SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the quarterly period ended: September 30, 2016March 31, 2017

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 333-184459

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

(Do not check if a smaller reporting company)Smaller reporting company ☑Emerging growth company ☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The number of shares outstanding of registrant’s $0.001 par value Common Stock, as of February 17,May 19, 2017 was 166,795,087166,795,807 shares.

PETROGRESS, INC.

FORM 10-Q

Quarterly Period Ended September 30, 2016March 31, 2017

INDEX

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this quarterly report on Form 10-Q. Additionally, statements concerning future matters are forward-looking statements.

Although forward-looking statements in this quarterly report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the fiscal year ended December 31, 2015,2016, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this quarterly report on Form 10-Q and in other reports that we file with the Securities and Exchange Commission (the “SEC”). You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this quarterly report on Form 10-Q.

We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with, or furnish to, the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this quarterly report on Form 10-Q, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

PETROGRESS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 1 -Organization

Overview

Petrogress, Inc. (the “Company” or “Petrogress”) wasoperates a fully integrated oil commodity business, including upstream, midstream and downstream operations, primarily serving West African and Mediterranean countries. The Company operates primarily as a holding company and provides its services through three wholly-owned subsidiaries: Petrogres Co. Limited, which provides management of crude oil purchases and sales; Petronav Carriers LLC, which manages day-to-day operations of the tanker fleet currently consisting of four vessels; and Petrogress Oil & Gas Energy Inc., which is primarily focused on purchasing interests in oil fields in Texas and exporting liquefied natural gas.

Corporate History

We were originally formedincorporated in the State of Florida on February 10, 2010 under the name 800 Commerce, Inc. (“800 Commerce”) 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. Effective March 25, 2016, we changed our name from 800 Commerce, Inc. to Petrogress, Inc. and effective November 30, 2016, we changed our state of domicile from the State of Florida to the State of Delaware.

Securities Exchange Agreement

On February 29, 2016, 800 Commercewe entered into a Securities Exchange Agreement (the “SEA”) with an unrelated third party, Petrogres Co. Limited, (“Petrogres”), a Marshall Islands corporation (“Petrogres”), and its sole shareholder. ThePursuant to the terms of the SEA, the Company acquired 100% of Petrogres and its affiliated companies. As consideration for the acquisition of Petrogres,In exchange, the Company issued to the sole shareholder of Petrogres 136,000,000 shares of itsrestricted common stock, in restricted form, representing 85% of the issued and outstanding shares of the Company’s common stock at the closing of the transaction. The SEA has been accounted for as a reverse acquisition and recapitalization of the Company whereby Petrogres is deemed to be the accounting acquirer (legal acquiree) and the Company to be the accounting acquiree (legal acquirer).  The accompanying consolidated financial statements are in substance those of Petrogres and its subsidiaries, with the assets and liabilities, and revenues and expenses, of the Company being included effective from the date of stock exchange transaction.  The Company is deemed to be a continuation of the business of Petrogres and its subsidiaries.  Accordingly, the financial position, results of operations, and cash flows of the Petrogres (accounting acquirer) for all periods presented as if the recapitalization had occurred at the beginning of the earliest period presented and the operations of the accounting acquiree from the date of stock exchange transaction.

As part of the transaction, the sole shareholder and CEOchief executive officer (“CEO”) of Petrogres, Christos Traios, was appointed toas CEO and as a director of the Board of DirectorsCompany 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 per share, and 10,000,000 shares of preferred stock, par value $0.001.$0.001 per share.

On March 9, 2016, the Company’s Board approved an amendment to the Company’s Articles of Incorporation to change the nameThe SEA has been accounted for as a reverse acquisition and recapitalization of the CorporationCompany whereby Petrogres effectively became a public company, which has allowed us to increase our operational efficiency and continue to expand our operations. As a result of this transaction, we acquired both the assets and operations of Petrogres and its wholly-owned subsidiaries.

Description of Business

We operate primarily as a holding company for our three wholly-owned subsidiaries: Petrogres, Co. Limited; Petronav Carriers LLC; and Petrogress Oil & Gas Energy, Inc.

Petrogres and its’ subsidiaries business operations includes purchasing, atCo. Limited, a Marshall Islands corporation (“Petrogres”), was incorporated in 2009 with the scenepurpose of mining and extraction,supplying crude oil productand other oil products in West Africa.

Petrogres operates as an international merchant of petroleum products specializing in crude oil and refined products trade within West African and Mediterranean countries, with a focus on the supply and trade of light petroleum fuel oil (“LPFO”), refined oil products and other petrochemical commodities to be loaded onto company ships for transport of product either directlylocal refineries in Ghana. Such products are shipped and delivered to customers or to independent processingthese refineries by its four beneficially-owned affiliated vessels.

Petronav Carriers LLC, a Delaware corporation (“Petronav”), was incorporated in March 2016 with the company acting internationally as it has beenpurpose of managing the day-to-day operations of its four vessels, which are used to transport the Company’s petroleum products within various countries in businessWest Africa. Petronav is currently exploring opportunities to expand its operations by identifying and acquiring additional vessels to expand its tanker fleet under management.

Petrogress Oil & Gas Energy Inc., a Texas corporation(“Petrogress Energy”), was incorporated in December 2015 and is focused on identifying and acquiring suitable interests in oil fields in Texas to allow for seven (7) years.the Company’s expansion of its operations to include oil refinery production based within the United States and to export liquefied natural gas (“LNG”) to Mediterranean markets.

Note 2 -Summary of Significant Accounting Policies

Basis of Presentation

These interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.

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.

Accounts Receivable

The Company and its affiliates are engaged primarily in the purchase, transport and processing of oil and petroleum products. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade accounts receivables. The Company places its temporary cash investments with financial institutions and limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables are limited due to the short payment terms dictated by the industry and operating environment. See Note 4 forAs of March 31, 2017 and December 31, 2016, the Company had no significant concentrations of credit risk as of September 30, 2016 and December 31, 2015.risk.

Inventory

The Company's inventory, which consists primarily of crude oil purchases on the vessel in transport, is valued at the lower of cost or market using the mark-to-market method of valuation.

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

Fixed assets consisted of the following as of September 30, 2016March 31, 2017 and December 31, 2015:2016:

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:

Depreciation expense of $170,882$173,568 and $165,875$165,907 was recorded for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively. Depreciation expense of $505,759 and $497,625$676,328 was recorded for the nine monthsyear ended September 30, 2016 and 2015, respectively.December 31, 2016.

Revenue Recognition

The Company recognizes revenues after product is delivered to contracted customer. Product in transit at the end of an accounting period is recorded at an estimated value which is adjusted upon load certification. 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

Pursuant to ASC 820, Fair value measurements are determined underValue Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a three-level hierarchy for fair value measurements that prioritizeshierarchy based on the level of independent, objective evidence surrounding the inputs to valuation techniques used to measure fair value, distinguishing between market participant assumptions developed based on market data obtained from sources independent ofvalue. A financial instrument’s categorization within 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 priorityhierarchy 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 onupon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

The three hierarchy levels are defined as follows:

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'sCompany’s financial instruments consist primarilyprincipally of cash, accounts receivable, inventory, marketable securities, accounts payable and accrued expenses and convertible debt. The carrying amount of the Company’s accounts payable approximate fair value toof which is determined based on “Level 1” inputs. “Level 1” inputs consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their short term. Marketable securities arecurrent fair values because of their nature and respective maturity dates or durations.

The Company’s derivative liability resulting from the issuance of convertible debt is adjusted to fair value each balance sheet date, based on quoted prices;recent sales of the underlying common stock and the use of an option pricing model, which are considered level 1 inputs (seeconsistent with “Level 3” inputs. See Note 6). 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.6.

The following table represents the Company’s financial instruments that are measured at fair value on a recurring basis as of September 30, 2016March 31, 2017 for each fair value hierarchy level:

The carrying amount of the Company’s accounts payable 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 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 periods ended September 30, 2016March 31, 2017 includes the Company’s outstanding convertible debt that is convertible into approximately 3,457,551 shares of common stock.

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

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 three and nine months ended September 30,March 31, 2017 and 2016, and 2015 and the accounts receivable balance as of September 30, 2016:

The concentration of credit risk per the table about is 73% of total accounts receivable as of September 30, 2016.March 31, 2017:

Note 5 -Convertible Notes Payable

Effective with the SEA, PetrogresPetrogress assumed and acquired two convertible promissory notes that were issued to Mammoth Corporation (“Mammoth”). Mammoth Note 1 had a balance of $31,339 and Mammoth Note 2 had a balance of $38,280. Mammoth Note 1 and Mammoth Note 2 are referred to as the Mammoth Notes. The Mammoth Notes became due on September 9, 2016.

The Company determined that the conversion feature of the Mammoth Notes represent an embedded derivative since the Notes are convertible into a variable number of shares upon conversion. Accordingly, the Mammoth 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 Mammoth Notes resulted in a debt discount of $48,975 on the date the Mammoth Notes were assumed and a derivative liability of $300,321.

A summary of the derivative liability balance of the Mammoth Notes as of September 30, 2016March 31, 2017 is as follows:

The fair value at the assumption and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of September 30, 2016:March 31, 2017:

A summary of the convertible notes payable balance as of September 30, 2016March 31, 2017 is as follows:

Note 6 -Related Party Transactions

Prepaid expensesDue from Related Parties

As of September 30, 2016, our wholly owned subsidiary advanced $395,009 to our CEO.

March 31, 2017, accounts receivable due from related parties was $766,966.

Due to Stockholders

Officer’s compensation

For the three and nine months ended September 30,March 31, 2017 and 2016, and 2015, the Company recorded expenses to its’ officers the following amounts, included in Administration Costs in the statements of operations, included herein:officers’ compensation as follows:

The CompanyAs of March 31, 2017, the company has accrued $70,000 (included in Due to Officer on the balance sheet presented herein) of officer’s compensation during the three months ended September 30, 2016,$100,000 in recognition of agreeing to compensate the Company’s CEO $10,000 per month retroactive to March 1, 2016.

Officer’s advances

During the ninethree months ended September 30, 2016, ourMarch 31, 2017, the CEO advanced the Company $104,100 and was repaid $37,500.$78,500. As of September 30, 2016,March 31, 2017 the Company owed the CEO $66,600 (included$208,500.

Intercompany transactions

All intercompany accounts and transactions have been eliminated in Due to Officer on the balance sheet presented herein).consolidation.

Note 7 -Stockholders’ Equity

Common Stock

Effective February 29, 2016, the Company issued 1,101,642 shares of the Company’s common stock to Agritek Holdings, Inc. pursuant to a Debt Settlement Agreement in full settlement of the amount owed to Agritek of $283,547.

Upon completion of the SEA between the Company and Petrogres, the Company issued to the sole Petrogres shareholder 136,000,000 shares of common stock of the Company in exchange for one hundred percent (100%) of the issued and outstanding share capital of Petrogres from the sole shareholder of Petrogres.

On March 7, 2016, the Company issued 1,000,000 shares of common stock to Mammoth upon the conversion of $2,700 of principal at a conversion price of $0.0027 per share.

On April 11, 2016, the Company issued 6,800,000 shares of common stock to Mammoth upon the conversion of $22,032 of principal at a conversion price of $0.00324 per share.

Note 8 -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 September 30,December 31, 2016.

Note 9 -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.

OtherLease Agreements

Petrogres leases office space in Piraeus, Greece for monthly rent of €2,500 (approximately $2,783 USD). The amended lease expires on May 31, 2018. The Company believes that this office space is adequate for its operations at the present time.

Effective June 13, 2016, the Company entered into a thirteen (13) month lease for a corporate apartment in New York City, to be used by the Company’s CEO during his travel to New York. Mr. Traios spends approximately 35% of his time in New York on business matters. The monthly rental is for $4,575 through July 12, 2017.

Effective October 1, 2016, the Company entered into a one year Office Services Agreement for office space and other services for a total base monthly fee of $2,800. The Company utilizes the New York office space for administrative purposes.

Future rent payments based on the terms for the Company’s leases are as follows:

Note 10 –Subsequent Events

None.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, except as may be required under applicable law.

The following discussion and analysis of theour financial condition and results of operations and financial condition of Petrogres for the three and nine months ended September 30, 2016 and 2015, should be read in conjunction Petrogres’s auditedwith the financial statements and the notes to those financial statements that arethereto included in the Company’s Current Report on Form 8-K/Amendment No 3 filed with the SEC on February 1, 2017. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections on the Company’s Form 10-K filed with the SEC on April 19, 2016. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.elsewhere herein.

Overview

Petrogress through its wholly owned subsidiaries operates as an oil commodity integrate company in West Africa. The Company 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. 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, The Company has earned a reputation for reliably marketing and moving petroleum products primarily in West Africa.

Three and Nine Months Ended September 30, 2016March 31, 2017 Compared to the Three and Nine Months Ended September 30, 2015March 31, 2016

Net Sales

Net sales for the three months ended September 30,March 31, 2017 and 2016 were $4,019,113 and 2015 were $3,939,605 and $4,230,069,$5,819,056, respectively, a decrease of $290,464$1,799,943 or approximately 6.9%. Net sales for the nine months ended September 30, 2016 and 2015 were $15,086,277 and $15,483,100, a decrease of $396,893 or approximately 2.6%,31.0% and were comprised of the following:

Cost of Sales

Cost of goods sold for the three months ended September 30,March 31, 2017 and 2016 were $2,274,585 and 2015 were $2,750,425 and $3,146,885,$4,206,536, respectively, a decrease of $396,460,$1,931,951, or approximately 12.6%. Cost of goods sold for the nine months ended September 30, 2016 were $10,687,597 and $11,184,894, respectively, a decrease of $497,297 or approximately 4.5%,46.0% and were comprised of the following:

Operating Expenses

Total operating expenses for the three months ended September 30,March 31, 2017 and 2016 were $1,492,789 and 2015 were $1,452,756 and $1,262,966,$1,220,283, respectively, an increase of $189,790,$272,506, or approximately 15%22.0%. The increase in operating expenses is primarily due to increased administrative, US travel, legal and accounting expenses, of in the aggregate of approximately $278,000 for the three months ended September 30, 2016, as a result of the merger transaction.due to company expansion. This increase was offset by lower fleet operating expenses due to the decrease in of shipment of barrels from approximately 371,400 in the 2015 period to 217,60080,359 in the 2016 period to 49,575 in the 2017 period.

Total operating expenses for the nine months ended September 30, 2016 and 2015 were $3,878,235 and $3,433,956, respectively, an increase of $444,279, or approximately 12.9%. The increase in operating expenses is primarily due to increased administrative, US travel, legal and accounting expenses of in the aggregate of approximately $390,000 as a result of the merger transaction.

Net Income (loss)

Net lossincome for the three months ended September 30, 2016March 31, 2017 was $252,002$252,844 compared to $198,182$464,053 for the three months ended September 30, 2015March 31, 2016 as a result of the increase in operating expenses being greater than the increase in gross profit the Company generated. Net income for the nine month periods ended September 30, 2016 and 2015 was $577,385 and $775,350, respectively, as a result of the items discussed above.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Our net income has been sufficient to meet our working capital requirements for the level of business we are currently experiencing.

Cash provided by operating activities was $515,567$267,534 for the ninethree months ended September 30, 2016March 31, 2017 compared to cash used inprovided by operations of $196,321$648,286 for the ninethree months ended September 30, 2015.March 31, 2016. The 2017 activity was a result of net income of $252,844, depreciation expense of $173,568, and net changes in assets and liabilities of $(158,878). The 2016 activity was a result of net income of $577,385,$464,053 and depreciation expenseand amortization of $505,759, decreases of $149,514 in the fair value of derivative liabilities$165,907, and net changes in assets and liabilities of $467,554. The 2015 activity was a result of net income of $775,350 and depreciation and amortization of $497,625$22,624 reduced by changesa gain in assets and liabilitiesthe change in the fair value of $1,469,296.derivative liabilities.

Prior to the execution of the SEA (February 29, 2016), the Company paid a dividend to the sole shareholder (at the time of the payment) of $1,800,000.

For the ninethree months ended September 30, 2016,March 31, 2017, cash and cash equivalents decreasedincreased by $1,742,588$267,534 compared to a decrease of $196,321$1,334,054 for the ninethree months ended September 30, 2015.March 31, 2016. Ending cash and cash equivalents at September 30, 2016March 31, 2017 was $139,717$629,115 compared to $330,335$548,251 at September 30, 2015.March 31, 2016.

We are not aware of any known trends or any known demands, commitments or events that will result in our liquidity increasing or decreasing in any material way. We are not aware of any matters that would have an impact on future operations.

Our liquidity may be negatively impacted by the significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly.

Off-Balance Sheet Arrangements

None.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires our management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements.

Basis of Presentation

These interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period. The financial statements included herein include the financial position and results of operations of the following affiliated entities (all incorporated in the Republic of the Marshall Islands):

Petrogres Co Ltd.

Petronav LLC

Shiba Ship Management Ltd.

Danae Marine Ltd.

Invictus Marine S. A.

Entus Marine Ltd.

All intercompany balances and transactions have been eliminated in consolidation. The entities are affiliated through common ownership and control.

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 and its affiliates are engaged primarily in the purchase, transport and processing petroleum products. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade accounts receivables. The Company places its temporary cash investments with financial institutions and limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables are limited due to the short payment terms dictated by the industry and operating environment. As of September 30, 2016, three customers accounted for $1,849,690, or 73% of accounts receivable.

Inventory

The Company's inventory, which consists primarily of crude oil purchases on the vessel in transport, is valued at the lower of cost or market using the mark-to-market method of valuation.

Property and Equipment

Fixed assets consisted of the following as of September 30, 2016 and December 31, 2015:

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:

Depreciation expense of $505,759 and $497,625 was recorded for the nine months ended September 30, 2016 and 2015, respectively.

Revenue Recognition

The Company recognizes revenues when product is delivered to contracted customers. Product in transit at the end of an accounting period is recorded at an estimated value which is adjusted upon load certification. 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.

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, inventory, marketable securities, accounts payable and accrued expenses and convertible debt. The carrying amount of the Company’s accounts payable 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 September 30, 2016 the Company’s marketable securities were $1,860. 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 September 30, 2016 for each fair value hierarchy level:

The carrying amount of the Company’s accounts payable approximate fair value to their short term.

Earnings Per Share

The Company reports earnings per share in accordance with ASC 260, "Earnings per Share." Basic earnings per share is computed by dividing net income, 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 periods ended September 30, 2016 includes the Company’s outstanding convertible debt that is convertible into approximately 3,457,551 shares of common stock.

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.

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, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Significant matters requiring the use of estimates and assumptions include, but may not be limited to, accounts receivable allowances and evaluation of impairment of long lived assets and intangible assets. Management believes that its estimates and assumptions are reasonable, based on information that is available at the time they are made.

Depreciation

The Company’s vessels and other assets are depreciated using primarily the straight-line method over the estimated useful lives.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable torequired for smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated to allow our management to make timely decisions regarding required disclosure. Our President, who serves as our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and he determined that our disclosure controls and procedures were not effective as of September 30, 2016March 31, 2017 due to a control deficiency. During the period we did not have additional personnel to allow segregation of duties to ensure the completeness or accuracy of our information. Due to the size and operations of the Company, we are unable to remediate this deficiency until we acquire or merge with another company.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 of the Exchange Act that occurred during the quarter ended September 30, 2016March 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II.Other Information

Item 1. Legal Proceedings

We are not a party to any material litigation, nor, to the knowledge of management, is any litigation threatened against us that may materially affect us.

Item 1A. Risk Factors

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Act of 1934 and are not required to provide the information under this item.

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

None

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.None

Item 6. Exhibits

* Previously filed.

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of this quarterly report on Form 10-Q 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.

Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: FebruaryMay 22, 2017

PETROGRESS, INC.

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