Brooge Energy (BROG) - 2023 Q4 - Annual Report

Financial Obligations and Risks - BPGIC's obligations under the Bond Financing Facility are secured by substantially all of its assets, and failure to comply with covenants may lead to foreclosure on these assets [136]. - The Company may face challenges in securing external financing due to market conditions and its financial health, which could hinder growth [152]. - The Group's capital structure is monitored using a gearing ratio, which includes lease liabilities, borrowings, and accrued interest [683]. - The Group's exposure to credit risk is primarily related to bank balances and receivables, with maximum exposure equal to the carrying amount of these instruments [685]. - As of December 31, 2023, the Group is in technical breach of certain covenants under Bond Terms, which could lead to immediate repayment demands from lenders [692]. - The Group has not defaulted on any payments since the Bond issuance, despite being in technical breach of covenants [694]. Operational Costs and Profit Margins - BPGIC's fixed costs for operations are expected to be covered by fixed storage fees, but profit margins may decrease if costs rise without corresponding fee increases [138]. - Increased wage costs in the oil storage industry could negatively impact BPGIC's profit margins if not offset by higher service fees [139]. - BPGIC's fixed costs for future phases are expected to remain stable, but any significant changes in costs could affect profit margins [142]. - The Company is subject to higher costs associated with being a public entity, which may impact its financial performance and operational efficiency [156]. Legal and Regulatory Issues - A class action complaint was filed against Brooge Energy Limited regarding revenue recognition, which could adversely impact the company's business and financial results [165]. - The enforcement of foreign judgments in the Cayman Islands may be limited, affecting the ability to enforce U.S. court judgments against the company [172]. - Changes in the UAE legal and regulatory environment could materially impact the Group's business and financial condition [223]. Corporate Governance and Shareholder Rights - The company's corporate governance practices differ from U.S. standards, potentially providing less protection to shareholders [182]. - The controlling shareholder has substantial influence over the company, and their interests may not align with those of other shareholders [192]. - The concentration of ownership by BPGIC Holdings may discourage changes in control that could benefit other shareholders [194]. - The company's Amended and Restated Memorandum and Articles of Association contain provisions that may inhibit takeovers, potentially limiting shareholder rights [180]. Environmental and Climate Risks - The Group is exposed to physical risks associated with climate change, including extreme weather events that could damage facilities and disrupt operations [209]. - Compliance with environmental, health, and safety regulations may incur significant costs and liabilities for the Group [211]. - The Group has developed strategies to manage transition risks related to climate change, including diversifying its business to support energy transition projects [209]. - The Group's insurance may not be sufficient to cover all potential costs associated with operational disruptions or environmental liabilities [212]. Financial Performance and Future Outlook - The Company plans significant capital investments for future expansions, including Phase III and the Green Hydrogen and Green Ammonia Project, which may require substantial funding [149]. - The UAE Corporate Tax Law will impose a standard rate of 9% on taxable income exceeding AED 375,000 starting from January 1, 2024, which may adversely affect the Group's financial condition [220]. - The Group's operations are currently tied to the US dollar, and any adjustment or removal of the fixed exchange rate with the UAE dirham could materially impact its financial results [221]. - Fluctuations in energy prices are crucial for economic growth in the UAE, and a decline in economic performance could adversely impact the Group's financial condition [196]. - The Group's activities expose it to price risk due to the volatility of Warrants, which are publicly traded on the Nasdaq Capital Market [679]. Internal Controls and Management Changes - As of December 31, 2023, the company concluded that its disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting [695]. - Material weaknesses identified include insufficient controls over the financial reporting process and the absence of an audit committee [698]. - Management has engaged an external adviser to audit internal controls and has established an Audit Committee to address these weaknesses [699]. - The company appointed a new management team in 2023 and 2024 to oversee the upgrading and improvement of internal controls over financial reporting [701]. - The material weaknesses will not be considered remediated until controls operate effectively for a sufficient period and management confirms their effectiveness through testing [700].