEC”) declared effective the Company’s Registration Statement on Form S-1/A, whereby the Company has registered 6,000,000 shares of its common stock owned by Agritek Holdings, Inc. (“Agritek”). Agritek distributed the 6,000,000 shares of common stock to their shareholders of record as of September 3, 2013. The shares were distributed on September 4, 2013.
On February 29, 2016, 800 Commerce entered into a Securities Exchange Agreement (the “Agreement”) with an unrelated third party, Petrogres Co. Limited (“Petrogres”), a Marshall Islands corporation, and its sole shareholder. The Company acquired 100% of Petrogres and its affiliated companies, all as more particularly described in the Agreement. As consideration for the acquisition of Petrogres, the Company issued 136,000,000 shares of its common stock, in restricted form, representing 85% of the issued and outstanding shares of the Company’s common stock at closing of the transaction.
Petrogres and its’ subsidiaries are international trading and shipping companies and have been in business for seven (7) years.
As part of the transaction, the sole shareholder and CEO of Petrogres, Christos Traios, was appointed to the Board of Directors (the “Board”) and B. Michael Friedman resigned as an officer and director. In addition, the Company’s Board approved an amendment to the Company’s Articles of Incorporation, increasing the authorized capital to 490,000,000 shares of common stock, par value $0.001 and 10,000,000 shares of preferred stock, par value $0.001. On March 9, 2016, the Company’s Board approved an amendment to the Company’s Articles of Incorporation to change the name of the Corporation to Petrogress, Inc.
Description of Business
800 Commerce
800 Commerce commenced revenue producing activities based on the marketing of credit processing services in March 2010. 800 Commerce generates revenue from the marketing of credit processing services by way of fees received from merchant payment processing service providers on whose behalf the Company brokers their processing services. On August 1, 2012, 800 Commerce began to receive additional revenue pursuant to a processing service provider’s assignment of a portion of its fee income under one or more of its service contracts in exchange for the issuance of 500,000 shares of our common stock.
In addition to marketing credit card processing services, 800 Commerce also developed on-line portals and mobile applications offering directories of professional service providers. The initial on-line portal and mobile application dedicated to a directory of medical doctors is completed, however, the Company has not commenced revenue producing operations by way of the medical directory. As a result of the acquisition of Petrogres, the Company intends to scale back and eventually terminate the credit card processing sector of its business operations.
Petrogress
The Company’s wholly-owned subsidiary, Petrogres Co. Ltd. (“Petrogres), was incorporated in 2009 under the laws of the Republic of the Marshall Islands, and has branch offices in Piraeus, Greece, the Republic of Cyprus and Ghana. At the time of incorporation, the business purpose was to sell crude oil and oil products in West Africa.
Petrogres operates as an oil commodity integrate company in West Africa. Petrogres provides the supply of petroleum products which are then shipped by its affiliated tanker fleet and delivered to the buyers for local refinery in Ghana. The Company intends to expand this model of its operations and business to other continents. Petrogres’ main operations are managed by an experienced team which is located at Petrogres’s main office in Piraeus, Greece. By combining regional market knowledge and excellent service to its customers, along with more than 25 years’ experience in shipping and ship’s management, Petrogres has earned a reputation for reliably marketing and moving petroleum products primarily in West Africa. The Company’s near term goals for expansion are currently being explored with the Company exploring the potential for acquiring or purchasing or leasing newly built LNG vessels in US to be used for the supply and sea freight of US LNG (Liquefied Natural Gas) exports.
The Company operates primarily as a holding company for its three wholly-owned subsidiaries. These subsidiaries are as follows:
Petrogres has as its primary business being a physical trader-supplier of LPFO (Light Petroleum Fuel Oil), refined oil products and other petrochemical commodities, by serving a key role as an integrate company (trade & logistics) of the oil industry within West African and Mediterranean countries.
Petronav Carriers LLC (“Petronav”), a wholly-owned subsidiary, incorporated in Delaware in March, 2016, will primarily manage the day to day operation and handling of the tanker fleet it manages. Petronav is exploring the possibility of adding additional tankers under management. Petronav manages four tankers to transport the Company’s petroleum products from Nigeria to Ghana. The products are stored in Ghana and then sold to end user buyers. These products are refined by Platon refinery in Ghana, in partnership with the Company.
Petrogress Oil & Gas Energy Inc. (“Petrogress Energy”), also a wholly-owned subsidiary, was formed in Texas in December, 2015. Petrogress Energy is primarily focused on investigating the feasibility of acquiring oil fields in Texas so that the Company can expand its operations into the LNG market within the United States market.
The Company’s business structure allows Petrogress to control both oil sourcing and shipping. Petrogres also has created a base from which income from different sources is generated. As a result, the Company believes it has a competitive advantage in West African markets.
Petrogres has grown from 2012 through 2015 and management expects the trend to continue to grow. Since 2012, Petrogres has moved a total of approximately 800,000 barrels of LPFO oil and had gross revenues (unaudited) of approximately $65 million, as follows:
Employees
Presently, the Company has eight employees in Greece, three in Ghana and one in Cyprus.
Competition
International seaborne transportation of LPFO and other petroleum products is provided by two main types of operators: fleets owned by independent companies and fleets operated by oil companies (both private and state-owned). Many oil companies and other oil trading companies also operate their own vessels and transport oil for themselves and third-party charterers in direct competition with independent owners and operators. Competition for charters is intense and is based upon price, vessel location, the size, age, condition and acceptability of the vessel, and the quality and reputation of the vessel’s operator.
The Company will compete in the transportation of petroleum products with much larger companies that have significantly longer operating histories and are much better capitalized. Most of these other operators are larger in size and with more vessels either under management or owned. They may also operate in a larger geographical area than the Company does at present and have significantly more capital and other resources from which to conduct their operations and as a result, face less risk in their operations.
ITEM 1A.
ITEM 1A. RISK FACTORS
An investment in our common stock involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information contained in this Annual Report on Form 10-K, before investing in our common stock. If any of the events anticipated by the risks described below occur, our results of operations and financial condition could be adversely affected which could result in a decline in the market price of our common stock, causing you to lose all or part of your investment.
In addition to the forward-looking statements outlined in the preceding topic in this Annual Report and other comments regarding risks and uncertainties included in the description of our business and elsewhere in this Annual Report, the following risk factors should be carefully considered when evaluating our business. Our business, financial condition and financial results could be materially and adversely affected by any of these risks. The following risk factors do not include factors or risks which may arise or result from general economic conditions that apply to all businesses in general or risks that could apply to any issuer or any offering.
Risk Related to Our Corporation
Our auditors have raised substantial doubts as to our ability to continue as a going concern.
Our financial statements have been prepared assuming we will continue as a going concern. Since inception in February 2010, we have experienced recurring losses from operations, and these losses have caused an accumulated deficit of approximately $2,065,372 as of December 31, 2015. Other than the Assignment Agreement, the Company generates only minimal revenues and the Company continues to experience operating losses. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. We anticipate that our operating expenses will continue to increase and we will continue to incur substantial losses in future periods until we are successful in significantly increasing our revenues and cash flow. There are no assurances that we will be able to increase our revenues and cash flow to a level which supports profitable operations and provides sufficient funds to pay our obligations. If we are unable to meet those obligations, we could be forced to cease operations, in which event investors would lose their entire investment in our company.
We are an “emerging growth company,” and the reduced disclosure requirements applicable to “emerging growth companies” could make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups (“JOBS”) Act. Accordingly, we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act for as long as we are an emerging growth company. As a newly public company, our management can wait until our second annual report on Form 10-K as a public company to issue our annual assessment of our internal control over financial reporting. For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and shareholder advisory votes on golden parachute compensation. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more; (ii) the last date of the fiscal year following the fifth anniversary of the date of the first sale of common stock under this registration statement; (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; and (iv) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act. We will be deemed a large accelerated filer on the first day of the fiscal year after the market value of our common equity held by non-affiliates exceeds $700 million, measured on October 31.
We cannot predict if investors will find our common stock less attractive to the extent we rely on the exemptions available to emerging growth companies. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Notwithstanding the above, we are also currently a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. In the event that we are still considered a “smaller reporting company,” at such time as we cease being an “emerging growth company,” the disclosure we will be required to provide in our SEC filings will increase, but will still be less than it would be if we were not considered either an “emerging growth company,” or a “smaller reporting company.” Specifically, similar to “emerging growth companies,” “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings, are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting, are not required to conduct say-on-pay and frequency votes until annual meetings occurring on or after January 21, 2013, and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures in our SEC filings due to our status as an “emerging growth company” or “smaller reporting company” may make it harder for investors to analyze the Company’s results of operations and financial prospects.
Because we have elected to defer compliance with new or revised accounting standards, our financial statement disclosure may not be comparable to similar companies.
We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of our election, our financial statements may not be comparable to companies that comply with public company effective dates.
We have incurred losses from operations since inception and continued losses threaten our ability to remain in business and pursue our business plan.
Since inception in 2010, we have incurred cumulative losses of approximately $2,065,372 from operations. We anticipate incurring additional losses from operating activities in the near future. Even if we are able to obtain additional debt or equity funding, you have no assurance we will be able achieve profitability in our operations. Until we achieve break even between revenues and expenses, we will remain dependent on obtaining additional debt and equity funding. Without sufficient revenues, we may be unable to create value in our common stock, to pay dividends and to become a going concern. And, our lack of or expectation of profitability in the near future, if at all, can be expected to hamper our efforts to raise additional debt or equity funding. In the event we do not become profitable within a reasonable period of time, we may cease operations, in which event you will lose your entire investment.
Our limited operating history makes it difficult for you to evaluate the merits of purchasing our common stock.
We have been in business for just over three years and are an early revenue-stage enterprise. Our limited revenues and sales do not provide a sufficient basis for you to assess our business and prospects. You have no assurance we will be able to generate sufficient revenues from our business to reach a break-even level or to become profitable in future periods. We are subject to the risks inherent in any new business in a highly competitive marketplace. Products and services that we have recently introduced or plan to introduce in the near future increase our new-business risks and your difficulty in assessing our prospects. You must consider the likelihood of our success in light of the problems, uncertainties, unexpected costs, difficulties, complications and delays frequently encountered in developing and expanding a new business and the competitive environment in which we operate. If we fail to successfully address these risks, our business, financial condition and results of operations would be materially harmed. Your purchase of our common stock should be considered a high risk investment because of our unseasoned, early stage business which may likely encounter unforeseen costs, expenses, competition and other problems to which such businesses are often subject.
We will incur increased costs as a result of being a public company. These costs will adversely impact our results of operations.
As a public company, we will incur significant legal, accounting and other expenses that a private company does not incur. We estimate these costs to be approximately $100,000 annually and include the costs associated with having our financial statements prepared, audited and filed with the Securities and Exchange Commission (“SEC”) via EDGAR (the Electronic Data Gathering, Analysis, and Retrieval system) and XBRL (eXtensible Business Reporting Language) costs. In addition, we have costs associated with our transfer agent. The Sarbanes-Oxley Act of 2002 (SOX) and related rules resulted in an increase in costs of maintaining compliance with the public reporting requirements, as well as making it more difficult and more expensive for us to obtain directors' and officers' liability insurance. These added costs will delay the time in which we may expect to achieve profitability, if at all.
If you invest in our stock, your investment may be disadvantaged by future funding, if we are able to obtain it.
To the extent we obtain equity funding by issuance of convertible securities or common stock, or common stock purchase warrants in connection with either type of funding, you may suffer significant dilution in percentage of ownership and, if such issuances are below the then value of stockholder equity, in stockholder equity per share. Future increases in the number of our shares outstanding will have a negative impact on earnings per share; increasing the earnings we must achieve to sustain higher prices for our common stock. In addition, any debt financing we may secure could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital with which to pursue our business plan, and to pay dividends. You have no assurance we will be able to obtain any additional financing on terms favorable to us, if at all.
Loss of key personnel could have a material adverse effect on our operations.
The Company has not obtained key man life insurance on the life of its’ CEO and majority shareholder, Christos Traios. The loss of his services could have a material adverse impact on the operations of the Company.
Voting control by management means it is unlikely you and other stockholders will be able to elect our directors and you will have little influence over our management.
Currently, our CEO and sole Director owns approximately 85% of the Company’s common stock. Each issued and outstanding share of common stock is entitled to one vote on each nominee for a directorship and on other matters presented to stockholders for approval. Our Amended Articles of Incorporation do not authorize cumulative voting for the election of directors. Any person or group who controls or can obtain more than fifty percent of the votes cast for the election of each director, will control the election of all directors and other stockholders will not be able to elect any directors or exert any influence over management decisions. Removal of a director for any reason requires a majority vote of our issued and outstanding shares of common stock.
U.S. investors may experience difficulties in attempting to effect service of process and to enforce judgments based upon U.S. federal securities laws against the company and its non-U.S. resident officer and sole director.
Our sole director and CEO, Christos Traios, is not a resident of the United States. Consequently, it may be difficult for investors to effect service of process on Mr. Traios in the United States and to enforce in the United States judgments obtained in United States courts against Mr. Traios based on the civil liability provisions of the United States securities laws. Since substantially all of our tangible assets are located in Europe and Africa, it may be difficult or impossible for U.S. investors to collect a judgment against us. Further, any judgment obtained in the United States against us may not be enforceable in those foreign jurisdictions.
We have assessed the effectiveness of our disclosure controls and procedures and our internal control over financial reporting and management concluded they are not effective. If there is a material weakness in either, there are no assurances that our financial statements will not contain errors which could require us to restate our financial statements.
The Sarbanes-Oxley Act of 2002 (SOX) requires public companies to establish disclosure controls and procedures and controls over financial reporting and to periodically assess the effectiveness of the controls and procedures. Following the effectiveness of the registration statement of which this Annual Report is part, we will be required to maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 and thereafter to report on a quarterly basis, in our quarterly and annual reports which we will file the SEC, our management’s conclusion regarding the effectiveness of our disclosure controls and procedures. As of December 31, 2015, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation our Chief Executive Officer and Chief Financial Officer concluded that, at December 31, 2015, our disclosure controls and procedures are not effective.
We assessed the effectiveness of the Company’s internal control over financial reporting as of evaluation date and identified the following material weaknesses:
Insufficient Resources: We have an inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting.
Inadequate Segregation of Duties: We have an inadequate number of personnel to properly implement control procedures.
Lack of Audit Committee: We do not have a functioning audit committee, resulting in lack of independent oversight in the establishment and monitoring of required internal controls and procedures.
We have discussed the material weaknesses noted above with our independent registered public accounting firm. Due to the nature of these material weaknesses, there is a more than remote likelihood that misstatements which could be material to the annual or interim financial statements could occur that would not be prevented or detected.
Risks Related to our Business
Our operating results may fluctuate seasonally.
We operate our vessels in markets that have historically exhibited seasonal variations in tanker demand and, as a result, in charter rates. Tanker markets are typically stronger in the fall and winter months (the fourth and first quarters of the calendar year) in anticipation of increased oil consumption in the Northern Hemisphere during the winter months. Unpredictable weather patterns and variations in oil reserves disrupt vessel scheduling and could adversely impact charter rates.
Because we generate all of our revenues in U.S. Dollars but incur a significant portion of our expenses in other currencies, exchange rate fluctuations could have an adverse impact on our results of operations.
We generate all of our revenues in U.S. Dollars, but we may incur a portion of expenses, such as maintenance and dry-docking costs, in currencies other than the U.S. Dollar. This difference could lead to fluctuations in net income due to changes in the value of the U.S. Dollar relative to the other currencies, in particular the Euro. Furthermore, due to the recent sovereign debt crisis in certain European member countries, the U.S. Dollar-Euro exchange rate has experienced volatility. An adverse movement in these currencies could increase our expenses.
An increase in costs could materially and adversely affect our financial performance.
Our vessel operating expenses are comprised of a variety of costs including crew costs, provisions, deck and engine stores, lubricating oil and insurance, many of which are beyond our control. Additionally, repairs and maintenance costs are difficult to predict with certainty and may be substantial. Many of these expenses are not covered by our insurance. Also, costs such as insurance and security could increase. If costs continue to rise, that could materially and adversely affect our cash flows and profitability.
Changes in the price of fuel may adversely affect our profitability. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Furthermore, fuel may become much more expensive in the future, which may reduce the profitability and competitiveness of our business compared to other forms of transportation, such as pipelines. On the other hand, a prolonged downturn in oil prices may cause oil companies to cut down production which could negatively impact market demand for global transportation of petroleum products.
Shipping is an inherently risky business and our insurance may not be adequate.
Our vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters, bad weather, business interruptions caused by mechanical failures, human error, grounding, fire, explosions, war, terrorism, piracy and other circumstances or events. Changing economic, regulatory and political conditions in some countries, including political and military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes and boycotts. These hazards may result in death or injury to persons, loss of revenues or property, environmental damage, higher insurance rates, damage to our customer relationships, market disruptions, delay or rerouting. In addition, the operation of tankers has unique operational risks associated with the transportation of oil. An oil spill may cause significant environmental damage, and the associated costs could exceed the insurance coverage available to us. Compared to other types of vessels, tankers are exposed to a higher risk of damage and loss by fire, whether ignited by a terrorist attack, collision, or other cause, due to the high inflammability and high volume of the oil transported in tankers.
We carry insurance to protect against most of the accident-related risks involved in the conduct of our business. We currently maintain $25,000,000 in coverage for each of our vessels for liability for spillage or leakage of oil or pollution, and also carry insurance covering lost revenue resulting from vessel off-hire for all of our operating vessels. Nonetheless, risks may arise against which we are not adequately insured. For example, a catastrophic spill could exceed our insurance coverage and have a material adverse effect on our financial condition. In addition, we may not be able to procure adequate insurance coverage at commercially reasonable rates in the future and we cannot guarantee that any particular claim will be paid. In the past, new and stricter environmental regulations have led to higher costs for insurance covering environmental damage or pollution, and new regulations could lead to similar increases or even make this type of insurance unavailable. Furthermore, even if insurance coverage is adequate to cover our losses, we may not be able to timely obtain a replacement ship in the event of a loss. We may also be subject to calls, or premiums, in amounts based not only on our own claim records but also the claim records of all other members of the protection and indemnity associations through which we receive indemnity insurance coverage for tort liability. In addition, our protection and indemnity associations may not have enough resources to cover our insurance claims. Our payment of these calls could result in significant expenses to us which could reduce our cash flows and place strains on our liquidity and capital resources.
We are subject to international safety regulations and requirements imposed by classification societies and the failure to comply with these regulations may subject us to increased liability, may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.
The operation of our vessels is affected by the requirements set forth in the United Nations’ International Maritime Organization’s International Management Code for the Safe Operation of Ships and Pollution Prevention, or “ISM Code.” The ISM Code requires ship owners, ship managers and bareboat charterers to develop and maintain an extensive “Safety Management System” that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. We expect that any vessels that we acquire in the future will be ISM Code-certified when delivered to us. The failure of a shipowner or bareboat charterer to comply with the ISM Code may subject it to increased liability, may invalidate existing insurance or decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports, including United States and European Union ports.
In addition, the hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the Safety of Life at Sea Convention. If a vessel does not maintain its class and/or fails any annual survey, intermediate survey or special survey, the vessel will be unable to trade between ports and will be unemployable, which will negatively impact our revenues and results from operations.
The risks associated with older vessels could adversely affect our operations.
In general, the costs to maintain a vessel in good operating condition increase as the vessel ages. As of March 15, 2016, 4 of the 4 operating vessels we own were built prior to 1995. Due to improvements in engine technology, older vessels typically are less fuel-efficient than more recently constructed vessels. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers.
Governmental regulations, safety or other equipment standards related to the age of tankers may require expenditures for alterations or the addition of new equipment to our vessels, and may restrict the type of activities in which our vessels may engage. There is no assurance that, as our vessels age, market conditions will justify any required expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.
If we do not set aside funds and are unable to borrow or raise funds for vessel replacement, we will be unable to replace the vessels in our fleet upon the expiration of their remaining useful lives, which we estimate to be 10 years from their build dates. Our cash flows and income are dependent on the revenues earned by our vessels. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, our revenue will decline and our business, results of operations, financial condition, and cash flow would be adversely affected.
Our results of operations could be affected by natural events in the locations in which our customers operate.
Many of our customers have operations in locations that are subject to natural disasters, such as severe weather and geological events, which could disrupt the operations of those customers and suppliers as well as our operations. Such geological events can cause significant damage and can adversely affect the infrastructure and economy of regions subject to such events, and could cause our customers located in such regions to experience shutdowns or otherwise negatively impact their operations. Upon such an event, some or all of those customers may reduce their orders for crude oil, which could adversely affect our revenue and results of operations. In addition to any negative direct economic effects of such natural disasters on the economy of the affected areas and on our customers and suppliers located in such regions, economic conditions in such regions could also adversely affect broader regional and global economic conditions. The degree to which natural disasters will adversely affect regional and global economies is uncertain at this time. However, if these events cause a decrease in demand for crude oil, our financial condition and operations could be adversely affected.
Consolidation and governmental regulation of suppliers may increase the cost of obtaining supplies or restrict our ability to obtain needed supplies, which may have a material adverse effect on our results of operations and financial condition.
We rely on third-parties to provide supplies and services necessary for our operations, including brokers, equipment suppliers, caterers and machinery suppliers. Various mergers have reduced the number of available suppliers, resulting in fewer alternatives for sourcing key supplies. With respect to certain items, we are generally dependent upon the original equipment manufacturer for repair and replacement of the item or its spare parts. Such consolidation may result in a shortage of supplies and services thereby increasing the cost of supplies and/or potentially inhibiting the ability of suppliers to deliver on time. These cost increases or delays could have a material adverse effect on our results of operations and result in downtime, and delays in the repair and maintenance of our vessels.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act, U.K. Bribery Act, and other applicable worldwide anti-corruption laws.
The U.S. Foreign Corrupt Practices Act, or “FCPA,” and other applicable worldwide anti-corruption laws generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. These laws include the U.K. Bribery Act which is broader in scope than the FCPA, as it contains no facilitating payments exception. We charter our vessels into some jurisdictions that international corruption monitoring groups have identified as having high levels of corruption. Our activities create the risk of unauthorized payments or offers of payments by one of our employees or agents that could be in violation of the FCPA or other applicable anti-corruption laws. Although we have policies, procedures and internal controls in place to monitor compliance, we cannot assure that our policies and procedures will protect us from governmental investigations or inquiries surrounding actions of our employees or agents. If we are found to be liable for violations of the FCPA or other applicable anti-corruption laws (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others), we could suffer from civil and criminal penalties or other sanctions.
We could be negatively impacted by future changes in applicable tax laws, or our inability to take advantage of favorable tax regimes.
We may be subject to income or non-income taxes in various jurisdictions, including those in which we transact business, own property or reside. We may be required to file tax returns in some or all of those jurisdictions. We may be required to pay non U.S. taxes on dispositions of non U.S. property, or operations involving non U.S. property may give rise to non U.S. income or other tax liabilities in amounts that could be substantial.
Our tax position could be adversely impacted by changes in tax laws, tax treaties or tax regulations or the interpretation or enforcement thereof by any tax authority. The various tax regimes to which we are currently subject result in a relatively low effective tax rate on our worldwide income. These tax regimes, however, are subject to change, possibly with retroactive effect. Moreover, we may become subject to new tax regimes and may be unable to take advantage of favorable tax provisions afforded by current or future law. For example, there have been legislative proposals that, if enacted, could change the circumstances under which we would be treated as a U.S. person for U.S. federal income tax purposes, which could materially and adversely affect our effective tax rate and cash tax position and require us to take action, at potentially significant expense, to seek to preserve our effective tax rate and cash tax position. We cannot predict the outcome of any specific legislative proposals.
We may be subject to litigation that, if not resolved in our favor and not sufficiently insured against, could have a material adverse effect on us.
We may be, from time to time, involved in various litigation matters. These matters may include, among other things, contract disputes, personal injury claims, environmental claims or proceedings, asbestos and other toxic tort claims, employment matters, governmental claims for taxes or duties, securities litigation, and other litigation that arises in the ordinary course of our business. Although we intend to defend these matters vigorously, we cannot predict with certainty the outcome or effect of any claim or other litigation matter, and the ultimate outcome of any litigation or the potential costs to resolve them may have a material adverse effect on us. Insurance may not be applicable or sufficient in all cases and/or insurers may not remain solvent, which may have a material adverse effect on our financial condition.
Risks Relating to Ownership of Our Common Stock
Although there is presently a market for our common stock, the price of our common stock may be extremely volatile and investors may not be able to sell their shares at or above their purchase price, or at all. We anticipate that the market may be potentially highly volatile and may fluctuate substantially because of:
• Actual or anticipated fluctuations in our future business and operating results;
• Changes in or failure to meet market expectations;
• Fluctuations in stock market price and volume
As a public company, we will incur substantial expenses.
The U.S. securities laws require, among other things, review, audit, and public reporting of our financial results, business activities, and other matters. Recent SEC regulation, including regulation enacted as a result of the Sarbanes-Oxley Act of 2002, has also substantially increased the accounting, legal, and other costs related to becoming and remaining an SEC reporting company. If we do not have current information about our Company available to market makers, they will not be able to trade our stock. The public company costs of preparing and filing annual and quarterly reports, and other information with the SEC and furnishing audited reports to stockholders, will cause our expenses to be higher than they would be if we were privately-held. These increased costs may be material and may include the hiring of additional employees and/or the retention of additional advisors and professionals. Our failure to comply with the federal securities laws could result in private or governmental legal action against us and/or our officers and directors, which could have a detrimental effect on our business and finances, the value of our stock, and the ability of stockholders to resell their stock.
FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock.
The Financial Industry Regulatory Authority (“FINRA”) has adopted rules related to the SEC’s penny stock rules in trading our securities and require that a broker/dealer have reasonable grounds for believing that the investment is suitable for that customer, prior to recommending the investment. Prior to recommending speculative, low priced securities to their non-institutional customers, broker/dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative, low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker/dealers to recommend that their customers buy our common stock, which may have the effect of reducing the level of trading activity and liquidity of our common stock. Further, many brokers charge higher transactional fees for penny stock transactions. As a result, fewer broker/dealers may be willing to make a market in our common stock, reducing a shareholder’s ability to resell shares of our common stock.
The Company’s common stock is currently deemed to be “penny stock”, which makes it more difficult for investors to sell their shares.
The Company’s common stock is currently subject to the “penny stock” rules adopted under section 15(g) of the Exchange Act. The penny stock rules apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share or that has tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If the Company remains subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for the Company’s securities. If the Company’s securities are subject to the penny stock rules, investors will find it more difficult to dispose of the Company’s securities.
We have raised capital through the use of convertible debt instruments that causes substantial dilution to our stockholders.
Because of the size of our Company and its status as a “penny stock” as well as the current economy and difficulties in companies our size finding adequate sources of funding, we have been forced to raise capital through the issuance of convertible notes and other debt instruments. These debt instruments carry favorable conversion terms to their holders of up to 50% discounts to the market price of our common stock on conversion and in some cases provide for the immediate sale of our securities into the open market. Accordingly, this has caused and will continue to cause dilution to our stockholders in 2016 and may for the foreseeable future. As of December 31, 2015, we had approximately $69,619 in convertible debt and potential convertible debt outstanding. This convertible debt balance as well as additional convertible debt we incur in the future will cause substantial dilution to our stockholders.
Because we are quoted on the OTC Marketplace instead of an exchange or national quotation system, our investors may have a tougher time selling their stock or experience negative volatility on the market price of our common stock.
Our common stock is quoted on the OTC Market. The OTC Market is often highly illiquid, in part because it does not have a national quotation system by which potential investors can follow the market price of shares except through information received and generated by a limited number of broker-dealers that make markets in particular stocks. There is a greater chance of volatility for securities that are quoted on the OTC Market compared to a national exchange or quotation system. This volatility may be caused by a variety of factors, including the lack of readily available price quotations, the absence of consistent administrative supervision of bid and ask quotations, lower trading volume, and market conditions. Investors in our common stock may experience high fluctuations in the market price and volume of the trading market for our securities. These fluctuations, when they occur, have a negative effect on the market price for our securities. Accordingly, our stockholders may not be able to realize a fair price from their shares when they determine to sell them or may have to hold them for a substantial period of time until the market for our common stock improves.
We do not intend to pay dividends.
We do not anticipate paying cash dividends on our common stock in the foreseeable future. We may not have sufficient funds to legally pay dividends. Even if funds are legally available to pay dividends, we may nevertheless decide in our sole discretion not to pay dividends. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors our board of directors may consider relevant. There is no assurance that we will pay any dividends in the future, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.
The market price for our common shares is particularly volatile given our status as a relatively unknown company with a small and thinly traded public float.
The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First, our common shares are sporadically and thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative or “risky” investment due to our limited operating history and lack of profits to date, and uncertainty of future market acceptance for our potential products. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common shares will be at any time, including as to whether our common shares will sustain their current market prices, or as to what effect that the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.
Shareholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the volatility of our share price.
Should one or more of the foregoing risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable to a smaller reporting company.
ITEM 2.
ITEM 2. PROPERTIES.
Effective April 1, 2014, the Company entered into a rent sharing agreement for the use of 1,300 square feet with a company controlled by the Company’s CFO. The Company has agreed to pay $750 per month for the space. As of October 1, 2015, the Company terminated the rent sharing agreement. Rent expense for the years ended December 31, 2015 and 2014, was $8,250 and $6,750, respectively. Petrogres leases office space in Piraeus, Greece for monthly rent of €2,500. The Piraeus lease expires on May 31, 2016 and the Company intends to renew the lease for an additional year for the same monthly rent. The Company believes that this office space is adequate for its operations at the present time.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
No officer, director, or persons nominated for these positions, and no promoter or significant employee of our corporation has been involved in legal proceedings that would be material to an evaluation of our management. We are not aware of any pending or threatened legal proceedings which involve the Company, its directors or officers. Our Bylaws provide that we shall have a minimum of one director. There is no stated maximum number of directors allowed but such number may be fixed from time to time by action of the stockholders or of the directors.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
(a) Market Information
The following table sets forth for the periods indicated the high and low bid quotations for our common stock. These quotations represent inter-dealer quotations, without adjustment for retail markup, markdown, or commission and may not represent actual transactions.
(b) Holders.
The number of record holders of our common stock as of March 31, 2016, was approximately 53; this excludes shareholders who hold their stock in street name. The Company estimates that there are over 9,000 stockholders who hold their shares of common stock in street name.
(c) Dividends
The Company did not declare any cash dividends for the year ended December 31, 2015. Our Board of Directors does not intend to distribute any cash dividends in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the Board of Directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the Board of Directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.
(d) Securities authorized for issuance under equity compensation plans
None.
Recent Sales of Unregistered Equity Securities
On September 8, 2015, the Company sold 1,000,000 shares of common stock at $0.01 per share and received proceeds of $10,000. The Company relied on exemptions from registration under Regulation D and Section 4(2) of the Securities Act of 1933, as amended.
On November 24, 2015, a convertible noteholder converted $2,612 of principal and interest into 948,358 shares of common stock at a conversion price of $0.002754 per share.
On December 22, 2015, a convertible noteholder converted $2,700 of principal of the First Replacement Note into 1,000,000 shares of common stock at a conversion price of $0.0027 per share. The shares were issued during 2016.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable to a smaller reporting company.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OR PLAN OF OPERATION.
The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto for the years ended December 31, 2015 and 2014.
The independent auditor’s reports on our financial statements for the years ended December 31, 2015 and 2014 includes a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern. Management’s plans in regard to the factors prompting the explanatory paragraph are discussed below and also in Note 10 to the audited consolidated financial statements.
While our financial statements are presented on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time, our auditors have raised substantial doubt about our ability to continue as a going concern.
(a) Liquidity and Capital Resources
For the year ended December 31, 2015, net cash used in operating activities was $184,005 compared to cash provided by operating activities of $154,687 for the year ended December 31, 2014. The company had a net loss $415,540 for the year ended December 31, 2015 compared to a net loss of $139,558 for the year ended December 31, 2014. Negative cash flow for the year ended December 31, 2015 was a result of the net loss and the gain on debt extinguishment of $113,676 offset by the change in the fair value of derivative liabilities of $186,988, non-cash expenses of $131,550 and a net change in operating assets and liabilities of $29,713. Cash flow for the year ended December 31, 2014 was a result of the net loss and by the gain on marketable securities of $7,054 and an increase by changes in operating assets and liabilities of $8,076.
There was no investing activities for the year ended December 31, 2015. During the year ended December 31, 2014, net cash used in investing activities was $54,037, as a result of $16,554 received from the sale of marketable securities and $4,950 received on payments of notes receivable, less payments made in exchange for a note receivable of $75,541.
During the year ended December 31, 2015, the Company received $10,000 for the sale of 1,000,000 shares of common stock at $0.10 per share and $41,000 received from the issuance of two convertible notes, as well as $129,821 from amounts advanced to or paid for on behalf of the Company of $129,821. During the year ended December 31, 2014, net cash provided by financing activities was $208,313 comprised of a repayment of $7,000 on a convertible note and amounts advanced to or paid for on behalf of the Company of $215,313.
For the year ended December 31, 2015, cash and cash equivalents decreased by $3,184 compared to a decrease of $411 for the year ended December 31, 2014. Ending cash and cash equivalents at December 31, 2015 was $317 compared to $3,501 at December 31, 2014.
Since the acquisition of Petrogres on February 29, 2016, the Company’s principal sources of cash are net cash provided by operating activities, which includes the sale and shipment of petroleum products. Our need for capital resources is driven by our expansion plans, ongoing maintenance of our vessels and support of our operational expenses and corporate overhead and infrastructure. Based on our current plan, we believe our expected cash flows from operations, will be sufficient to finance our present activities and capital expenditures for at least the next ten months. Our intention to expand our operations or increase the oil sales or to go into new projects-operations will be subject to extra financing support through individual sources.
Our liquidity may be adversely affected as described in “Risks Related to our Business” as described in Item 1A. “Risk Factors.”
(b) Results of Operations
Results of operations for the year ended December 31, 2015 vs. December 31, 2014
REVENUES
The Company had revenue of $115,514 for the year ended December 31, 2015 compared to revenues of $375,608 for the year ended December 31, 2014.
Predominately, all of the revenue is a result of the Assignment Agreement (“AA”) with PayVentures (“PV”). On June 29, 2015, the Company received notice that PV would like to review the above agreements with the Company and until such review, they have suspended making payments to the Company under the AA. The last month that the Company has recorded and received payments under the AA was April 2015. Other revenues are from an Agent Referral Agreement from marketing of credit card processing services on behalf of merchant payment processing service providers. We have entered into agent referral agreements with merchant payment processing service providers, including Payventures, LLC, and FrontStream Payments, Inc. (“FrontStream”) pursuant to which we receive a commission, based on a percentage of the net revenue received by the payment processor from customers we introduced to them. The Company’s agreement with FrontStream (formerly Direct Technologies, LLC) was entered into on July 31, 2009 with a three (3) year term and automatically renews for successive one year terms, unless terminated by either party pursuant to the terms of the agreement. The Company receives an amount equal to 70% of the residual for the previous month's activity, on or about the 25th day of the next month. Included in 2015 other sales is $6,900 from the sale product.
A summary of the revenues is comprised of:
Costs of Revenues
For the year ended December 31, 2015, cost of revenues was $106,884 compared to $367,150 for the year ended December 31, 2014. The expenses for the 2015 and 2014 periods were comprised of costs associated with a Consulting Agreement and Hosted License Fee whereby services provided to the Company through April 30, 2105, including: coordination of mobile messaging services, customer contact, customer assistance services and merchant acquisition and processing services. Pursuant to the Consulting Agreement, the consultant is compensated at standard hourly rates for such services.
Cost of revenues for the years ended December 31, 2015 and 2014 were comprised of the following:
Operating Expenses.
Operating expenses were $306,330 for the year ended December 31, 2015 compared to $155,070 for 2014 and were comprised of the following:
Total operating expenses increased by $151,260 for the year ended December 31, 2015 compared to the year ended December 31, 2014.
Salaries and management fees are comprised of the following:
During the years ended December 31, 2014, the Company expensed management fees of $54,000 to or on behalf of the Company’s President, B. Michael Friedman, and $36,000 to the Company’s Chief Financial Officer, Barry Hollander. Effective January 1, 2015, the Company agreed to annual compensation of $78,000 for its President and $60,000 for the Chief Financial Officer (“CFO”).
Rent expense for the year ended December 31, 2015 and 2014, was $8,200 and $6,750, respectively, pursuant to a rent sharing agreement the Company entered into on April 1, 2014, wherein the Company agreed to pay $750 per month for use of 1,300 square feet with a company controlled by the Company’s CFO. Effective April 1, 2014, the Company entered into a rent sharing agreement for the use of 1,300 square feet with a company controlled by the Company’s CFO. As of October 1, 2015, the Company terminated the rent sharing agreement.
Professional and consulting fees increased for the year ended December 31, 2015 compared to the 2014 period and is comprised of the following:
General and other administrative costs for the year ended December 31, 2015 and 2014, were $20,732 and $9,991, respectively. The significant expenses is comprised of the following:
Other income (Expense)
Other expenses for the year ended December 31, 2015 were $117,841 compared to other income of $7,054 for the year ended December 31, 2014. For the year ended December 31, 2015, other expenses were comprised of: 1) derivative liability expense of $186,988 as a result of the initial derivative liability expense of $186,309 recorded on the 2015 Convertible Notes and by the change in the fair value of the embedded derivative liability from the date of issuance of the 2015 Convertible notes to December 31, 2015, of $679 and 2) interest expense of $44,529 comprised of the following:
Other income for 2015 of $113,676 was the result of the gain recorded on the debt extinguishment of derivative liabilities, net of the reduction of the corresponding note discount.
The 2014 period is the result of the gain on sale of marketable securities.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Policies
Emerging Growth Company
We qualify as an “emerging growth company” under the 2012 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 accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents.
Accounts Receivable
The Company records accounts receivable from amounts due from its processors. The Company charges certain merchants for processing services at a bundled rate based on a percentage of the dollar amount of each transaction and, in some instances, additional fees are charged for each transaction. The Company charges other merchant customers a flat fee per transaction, and may also charge miscellaneous fees to customers, including fees for returns, monthly minimums, and other miscellaneous services. All the charges and collections thereon flow through processors who then remit the fee due the Company within the month following the actual charges.
Marketable Securities
The Company classifies its marketable securities as available-for-sale securities, which are carried at their fair value based on the quoted market prices of the securities with unrealized gains and losses, net of deferred income taxes, reported as accumulated other comprehensive income (loss), a separate component of stockholders’ equity. Realized gains and losses on available-for-sale securities are included in net earnings in the period earned or incurred.
Patents
The Company capitalizes patent pending acquisition costs, legal fees and filing costs associated with the development and filing of its patents. Patents are generally amortized over an estimated useful life of 15 years using the straight-line method beginning on the issue date. No amortization expense was recorded during the years ended December 31, 2015 and 2014. Based on events and changes in circumstances during the fourth quarter of 2015, the Company reviewed the carrying amount of patents initially recorded from the issuance of common stock in 2012, and determined that the carrying amount may not be recoverable and accordingly recognized research and development costs of $33,950 for the year ended December 31, 2015.
Property and Equipment
Property and equipment are stated at cost, and depreciation is provided by use of straight-line methods over the estimated useful lives of the assets. The estimated useful lives of property and equipment are as follows:
Office equipment and furniture 5 years
Computer hardware and software 3 years
The Company's property and equipment consisted of the following at December 31, 2015 and December 31, 2014:
Depreciation expense of $573 and $1,071 was recorded for the years ended December 31, 2015 and 2014, respectively.
Revenue Recognition
The Company recognizes revenue in accordance with FASB ASC 605, Revenue Recognition. ASC 605 requires that four basic criteria are met (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured. The Company recognizes revenue during the month in which commissions are earned.
Fair Value of Financial Instruments
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, the Company primarily uses prices and other relevant information generated by market transactions involving identical or comparable assets (“market approach”). The Company also considers 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.
The Company's financial instruments consist primarily of marketable securities. Marketable securities are adjusted to fair value each balance sheet date, based on quoted prices; which are considered level 1 inputs (see Note 5). The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current market exchange or from future earnings or cash flows.
The Company’s derivative liability resulting from the issuance of convertible debt is adjusted to fair value based on recent sales of the underlying common stock and the use of an option pricing model, which are consistent with level 3 inputs. See Note 6.
The following table represents the Company’s financial instruments that are measured at fair value on a recurring basis as of December 31, 2015 and December 31, 2014 for each fair value hierarchy level:
The following table represents the Company’s financial instruments that are measured at fair value on a recurring basis as of December 31, 2014 and December 31, 2013 for each fair value hierarchy level:
Income Taxes
The Company accounts for income taxes in accordance with ASC 740-10, Income Taxes. The Company recognizes deferred tax assets and liabilities to reflect the estimated future tax effects, calculated at the tax rate expected to be in effect at the time of realization. The Company records a valuation allowance related to a deferred tax asset when it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.
ASC 740-10 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. The Company classifies interest and penalties as a component of interest and other expenses. To date, the Company has not been assessed, nor has the Company paid, any interest or penalties.
The Company measures and records uncertain tax positions by establishing a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized. The Company’s tax years subsequent to 2010 remain subject to examination by federal and state tax jurisdictions.
Earnings (Loss) Per Share
The Company reports earnings (loss) per share in accordance with ASC 260, "Earnings per Share." Basic earnings (loss) per share is computed by dividing net income (loss), after deducting preferred stock dividends accumulated during the period, by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period. Potentially dilutive securities for the year ended December 31, 2015 and 2014 including outstanding convertible debt that is convertible into approximately 26,052,320 shares of common stock (2015) and options to purchase 1,600,000 (2014) shares of common stock, were not included in the calculation of diluted loss per share because their impact was anti-dilutive.
Accounting for Stock-Based Compensation
The Company accounts for stock awards issued to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees. The measurement date is the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty's performance is complete. Stock awards granted to non-employees are valued at their respective measurement dates based on the trading price of the Company’s common stock and recognized as expense during the period in which services are provided.
Comprehensive Income
The Company has 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 the Company’s comprehensive loss consist of unrealized losses on available-for-sale securities.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for smaller reporting companies.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules appearing on pages to of this annual report on Form 10-K.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
A review and evaluation was performed by the Company's management, including the Company's Principal Executive Officer and Chief Financial Officer (the “CFO”), as of the end of the period covered by this annual report on Form 10-K, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this annual report. Based on that review and evaluation, the Principal Executive Officer and CFO have concluded that as of December 31, 2015 disclosure controls and procedures were not effective at ensuring that the material information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported as required in the application of SEC rules and forms.
Management’s Report on Internal Controls over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a set of processes designed by, or under the supervision of, a company’s principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and disposition of our assets;
• Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our Principal Executive Officer and CFO have evaluated the effectiveness of our internal control over financial reporting as described in Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report based upon criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As a result of this evaluation, we concluded that our internal control over financial reporting was not effective as of December 31, 2015 as described below.
We assessed the effectiveness of the Company’s internal control over financial reporting as of evaluation date and identified the following material weaknesses:
Insufficient Resources: We have an inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting.
Inadequate Segregation of Duties: We have an inadequate number of personnel to properly implement control procedures.
Lack of Audit Committee: We do not have a functioning audit committee, resulting in lack of independent oversight in the establishment and monitoring of required internal controls and procedures.
We are committed to improving the internal controls and will (1) consider to use third party specialists to address shortfalls in staffing and to assist us with accounting and finance responsibilities, (2) increase the frequency of independent reconciliations of significant accounts which will mitigate the lack of segregation of duties until there are sufficient personnel and (3) may consider appointing additional outside directors and audit committee members in the future.
We have discussed the material weakness noted above with our independent registered public accounting firm. Due to the nature of these material weaknesses, there is a more than remote likelihood that misstatements which could be material to the annual or interim financial statements could occur that would not be prevented or detected.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Identification of directors and executive officers
Set forth below is information regarding the Company’s current directors and executive officers. There are no family relationships between any of our directors or executive officers. The directors are elected annually by stockholders. The executive officers serve at the pleasure of the Board of Directors:
Christos Traios, President, Chief Executive Officer and Director. Mr. Traios has been in the maritime industry for more than 25 years and has been in the oil business for eight years. Since the incorporation of Petrogres, Mr. Traios has served as its sole director and CEO. Mr. Traios attended Master Mariner & Law Maritime School for three years and served as second captain in the shipping industry for three years. Mr. Traios is a citizen of Greece.
Mr. Traios’s experience as our President and in management generally, as well as his extensive experience in the areas crude oil purchasing and selling, and tanker vessel shipping and management of operations qualify him to serve as a director of our Company.
Barry S. Hollander, Chief Financial Officer, Secretary and Treasurer. Mr. Hollander has been the Chief Financial Officer of the Registrant since inception. From May 2014 through November 19, 2015, Mr. Hollander was the chief financial officer of Cabinet Grow, Inc. (“Cabinet Grow”), a publicly traded company under the symbol CBNT. In January, 2016, Mr. Hollander became the chief executive officer for Cabinet Grow. From 2010 through 2013, Mr. Hollander was the chief financial officer of Quture International, Inc. (formerly known as Techs Loanstar, Inc.), a publicly traded company under the symbol TCLN. From 2011 to September 15, 2015, Mr. Hollander was the chief financial officer of Agritek Holdings, Inc. (“Agritek”), a publicly traded company under the symbol AGTK. From 2006 through 2014, Mr. Hollander was the acting chief executive officer of FastFunds Financial Corporation, a publicly traded company under the symbol FFFC. In July 2010, Mr. Hollander formed Venture Equity, LLC, a company that offers financial and business consulting services.
Involvement in Certain Legal Proceedings
No director, executive officer, significant employee or control person of the Company has been involved in any legal proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.
Code of Ethics
We adopted a Code of Ethics for Senior Financial Management to promote honest and ethical conduct and to deter wrongdoing. This Code applies to our Chief Executive Officer, Chief Financial Officer, controller, principal accounting officer and other employees performing similar functions. The obligations of the Code of Ethics supplement, but do not replace, any other code of conduct or ethics policy applicable to our employees generally.
Under the Code of Ethics, all members of the senior financial management shall:
• Act honestly and ethically in the performance of their duties at our company,
• Avoid actual or apparent conflicts of interest between personal and professional relationships,
• Provide full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submits to, the SEC and in other public communications by our company,
• Comply with rules and regulations of federal, state and local governments and other private and public regulatory agencies that effect the conduct of our business and our financial reporting,
• Act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing the member’s independent judgment to be subordinated
• Respect the confidentiality of information in the course of work, except when authorized or legally obtained to disclosure such information,
• Share knowledge and maintain skills relevant to carrying out the member’s duties within our company,
• Proactively promote ethical behavior as a responsible partner among peers and colleagues in the work environment and community,
• Achieve responsible use of and control over all assets and resources of our company entrusted to the member, and
• Promptly bring to the attention of the Chief Executive Officer any information concerning (a) significant deficiencies in the design or operating of internal controls which could adversely affect to record, process, summarize and report financial data or (b) any fraud, whether or not material, that involves management or other employees who have a significant role in our financial reporting or internal controls.
Corporate Governance
There have been no material changes to procedures by which security holders may recommend nominees to our Board of Directors.
We currently have no standing audit or nominating committees of our Board of Directors. Our entire Board of Directors currently performs these functions.
Director Independence
None of the members of our Board of Directors qualifies as an independent director in accordance with the published listing requirements of the NASDAQ Global Market. The NASDAQ independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director, nor any of his family members has engaged in various types of business dealings with us. In addition, our Board has not made a subjective determination as to each director that no relationships exist which, in the opinion of our Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, though such subjective determination is required by the NASDAQ rules. Had our Board of Directors made these determinations, our Board would have reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management.
In performing the functions of the audit committee, our board oversees our accounting and financial reporting process. In this function, our board performs several functions. Our board, among other duties, evaluates and assesses the qualifications of the Company’s independent auditors; determines whether to retain or terminate the existing independent auditors; meets with the independent auditors and financial management of the Company to review the scope of the proposed audit and audit procedures on an annual basis; reviews and approves the retention of independent auditors for any non-audit services; reviews the independence of the independent auditors; reviews with the independent auditors and with the Company’s financial accounting personnel the adequacy and effectiveness of accounting and financial controls and considers recommendations for improvement of such controls; reviews the financial statements to be included in our annual and quarterly reports filed with the Securities and Exchange Commission; and discusses with the Company’s management and the independent auditors the results of the annual audit and the results of our quarterly financial statements. While we do not currently have a standing compensation committee, our non-employee director considers executive officer compensation, and our entire board participates in the consideration of director compensation. Our non-employee board members oversee our compensation policies, plans and programs. Our non-employee board members further review and approve corporate performance goals and objectives relevant to the compensation of our executive officers; review the compensation and other terms of employment of our Chief Executive Officer and our other executive officers; and administer our equity incentive and stock option plans. Each of our directors participates in the consideration of director nominees. In addition to nominees recommended by directors, our board will consider nominees recommended by shareholders if submitted in writing to our secretary. Our board believes that any candidate for director, whether recommended by shareholders or by the board, should be considered on the basis of all factors relevant to our needs and the credentials of the candidate at the time the candidate is proposed. Such factors include relevant business and industry experience and demonstrated character and judgment.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The following tables set forth all of the compensation awarded to, earned by or paid to: (i) each individual serving as our principal executive officer; (ii) each other individual that served as an executive officer at the conclusion of the fiscal year ended December 31, 2015 and who received in excess of $100,000.
2015 Summary Compensation of Executive Officers
(1)Effective January 1, 2015, the Company has agreed to annual compensation of $78,000 for B. Michael Friedman, the Company’s President and $60,000 for Barry Hollander, the Company’s Chief Financial Officer (“CFO”). During the years ended December 31, 2014 the Company expensed management fees of $54,000 to or on behalf of the Company’s President and $36,000 to the Company’s CFO. The Company’s Board of Directors set the total compensation payable to Messrs. Friedman and Hollander after careful deliberation and after considering a variety of relevant factors, including the services provided by both and the rate of compensation charged by others for the provision of similar services. The Company’s Board of Directors believes that the compensation paid to Messrs. Friedman and Hollander is fair and reasonable to the shareholders of the Company.
We do not presently have pension, health, annuity, insurance, profit sharing, or similar benefit plans; however, we may adopt plans in the future. There are presently no personal benefits available to our directors and officers.
Outstanding Equity Awards at Fiscal Year-End
No executive officer received any equity awards, or holds exercisable or unexercisable options, as of December 31, 2015.
Director Compensation
We do not pay fees to our directors for attendance at meetings of the board; however, we may adopt a policy of making such payments in the future. We will reimburse out-of-pocket expenses incurred by directors in attending board and committee meetings.
Employment Agreements with Executive Officers
None.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
(a) Security ownership of certain beneficial owners
(b) Security ownership of management
The following table sets forth information known to the Company with respect to the beneficial ownership (as such term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of the outstanding common stock of the Company as of April 15, 2016, by: (1) each person known by the Company to beneficially own 5% or more of the Company’s outstanding common stock; (2) each of the named executive officers as defined in Item 402(a)(3); (3) each of the Company’s directors; and (4) all of the Company’s named executive officers and directors as a group. The number of shares beneficially owned is determined under rules promulgated by the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Including those shares in the tables does not, however, constitute an admission that the named stockholder is a direct or indirect beneficial owner of those shares.
(1)Based on a total of an aggregate of 159,995,807 shares of common stock outstanding.
(2)The address for these shareholders is 319 Clematis Street, Suite 812, West Palm Beach, FL. 33401
Changes in Control
There were no significant changes in control for the year ending December 31, 2015. On February 29, 2016, 800 Commerce entered into a Securities Exchange Agreement (the “Agreement”) with an unrelated third party, Petrogres Co. Limited (“Petrogres”), a Marshall Islands corporation, and its sole shareholder. The Company acquired 100% of Petrogres and its affiliated companies, all as more particularly described in the Agreement. As consideration for the acquisition of Petrogres, the Company issued 136,000,000 shares of its common stock, in restricted form, representing 85% of the issued and outstanding shares of the Company’s common stock at closing of the transaction.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Transactions with related persons
Management fees
During the years ended December 31, 2015 and 2014 the Company expensed management fees of $78,000 and $54,000, respectively, to or on behalf of the Company’s President, B. Michael Friedman, and $60,500 and $36,000, respectively, to the Company’s Chief Financial Officer, Barry Hollander. Amounts due stockholders on the balance sheet as of December 31, 2015 include Mr. Friedman ($141,785), Mr. Hollander ($27,544) and Mr. Canton ($66,666). Mr. Canton resigned on January 15, 2014.
Amounts Due Agritek Holdings, Inc.
As of December 31, 2012, Agritek owned 6,000,000 shares of the Company’s common stock, representing approximately 32% of the Company’s outstanding common stock. Effective September 4, 2013, Agritek distributed the 6,000,000 shares of the Company’s common stock to their shareholders of record as of September 3, 2013. Through February 29, 2016, the Company and Agritek were commonly controlled due to common management and board members. The Company owes Agritek $283,547 and $237,760 as of December 31, 2015 and December 31, 2014, respectively, as a result of advances received from Agritek. These advances are non-interest bearing and are due on demand and are included in amounts due related parties on the December 31, 2015, balance sheet herein. The Company and Agritek on February 29, 2016, entered into a Debt Settlement Agreement (the “DSA”). Pursuant to the DSA the Company issued 1,101,642 shares of the Company’s common stock in full settlement of the amount owed.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table shows the fees that were billed for the audit and other services provided by MaloneBailey, LLP for the three months ended September 30, 2015, and to D. Brooks and Associates CPA’s P.A. for the six months ended June 30, 2015 and for the year ended December 31, 2014. The tax services for the year ended December 31, 2015, were provided by Greentree Financial Group, Inc.
Audit Fees - This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.
Audit-Related Fees - This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.”
Tax Fees - This category consists of professional services rendered for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.
All Other Fees - This category consists of fees for other miscellaneous items.
Our board of directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting firm. Under the procedure, the board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the board.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements
The financial statements and Reports of Independent Registered Public Accounting Firms are included on pages through.
2. Financial Statement Schedules
All schedules for which provisions made in the applicable accounting regulations of the Securities and Exchange Commission (the “Commission”) are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the financial statements included herein.
3. Exhibits (including those incorporated by reference).
* Filed herewith.
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of this annual report on Form 10-K for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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.
Petrogress, Inc.
By: /s/ Christos Traios
Christos Traios
President
Date: April 19, 2016
By: /s/ Barry Hollander
Barry Hollander
Chief Financial Officer
Date: April 19, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Christos Traios
President, Chief Executive and Director (principal executive officer)
April 19, 2016
/s/ Barry Hollander
Chief Financial Officer (principal financial officer and accounting officer)
April 19, 2016
PETROGRESS, INC.
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
To the Board of Directors and
Stockholders of Petrogress, Inc (F/K/A/ 800 Commerce, Inc.)
We have audited the accompanying balance sheet of Petrogress, Inc (F/K/A/ 800 Commerce, Inc.) (the “Company”) as of December 31, 2015 and related statements of operations, stockholders’ deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Petrogress, Inc (F/K/A/ 800 Commerce, Inc.) as of December 31, 2015 and the results of its operations and its cash flows for year then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has suffered recurring operating losses, has an accumulated stockholders’ deficit, has negative working capital, has had minimal revenues from operations, and has yet to generate an internal cash flow that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in Note 12. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ L&L CPAS, PA
L&L CPAS, PA
Certified Public Accountants
Cornelius, NC
The United States of America
April 19, 2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of 800 Commerce, Inc.
We have audited the accompanying balance sheets of 800 Commerce, Inc. as of December 31, 2014, and the related statements of operations, stockholders’ deficit, and cash flows for the year then ended. 800 Commerce, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
We were not engaged to examine management’s assertion about the effectiveness of 800 Commerce, Inc.’s internal control over financial reporting as of December 31, 2014 and, accordingly, we do not express an opinion thereon.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of 800 Commerce, Inc. as of December 31, 2014, and the results of its operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 12 to the financial statements, the Company has incurred operating losses, has incurred negative cash flows from operations and has a working capital deficit. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan regarding these matters is also described in Note 12 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
D. Brooks and Associates CPA’s, P.A
West Palm Beach, FL
March 31, 2015
PETROGRESS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization
Petrogress, Inc. (the “Company” or “Petrogress”) was originally formed in the State of Florida under the name 800 Commerce, Inc. (“800 Commerce”) on February 10, 2010. On March 9, 2016, the Company’s Board approved an amendment to the Company’s Articles of Incorporation to change the name of the Corporation to Petrogress, Inc. The Company was founded for the purpose of marketing credit card processing services on behalf of merchant payment processing service providers. The Company commenced revenue producing activities based on the marketing of credit processing services in March 2010. The Company generates revenue from the marketing of credit processing services by way of fees received from merchant payment processing service providers on whose behalf the Company brokers their processing services. On August 1, 2012, the Company began to receive additional revenue pursuant to a processing service provider’s assignment to the Company of a portion of its fee income under one or more of its service contracts in exchange for the issuance of 500,000 shares of our common stock. On June 29, 2015, the Company received notice that Payventures, LLC (“PV”) would like to review the Assignment Agreement (“PAA”) with the Company and until such review, they have suspended making payments to the Company under the PAA. The last month that the Company has recorded and received payments under the PAA was April 2015. Accordingly, there would not be amounts due PV for license or transaction fees since April 30, 2015.
On February 29, 2016, 800 Commerce entered into a Securities Exchange Agreement (the “Agreement”) with an unrelated third party, Petrogres Co. Limited (“Petrogres”), a Marshall Islands corporation, and its sole shareholder. The Company acquired 100% of Petrogres and its affiliated companies, all as more particularly described in the Agreement. As consideration for the acquisition of Petrogres, the Company issued 136,000,000 shares of its common stock, in restricted form, representing 85% of the issued and outstanding shares of the Company’s common stock at closing of the transaction.
Petrogres and its’ subsidiaries is an oil trading and shipping company acting internationally and has been in business for seven (7) years.
As part of the transaction, the sole shareholder and CEO of Petrogres, Christos Traios, was appointed to the Board of Directors and B. Michael Friedman resigned as an officer and director. In addition, the Company’s Board of Directors (the “Board”) approved an amendment to the Company’s Articles of Incorporation, increasing the authorized capital to 490,000,000 shares of common stock, par value $0.001 and 10,000,000 shares of preferred stock, par value $0.001.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP").
Emerging Growth Company
We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 as amended (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.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents.
Notes Receivable
The Company records notes receivable from amounts due from a third party upon loans made. The allowance for losses is established through a provision for losses charged to expenses. Receivables are charged against the allowance for losses when management believes collectability is unlikely. The allowance is an amount that management believes will be adequate to absorb estimated losses on existing receivables, based on evaluation of the collectability of the accounts and prior loss experience. While management uses the best information available to make its evaluations, this estimate is susceptible to significant change in the near term. As of December 31, 2015, based on the above criteria, the Company has an allowance for note receivables of $70,820.
Accounts Receivable
The Company records accounts receivable from amounts due from its processors. The Company charges certain merchants for processing services at a bundled rate based on a percentage of the dollar amount of each transaction and, in some instances, additional fees are charged for each transaction. The Company charges other merchant customers a flat fee per transaction, and may also charge miscellaneous fees to customers, including fees for returns, monthly minimums, and other miscellaneous services. All the charges and collections thereon flow through processors who then remit the fee due the Company within the month following the actual charges.
The costs related to the issuance of debt are capitalized and amortized to interest expense using the straight-line method through the maturities of the related debt.
Marketable Securities
The Company classifies its marketable securities as available-for-sale securities, which are carried at their fair value based on the quoted market prices of the securities with unrealized gains and losses, net of deferred income taxes, reported as accumulated other comprehensive income (loss), a separate component of stockholders’ equity. Realized gains and losses on available-for-sale securities are included in net earnings in the period earned or incurred.
Property and Equipment
Property and equipment are stated at cost, and depreciation is provided by use of straight-line methods over the estimated useful lives of the assets. The estimated useful lives of property and equipment are as follows:
Office equipment and furniture 5 years
Computer hardware and software 3 years
The Company's property and equipment consisted of the following at December 31, 2015 and 2014:
Depreciation expense of $573 and $1,071 was recorded for the years ended December 31, 2015 and 2014, respectively.
Patents
The Company capitalizes patent pending acquisition costs, legal fees and filing costs associated with the development and filing of its patents. Patents are generally amortized over an estimated useful life of 15 years using the straight-line method beginning on the issue date. No amortization expense was recorded during the years ended December 31, 2015 and 2014. Based on events and changes in circumstances during the fourth quarter of 2015, the Company reviewed the carrying amount of patents initially recorded from the issuance of common stock in 2012, and determined that the carrying amount may not be recoverable and accordingly recognized research and development costs of $33,950 for the year ended December 31, 2015.
Advertising
The Company records advertising costs as incurred. For the years ended December 31, 2015 and 2014, advertising expense was $3,500 and $-0-, respectively.
Revenue Recognition
The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition. ASC 605 requires that the following four basic criteria are met (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured. The Company recognizes revenue during the month in which commissions are earned.
Fair Value of Financial Instruments
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, the Company primarily uses prices and other relevant information generated by market transactions involving identical or comparable assets (“market approach”). The Company also considers 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.
The Company's financial instruments consist primarily of cash, accounts receivable, marketable securities, accounts payable and accrued expenses, due to stockholders and convertible debt. The carrying amount of the Company’s accounts payable, accrued expenses and due to stockholders approximate fair value to their short term. Marketable securities are adjusted to fair value each balance sheet date, based on quoted prices; which are considered level 1 inputs (see Note 6). As of December 31, 2015 and 2014, the Company’s marketable securities were $780 and $30,000, respectively. The Company’s derivative liability is valued using the level 3 inputs (see Note 7). The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current market exchange or from future earnings or cash flows.
The following table represents the Company’s financial instruments that are measured at fair value on a recurring basis as of December 31, 2014 and December 31, 2013 for each fair value hierarchy level:
The carrying amount of the Company’s accounts payable and accrued expenses and due to stockholders approximate fair value to their short term.
Earnings (Loss) Per Share
The Company reports earnings (loss) per share in accordance with ASC 260, "Earnings per Share." Basic earnings (loss) per share is computed by dividing net income (loss), after deducting preferred stock dividends accumulated during the period, by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period. Potentially dilutive securities for the year ended December 31, 2015 includes the Company’s outstanding convertible debt that is convertible into approximately 26,052,320 shares of common stock. These amounts are not included in the computation of dilutive loss per share because their impact is antidilutive.
Accounting for Stock-based Compensation
The Company accounts for stock awards issued to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees. The measurement date is the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty's performance is complete. Stock awards granted to non-employees are valued at their respective measurement dates based on the trading price of the Company’s common stock and recognized as expense during the period in which services are provided.
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.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740-10, Income Taxes. The Company recognizes deferred tax assets and liabilities to reflect the estimated future tax effects, calculated at the tax rate expected to be in effect at the time of realization. The Company records a valuation allowance related to a deferred tax asset when it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.
ASC 740-10 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. The Company classifies interest and penalties as a component of interest and other expenses. To date, the Company has not been assessed, nor has the Company paid, any interest or penalties.
The Company measures and records uncertain tax positions by establishing a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized. The Company’s tax years subsequent to 2010 remain subject to examination by federal and state tax jurisdictions.
Comprehensive Income
The Company has 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 the Company’s comprehensive loss consist of unrealized losses on available-for-sale securities.
Note 3 - Recent Accounting Pronouncements
Accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.
Note 4 - Sales Concentration and Concentration of Credit Risk
Cash
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company maintains cash balances at one financial institution, which is insured by the Federal Deposit Insurance Corporation (“FDIC”). The FDIC insured institution insures up to $250,000 on account balances. The amounts that are not insured by FDIC limitations are held in short-term securities. The Company has not experienced any losses in such accounts.
Sales and Accounts Receivable
Following is a summary of customers who accounted for more than ten percent (10%) of the Company’s revenues for the years ended December 31, 2015 and 2014 and the accounts receivable balance as of December 31, 2015:
The Company relies on a few processors to provide, on a non-exclusive basis, transaction processing and transmittal, transaction authorization and data capture, and access to various reporting tools.
On June 29, 2015, the Company received notice from a merchant provider that they would like to review the Assignment Agreement with the Company and until such review, they have suspended making payments to the Company. The last month that the Company has recorded and received payments under the Assignment Agreement was April 2015. Accordingly, there would be no amounts due for license or transaction fees since April 30, 2015.
Note 5 - Note Receivable
During the year ended December 31, 2014, the Company advanced $75,770 to a third party in exchange for a $75,770 promissory note with a 10% per annum interest rate. The note was to be payable in three installments after the closing of a transaction between the Company and the third party or on demand by the Company. As of December 31, 2014 the outstanding principal amount on the promissory note was $70,820. Based on events and changes in circumstances occurring during the year ended December 31, 2015, the Company recorded a reserve against the note and recorded bad debt expense of $70,820.
Note 6 - Marketable Securities
The Company’s marketable securities consist solely of 600,000, as of December 31, 2015 and 2014 of shares of Agritek Holdings, Inc.’s (“Agritek”) common stock, issued to the Company in connection with the Company’s formation in 2010. The Company classifies its marketable securities as available-for-sale securities, which are carried at their fair value based on the quoted market prices of the securities with unrealized gains and losses, net of deferred income taxes, reported as accumulated other comprehensive income (loss), a separate component of stockholders’ equity. Realized gains and losses on available-for-sale securities are included in net earnings in the period earned or incurred. The fair value of the Company’s holdings in Agritek’s common stock totaled $780 and $30,000 as of December 31, 2015 and 2014, respectively.
The following summarizes the carrying value of marketable securities as of December 31, 2015 and 2014:
Note 7 - Convertible Notes Payable
On May 4, 2015, the Company issued a Convertible Promissory Note for $21,500 to LG Capital Funding, LLC (the “LG Note”). The Company received net proceeds of $20,000 after debt issuance costs of $1,500 paid for lender legal fees. The LG Note carries a per annum interest rate of 8%, matures May 1, 2016 and converts at a 46% discount to the market price defined in the LG Note as the lowest closing price (as defined in the note agreement) per share of the Company’s common stock for the twenty trading days immediately preceding the date of conversion. Upon the occurrence of an event of default, as defined in the LG Note, the Company is required to pay interest at 22% per annum and the holder could at their option declare the LG Note, together with accrued and unpaid interest, to be immediately due and payable. In addition, the LG Note provides for adjustments for dividends payable other than in shares of common stock, for reclassification, exchange or substitution of the common stock for another security or securities of the Company or pursuant to a reorganization, merger, consolidation, or sale of assets, where there is a change in control of the Company. The Company must at all times reserve 11,000,000 shares of common stock for potential conversions. On November 24, 2015, LG converted $2,612 of principal and interest into 948,358 shares of common stock at a conversion price of $0.002754 per share. On December 10, 2015, the Company accepted and agreed to an Exchange Agreement (the “EA”), pursuant to Mammoth Corporation (“Mammoth”) having acquired the 2015 LG convertible promissory note from LG. The Company issued a Restated Convertible Note to Mammoth for $31,339 (the “First Replacement Note”). The First Replacement Note is due September 9, 2016 with a 10% interest rate and is convertible into shares of the Company’s common stock at any time at the discretion of Mammoth at a variable conversion price (“VCP”). The VCP is calculated as the lowest closing price during the twenty (20) trading days immediately prior to the conversion date multiplied by fifty four percent (54%), representing a forty six percent (46%) discount. Mammoth paid LG $28,490 on December 17, 2015 to acquire all rights under their note. As of December 31, 2015, the principal balance of the First Replacement Note is $31,339.
On May 26, 2015, the Company issued a Convertible Promissory Note for $24,000 to Crown Bridge Partners, LLC (the “CB Note”). The Company received net proceeds of $20,000 on June 1, 2015, after debt issuance costs of $1,000 paid for lender legal fees and an Original Issuance Discount (“OID”) of $3,000. The CB Note carries a per annum interest rate of 8%, matures May 26, 2016 and converts at a 47% discount to the market price defined in the CB Note as the average of the two lowest trading prices (as defined in the note agreement) per share of the Company’s common stock for the fifteen trading days immediately preceding the date of conversion. Upon the occurrence of an event of default, as defined in the LG Note, the Company is required to pay interest at 22% per annum and the holder could at their option declare the CB Note, together with accrued and unpaid interest, to be immediately due and payable. In addition, the CB Note provides for adjustments for dividends payable other than in shares of common stock, for reclassification, exchange or substitution of the common stock for another security or securities of the Company or pursuant to a reorganization, merger, consolidation, or sale of assets, where there is a change in control of the Company. The Company must at all times reserve 10,400,000 shares of common stock for potential conversions. On December 10, 2015, the Company accepted and agreed to an Exchange Agreement (the “EA”), pursuant to Mammoth Corporation (“Mammoth”) having acquired the 2015 CB convertible promissory note from CB. The Company issued a Restated Convertible Note to Mammoth for $38,280 (the “Second Replacement Note”). The Second Replacement Note is due September 9, 2016 with a 10% interest rate and is convertible into shares of the Company’s common stock at any time at the discretion of Mammoth at a VCP. The VCP is calculated as the average of the two lowest trading price during the fifteen (15) trading days immediately prior to the conversion date multiplied by fifty three percent (53%), representing a forty seven percent (47%) discount. Mammoth paid Crown Bridge $34,800 on December 17, 2015 to acquire all rights under their note. As of December 31, 2015, the principal balance of the Second Replacement Note is $38,280.
The LG Note, the CB Note, the First Replacement Note and the Second Replacement Note together are referred to as the 2015 Convertible Notes.
OID costs of $4,500 included in the LG and CB Notes, will be amortized over the earlier of the terms of the Note or any redemptions. Since the LG and CB Notes were acquired by a third party in December 2015, $4,500 has been expensed in interest expense for the year ended December 31, 2015.
The Company determined that the conversion feature of the 2015 Convertible Notes represent an embedded derivative since the Notes are convertible into a variable number of shares upon conversion. Accordingly, the 2015 Convertible Notes were not considered to be conventional debt under EITF 00-19 and the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability. Accordingly, the fair value of these derivative instruments being recorded as a liability on the consolidated balance sheet with the corresponding amount recorded as a discount to each Note. Such discount is being amortized from the date of issuance to the maturity dates of the Notes. The change in the fair value of the liability for derivative contracts are recorded in other income or expenses in the consolidated statements of operations at the end of each quarter, with the offset to the derivative liability on the balance sheet. The embedded feature included in the 2015 Convertible Notes resulted in an initial debt discount of $41,000, an initial derivative liability expense of $83,492 and an initial derivative liability of $124,491. On the date the notes were purchased by the third party, the Company revalued the embedded conversion feature of the LG and CB Notes. The fair value of the 2015 Convertible Notes was calculated based on the Black Scholes method consistent with the terms of the related debt.
A summary of the derivative liability balance for the LG and CB Notes as of December 9, 2015 (the purchase date) is as follows:
In conjunction of Mammoth’s purchase of the LG and CB Notes the Company recognized a gain on debt extinguishment of $113,676, as a result of the elimination of the remaining derivative liability, net of the reduction of the corresponding note discount.
The Company determined that the conversion feature of the 2015 Replacement Notes represent an embedded derivative since the Notes are convertible into a variable number of shares upon conversion. Accordingly, the 2015 Replacement Notes were not considered to be conventional debt under EITF 00-19 and the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability. Accordingly, the fair value of these derivative instruments being recorded as a liability on the consolidated balance sheet with the corresponding amount recorded as a discount to each Note. Such discount is being amortized from the date of issuance to the maturity dates of the Notes. The change in the fair value of the liability for derivative contracts are recorded in other income or expenses in the consolidated statements of operations at the end of each quarter, with the offset to the derivative liability on the balance sheet. The embedded feature included in the 2015 Replacement Notes resulted in an initial debt discount of $69,619, an initial derivative liability expense of $102,816 and an initial derivative liability of $166,106. As of December 31, 2015 the Company revalued the embedded conversion feature of the 2015 Replacement Notes. The fair value of the 2015 Replacement Notes was calculated based on the Black Scholes method consistent with the terms of the related debt.
A summary of the derivative liability balance of the Replacement Notes as of December 31, 2015 is as follows:
The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2015:
A summary of the convertible notes payable balance as of December 31, 2015 is as follows:
Note 8 - Related Party Transactions
Management Fees
During the years ended December 31, 2014 the Company expensed management fees of $54,000 to or on behalf of the Company’s President, B. Michael Friedman, and $36,000 to the Company’s Chief Financial Officer, Barry Hollander. Effective January 1, 2015, the Company has agreed to annual compensation of $78,000 for its President and $60,000 for the Chief Financial Officer (“CFO”).
For the years ended December 31, 2015 and 2014, the Company recorded expenses to its’ officers the following amounts, included in Salaries and Management Fees in the statements of operations, included herein:
As of December 31, 2015, the Company owed its’ officer and former Chairman the following amounts, included in amounts due stockholders on the Company’s condensed balance sheet:
Amounts due Agritek Holdings, Inc.
As of December 31, 2012, Agritek owned 6,000,000 shares of the Company’s common stock, representing approximately 32% of the Company’s outstanding common stock. Effective September 4, 2013, Agritek distributed the 6,000,000 shares of the Company’s common stock to their stockholders of record as of September 3, 2013. The Company and Agritek are commonly controlled due to common management and board members. The Company owes Agritek $283,547 as of December 31, 2015, as a result of advances received from Agritek. These advances are non-interest bearing and are due on demand and are included in amounts due stockholders on the December 31, 2015, balance sheet herein. The Company and Agritek on February 29, 2016, entered into a Debt Settlement Agreement (the “DSA”). Pursuant to the DSA the Company issued 1,101,642 shares of the Company’s common stock in full settlement of the amount owed.
Note 9 - Stockholders’ Deficit
Common Stock
On September 8, 2015, the Company sold 1,000,000 shares of common stock at $0.01 per share and received proceeds of $10,000.
On November 24, 2015, LG converted $2,612 of principal and interest into 948,358 shares of common stock at a conversion price of $0.002754 per share.
As of December 31, 2015 and December 31, 2014, there were 21,848,358 and 19,950,000, respectively, par value $0.001, shares of common stock outstanding.
Stock Options
Effective August 1, 2012 the Company adopted the 2012 Equity Incentive Plan (the “2012 Plan”) whereby the Company has reserved five million shares of common stock to be available for grants pursuant to the 2012 Plan.
Effective August 1, 2012, the Company entered into two Advisory Board Agreements (“ABA”) pursuant to which, the Company granted to each of Dr. James Canton and Mr. Scott Climes a non-qualified stock option to purchase 800,000 shares of common stock of the Company at an exercise price of $0.30 per share. The options were granted under the 2012 Plan and have a three year term and expired August 1, 2015. Mr. Climes was a member of the board of directors of the Company (resigned August 5. 2014) and Dr. Canton was the Chairman of the Board of Directors of the Company at the time (resigned January 15, 2014).
A summary of the activity of options for the year ended December 31, 2015 is as follows:
As of December 31, 2015, 5,000,000 options are available for future grants under the 2012 Plan.
Note 10 - Income Taxes
Deferred income taxes reflect the net tax effects of operating loss and tax credit carry forwards and temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Due to the uncertainty of the Company’s ability to realize the benefit of the deferred tax assets, the deferred tax assets are fully offset by a valuation allowance at December 31, 2015 and 2014.
Income tax expense for 2015 and 2014 is as follows:
The following is a summary of the Company’s deferred tax assets at December 31, 2015 and 2014:
A reconciliation between the expected tax expense (benefit) and the effective tax rate for the years ended December 31, 2014 and 2013 are as follows:
As of December 31, 2015, the Company had a tax net operating loss carry forward of approximately $385,000. Any unused portion of this carry forward expires in 2030. Utilization of this loss may be limited in the event of an ownership change pursuant to IRS Section 382.
Note 11 - Commitments and Contingencies
The Company is not a party to any litigation and, to its knowledge, no action, suit or proceeding has been threatened against the Company.
Effective April 1, 2014, the Company entered into a rent sharing agreement for the use of 1,300 square feet with a company controlled by the Company’s CFO. The Company has agreed to pay $750 per month for the space. As of October 1, 2015, the Company terminated the rent sharing agreement.
Rent expense for the years ended December 31, 2015 and 2014, was $8,200 and $6,750, respectively.
Other Agreements
Our business agreements consist primarily of banking ISO agreements and technology licensing agreements. Banking agreements are typically agreements with merchant banks which provide all direct relationships with the credit card issuing banks, PCI compliant gateways for our merchant processing clients and administrative functions. These agreements typically involve a split of the fees received between the banks and the Company based on interchange rate, agent commissions, or a fixed fee per transaction. Licensing agreements are infrastructure in nature and establish the connection to the end user that enables the Company to deliver and collect payment for the transacted media content or service application. Licensing agreements typically involve a split of the fees received between the technology provider, carriers and the Company.
On August 1, 2012 the Company entered into a series of agreements with Payventures, LLC (“PV”) and Payventures Tech, LLC (“PVTECH”). PV operates a business of promoting merchant services offered by certain banks, including credit and debit card transaction processing and network services (“Merchant Services”) to merchants. Pursuant to an Assignment Agreement (“PAA”) between PV and the Company PV assigned fifty percent (50%) of PV’s rights to receive residual payments from certain Assigned Customer(s), in exchange for five hundred thousand (500,000) shares of the Company’s restricted common stock. The term of the Assignment Agreement commences on the Effective Date and shall continue for a period of one (1) year after which it shall renew for successive one year terms automatically, unless terminated in accordance with the terms thereof. Either party has the right to terminate this Agreement at the end of the then current Term, upon thirty (30) days prior written notice to the other party. PV may terminate this Agreement at any time on thirty (30) days written notice to the Company provided however, that if such termination is without default or other material cause by the Company, then PV shall continue to pay the referral fees contemplated therein despite such termination, subject to the other provisions thereof that survive termination. In addition, PV may terminate the assignment of the Assigned Customer, and any obligation to pay the share of the Assigned Customer residual to the Company, upon thirty (30) days prior notice to the Company. PV may terminate the assignment of the Assigned Customer and substitute one or more comparable Assigned Customers upon thirty (30) days prior notice to the Company. PV shall not be required to replace an Assigned Customer if such Assigned Customer terminates its merchant account with PV.
Effective October 1, 2012, PV and the Company entered into the First Amendment to Assignment Agreement (the “Amendment”). The Amendment replaces the assignment to the Company of 50% of PV’s residuals from the initial Assigned Customer to the assignment of 30% of PV’s residual payments received from a newly Assigned Customer, and such account shall henceforth be the Assigned Customer under the Assignment Agreement. Subsequently, on May 1, 2013 and May 1, 2014, the parties entered into amendments to change the assigned customer.
PV and the Company also entered into a Consulting Agreement, whereby PV will provide services to the Company, including; coordination of mobile messaging services, customer contact, customer assistance services and merchant acquisition and processing services. PV will be compensated at their standard hourly rate for such services. The term of the Consulting Agreement commences on the Effective Date and shall continue for a period of one (1) year, after which it shall renew for successive one year terms automatically, unless terminated in accordance with the terms thereof. Either Party hereto has the right to terminate the Consulting Agreement at any time on thirty (30) days written notice.
Also on August 1, 2012, PV and the Company executed an Agent Referral Agreement, whereby PV will compensate the Company for any customer referred to PV by the Company that subsequently utilizes PV’s Merchant Services. The term of the Agent Referral Agreement is for two years and automatically renews for each year thereafter (the “Term”) unless 60 days prior written notice is given by either party.
PVTECH and the Company entered into a Hosted Platform License & Services Agreement (“HPLSA”) whereby PVTECH will provide the Company access to their hosted ecommerce and processing platform products, as well as related services and support. Pursuant to the terms of the agreement, the Company will pay PVTECH a monthly licensing fee of $2,500 and a transaction fee of $0.07 per transaction, that beginning in April 2013, has a minimum transaction fee of $2,500 per month. The term of the HPSLA shall be for one (1) year, with automatic renewals for successive one (1) year terms thereafter (each a "Renewal Term") until either party gives written notice to terminate the HPLSA no less than three (3) calendar months prior to the commencement of a Renewal Term. Either party may terminate the HPLSA: (a) upon a material breach by the other party if such breach is not cured within thirty (30) days following written notice to the breaching party; or (b) where the other party is subject to a filed bankruptcy petition or formal insolvency proceeding that is not dismissed within thirty (30) days. On June 29, 2015, the Company received notice that PV would like to review the above agreements with the Company and until such review, they have suspended making payments to the Company under the PAA. The last month that the Company has recorded and received payments under the PAA was April 2015. Accordingly the Company has recorded, as part of cost of sales, the following amounts for the years ended December 31, 2015 and 2014:
During the year ended December 31, 2014, the Company contracted to use Trumpia’s business to consumer mobile marketing platform that integrates SMS and application technologies (apps). Trumpia’s platform integrates marketing automation, SMS marketing, mobile apps, mobile coupons and other customer engagement tools. Trumpia software hones messaging by filtering contacts based on criteria like personal interests, location and purchasing and click-through choices. The Company pays $2,100 annually for the platform.
Note 12 - Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As of December 31, 2015, the Company had an accumulated deficit of approximately $2,065,372 and a working capital deficit of $712,947. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Management’s Plans
On February 29, 2016, 800 Commerce entered into a Securities Exchange Agreement (the “Agreement”) with an unrelated third party, Petrogres Co. Limited (“Petrogres”), a Marshall Islands corporation, and its sole shareholder. The Company acquired 100% of Petrogres and its affiliated companies, all as more particularly described in the Agreement. Petrogres and its’ subsidiaries is an oil trading and shipping company acting internationally and has been in business for seven (7) years.
Since the acquisition of Petrogres on February 29, 2016, the Company’s principal sources of cash are net cash provided by operating activities, which includes the sale and shipment of petroleum products. Our need for capital resources is driven by our expansion plans, ongoing maintenance of our vessels and support of our operational expenses and corporate overhead and infrastructure. Based on our current plan, we believe our expected cash flows from operations, will be sufficient to finance our present activities and capital expenditures for at least the next ten months. Our intention to expand our operations or increase the oil sales or to go into new projects-operations will be subject to extra financing support through individual sources.
Note 13 - Subsequent Events
On February 29, 2016, 800 Commerce entered into a Securities Exchange Agreement (the “Agreement”) with an unrelated third party, Petrogres Co. Limited (“Petrogres”), a Marshall Islands corporation, and its sole shareholder. The Company acquired 100% of Petrogres and its affiliated companies, all as more particularly described in the Agreement. As consideration for the acquisition of Petrogres, the Company issued 136,000,000 shares of its common stock, in restricted form, representing 85% of the issued and outstanding shares of the Company’s common stock at closing of the transaction.
Petrogres and its’ subsidiaries is an oil trading and shipping company acting internationally and has been in business for seven (7) years.
As part of the transaction, the sole shareholder and CEO of Petrogres, Christos Traios, was appointed to the Board of Directors and B. Michael Friedman resigned as an officer and director. In addition, the Company’s Board of Directors (the “Board”) approved an amendment to the Company’s Articles of Incorporation, increasing the authorized capital to 490,000,000 shares of common stock, par value $0.001 and 10,000,000 shares of preferred stock, par value $0.001.
On March 9, 2016, the Company’s Board approved an amendment to the Company’s Articles of Incorporation to change the name of the Corporation to Petrogress, Inc. The Company filed the Amendment with the State of Florida on March 10, 2016, and requested an effective date of March 25, 2016, which was granted. On March 10, 2016, the Company submitted an Issuer Company Related Action Notification to the Financial Industry Regulatory Authority (“FINRA”), requested a FINRA to notify the OTC Marketplace of the Company’s name change and also requested a new symbol. FINRA approved the name change effective April 1, 2016.